<SUBMISSION>
<ACCESSION-NUMBER>0000887150-04-000004
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>12
<PERIOD>20031231
<FILING-DATE>20040330
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>HAMPSHIRE GROUP LTD
<CIK>0000887150
<ASSIGNED-SIC>2253
<IRS-NUMBER>060967107
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>000-20201
<FILM-NUMBER>04698785
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>215 COMMERCE BLVD
<STREET2>PO BOX 2667
<CITY>ANDERSON
<STATE>SC
<ZIP>29625
<PHONE>8642256232
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>215 COMMERCE BLVD
<STREET2>PO BOX 2667
<CITY>ANDERSON
<STATE>SC
<ZIP>29625
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>tenkdec03.txt
<DESCRIPTION>MAIN BODY 10-K
<TEXT>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934. For the fiscal year ended December 31, 2003.
                                       or

[ ] Transition report pursuant to section 13 or 15(d) of the Securities
    exchange Act of 1934.   For the transition period from _______ to________.

                          Commission File No. 000-20201

                            HAMPSHIRE GROUP, LIMITED
              ----------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

             DELAWARE                              06-0967107
        ----------------------         ----------------------------------
       (State of Incorporation)       (I.R.S. Employer Identification No.)


                             215 COMMERCE BOULEVARD
                       ANDERSON, SOUTH CAROLINA 29625-1303
    ------------------------------------------------------------------------
   (Address, Including Zip Code, of Registrant's Principal Executive Offices)

     (Registrant's Telephone Number, Including Area Code ) (864) 225-6232.

Securities registered pursuant to Section 12(b) of the Act: (Title of class)
None.

Securities registered pursuant to Section 12(g) of the Act: (Title of class)
Common Stock, $0.10 Par Value.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of the Registrant's Common Stock held by non-
affiliates based on the closing price of $30.11 on the last business day of the
second fiscal quarter (June 27, 2003), was approximately $72,000,000. Shares of
Common Stock held, directly or indirectly, by each director and executive
officer of the Company have been excluded in that such persons are deemed to be
affiliates.

As of March 22, 2004, the Registrant had outstanding 4,081,971 shares of Common
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's Definitive Proxy Statement, relative to its
2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
<PAGE>
                            HAMPSHIRE GROUP, LIMITED
                               2003 ANNUAL REPORT
                                Table of Contents
                                                                          Page
                                                                          ----
Part I
     Item 1.   Business                                                     3
     Item 2.   Properties                                                   7
     Item 3.   Legal Proceedings                                            7
     Item 4.   Submission of Matters to a Vote of Security Holders          7

Part II
     Item 5.   Market for Registrant's Common Equity and
                 Related Stockholder Matters                                8
     Item 6.   Selected Financial Data                                      8
     Item 7.   Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                       10
     Item 7A.  Quantitative and Qualitative Disclosures About Market Risk  20
     Item 8.   Financial Statements and Supplementary Data                 20
     Item 9.   Changes in and Disagreements With Accountants on
                 Accounting and Financial Disclosure                       20
     Item 9A.  Controls and Procedures                                     20

Part III
     Item 10.  Directors and Executive Officers of the Registrant          21
     Item 11.  Executive Compensation                                      21
     Item 12.  Security Ownership of Certain Beneficial Owners and
                 Management and Related Stockholder Matters                21
     Item 13.  Certain Relationships and Related Transactions              21
     Item 14.  Principal Accountant Fees and Services                      21

Part IV
     Item 15.  Exhibits, Financial Statement Schedule
                 and Reports on Form 8-K                                   22

Signature Page                                                             24

Certifications                                                             25

Independent Auditors' Report                                              F-2

Consolidated Financial Statements                                         F-3

Notes to Consolidated Financial Statements                                F-7

Quarterly Financial Data                                                 F-23

Financial Statement Schedule                                             F-24

                                        2
<PAGE>
                                     PART I

ITEM 1 - BUSINESS

GENERAL
-------
Hampshire Group, Limited ("Hampshire Group" or the "Company"), a Delaware
corporation, is an apparel company that operates through its wholly-owned
subsidiaries Hampshire Designers, Inc. ("Hampshire Designers") and Item-Eyes,
Inc. ("Item-Eyes"). Hampshire Designers is the largest designer and marketer of
sweaters in North America and Item-Eyes is a leading designer and marketer of
related separates. Both Hampshire Designers and Item-Eyes source the manufacture
of their products through an international network of quality manufacturers.

Hampshire Group, through a predecessor firm, has been engaged in the design,
manufacture (until the sale of all manufacturing facilities in 2000), and
marketing of sweaters since 1956. Item-Eyes has been engaged in the apparel
business since 1978.

On October 8, 2003, the Company disposed of its investment subsidiary, Hampshire
Investments, Limited ("HIL") after the Board of Directors (the "Board")
determined that the Company should concentrate on the apparel business. The
transaction was handled by a special committee of the Board, consisting solely
of independent directors, because Ludwig Kuttner, Chairman and Chief Executive
Officer, and other members of management of the Company participated as
purchasers of HIL. HIL made investments both domestically and internationally,
principally in real property. (See Item 7 for Discontinued Operations.)

STRENGTHS AND STRATEGY
----------------------
The Company's primary strength is its ability to design, develop, source and
deliver quality products within a given price range, while providing superior
levels of customer service. The Company has developed an international sourcing
abilities to broaden its product lines and to deliver quality merchandise at a
competitive price.

The process for the design and development of the Company's products depends on
whether the product is branded or private-label. In the branded business, the
products first are designed by the Company's experienced design team,
incorporating aspects of the latest fashion trends together with the consistent
appeal of the brand name. These products are further refined in collaboration
with manufacturers, resulting in a high-quality product to meet specified price
levels. For private-label business, the products are designed by the Company for
approval by the retailers under whose brand the products will be marketed.

-------------------------------------------------------------------------------
           Cautionary Disclosure Regarding Forward-Looking Statements

When used in this document in general and in the Outlook Section of Management's
Discussion and Analysis in particular, the words "expects", "anticipates" and
similar expressions are intended to identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company, (including the risks that results from the expiration of quota system
on products entering the US as set forth in "Governmental Regulation and Trade
Agreements" under Item I on page 6 hereof) which attempt to advise interested
parties of the factors that affect the Company's business, in this report, as
well as the Company's other filings under the Securities Exchange Act of 1934.
-------------------------------------------------------------------------------
                                        3
<PAGE>
The quality of the Company's garments is ensured in a variety of ways. Each
garment is manufactured using the finest quality yarns and each must undergo a
rigorous quality assurance program. In some instances, multi-staged inspection
processes, including direct field audits, are performed by Company personnel,
and from time to time by customers' quality control personnel. In international
sourcing, the Company, in addition to its own personnel, utilizes factory
personnel, sourcing agents, inspection agencies and independent test labs to
assure that the products meet our high quality standards and the standards
required by our customers.

The Company's domestic distribution facilities, using the Company's Quick
Response program and an Electronic Data Interchange ("EDI") system, are linked
electronically to most of the Company's customers. All distribution is
coordinated through domestic facilities, including goods sourced from the Far
East, which are distributed primarily through public warehouses strategically
located in California, improving delivery time. By providing just-in-time
delivery of merchandise through the strategically located distribution
facilities in the United States and through sophisticated order fulfillment
techniques, the Company provides an essential service to its customers.

The acquisition of the Item-Eyes business in August 2000 fit within the
Company's long-term strategies of building a more diversified apparel company.
With a broad line of women's woven and knit related separates, the Item-Eyes
acquisition expanded the Company's product lines, moved the Company into new
market areas with its customers, and increased the Company's global sourcing
capabilities through inclusion of a Central America sourcing network.

ORGANIZATION
------------
The Company is an apparel company whose principal products are women's and men's
branded and private-label sweaters and women's woven and knit related separates.
The Company is a major supplier to the moderate-price sector of department
stores and sells to mass merchandisers, specialty retail stores and catalog
companies.

Product Lines
-------------
The Company has significantly expanded its product lines. A decade ago, the
Company's product line was primarily focused on women's full-fashion, Luxelon(R)
(acrylic yarn) sweaters marketed under the Designers Originals label. Although
Designers Originals sweaters remain an important product line, the expanded
product line permits the Company to supply many more departments of the
Company's customers. Through the 1995 acquisition of Segue Limited, the Company
added a business-casual line for women and through the 2000 acquisition of
Item-Eyes, a broad line of woven and knit related separates, including
classic-woven apparel, was added.

A line of men's sweaters has also been developed over the past seven years
through strategic expansion of brand name licensing. Hampshire Brands is
licensed to manufacture and market men's sweaters under the Geoffrey Beene(R),
Dockers(R) and Levi's(R) labels. During 2002 Hampshire Brands created and
introduced two new brands, Spring + Mercer(R) and Mercer Street Studio(TM).
These brands cover the entire range of men's department store offerings, from
middle-of-the-road, "main floor" styles to fashion-forward, designer sweaters
for the "better" departments of our customers.

The Company's product lines are sold by both the Company's sales force and
independent sales representatives with senior management participating in the
presentations to the larger accounts.

Products
--------
Designers Originals sweaters include the Company's traditional product for women
- classically designed, full-fashioned, fine-gauge, Luxelon(R) (acrylic yarn)

                                        4
<PAGE>
sweaters with cashmere feel and look. Designers Originals sweaters also include
a line of fine-gauge, full-fashion, cotton sweaters and a variety of other
novelty sweaters.

Under the Designers Originals Studio label, the Company sells a business-casual
line for women which incorporates woven fabrics in related separates, such as
blouses, pants, skirts and sweaters, in the moderate-price category. The Company
also sells solid and jacquard chenille sweaters and seasonal theme sweaters.

Related sportswear, including blazers, pants, shirts and sweaters, and "soft
dressing", is sold by Item-Eyes under its Requirements(R) and Nouveaux(R) labels
and the private-labels of some of the Company's customers.

With its established international manufacturing sources, the Company has the
ability to respond expediently to market demands.

Customers
---------
The Company has historical relationships with many of its approximately 250
customers, which include most major department stores, mass merchants, specialty
retail stores and catalog companies. Over the past few years the Company's
customer base has decreased due to the consolidation of the retail industry;
however, management does not believes that the number of retail stores serviced
by the Company has decreased.

Competition
-----------
The apparel market remains highly competitive. Competition is primarily based on
product design, price, quality and service. While the Company faces competition
from manufacturers and distributors located in the United States, its primary
competition comes from manufacturers located in Southeast Asia. The Company also
competes for private label programs with the internal sourcing departments of
many of its own customers.

The ability of the Company to compete is enhanced by the strength of its
financial position, significant liquid assets and low debt.

Seasonality
-----------
Although the Company sells apparel throughout the year, the business is highly
seasonal, with approximately 72% of annual net sales occurring during the third
and fourth quarters of fiscal 2003.

Effects of Changing Prices
--------------------------
The Company is subject to the effects of changing prices. It has generally been
able to pass along a majority of inflationary increases in its costs by
increasing the prices for its products.

BACKLOG
-------
The sales order backlog for the Company was approximately $95 million as of
March 1, 2004, compared to approximately $111 million as of March 1, 2003. The
timing of the placement of seasonal orders by customers affects the backlog;
accordingly, a comparison of backlog from year to year is not indicative of a
trend in sales for the year.

TRADEMARKS AND LICENSES
-----------------------
The Company considers its own trademarks to have value in the marketing of its
products. The Company has entered into licensing agreements to manufacture and
market sweaters under certain trademarks for which it pays a royalty fee based

                                        5
<PAGE>
on sales. The licensing agreements are normally for a three-year initial term
with an option to renew, provided the Company achieves a specified sales level
during the term.

ELECTRONIC INFORMATION SYSTEMS
------------------------------
In order to schedule production, fill customer orders, transmit shipment data to
the customers' distribution centers and invoice electronically, the Company has
developed a number of integrated electronic information systems applications.
Approximately 80% of all orders are received electronically. These orders are
generated by the customers' computer systems based on sales and inventory
levels. The Company electronically sends advance ship notices and invoices to
customers, which results in the timely updating of the customers' inventory
systems.

CREDIT AND COLLECTION
---------------------
The Company manages its credit and collection functions by approving and
monitoring the credit lines of its customers. Credit limits are determined by
past payment history and financial information obtained from credit agencies and
other sources. The Company believes that its credit and collection staff has
been a significant factor in minimizing both lost sales and bad debt losses.

CUSTOMERS
---------
For each of the years, 2003, 2002 and 2001, more than 99% of the Company's sales
were to customers located in the United States. Sales outside of the United
States were to customers in Mexico and Canada. The Company had sales to three
major customers (defined as sales in excess of 10% of total sales) during 2003,
J.C. Penney Company, Kohl's Corporation and May Department Stores, which
represented 15%, 14% and 10% of total sales. These same three customers
represented 14%, 11% and 11% of total sales during 2002; and 14%, 11% and 10% of
total sales during 2001. The Company's five largest customers accounted for
approximately 52% of the Company's consolidated sales in 2003, compared to 49%
in both 2002 and 2001.

EMPLOYEES
---------
As of March 2, 2004, the Company had approximately 206 full-time employees and 4
part-time employees. The Company and its employees are not parties to any
collective bargaining agreements except for 16 hourly employees of Item-Eyes,
Inc., who are represented by Unite Labor Union under an agreement expiring in
August 2004. The Company's relationship with its employees is predicated on open
communications and fairness to all employees. In the opinion of the Company's
management, this method is essential to having a productive relationship with
the employees.

GOVERNMENTAL REGULATION AND TRADE AGREEMENTS
--------------------------------------------
The apparel industry and the Company's business are subject to a wide variety of
international trade agreements as well as federal, state and local regulations.
The Company believes it has operated and intends to continue to operate in
compliance in all material respects with these agreements and regulations.

International trade agreements in particular can have a significant impact on
the apparel industry and the Company. These agreements generally provide for
tariffs, which impose a duty charge on the product being imported, and quotas,
which limit the amount of the product that may be imported, to be placed on
certain products as they move between certain countries. Both raise the total
cost of importing a product. Primary among the many multilateral and bilateral
trade associations and agreements existing between the United States and certain
foreign countries is the World Trade Organization (WTO) which was established in
1995 as the governing body for international trade between the 140 originating
member countries, including the United States. The resulting General Agreement
on Trade and Tariffs (GATT) of 1995 provides a ten year schedule, 1995 - 2004,
for the general reduction of tariffs and the elimination of quotas on products

                                        6
<PAGE>
entering the United States from these WTO countries. The next phase of agreement
among these WTO countries is still being negotiated. Until a new agreement is
reached, the 2005 tariffs will continue to apply.

Beyond the WTO, the United States has entered into several significant trade
agreements, including the North American Free Trade Agreement (NAFTA) in 1993,
which generally has eliminated all apparel tariffs and quotas between Canada,
Mexico and the United States, the Caribbean Basin Initiative (CBI) in 2000,
which generally grants NAFTA-like trade privileges to an additional 23 Caribbean
Basin countries, and the African Growth and Opportunity Act (AGOA) in 2000,
which allows 38 countries in sub-Saharan Africa to qualify for dramatic
reductions in their tariffs and quota restrictions with the United States.

ITEM 2 - PROPERTIES

The Company leases its corporate office and all of its sales offices, showrooms
and distribution center. The Company believes that all of its properties are
well maintained, in good condition and are generally suitable for their intended
use. The Company's principal properties are described in the table below.

                                                      Square         Lease
               Properties                             Footage     Expiration(1)
-------------------------------------------------------------------------------
Administrative Offices - Anderson, South Carolina      10,500       06/30/06

Hampshire Designers
  Sales Office and Showroom - New York, New York       24,000       08/31/11
  Distribution Center - Anderson, South Carolina       57,000       04/30/04(2)

Item-Eyes
  Sales Office and Showroom - New York, New York        6,000       06/30/07
  Operations Center - New York, New York               16,000       06/30/05
  Administrative Offices - Hauppauge, New York          6,000       05/31/05

(1) Assuming the exercise of all options to renew.
(2) Hampshire Designers has transferred the distribution of all products to
    California effective February 2004.
-------------------------------------------------------------------------------

The Company primarily utilizes public warehouses in New Jersey and California to
receive and distribute its merchandise.

ITEM 3 - LEGAL PROCEEDINGS

The Company is from time to time involved in litigation incidental to the
conduct of its business. Management believes that no currently pending
litigation to which the Company is a party will have a material adverse effect
on its consolidated financial condition, results of operations or cash flows.

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

No matters were submitted to a vote of Stockholders during the fourth quarter of
fiscal 2003.




                                        7
<PAGE>
                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is quoted on the Nasdaq Stock Market under the symbol
"HAMP".

The following table sets forth the high and low sales prices of shares of Common
Stock for each of the quarters of 2002 and 2003 as reported by the Nasdaq Stock
Market.
                                                      Common Stock
                                                   High          Low
                                                  --------------------
    Year Ended December 31, 2002:
         First Quarter                            $19.45       $12.10
         Second Quarter                            22.98        16.75
         Third Quarter                             26.50        15.25
         Fourth Quarter                            22.48        16.00

    Year Ended December 31, 2003:
         First Quarter                            $23.00       $19.58
         Second Quarter                            31.09        20.67
         Third Quarter                             33.80        28.02
         Fourth Quarter                            35.50        29.52

As of March 22, 2004, the Company had 36 stockholders of record. The Company
believes there are in excess of 1,000 beneficial owners of its Common Stock.

The Company has not declared or paid dividends with respect to its Common Stock.
The determination to pay dividends will be made by the Board of Directors and
will be dependent upon the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors may deem
relevant. The Company's Senior Notes and Revolving Credit Facility contain
restrictive covenants placing limitations on "restricted payments", which
includes payment of cash dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
in Item 7 hereof.

In April and August 2003, in connection with the Company's Common Stock Benefit
Plans, the Company issued 30,000 shares and 10,000, shares respectively, to meet
the obligations of these Plans. Additional shares required to fund these Plans
were provided from the Company's Treasury stock. During 2002 approximately
14,700 shares were issued to meet the obligations of these Plans.

ITEM 6 - SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
appearing elsewhere in this Annual Report on Form 10-K. The selected
consolidated financial data under the captions "Income Statement Data" and
"Balance Sheet Data" for, and as of the end of, each of the years in the
five-year period ended December 31, 2003, are derived from our audited
consolidated financial statements included in this Annual Report on Form 10-K.
Our historical results are not necessarily indicative of results to be expected
in any future period.

                                        8
<PAGE>
<TABLE>
Selected Consolidated Financial Data
(in thousands, except per share data)
<CAPTION>
Year Ended December 31,                 2003       2002       2001     2000(2)      1999
------------------------------------------------------------------------------------------
<S>                                  <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA (1)
Net sales                            $292,651   $293,268   $261,361   $195,372   $150,394
Cost of goods sold                    218,454    210,336    192,546    155,721    120,748
                                     ----------------------------------------------------
Gross profit                           74,197     82,932     68,815     39,651     29,646
Selling, general and administrative
  expenses                             54,903     51,816     45,482     29,542     23,815
Net loss (gain) on sale of plant and
  equipment and impairment charges (3)    -          -        2,618     (2,308)       285
                                     ----------------------------------------------------
Income from operations                 19,294     31,116     20,715     12,417      5,546
Other income (expense):
  Interest expense                       (909)    (1,359)    (2,563)    (2,687)    (1,453)
  Interest income                         683        420        514      1,201        502
  Other                                   155       (271)      (133)      (205)     1,448
                                     ----------------------------------------------------
Income from continuing operations
  before provision for income taxes    19,223     29,906     18,533     10,726      6,043
Income tax (provision) benefit:
  Current                              (6,821)   (12,525)    (7,700)    (2,113)      (509)
  Deferred                               (979)       664        770        (14)      (337)
                                     ----------------------------------------------------
Income from continuing operations (4)$ 11,423   $ 18,045   $ 11,603   $  8,599   $  5,197
                                     ====================================================

Income per share from      Basic        $2.50      $3.83      $2.49      $2.02      $1.27
  continuing operations:             ====================================================
                           Diluted      $2.43      $3.73      $2.48      $1.98      $1.22
                                     ====================================================
Weighted average number    Basic        4,573      4,711      4,661      4,265      4,100
  of shares outstanding:             ====================================================
                           Diluted      4,696      4,834      4,674       4,341     4,257
                                     ====================================================
-----------------------------------------------------------------------------------------
December 31,                            2003       2002       2001       2000       1999
-----------------------------------------------------------------------------------------
BALANCE SHEET DATA (1)
Cash and cash equivalents            $ 63,292   $ 66,893   $ 28,151   $  9,902    $23,267
Working capital                        87,902     82,626     70,713     60,456     54,340
   Total assets                       133,174    130,051    109,128    102,465     79,097
-------------------------------------====================================================
Long-term liabilities                 $ 8,375   $ 10,158    $13,797    $18,763    $19,664
Total debt (5)                         10,239     12,088     18,167     21,236     20,785
Stockholders' equity                   90,422    108,455     91,153     79,715     67,660
-----------------------------------------------------------------------------------------
Book value per share                   $22.23     $22.97     $19.42     $17.16     $16.44
-------------------------------------====================================================
<FN>
(1)  The financial information previously presented for the years 1999 through 2002 has
     been restated to present Hampshire Investments, Limited as a discontinued operation
     in all periods. Accordingly, the Income Statement Data represents only continuing
     operations and assets and liabilities of the discontinued operations have been excluded
     for the years 1999 through 2002 in the Balance Sheet Data.
(2)  Includes the results of operations of Item-Eyes, Inc. from August 20, 2000, the date of
     acquisition.
(3)  Gains and losses on sale of plant and equipment included herein are related to the sale
     of the Company's manufacturing operations. Gains and losses on sales of plant and
     equipment in the normal course of business are included in selling, general and
     administrative expenses.
(4)  Fiscal years 2001, 2000 and 1999 include goodwill amortization, net of income taxes, of
     $543,000, $546,000 and $415,000, respectively. Effective January 1, 2002, the Company is
     no longer permitted to amortize goodwill as result of adoption of SFAS No. 142. (See Note
     1 to the consolidated financial statements).
(5)  Includes long-term debt, current portion thereof, borrowing under the credit facility,
     related party debt, subordinated notes and deferred compensation.
</FN>
</TABLE>
                                        9
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW
------------------
After the disposal of the investment subsidiary on October 8, 2003, as discussed
below, the only business of the Company is the apparel business. The business is
conducted through two wholly owned subsidiaries - Hampshire Designers, which
primarily designs and sells women's and men's sweaters, and Item-Eyes, which
designs and sells a broad line of women's woven and knit separates. The Company
sells to approximately 250 retail customers, primarily in the United States,
including most major department stores, mass merchants, specialty retail stores
and catalog companies. The Company's three major customers, each representing
more than 10% of sales, are J.C.Penney Company, Kohl's Corporation and May
Department Stores.

The Company outsources the manufacture of its products, principally due to lower
labor costs available through the Company's international sources. Substantially
all of the products sold by the Company, including the products sold by
Item-Eyes, are supplied by international manufacturing sources.

Women's sweaters are marketed under the Company's own labels, Designers
Originals and Designers Originals Studio, licensed labels and private labels of
its customers. The Company historically produced and marketed a classic styled
sweater; however, demand has shifted over the past several years with the
majority of growth occurring in fashion design and embellished sweaters and tops
that can only be sourced internationally due to the extensive hand labor
required to manufacture such garments. Sales of women's sweaters, including
sweaters marketed by Item-Eyes, accounted for approximately 54% of the Company's
net sales in 2003.

Men's sweaters, accounting for approximately 22% of net sales of the Company in
2003, are primarily manufactured through the Company's international sources.
The products are marketed under Company owned labels Spring + Mercer and Mercer
Street Studio and under well known designer's labels including Geoffrey Beene,
Dockers and Levi's. During 2003, the market demand for men's sweaters declined
approximately 13% from 2002. Management believes this decline reflects the
industry-wide conditions which will reverse itself in the future.

Item-Eyes produces only women's products. The trend in product mix for Item-Eyes
over the past three years has been a decrease in the demand for blazers, which
has been offset by an almost equal increase in the sale of sweaters. In 2001
blazers represented approximately 24% of Item-Eyes' net sales while the sweater
category was insignificant. Sales of blazers by Item-Eyes during 2003 decreased
to less than 6% of annual net sales while sweaters accounted for approximately
26% of annual sales. Management believes the demand for blazers will increase as
fashion trends change.

The Company believes its greatest risk is the uncertainty arising from the
scheduled elimination on December 31, 2004 of the quota system established by
the World Trade Organization (see discussion under "Governmental Regulation and
Trade Agreements" above) and the impact that the elimination of the quota system
will have on international trade, particularly the apparel industry. The
uncertainty includes any action that may be taken by the United States
government in the event that the quantity of imported apparel is determined to
be a market disruption in the United States.

The results in 2003 were affected by the highly competitive conditions in the
retail apparel market. In the women's sweater business, both sales and earnings
increased despite strong competition, but reduced gross margins in the men's
sweater business and women's related separates' business resulted in a decline
in earnings. The declining margins were in large part due to increased customer
allowances, enabling customers to markdown products in the competitive market
environment. Customer allowances, including provision for returned product and
other adjustments, increased to 8.8% in 2003 from 7.3% in 2002. Management
analyzed these allowance requests from customers on a case-by-case basis and
grants allowances where deemed important in the long-term interest of the
Company's relationship with its customers. The Company expects pressure on
margins to continue throughout 2004 as apparel retailers continue to recover
from the economic downturn.

                                       10
<PAGE>
DISPOSAL OF INVESTMENT COMPANY IN 2003
--------------------------------------
On October 8, 2003, the Company disposed of its investment subsidiary, Hampshire
Investments, Limited ("HIL") after the Board of Directors (the "Board")
determined that the Company should concentrate on the apparel business. A
special committee of the Board, consisting of independent directors, was
responsible for the disposal of HIL because Ludwig Kuttner, Chairman and Chief
Executive Officer, and other members of management of the Company participated
as purchasers. HIL made investments both domestically and internationally,
principally in real property.

Certain assets of HIL were sold to K Holdings, LLC, a company controlled by Mr.
Kuttner, for a purchase price consisting of 250,000 shares of the Company's
common stock. The Company then exchanged all of the outstanding shares of
capital stock of HIL with an investor group including Mr. Kuttner, Peter
Woodworth, a Director of the Company, and Charles Clayton, Secretary/Treasurer
of the Company, for 450,000 shares of the Company's common stock. Mr. Clayton
subsequently was appointed interim Chief Financial Officer.

The fair market value of the Company's common stock received in the two
transactions was $23,905,000 based on a price of $34.15 per share, as reported
by NASDAQ as of the close of the market on October 7, 2003, the trading day
prior to the date on which the transactions were consummated. The transactions
resulted in a loss from the disposal of approximately $6,433,000, including the
related income tax expense of $192,000. This loss, including disposal costs, was
recognized as a loss from disposal of discontinued operations in the
consolidated statement of operations for the third quarter and the year ended
December 31, 2003. Of the reported loss, approximately $5,560,000 is
attributable to the disposition of the capital stock of Hampshire Investments,
Limited, the Company's investment subsidiary. Pursuant to Internal Revenue Code
Section 355, the transaction is characterized as a tax-free spin off and the
Company is not entitled to deduct this loss because it represents a loss on
disposition of property by the Company in exchange for its own Common Stock.
Therefore, no tax benefit has been provided for this loss in the consolidated
financial statements.

The disposal of HIL has been accounted for as a discontinued operation and,
accordingly, the financial information for all prior periods presented has been
reclassified to report HIL as a discontinued operation.

RESULTS OF CONTINUING OPERATIONS
--------------------------------
2003 Compared With 2002

Net Sales
---------
Net sales for the year ended December 31, 2003 were $292,651,000, compared to
$293,268,000 for 2002, a decrease of $617,000 or 0.2%. Units shipped for the
year ended December 31, 2003 exceeded units shipped during the same period last
year by approximately 101,000 dozen or 4.2%. The increase was due to an increase
in sales of women's sweaters, offset in part by a decline in sales of men's
sweaters. The average sales price per unit declined 4.2% primarily due to a
shift in product mix and higher allowances granted to customers.

Gross Profit
------------
Gross profit for the year ended December 31, 2003 was $74,197,000, compared to
$82,932,000 for 2002, a decrease of $8,735,000 or 10.5%. As a percentage of net
sales, gross profit margin was 25.4% for 2003, compared to 28.3% for 2002. The
decrease in gross profit margins primarily resulted from higher allowances
granted to customers in a highly competitive retail market.

                                       11
<PAGE>
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative ("SG&A") expenses for the Company were
$54,903,000 for the year ended December 31, 2003, compared to $51,816,000 for
2002, an increase of $3,087,000 or 6.0%. As a percentage of net sales, SG&A
expenses were 18.8% for 2003, compared to 17.7% for 2002. The increase primarily
resulted from additional marketing, designing, shipping and related expenses
caused by the increased unit volume for the year ended December 31, 2003, costs
related to the development of two new product lines launched in the fall of
2003, and approximately $1,800,000 of non-recurring costs associated with
resolving a vendor royalty audit and an employment agreement. During 2002 and
2003, the Company successfully defended a lawsuit brought by a former supplier,
Glamourette, and recorded $450,000 in 2003 and $550,000 in 2002 both as a
reduction of the reserve for the claim and a reduction of SG&A expenses in each
year.

Interest Expense
----------------
Interest expense for the year ended December 31, 2003 was $909,000, compared to
$1,359,000 for 2002, a decrease of $450,000 or 33.1%. The decrease primarily
resulted from lower average borrowings and lower interest rates on the credit
facility borrowings during the year ended December 31, 2003. Average borrowings
during the year ended December 31, 2003 were $13,038,000, compared to
$19,011,000 for 2002.

Interest Income
---------------
Interest income for the year ended December 31, 2003 was $683,000, compared to
$420,000 for the 2002, an increase of $263,000 or 62.6%. The increase primarily
resulted from higher average cash balances during the year ended December 31,
2003.

Income Tax on Continuing Operations
-----------------------------------
The income tax provision for the year ended December 31, 2003 was $7,800,000,
compared to $11,861,000 for 2002. The effective income tax rate was 40.6% for
the year ended December 31, 2003, compared to 39.7% for 2002. In 2002 the
Company benefited from a charitable contribution of real property.

Income from Continuing Operations
---------------------------------
As a result of the foregoing, net income from continuing operations for the year
ended December 31, 2003 was $11,423,000, or $2.43 per share on a diluted basis,
as compared to $18,045,000, or $3.73 per share on a diluted basis, for 2002.

Income (Loss) of Discontinued Operations
----------------------------------------
Income from discontinued operations for the year ended December 31, 2003 was
$637,000, net of a provision for income tax of $408,000, compared to a loss of
$997,000, net of a benefit for income tax of $1,761,000, for the preceding year.
The results of the Company's investment subsidiary for the year ended December
31, 2002 included an impairment charge on real property in the amount of
$3,140,000. For the year ended December 31, 2002, the Company reported an income
tax benefit of approximately $1,761,000. This benefit resulted primarily from
the impairment charge recorded on a domestic real property investment in the
amount of $3,140,000 and the benefit from the utilization of a capital loss
carryforward.

The net loss from the disposal of $6,433,000 resulted from the charge to reduce
the investment segment to its fair market value, plus disposal expenses of
approximately $950,000. The disposal of the investment segment was consummated
on October 8, 2003.

Loss from discontinued operations for the year ended December 31, 2003,
including the loss on disposal, was $1.23 per share on a diluted basis, as
compared with a loss of $0.20 per share on a diluted basis, for 2002.

                                       12
<PAGE>
Net Income
----------
Net income of the Company for the year ended December 31, 2003 was $5,627,000,
or $1.20 per share on a diluted basis, as compared to $17,048,000, or $3.53 per
share on a diluted basis, for 2002.

RESULTS OF CONTINUING OPERATIONS
--------------------------------
2002 Compared With 2001

Net Sales
---------
Net sales for the year ended December 31, 2002 were $293,268,000, compared to
$261,361,000 for 2001, an increase of $31,907,000 or 12.2%. Units shipped for
the year ended December 31, 2002 exceeded units shipped during the same period
the prior year by approximately 429,000 dozen or 21.6%. The increase was
primarily due to an increase in sales of women's sweaters. The average sales
price per unit declined 7.7% primarily due to a shift in product mix.

During the fourth quarter of 2002, suppliers of the Company failed to deliver
product pursuant to agreed purchase contracts. Due to the failure the Company
lost sales where product could not be replaced, negotiated settlements with
these customers for non-delivery penalties, and incurred additional costs
related to securing replacement product for the timely delivery to other
customers. Costs and expenses related to the dispute with these suppliers were
fully reserved pending final resolution of the dispute.

Gross Profit
------------
Gross profit for the year ended December 31, 2002 was $82,932,000, compared to
$68,815,000 for 2001, an increase of $14,117,000 or 20.5%. As a percentage of
net sales, gross profit margin was 28.3% for 2002, compared to 26.3% for 2001.
The increase in gross profit is attributed primarily to an increase in unit
volume of products sold, reduced costs associated with sourcing and product mix.

Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative ("SG&A") expenses for the Company were
$51,816,000 for the year ended December 31, 2002, compared to $45,482,000 for
2001, an increase of $6,334,000 or 13.9%. As a percentage of net sales, SG&A
expenses were 17.7% for 2002, compared to 17.4% for 2001. The higher SG&A
expenses resulted primarily from additional marketing, designing, shipping and
related expenses caused by the increased sales volume and higher incentive
bonuses due to the increased income in 2002. During 2002, the Company
successfully defended a lawsuit brought by a former supplier and recorded
$550,000 both as a reduction of the reserve for claim and a reduction of SG&A.
With the adoption of SFAS No. 142 on January 1, 2002, the Company did not
amortize goodwill for the year ended December 31, 2002, while goodwill
amortization was $847,000 in 2001.

Impairment Charges and Provision for Uncollectible Note
-------------------------------------------------------
During the year ended December 31, 2000, the Company sold its sweater
manufacturing assets to Glamourette/OG, Inc. ("Glamourette"), a Puerto Rican
corporation. As partial payment of the purchase price, the Company accepted a
promissory note in the discounted amount of $6,468,000, due April 28, 2005.
During the fourth quarter of 2001, the Company notified Glamourette that it was
in default under the loan agreement with respect to the sale of the sweater
manufacturing assets and that the Company would recoup approximately $1,100,000
owed to Glamourette for merchandise received by the Company. Subsequent to the
notice of default Glamourette filed for bankruptcy and accordingly, the Company
wrote off the balance of the note in the amount of $1,793,000. Additionally, for
the year ended December 31, 2001, the Company recognized impairment of goodwill,
in the amount of $825,000, due to the permanent decline in one of the divisional
operations and its estimated deficiencies in future cash flows.

                                       13
<PAGE>
Interest Expense
----------------
Interest expense for the year ended December 31, 2002 was $1,359,000, compared
to $2,563,000 for 2001, a decrease of $1,204,000 or 47.0%. The decrease was
primarily due to lower average borrowings and lower interest rates during the
year ended December 31, 2002. Average borrowings during the year ended December
31, 2002 were $19,011,000, compared to $31,267,000 for 2001. Interest Income
Interest income for the year ended December 31, 2002 was $420,000, compared to
$514,000 for the year ended December 31, 2001, a decrease of $94,000 or 18.3%.
The decrease resulted from there being no interest income for the year ended
December 31, 2002 on the Glamourette promissory note, on which interest income
of $229,000 had been recognized during the year ended December 31, 2001.

Income Tax on Continuing Operations
-----------------------------------
The income tax provision for the year ended December 31, 2002 was $11,861,000,
compared to $6,930,000 for 2001. The effective income tax rate increased to
39.7% for the year ended December 31, 2002, compared to 37.4% for 2001, due to
changes in composition of income among the Company's consolidated entities.

Net Income from Continuing Operations
-------------------------------------
As a result of the foregoing, income from continuing operations for the year
ended December 31, 2002 was $18,045,000, or $3.73 per share on a diluted basis,
as compared to $11,603,000, or $2.48 per share on a diluted basis, for the
preceding year.

Loss from Discontinued Operations
---------------------------------
The operations of HIL are classified as a discontinued operation for all periods
presented, as previously discussed. Loss from discontinued operations for the
year ended December 31, 2002 was $997,000, net of a benefit for income tax of
$1,761,000, or $0.20 per share on a diluted basis, compared to a loss of
$523,000, net of a provision for income tax of $730,000, for 2001, or $0.11 per
share on a diluted basis, a decrease of $970,000.

For the year ended December 31, 2002, the Company reported an income tax benefit
of approximately $1,761,000. This benefit resulted primarily from the impairment
charge recorded on a domestic real property investment in the amount of
$3,140,000 and the benefit from the utilization of a capital loss carryforward.
For the year ended December 31, 2001, the Company reported an income tax benefit
of approximately $730,000. This benefit resulted primarily from impairment
charges recorded on certain foreign investments and real property assets and the
benefit of a capital loss.

Net Income
----------
As a result of the foregoing, net income of the Company for the year ended
December 31, 2002 was $17,048,000, or $3.53 per share on a diluted basis, as
compared to $11,080,000, or $2.37 per share on a diluted basis, for the
preceding year.

INFLATION
---------
The Company believes that inflation has not had a material effect on its costs
and net revenues during the past three years.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The primary liquidity and capital requirements of the Company are to fund
working capital for current operations, consisting of funding the buildup in
inventories and accounts receivable, servicing long-term debt and funding
capital expenditures. Due to the seasonality of the business, the Company

                                       14
<PAGE>
generally reaches its maximum borrowing under its revolving credit facility
during the third quarter of the year. The primary sources to meet the liquidity
and capital requirements include funds generated from operations and borrowings
under the revolving credit facility and long-term debt.

On August 15, 2003, the Company entered into a new Revolving Credit Facility
(the "Revolving Credit Facility") with six participating commercial banks, with
HSBC Bank USA as agent. The Revolving Credit Facility, which matures on April
30, 2007, provides for secured borrowings up to $100,000,000 in revolving line
of credit borrowings and letters of credit. Advances under the line of credit
are limited to the lesser of: (1) $100,000,000 less outstanding letters of
credit; or (2) the sum of 85% of eligible accounts receivable, 50% of eligible
inventory (subject to seasonal limits) of the Company's operating subsidiaries
(defined as Hampshire Designers and Item-Eyes), and 50% of outstanding eligible
letters of credit issued through the Revolving Credit Facility, plus seasonal
overadvances in the periods of highest borrowing requirements.

Advances under the Revolving Credit Facility bear interest at either the bank's
prime rate minus 0.25%, or at the option of the Company, a fixed rate of LIBOR
plus 1.80%, for a fixed term. The loan is collateralized, pari passu with the
Senior Notes, principally by the trade accounts receivable and inventories of
the Company's operating subsidiaries and a pledge of the common stock of such
subsidiaries. No advances were outstanding under the Revolving Facility at
December 31, 2003 or 2002. At December 31, 2003 there were letters of credit
outstanding in the amount of $24,037,000 which resulted in availability for
borrowing of approximately $21,930,000 under the Revolving Credit Facility.

Both the Revolving Credit Facility and the Senior Notes contain covenants which
require certain financial performance and restrict certain payments. The
financial performance covenants require, among other things, that the Company
maintain specified levels of consolidated net worth, not exceed a specified
consolidated leverage ratio, achieve a specified fixed charge ratio and limit
capital expenditures to a specified maximum amount. The Company was in
compliance with the financial performance covenants and restrictions at December
31, 2003.

The Company's trade account receivables and inventories are pledged as
collateral, pari passu, under the Revolving Credit Facility and the Senior
Notes. The Revolving Credit Facility and the Senior Notes restrict certain sales
of assets, payments by the Company of cash dividends to stockholders and the
repurchase of Company Common Stock. The Senior Notes also require that during
any 12-month period there must be a period of 45 consecutive days where there is
no outstanding short-term debt. The Company was in compliance with these
provisions at December 31, 2003. The Company is charged 0.125% on the unused
balance of the credit facility.

The maximum amount of advances outstanding during 2003 under the credit facility
was $30,465,000. The average amount outstanding during 2003 was approximately
$4,557,000. Outstanding letters of credit under the credit facility totaled
approximately $24,037,000 at December 31, 2003.

The Company, in the normal course of business, issues binding purchase orders to
secure product for future sales to its customers. At December 31, 2003, these
open purchase orders amounted to approximately $25,100,000 of which
approximately $17,700,000 were covered by open letters of credit. The majority
of the product is scheduled to be received during the first six months of 2004,
at which time these commitments will be fulfilled.

Future contractual obligations related to long-term debt and non-cancelable
operating leases at December 31, 2003 were as follows:

                   Total     2004     2005     2006     2007    2008 Thereafter
                 --------------------------------------------------------------
Long term debt   $ 7,583    $1,932   $1,901   $1,875   $1,875    -        -
Operating leases   4,679     1,110      867      681      543   $403   $1,075
                 --------------------------------------------------------------
Total            $12,262    $3,042   $2,768   $2,556   $2,418   $403   $1,075
                 ==============================================================

                                       15
<PAGE>
The Company has deferred compensation agreements with certain key executives as
more fully discussed in Note 10 of the Consolidated Financial Statements
enclosed herewith. The $2,656,000 liability is recorded on the consolidated
balance sheet as long-term since payments commence only upon the retirement of
the executives and are scheduled to be paid in incremental amounts over several
years.

At December 31, 2003, the Company had cash and cash equivalents totaling
$63,292,000.

Net cash provided by operating activities of continuing operations was
$5,420,000 for the year ended December 31, 2003, as compared to net cash
provided by operating activities of $49,831,000 in the same period last year.
Net cash provided by operating activities of continuing operations during the
year ended December 31, 2003 resulted primarily from income from continuing
operations of $11,423,000, offset by an increase in inventory of $7,317,000. Net
cash provided by operating activities of continuing operations during the year
ended December 31, 2002 resulted primarily from decreases in inventory of
$12,007,000 and accounts receivable of $6,290,000, an increase in accounts
payable, accrued expenses and other liabilities of $12,776,000, and income from
continuing operations of $18,045,000. Inventory for the year ended December 31,
2002 was unusually low due to a vendor supply problem, the primary reason for
the $12,007,000 decrease. During 2003 the supplier was replaced and the
inventory balance returned to a more normal level resulting in an increase of
$7,317,000 for the year ended December 31, 2003.

Net cash used in investing activities of continuing operations was $560,000 for
the year ended December 31, 2003, as compared to net cash used in investing
activities of continuing operations of $658,000 for 2002. During the years ended
December 31, 2003 and 2002, the Company used $840,000 and $916,000,
respectively, on capital expenditures.

Net cash used in financing activities of continuing operations was $2,742,000
for the year ended December 31, 2003, as compared to $6,364,000 for 2002. During
the years ended December 31, 2003 and 2002, the Company used $1,930,000 and
$6,537,000, respectively, for the repayment of long-term debt. During the year
ended December 31, 2003 the Company purchased approximately 51,500 shares of its
Common Stock for $1,194,000 and for the year ended December 31, 2002 the Company
purchased approximately 13,100 shares of its Common Stock for $265,000. As of
December 31, 2003 and 2002, the Company had no borrowings under the credit
facility.

Net cash used in discontinued operations for the year ended December 31, 2003
was $5,719,000, compared with net cash used for 2002 of $4,067,000. Hampshire
Investments, Limited, the discontinued operation, made investments, both
domestically and internationally, primarily in real property. The cash used in
the discontinued operations during the year ended December 31, 2003 (through
October 8, 2003, the date of disposition) and 2002 primarily was the funding for
such investments and repayment of long-term debt, offset by cash received from
sale of assets and long-term financing.

Management believes that cash flow from operations, available borrowings under
the credit facility and long-term borrowings will provide adequate resources to
meet the Company's capital requirements and operational needs for the
foreseeable future.

OUTLOOK
-------
The Company believes that the primary reason for its success in recent years has
been its ability to offer new products and classics with a high level of quality
and services to its customers. Management is committed to continuing to offer

                                       16
<PAGE>
such quality and services to its customers. Management recognizes that price
competition in the apparel market can adversely affect earnings of the Company.

The ability of the Company to compete is enhanced by the strength of its
financial position, significant liquid assets and low debt.

Over the past five years, the retail industry has consolidated through
acquisitions and mergers. Further, retailers have concentrated more volume with
a fewer number of vendors. The Company has responded by expanding its product
line in the sweater business and adding related separates through the
acquisition of Item-Eyes. By increasing its utilization of foreign sources, the
Company can offer greater variety in yarns, styling and surface treatment at
competitive prices.

OFF-BALANCE SHEET ARRANGEMENTS
------------------------------
The Company does not have any arrangements that are not recorded on the balance
sheet of the Company other than liability for delivery of shares of the
Company's Common Stock under the Hampshire Group, Limited Common Stock Purchase
Plan, which is fully funded, as described in Note 12 to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------
The preparation of financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis management evaluates its estimates, including those related to the
allowance for doubtful accounts, allowances for customer returns and adjustments
and, inventory reserves. Management bases its estimates on historical experience
and on various other assumptions that management believes to be reasonable under
the circumstances, the results of which form a basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions; however, management believes that its estimates,
including those for the above described items, are reasonable and that the
actual results will not vary significantly from the estimated amounts.

The following critical accounting policies relate to the more significant
judgments and estimates used in the preparation of the consolidated financial
statements:

Allowances for Customer Returns and Adjustments
-----------------------------------------------
The Company maintains allowances for customer returns, trade discounts, customer
chargebacks, and for sales and markdown allowances given to the customer,
typically at the end of the selling seasons, which enable customers to markdown
the retail sales prices of any remaining goods on hand. The estimates for these
allowances and discounts are based on a number of factors, including: (1)
historical experience, (2) aging of the trade accounts receivable, (3) specific
information obtained by the Company on the financial condition and current
credit worthiness of customers or other parties, and (4) specific agreements
with customers.

If the financial condition of the Company's customers were to deteriorate and
reduce the ability of the customers to make payments on their accounts, the
Company may be required to increase its allowances by recording additional bad
debt reserves. Further, while the Company believes that it has negotiated all
substantial sales and markdown allowances with its customers for the season
recently completed, additional allowances for the spring season are anticipated
and have been provided for. Additional allowances may be requested by customers

                                       17
<PAGE>
at the conclusion of the season. Likewise, should the financial condition of the
Company's customers or other parties improve and result in payments or favorable
settlements of previously reserved amounts, the Company may be required to
record a reduction in recorded allowances.

Inventory Reserves
------------------
The Company analyzes out-of-season merchandise on an individual SKU basis to
determine reserves, if any, that may be required. Factors considered in
evaluating the requirement for reserves include product styling, color, current
fashion trends and quantities on hand. Many of the Company's products are
"classics" and remain saleable from one season to the next and therefore no
reserves are generally required on these products. An estimate is made of the
market value, costs to dispose and a normal profit margin, of products whose
value is determined to be impaired. If these products are ultimately sold at
less than estimated amounts, additional reserves may be required. Likewise, if
these products are sold for more than estimated amounts, reserves may be
reduced.

Recent Accounting Standards
---------------------------
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", on
January 1, 2002. SFAS No. 142 discontinues the practice of amortizing goodwill
and intangible assets that have indefinite useful lives and initiates an annual
review for impairment. As of the date of adoption, the Company had unamortized
goodwill of $8,020,000. A reconciliation of the reported income from continuing
operations and income per share from continuing operations for the years ended
December 31, 2003, 2002 and 2001, to the amounts adjusted for the reduction of
amortization expense, net of the related income tax effect, is as follows:
<TABLE>
<CAPTION>
(in thousands, except per share data)                                2003     2002     2001
--------------------------------------------------------------------------------------------
<S>                                                                <C>      <C>      <C>
Income from continuing operations, as reported                     $11,423  $18,045  $11,603
Add back amortization of goodwill, net of tax effect of ($304)         -        -        543
--------------------------------------------------------------------------------------------
Adjusted income from continuing operations                         $11,423  $18,045  $12,146
--------------------------------------------------------------------------------------------
Basic income per share from continuing operations, as reported       $2.50    $3.83    $2.49
Adjustment for add back of amortization expense, net of tax effect     -        -       0.12
--------------------------------------------------------------------------------------------
Adjusted basic income per share from continuing operations           $2.50    $3.83    $2.61
--------------------------------------------------------------------------------------------
Diluted income per share from continuing operations, as reported     $2.43    $3.73    $2.48
Adjustment for add back of amortization expense, net of tax effect     -        -       0.12
--------------------------------------------------------------------------------------------
Adjusted diluted income per share from continuing operations         $2,43    $3.73    $2.60
--------------------------------------------------------------------------------------------
</TABLE>
In accordance with SFAS No. 142, goodwill is tested for impairment at least
annually and more frequently if circumstances indicate it may be impaired. The
Company performs its annual impairment test during the fourth quarter of each
year. During the fourth quarters of 2003 and 2002, the Company completed its
annual assessment of goodwill for impairment in accordance with SFAS No. 142 and
determined that there was no impairment.

The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", on January 1, 2002. SFAS No. 144 addresses financial
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121 and the accounting and reporting provisions of
Accounting Principles Board Opinion ("APB") No. 30 related to the disposal of a
segment of a business. The adoption of SFAS No. 144 had no material effect on
the Company's financial position, results of operations or cash flows.

The Company adopted Emerging Issues Task Force ("EITF") 01-9, "Accounting for
Consideration by a Vendor to a Customer or a Reseller of the Vendor's Products",
on January 1, 2002. EITF 01-9 addresses whether consideration from a vendor to a
reseller of the vendor's product is (a) an adjustment to the selling prices of

                                       18
<PAGE>
the vendor's products and, therefore should be deducted from revenue when
recognized in the vendor's income statement, or (b) a cost incurred by the
vendor for assets or services received from the reseller and, therefore should
be included as a cost or an expense when recognized in the vendor's income
statement. The adoption of EITF 01-9 required reclassification of cooperative
advertising expenses from selling, general and administrative expenses to a
reduction from revenues. As a result of such retroactive reclassification of
cooperative advertising, net sales, gross profit and selling, general and
administrative expenses for the year ended December 31, 2001 decreased by
$2,123,000, with no effect on net income.

In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS
No. 146 requires that a liability for the cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146
also established that fair value is the objective for initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of SFAS No.
146 had no effect on the Company's financial position, results of operations and
cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123". SFAS No. 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amended the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", to
require disclosure in both interim and annual financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. Certain disclosures required by the statement
are effective for years ending after December 15, 2002 and other disclosures are
effective for the first quarter beginning after December 15, 2002. The Company
continues to use the intrinsic value method as more fully described in Note 1 to
the Consolidated Financial Statements included in this Annual Report on Form
10-K.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". Interpretation No. 45 requires an entity
to recognize, at the inception of the guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and measurement provision are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of Interpretation No.
45 had no effect on the Company's financial position and results of operations.

Interpretation No. 45 also provides guidance on the disclosure to be made by the
guarantor about its obligation under certain guarantees that it has issued. The
disclosure requirements are effective for the financial statements of periods
ending after December 15, 2002. At December 31, 2003 and 2002, the Company and
various consolidated subsidiaries of the Company are borrowers under the
Revolving Credit Facility and Senior Notes (the "Credit Facilities") (see Note 6
to the Consolidated Financial Statements). The Credit Facilities are guaranteed
by either the Company and/or various consolidated subsidiaries of the Company in
the event that the borrower(s) default under the provisions of the Credit
Facilities. The guarantees are in effect for the period of the related Credit
Facilities.

In January 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46, among other things, provides guidance on identifying variable interest
entities ("VIE") and determining when assets, liabilities, non-controlling
interests, and operating results of a VIE should be included in a company's
consolidated financial statements, and also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. In
December 2003, the FASB issued a revision to FIN 46 to clarify some of the
provisions of the original interpretation and to exempt certain entities from
its requirements. The additional guidance explains how to identify a VIE and how
an enterprise should assess its interest in an entity to decide whether to
consolidate that entity. Application of revised FIN 46 is required for public
companies with interest in "special purpose entities" for periods ending after

                                       19
<PAGE>
December 15, 2003. Application for public entities for all other types of
entities is required in financial statements for periods ending after March 15,
2004. The Company's adoption of FIN 46 is not expected to significantly impact
the Company's financial statements or disclosures.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how companies classify and measure, in their statement
of financial position, certain financial instruments with characteristics of
both liabilities and equities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 had no effect on the Company's financial
position, results of operations and cash flows.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of the Company due to adverse changes in
financial and product market prices and rates. The Company is exposed to market
risk in the area of changing interest rates. The Company is also exposed to
market risk due to increased costs of raw materials for the Company's products.

The long-term debt of the Company is at fixed interest rates, which were
primarily at market when the debt was issued, but were primarily above market on
December 31, 2003. The short-term debt of the Company has variable rates based
on the prime interest rate of the lending institution, or at the option of the
Company, a fixed rate based on LIBOR for a fixed term. The impact of a 100
hypothetical basis point increase in interest rates on the Company's variable
rate debt would be to increase interest expense for 2003 and 2002 by
approximately $45,000 and $57,000, respectively.

In purchasing apparel from foreign manufacturers, the Company uses letters of
credit that require the payment of dollars upon receipt of bills of lading for
the products. Prices are fixed in U.S. dollars at the time the letters of credit
are issued.

The Company does not currently engage in derivative financial instruments to
mitigate these market risks.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required to be presented in Item 8 is presented commencing on
Page F-1 of this Annual Report on Form 10-K.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

There were no changes in, or disagreements with the independent accountants on
accounting or financial disclosure issues.

ITEM 9A - CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures
    ----------------------------------
The Company, under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, carried out an evaluation

                                       20
<PAGE>
of the effectiveness of its disclosure controls and procedures, as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as of December 31, 2003 (the "Evaluation Date"). Based on the evaluation
performed, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures were effective in recording, processing, summarizing and
reporting in the periods specified in the SEC's rules and forms the information
required to be disclosed by the Company in its reports filed or furnished under
the Exchange Act.

(b) Changes in Internal Control Over Financial Reporting
    ----------------------------------------------------
There have not been any changes in the Company's internal control over financial
reporting during the fiscal year ended December 31, 2003 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

                                    PART III

Certain information required to be presented in Part III of this Annual Report
on Form 10-K is omitted as the Registrant will file a Definitive Proxy Statement
pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after
the end of the fiscal year, which is incorporated herein by reference thereto.

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the Company's directors and executive officers
required to be presented in Item 10 is incorporated herein by reference to the
Company's 2004 Proxy Statement.

Code of Ethics
--------------
The Company has adopted a Code of Ethics for its directors and officers
(including its principal executive officer, principal financial officer, chief
accounting officer, controller and treasurer). The Code of Ethics has been filed
as an exhibit to this Annual Report on Form 10-K. It is also available at the
Company's website at www.hamp.com; or a copy may be received free of charge by
submitting a written request to:

                            Hampshire Group, Limited
                            Attn: Corporate Secretary
                            215 Commerce Boulevard
                            Anderson, SC 29625-1303

ITEM 11 - EXECUTIVE COMPENSATION

The information concerning executive compensation required to be presented in
Item 11 is incorporated herein by reference to the Company's 2004 Proxy
Statement.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information concerning security ownership of certain beneficial owners and
management and related stockholder matters required to be presented in Item 12
are incorporated herein by reference to the Company's 2004 Proxy Statement.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information concerning certain relationships and related transactions
required to be presented in Item 13 is incorporated herein by reference to the
Company's 2004 Proxy Statement.

                                       21
<PAGE>
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information regarding accounting fees and services of the principal
accountant to be presented in Item 14 is hereby incorporated by reference to the
Company's 2004 Proxy Statement.

                               PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on Form
    10-K.

    (1) Financial Statements

    Reference is made to the Index to the Consolidated Financial Statements on
    Page F-1 of this Annual Report on Form 10-K.

    (2) Financial Statement Schedules

     The financial statement schedules are listed on the Index to the Consoli-
     dated Financial Statements on Page F-1 of this Annual Report on Form 10-K.
     All other schedules have been omitted because the required information is
     shown in the consolidated financial statements or notes thereto, or they
     are not applicable.

    (3) Exhibits

    Exhibit No.                     Description                       Footnote
    ----------   ---------------------------------------------------  --------
                 Exhibits Incorporated by References:
     (3)(A)      Restated Certificate of Incorporation of
                 Hampshire Group, Limited.                                 1
     (3)(A)(1)   Certificate of Amendment to the Certificate of
                 Incorporation of Hampshire Group, Limited.                1
     (3)(A)(2)   Amended and Restated By-Laws of Hampshire Group,
                 Limited. 1
     (10)(A)(3)* Employment Agreement between Hampshire Group, Limited
                 and Ludwig Kuttner dated as of January 1, 1998.           2
     (10)(B)(1)* Form of Hampshire Group, Limited 1992 Stock Option
                 Plan Amended and Restated effective June 7, 1995.         1
     (10)(C)(1)* Form of Hampshire Group, Limited and Affiliates Common
                 Stock Purchase Plan for Directors and Executives
                 Amended June 7, 1995.                                     1
     (10)(D)(1)* Form of Hampshire Group, Limited and Subsidiaries
                 401(k) Retirement Savings Plan.                           1
     (10)(D)(2)* Form of Hampshire Group, Limited Voluntary Deferred
                 Compensation Plan for Directors and Executives Amended
                 and Restated December 30, 1997.                           1
     (10)(H)(1)  Note Purchase Agreement between Hampshire Group,
                 Limited Phoenix Home Life Mutual Insurance Company
                 and The Ohio National Life Insurance Company dated
                 May 15, 1998.                                             2

     (1)  Incorporated by reference to the Company's 1997 Annual Report on Form
          10-K.
     (2)  Incorporated by reference to the Company's 1998 Annual Report on Form
          10-K.
     (*)  Management contract or compensatory plan or arrangement.

                       (Exhibits continued on next page.)

                                       22
<PAGE>
                    (Exhibit continued from previous page.)

     Exhibit No.                   Description
     -----------   ------------------------------------------------------
                   Exhibits filed herewith:
                   -----------------------
      10.4         Asset Purchase Agreement dated October 8, 2003 by and between
                   Hampshire Investments, Limited and K Holdings, L.L.C.
      10.5         Stock Purchase Agreement dated October 8, 2003 by and between
                   Hampshire Group, Limited and Ludwig Kuttner, et al.
      10.6         Credit Agreement among HSBC Bank USA as agent, the Banks
                   named therein and Hampshire Group, Limited, dated August 15,
                   2003.
      10.7         Amendment No. 3, dated August 19, 2003, to the Note Purchase
                   Agreement, among the Company, the Guarantors named therein,
                   Phoenix Life Insurance Company and Ohio National Life
                   Insurance Company.
      10.8         Renewed Lease Agreement between Hampshire Designers, Inc.
                   and Commerce Center Associates, Inc. for the Company's
                   Anderson, South Carolina administrative offices dated
                   March 18, 2004.
      14           Code of Ethics
      21           Subsidiaries of the Company.
      23           Consent of Deloitte & Touche LLP.
      31.1         Certification of Chief Executive Officer pursuant to Item
                   601(b)(31) of Regulations S-K as adopted pursuant to Section
                   302 of the Sarbanes-Oxley Act of 2002.
      31.2         Certification of Chief Financial Officer pursuant to Item
                   601(b)(31) of Regulations S-K as adopted pursuant to Section
                   302 of the Sarbanes-Oxley Act of 2002.
      32.1         Certification pursuant to 18 U.S.C. Section 1350, as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 (b) Reports on Form 8-K filed during the quarter ended December 31, 2003.

     1.   On October 23, 2003, the Company filed a Current Report on Form 8-K
          reporting an Item 2, Acquisition and Disposition of Assets, regarding
          the October 8, 2003 sale of certain assets and all of the outstanding
          shares of capital stock of Hampshire Investments, Limited, a
          subsidiary of Hampshire Group, Limited.
     2.   On November 7, 2003, the Company filed a Current Report on Form 8-K
          reporting an Item 9, Regulation FD disclosure regarding the release of
          the Company's financials results for the quarter ended October 1,
          2003.
     3.   On November 21, 2003, the Company filed a Current Report on Form 8-K
          reporting an Item 5, Other Events, regarding the resignation of the
          Company's Chief Financial Officer.

                                       23
<PAGE>
                                SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                        HAMPSHIRE GROUP, LIMITED


Date:  March 22, 2004                   By: /s/ LUDWIG KUTTNER
---------------------                   ---------------------------------
                                        Ludwig Kuttner
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)

-------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


/s/ LUDWIG KUTTNER       Chairman of the Board of Directors,     March 22, 2004
----------------------   President and Chief Executive Officer   --------------
    Ludwig Kuttner

/s/ JOEL GOLDBERG                       Director                 March 22, 2004
----------------------                                           --------------
    Joel Goldberg

/s/ MICHAEL C. JACKSON                  Director                 March 22, 2004
----------------------                                           --------------
    Michael C. Jackson

/s/ RICHARD ROMER                       Director                 March 22, 2004
----------------------                                           --------------
    Richard V. Romer

/s/ HARVEY L. SPERRY                    Director                 March 22, 2004
----------------------                                           --------------
    Harvey L. Sperry

/s/ EUGENE WARSAW                       Director                 March 22, 2004
----------------------                                           --------------
    Eugene Warsaw

/s/ IRWIN W. WINTER                     Director                 March 22, 2004
----------------------                                           --------------
    Irwin W. Winter

/s/ PETER W. WOODWORTH                  Director                 March 22, 2004
----------------------                                           --------------
    Peter W. Woodworth

/s/ CHARLES W. CLAYTON         Chief Financial Officer           March 22, 2004
----------------------         (Principal Financial Officer)     --------------
    Charles W. Clayton

/s/ ROGER B. CLARK             Vice President Finance            March 22, 2004
----------------------         (Principal Accounting Officer)    --------------
    Roger B. Clark

                                       24
<PAGE>


                            HAMPSHIRE GROUP, LIMITED
                   Index To Consolidated Financial Statements

                                                                       Page
                                                                       ----
Independent Auditors' Report                                            F-2

Consolidated Balance Sheets                                             F-3

Consolidated Statements of Income                                       F-4

Consolidated Statements of Cash Flows                                   F-5

Consolidated Statements of Stockholders' Equity                         F-6

Notes to Consolidated Financial Statements                              F-7

Quarterly Financial Data                                                F-23

Financial Statement Schedule

     II. Valuation and Qualifying Accounts and Reserves                 F-24

















                                       F-1

<PAGE>
Deloitte                                           Deloitte & Touche LLP
                                                   1200 Bank of America Plaza
                                                   7 N Laurens Street
                                                   Greenville, SC  29601
                                                   USA
                                                   Tel: 1 864 240 5700
                                                   Fax: 1 864 235 8563
                                                   www.deloitte.com


Independent Auditors' Report

To the Board of Directors and Stockholders
  of Hampshire Group, Limited
Anderson, South Carolina


We have audited the accompanying consolidated balance sheets of Hampshire Group,
Limited and its Subsidiaries (the "Company") as of December 31, 2003 and 2002,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2003.
Our audits also included the financial statement schedule listed in the index on
F-1. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2003
and 2002, and the results of its operations and its cash flows for each of the
three years ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.


/s/ Deloitte & Touche LLP
-------------------------
March 26, 2004



                                       F-2
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>

             December 31,                                  2003         2002
------------------------------------------------------------------------------
<S>          <C>                                        <C>          <C>
ASSETS       Current assets:
               Cash and cash equivalents                $ 63,292     $ 66,893
               Accounts receivable trade - net            29,450       27,474
               Notes and other receivables                   646        1,619
               Inventories - net                          22,049       14,732
               Deferred tax assets                         6,349        6,564
               Assets of discontinued operations - net       -         35,894
               Other current assets                          493          764
                                                        ----------------------
                  Total current assets                   122,279      153,940
             Fixed assets - net                            1,667        1,679
             Trading securities held in
               retirement trust                              507          833
             Deferred tax assets                             -            696
             Goodwill                                      8,020        8,020
             Other assets                                    701          777
                                                        ----------------------
                                                        $133,174     $165,945
                                                        ======================
------------------------------------------------------------------------------
LIABILITIES  Current liabilities:
               Current portion of long-term debt        $  1,932     $  1,930
               Accounts payable                           12,599        6,172
               Accrued expenses and other liabilities     19,846       27,318
               Liabilities of discontinued operations        -         11,912
                                                        ----------------------
                  Total current liabilities               34,377       47,332
             Long-term debt, less current portion          5,651        7,583
             Deferred tax liability                           68          -
             Deferred compensation                         2,656        2,575
                                                        ----------------------
                  Total liabilities                       42,752       57,490
                                                        ----------------------
             Commitments and contingencies
------------------------------------------------------------------------------
STOCKHOLDERS'Common Stock, $0.10 par value;
EQUITY         4,761,911 (2003) and 4,721,911
               (2002) shares issued and 4,067,721
               (2003) and 4,720,591 (2002)shares
               outstanding                                   476          472
             Additional paid-in capital                   32,685       31,484
             Retained earnings                            80,964       76,526
             Treasury stock, 694,190 (2003) and
               1,320 (2002) shares at cost               (23,703)         (27)
                                                        ----------------------
                  Total stockholders' equity              90,422      108,455
                                                        ----------------------
                                                        $133,174     $165,945
                                                        ======================
------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
                                       F-3
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>

Year Ended December 31,                               2003         2002         2001
--------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>
Net sales                                          $292,651     $293,268     $261,361
Cost of goods sold                                  218,454      210,336      192,546
                                                  ------------------------------------
  Gross profit                                       74,197       82,932       68,815

Selling, general and administrative expenses         54,903       51,816       45,482
Impairment charges and provision
  for uncollectible note                                -            -          2,618
                                                  ------------------------------------
Income from operations                               19,294       31,116       20,715
Other income (expense):
  Interest expense                                     (909)      (1,359)      (2,563)
  Interest income                                       683          420          514
  Other - net                                           155         (271)        (133)
                                                  ------------------------------------
Income from continuing operations before
  income taxes                                       19,223       29,906       18,533
Income tax (provision) benefit:
  Current                                            (6,821)     (12,525)      (7,700)
  Deferred                                             (979)         664          770
                                                  ------------------------------------
Income from continuing operations                    11,423       18,045       11,603
Income (loss) from discontinued operations
  - net of income taxes of $408, ($1,761)
  and ($730)                                            637         (997)        (523)
Loss from disposal of discontinued operations
  - net of income taxes of $192                      (6,433)         -            -
                                                  ------------------------------------
Net income                                          $ 5,627      $17,048      $11,080
                                                  ====================================
--------------------------------------------------------------------------------------
Income per share from                 Basic           $2.50        $3.83        $2.49
  continuing operations:                             =================================
                                      Diluted         $2.43        $3.73        $2.48
                                                     =================================
Loss per share from                   Basic          ($1.27)      ($0.21)      ($0.11)
  discontinued operations:                           =================================
                                      Diluted        ($1.23)      ($0.20)      ($0.11)
                                                     =================================
Net income per share:                 Basic           $1.23        $3.62        $2.38
                                                     =================================
                                      Diluted         $1.20        $3.53        $2.37
                                                     =================================
Weighted average number               Basic           4,573        4,711        4,661
  of shares outstanding:                             =================================
                                      Diluted         4,696        4,834        4,674
                                                     =================================
--------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
                                       F-4
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year Ended December 31,                                        2003     2002     2001
---------------------------------------------------------------------------------------
<S>                                                         <C>       <C>      <C>
Cash flows from operating activities:
  Net income                                                $  5,627  $17,048  $11,080
  (Income) loss from discontinued operations                    (637)     997      523
  Loss from disposal of discontinued operations                6,433     -         -
                                                           ----------------------------
  Income from continuing operations                           11,423   18,045   11,603
  Adjustments to reconcile income from continuing
    operations to net cash provided by operating
    activities:
      Depreciation and amortization                              823      704    1,560
      Asset impairment charges and provision
        for uncollectible note                                   -        -      2,618
      (Gain) loss on sale of fixed assets                         (1)     109       25
      Deferred income tax provision (benefit)                    979     (664)    (770)
      Deferred compensation costs for executive
        officers                                                 415      775      579
      Tax benefit relating to Common Stock Plans                 726       73        6
      Net change in operating assets and liabilities:
        Receivables                                             (982)   6,290   (1,115)
        Inventories                                           (7,317)  12,007    6,483
        Accounts payable, accrued expenses
          and other liabilities                               (1,045)  12,776    1,030
        Other assets                                             399     (284)     761
                                                           ----------------------------
        Net cash provided by operating activities              5,420   49,831   22,780
 --------------------------------------------------------------------------------------
 Cash flows from investing activities:
     Capital expenditures                                       (840)    (916)    (294)
     Proceeds from sales of fixed assets                          30        8       11
     Repayments of loans and advances                            250      250    1,970
                                                           ----------------------------
        Net cash (used in) provided by investing activities     (560)    (658)   1,687
 --------------------------------------------------------------------------------------
 Cash flows from financing activities:
     Debt issuance costs                                        (323)     -        -
     Repayment of long-term debt                              (1,930)  (6,537)  (3,433)
     Payments of deferred compensation                            (8)      (8)      (8)
     Proceeds from issuance of Common Stock
       under the Company Stock Plans                             479      183      413
     Proceeds from issuance of treasury stock
       under the Company Stock Plans                             234      263       77
     Purchases of treasury stock                              (1,194)    (265)    (138)
                                                           ----------------------------
        Net cash (used in) financing activities               (2,742)  (6,364)  (3,089)
---------------------------------------------------------------------------------------
Discontinued operations:
        Net cash (used in) discontinued operations            (5,719)  (4,067)  (3,129)
---------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents          (3,601)  38,742   18,249
Cash and cash equivalents - beginning of year                 66,893   28,151    9,902
                                                           ----------------------------
Cash and cash equivalents - end of year                      $63,292  $66,893  $28,151
-----------------------------------------------------------============================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
                                       F-5
<PAGE>
<TABLE>
<CAPTION>
Supplementary disclosure of cash flow information
Year ended December 31,                                       2003      2002      2001
----------------------------------------------------------------------------------------
<S>                                                         <C>       <C>        <C>
Cash paid during the year for:     Interest                 $   884   $ 1,393    $3,010
                                   Income taxes               6,253    12,541     4,914
Non-cash investing and financing activities:
  Treasury stock received from the disposal of
    discontinued operations - fair value                     23,905       -         -

  Treasury stock acquired from options exercised
    under the Company Stock Plans                               731        73       -
----------------------------------------------------------------------------------------

<CAPTION>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)

                                       Additional
Years Ended December 31,              Common Stock   Paid-In  Retained  Treasury
2001, 2002 and 2003                  Shares   Amount Capital  Earnings    Stock   Total
-----------------------------------------------------------------------------------------
<S>                                <C>         <C>    <C>      <C>        <C>    <C>
Balance - December 31, 2000        4,644,993   $465   $30,816  $48,501    ($ 67) $79,715
Net income for the year                  -      -         -     11,080      -     11,080
Purchase of treasury stock           (16,760)   -         -        -       (138)    (138)
Shares issued under the
  Common Stock plans                  64,909      6       407      -         77      490
Tax benefit relating to
  Common Stock plans                     -      -           6      -        -          6
Deferred compensation payable
  in Company shares                  364,958    -         -        -      3,229    3,229
Shares held in trust for deferred
  compensation liability            (364,958)   -         -        -     (3,229)  (3,229)
-----------------------------------------------------------------------------------------
Balance - December 31, 2001        4,693,142    471    31,229   59,581     (128)  91,153
Net income for the year                  -      -         -     17,048      -     17,048
Purchase of treasury stock           (13,136)   -         -        -       (265)    (265)
Shares issued under the
  Common Stock plans                  40,585      1       182     (103)     366      446
Tax benefit relating to
  Common Stock plans                     -      -          73      -        -         73
Deferred compensation payable
  in Company shares                  376,765    -         -        -      3,394    3,394
Shares held in trust for deferred
  compensation liability            (376,765)   -         -        -     (3,394)  (3,394)
-----------------------------------------------------------------------------------------
Balance - December 31, 2002        4,720,591    472    31,484   76,526      (27) 108,455
Net income for the year                  -      -         -      5,627      -      5,627
Treasury stock received in disposal
  of discontinued operations        (700,000)   -         -        -    (23,905) (23,905)
Purchase of treasury stock           (50,519)   -         -        -     (1,194)  (1,194)
Shares issued under the
  Common Stock plans                  97,649      4       475   (1,189)   1,423      713
Tax benefit relating to
  Common Stock plans                     -      -         726      -        -        726
Deferred compensation payable
  in Company shares                  278,014    -         -        -      2,502    2,502
Shares held in trust for deferred
  compensation liability            (278,014)   -         -        -     (2,502)  (2,502)
-----------------------------------------------------------------------------------------
Balance - December 31, 2003        4,067,721   $476   $32,685  $80,964 ($23,703) $90,422
-----------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
                                       F-6
<PAGE>
HAMPSHIRE GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and Summary of Critical and Other Significant
         Accounting Policies

Organization
------------
Hampshire Group, Limited ("Hampshire Group" or the "Company"), through its
wholly owned subsidiaries Hampshire Designers, Inc. ("Hampshire Designers") and
Item-Eyes, Inc. ("Item-Eyes"), engages in the apparel business. The Company's
corporate offices are in Anderson, South Carolina and its sales offices and
showrooms are in the apparel district of New York City. Both Hampshire Designers
and Item-Eyes source the manufacture of their products through a worldwide
network of quality manufacturers and their products are sold primarily in the
United States through various retail and catalog companies.

Summary of Critical and Other Significant Accounting Policies
-------------------------------------------------------------
The preparation of financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis management evaluates its estimates, including those related to
allowances for customer returns and adjustments and inventory reserves.
Management bases its estimates on historical experience and on various other
assumptions that management believes to be reasonable under the circumstances,
the results of which form a basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions; however, management believes that its estimates, including those for
the above described items, are reasonable and that the actual results will not
vary significantly from the estimated amounts.

The following critical accounting policies relate to the more significant
judgments and estimates used in the preparation of the consolidated financial
statements:

Allowances For Customer Returns and Adjustments
-----------------------------------------------
The Company maintains allowances for customer returns, trade discounts, customer
chargebacks, and for sales and markdown allowances given to the customer,
typically at the end of the selling seasons, which enable customers to markdown
the retail sales prices of any remaining goods on hand. The estimates for these
allowances and discounts are based on a number of factors, including: (1)
historical experience, (2) aging of the trade accounts receivable, (3) specific
information obtained by the Company on the financial condition and current
credit worthiness of customers or other parties, and (4) specific agreements or
negotiated amounts with customers.

If the financial condition of the Company's customers were to deteriorate and
reduce the ability of the customers to make payments on their accounts, the
Company may be required to increase its allowances by recording additional bad
debt reserves. Further, while the Company believes that it has negotiated all
substantial sales and markdown allowances with its customers for the season
recently completed, additional allowances for the spring season are anticipated
and have been provided for and others may be requested by customers for the
concluded seasons. Likewise, should the financial condition of the Company's
customers or other parties improve and result in payments or favorable
settlements of previously reserved amounts, the Company may be required to
record a reduction in recorded allowances.

Inventory Reserves
------------------
The Company analyzes out-of-season merchandise on an individual SKU basis to
determine reserves, if any, that may be required. Factors considered in
evaluating the requirement for reserves include product styling, color, current

                                       F-7
<PAGE>
fashion trends and quantities on hand. Many of the Company's products are
"classics" and remain saleable from one season to the next and therefore no
reserves are generally required on these products. An estimate is made of the
market value, less costs to dispose and a normal profit margin, of products
whose value is determined to be impaired. If these products are ultimately sold
at less than estimated amounts, additional reserves may be required. Likewise,
if these products are sold for more than estimated amounts, reserves may be
reduced.

Also, the following accounting policies significantly affect the preparation of
the consolidated financial statements:

Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries, including Hampshire Designers and Item-Eyes.
Hampshire Investments, Limited and its subsidiaries, (collectively, "Hampshire
Investments") have been reported as discontinued operations for all periods
presented due to the disposal of the investment segment on October 8, 2003. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

Cash Equivalents
----------------
Cash equivalents consist of highly liquid investments with initial maturities of
ninety days or less. At December 31, 2003 and 2002, interest bearing amounts
were approximately $60.2 million and $62.6 million, respectively. A significant
amount of the Company's cash and cash equivalents are on deposit in financial
institutions and exceed the maximum insurable deposit limits.

Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method ("FIFO") for all inventory except for
approximately 5% of the inventory at both December 31, 2003 and 2002, for which
cost is determined using the last-in, first-out method ("LIFO").

Fixed Assets
------------
Fixed assets are recorded at cost. The Company provides for depreciation using
the straight-line method over the estimated useful lives of the assets.
Additions and major replacements or improvements are capitalized, while minor
replacements and maintenance costs are charged to expense as incurred. The cost
and accumulated depreciation of assets sold or retired are removed from the
accounts and any gain or loss is included in the results of operations for the
period of the transaction.

Impairment of Long-Lived Assets
-------------------------------
The Company follows the provisions of the Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which addresses financial reporting for the impairment or
disposal of such assets. There has not been any impairment of assets of
continuing operations since adoption of the standard. See "Recent Accounting
Standards".

Goodwill
--------
Goodwill represents the excess of cost over net assets acquired in connection
with the acquisition of certain businesses. Beginning January 1, 2002, in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill
amortization ceased. Prior to January 1, 2002, goodwill was amortized under the
straight-line method over the estimated useful life of 20 years or less, and in
2001, the Company recognized an impairment of $825,000 due to the permanent
decline in the business of one of the divisional operations. In addition,
goodwill is reviewed for impairment during the fourth quarter of each year or
more often should impairment indicators exist. See "Recent Accounting
Standards".

                                       F-8
<PAGE>
Financial Instruments
---------------------
The Company's financial instruments primarily consist of cash and cash
equivalents, accounts and notes receivable, accounts payable, accrued expenses
and other liabilities and long-term debt. The fair value of long-term debt is
disclosed in Note 6. The carrying amounts of the other financial instruments are
considered a reasonable estimate of their fair value at December 31, 2003 and
2002, due to the short-term nature of the items.

Revenue Recognition
-------------------
The Company recognizes sales revenue upon shipment of goods to customers, net of
the Company's estimate of returns and allowances.

Advertising Costs
-----------------
Advertising costs are expensed as incurred and are included in selling, general
and administrative expenses. Total advertising costs for the years ended
December 31, 2003, 2002 and 2001 totaled approximately $1,425,000, $459,000 and
$812,000, respectively. See "Recent Accounting Standards".

Shipping Costs
--------------
Costs to ship products to customers are expensed as incurred and are included in
selling, general and administrative expenses. Total shipping costs for the years
ended December 31, 2003, 2002 and 2001 totaled approximately $1,066,000,
$1,011,000 and $713,000, respectively.

Income Taxes
------------
Income taxes are recognized for financial reporting purposes during the year in
which transactions enter into the determination of income, with deferred taxes
being provided for temporary differences between the basis for financial
reporting purposes and the basis for income tax reporting purposes.

Earnings Per Common Share
-------------------------
Basic earnings per common share are computed by dividing net income by the
weighted-average number of shares outstanding for the year. Diluted earnings per
common share are computed similarly; however, it is adjusted for the effects of
the assumed exercise of the Company's outstanding options.

Presentation of Prior Years Data
--------------------------------
Certain reclassifications have been made to prior years' data to conform to the
current-year presentation.

Recent Accounting Standards
---------------------------
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", on
January 1, 2002. SFAS No. 142 discontinues the practice of amortizing goodwill
and intangible assets that have indefinite useful lives and initiates an annual
review for impairment. As of the date of adoption, the Company had unamortized
goodwill of $8,020,000. A reconciliation of the reported income from continuing
operations and income per share from continuing operations for the years ended
December 31, 2003, 2002 and 2001, to the amounts adjusted for the reduction of
amortization expense, net of the related income tax effect, is as follows:

                                       F-9
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except per share data)                                  2003     2002     2001
-----------------------------------------------------------------------------------------------
<S>                                                                  <C>      <C>      <C>
Income from continuing operations as reported                        $11,423  $18,045  $11,603
Add back amortization of goodwill, net of tax effect of ($304)           -        -        543
-----------------------------------------------------------------------------------------------
Adjusted income from continuing operations                           $11,423  $18,045  $12,146
-----------------------------------------------------------------------------------------------
Basic income per share from continuing operations as reported          $2.50    $3.83    $2.49
Adjustment for add back of amortization expense, net of tax effect       -        -       0.12
-----------------------------------------------------------------------------------------------
Adjusted basic income per share from continuing operations             $2.50    $3.83    $2.61
-----------------------------------------------------------------------------------------------
Diluted income per share from continuing operations as reported        $2.43    $3.73    $2.48
Adjustment for add back of amortization expense, net of tax effect       -        -       0.12
-----------------------------------------------------------------------------------------------
Adjusted diluted income per share from continuing operations           $2.43    $3.73    $2.60
-----------------------------------------------------------------------------------------------
</TABLE>
In accordance with SFAS No. 142, goodwill is tested for impairment at least
annually and more frequently if circumstances indicate it may be impaired. The
Company performs its annual impairment test during the fourth quarter of each
year. During the fourth quarters of 2003 and 2002, the Company completed its
annual assessments of goodwill for impairment in accordance with SFAS No. 142,
and determined that there was no impairment.

The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", on January 1, 2002. SFAS No. 144 addresses financial
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121 and the accounting and reporting provisions of
Accounting Principles Board Opinion ("APB") No. 30 related to the disposal of a
segment of a business. The adoption of SFAS No. 144 had no material effect on
the Company's financial position, results of operations or cash flows.

The Company adopted Emerging Issues Task Force ("EITF") 01-9, "Accounting for
Consideration by a Vendor to a Customer or a Reseller of the Vendor's Products",
on January 1, 2002. EITF 01-9 addresses whether consideration from a vendor to a
reseller of the vendor's product is (a) an adjustment to the selling prices of
the vendor's products and, therefore should be deducted from revenue when
recognized in the vendor's income statement, or (b) a cost incurred by the
vendor for assets or services received from the reseller and, therefore should
be included as a cost or an expense when recognized in the vendor's income
statement. The adoption of EITF 01-9 required reclassification of cooperative
advertising expenses from selling, general and administrative expenses to a
reduction from revenues. As a result of such retroactive reclassification of
cooperative advertising, net sales, gross profit and selling, general and
administrative expenses for the year ended December 31, 2001 decreased by
$2,123,000, with no effect on net income.

In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS
No. 146 requires that a liability for the cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146
also established that fair value is the objective for initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of SFAS No.
146 had no effect on the Company's financial position, results of operations and
cash flows.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amended the disclosure requirements of
SFAS No. 123, "Accounting for Stock-Based Compensation", to require disclosure
in both interim and annual financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. Certain disclosures required by the statement are effective
                                      F-10
<PAGE>
for years ending after December 15, 2002 and other disclosures are effective for
the first quarter beginning after December 15, 2002. The Company continues to
use the intrinsic value method.

SFAS No. 123, as amended by SFAS No. 148, allows companies to adopt the fair
value based method of accounting or to continue using the intrinsic value based
method of accounting prescribed by APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its employee stock
options. Under APB No. 25 (the "intrinsic method"), which the Company continues
to use, the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant. Therefore, no
compensation expense was recognized in 2003, 2002, or 2001. Additionally, in
accordance with SFAS No. 123 as amended, the Company is required to disclose
fair value information about its stock-based employee compensation plans for all
periods presented. If compensation expense for the Company's stock-based
compensation plans had been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No. 123,
the Company's income from continuing operations and basic and diluted earnings
per share from continuing operations would have been reduced as per the "pro
forma" amounts in the following table.

The compensation costs and effect on income from continuing operations and basic
and diluted earnings per share from continuing operations had compensation cost
been determined in accordance with SFAS No.123 are set forth below:
<TABLE>
<CAPTION>
(in thousands, except for per share data)         2003        2002        2001
--------------------------------------------------------------------------------
<S>                                <C>          <C>         <C>         <C>
Income from continuing operations  As reported  $11,423     $18,045     $11,603
Compensation cost - net of tax                        4          78          92
                                                --------------------------------
                                   Pro forma    $11,419     $17,967     $11,511
================================================================================
Basic income per share from        As reported    $2.50       $3.83       $2.49
  continuing operations:                        --------------------------------
                                   Pro forma      $2.50       $3.81       $2.47
================================================================================
Diluted income per share from      As reported    $2.43       $3.73       $2.48
  continuing operations:                        --------------------------------
                                   Pro forma      $2.43       $3.72       $2.46
 ===============================================================================
</TABLE>

<TABLE>
<CAPTION>
In order to estimate compensation cost under SFAS No. 123, the Black-Scholes
model was employed using the assumptions set forth below:
                                                   2003       2002(1)     2001
-------------------------------------------------------------------------------
<S>                                                <C>          <C>       <C>
Expected life (years)                               4.2         -          5.9
Expected volatility                                39.7%        -         24.3%
Dividend yield                                      0.0%        -          0.0%
Risk-free interest rate                             4.1%        -          4.8%
-------------------------------------------------------------------------------
Weighted-average fair value of options granted    $7.02         -        $3.02
===============================================================================
<FN>
(1)There were no options granted during the year ended December 31, 2002.
</FN>
</TABLE>
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". Interpretation No. 45 requires an entity
to recognize, at the inception of the guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and measurement provision are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of Interpretation No.
45 had no effect on the Company's financial position and results of operations.

Interpretation No. 45 also provides guidance on the disclosure to be made by the
guarantor about its obligation under certain guarantees that it has issued. The
disclosure requirements are effective for the financial statements of periods
ending after December 15, 2002. At December 31, 2003 and 2002, the Company and
                                      F-11
<PAGE>
various consolidated subsidiaries of the Company are borrowers under the
Revolving Credit Facility and Senior Notes (the "Facilities") (see Note 6). The
Facilities are guaranteed by either the Company and/or various consolidated
subsidiaries of the Company in the event that the borrower(s) default under the
provisions of the Facilities. The guarantees are in effect for the period of the
related Facilities.

In January 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46, among other things, provides guidance on identifying variable interest
entities ("VIE") and determining when assets, liabilities, non-controlling
interests, and operating results of a VIE should be included in a company's
consolidated financial statements, and also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. In
December 2003, the FASB issued a revision to FIN 46 to clarify some of the
provisions of the original interpretation and to exempt certain entities from
its requirements. The additional guidance explains how to identify a VIE and how
an enterprise should assess its interest in an entity to decide whether to
consolidate that entity. Application of revised FIN 46 is required for public
companies with interest in "special purpose entities" for periods ending after
December 15, 2003. Application for public entities for all other types of
entities is required in financial statements for periods ending after March 15,
2004. The Company's adoption of FIN 46 is not expected to significantly impact
the Company's financial statements or disclosures.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how companies classify and measure, in their statement
of financial position, certain financial instruments with characteristics of
both liabilities and equities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 had no effect on the Company's financial
position, results of operations and cash flows.

Note 2 - Accounts Receivable and Major Customers

The Company performs ongoing evaluations of the credit worthiness of its
customers and maintains allowances for potential credit losses. The Company
generally does not require collateral for its trade receivables. At December 31,
2003 and 2002, the accounts receivable are stated net of allowances for doubtful
accounts, customer returns, customer chargebacks, and for sales and markdown
allowances of approximately $15,494,000 and $13,057,000, respectively (See Note
1).

The Company sells principally to department stores, catalog companies, specialty
stores, mass merchants and other retailers located in the United States. The
Company had sales to three major customers (defined as sales in excess of 10% of
total sales) for the year ended December 31, 2003 which represented 15%, 14% and
10% of total sales. For the year ended December 31, 2002 the three major
customers represented 14%, 11% and 11% of total sales, and for the year ended
December 31, 2001 the three major customers represented 14%, 11% and 10% of
total sales. At December 31, 2003 and 2002, 48% and 55%, respectively, of the
total trade receivables were due from these major customers.

                                      F-12
<PAGE>
Note 3 - Inventories

Inventories at December 31, 2003 and 2002 consist of the following:

(in thousands)                                         2003       2002
------------------------------------------------------------------------
Finished goods                                       $20,823    $13,246
Work-in-progress                                         465        205
Raw materials and supplies                               879      1,518
------------------------------------------------------------------------
                                                      22,167     14,969
Less - Excess of current cost
  over LIFO carrying value                              (118)      (237)
------------------------------------------------------------------------
Total                                                $22,049    $14,732
========================================================================

At both December 31, 2003 and 2002, approximately 5% of total inventories were
valued using the LIFO method.

Note 4 - Fixed Assets

Fixed assets at December 31, 2003 and 2002 consist of the following:

                                       Estimated
(in thousands)                        Useful Lives     2003       2002
------------------------------------------------------------------------
Leasehold improvements                 5-10 years     $1,095     $1,050
Machinery and equipment                 3-7 years      3,335      2,881
Furniture and fixtures                  3-7 years        910        714
Vehicles                                3-5 years        141        141
------------------------------------------------------------------------
Total cost                                             5,481      4,786
Less - Accumulated depreciation                       (3,814)    (3,107)
------------------------------------------------------------------------
Total                                                 $1,667     $1,679
========================================================================

Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was
approximately $823,000, $704,000 and $713,000, respectively.

Note 5 - Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at December 31, 2003 and 2002 consist of
the following:

(in thousands)                                         2003       2002
------------------------------------------------------------------------
Compensation                                         $ 4,156    $ 8,182
Reserve for disputes                                   7,297      7,515
Income taxes                                           2,991      4,552
Co-op advertising                                      1,450      1,450
Royalties                                                489      1,306
Other                                                  3,463      4,313
------------------------------------------------------------------------
Total                                                $19,846    $27,318
========================================================================

During the fourth quarter of 2002, the Company was advised that certain of its
suppliers would not be able to deliver finished product as agreed. As a result
of the failure to meet these obligations to the Company, the Company established
a reserve in the amount of $7,515,000 for costs of inventory purchases and
estimated losses for matters arising from these events. At December 31, 2003,
these matters remain unresolved and the reserve balance is $7,297,000.

                                      F-13
<PAGE>
Note 6 - Borrowings

Revolving Credit Facility
-------------------------
On August 15, 2003, the Company entered into a new Revolving Credit Facility
("Revolving Credit Facility") with six participating commercial banks, with HSBC
Bank USA as agent. The Revolving Credit Facility, which matures on April 30,
2007, provides for secured borrowings up to $100,000,000 in revolving line of
credit borrowings and letters of credit. Advances under the line of credit are
limited to the lesser of: (1) $100,000,000 less outstanding letters of credit;
or (2) the sum of 85% of eligible accounts receivable, 50% of eligible inventory
(subject to seasonal limits) of the Company's subsidiaries (defined as Hampshire
Designers and Item-Eyes), and 50% of outstanding eligible letters of credit
issued through this Revolving Credit Facility, plus seasonal overadvances in the
periods of highest requirements.

Advances under the Revolving Credit Facility bear interest at either the bank's
prime rate minus .25% or, at the option of the Company, a fixed rate of LIBOR
plus 1.80%, for a fixed term. The loan is collateralized, pari passu with the
Senior Notes, principally by the trade accounts receivable and inventories of
the Company's subsidiaries and a pledge of the common stock of the subsidiaries.
At December 31, 2003 there was $24.0 million outstanding under letters of
credit. No advances were outstanding under the Revolving Credit Facility at
December 31, 2003 or 2002, which resulted in availability for borrowing of
approximately $21.9 million under the Revolving Credit Facility at December 31,
2003.

Long-Term Debt - Long-term debt at December 31, 2003 and 2002 consists of the
following:

(in thousands)                                                   2003    2002
-------------------------------------------------------------------------------
Senior Notes payable to two insurance companies due in semi-
  annual installments of $937,500 commencing January 2, 2001
  through 2008, plus interest at 8% per annum, collateralized
  pari passu with the Revolving Facility                        $7,500  $9,375

Debt collateralized by machinery and equipment
  Note payable in monthly installments of approximately
  $5,030, including interest at 4.875% through 2005                 83     138
-------------------------------------------------------------------------------
Total long-term debt                                             7,583   9,513
Less - Amount payable within one year                           (1,932) (1,930)
-------------------------------------------------------------------------------
Amount payable after one year                                   $5,651  $7,583
===============================================================================

Financial Covenants
-------------------
Both the Revolving Credit Facility and the Senior Notes contain covenants that
require certain financial performance and restrict certain payments by the
Company. The financial performance covenants require, among other things, that
the Company maintain specified levels of consolidated net worth, not exceeding a
specified consolidated leverage ratio, achieve a specified fixed charge ratio
and limit capital expenditures to a specified maximum amount. The Company was in
compliance with the financial performance covenants and restrictions at December
31, 2003.

The Company's trade account receivables and inventories are pledged as
collateral, pari passu, under the Revolving Credit Facility and the Senior
Notes. The Revolving Credit Facility and the Senior Notes restrict certain sales
of assets, payments by the Company of cash dividends to stockholders and the
repurchase of Company common stock. The Senior Notes also require that during
any 12-month period there must be a period of 45 consecutive days where there is
no outstanding short-term debt. The Company was in compliance with these
provisions at December 31, 2003. The Company is charged 0.125% on the unused
balance of the Revolving Credit Facility.

                                      F-14
<PAGE>
Other
-----
Maturities of long-term debt as of December 31, 2003 are as follows:

Year                                                          (in thousands)
----------------------------------------------------------------------------
2004                                                                 $1,932
2005                                                                  1,901
2006                                                                  1,875
2007                                                                  1,875
----------------------------------------------------------------------------
Total                                                                $7,583
============================================================================

The fair value of the long-term debt at December 31, 2003 and 2002, based on
current market interest rates discounted to present value, was approximately
$8.0 million and $10.1 million, respectively.

Note 7 - Income Taxes

The domestic and Puerto Rico components of income (loss) from continuing
operations before income taxes are as follows:

(in thousands)                                2003        2002        2001
----------------------------------------------------------------------------
Domestic                                    $19,223     $29,906     $19,002
Puerto Rico                                     -           -          (469)
----------------------------------------------------------------------------
Income before income taxes                  $19,223     $29,906     $18,533
============================================================================

The components of income tax provision (benefit) consist of the following:

(in thousands)                                2003        2002        2001
----------------------------------------------------------------------------
Current:
  Federal                                    $5,349     $10,481      $6,777
  State                                       1,472       2,044       1,123
  Puerto Rico                                   -           -          (200)
----------------------------------------------------------------------------
                                              6,821      12,525       7,700
----------------------------------------------------------------------------
Deferred:
  Federal                                       995        (455)       (590)
  State                                         (16)       (209)       (180)
----------------------------------------------------------------------------
                                                979        (664)       (770)
----------------------------------------------------------------------------
Total                                        $7,800     $11,861      $6,930
============================================================================

A reconciliation of the provision (benefit) for income taxes computed by
applying the statutory federal income tax rate to income from continuing
operations before income taxes and the Company's actual provision for income
taxes is as follows:

(in thousands)                                2003        2002        2001
----------------------------------------------------------------------------
Tax provision at federal statutory rate      $6,728     $10,467      $6,487
Increase (decrease) in tax arising from:
  State taxes, less federal income
    tax benefit                                 946       1,193         613
  Tax benefit of charitable contribution        -          (515)        -
  Other                                         126         716        (170)
----------------------------------------------------------------------------
Total                                        $7,800     $11,861      $6,930
============================================================================
                                      F-15
<PAGE>
A summary of the temporary differences and carryforwards giving rise to deferred
income tax assets as of December 31, 2003 and 2002 is as follows:

(in thousands)                                             2003        2002
-----------------------------------------------------------------------------
Deferred income tax assets:
  Allowances for  receivables                             $2,363      $1,596
  Inventories                                              1,487       1,197
  Accrued liabilities and other temporary differences      2,498       3,771
  Net operating loss carryforwards                           372         939
  Discontinued operations                                    -         1,812
-----------------------------------------------------------------------------
    Gross deferred income tax assets                       6,720       9,315
-----------------------------------------------------------------------------
Deferred income tax liabilities:
  Fixed assets                                               (33)        (13)
  Intangible assets                                         (406)       (230)
-----------------------------------------------------------------------------
    Gross deferred income tax liabilities                   (439)       (243)
-----------------------------------------------------------------------------
Net deferred income tax assets                            $6,281      $9,072
=============================================================================

The deferred tax assets and liabilities are recognized in the accompanying
consolidated balance sheets as follows:

(in thousands)                                             2003        2002
-----------------------------------------------------------------------------
Deferred tax asset - current                              $6,349      $6,564
Deferred tax asset of discontinued operations - current      -         1,812
Deferred tax asset - noncurrent                              -           696
Deferred tax liability - noncurrent                          (68)        -
-----------------------------------------------------------------------------
Total                                                     $6,281      $9,072
=============================================================================

The net operating loss carryforwards for federal income tax purposes, totaling
$935,000, will expire in 2009. State net operating loss carryforwards totaling
$1,119,000 begin to expire in 2010.

As discussed in Note 13, the Company incurred a loss in 2003 from the disposal
of certain discontinued operations of approximately $6,400,000. Of the reported
loss, approximately $5,560,000 is attributable to the disposition of the capital
stock of Hampshire Investments, Limited, the Company's former investment
subsidiary. Pursuant to Internal Revenue Code Section 355, the transaction is
characterized as a tax-free spin-off and the Company is not entitled to deduct
this loss because it represents a loss on disposition of property by the Company
in exchange for its own Common Stock. Therefore, no tax benefit has been
provided for this loss in the consolidated financial statements.

For the year ended December 31, 2002, the Company reported an income tax benefit
of approximately $1,761,000. This benefit resulted primarily from the impairment
charge recorded on a domestic real property investment in the amount of
$3,140,000 and the benefit from the utilization of a capital loss carryfoward.

For the year ended December 31, 2001, the Company reported an income tax benefit
of approximately $730,000. This benefit resulted primarily from impairment
charges recorded on certain foreign investments and real property assets and the
benefit of a capital loss.

Note 8 - Commitments and Contingencies

The Company leases premises and equipment under operating leases having terms
from month-to-month to three years. At December 31, 2003, including those leases
which have been renewed subsequent to year-end, future minimum lease payments
under leases having an initial or remaining non-cancelable term in excess of one
year were as set forth below:

                                      F-16
<PAGE>
Year                                                         (in thousands)
--------------------------------------------------------------------------
2004                                                               $1,110
2005                                                                  867
2006                                                                  681
2007                                                                  543
2008                                                                  403
Thereafter                                                          1,075
--------------------------------------------------------------------------
Total                                                              $4,679
==========================================================================

For the years ended December 31, 2003, 2002 and 2001, rent expense for operating
leases was approximately $1,206,000, $1,274,000 and $1,420,000, respectively.

The Company, in the normal course of business, issues binding purchase orders to
secure product for future sales to its customers. At December 31, 2003 these
open purchase orders commitments amounted to approximately $25,100,000, of which
approximately $17,700,000 was covered by open letters of credit. The majority of
the product is scheduled to be received during the first six months of 2004, at
which time these commitments will be fulfilled.

The Company is, from time to time, involved in litigation incidental to the
conduct of its business. Management believes that no currently pending
litigation to which it is a party will have a material adverse effect on the
Company's consolidated financial condition, results of operations, or cash flow.

Note 9 - Capitalization

The Company's authorized capital stock consists of 10,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock each having a par value of $0.10
per share. No preferred stock has been issued by the Company. As discussed in
Note 13, the Company received in the disposal of its discontinued operations
700,000 shares of its Common Stock, recorded as Treasury Stock in the Company's
financial statements.

Note 10 - Stock Options, Compensation Plans and Retirement Savings Plan

The Company registered 1,500,000 shares of its Common Stock under the Securities
Act of 1933, as amended, to be issued with regards to the Hampshire Group,
Limited 1992 Stock Option Plan, as amended, and the Hampshire Group, Limited
Common Stock Purchase Plan for Directors and Executives. Of these shares,
904,000 have been issued under these plans.

The Board of Directors of the Company has from time to time authorized the
repurchase of shares of the Company's Common Stock, some of which would be used
to offset the dilution caused by the issuance of shares under the Stock Option
Plan and Stock Purchase Plan. During 2003, the Company purchased 54,519 shares
of its Common Stock for $1,254,000. Of the amounts authorized approximately
64,000 shares remain available for repurchase.

The Company's purchases of shares of Common Stock are recorded at cost as
"Treasury Stock" and result in a reduction of "Stockholders' Equity". When
treasury shares are reissued, the Company uses a weighted average cost method
and the excess of outstanding repurchased costs over reissue price is treated as
a reduction of "Retained Earnings".

Stock Options
-------------
Options to purchase Hampshire Group, Limited Common Stock are granted at the
discretion of the Company's Board of Directors to executives and key employees
of the Company and its subsidiaries. No option may be granted with an exercise

                                      F-17
<PAGE>
price less than the fair market value per share of Common Stock at the date of
grant. The vesting of options varies from immediate vesting to vesting 5 years
from date of grant and have a maximum term of 10 years. Stock option activity is
as follows:
                                                     Number of Weighted Average
                                                      Options   Exercise Price
-------------------------------------------------------------------------------
Outstanding - December 31, 2000                       383,866        $12.26
  Granted                                              61,500          9.37
  Exercised                                           (34,360)         6.85
  Canceled or expired                                 (18,365)        11.60
-------------------------------------------------------------------------------
Outstanding - December 31, 2001                       392,641         12.32
  Granted                                                 -             -
  Exercised                                           (28,156)         9.78
  Canceled or expired                                 (35,790)        10.15
-------------------------------------------------------------------------------
Outstanding - December 31, 2002                       328,695         12.71
  Granted                                               1,000         21.15
  Exercised                                          (116,070)        11.42
  Canceled or expired                                 (77,850)        13.93
-------------------------------------------------------------------------------
Outstanding - December 31, 2003                       135,775        $13.18
===============================================================================
<TABLE>
<CAPTION>
A summary of the status of options outstanding at December 31, 2003 is set forth
in the table below.
                Options Outstanding                            Options Exercisable
----------------------------------------------------------  --------------------------
                    Number     Weighted       Weighted        Number      Weighted
  Range of       Outstanding    Average        Average      Exercisable    Average
Exercise Prices   12/31/03   Remaining Life Exercise Price    12/31/03  Exercise Price
---------------  ----------- -------------- --------------  ----------- --------------
<C>      <C>       <C>           <C>           <C>             <C>        <C>
$ 8.00 - $ 8.63    28,956        3.35          $ 8.58          21,000     $  8.60
  9.49 -  11.75     7,669        2.04           10.22           4,625       10.70
 12.00 -  12.00    27,000        4.26           12.00          27,000       12.00
 12.13 -  14.00    31,275        4.22           13.56          27,175       13.78
 14.50 -  18.00    28,750        5.40           16.93          14,750       15.92
 18.13 -  22.69    12,125        2.78           18.80          11,375       18.64
-----------------------------------------------------------  -------------------------
$ 8.00 - $22.69   135,775        4.04          $13.18         105,925      $12.99
===========================================================  =========================
</TABLE>

At December 31, 2003, 2002 and 2001, the number of options exercisable was
105,925, 94,995 and 97,141, respectively.

Common Stock Purchase Plan
--------------------------
Pursuant to the Hampshire Group, Limited 1992 Common Stock Purchase Plan for
Directors and Executives ("Stock Purchase Plan"), key executives were permitted
to use a portion of their annual compensation to purchase Common Stock of the
Company. Non-employee Directors were permitted to defer their fees to purchase
Common Stock of the Company. The right to purchase shares under the Stock
Purchase Plan was terminated on December 31, 2002.

For the years ended December 31, 2002 and 2001, approximately $193,000 and
$128,000, respectively, of participants' compensation was used by the Stock
Purchase Plan to purchase Common Stock of the Company. The Company has
established a trust to which it delivers the shares of the Company's Common
Stock following the end of each plan year to satisfy such elections. The
deferred compensation liability and the Company's shares are presented as
offsetting amounts in the stockholders' equity section.

Distributions from the plan commenced on January 15, 2003 with distribution of
104,755 shares valued at approximately $2,095,000. The remaining 278,014 shares
will be distributed to the participants in accordance with their elections.

                                      F-18
<PAGE>
Voluntary Deferred Compensation Plan
------------------------------------
In 1997, the Company adopted the Hampshire Group, Limited Voluntary Deferred
Compensation Plan for Executives (the "Top Hat Plan"). The Plan was established
to permit key executives to defer up to 20% of the total compensation in each
year for retirement with such deferrals being invested in mutual funds. The Top
Hat Plan had a "sunset provision" for deferral of December 31, 2000.
Distributions from the plan of approximately $440,000 on January 15, 2003 and
approximately $310,000 on January 15, 2004 were made.

Company Deferred Compensation Plans
-----------------------------------
The Company accrues $200,000 annually to a deferred compensation plan on behalf
of Ludwig Kuttner. At the option of the Mr. Kuttner, the cumulative amount may
be invested in the Company, accruing interest at 110% of the Applicable Federal
Long-Term Interest Rate.

In accordance with an unfunded deferred compensation agreement with Eugene
Warsaw, the President of Hampshire Designers, Inc., the Company accrued for the
years ended December 31, 2003, 2002 and 2001, approximately $89,000, $561,000,
and $471,000, respectively.

As part of his employment arrangement, the Company has agreed that Charles
Clayton, Chief Financial Officer, Secretary and Treasurer of the Company, may
defer up to 60% of his incentive compensation to be invested in the Company,
accruing interest at 110% of the Applicable Federal Long-Term Interest Rate.
Such amounts will be distributed at a rate of $25,000 per quarter after his
retirement from the Company.

Retirement Savings Plan
-----------------------
The Company has a "Hampshire Group, Limited and Subsidiaries 401(k) Retirement
Savings Plan" under which employees may participate after having completed at
least one year of service and having reached the age of twenty years. The
Company's matching contribution is determined annually at the discretion of the
Board of Directors. Matching contributions for the years ended December 31,
2003, 2002 and 2001 were approximately $168,000, $142,000 and $125,000,
respectively. Such matching contributions vest fully after six years of
employment.

Note 11 - Related Party Transactions

The Company leases certain buildings from a company that Ludwig Kuttner,
Chairman and Chief Executive Officer of the Company, has beneficial ownership of
58% and Charles W. Clayton, Chief Financial Officer, Secretary and Treasurer of
the Company, has an ownership of 4%, of the voting stock. Rent expense under
such leases for the years ended December 31, 2003, 2002 and 2001 was
approximately $251,000, $243,000 and $234,000, respectively. The Company also
leased certain buildings from Peter Woodworth, a director of the Company,
through June 2003. Rent expense under these leases for the years ended December
31, 2003, 2002 and 2001 was approximately $59,000, $96,000 and $158,000,
respectively. The terms of these leases were approved by the Board of Directors
of the Company based on independent confirmation that the leases are fair and
reasonable and are at market terms. Mr. Kuttner received a fee for guaranteeing
certain of the Company's debt and for the years ended December 31, 2003, 2002
and 2001 these fees were approximately $31,000, $49,000 and $59,000,
respectively. With the disposal of the discontinued operations there are no
other guarantees by Mr. Kuttner of debt for the Company.

Mr. Harvey L. Sperry, a director of the Company, is a retired partner in the law
firm of Willkie Farr & Gallagher LLP. The firm has served as legal counsel to
the Company since 1977 and in such capacity, for the years ended December 31,
2003, 2002 and 2001, the firm was paid approximately $262,000, $96,000 and
$33,000, respectively.

                                      F-19
<PAGE>
Dr. Joel Goldberg, a director of the Company, is a principal of Career
Consultants, Inc., which has provided human resource consulting services to the
Company since 1997. In such capacity this firm was paid fees of approximately
$5,000 for the year ended December 31, 2001.

Mr. Michael Jackson, a director of the Company, is a principal of Ironwood
Partners LLC, which has provided financial consulting services to the Company.
In such capacity this firm was paid a fee, for the years ended December 31, 2003
and 2002, of approximately $150,000 and $75,000, respectively.

The Company entered into a service agreement with an affiliated company, owned
by certain officers of Item-Eyes, Inc., to warehouse and distribute its women's
related separates products. The service agreement provides that a fee be paid on
a per unit shipped basis. The service agreement expires August 31, 2005, however
it may be terminated by the Company at any time upon 30 days written notice.
Fees paid for the years ended December 31, 2003, 2002, and 2001 were $2,496,000,
$2,765,000 and $2,800,000, respectively, and are included in selling, general
and administrative expenses in the accompanying consolidated statements of
income.

Note 12 - Sale of Assets

During the year ended December 31, 2000, the Company sold its sweater
manufacturing assets to Glamourette/OG, Inc. ("Glamourette"), a Puerto Rican
corporation. As partial payment of the purchase price the Company accepted a
promissory note in the discounted amount of $6,468,000, due April 28, 2005.
During the fourth quarter of 2001, the Company notified Glamourette it was in
default under the note and agreement with respect to the sale of the sweater
manufacturing assets and that the Company would recoup approximately $1,100,000
owed to Glamourette for merchandise received by the Company. Subsequent to this
notice, Glamourette filed for bankruptcy and accordingly the Company has written
off the note, net of the $1,100,000 recouped. During 2002, Glamourette
unsuccessfully challenged the recoupment against its note to the Company,
accordingly, the amount recouped was recognized as income, net of related
expenses, in the amount of $450,000 and $550,000, respectively, for the years
ended 2003 and 2002 as the liability for the claim was resolved.

Note 13 - Discontinued Operations

On October 8, 2003, the Company completed the disposition of Hampshire
Investments, Limited ("HIL"), the investment subsidiary of the Company. A
special committee of the Board of Directors ("Board"), comprised of the
independent directors was responsible for the disposal because Ludwig Kuttner,
Chairman and Chief Executive Officer, and other members of management of the
Company participated as purchasers of HIL. HIL made investments both
domestically and internationally, principally in real property.

Certain HIL assets were sold to K Holdings, LLC, a company controlled by Ludwig
Kuttner, for a purchase price of 250,000 shares of the Company's Common Stock.
Subsequently, all of the outstanding shares of capital stock of HIL were
exchanged with an investor group consisting of Mr. Kuttner, Peter Woodworth, a
Director of the Company, and Charles Clayton, Secretary and Treasurer of the
Company, for 450,000 shares of the Company's Common Stock.

The fair market value of the Company's common stock received in the two
transactions was $23,905,000 based on a price of $34.15 per share, as reported
by NASDAQ at the market close on October 7, 2003, the trading day prior to the
date on which the transactions were consummated. The transactions resulted in a
loss from disposal of approximately $6,433,000, including the related income tax
expense of $192,000. This loss, including disposal costs of $950,000, was
recognized as a loss from disposal of discontinued operations in the
consolidated statement of operations for the year ended December 31, 2003. Of
the reported loss from the disposal of the discontinued operations,
approximately $5,560,000 is attributable to the disposal of the capital stock of

                                      F-20
<PAGE>
HIL. Under the Internal Revenue Code Section 355, the transaction is
characterized as a tax-free spin-off and accordingly, the Company is not
entitled to deduct this loss because it represents a loss on the distribution of
property by the Company in exchange for its own Common Stock. Therefore, no tax
benefit has been provided for this loss in the consolidated financial
statements.

In accordance with the guidance of SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", HIL has been accounted for as a discontinued
operation, and the financial information for all prior periods presented have
been reclassified to report HIL as a discontinued operation.

The major classes of discontinued assets and liabilities as of October 8, 2003,
disposition date and December 31, 2002 are summarized as follows (in thousands):

                                                     Oct. 8,       Dec. 31,
                                                      2003           2002
---------------------------------------------------------------------------
Current assets                                      $ 6,498        $ 3,067
Real property investments - net                      30,918         27,668
Long-term investments - net                           3,877          4,315
Other assets                                            709            844
Impairment on disposal                               (5,291)           -
---------------------------------------------------------------------------
  Total assets                                      $36,711        $35,894
===========================================================================

Current liabilities                                 $ 2,687        $ 2,193
Long-term liabilities                                10,918          9,719
---------------------------------------------------------------------------
  Total liabilities                                 $13,605        $11,912
===========================================================================

At October 8, 2003 current liabilities include amounts incurred but unpaid for
the disposition of the discontinued operations. The rental revenue and pretax
income for HIL, which are included in the income (loss) from discontinued
operations in the consolidated statements of operations through October 8, 2003,
the date of disposition of HIL, are summarized as follows (in thousands):

                                      Oct. 8,       Dec. 31,        Dec. 31,
                                       2003           2002           2001
---------------------------------------------------------------------------
Rental Revenue                        $2,614         $3,194         $2,594
Pre-tax income (loss)                  1,045         (2,758)        (1,253)








                                      F-21
<PAGE>
<TABLE>
Note 14 - Earnings Per Share

Set forth in the table below is a reconciliation by year of the numerator
(income) and the denominator (shares) of the basic and diluted earnings per
share ("EPS") computations.

<CAPTION>
For the Year 2001                            Numerator  Denominator  Per-Share
(in thousands, except per share data)         Income      Shares       Amount
------------------------------------------------------------------------------
<S>                                           <C>           <C>         <C>
Basic EPS:
Income from continuing operations             $11,603         -         $2.49
Loss from discontinued operations                (523)        -         (0.11)
------------------------------------------------------------------------------
Net income                                    $11,080       4,661       $2.38
Effect of dilutive securities-options             -            13       (0.01)
==============================================================================
Diluted EPS:
Net income                                    $11,080       4,674       $2.37
==============================================================================


For the Year 2002                            Numerator  Denominator  Per-Share
(in thousands, except per share data)         Income      Shares       Amount
------------------------------------------------------------------------------
Basic EPS:
Income from continuing operations             $18,045        -          $3.83
Loss from discontinued operations                (997)       -          (0.21)
 -----------------------------------------------------------------------------
Net income                                    $17,048       4,711       $3.62
Effect of dilutive securities-options             -           123       (0.09)
==============================================================================
Diluted EPS:
Net income                                    $17,048       4,834       $3.53
==============================================================================


For the Year 2003                            Numerator  Denominator  Per-Share
(in thousands, except per share data)         Income      Shares      Amount
------------------------------------------------------------------------------
Basic EPS:
Income from continuing operations             $11,423         -         $2.50
Loss from discontinued operations, net         (5,796)        -         (1.27)
------------------------------------------------------------------------------
Net income                                    $ 5,627       4,573       $1.23
------------------------------------------------------------------------------
Effect of dilutive securities-options             -           123       (0.03)
==============================================================================
Diluted EPS:
Net income                                    $ 5,627       4,696       $1.20
==============================================================================
</TABLE>


                                      F-22
<PAGE>
<TABLE>
Quarterly Financial Data (unaudited)
(in thousands, except per share data)

<CAPTION>
                                                                                                 Annual
In 2002 Quarter Ended                                 Mar. 30   Jun. 29   Sept. 28    Dec. 31    Total
--------------------------------------------------------------------------------------------------------
<S>                                                   <C>       <C>       <C>        <C>       <C>
Net sales                                             $42,859   $31,536   $109,134   $109,739  $293,268
Gross profit                                           12,383     8,974     30,090     31,485    82,932
Operating income (loss) from continuing operations      2,000      (585)    14,713     14,988    31,116
                                                     ---------------------------------------------------
Income (loss) from continuing operations                1,092      (462)     8,823      8,592    18,045
Income (loss) from discontinued operations                  4       (61)       210     (1,150)     (997)
                                                     ---------------------------------------------------
Net income (loss)                                      $1,096  ($   523)  $  9,033   $  7,442  $ 17,048
                                                     ===================================================
Income (loss) per common share from
  continuing operations                - Basic          $0.23    ($0.10)     $1.87      $1.82     $3.83
                                                     ===================================================
                                       - Diluted        $0.23    ($0.10)     $1.82      $1.78     $3.73
                                                     ===================================================
Net income (loss) per common share     - Basic          $0.23    ($0.11)     $1.92      $1.58     $3.62
                                                     ===================================================
                                       - Diluted        $0.23    ($0.11)     $1.86      $1.54     $3.53
                                                     ===================================================

                                                                                                 Annual
In 2003 Quarter Ended                                 Mar. 29   Jun. 28   Sept. 27    Dec. 31    Total
--------------------------------------------------------------------------------------------------------
Net sales                                             $51,167   $31,961    $97,036   $112,487  $292,651
Gross profit                                           12,566     7,508     24,368     29,755    74,197
Operating income (loss) from continuing operations      1,124    (1,735)     7,991     11,914    19,294
                                                     ---------------------------------------------------
Income (loss) from continuing operations                  711      (948)     4,865      6,795    11,423
Income (loss) from discontinued operations                391        (4)    (5,730)      (453)   (5,796)
                                                     ---------------------------------------------------
Net income (loss)                                     $ 1,102   ($  952)  ($   865)  $  6,342  $  5,627
                                                     ===================================================
Income (loss) per common share from
  continuing operations                 - Basic         $0.15    ($0.20)     $1.02      $1.64     $2.50
                                                     ===================================================
                                        - Diluted       $0.15    ($0.20)     $1.00      $1.60     $2.43
                                                     ===================================================
Net income (loss) per common share      - Basic         $0.23    ($0.20)    ($0.18)     $1.53     $1.23
                                                     ===================================================
                                        - Diluted       $0.23    ($0.20)    ($0.18)     $1.49     $1.20
                                                     ===================================================
<FN>
Differences from amounts previously reported on the Company's filings on Form
10-Q are due to reclassifications resulting from the disposal of the
discontinued operations.
</FN>
</TABLE>
                                      F-23
<PAGE>
<TABLE>
                                                                                    SCHEDULE II

                            HAMPSHIRE GROUP, LIMITED
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (in thousands)
<CAPTION>

                                         Balance at  Charged to
                                          beginning   sales and               Other     Balance at
                                           of year    expenses   Deductions adjustments end of year
                                      -------------------------------------------------------------
<S>                                       <C>        <C>          <C>            <C>       <C>
Year Ended December 31, 2001
----------------------------
  Allowance for doubtful accounts        $   469     ($    53)    ($   156)      -        $   260
  Allowance for returns and adjustments    6,573       11,140      (11,143)      -          6,570

Year Ended December 31, 2002
----------------------------
  Allowance for doubtful accounts        $   260      $   354     ($   164)      -        $   450
  Allowance for returns and adjustments    6,570       21,457      (15,420)      -         12,607

Year Ended December 31, 2003
----------------------------
  Allowance for doubtful accounts        $   450     ($    57)    ($    56)      -        $   337
  Allowance for returns and adjustments   12,607       25,858      (23,308)      -         15,157
---------------------------------------------------------------------------------------------------

</TABLE>











                                      F-24

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>exhib104.txt
<DESCRIPTION>EXHIBIT 10.4-ASSEST PURCHASE AGREEMENT
<TEXT>
                                                                    EXHIBIT 10.4
                            ASSET PURCHASE AGREEMENT


     THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of October 8,
2003, by and between Hampshire Investments, Limited, a corporation organized
under the laws of the State of Delaware ("Seller"), and K Holdings, LLC, a
limited liability company organized under the laws of the State of Delaware
("Buyer").

                                    RECITALS


     WHEREAS, Seller has determined to dispose of the assets specified on Annex
A hereto (the "Purchased Assets");

     WHEREAS, Seller desires to sell the Purchased Assets to Buyer, and Buyer
desires to purchase the Purchased Assets from Seller, on the terms and subject
to the conditions set forth herein; and

     WHEREAS, Buyer is the owner of 250,000 shares of common stock, par value
$0.10 per share, of Hampshire Group, Limited (the "HGL Shares"), which shares
shall be transferred to Seller as consideration for the Purchased Assets.

     NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, and for other good and valuable consideration, the sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

                                    AGREEMENT

1.       DEFINITIONS

     For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:

     "Buyer" shall have the meaning given to such term in the first paragraph of
this Agreement.

     "Closing" shall have the meaning given to such term in Section 2.3.

     "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien, security interest, charge, preference,
participation interest, priority or security agreement.

     "Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity.

                                      -1-
<PAGE>
     "Seller" has the meaning given to such term in the first paragraph of this
Agreement.

2.   PURCHASE AND SALE; ASSUMED LIABILITIES; CLOSING

     2.1. PURCHASE AND SALE. On the terms and subject to the conditions hereof,
(a) Buyer hereby purchases and accepts from Seller and Seller hereby sells,
assigns, transfers and conveys to Buyer, the Purchased Assets, free and clear of
any Liens; and (b) as consideration for the Purchased Assets, Buyer hereby
sells, assigns, transfers and conveys the HGL Shares to Seller.

     2.2. ASSUMED LIABILITIES. Buyer hereby assumes, and from and after the
Closing, shall perform, pay, satisfy, honor and discharge when due those
liabilities, obligations and commitments of Seller listed on Annex B hereto (the
"Assumed Liabilities"). Buyer shall not assume any other liabilities,
obligations or commitments of Seller other than the Assumed Liabilities.

     2.3. CLOSING. The closing of the purchase and sale of the Purchased Assets
provided for in this Agreement (the "Closing") will take place at the offices of
Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New
York 10036, at such time as:

          (a) Buyer delivers to Seller certificates representing the HGL Shares,
     duly endorsed (or accompanied by duly executed stock powers), for transfer
     to Seller; and

          (b) Each of Seller and Buyer execute and deliver all such instruments,
     documents and certificates as may be reasonably requested by the other
     party to consummate the transactions contemplated by this Agreement.

3. REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller represents and warrants to Buyer as follows:

     3.1. ORGANIZATION AND GOOD STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to execute and deliver this
Agreement and perform and consummate the transactions contemplated hereby.

     3.2. AUTHORITY. The execution and delivery of this Agreement by Seller and
the performance by Seller of its obligations hereunder have been duly authorized
by all necessary action by Seller. This Agreement has been duly executed and
delivered by Seller and constitutes a valid and binding obligation of Seller
enforceable in accordance with its terms, except as may be limited by general
principles of equity and subject to applicable bankruptcy, insolvency,
moratorium or similar laws of general application related to or affecting
creditors' rights.

                                      -2-
<PAGE>
     3.3. TRANSFER OF TITLE TO PURCHASED ASSETS. Upon transfer of the HGL Shares
to Seller in accordance with the terms hereof, Seller will have transferred to
Buyer all of its right, title and interest in and to the Purchased Assets and
risk of loss to the Purchased Assets shall pass to Buyer as of 9:00 A.M., New
York time on October 8, 2003.

     3.4. NO CONFLICTS. The execution and delivery of this Agreement by Seller
and the performance by Seller of its obligations hereunder will not (a) result
in a violation of Seller's certificate of incorporation or bylaws, each as
amended to date, (b) result in a violation of any law, judgment or order
applicable to Seller, (c) conflict with, result in a breach of, or constitute a
default, or give rise to any right of termination, acceleration or cancellation,
under any material contract to which Seller is a party or (d) result in the
creation or imposition of any Lien upon the Purchased Assets. Except as set
forth on Schedule 3.4, no consents, waivers or approvals of parties to any
material contract to which Seller is a party are required in connection with the
transactions contemplated hereby.

4. REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer represents and warrants to Seller as follows:

     4.1. ORGANIZATION AND GOOD STANDING. Buyer is a limited liability
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization, with full power and authority to execute and
deliver this Agreement and perform and consummate the transactions contemplated
hereby.

     4.2. AUTHORITY. The execution and delivery of this Agreement by Buyer and
the performance by Buyer of its obligations hereunder have been duly authorized
by all necessary action by Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes a valid and binding obligation of Buyer
enforceable in accordance with its terms, except as may be limited by general
principles of equity and subject to applicable bankruptcy, insolvency,
moratorium or similar laws of general application related to or affecting
creditors' rights.

     4.3. NO CONFLICTS. The execution and delivery of this Agreement by Buyer
and the performance by Buyer of its obligations hereunder will not (a) result in
a violation of such Buyer's organizational documents, (b) result in a violation
of any law, judgment or order applicable to Buyer, (c) conflict with, result in
a breach of, or constitute a default, or give rise to any right of termination,
acceleration or cancellation, under any material contract to which Buyer is a
party or (d) result in the creation or imposition of any Lien upon the HGL
Shares to be delivered by Buyer to Seller pursuant to this Agreement. No
consents, waivers or approvals of parties to any material contract to which
Buyer is a party are required in connection with the transactions contemplated
hereby.

     4.4. BUYER'S OWNERSHIP OF HGL SHARES. Buyer beneficially owns the HGL
Shares, free and clear of all Liens.

                                      -3-
<PAGE>
5. GENERAL PROVISIONS

     5.1. BUYER ACKNOWLEDGEMENT. Buyer hereby acknowledges that Seller makes no
express or implied representations or warranties whatsoever with respect to (a)
the Purchased Assets, which are being transferred to it on an "AS IS, WHERE IS"
basis, i.e., without representations or warranties regarding value, condition of
use, merchantability or fitness for a particular purpose or (b) the liabilities
relating to the Purchased Assets. Buyer hereby further acknowledges that it is
relying on its own familiarity with the Purchased Assets and the related
liabilities in making its decision to purchase the Purchased Assets and assume
the Assumed Liabilities and Buyer will not have any recourse against Seller
after the Closing by way of indemnification rights or claims for damages or
otherwise for any matter whatsoever relating to the Purchased Assets or the
Assumed Liabilities (other than a breach of the representation made by Seller in
Section 3.3 hereof).

     5.2. EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the transactions contemplated thereby, including all fees and expenses of
agents, representatives, counsel, and accountants.

     5.3. PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued at such time and in such manner as Seller determines. Unless consented to
by Seller in advance or required by applicable law, prior to Seller's public
announcement of the Closing, Buyer shall, and shall cause each of its affiliates
to, keep this Agreement strictly confidential and may not make any disclosure of
this Agreement to any Person.

     5.4. NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by fax (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service, in
each case to the appropriate addresses and fax numbers set forth below (or to
such other addresses and fax numbers as a party may designate by notice to the
other parties):

Seller:          Hampshire  Investments,  Limited - Hampshire  Group, Limited
                 Special Committee of the Board of Directors
                 605 Park Avenue
                 Apartment 9D
                 New York, New York 10021
                 Attention:  Irwin Winter
                 Facsimile: (212) 734-4045

                                      -4-
<PAGE>
with a copy to:  Kronish Lieb Weiner & Hellman LLP
                 1114 Avenue of the Americas
                 New York, N.Y. 10036
                 Attention:  Malcolm  I.  Ross,  Esq.  and  Scott  L.
                 Kaufman, Esq.
                 Facsimile No.: (212) 479-6275

Buyer:           Ludwig Kuttner, President
                 627/712 Plank Road
                 Keene, Virginia 22946
                 Facsimile No.: (434) 293-5721

with a copy to:  Willkie Farr & Gallagher LLP
                 767 Seventh Avenue, 39th Floor
                 New York, New York 10019
                 Attention:  Steven J. Gartner, Esq.
                 Facsimile No.: (212) 728-8111

     5.5. GOVERNING LAW. This Agreement will be governed by the laws of the
State of New York without regard to conflicts of laws principles.

     5.6. FURTHER ASSURANCES. The parties agree, to the extent commercially
reasonable, (a) to furnish upon request to each other such further information,
(b) to execute and deliver to each other such other documents, and (c) to do
such other acts and things, as may reasonably be requested for the purpose of
carrying out the intent of this Agreement and the transactions contemplated
hereby.

     5.7. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege.

     5.8. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes a complete and exclusive statement of the terms of this Agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the parties.

     5.9. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither Seller nor
Buyer may assign any of its rights under this Agreement without the prior
consent of the other party. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement.

                                      -5-
<PAGE>
     5.10. SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable through arbitration or otherwise, the other provisions of this
Agreement will remain in full force and effect. Any provision of this Agreement
held invalid or unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.

     5.11. SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.

     5.12. ARBITRATION. Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement or any breach of this
Agreement shall be determined and settled by arbitration in New York, New York,
by a panel of three arbitrators in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in effect. Any award rendered
therein shall be final and binding upon the parties thereto, provided, however,
that each of the parties shall bear its own legal fees and expenses.

     5.13. COUNTERPARTS. This Agreement may be executed via facsimile and in one
or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.

                            [SIGNATURE PAGE FOLLOWS]
                                      -6-
<PAGE>

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.



K HOLDINGS, LLC:                      HAMPSHIRE INVESTMENTS, LIMITED:





By:  /s/ Ludwig Kuttner               By:   /s/ Susan C. Chu
----------------------------          ---------------------------------
Name: Ludwig Kuttner                  Name:  Susan C. Chu
Title: Managing Member                Title:  Vice President


                                      -7-
<PAGE>
                                     ANNEX A

                                Purchased Assets

1.   Those certain apartments located at 33 West 67th Street, Apts. 4RE and 4RW,
     New York, NY 10023.

2.   That certain real property (known as the Terraces Building) located at
     100-108 West Main Street, Charlottesville, VA 22902 (Tax Map 28, parcel
     19).

3.   That certain real property (known as the Terraces Building Parking Lot)
     located adjacent to the Terraces Building.

4.   102.200 shares of the common stock of Bonton Music a.s., a corporation
     incorporated under the laws of the Czech Republic.

5.   102.200 shares of the common stock of Bonton Pictures a.s., a corporation
     incorporated under the laws of the Czech Republic.

6.   102.200 shares of the common stock of Bonton Book a.s., a corporation
     incorporated under the laws of the Czech Republic.

7.   204.400 shares of the common stock of Bonton a.s., a corporation
     incorporated under the laws of the Czech Republic.

8.   51.100 shares of the common stock of Bonton Discs a.s., a corporation
     incorporated under the laws of the Czech Republic.

9.   102.200 shares of the common stock of Bonton Film Entertainment a.s., a
     corporation incorporated under the laws of the Czech Republic.

10.  15,938 shares of Einbecker Brauhaus a.g., a corporation incorporated under
     the laws of the Czech Republic.


                                      -8-
<PAGE>

                                     ANNEX B

                               Assumed Liabilities

1.   Security deposits and prepaid rents in the amount of $89,288.00 related to
     the Terraces Building.

2.   All contractual obligations relating to the Purchased Assets.

















                                      -9-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>exhib105.txt
<DESCRIPTION>EXHIBIT 10.5-STOCK PURCHASE AGREEMENT
<TEXT>
                                                                    EXHIBIT 10.5
                          STOCK PURCHASE AGREEMENT


     THIS AGREEMENT ("Agreement") is made as of October 8, 2003, by and between
Hampshire Group, Limited, a corporation organized under the laws of the State of
Delaware ("Seller"), and each individual listed on Annex A to this Agreement
(each a "Buyer" and together, "Buyers").

                                    RECITALS


     WHEREAS, Seller owns all of the issued and outstanding shares of capital
stock (the "HIL Shares") of Hampshire Investments, Limited (the "HIL");

     WHEREAS, HIL primarily holds real estate property and other investments;

     WHEREAS, Seller has determined to dispose of HIL because of its desire to
divest itself of the real estate properties and business conducted by HIL;

     WHEREAS, Seller was represented in the negotiation of such divestiture by a
special committee of its Board of Directors composed entirely of independent
directors;

     WHEREAS, the Board of Directors of the Seller desires for Seller to sell
the HIL Shares to Buyers, and Buyers desire to purchase the HIL Shares from
Seller, on the terms and subject to the conditions set forth herein; and

     WHEREAS, Buyers are the respective owners of the shares of issued and
outstanding common stock, par value $0.10 per share, of Seller (the "Seller
Common Stock") listed after their names on Annex A hereto, representing an
aggregate of 450,000 shares, which shares shall be transferred to Seller in
exchange for the HIL Shares.

     NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, and for other good and valuable consideration, the sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

                                   AGREEMENT

1.  DEFINITIONS

     For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:

     "Buyer" shall have the meaning given to such term in the first paragraph of
this Agreement.

     "Buyers" shall have the meaning given to such term in the first paragraph
of this Agreement.

     "Closing" shall have the meaning given to such term in Section 2.2.
<PAGE>

     "Closing Date" shall have the meaning given to such term in Section 2.2.

     "HIL Shares" has the meaning given to such term in the Recitals of this
Agreement.

     "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien, security interest, charge, preference,
participation interest, priority or security agreement.

     "Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity.

     "Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to the Securities Act
or any successor law.

     "Seller" has the meaning given to such term in the first paragraph of this
Agreement.

2.   PURCHASE AND SALE OF HIL SHARES; CLOSING

     2.1. PURCHASE AND SALE OF HIL SHARES. On the terms and subject to the
conditions hereof, (a) Seller hereby sells, assigns, transfers and conveys the
HIL Shares, free and clear of any Liens, to Buyers in the respective amounts
listed after their names on Annex A hereto, and Buyers hereby purchase and
accept the HIL Shares from Seller; and (b) each Buyer hereby sells, assigns,
transfers and conveys the respective number of shares of Seller Common Stock
listed after such Buyer's name on Annex A hereto.

     2.2. CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Willkie Farr & Gallagher LLP, 787
Seventh Avenue, New York, New York 10019, at such time (the "Closing Date") as:

          (a) Seller delivers to Buyers certificates representing the HIL
     Shares, duly endorsed (or accompanied by duly executed stock powers), for
     transfer to Buyers, or otherwise in Buyers' names; and

          (b) Each Buyer delivers to Seller the number of shares of Seller
     Common Stock listed after such Buyer's name on Annex A hereto, by delivery
     of certificates representing such shares, duly endorsed (or accompanied by
     duly executed stock powers), for transfer to Seller, or otherwise causes
     such shares to be transferred to Seller.

3. REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller represents and warrants to Buyers as follows:
                                       2
<PAGE>

     3.1. ORGANIZATION AND GOOD STANDING. Each of Seller and HIL is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Seller has full corporate power and authority to
execute and deliver this Agreement and perform and consummate the transactions
contemplated hereby.

     3.2. AUTHORITY. The execution and delivery of this Agreement by Seller and
the performance of Seller's obligations hereunder have been duly authorized by
all necessary action by Seller. This Agreement has been duly executed and
delivered by Seller and constitutes a valid and binding obligation of Seller
enforceable in accordance with its terms, except as may be limited by general
principles of equity and subject to applicable bankruptcy, insolvency,
moratorium or similar laws of general application related to or affecting
creditors' rights.

     3.3. CAPITALIZATION. Immediately prior to the Closing, the authorized
capital stock of HIL will consist of 1,000 shares of common stock, $0.01 par
value per share, of which 1,000 shares are issued and outstanding. Upon
consummation of the transactions contemplated hereby, Buyers will acquire good
and valid title to all issued and outstanding shares of HIL.

     3.4. OWNERSHIP OF HIL SHARES. Seller beneficially owns the HIL Shares free
and clear of all Liens.

     3.5. NO CONFLICTS. The execution and delivery of this Agreement by Seller
and the performance of Seller's obligations hereunder will not (a) result in a
violation of Seller's certificate of incorporation or bylaws, each as amended to
date, (b) result in a violation of any law, judgment or order applicable to
Seller, (c) conflict with, result in a breach of, or constitute a default, or
give rise to any right of termination, acceleration or cancellation, under any
material contract to which Seller is a party or (d) result in the creation or
imposition of any Lien upon the HIL Shares. No consents, waivers or approvals of
parties to any material contract to which Seller is a party are required in
connection with the transactions contemplated hereby.

4. REPRESENTATIONS AND WARRANTIES OF BUYERS

     Each Buyer represents and warrants to Seller as follows:

     4.1. AUTHORITY. The execution and delivery of this Agreement by Buyer and
the performance of Buyer's obligations hereunder have been duly authorized by
all necessary action by Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes a valid and binding obligation of Buyer
enforceable in accordance with its terms, except as may be limited by general
principles of equity and subject to applicable bankruptcy, insolvency,
moratorium or similar laws of general application related to or affecting
creditors' rights.

     4.2. SECURITIES ACT REPRESENTATIONS. Buyer understands that the issuance to
Buyer of the HIL Shares as contemplated hereby is intended to be exempt from
registration under the Securities Act. Buyer is not intending to, and will not
offer or distribute the HIL Shares acquired hereunder or any interest therein
except in compliance with the Securities Act. Buyer has sufficient knowledge and

                                       3
<PAGE>
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the HIL Shares and Buyer is capable of
bearing the economic risks of such investment, including a complete loss
thereof. Buyer has been given the opportunity to ask questions of and receive
answers from Seller concerning Seller, HIL and the HIL Shares. Buyer has been
furnished with all information it deems necessary or desirable to evaluate the
merits and risks of the acquisition of the HIL Shares and Seller has made
available to Buyer or its agents all documents and information relating to an
investment in the HIL Shares requested by or on behalf of Buyer. In evaluating
the suitability of an investment in the HIL Shares, Buyer has not relied upon
any representations (other than the representations and warranties of Seller
contained herein) or other information (other than as contemplated by the
preceding sentences), whether oral or written, made by or on behalf of Seller.
Buyer is an "accredited investor" as such term is defined in Regulation D under
the Securities Act.

     4.3. NO CONFLICTS. The execution and delivery of this Agreement by Buyer
and the performance of Buyer's obligations hereunder will not (a) result in a
violation of such Buyer's organizational documents (if such Buyer is a
corporation, limited liability company, partnership or other entity), (b) result
in a violation of any law, judgment or order applicable to Buyer, (c) conflict
with, result in a breach of, or constitute a default, or give rise to any right
of termination, acceleration or cancellation, under any material contract to
which Buyer is a party or (d) result in the creation or imposition of any Lien
upon the shares of Seller Common Stock to be delivered by Buyer to Seller
pursuant to this Agreement. No consents, waivers or approvals of parties to any
material contract to which Buyer is a party are required in connection with the
transactions contemplated hereby.

     4.4. BUYERS' OWNERSHIP OF SELLER COMMON STOCK. Each Buyer beneficially owns
the number of shares of Seller Common Stock listed after his name on Annex A
hereto, free and clear of all Liens.

5. GENERAL PROVISIONS

     5.1. TAX INDEMNIFICATION. Seller shall indemnify HIL, its subsidiaries, and
each Buyer, and hold them harmless from and against without duplication, any
loss, claim, liability, expense, or other damage attributable to (i) all income
taxes (or the non-payment thereof) of HIL and its subsidiaries for all taxable
periods ending on or before the Closing Date and the portion through the end of
the Closing Date for any taxable period that includes (but does not end on) the
Closing Date and (ii) all income taxes of any member of an affiliated,
consolidated, combined or unitary group of which HIL or any of its subsidiaries
(or any predecessor of any of the foregoing) is or was a member on or prior to
the Closing Date, including pursuant to Treasury Regulation ss.1.1502-6 or any
analogous or similar state, local, or foreign law or regulation.

     5.2. BUYER ACKNOWLEDGEMENT. Each Buyer hereby acknowledges that Seller
makes no express or implied representations or warranties whatsoever (x) with
respect to the business, financial condition, results of operations or prospects

                                       4
<PAGE>
(including probable success or profitability after the Closing) of HIL and its
subsidiaries or (y) the assets, whether real, personal or mixed, owned directly
or indirectly by HIL, which are being indirectly transferred to it on an "AS IS,
WHERE IS" basis, i.e., without representations or warranties regarding value,
condition of use, merchantability or fitness for a particular purpose or (z) the
liabilities of HIL which relate directly or indirectly to such HIL assets. Each
Buyer hereby further acknowledges he or she is relying on his or her own
familiarity with HIL and its direct and indirect assets and liabilities in
making his or her decision to purchase the HIL Shares and no Buyer will have any
recourse against Seller after the Closing, by way of indemnification rights or
claims for damages or otherwise for any matter whatsoever relating to HIL or its
direct or indirect assets or liabilities (other than a breach of the
representation made by Seller in Section 3.4 hereof and as set forth in Section
5.1).

     5.3. EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the transactions contemplated thereby, including all fees and expenses of
agents, representatives, counsel, and accountants.

     5.4. PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued at such time and in such manner as Seller determines. Unless consented to
by Seller in advance or required by applicable law, prior to Seller's public
announcement of the Closing, each Buyer shall, and shall cause each of its
affiliates to, keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any Person.

     5.5. NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by fax (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service, in
each case to the appropriate addresses and fax numbers set forth below (or to
such other addresses and fax numbers as a party may designate by notice to the
other parties):

         Seller:           Hampshire Group, Limited
                           Special Committee of the Board of Directors
                           605 Park Avenue
                           Apartment 9D
                           New York, New York 10021
                           Attention:  Irwin Winter
                           Facsimile: (212) 734-4045

                                       5
<PAGE>
         with a copy to:   Kronish Lieb Weiner & Hellman LLP
                           1114 Avenue of the Americas
                           New York, N.Y. 10036
                           Attention:  Malcolm  I.  Ross,  Esq.  and  Scott  L.
                           Kaufman, Esq.
                           Facsimile No.: (212) 479-6275


         Buyer:            Ludwig Kuttner, President
                           627/712 Plank Road
                           Keene, Virginia 22946
                           Facsimile No.: (434) 293-5721


         with a copy to:   Willkie Farr & Gallagher LLP
                           767 Seventh Avenue, 39th Floor
                           New York, New York 10019
                           Attention:  Steven J. Gartner, Esq.
                           Facsimile No.: (212) 728-8111

     5.6. GOVERNING LAW. This Agreement will be governed by the laws of the
State of Delaware without regard to conflicts of laws principles.

     5.7. FURTHER ASSURANCES. The parties agree, to the extent commercially
reasonable, (a) to furnish upon request to each other such further information,
(b) to execute and deliver to each other such other documents, and (c) to do
such other acts and things, as may reasonably be requested for the purpose of
carrying out the intent of this Agreement and the transactions contemplated
hereby.

     5.8. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege.

     5.9. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes a complete and exclusive statement of the terms of this Agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the parties.

     5.10. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither the
Seller, on the one hand, nor any of the Buyers, on the other hand, may assign

                                       6
<PAGE>
any of its rights under this Agreement without the prior consent of the other
party. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement.

     5.11. SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable through arbitration or otherwise, the other provisions of this
Agreement will remain in full force and effect. Any provision of this Agreement
held invalid or unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.

     5.12. SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.

     5.13. ARBITRATION. Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement or any breach of this
Agreement shall be determined and settled by arbitration in New York, New York,
by a panel of three arbitrators in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in effect. Any award rendered
therein shall be final and binding upon the parties thereto, provided, however,
that each of the parties shall bear its own legal fees and expenses.

     5.14. DEFENSE OF CLAIMS.

          (a) Seller shall indemnify, defend and hold harmless Buyers from and
     against any and all losses, damages, amounts paid in settlement, judgments
     and fees and expenses of counsel (including fees and expenses relating to
     defense of any Proceedings) resulting from or arising out of any claim,
     action, suit or proceeding ("Proceedings") threatened or commenced by any
     Person relating to the transactions contemplated hereby (other than
     Proceedings commenced by Seller against Buyers for a breach of this
     Agreement). If any Buyer receives notice of any matter which may give rise
     to a claim for indemnification hereunder, such Buyer shall notify Seller
     promptly thereafter; provided, however, that no delay on the part of Buyers
     in notifying Seller shall relieve Seller from any obligation hereunder
     unless, and then solely to the extent that, Seller is actually prejudiced
     thereby.

                                       7
<PAGE>
          (b) Once any Buyer has given notice of the matter to Seller, Seller
     shall assume the defense of such matter and defend against the matter in
     any manner it deems appropriate. Buyers may retain separate counsel at
     their sole cost and expense (except that Seller shall be responsible for
     the fees and expenses of one counsel for Buyers to the extent any Buyer is
     advised, in writing by its counsel, that the counsel Seller has selected
     has a conflict of interest).

          (c) Seller shall be relieved of its obligations under this Section
     5.14 as to any Buyer if such Buyer shall consent to the entry of a judgment
     or enter into any settlement with respect to any matter which may give rise
     to a claim for indemnification without the written consent of Seller.

          (d) Notwithstanding anything to the contrary contained herein, the
     provisions of this Section 5.14 shall be subject to the limitations, if
     any, on indemnification set forth in Section 145 of the Delaware General
     Corporation Law ("the GCL") with respect to any Buyer who is or was a
     director, officer, employee or agent of Seller or any subsidiary of Seller
     (it being the intent of the parties hereto to provide indemnification to
     the Buyers to the maximum extent permitted by applicable law). Further, any
     such Buyer hereby agrees to grant to the Seller the undertaking
     contemplated by Section 145 (e) of the GCL as a condition to the receipt in
     advance of any expenses of any Proceeding if, in the opinion of counsel to
     Seller, such undertaking is required under applicable law in order to
     permit Seller to advance expenses hereunder.

     5.15. COUNTERPARTS. This Agreement may be executed via facsimile and in one
or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.

                            [SIGNATURE PAGE FOLLOWS]







                                       8
<PAGE>


     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.

BUYERS:                       HAMPSHIRE GROUP, LIMITED:

                              By: THE SPECIAL COMMITTEE OF THE BOARD OF
/s/ Ludwig Kuttner            DIRECTORS CONSTITUTED PURSUANT TO A RESOLUTION
---------------------------   OF THE BOARD OF DIRECTORS DATED JULY 7, 2003
Ludwig Kuttner


/s/ Peter W. Woodworth        By:  /s/ Irwin Winter
---------------------------   ----------------------------
Peter W. Woodworth            Name: Irwin Winter
                              Title: Chairman


/s/ Charles W. Clayton
---------------------------
Charles W. Clayton

                                       9
<PAGE>
                                     ANNEX A


                                    Number of shares
                                     of Seller Common     Number of HIL Shares
              Name                    Stock being paid      being purchased
------------------------------------------------------------------------- ----

Ludwig Kuttner
PO Box 359                                 360,000                800
Keene, VA  22946
Social Security No.: 226 31 5630
------------------------------------------------------------------------------
Peter W. Woodworth
702 Main Street                             76,500                170
Winona, MN  55987
Social Security No.: 470 52 5623
------------------------------------------------------------------------------
Charles W. Clayton
300 Compass Point                           13,500                 30
Anderson, SC  29625
Social Security No.: 249 58 4345
------------------------------------------------------------------------------













                                       10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>exhib106.txt
<DESCRIPTION>EXHIBIT 10.6-CREDIT AGREEMENT
<TEXT>
                                                                    EXHIBIT 10.6


                          CREDIT AGREEMENT AND GUARANTY

                                   dated as of

                                 August 15, 2003

                                      among

                            HAMPSHIRE GROUP, LIMITED,

                                  as Borrower,

                            HAMPSHIRE Group, LIMITED,
                           HAMPSHIRE DESIGNERS, INC.,
                                       and
                                 ITEM-EYES, INC.
                      as Letter of Credit Account Parties,

                           HAMPSHIRE DESIGNERS, INC.,
                         HAMPSHIRE INVESTMENTS, LIMITED,
                        GLAMOURETTE FASHION MILLS, INC.,
                                       and
                                 ITEM-EYES, INC.
                                 as Guarantors,

                                       and

                                 HSBC BANK USA,
                              JPMORGAN CHASE BANK,
                    THE CIT GROUP/COMMERCIAL SERVICES, INC.,
                              FLEET NATIONAL BANK,
                        ISRAEL DISCOUNT BANK OF NEW YORK
                                       and
                              BANK OF AMERICA, N.A.
                                    as Banks,

                                       and

                                 HSBC BANK USA,

                                    as Agent



<PAGE>
                                TABLE OF CONTENTS
                                                                          Page

ARTICLE I  DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION..........1
   Section 1.01  Definitions................................................1
   Section 1.02  Accounting Terms..........................................21
   Section 1.03  Computation of Time Periods...............................22
   Section 1.04  Rules of Construction.....................................22
ARTICLE II  REVOLVING CREDIT LOANS.........................................22
   Section 2.01  Revolving Credit..........................................22
   Section 2.02  Notice and Manner of Borrowing............................22
   Section 2.03  Conversions...............................................23
   Section 2.04  Non-Receipt of Funds by Agent.............................23
   Section 2.05  Interest..................................................23
   Section 2.06  Notes.....................................................24
   Section 2.07  Optional and Mandatory Prepayments........................24
   Section 2.08  Method of Payment.........................................25
   Section 2.09  Use of Proceeds...........................................26
   Section 2.10  Minimum Amounts...........................................26
   Section 2.11  Establishment of Loan Account; Collection of Accounts.....26
   Section 2.12  Closing Fee............................................. .26
   Section 2.13  Commitment Fee............................................26
ARTICLE III  LETTERS OF CREDIT.............................................27
   Section 3.01  Trade Letters of Credit; Cash Collateral for Letters of
     Credit Expiring After Termination Date................................27
   Section 3.02  Reimbursement Obligation..................................27
   Section 3.03  Payment of Commissions, Expenses and Interest.............28
   Section 3.04  Proper Drawing; Letter of Credit Issuing Bank's Honoring..28
   Section 3.05  Standby Letters of Credit.................................29
   Section 3.06  Amendment; Change; Modification; No Waiver................29
   Section 3.07  U.C.P. and I.S.P.; Agreements and Acknowledgments;
     Indemnification.......................................................29
   Section 3.08  Licenses; Insurance; Regulations..........................31
   Section 3.09  Airway and Steamship Guaranties...........................31
   Section 3.10  Additional Security.......................................31
   Section 3.11  Continuing Rights and Obligations.........................31
   Section 3.12  Instructions; No Liability................................32
   Section 3.13  Steamship Guaranty........................................32
   Section 3.14  Letter of Credit Application and Agreement................32
   Section 3.15  Existing Letters of Credit; Use of Term "Letter of
     Credit Issuing Bank"..................................................33
   Section 3.16  Borrower's Obligations Under Letters of Credit............33
ARTICLE IV  PARTICIPATION..................................................33
   Section 4.01  Participating Banks' Pro Rata Shares......................33
   Section 4.02  Sale and Purchase of Participation........................33
   Section 4.03  Participation in Fees and Collateral; Relationship........34

                                       i
<PAGE>
   Section 4.04  Procedures................................................34
   Section 4.05  Collections and Remittances...............................34
   Section 4.06  Sharing of Setoffs and Collections........................35
   Section 4.07  Indemnification; Costs and Expense........................35
   Section 4.08  Administration; Standard of Care..........................36
   Section 4.09  Independent Investigation by the Participating Banks......37
   Section 4.10  Participating Banks' Ownership of Interests in the
     Participation; Repurchases by the Letter of Credit Issuing Banks......37
ARTICLE V  GUARANTY........................................................38
   Section 5.01  Guaranty..................................................38
   Section 5.02  Guarantor's Guaranty Obligations Unconditional............38
   Section 5.03  Waivers...................................................39
   Section 5.04  Subrogation...............................................39
   Section 5.05  Limitation of Liability...................................39
ARTICLE VI  CONDITIONS PRECEDENT...........................................39
   Section 6.01  Conditions Precedent to Initial Use of a Credit
     Facility on and after the Effective Date..............................39
   Section 6.02  Conditions Precedent to All Credit Facilities.............42
   Section 6.03  Deemed Representation.....................................42
ARTICLE VII  REPRESENTATIONS AND WARRANTIES................................43
   Section 7.01  Incorporation.............................................43
   Section 7.02  Corporate Power and Authority; No Conflicts...............43
   Section 7.03  Legally Enforceable Agreements............................43
   Section 7.04  Litigation................................................43
   Section 7.05  Financial Statements......................................43
   Section 7.06  Ownership and Liens.......................................44
   Section 7.07  Taxes.....................................................44
   Section 7.08  ERISA.....................................................44
   Section 7.09  Subsidiaries; Ownership of Guarantors; Investments........44
   Section 7.10  Operation of Business.....................................45
   Section 7.11  No Default on Outstanding Judgments or Orders.............45
   Section 7.12  No Defaults on Other Agreements...........................45
   Section 7.13  Labor Disputes and Acts of God............................45
   Section 7.14  Governmental Regulation...................................45
   Section 7.15  Partnerships..............................................45
   Section 7.16  Environmental Protection..................................45
   Section 7.17  Solvency..................................................46
   Section 7.18  Properties; Priority of Liens.............................46
ARTICLE VIII  AFFIRMATIVE COVENANTS........................................46
   Section 8.01  Maintenance of Existence..................................46
   Section 8.02  Conduct of Business.......................................46
   Section 8.03  Maintenance of Properties.................................46
   Section 8.04  Maintenance of Records....................................46
   Section 8.05  Maintenance of Insurance..................................46
   Section 8.06  Compliance with Laws......................................46

                                       ii

<PAGE>
   Section 8.07  Right of Inspection.......................................47
   Section 8.08  Reporting Requirements....................................47
   Section 8.09  Compliance With Environmental Laws........................49
ARTICLE IX  NEGATIVE COVENANTS.............................................49
   Section 9.01  Debt......................................................50
   Section 9.02  Guaranties................................................50
   Section 9.03  Liens.....................................................51
   Section 9.04  Sale of Assets............................................52
   Section 9.05  Transactions with Affiliates..............................52
   Section 9.06  Investments; Acquisitions.................................53
   Section 9.07  Mergers...................................................54
   Section 9.08  Leases....................................................54
   Section 9.09  Dividends.................................................54
   Section 9.10  Restricted Payments.......................................54
   Section 9.11  Fiscal Year...............................................54
   Section 9.12  Changes, Amendments or Modifications......................54
   Section 9.13  Nature of Business........................................55
   Section 9.14  Double Negative Pledge....................................55
   Section 9.15  Senior Secured Debt.......................................55
   Section 9.16  Insurance Company Provisions..............................55
   Section 9.17  Factoring Agreements......................................55
ARTICLE X  FINANCIAL COVENANTS.............................................55
   Section 10.01  Consolidated Tangible Net Worth..........................55
   Section 10.02  Consolidated Fixed Charge Coverage Ratio.................55
   Section 10.03  Consolidated Average Current Ratio.......................55
   Section 10.04  Consolidated Capital Expenditures........................56
   Section 10.05  Revolving Credit Loan and Insurance Loan Coverage........56
ARTICLE XI  EVENTS OF DEFAULT..............................................56
   Section 11.01  Events of Default........................................56
   Section 11.02  Remedies.................................................58
ARTICLE XII  THE AGENT AND COLLATERAL MONITOR..............................59
   Section 12.01  Appointment, Powers and Immunities of Agent..............59
   Section 12.02  Reliance by Agent........................................59
   Section 12.03  Defaults.................................................59
   Section 12.04  Rights of Agent as a Bank................................60
   Section 12.05  Indemnification of Agent.................................60
   Section 12.06  Documents................................................60
   Section 12.07  Non-Reliance on Agent and Other Banks....................60
   Section 12.08  Failure of Agent to Act..................................61
   Section 12.09  Resignation or Removal of Agent..........................61
   Section 12.10  Amendments Concerning Agency Function....................61
   Section 12.11  Liability of Agent.......................................61
   Section 12.12  Transfer of Agency Function..............................61
   Section 12.13  Withholding Taxes........................................62
   Section 12.14  Collateral Monitor.......................................62

                                      iii
<PAGE>
ARTICLE XIII  YIELD PROTECTION.............................................63
   Section 13.01  Additional Costs.........................................63
   Section 13.02  Illegality...............................................64
   Section 13.03  Certain Compensation.....................................64
ARTICLE XIV  MISCELLANEOUS.................................................64
   Section 14.01  Amendments and Waivers...................................64
   Section 14.02  Usury....................................................65
   Section 14.03  Expenses; Indemnification................................65
   Section 14.04  Assignment; Participation; Additional Bank...............66
   Section 14.05  Notices..................................................67
   Section 14.06  Setoff; Sharing..........................................67
   Section 14.07  Jurisdiction; Immunities.................................68
   Section 14.08  Governing Law............................................68
   Section 14.09  Counterparts.............................................68
   Section 14.10  Exhibits and Schedules...................................69
   Section 14.11  Table of Contents; Headings..............................69
   Section 14.12  Severability.............................................69
   Section 14.13  Integration..............................................69
   Section 14.14  Jury Trial Waiver........................................69
   Section 14.15  Spin-off of HIL..........................................69
   Section 14.16  HSBC.....................................................70





                                       iv
<PAGE>
EXHIBITS AND SCHEDULES
----------------------

Exhibits
--------

Exhibit A.........Form of Pledge Agreement
Exhibit B.........Form of Security Agreement
Exhibit C.........Form of Trademark Security Agreement
Exhibit D.........Form of Borrowing Notice
Exhibit E.........Form of Borrowing Base Certificate
Exhibit F.........Form of Note
Exhibit G.........Form of Assignment and Acceptance
Exhibit H.........Form of Intercompany Demand Note

Schedules
---------

Schedule 1.01(a)..Eligible Inventory Locations
Schedule 1.01(b)..Eligible Trade Letter of Credit Locations
Schedule 1A.01....Existing Letters of Credit
Schedule 7.04.....Litigation
Schedule 7.06.....Trademarks
Schedule 7.08.....ERISA Matters
Schedule 7.09.....Direct and Indirect Subsidiaries; Ownership of Guarantors,
                  Investments
Schedule 7.13.....Labor Disputes and Acts of God
Schedule 9.03.....Permitted Liens











                                      -5-

<PAGE>
     CREDIT AGREEMENT AND GUARANTY dated as of August 15, 2003, among HAMPSHIRE
GROUP, LIMITED, ("Borrower"), HAMPSHIRE DESIGNERS, INC., ("Designers"),
HAMPSHIRE INVESTMENTS, LIMITED ("HIL"), GLAMOURETTE FASHION MILLS, INC.,
("Glamourette"), ITEM-EYES, INC. ("Item-Eyes"), HSBC BANK USA ("HSBC"), JPMORGAN
CHASE BANK ("Chase"), THE CIT GROUP/COMMERCIAL SERVICES, INC. ("CIT"), FLEET
NATIONAL BANK, ("Fleet"), ISRAEL DISCOUNT BANK OF NEW YORK ("IDB") and BANK OF
AMERICA, N.A. ("BOA") (HSBC, Chase, CIT, Fleet, IDB and BOA individually a
"Bank" and collectively the "Banks"), HSBC BANK USA as Letter of Credit Issuing
Bank for all Letters of Credit other than Existing Letters of Credit, JPMORGAN
CHASE BANK as Letter of Credit Issuing Bank for the Existing Letters of Credit
and HSBC BANK USA, as Agent for the Banks (in such capacity, together with any
successors in such capacity, the "Agent").

     The parties hereto agree as follows:

                                   ARTICLE I

             DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION

     Section 1.01       Definitions. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have a
correlative meaning when used in the plural and vice versa):

     "Accounts" means all of the accounts receivable as defined in the Borrower
Security Agreement and the Guarantor Security Agreements.

     "Affiliate" means, as to any Person, any other Person: (a) which directly
or indirectly controls, or is controlled by, or is under common control with
such Person; (b) which directly or indirectly beneficially owns or holds five
percent (5%) or more of any class of voting stock of the such Person; or (c)
five percent (5%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise. The term "Affiliate"
shall include, without limitation, HIL.

     "Agent" means HSBC, when acting in its capacity as Agent under any of the
Loan Documents, and any successor thereto.

     "Agent's Office" means the address of HSBC as set forth on the signature
page of this Agreement, or such other address as HSBC may designate by written
notice to Borrower, the Guarantors and the Banks.

     "Agreement" means this Credit Agreement and Guaranty.

     "Airway Guaranty" has the meaning specified in Section 3.09 hereof.

     "Applicable Margin" means with respect to a Eurodollar Loan, one and eight
tenths (1.80%) percent.

     "Application" means the application by a Letter of Credit Party for a
Letter of Credit.

                                      -1-
<PAGE>
     "Assignment and Acceptance" means an Assignment and Acceptance
substantially in the form of Exhibit G hereto.

     "Assignment of Proceeds Agreement" means Assignment of Factored Credit
Balance and Proceeds Agreement, in form and substance satisfactory to Agent,
duly executed by Borrower and the Restricted Subsidiaries and any Factor and a
Consent and Acknowledgment thereto duly executed by such Factor.

     "Authorized Person" means any duly authorized officer or employee, or
combination thereof of Borrower.

     "Availability for Revolving Credit Loans" means the lesser of (a) the
Revolving Credit Commitment minus the sum of: (i) the Letter of Credit
Obligations and (ii) the aggregate amount of Borrower's and its Restricted
Subsidiaries' outstanding obligations under the Unsecured Lines and (b) the Net
Borrowing Base minus the Letter of Credit Obligations.

     "Availability Reserves" shall mean, as of any date of determination, such
reserves in amounts as Agent may from time to time establish and revise in good
faith in accordance with customary credit practices in the commercial finance
industry reducing the amount of Revolving Credit Loans and Letters of Credit
which would otherwise be available to the Borrower under the lending formula(s)
provided for herein: (a) to reflect events, conditions, contingencies or risks
which, as determined in good faith by Agent in accordance with its customary
credit practices, do or could reasonably be expected to adversely affect either
(i) the Collateral or its value, (ii) the assets or business of the Borrower or
any Restricted Subsidiary of the Borrower or (iii) the security interests and
other rights of Agent in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Agent's good faith belief
that any collateral report or financial information furnished to it any Bank by
or on behalf of the Borrower or any Subsidiary of the Borrower, is or may have
been incomplete, inaccurate or misleading in any material respect or (c) in
respect of any state of facts which Agent determines in good faith constitutes
an Event of Default or may, with notice or the passage of time or both,
constitute an Event of Default. The amount of any Availability Reserve
established by Agent shall have a reasonable relationship to the event,
condition or other matter which is the basis for such reserve as determined by
Agent in good faith.

     "Bank" or "Banks" has the meaning specified in the preamble to this
Agreement.

     "Bank Parties" means Agent, each of the Banks and each of the Letter of
Credit Issuing Banks.

     "Banking Day" means any day on which commercial banks are not authorized or
required to close in London, England, New York City, New York, Greenville, South
Carolina or Anderson, South Carolina.

     "Board of Governors" means the Board of Governors of the Federal Reserve
System or any successor.

     "Book Value" shall mean, as to any inventory in respect of which such
amount is to be determined, the lower of (a) the cost (as reflected in the
general ledgers of Designers, Item-Eyes, or, with the approval of Agent, any
other existing or future Subsidiary of the Borrower), as applicable or (b)
market value (both cost and market value being determined in accordance with
GAAP calculated on a first in first out basis).

     "Borrower Pledge Agreement" means the Pledge Agreement executed by Borrower
in favor of Agent for the ratable benefit of the Bank Parties.

                                      -2-
<PAGE>
     "Borrower Security Agreement" means the Security Agreement executed by
Borrower in favor of Agent for the ratable benefit of the Bank Parties.

     "Borrower Trademark Security Agreement" means the Trademark Security
Agreement executed by Borrower in favor of Agent for the ratable benefit of the
Bank Parties.

     "Borrowing Base" shall mean, at any time, an amount equal to the sum of
(without duplication):

     (a) eighty-five percent (85%) of the Net Amount of Eligible Accounts, plus

     (b) the lesser of: (x) fifty percent (50%) of Net Amount of Eligible
Inventory, or (y) the amount for the period in any given year indicated below:

          (i) $30,000,000 for the period January 1 through March 31,

          (ii) $35,000,000 for the period April 1 through May 31,

          (iii) $50,000,000 for the period June 1 through October 31, and

          (iv) $25,000,000 for the period November 1 through December 31, plus

     (c) fifty percent (50%) of the aggregate undrawn amount of all outstanding
Eligible Trade Letters of Credit, plus

     (d) fifty percent (50%) of the amount of Eligible In-Transit Inventory,
plus

     (e) the Supplemental Amount, less

     (f) Availability Reserves.

     "Borrowing Base Certificate" means the certificate substantially in the
form of Exhibit E annexed hereto.

     "Borrowing Notice" has the meaning specified in Section 2.02 hereof.

     "Capital Lease" means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.

     "Cash Collateral" means a deposit by Borrower, made in immediately
available funds, to a savings, checking or time deposit account at HSBC or the
purchase by Borrower of a certificate of deposit issued by HSBC and the
execution of all documents and the taking of all steps required to give Agent a
perfected security interest for the benefit of the Banks in such deposit or
certificate of deposit.

     "Change of Control" means any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act) shall have become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting

                                      -3-
<PAGE>
Shares entitled to exercise more than 51% of the total power of all outstanding
Voting Shares of the Borrower (including any Voting Shares which are not then
outstanding of which such person or group is deemed the beneficial owner). For
purposes of this definition, the term "Voting Shares" shall mean all outstanding
shares of any class or classes (however designated) of capital stock of the
Borrower entitled to vote generally in the election of members of the Board of
Directors thereof.

     "Chase" means JPMorgan Chase Bank.

     "CIT" has the meaning specified in Section 9.03(f) hereof.

     "Code" means the Internal Revenue Code of 1986.

     "Collateral" means any and all personal property subject to a Lien granted
by any of the Security Documents and this Agreement.

     "Collateral Monitor" means HSBC, when acting in its capacity as Collateral
Monitor under any of the Loan Documents, and any successor thereto.

     "Commitment" means, collectively, the Revolving Credit Commitment, the
Trade Letter of Credit Commitment and the Standby Letter of Credit Commitment.

     "Consolidated Amortization" means the amortization or write-off of impaired
value adjustments of the intangible assets of Borrower and the Restricted
Subsidiaries, on a consolidated basis, all as determined in accordance with
GAAP.

     "Consolidated Capital Expenditures" means the Dollar amount of gross
expenditures (including the principal portion of payments under Capital Leases)
made for real property, fixed assets, property, plant and equipment, and all
renewals, improvements and replacements thereto (including, but not limited to,
maintenance and repairs thereof but only to the extent required to be
capitalized in accordance with GAAP) incurred or paid by Borrower and the
Restricted Subsidiaries.

     "Consolidated Depreciation" means depreciation of Borrower and its
Restricted Subsidiaries, on a consolidated basis, all as determined in
accordance with GAAP.

     "Consolidated Earnings Before Interest, Taxes, Depreciation and
Amortization" means, for any period, Consolidated Net Income, plus Consolidated
Interest Expense, plus Consolidated Taxes, plus Consolidated Depreciation, plus
Consolidated Amortization, all for such period.

     "Consolidated Fixed Charge Ratio" means a ratio of: (i) (a) Consolidated
Earnings Before Interest, Taxes, Depreciation and Amortization for such period,
less (b) Consolidated Capital Expenditures made by the Borrower or any
Restricted Subsidiary during such period, less (c) Consolidated Taxes paid
during such period, to (ii) the sum of (a) Consolidated Interest Expense for
such period, plus (b) Consolidated Principal Amortization for such period, in
each case excluding the performance of HIL from any of the foregoing
calculations.

     "Consolidated Interest Expense" means, for any period, all interest paid or
required to be paid by Borrower and its Restricted Subsidiaries on all of their
respective Debt, including the Obligations, during such period.

                                      -4-
<PAGE>
     "Consolidated Inventory" means, at any time, the Inventory of Borrower and
its Restricted Subsidiaries on a consolidated basis, all as determined in
accordance with GAAP.

     "Consolidated Net Income" means, for any period, the net income of Borrower
and its Restricted Subsidiaries, on a consolidated basis, all as determined in
accordance with GAAP.

     "Consolidated Principal Amortization" means scheduled consolidated
principal payments of all funded debt of Borrower and the Restricted
Subsidiaries.

     "Consolidated Subsidiaries" means all existing and future Subsidiaries of
Borrower, except HIL and any subsidiary of HIL, that should be included in
Borrower's consolidated financial statements, all as determined in accordance
with GAAP.

     "Consolidated Tangible Net Worth" means the sum of (a) Consolidated Total
Tangible Assets less (b) Consolidated Total Liabilities, less (c) the investment
in HIL by Borrower or the Restricted Subsidiaries, at cost, without adjustment
for losses or income of HIL, and less (d) without duplication, the equity of
HIL, any advances or loans to HIL and guaranties by Borrower or its Restricted
Subsidiaries of the obligations of HIL.

     "Consolidated Taxes" means, for any period, the income and franchise taxes
of Borrower and its Restricted Subsidiaries, on a consolidated basis, all as
determined in accordance with GAAP.

     "Consolidated Total Tangible Assets" means the total assets of Borrower and
its Restricted Subsidiaries, on a consolidated basis, minus all intangible
assets (other than deferred taxes), including, but not limited to, non-compete
contracts, employment contracts, deferred or prepaid transactions cost,
capitalized research and development cost, capitalized interest, debt discount
and expenses, goodwill, patents, trademarks, copyrights, franchises, licenses
and other intangible assets, all as determined in accordance with GAAP.

     "Consolidated Total Liabilities" means total liabilities and all
mandatorily redeemable preferred stock of Borrower and its Restricted
Subsidiaries, on a consolidated basis, all as determined in accordance with
GAAP.

     "Credit Facilities" means, collectively, the Revolving Credit Loans and the
Letters of Credit.

     "Debt" means: (a) indebtedness or liability for borrowed money, or for the
deferred purchase price of property or services (including trade obligations);
(b) the principal portion of obligations as lessee under Capital Leases; (c)
obligations under letters of credit issued for the account of any Person; (d)
all obligations arising under bankers' or trade acceptance facilities of any
Person; (e) all guarantees, endorsements (other than for collection or deposit
in the ordinary course of business), and other contingent obligations to
purchase any of the items included in this definition, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss; and (f) all obligations secured by any Lien on property
owned by such Person, whether or not the obligations have been assumed. For
purposes of the foregoing, the amount of any Debt described in clause (e) shall
be equal to the lesser of (A) the amount of the primary obligation in respect to
which such guaranty is issued and (B) the maximum liability amount under the
terms of such guaranty.

                                      -5-
<PAGE>
     "Default" means any event which, with the giving of notice or lapse of
time, or both, would become an Event of Default.

     "Default Rate" means, at any time, a rate of interest equal to 2% per annum
plus the highest rate that would then be applicable to Prime Rate Loans;
provided, that, if the Default Rate is implemented and the applicable Obligation
is a Revolving Credit Loan, Default Rate shall mean, with respect to an amount
of any such Revolving Credit Loan not paid when due, a rate per annum equal to
two percent (2%) above the Interest Rate then in effect thereon.

     "Designers" means Hampshire Designers, Inc., a Delaware corporation.

     "Designers Pledge Agreement" means the Pledge Agreement executed by
Designers in favor of Agent for the ratable benefit of the Bank Parties.

     "Designers Security Agreement" means the Security Agreement executed by
Designers in favor of Agent for the ratable benefit of the Bank Parties.

     "Designers Trademark Security Agreement" means the Trademark Security
Agreement executed by Designers in favor of Agent for the ratable benefit of the
Bank Parties.

     "Dollars" and the sign "$" mean lawful money of the United States of
America.

     "Effective Date" means on the date as of which (a) this Agreement shall be
executed by all the parties hereto and delivered to the Agent and (b) all the
conditions precedent required to have been satisfied on or before the first
extension of credit hereunder pursuant to Article 6 hereof shall have been
satisfied or waived (whether temporarily or otherwise) in writing by the Agent.
The Agent shall notify the Borrower and the Banks of the Effective Date if other
than the date of the execution of this Agreement; provided, however, that, the
failure to give such notice shall not alter the Effective Date or any of any
Bank Party's rights under this Agreement and the other Loan Documents.

     "Eligible Accounts" shall mean (a) the trade accounts receivable created in
the ordinary course of business by Designers, Item-Eyes and, with the approval
of Agent and the Required Banks, any other existing or future Subsidiary of the
Borrower, which (i) are subject to a valid, first priority, fully perfected
security interest in favor of Agent for the ratable benefit of the Bank Parties
and which conform to the representations and warranties contained herein and in
the Loan Documents, and (ii) at all times shall continue to be acceptable to
Agent in all respects (the "Non-Factored Accounts"), and, (b) the trade accounts
receivable of Designers, Item-Eyes and, with the approval of Agent, any other
existing or future Subsidiary of the Borrower, created in the ordinary course of
business which have been purchased, credit approved and continue to be credit
approved by the Factor under a Factoring Agreement, provided that such factored
accounts receivable remain subject to an Assignment of Proceeds Agreement which
is satisfactory in all respects to Agent (the "Factored Accounts").

     In general, the Non-Factored Accounts may, as determined by Agent in good
faith, be deemed eligible if:

     (a) delivery of the merchandise has been completed;

                                      -6-
<PAGE>
     (b) no return, rejection or repossession has occurred;

     (c) the merchandise has been accepted by the account debtor without
dispute, setoff, defense or counterclaim;

     (d) such trade account receivable is unconditionally payable in Dollars
within 90 days of the invoice date and is not evidenced by a promissory note,
chattel paper or any other instrument or document, Notwithstanding the prior
sentence, a trade account receivable payable more than 90 days but less than 150
days from the invoice date may be eligible (the "Over 90 Receivables") provided
that, (i) such receivable is due from Marmaxx Group, Inc., Burlington Coat
Factory or Ross Stores, Inc. or such other customer approved by Agent, (iii)
such receivable is scheduled in sufficient detail to the Borrowing Base
Certificate which includes such receivable, and (iv) such receivable is not more
than 15 days past due;

     (e) except as otherwise provided pursuant to subclause "(d)" above with
respect to the Over 90 Receivables, no more than 60 days has elapsed from the
invoice due date and no more than 120 days has elapsed from the invoice date;

     (f) the account debtor is not an Affiliate of the Borrower or any
Restricted Subsidiary;

     (g) such trade account receivable does not constitute an obligation of the
United States or any other Governmental Authority;

     (h) the chief executive office of the account debtor with respect thereto
is located in the continental United States, unless the Receivable is supported
by a letter of credit or other similar obligation satisfactory to Agent or Agent
has received evidence that credit insurance with respect to such Non-Factored
Account has been assigned to Agent and names Agent as loss payee;

     (i) the account debtor with respect thereto is not also a supplier or a
creditor of the Borrower or any Restricted Subsidiary, unless such supplier or
creditor has executed a no offset letter satisfactory to Agent (but the portion
of the Non-Factored Accounts of such account debtor in excess of the amount at
any time and from time to time owed by such Subsidiary of Borrower to such
account debtor or claimed to be owed may deemed an Eligible Account);

     (j) not more than 50% of the aggregate amount of all trade account
receivables from an account debtor with respect thereto remain unpaid more than
60 days past the invoice due date or 120 days past the invoice date;

     (k) the account debtor is not insolvent, subject to a bankruptcy,
reorganization, receivership, insolvency arrangement or any similar proceeding;
and

     (l) no facts, events or occurrences exist that would impair the validity,
enforceability or collectibility of such trade account receivable or reduce the
amount payable, or delay payment thereunder, all as determined in the good faith
by Agent (provided, that, as to facts, events or occurrences that reduce the
amount payable under such receivable the amount payable thereunder as so
reduced, may be deemed an Eligible Account).

                                      -7-
<PAGE>
     The aggregate amount of all Eligible Accounts of Designers, Item-Eyes and,
with the approval of Agent, any other existing or future Subsidiary of the
Borrower, shall be reduced by any reserves deemed necessary by Agent in good
faith, including a reserve in an amount which would represent the historical or
anticipated ratio of dilution (i.e. returns, discounts, claims, credits, and
allowances) to collections to the extent that such amounts are not already
included in the Availability Reserves.

     "Eligible Inventory" shall mean inventory of Designers, Item-Eyes and, with
the approval of Agent and the Required Banks, any other existing or future
Subsidiary of the Borrower, comprised solely of uncut fabric, yarn and finished
goods located in the United States which meets all of the following
specifications:

     (a) the inventory is owned by Designers, Item-Eyes and, with the approval
of Agent, any other existing or future Subsidiary of the Borrower, free and
clear of any existing Lien (other than warehouseman's and landlord's liens as
long as a satisfactory waiver has been entered into with Agent), other than the
liens and security interests in favor of Agent under the Loan Documents, it is
not held on consignment and may be lawfully sold and it continues to be in full
conformity with any representations and warranties made under the Loan Documents
by the Borrower and its Restricted Subsidiaries to Agent with respect thereto;

     (b) Designers, Item-Eyes and, with the approval of Agent, any other
existing or future Subsidiary of the Borrower, has the right to assignment
thereof and the power to grant liens thereon and security interests with respect
thereto;

     (c) the inventory arose or was acquired in the ordinary course of business
of Designers, Item-Eyes or, with the approval of Agent, any other existing or
future Subsidiary of the Borrower, as applicable and does not represent
returned, second quality or damaged goods;

     (d) the inventory is readily marketable for sale by Designers, Item-Eyes
and, with the approval of Agent and the Required Banks, any other existing or
future Subsidiary of the Borrower;

     (e) the inventory is located at one of the addresses for locations of
Collateral set forth on Schedule 1.01(a) and with respect to which inventory
Agent, for the ratable benefit of the Bank Parties, has been granted and has
perfected a valid, first priority security interest therein;

     (f) the inventory is not goods to be returned to a supplier of the Borrower
or any Restricted Subsidiary, or, with the approval of Agent, any other existing
or future Subsidiary of the Borrower;

     (g) the inventory is not samples;

     (h) if the inventory is sold under a licensed trademark, with respect to
each Required Licensor, Agent shall have entered into a licensor waiver letter,
in form and substance satisfactory to Agent, with such Required Licensor with
respect to the rights of Agent to use the trademark to sell or otherwise dispose
of such inventory;

     (i) the inventory is Eligible Prior Season Inventory;

     (j) the inventory is not obsolete, slow-moving or unmerchantable and is and
at all times shall continue to be acceptable to Agent in all respects as
determined by Agent in good faith;

                                      -8-
<PAGE>
     (k) the inventory, other than Eligible In-Transit Inventory, is not located
in a warehouse or on leased premises unless Agent has entered into a
warehouseman's waiver or landlord's waiver, as the case may be, on terms
reasonably satisfactory to Agent.

     "Eligible In-Transit Inventory" shall mean "in transit" fabric, yarn or
finished goods inventory of Designers, Item-Eyes and, with the approval of Agent
and the Required Banks, any other existing or future Subsidiary of the Borrower,
shipped under an Eligible Trade Letter of Credit, the amount of which is equal
to the face amount of the related Eligible Trade Letter of Credit, provided that
such inventory (a) has been paid for by the Borrower and has not otherwise been
included in Eligible Inventory or under an Eligible Trade Letter of Credit, and
(b) such inventory would otherwise qualify as Eligible Inventory and is
otherwise satisfactory in all respects as determined by Agent in good faith.

     "Eligible Prior Season Inventory" shall mean Prior Season Inventory which
Agent determines, in good faith, to be eligible inventory. In general, Prior
Season Inventory may be deemed Eligible Prior Season Inventory if (a) it is
subject to a confirmed purchase order, (b) the cost of such inventory is an
amount in the general ledger of Designers, Item-Eyes, or such other existing or
future Subsidiary of the Borrower approved by Agent, as the case may be, which
will produce, when such inventory is sold, a gross profit margin which is
satisfactory to Agent, and (c) such inventory would otherwise qualify as
Eligible Inventory and is otherwise satisfactory in all respects to Agent in
good faith.

     "Eligible Trade Letter of Credit" shall mean a commercial letter of credit
issued by Agent for the account of the Borrower covering fabric, yarn or
finished goods inventory of Designers, Item-Eyes and, with the approval of Agent
and the Required Banks, any other existing or future Subsidiary of the Borrower,
for which (a) the documents of title have been or will be consigned to Agent,
(b) the underlying goods have been or will be insured to the satisfaction of
Agent, and (c) the underlying goods have been or will be shipped to an eligible
location in the United States set forth on Schedule 1.01(b).

     "Environmental Discharge" means any discharge or release by Borrower or any
Restricted Subsidiaries of any Hazardous Materials in violation of any
applicable Environmental Law.

     "Environmental Law" means any Law relating to pollution of the environment,
including Laws relating to noise or to emissions, discharges, releases or
threatened releases of Hazardous Materials into the workplace, the community or
the environment, or otherwise relating to the generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.

     "Environmental Notice" means any complaint, order, citation, letter,
inquiry, notice or other written communication from any Governmental Authority
(a) affecting or relating to Borrower's or any Restricted Subsidiaries'
violation of any Environmental Law in connection with any activity or operations
at any time conducted by Borrower or such Restricted Subsidiary, (b) relating to
the unpermitted occurrence or Presence of or exposure to or possible or
threatened or alleged occurrence or presence of or exposure to Environmental
Discharges or Hazardous Materials at any of Borrower's or any Restricted
Subsidiary's locations or facilities, including, without limitation: (i) the
existence of any contamination or possible or threatened contamination at any
such location or facility and (ii) remediation of any Environmental Discharge or
Hazardous Materials at any such location or facility or any part thereof; and
(c) any violation or alleged violation of any relevant Environmental Law.

                                      -9-
<PAGE>
     "ERISA" means the Employee Retirement Income Security Act of 1974,
including any rules and regulation promulgated thereunder.

     "ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Borrower or any Guarantor or is under common
control (within the meaning of Section 414(c) of the Code) with Borrower or such
Guarantor; provided however, that for purposes of provisions herein concerning
minimum funding obligations (imposed under Section 412 of the Code or Section
302 of ERISA), the term "ERISA Affiliate" shall also include any entity required
to be aggregated with Borrower or any Guarantor under Section 414(m) or 414(o)
of the Code.

     "Eurodollar Base Rate" means with respect to any Interest Period for a
Eurodollar Loan, the arithmetic mean, as calculated by Agent, of the respective
rates per annum (rounded upwards, if necessary, to the nearest 1/16 of 1 %)
quoted at approximately 11:00 A.M. London time by the principal London branch of
Agent two (2) Banking Days prior to the first day of such Interest Period for
the offering to leading banks in the London interbank market of Dollar deposits
in immediately available funds, for a period, and in an amount, comparable to
the Interest Period and principal amount of the Eurodollar Loan which shall be
made by Agent and outstanding during such Interest Period.

     "Eurodollar Loan" means any Revolving Credit Loan when and to the extent
the Interest Rate therefor is determined on the basis of the definition
"Eurodollar Base Rate."

     "Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, a rate per annum (rounded upwards, if necessary to the nearest 1/100
of 1%) determined by Agent to be equal to the quotient of (a) the Eurodollar
Base Rate for such Loan for such Interest Period, divided by (b) one minus the
Reserve Requirement for such Loan for such Interest Period.

     "Event of Default" has the meaning specified in Section 11.01 hereof.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Existing Agreement" means the Amended and Restated Credit Agreement and
Guaranty, dated as of September 5, 2000, by and among Borrower, the guarantors
that are party thereto, Chase, as agent and the financial institutions parties
thereto as lenders (as amended, modified or supplemented from time to time).

     "Existing Letters of Credit" means the trade (documentary) letters of
credit issued by Chase for the account and/or benefit of Borrower or its
Restricted Subsidiaries under the Existing Agreement, as more fully set forth on
Schedule 1A.01.

     "Existing Loan Documents" means, collectively, the Existing Agreement and
all agreements, instruments and documents executed or delivered pursuant to or
in connection therewith (as amended, modified or supplemented from time to
time).

     "Factor" shall have the meaning set forth in Section 9.03(f) hereof.

     "Factored Accounts" "shall have the meaning set forth under "Eligible
Accounts."

     "Factoring Agreement" means any factoring agreement by and between Borrower
and/or any Restricted Subsidiary and a Factor.

                                      -10-
<PAGE>
     "Federal Funds Rate" means, for any day, the rate per annum (rounded, if
necessary, to the next greater 1/100 of 1%) equal to the rate per annum at which
the Agent is offered overnight Federal funds by a Federal funds broker selected
by the Agent at or about 2:00 p.m., New York time, on such day, provided that if
such day is not a Banking Day, the Federal Funds Rate for such day shall be such
rate at which the Agent is offered overnight Federal funds by such Federal funds
broker at or about 2:00 p.m., New York time, on the next preceding Banking Day.

     "Fiscal Month" means each of the twelve (12) monthly periods of Borrower's
Fiscal Year.

     "Fiscal Month End Date" means the last day of any Fiscal Month of each
Fiscal Year.

     "Fiscal Quarter" means each of the four (4) quarterly periods of Borrower's
Fiscal Year.

     "First Quarterly Date" means the last day of the first Fiscal Quarter of
each Fiscal Year.

     "Fiscal Year" means each calendar year ending December 31.

     "Foreign Lender" means any Bank that is organized under the laws of a
jurisdiction other than that in which Borrower is located. For purposes of this
definition, the United States of America, each State thereof and the District of
Columbia shall be deemed to constitute a single jurisdiction.

     "Fourth Quarterly Date" means the last day of the fourth Fiscal Quarter of
each Fiscal Year.

     "GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date hereof, applied on a basis consistent with
those used in the preparation of the financial statements referred to in Section
7.05 hereof.

     "Glamourette" means Glamourette Fashion Mills, Inc., a Delaware
corporation.

     "Glamourette Security Agreement" means the Security Agreement executed by
Glamourette in favor of Agent for the ratable benefit of the Bank Parties.

     "GMAC" has the meaning specified in Section 9.03(f) hereof.

     "Good Faith Contest" means the contest of an item if: (a) the item is
diligently contested in good faith by appropriate proceedings timely instituted;
(b) adequate reserves are established in accordance with GAAP; (c) during the
period of such contest, the enforcement of any contested item is effectively
stayed; and (d) the failure to pay or comply with the contested item during the
period of the Good Faith Contest is not likely to result in a Material Adverse
Change.

     "Governmental Approvals" means any authorization, consent, approval,
license, permit, certification, or exemption of registration or filing with or
report or notice to any Governmental Authority.

     "Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.

                                      -11-
<PAGE>
     "Guarantor Security Agreements" means any Security Agreements executed by
any of Designers, Item-Eyes and Glamourette to secure the Guaranty Obligations.

     "Guarantor" and "Guarantors" means (i) with respect to all Obligations
other than the Letter of Credit Obligations, Designers, Item-Eyes, Glamourette
and HIL and any future Restricted Subsidiaries and (ii) with respect to all
Letter of Credit Obligations, Borrower, Designers, Item-Eyes, Glamourette and
HIL and any future Restricted Subsidiaries.

     "Guaranty" means, collectively, all of the guarantees provided by the
Guarantors pursuant to Section 5.01 hereof.

     "Guaranty Obligations" has the meaning specified in Section 5.01 hereof.

     "Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes or substances, as any of those terms are
defined from time to time in or for the purposes of any applicable Environmental
Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls,
and any petroleum or hydrocarbon-based products or derivatives.

     "HIL" means Hampshire Investments, Limited, a Delaware corporation.

     "HIL Spin-off Transaction" means the sale of all of the issued and
outstanding capital stock of HIL by Borrower to a Person other than the Borrower
or any direct or indirect Subsidiary of Borrower.

     "HSBC" means HSBC Bank USA, a New York State chartered bank and its
successors and assigns and any Person acting as agent or nominee for HSBC Bank
USA and any corporation the stock of which is owned or controlled directly or
indirectly by, or is under common control with, HSBC Bank USA and/or HSBC
Holdings plc.

     "Instructions" means oral or written instructions or instructions
transmitted by teleprocess given on behalf of Borrower by one or more Authorized
Persons.

     "Instrument" means with respect to any Letter of Credit or Steamship
Guaranty, Airway Guaranty, any draft, receipt, acceptance, teletransmission,
including, but not limited to, telex or cable, or other written demand for
payment under such Letter of Credit.

     "Insurance Companies" shall mean Phoenix Life Insurance Company and The
Ohio National Life Insurance Company.

     "Insurance Company Loan Documents" means the Senior Secured Notes and the
agreements and documents among the Insurance Companies and Borrower and/or
Guarantors providing for the purchase by the Insurance Companies of the Senior
Secured Notes of Borrower and the giving of security therefor.

     "Intercreditor Agreement" means the agreement among the Banks, the Agent
and the Insurance Companies and the Agent for the Insurance Companies.

     "Intercompany Demand Note" means a negotiable demand promissory note made
by HIL to the order of Borrower evidencing loans by Borrower to HIL,
substantially in the form of Exhibit H.

                                      -12-
<PAGE>
     "Interest Period" means, with respect to any Eurodollar Loan, a period of
one, two, three or six months commencing on the date such Loan is made,
converted from another type of Loan or renewed, as Borrower may select in
accordance with Section 2.02 hereof, provided that, each such Interest Period,
which commences on the last Banking Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month), shall end on the last Banking Day of the appropriate calendar
month; provided, further, that,

     (a) If any Interest Period would otherwise end on a day which is not a
Banking Day, that Interest Period shall be extended to the next succeeding
Banking Day unless such Interest Period is with respect to a Eurodollar Loan and
the result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end on the
immediately preceding Banking Day.

     (b) No Interest Period with respect to a Revolving Credit Loan shall extend
beyond the Revolving Credit Termination Date.

     "Interest Rate" means either (a) with respect to a Prime Rate Loan, the
Prime Rate minus one quarter of one percent or (b) with respect to a Eurodollar
Loan, the Eurodollar Rate plus the Applicable Margin.

     "Interest Rate Contracts" means interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, interest rate insurance
and other agreements or arrangements designed to provide protection against
fluctuation in interest rates, in each case, in form and substance reasonably
satisfactory to the Agent.

     "International Standby Practices" means the "International Standby
Practices (ISP98)," as promulgated by the Institute of International Banking Law
& Practice, Inc., approved by the International Chamber of Commerce ("ICC")
Commission on Banking Technique and Practice, and issued by the ICC as
Publication No. 590, or any successor code of standby letter of credit practices
among banks adopted by the Bank as a standby letter of credit issuer in the
ordinary course of its business and in effect at the time of reference.

     "Inventory" shall have the meaning set forth in the Borrower Security
Agreement and the Security Agreements that have been executed by the Guarantors.

     "Item-Eyes" means Item-Eyes, Inc., a Delaware corporation.

     "Item-Eyes Security Agreement" means the Security Agreement executed by
Item-Eyes in favor of Agent for the ratable benefit of the Bank Parties.

     "Item-Eyes Trademark Security Agreement" means the Trademark Security
Agreement executed Item-Eyes by in favor of Agent for the ratable benefit of the
Bank Parties.

     "Law" means any applicable federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and any applicable judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including any
judicial or administrative order, consent decree or judgment.

                                      -13-
<PAGE>
     "Letters of Credit" means Trade Letters of Credit and the Standby Letters
of Credit.

     "Letter of Credit Account Party" means the Borrower, Designers, Item-Eyes
or any other Restricted Subsidiary, as the case may be.

     "Letter of Credit Account Parties" means the Borrower, Designers, Item-Eyes
and all other Restricted Subsidiaries.

     "Letter of Credit Fee" means the Trade Letter of Credit Fee and the Standby
Letter of Credit Fee.

     "Letter of Credit Issuing Bank" means (i) HSBC with respect to all Letters
of Credit other than the Existing Letters of Credit and (ii) Chase with respect
to all Existing Letters of Credit.

     "Letter of Credit Obligations" means at any time an amount equal to the sum
of (a) the aggregate amount of Trade Letter of Credit Obligations, (b) the
aggregate amount of Standby Letter of Credit Obligations and (c) any Letter of
Credit Fee due and payable.

     "Lien" means any mortgage, deed of trust, pledge, security, interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable Law of any jurisdiction to evidence any of the
foregoing).

     "Loan Account" shall have the meaning set forth in Section 2.11(a) hereof.

     "Loan Document(s)" means this Agreement, the Notes, the Letters of Credit,
the Security Documents, the Intercreditor Agreement and any and all documents
executed in connection with the Letters of Credit and the Intercreditor
Agreement.

     "Material Adverse Change" means either (a) a material adverse change in the
status of the business, assets, liabilities, results of operations, condition
(financial or otherwise) or property or prospects of Borrower and its Restricted
Subsidiaries, taken as a whole, or (b) any event or occurrence of whatever
nature which is likely to have a material adverse effect on Borrower's ability
to perform its obligations under the Loan Documents to which it is a party. For
the avoidance of doubt, no matter affecting the business, operations, affairs,
financial condition, assets or properties of HIL or any Subsidiary thereof in
and of itself shall be deemed to cause a material adverse change in the status
of the business, assets, liabilities, results of operations, condition
(financial or otherwise), property or prospects of Borrower or Borrower's
ability to perform its obligations under any Loan Document.

     "Monthly Date(s)" means the first Banking Day of each calendar month
occurring on or after the Effective Date.

     "Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA.

                                      -14-
<PAGE>
     "Net Amount of Eligible Accounts" shall mean and include at any time,
without duplication, the gross amount of Eligible Accounts at such time less (a)
sales, excise or similar taxes and (b) returns, discounts, claims, credits,
allowances, of any nature at any time issued, owing, granted, outstanding,
available or claimed; provided, that such amounts have not already otherwise
been deducted.

     "Net Amount of Eligible Inventory" shall mean, at any time, the aggregate
Book Value of Eligible Inventory.

     "Net Availability" shall mean, at any date, (a) the Availability for
Revolving Credit Loans less (b) the aggregate principal amount of all
outstanding Revolving Credit Loans.

     "Net Borrowing Base" shall mean, at any date, (a) the Borrowing Base less
(b) the sum of (i) the outstanding principal amount of indebtedness of Borrower
and Restricted Subsidiaries to the Insurance Companies in respect to the Senior
Secured Notes and (ii) the outstanding indebtedness of Borrower and its
Restricted Subsidiaries under the Unsecured Lines.

     "Net Worth Adjustment Amount" means (i) as to any Fiscal Year beginning
with the Fiscal Year ending December 31, 2003, fifty percent (50%) of the
Borrower's Consolidated Net Income (without any deduction for loss) for such
Fiscal Year determined on a cumulative basis in accordance with GAAP and (ii)
for any first, second or third Fiscal Quarter of the Borrower, beginning with
the Fiscal Quarter ending March 29, 2003, fifty percent (50%) percent of the
amount of Consolidated Net Income (or loss) as reflected in the quarterly
financial statements required to be delivered to Agent under Section 8.08(a)
hereof, calculated on a quarterly (cumulative) basis. For purposes of
determining the minimum Consolidated Tangible Net Worth required to be
maintained:

          (x) with respect to the adjustment required under subpart (i) above,
     the Net Worth Adjustment Amount shall be determined as at the last day of
     each Fiscal Year of the Borrower and shall be added, on a cumulative basis,
     to the minimum Consolidated Tangible Net Worth required to be maintained
     and such minimum Consolidated Tangible Net Worth shall be maintained at all
     times during the period beginning on such date until the last day of the
     immediately following Fiscal Quarter at which time the minimum Consolidated
     Tangible Net Worth shall increase (or decrease) as provided below, until
     the last day of the immediately following Fiscal Year, at which time and at
     each subsequent Fiscal Year end the minimum Consolidated Tangible Net Worth
     required to be maintained shall again be increased and maintained as
     provided in this subpart (x); and

          (y) with respect to the adjustment required under subpart (ii) above,
     the Net Worth Adjustment Amount shall be determined as at the last day of
     each first, second and third Fiscal Quarter of the Borrower and shall be
     added, or subtracted (in the case of a net loss), on a cumulative basis, to
     the minimum Consolidated Tangible Net Worth required to be maintained and
     such minimum Consolidated Tangible Net Worth shall be maintained at all
     times during the period beginning on such date until the last day of the
     immediately following Fiscal Quarter at which time and at each subsequent
     Fiscal Quarter end the minimum Consolidated Tangible Net Worth required to
     be maintained shall again be increased (or decreased) and maintained
     accordingly until the last day of the Fiscal Year, at which time the
     minimum Consolidated Tangible Net Worth shall be increased in the manner
     provided above.

     "Note(s)" means the Revolving Credit Notes.

                                      -15-
<PAGE>
     "Obligations" shall mean any and all Revolving Credit Loans, Letter of
Credit Obligations and all other indebtedness, liabilities and obligations of
every kind, nature and description owing by Borrower, a Letter of Credit Account
Party or Guarantors (excluding the Obligations of HIL other than Obligations of
HIL arising under its Guaranty) to each Bank Party, the Banks and/or their
Affiliates, arising out of or in connection with the Notes, the Letters of
Credit, including Airway Guaranty or Steamship Guaranty, this Agreement, the
other Loan Documents and any and all Interest Rate Contracts (but solely to the
extent a Bank is a counter-party to such Interest Rate Contract), including
without limitation for principal, interest, charges, fees, expenses,
reimbursement obligations and foreign exchange obligations, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, arising under
this Agreement, whether now existing or hereafter arising, whether arising
before, during or after the Revolving Credit Termination Date or after the
commencement of any case with respect to Borrower, any Letter of Credit Account
Party or any Guarantor under the Bankruptcy Code or any similar statute, whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended and whether arising directly or howsoever acquired
by the Banks including from any other entity outright, conditionally or as
collateral security, by assignment, merger with any other entity, participations
or interests of the Banks in the obligations of Borrower, Letter of Credit
Account Parties or Guarantors to others, assumption, operation of law,
subrogation or otherwise and shall also include all amounts chargeable to
Borrower, any Letter of Credit Account Party or any Guarantor under this
Agreement or in connection with any of the foregoing, provided however, that
indebtedness and obligations due to any of the Banks in connection with
transactions between Borrower or any Guarantor and any such Bank separate from
this Agreement, excluding those in connection with Interest Rate Contracts,
shall not be deemed "Obligations".

     "Optional Prepayment" has the meaning specified in Section 2.07 hereof.

     "Outstanding Credit Facilities" means at any time an amount equal to the
sum of (a) the aggregate principal amount of all outstanding Revolving Credit
Loans plus (b) the Letter of Credit Obligations.

     "Participating Banks" means each Bank other than HSBC.

     "Participation" has the meaning set forth in Section 4.01 hereof.

     "PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.

     "Permitted Investments" means any of the following:

 ----------------------------------------------------- ------------------------
                                                        Maximum       Minimum
 Investment Type                                        Maturity      Rating
 ----------------------------------------------------- ------------------------
 T Bills                                               6 months        N/A
 ----------------------------------------------------- ------------------------
 T Notes                                               1 year          N/A
 ----------------------------------------------------- ------------------------
 US Government Agency Bills, Notes and Bonds           1 year          N/A
 ----------------------------------------------------- ------------------------
 Commercial Paper                                      9 months        A2/P2
 ----------------------------------------------------- ------------------------
 Asset Backed Commercial Paper                         9 months        A2/P2
 ----------------------------------------------------- ------------------------

                                      -16-
<PAGE>
 Bankers Acceptances                                   6 months        N/A
 ----------------------------------------------------- ------------------------
 Repurchase Agreements                                 1 month         N/A
 ----------------------------------------------------- ------------------------
 Domestic Certificate of Deposit                       1 year          N/A
 ----------------------------------------------------- ------------------------
 Euro Certificate of Deposit                           1 year          N/A
 ----------------------------------------------------- ------------------------
 Medium Term Notes                                     1 year          AAA
 ----------------------------------------------------- ------------------------
 Variable Rate Demand Notes                            3 months        AAA
 ----------------------------------------------------- ------------------------
 Corporate Bonds                                       1 year          AAA
 ----------------------------------------------------- ------------------------
 Municipal Notes/ Bonds                                1 year          AAA
 ----------------------------------------------------- ------------------------
 Tax Exempt or Taxable Money Market Funds              N/A             AAA
 ----------------------------------------------------- ------------------------
 Stock, obligations or securities received in N/A N/A
 settlement of debts (created in the ordinary course of
 business) owing to the Borrower.
 ----------------------------------------------------- ------------------------

     "Permitted Liens" has the meaning set forth in Section 9.03 hereof.

     "Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.

     "Plan" means any plan, agreement, arrangement or commitment which is an
employee benefit plan, as defined in Section 3(3) of ERISA, maintained by
Borrower, any Guarantor or any ERISA Affiliate or with respect to which
Borrower, any Guarantor or any ERISA Affiliate at any relevant time has any
liability or obligation to contribute.

     "Pledge Agreement" means a Pledge Agreement substantially in the form of
Exhibit A hereto, to be delivered by Borrower and certain Guarantors under the
terms of this Agreement.

     "Presence" when used in connection with any Environmental Discharge or
Hazardous Materials, means and includes presence, generation, manufacture,
installation, treatment, use, storage, handling, repair, encapsulation,
disposal, transportation, spill, discharge and release.

     "Prime Rate" means that rate of interest from time to time announced by
HSBC at its Principal Office as its prime commercial lending rate. The Prime
Rate is a reference rate and does not necessarily represent the lowest or best
rate being charged to any customer. The interest rate for Prime Rate Loans shall
change when and as the Prime Rate changes and which changes in the rate of
interest resulting from changes in the Prime Rate shall take effect immediately
without notice or demand of any kind.

     "Prime Rate Loan" means any Revolving Credit Loan when and to the extent
the Interest Rate therefor is based on the Prime Rate.

     "Principal Office" means the principal office of HSBC, presently located at
452 Fifth Avenue, New York, New York 10018.

     "Prior Season Inventory" shall mean finished goods inventory of Designers ,
Item-Eyes and, with the approval of Agent and the Required Banks, any other
existing or future Subsidiary of the Borrower, which was manufactured for sale
in a shipping season prior to the current shipping season, as the case may be,

                                      -17-
<PAGE>
of Designers, Item-Eyes or such other existing or future Subsidiary of the
Borrower which has been approved by Agent and the Required Banks (for purposes
of this definition, the term "shipping season" means the period of time in which
Inventory of Designers, Item-Eyes and, with the approval of Agent and the
Required Banks, any other existing or future Subsidiary of the Borrower, is
shipped for sale, such period to be determined in a manner consistent with such
Persons' past business practices).

     "Pro Rata Share" means (a) with respect to each Bank's Revolving Credit
Commitment, a fraction, the numerator of which is such Bank's portion of the
Revolving Credit Commitment and the denominator of which is the total of all the
Bank's Revolving Credit Commitments; (b) with respect to each payment on the
Revolving Credit Loans, a fraction, the numerator of which is the outstanding
principal amount of all such Revolving Credit Loans owed to such Bank, and the
denominator of which is the outstanding principal amount of all such Revolving
Credit Loans owed to all Banks; and (c) with respect to Letters of Credit, the
percentages set forth in Section 4.01 hereof.

     As of the date of this Agreement, the amount of each Bank's Revolving
Credit Commitment and its Pro Rata Share of such Revolving Credit Commitment is
as follows:

 Bank             Commitment           Pro Rata Share
--------         -----------           --------------
 HSBC            $22,000,000                22.0%
 CIT             $20,000,000                20.0%
 Fleet           $16,500,000                16.5%
 BOA             $15,000,000                15.0%
 Chase           $15,000,000                15.0%
 IDB             $11,500,000                11.5%

     "Prohibited Transaction" means any transaction prohibited under Section 406
of ERISA or Section 4975 of the Code.

     "Quarterly Date" means the last Banking Day of each March, June, September,
and December.

     "Ratable Portion" means, at any time, a fraction, the numerator of which is
the outstanding principal amount of the Outstanding Credit Facilities at such
time, and the denominator of which is the sum of (a) the aggregate principal
amount of the Senior Secured Notes outstanding at such time plus (b) the
aggregate principal amount of the Outstanding Credit Facilities at such time.

     "Regulatory Change" means, with respect to any Bank, any change after the
date of this Agreement in the United States federal, state, municipal or foreign
laws or regulations (including without limitation Regulation D) or the adoption
or making after such date of any interpretations, directives or requests
applying to a class of banks including any of the Banks of or under any United
States federal, state, municipal or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.

     "Reportable Event" means any of the events set forth in Section 4043(c) of
ERISA or in the regulations thereunder except for any such event for which the
30-day notice requirement is waived.

                                      -18-
<PAGE>
     "Required Banks" means at any time the Banks holding sixty-six and
two-thirds (66.67 %) percent of the aggregate Revolving Credit Commitment. In
calculating the Revolving Credit Commitment of each Bank for purposes of this
definition of "Required Banks", each Bank (other than HSBC) shall be deemed to
have a portion of the Trade Letter of Credit Commitment or the Standby Letter of
Credit Commitment, as the case may be, equal to that Bank's Pro Rata Share of
the Trade Letter of Credit Commitment or the Standby Letter of Credit
Commitment, as the case may be, and HSBC shall be deemed to have a portion of
such Trade Letter of Credit Commitment or Standby Letter of Credit Commitment
equal to one hundred percent (100%) minus the sum of the Pro Rata Shares of the
other Banks.

     "Required Licensor" means, with respect to inventory of the Borrower or a
Restricted Subsidiary that is sold under a licensed trademark, each licensor
that has licensed such trademark to the Borrower and/or the Restricted
Subsidiaries to the extent that the gross revenues received or to be received by
the Borrower and/or the Restricted Subsidiaries with respect to the sale of
inventory subject to such licensed trademark equals or is in excess of
$5,000,000 for any twelve month period (taking into account sales as well as
unfilled orders). The Required Licensors as of the Effective Date are Geoffrey
Beene, Inc. (as to the "Geoffrey Beene" licensed trademark) and Levi Strauss &
Co. (as to the "Dockers" and "Dockers Premium" licensed trademarks).

     "Reserve Requirement" means, for any Eurodollar Loan for any Interest
Period therefor, the rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding $1,000,000,000 against in the case of
Eurodollar Loans, "Eurocurrency Liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against (a) any category of liabilities which
includes deposits by reference to which the Eurodollar Base Rate is to be
determined as provided in the definition of "Eurodollar Base Rate" in this
Section 1.01 hereof or (b) any category of extensions of credit or other assets
which include Eurodollar Loans. Agent will use its best efforts to promptly
notify Borrower of any change of such Reserve Requirement.

     "Restricted Payment" means (i) any advances or payments to, investments in,
or guaranties for the benefit of HIL, (ii) any guaranties other than those
guaranties permitted by Section 9.02 hereof, and/or (iii) any repurchase of any
shares of the Borrower.

     "Restricted Subsidiaries" means, individually and collectively, Designers,
Glamourette, Item-Eyes and any existing and future Subsidiaries of Borrower,
except HIL and any Subsidiary of HIL, together with their respective successors
and assigns.

     "Revolving Credit Commitment" means the commitment of the Banks to lend,
pursuant to their Pro Rata Share, One Hundred Million ($100,000,000) Dollars to
Borrower pursuant to the terms of this Agreement as such commitment may be
reduced in accordance with Section 2.07 hereof.

     "Revolving Credit Loan(s)" has the meaning specified in Section 2.01
hereof.

     "Revolving Credit Note(s)" has the meaning specified in Section 2.06
hereof.

     "Revolving Credit Termination Date" means April 30, 2007.

                                      -19-
<PAGE>
     "Second Quarterly Date" means the last day of the second Fiscal Quarter of
each Fiscal Year.

     "Secured Parties" means Agent and each of the Banks.

     "Security Agreement" means a Security Agreement substantially in the form
of Exhibit B hereto, to be delivered by Borrower and certain Guarantors under
the terms of this Agreement.

     "Security Documents" means the Borrower Security Agreement, the Guarantor
Security Agreements, the Borrower Pledge Agreement, the Designers Pledge
Agreement, the Borrower Trademark Security Agreement, the Designers Trademark
Security Agreement, the Item-Eyes Trademark Security Agreement, and each other
Security Agreement, Pledge Agreement and Trademark Security Agreement, to the
extent executed, separately or jointly, by any party obligated in connection
with the Obligations.

     "Senior Secured Notes" means the Senior Secured Notes issued by Borrower in
favor of the Insurance Companies pursuant to the Insurance Company Loan
Documents in the original principal amount of $15,000,000 due January 2, 2008,
as amended, transferred or exchanged from time to time, in accordance with the
Insurance Company Loan Documents.

     "Solvent" means, when used with respect to any Person, that (a) the fair
value of the property of such Person, on a going concern basis, is greater than
the total amount of liabilities (including, without limitation, contingent
liabilities) of such Person, (b) the present fair saleable value of the assets
of such Person, on a going concern basis, is not less than the amount that will
be required to pay the probable liabilities of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature, and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged. Contingent liabilities will be
computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.

     "Standby Letter of Credit" means a Standby Letter of Credit issued by HSBC
for the account of Borrower.

     "Standby Letter of Credit Commitment" shall have the meaning set forth in
Section 3.05 hereof.

     "Standby Letter of Credit Fee" has the meaning specified in Section 3.05
hereof.

     "Standby Letter of Credit Obligations" means at any time an amount equal to
the sum of (a) the aggregate unused face amount of all outstanding Standby
Letters of Credit, plus any variance allowed under the terms of the Standby
Letter of Credits, (b) the aggregate amount of all unreimbursed obligations on
Standby Letters of Credit and (c) the aggregate amount of all outstanding
overdrafts created to satisfy any of the foregoing obligations.

     "Steamship Guaranty" has the meaning specified in Section 3.09 hereof.

                                      -20-
<PAGE>
     "Subsidiary" means, as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power only by
reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation are at the time owned, or the
management of which is otherwise controlled, directly, or indirectly through one
or more intermediaries, or both, by such Person.

     "Supplemental Amount" shall mean, for each of the periods set forth below,
the following amounts (unless reconsidered pursuant to Section 8.08(i), in which
case, such reconsidered amount):


              Period                                        Supplemental Amount
-------------------------------------------------------     -------------------
Effective Date through and including August 30, 2003          $ 6,000,000
August 31, 2003 through and including February 28, 2004       $         0
February 29, 2004 through and including April 3, 2004         $ 2,000,000
April 4, 2004 through and including May 1, 2004               $ 9,000,000
May 2, 2004 through and including May 29, 2004                $18,000,000
May 30, 2004 through and including June 3, 2004               $13,000,000
July 4, 2004 through and including July 31, 2004              $ 8,000,000
August 1, 2004 through and including August 28, 2004          $ 6,000,000
From August 29, 2004 through and including the
      The Revolving Credit Termination Date                   $         0

     "Third Quarterly Date" means the last day of the third Fiscal Quarter of
each Fiscal Year.

     "Trade Letter of Credit" has the meaning specified in Section 3.01 hereof.

     "Trade Letter of Credit Commitment" shall have the meaning set forth in
Section 3.01 hereof.

     "Trade Letter of Credit Fee" has the meaning specified in Section 3.03
hereof.

     "Trade Letter of Credit Obligations" means at any time an amount equal to
the sum of (a) the aggregate unused face amount of all outstanding Trade Letters
of Credit, plus any variance allowed under the terms of the Trade Letter of
Credits, (b) the aggregate amount of all unreimbursed obligations on Trade
Letters of Credit, (c) the aggregate amount of all outstanding overdrafts
created to satisfy any of the foregoing obligations and (d) the aggregate amount
of all Airway Guaranties and Steamship Guaranties.

     "Trademark Security Agreement" means a Trademark Collateral Assignment and
Security Agreement, substantially in the form of Exhibit C hereto, to be
delivered by Borrower and certain Guarantors under the terms of this Agreement.

     "Uniform Customs and Practices" means, with regard to each Letter of
Credit, the Uniform Customs and Practices for Documentary Letters of Credit
(1993 Revisions), International Chamber of Commerce Publication No. 500, and any
subsequent revision thereof adhered to by HSBC on the date such Letter of Credit
is issued.

     "Unsecured Lines" shall have the meaning set forth in Section 9.01(f)
hereof.

                                      -21-
<PAGE>
     Section 1.02 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP. Section 1.03 Computation of Time Periods. Except as otherwise provided
herein, in this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".

     Section 1.04 Rules of Construction. When used in this Agreement: (a) "or"
is not exclusive; (b) a reference to a law includes any amendment or
modification to such law and any statutory amendments and recodifications; (c) a
reference to a Person includes its permitted successors and permitted assigns;
and (d) a reference to an agreement, instrument or document shall include such
agreement, instrument or document as the same may be amended, modified or
supplemented from time to time in accordance with its terms and as permitted by
the Loan Documents.

                                   ARTICLE II

                             REVOLVING CREDIT LOANS

     Section 2.01 Revolving Credit. Subject to the terms and conditions of this
Agreement, each of the Banks severally agrees to make loans (the "Revolving
Credit Loans") according to each such Bank's Pro Rata Share of the Revolving
Credit Commitment, to Borrower from time to time during the period from the
Effective Date up to but not including the Revolving Credit Termination Date,
provided that the aggregate principal amount of all Revolving Credit Loans
outstanding at any time does not exceed the Availability for Revolving Credit
Loans. Each Revolving Credit Loan which shall not utilize the Availability for
Revolving Credit Loans in full shall be in the minimum amount set forth in
Section 2.10 hereof. Subject to the terms hereof, the Borrower may borrow, make
an Optional Prepayment pursuant to Section 2.07 hereof, and reborrow under this
Section 2.01 hereof.

     The failure of any Bank to make any requested Revolving Credit Loan to be
made by it on the date specified for such Revolving Credit Loan shall not
relieve any other Bank of its obligation (if any) to make such Revolving Credit
Loan on such date, but no Bank shall be responsible for the failure by any other
Bank to make such Revolving Credit Loans.

     Section 2.02 Notice and Manner of Borrowing. Borrower shall give Agent
telephonic notice, to be followed by written or telegraphic or facsimile notice
in the form of Exhibit D hereto (irrevocable and effective upon receipt) of any
Revolving Credit Loan, such notice to indicate whether such Revolving Credit
Loan shall be a Prime Rate Loan or Eurodollar Loan. Each of the foregoing
notices (a "Borrowing Notice") must specify the date and the amount of such
Revolving Credit Loan to the Agent and the Agent will promptly notify each Bank
of receipt by the Agent of a Borrowing Notice and of the contents thereof. In
the case of a Eurodollar Loan, the Borrowing Notice shall be received not later
than three (3) Banking Days prior to such Eurodollar Loan and shall specify the
Interest Period selected and in the case of a Prime Rate Loan, the Borrowing
Notice shall be received not later than noon (New York time) on the date of such
proposed Prime Rate Loan. Not later than 1:00 P.M. (New York time) on the date
of a Revolving Credit Loan, each Bank will cause to be transmitted to the Agent,
to an account designated by the Agent, in immediately available funds, such
Bank's Pro Rata Share of such Revolving Credit Loan. After the Agent's receipt
of such funds, not later than 3:00 P.M. (New York time) on the date of a
Revolving Credit Loan, and upon fulfillment of the applicable conditions set
forth in Article VI, the Agent will make such Revolving Credit Loan available to
Borrower in immediately available funds by crediting the amount thereof to the
accounts as designated by Borrower to Agent.

                                      -22-
<PAGE>
     Section 2.03 Conversions. Borrower shall have the right to convert one type
of Revolving Credit Loan into another type of Revolving Credit Loan at any time
or from time to time; provided that: (a) Borrower shall give the Agent at least
three (3) Banking Days notice of the conversion of a Prime Rate Loan into a
Eurodollar Loan and (b) Eurodollar Loans may be prepaid or converted only on the
last day of an Interest Period for such Eurodollar Loan. Agent shall promptly
notify each Bank of any such conversion.

     Section 2.04 Non-Receipt of Funds by Agent. Unless the Agent shall have
received notice from a Bank, prior to the date on which such Bank is to provide
funds to the Agent for a Revolving Credit Loan to be made by such Bank, that
such Bank will not make available to the Agent such funds, the Agent may assume
that such Bank has made such funds available to Agent on the date of such
Revolving Credit Loan in accordance with Section 2.02 hereof and the Agent, in
its sole discretion, may, but shall not be obligated to, in reliance upon such
assumption, make available to Borrower on such date a corresponding amount. If
and to the extent such Bank shall not have made such funds available to the
Agent, such Bank agrees to repay the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to Borrower until the date such amount is repaid
to the Agent, for three (3) Banking Days, at the Federal Funds Rate and
thereafter, at the Prime Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's
Revolving Credit Loan for purposes of this Agreement. If such Bank does not pay
such corresponding amount forthwith upon Agent's demand therefor, the Agent
shall promptly notify Borrower, and Borrower shall immediately pay such
corresponding amount to the Agent with the interest thereon, for each day from
the date such amount is made available to Borrower until the date such amount is
repaid to the Agent, at the rate of interest applicable at the time to such
proposed Revolving Credit Loan. Unless the Agent shall have received notice from
Borrower prior to the date on which any payment is due to any Bank hereunder
that Borrower will not make such payment in full, the Agent may assume that
Borrower has made such payment in full to the Agent on such date and the Agent,
in its sole discretion, may, but shall not be obligated to, in reliance upon
such assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due such Bank. If and to the extent Borrower shall not
have so made such payment in full to the Agent, each Bank shall repay to the
Agent forthwith on demand such amount distributed to such Bank together with
interest thereon, for each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to the Agent, for three (3)
Banking Days, at the Federal Funds Rate and thereafter at the Prime Rate.

     Section 2.05 Interest. Borrower shall pay interest to the Agent, for the
account of the applicable Bank, on the outstanding and unpaid principal amount
of the Revolving Credit Loans at a rate per annum equal to the Interest Rate.
Any principal or interest amount not paid when due (at maturity, by acceleration
or otherwise) shall bear interest thereafter, payable on demand, at the Default
Rate.

     The interest rate on each Prime Rate Loan shall change when the Prime Rate
changes. Interest on each Revolving Credit Loan shall not exceed the maximum
amount permitted under applicable Law and shall be calculated on the basis of a
year of three hundred sixty (360) days for the actual number of days elapsed.

                                      -23-
<PAGE>
     Accrued interest shall be due and payable (a) in the case of a Prime Rate
Loan (i) in arrears on each Monthly Date, commencing with the first such date
after such Prime Rate Loan, and (ii) upon each payment or prepayment of
principal on such Prime Rate Loan and (b) in the case of a Eurodollar Loan, at
the end of each Interest Period and, in the case of a Eurodollar Loan with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period, and (c) in the case of a prepayment
that reduces the Revolving Credit Commitment in accordance with Section 2.07
hereof, upon each such prepayment.

     Section 2.06 Notes. All Revolving Credit Loans made by each Bank under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
single promissory note of Borrower in substantially the form of Exhibit F duly
completed, in the principal amount equal to such Bank's Pro Rata Share of the
total Revolving Credit Commitment, dated the date such bank becomes a Bank,
payable to such Bank and maturing as to principal on the Revolving Credit
Termination Date (the "Revolving Credit Notes"). Each Bank is hereby authorized
by Borrower to endorse on the schedule attached to the Revolving Credit Note
held by it the amount of each Revolving Credit Loan, and the payment amount of
each principal payment received by such Bank on account of the Revolving Credit
Loans, which endorsement shall, in the absence of manifest error, be conclusive
as to the outstanding balance of the Revolving Credit Loans made by such Bank;
provided however, that the failure to make such notation with respect to any
Revolving Credit Loan or payment shall not limit or otherwise affect the
obligations of Borrower under this Agreement or the Revolving Credit Note held
by such Bank. Each Bank agrees that prior to any assignment of the Revolving
Credit Note, it will endorse the schedule attached to its Revolving Credit Note.

     Section 2.07 Optional and Mandatory Prepayments.

     (a) Borrower may prepay a Prime Rate Loan, in whole or in part, with
accrued interest to the date of such prepayment on the amount prepaid, provided
that, each partial prepayment shall be in a principal amount of not less than
One Hundred Thousand Dollars ($100,000) (each such payment, an "Optional
Prepayment"). Eurodollar Loans may only be prepaid at end of any Interest
Period.

     (b) During the term of this Agreement, Borrower shall make mandatory
prepayments (i) in an amount equal, during any Fiscal Year, to the net proceeds
received in excess of $250,000 in the aggregate, from the sale (other than a
sale in the ordinary course of business) of all or any part of the assets of any
Restricted Subsidiary; (ii) in an amount equal to the net proceeds received by
Borrower or any Restricted Subsidiary from the sale or issuance of any debt
instrument, and (iii) in an amount equal to the net proceeds received by
Borrower or any Restricted Subsidiary under any insurance policy, to the extent
that, in the case of property and casualty insurance, such proceeds are not used
by Borrower or such Restricted Subsidiary to repair or replace the property
which was the subject of such insurance claim, with a reasonable period of time
but in no event later than six (6) months from the date such proceeds are
received by the Borrower or such Subsidiary, unless Borrower or such Subsidiary
has taken action to affect such repair or replacement, as determined by the
Agent in good faith, or unless otherwise agreed to by the Agent. So long as the
Intercreditor Agreement remains in effect, notwithstanding anything to the
contrary contained herein, the Banks shall be entitled to receive their Ratable
Portion of the prepayments required to be paid under this Section 2.07(b) and if
Agent shall be in receipt of any proceeds of such prepayments in excess of the
Bank's Ratable Portion of such prepayments (the "Excess Prepayments"), Agent
shall deliver such Excess Prepayments to the Noteholder Agent (as defined in the
Intercreditor Agreement). With respect to prepayments received by the Agent for
the ratable benefit of Banks under this Section 2.07(b), such prepayments shall
be applied first, to the repayment of the then outstanding Revolving Credit
Loans and second, at the discretion of Agent, to be held as Cash Collateral to

                                      -24-
<PAGE>
secure Letter of Credit Obligations; provided that, any mandatory prepayment of
the Revolving Credit Loans or held as Cash Collateral to secure Letters of
Credit hereunder shall permanently reduce the Supplemental Amount and the
Revolving Credit Commitment on a dollar for dollar basis to the extent such
proceeds are received by the Agent in accordance with the terms of the
Intercreditor Agreement (with respect to secured Letter of Credit Obligations
such reduction will occur as Letter of Credit Obligations are satisfied by the
Cash Collateral).

     (c) To the extent that, at any given time, (i) the Outstanding Credit
Facilities exceed the then effective Revolving Credit Commitment, or (ii) the
Outstanding Credit Facilities exceed the sum of the Availability for Revolving
Credit Loans plus the Letter of Credit Obligations, or (iii) the Revolving
Credit Loans exceed the Availability for Revolving Credit Loans, or (iv) the
Obligations exceed any of the other borrowing limitations set forth in this
Agreement, in each case the Borrower shall immediately pay to the Agent for the
ratable benefit of the Banks a mandatory prepayment of the Revolving Credit
Loans in an amount equal to such excess and/or Borrower shall immediately
provide Cash Collateral for the Letter of Credit Obligations to the extent
required to eliminate such excess. Any Cash Collateral deposited with the Agent
for the ratable benefit of the Banks in accordance with the terms of this
Section 2.07 shall be credited, for purposes of the calculation of Availability
for Revolving Credit Loans under Section 2.01 hereof, against the outstanding
Letter of Credit Obligations subject to Section 2.07(d) hereof.

     (d) In the event Eurodollar Loans are outstanding at the time of any
mandatory prepayment under this Section 2.07 hereof, such mandatory prepayment
shall be applied first to reduce any Prime Rate Loans outstanding to zero. Any
remaining mandatory prepayment amount shall be deemed to be Cash Collateral and
shall be deposited by Agent in a segregated account to be applied to the
Eurodollar Loans. The Cash Collateral in such segregated account shall represent
a reduction of the Eurodollar Loans then outstanding and such amount shall be
credited against Revolving Credit Loans for purposes of calculating Availability
for Revolving Credit Loans. Agent shall hold such amounts in such segregated
account and use it to pay the Eurodollar Loans as such loans mature. If the
amounts in the segregated account are sufficient to pay (at maturity) the then
outstanding Eurodollar Loans, any remaining mandatory prepayment shall then be
applied to Letter of Credit Obligations in accordance with Section 2.07(c)
hereof.

     (e) Borrower may, without premium or penalty, reduce the Revolving Credit
Commitment to an amount not less than the sum of the aggregate unpaid principal
amount of all Revolving Credit Loans and Letter of Credit Obligations then
outstanding. Each such reduction (i) shall be in an amount which is an integral
multiple of $1,000,000, (ii) shall be made providing not less than ten (10)
Banking Days written notice to Agent, which notice shall state the amount of the
payment to be made and shall conform to the amount of the Revolving Credit
Commitment after giving effect to such payment, (iii) shall reduce, on a
permanent basis, the Revolving Credit Commitment by an amount equal to the
amount of such reduction, and (iv) shall be irrevocable. Once reduced the
Revolving Credit Commitment may not be increased. Borrower may reduce the
Revolving Credit Commitment to $0 provided the Revolving Credit Termination Date
occurs simultaneously therewith.

     Section 2.08 Method of Payment. Borrower shall make each payment under this
Agreement and under the Notes, without setoff or counterclaim, not later than
2:00 p.m. (New York time) on the date when due in Dollars to the Agent at the
Agent's Office in immediately available funds and if received after 2:00 p.m.
New York time, then such payment shall be credited the next Banking Day. The

                                      -25-
<PAGE>
Agent will promptly thereafter cause to be distributed to each Bank (a) such
Bank's Pro Rata Share of the payments of principal and interest in like funds,
and (b) fees or sums payable to such Bank in accordance with the terms of this
Agreement, including, but not limited to, amounts due in accordance with Article
XIII.

     Borrower hereby authorizes the Agent to charge, from time to time, against
any account it maintains with the Agent or any Bank, any such amount so due to
the Agent and/or the Banks.

     Except to the extent provided in this Agreement, whenever any payment to be
made under this Agreement or under the Notes shall be stated to be due on any
day other than a Banking Day, such payment shall be made on the next succeeding
Banking Day, and such extension of time shall, in such case, be included in the
computation of the payment of interest and other fees, as the case may be.

     Section 2.09 Use of Proceeds. On and after the date hereof, the proceeds of
the Revolving Credit Loans will be used by Borrower to provide working capital
for Borrower and its Restricted Subsidiaries, and the Trade Letters of Credit
will be used for importation and purchasing of inventory by Borrower and its
Restricted Subsidiaries.

     Borrower will not, directly or indirectly, use any part of such proceeds
for the purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors or to extend credit to any Person for the
purpose of purchasing or carrying any such margin stock.

     Section 2.10 Minimum Amounts. Each Prime Rate Loan shall be in an amount at
least equal to One Hundred Thousand ($100,000) Dollars and each Eurodollar Loan
shall be in an amount at least equal to One Million Five Hundred Thousand
($1,500,000) Dollars.

     Section 2.11 Establishment of Loan Account; Collection of Accounts.

     (a) Agent shall maintain a loan account (the "Loan Account") on its books
in which shall be recorded the Revolving Credit Loans and other Obligations and
the Collateral, all payments made by or on behalf of Borrower and all other
appropriate debits and credits as provided in this Agreement, including fees,
charges, costs, expenses and interest. All entries in the Loan Account shall be
made in accordance with Agent's customary practices as in effect from time to
time. The records of Agent shall be conclusive and binding, in the absence of
manifest error.

     (b) Upon and during the continuance of any Event of Default, all proceeds
of Collateral shall be deposited by Borrower and Restricted Subsidiaries into
lockbox accounts with or under the control of Agent (for the ratable benefit of
the Bank Parties).

     Section 2.12 Closing Fee. Borrower shall pay to Agent, for the ratable
benefit of Banks, a closing fee in the amount of $150,000, which fee shall be
fully earned and payable as of the date hereof.

     Section 2.13 Commitment Fee. If, for any Agreement Quarter (as defined
below) during the term of this Agreement, the average daily unpaid balance of
the Revolving Credit Loans plus Letter of Credit Obligations for Borrower for
each day of such quarter does not equal the Revolving Credit Commitment, then
Borrower shall pay to Agent, for the ratable benefit of Banks, a fee at a rate
equal to one eighth of one percent (.125%) per annum on the amount by which the
Revolving Credit Commitment exceeds such aggregate average daily unpaid balance
of the Revolving Credit Loans plus Letter of Credit Obligations for Borrower.
Such fee shall be payable by Borrower to Agent in arrears on the last day of

                                      -26-
<PAGE>
each calendar quarter, shall be fully earned as of the date of payment and shall
not be subject to refund, rebate or proration for any reason whatsoever. For the
purposes of this Section 2.13 only, the term "Agreement Quarter" shall mean each
calendar quarter of each calendar year.

                                  ARTICLE III

                                LETTERS OF CREDIT

     Section 3.01 Trade Letters of Credit; Cash Collateral for Letters of Credit
Expiring After Termination Date. Letter of Credit Issuing Bank agrees, on the
terms and conditions hereinafter set forth, to issue trade letters of credit
payable at sight with a maturity date of up to one hundred eighty (180) days
from the date of issuance (such Letters of Credit issued by Letter of Credit
Issuing Bank after the Effective Date, and all the Existing Letters of Credit
are collectively referred to herein as the "Trade Letters of Credit") for the
account of a Letter of Credit Account Party, during the period from the
Effective Date to five (5) Banking Days prior to the Revolving Credit
Termination Date; provided that, at no time will the outstanding Trade Letter of
Credit Obligations exceed the lesser of (a) Eighty Five Million Dollars
($85,000,000) less all Letter of Credit Obligations (other than Trade Letter of
Credit Obligations), or (b) the Revolving Credit Commitment less outstanding
Revolving Credit Loans and Letter of Credit Obligations (other than Trade Letter
of Credit Obligations) or (c) the Net Borrowing Base less outstanding Revolving
Credit Loans and Letter of Credit Obligations (other than Trade Letter of Credit
Obligations) (the "Trade Letter of Credit Commitment"); provided further that,
Letter of Credit Issuing Bank will not be required to issue a Trade Letter of
Credit with a maturity (expiration) date of more than 90 days after the
Revolving Credit Termination Date and, with respect to all Letters of Credit
with a maturity (expiration) date after the Revolving Credit Termination Date,
all of such outstanding Trade Letters of Credit Obligations and/or Standby
Letters of Credit Obligations, as of five (5) Banking Days prior to the
Revolving Credit Termination Date, shall be secured by Cash Collateral at one
hundred and five (105%) percent of the face amount thereof.

     Title documents shall be consigned to Agent at Agent's request; provided
that with respect to any Existing Letters of Credit for delivery of goods from
outside of the United States into the United States, within five (5) Banking
Days of the Effective Date, at Agent's request Borrower shall apply for
amendments to such Letters of Credit to provide that all title documents related
to such goods shall be consigned to Agent.

     Section 3.02 Reimbursement Obligation. With respect to each Letter of
Credit, the Letter of Credit Account Party for which such Letter of Credit has
been issued will pay Letter of Credit Issuing Bank, on demand at Letter of
Credit Issuing Bank's Principal Office, in immediately available funds, the
amount required to reimburse Letter of Credit Issuing Bank in respect of Letter
of Credit Issuing Bank's payment of each Instrument applicable and/or relating
to such Letter of Credit. Such reimbursement shall be made with interest at the
Default Rate from the date of Letter of Credit Issuing Bank's demand for
reimbursement of such Instrument to the date of reimbursement. If the Instrument
is in foreign currency, such reimbursement shall be in Dollars at Letter of
Credit Issuing Bank's selling rate for cable transfers to the place of payment
of the Instrument current on the date of payment or of Letter of Credit Issuing
Bank's settlement of its obligation, as Letter of Credit Issuing Bank may
require. If, for any cause, on the date of payment or settlement, as the case
may be, there is no selling rate or other rate of exchange generally current in
New York for effecting such transfers, each applicable Letter of Credit Account
Party will pay Letter of Credit Issuing Bank on demand an amount in Dollars
equivalent to Letter of Credit Issuing Bank's actual cost of settlement of its
obligation however or whenever Letter of Credit Issuing Bank shall make such

                                      -27-
<PAGE>
settlement, with interest at the Prime Rate for Revolving Credit Loans from the
date of settlement to the date of payment. Each Letter of Credit Account Party
will comply with all governmental exchange regulations now or hereafter
applicable to each Letter of Credit or Instrument or payments related thereto
and will pay Letter of Credit Issuing Bank, on demand, in Dollars, such amount
as Letter of Credit Issuing Bank may be or may have been required to expend on
account of such regulations. HSBC may debit, or direct any other Bank to debit,
any account or accounts maintained by any other Letter of Credit Account Party
with any office of HSBC or any other Bank or any of their respective
Subsidiaries or Affiliates (now or in the future) and apply the proceeds to the
payment of any and all amounts owed by any Letter of Credit Account Party to
Letter of Credit Issuing Bank hereunder, and such Bank, Subsidiary or Affiliate
shall be authorized to act in accordance herewith and shall treat this
authorization as irrevocable.

     Section 3.03 Payment of Commissions, Expenses and Interest. Each Letter of
Credit Account Party will pay interest where chargeable, including reasonable
fees and charges of counsel, or reasonable costs allocated by Letter of Credit
Issuing Bank's internal legal department in connection with the enforcement of
this Agreement or any Letter of Credit. Unless otherwise agreed:

     (a) interest payable under this Article III on amounts not paid when due
shall be at the lesser of (i) the maximum rate permissible under applicable Law
and (ii) the Default Rate; and

     (b) each Letter of Credit Account Party shall pay to Letter of Credit
Issuing Bank on demand such amounts as Letter of Credit Issuing Bank, in its
sole discretion, determines are necessary to compensate it for any cost
attributable to its issuing or having outstanding such Letter of Credit
resulting from the application of any Law or regulation applicable to Letter of
Credit Issuing Bank regarding any reserve, assessment, capital adequacy or
similar requirements relating to letters of credit or the reimbursement
agreements with respect thereto or to similar liabilities or assets of Letter of
Credit Issuing Bank whether existing at the time of issuance of the Letter of
Credit or adopted thereafter including, but not limited to, fees and amounts
payable with respect to amendments to and increases of a Letter of Credit. Each
Letter of Credit Account Party acknowledges that there may be various methods of
allocating costs to the Letter of Credit and agrees that Letter of Credit
Issuing Bank's allocation for purposes of determining the costs referred to
above shall be conclusive and binding upon each Letter of Credit Account Party
provided such allocation is made in good faith.

     In addition to other expenses to be paid by the Letter of Credit Account
Parties with respect to a Letter of Credit (all of which shall be for the Letter
of Credit Issuing Bank's own account), each Letter of Credit Account Party shall
pay to Agent, for the ratable benefit of the Banks, under a Trade Letter of
Credit issued for its account a fee for each draw in the amount of (i) with
respect to the Existing Letters of Credit, one quarter of one percent (.25%) of
the amount drawn under such Existing Letter of Credit and (ii) with respect to
all Trade Letters of Credit other than the Existing Letters of Credit, one fifth
of one percent (.20%) of the amount drawn under such Trade Letter of Credit
(collectively the "Trade Letter of Credit Fee). All such fees shall be due and
payable at the time of drawing.

     Section 3.04 Proper Drawing; Letter of Credit Issuing Bank's Honoring.
Letter of Credit Issuing Bank may accept or pay any Instrument presented to it
on or before the expiration date of the applicable Letter of Credit. Except

                                      -28-
<PAGE>
insofar as written instructions may be given by an Authorized Person expressly
to the contrary, and prior to Letter of Credit Issuing Bank's issuance of a
Letter of Credit:

     (a) Letter of Credit Issuing Bank may honor the related Instrument(s) in an
amount or amounts not exceeding the amount of such Letter of Credit, although
shipment(s) in excess of the quantity called for under such Letter of Credit are
made, and

     (b) Letter of Credit Issuing Bank may honor, as complying with the terms of
such Letter of Credit and of the Application relating to it, any Instrument or
other document otherwise in order signed or issued by a person purporting to be
an administrator, executor, trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, liquidator, receiver or other legal
representative of the party authorized under such Letter of Credit to draw or
issue such Instruments or other documents.

     Section 3.05 Standby Letters of Credit. During the period from the
Effective Date to five (5) Banking Days prior to the Revolving Credit
Termination Date, Letter of Credit Issuing Bank may open, at the request of and
for the account of a Letter of Credit Account Party, Standby Letters of Credit;
provided, that, at no time will the outstanding Standby Letter of Credit
Obligations exceed the lesser of (a) Five Million Dollars ($5,000,000), or (b)
the Revolving Credit Commitment less outstanding Revolving Credit Loans and
Letter of Credit Obligations (other than Standby Letter of Credit Obligations)
or (c) the Net Borrowing Base less outstanding Revolving Credit Loans and Letter
of Credit Obligations (other than Standby Letter of Credit Obligations) (the
"Standby Letter of Credit Commitment"). No Standby Letter of Credit shall have a
stated expiration date later than the earlier of (a) the Revolving Credit
Termination Date (unless collateralized as provided in Section 3.01 hereof) or
(b) 364 days from the date of issuance. For the purpose of calculating the Net
Availability, Standby Letters of Credit shall be deemed Revolving Loans. In
addition to the Letter of Credit Issuing Bank's standard fees and charges for
Letters of Credit and all other fees, commissions and other amounts otherwise
payable with respect to issuance of Letters of Credit (all of which shall be for
the Letter of Credit Issuing Bank's own account), each Letter of Credit Account
Party shall pay to Agent (for the pro rata benefit of the Lenders) an amount
equal 1.8% of the face amount of each Standby Letter of Credit issued for the
account of such Letter of Credit Account Party, payable upon issuance (the
"Standby Letter of Credit Fee").

     Section 3.06 Amendment; Change; Modification; No Waiver. In the event of
any amendment, change or modification relating to a Letter of Credit or any
Instruments or documents called for thereunder, including waiver of
noncompliance of any such Instruments or documents with the terms of such Letter
of Credit, this Agreement shall be binding upon each Letter of Credit Account
Party with regard to such Letter of Credit as so amended, changed, or modified,
and to any act taken by Letter of Credit Issuing Bank or any of its
correspondents relating thereto. No amendment, change, waiver, or modification
to which Letter of Credit Issuing Bank has consented shall be deemed to mean
that Letter of Credit Issuing Bank will consent or has consented to any other or
subsequent request to amend, change, modify or waive a term of such Letter of
Credit. Letter of Credit Issuing Bank shall not be deemed to have waived any of
its rights hereunder, unless Letter of Credit Issuing Bank or its authorized
agent shall have signed such waiver in writing. No such waiver, unless expressly
stated therein, shall be effective as to any transaction which occurs subsequent
to the date of such waiver, nor as to any continuance of a breach after such
waiver.

     Section 3.07 U.C.P. and I.S.P.; Agreements and Acknowledgments;
Indemnification. The Uniform Customs and Practice and the International Standby
Practices shall be binding on each Letter of Credit Account Party and Letter of
Credit Issuing Bank, except to the extent it is otherwise expressly agreed. It
is also agreed that:

                                      -29-
<PAGE>
     (a) user(s) of a Letter of Credit shall not be deemed agents of Letter of
Credit Issuing Bank;

     (b) none of Letter of Credit Issuing Bank, its Affiliates, Subsidiaries, or
its correspondents shall be responsible for:

          (i) failure of any Instrument to bear any reference to the related
     Letter of Credit or inadequate reference in any Instrument to such Letter
     of Credit, or failure of any document (other than documents expressly
     required to be presented under such Letter of Credit) to accompany any
     Instrument at negotiation, or failure of any person to note the amount of
     any Instrument on the reverse of a Letter of Credit, or to surrender or
     take up a Letter of Credit or to forward documents apart from Instruments
     as required by the terms of such Letter of Credit, each of which
     provisions, if contained in a Letter of Credit itself, it is agreed may be
     waived by Letter of Credit Issuing Bank; or

          (ii) errors, omissions, interruptions or delays in transmission, or
     delivery of any message, by mail, telex, cable, telegraph, wireless or
     other teletransmission or by oral instructions, whether or not they may be
     in cipher;

     (c) Letter of Credit Issuing Bank shall not be responsible for any act,
error, neglect or default, omission, insolvency or failure in business of any of
its correspondents;

     (d) Each Letter of Credit Account Party will promptly examine:

          (i) any copy of a Letter of Credit (and of any amendments the thereof)
     sent to it by Letter of Credit Issuing Bank; and

          (ii) all Instruments and documents delivered to it, from time to time,
     and, in the event of any claim of non compliance with a Letter of Credit
     Account Party's instructions or other irregularity, the applicable Letter
     of Credit Account Party will immediately notify Letter of Credit Issuing
     Bank thereof in writing, each Letter of Credit Account Party being
     conclusively deemed to have waived any such claim against Letter of Credit
     Issuing Bank and its correspondents unless such notice is given as
     aforesaid;

     (e) any action, inaction or omission on the part of Letter of Credit
Issuing Bank or any of its correspondents, under or in connection with a Letter
of Credit or the related Instruments, documents or property, if, in good faith,
shall be binding upon each Letter of Credit Account Party and shall not place
Letter of Credit Issuing Bank or any of its correspondents under any liability
to any Letter of Credit Account Party; and

     (f) in the event that Letter of Credit Issuing Bank shall pre-assign a
letter of credit number or numbers to any Letter of Credit Account Party, each
Letter of Credit Account Party shall keep such number(s) confidential and shall
not disclose any such number to any Person until the Letter of Credit to which
such number relates has been approved by Letter of Credit Issuing Bank.

     Each Letter of Credit Account Party agrees to hold HSBC, each Affiliate and
Subsidiary of HSBC, Letter of Credit Issuing Bank, Collateral Monitor, Agent,

                                      -30-
<PAGE>
each Bank, each Affiliate and Subsidiary of each Bank, each of their officers,
directors, employees and correspondents indemnified and harmless against any and
all claims, loss, liability or damage, including reasonable counsel fees,
howsoever arising from or in connection with any Letter of Credit or any
Application, including, without limitation, any such claim, loss, liability or
damage arising out of any transfer, sale, delivery, surrender or endorsement of
any document at any time(s) held by Letter of Credit Issuing Bank or any of its
Affiliates or Subsidiaries, or held for the account of any one of them by any
correspondent of any of them, or arising out of any action for injunctive or
other judicial or administrative relief arising out of or in connection with any
Letter of Credit and affecting, directly or indirectly, HSBC, or each Affiliate
or Subsidiary of HSBC.

     Section 3.08 Licenses; Insurance; Regulations. Each Letter of Credit
Account Party will procure promptly any necessary import, export or other
licenses for the import, export or shipping of the property shipped under or
pursuant to or in connection with each Letter of Credit, and will comply with
all foreign and domestic governmental regulations in regard to the shipment of
such property or the financing thereof, and will furnish such certificates in
that respect as Letter of Credit Issuing Bank may, at any time(s), require, and
will keep such property adequately covered by insurance in amounts, against
risks and with companies satisfactory to Agent, and will assign the policies or
certificates of insurance to Agent, or will make the loss or adjustment, if any,
payable to Agent, at Agent's option, and will furnish Agent, on its demand, with
evidence of acceptance by the insurers of such assignment. Should the insurance
upon such property for any reason be unsatisfactory to Agent, Agent may, at
Borrower's expense, obtain insurance satisfactory to Agent.

     Each Application for a Trade Letter of Credit hereunder shall constitute
the warranty and certification made by each Letter of Credit Account Party that
is a party to such Application that no shipment or payment to be made in
connection with such Trade Letter of Credit violates or will violate any Law or
any United States export, currency control, or other regulations.

     Section 3.09 Airway and Steamship Guaranties. HSBC may, in its discretion,
issue a letter of indemnity or such other document requested by the party in
possession of merchandise to enable a Letter of Credit Account Party to take
possession of such merchandise forthwith without production of the shipping
documents (an "Airway Guaranty" or "Steamship Guaranty", as the case may be).
Such Airway Guaranty or Steamship Guaranty shall be deemed a part of the Letter
of Credit Obligations and shall be included, without duplication, as such in the
calculation of the Borrowing Base, the Net Borrowing Base, the Availability for
Revolving Credit Loans, the Trade Letter of Credit Commitment and the Standby
Letter of Credit Commitment, provided, however, that any merchandise which is
the subject of such Airway Guaranty or Steamship Guaranty shall not be included
in Eligible Inventory or Eligible In-Transit Inventory or Eligible Trade Letters
of Credit.

     Section 3.10 Additional Security. If a temporary restraining order or an
injunction (preliminary or permanent) or any similar order is issued in
connection with any Letter of Credit or any Instrument or documents relating
thereto, which order, injunction, or similar order may apply, directly or
indirectly, to Letter of Credit Issuing Bank, each Letter of Credit Account
Party shall, on demand, deliver, convey, transfer, or assign to the Agent
additional security of a value and character satisfactory to Agent and Letter of
Credit Issuing Bank, or make such payment as Agent and/or Letter of Credit
Issuing Bank may require.

     Section 3.11 Continuing Rights and Obligations. Agent's and Letter of
Credit Issuing Bank's rights hereunder shall continue unimpaired, and each

                                      -31-
<PAGE>
Letter of Credit Account Party shall be and remain obligated in accordance with
the terms and provisions hereof, notwithstanding the release and/or substitution
of any property which may be held as Collateral at any time(s), or of any rights
or interest therein. No delay, extension of time, renewal, compromise or other
indulgence which may occur or be granted by Agent and/or Letter of Credit
Issuing Bank shall impair Agent's and/or Letter of Credit Issuing Bank's rights
or powers hereunder.

     Section 3.12 Instructions; No Liability. Instructions may be honored by
Agent and Letter of Credit Issuing Bank when received from an Authorized Person.
Each Letter of Credit Account Party may furnish Agent and Letter of Credit
Issuing Bank with written confirmation of any such Instruction, but Agent's and
Letter of Credit Issuing Bank's responsibility with respect to any Instruction
shall not be affected by its failure to receive, or the content of, such
confirmation. Neither Agent nor Letter of Credit Issuing Bank shall have
responsibility to notify any Letter of Credit Account Party of any discrepancies
between such Letter of Credit Account Party's instructions and its written
confirmation, and in the event of any such discrepancy, the original Instruction
shall govern. Agent and Letter of Credit Issuing Bank shall be fully protected
in, and shall incur no liability to any Letter of Credit Account Party for,
acting upon any Instructions or any oral, written, telephone, teleprocess,
electronic, or other amendments thereto which it in good faith believes to have
been given by any Authorized Person, and in no event shall Agent or Letter of
Credit Issuing Bank be liable for special, consequential, or punitive damages.
Agent and Letter of Credit Issuing Bank may, at its option, use any means of
verifying any Instruction received by it. Agent and Letter of Credit Issuing
Bank also may, at its option, refuse to act upon any instruction or other
communication or any part thereof, without incurring any responsibility for any
loss, liability or expense arising out of such refusal. All such authorizations
and instructions shall continue in full force and effect unless Letter of Credit
Issuing Bank may elect to act upon additional instructions delivered to it by
any Letter of Credit Account Party prior to the issuance of a Letter of Credit
in reliance upon the original Instructions. Notwithstanding anything to the
contrary contained herein, each Letter of Credit Issuing Bank is authorized to
delegate to one or more of its Affiliates any or all of its rights and
obligations with respect to any or all Letters of Credit issued by such Letter
of Credit Issuing Bank; provided, that, no Letter of Credit may be issued by,
and no obligations under outstanding Letters of Credit may be delegated to, an
Affiliate of a Letter of Credit Issuing Bank unless (i) such Letter of Credit is
confirmed by a Letter of Credit Issuing Bank, or (ii) such Affiliate of a Letter
of Credit Issuing Bank has the same or better credit rating as the applicable
Letter of Credit Issuing Bank based on the credit rating assigned to each by
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group (a division
of The McGraw Hill Companies, Inc.) (or any successor or assignee of the
business of each such company in the business of rating securities credit
rating).

     Section 3.13 Steamship Guaranty. Any Steamship Guaranty which the Letter of
Credit Issuing Bank may issue from time to time at its sole discretion will be
deemed Letter of Credit Obligations.

     Section 3.14 Letter of Credit Application and Agreement. If requested by
the Letter of Credit Issuing Bank, each Letter of Credit Account Party also
shall submit an Application and/or letter of credit reimbursement agreement on
the Letter of Credit Issuing Bank's standard forms in connection with any
request for a Letter of Credit. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any
Application and/or letter of credit reimbursement agreement and/or any other
agreement submitted by a Letter of Credit Account Party to, or entered into by a
Letter of Credit Account Party with, the Letter of Credit Issuing Bank relating
to any Letter of Credit, the terms and conditions of this Agreement shall
control.

                                      -32-
<PAGE>
     Section 3.15 Existing Letters of Credit; Use of Term "Letter of Credit
Issuing Bank". Banks, Borrower, Guarantors, Agent and Letter of Credit Issuing
Bank hereby acknowledge and agree that the Existing Letters of Credit constitute
Letters of Credit hereunder and commencing the date of this Agreement, each Bank
shall be deemed to have purchased from the Letter of Credit Issuing Bank an
undivided participating interest in the obligations of the Letter of Credit
Issuing Bank under and in connection with such Existing Letters of Credit
pursuant to Article IV hereof. Notwithstanding anything to the contrary
contained in this Agreement, with respect to all Letters of Credit, to the
extent that any consent or action is required by, or any notice is required to
be provided to, the Letter of Credit Issuing Bank for any matter relating to
Letters of Credit, (i) to the extent same relates to Letters of Credit other
than Existing Letters of Credit, the Letter of Credit Issuing Bank shall be
deemed to mean only HSBC and such consent, action and/or notice shall only be
required of/to HSBC and (ii) to the extent same relates to Existing Letters of
Credit, the Letter of Credit Issuing Bank shall be deemed to mean only Chase and
such consent, action and/or notice shall only be required of/to Chase.

     Section 3.16 Borrower's Obligations Under Letters of Credit. With respect
to Letters of Credit issued for the account of a Letter of Credit Account Party
that is not the Borrower, the Borrower hereby agrees that, in addition to each
other Letter of Credit Account Party for whose account such Letter of Credit has
been issued, the Borrower shall be primarily obligated for all reimbursement
obligations and Letter of Credit Fees in connection with any and all such
Letters of Credit to the same extent as if such Letters of Credit had named the
Borrower as the account party therefore.

                                   ARTICLE IV

                                  PARTICIPATION

     Section 4.01 Participating Banks' Pro Rata Shares. Subject to the terms and
conditions hereinafter set forth in this Article IV, Letter of Credit Issuing
Bank hereby agrees to sell and each Participating Bank hereby agrees to purchase
a risk participation ("Participation") from Letter of Credit Issuing Bank in
each Letter of Credit to the extent of the percentage set forth below opposite
such Bank's name (as such percentage may be reduced or otherwise modified from
time to time in accordance with the terms of this Article IV):


     Bank                    Pro Rata Share
     ----                    --------------
     HSBC                        22.0%
     CIT                         20.0%
     Fleet                       16.5%
     BOA                         15.0%
     Chase                       15.0%
     IDB                         11.5%

     Section 4.02 Sale and Purchase of Participation. Each Participating Bank
hereby irrevocably and unconditionally agrees to purchase, and Letter of Credit
Issuing Bank hereby agrees to sell and transfer to each Participating Bank, an
undivided fractional interest equal to such Participating Bank's Pro Rata Share

                                      -33-
<PAGE>
in each Letter of Credit upon issuance thereof and each draw thereunder upon
such drawing, and in the obligations of the Letter of Credit Account Parties in
respect of each such Letter of Credit under this Agreement and the Letter of
Credit (including all related payments and recoveries to which such
Participating Bank is entitled pursuant to Section 4.05 hereof).

     Section 4.03 Participation in Fees and Collateral; Relationship. Agent
shall pay each Participating Bank its Pro Rata Share of each Trade Letter of
Credit Fee and Standby Letter of Credit Fee. This fee shall be due and payable
promptly, after such Fee is paid to Agent, in arrears on each Quarterly Date.

     The relationship between Letter of Credit Issuing Bank (in its capacity as
seller of a Participation pursuant to this Article IV) and each Participating
Bank (in its capacity as purchaser of a Participation pursuant to this Article
IV) is and shall be that of a purchaser and seller of a property interest and
not a creditor-debtor relationship or joint venture. Letter of Credit Issuing
Bank (in its capacity as seller of a Participation pursuant to this Article IV)
shall owe each Participating Bank (in its capacity as purchaser of a
Participation pursuant to this Article IV) no duty except as specifically set
forth in this Article IV.

     Section 4.04 Procedures. Whenever a draw shall be made under a Letter of
Credit and a Letter of Credit Account Party shall fail to reimburse Letter of
Credit Issuing Bank therefor in accordance with this Agreement, Letter of Credit
Issuing Bank will promptly notify each Participating Bank regarding such draw as
follows: (a) the date of such draw, and (b) the amount of such draw or payment.
Although Letter of Credit Issuing Bank shall be responsible for paying each such
draw on each Letter of Credit, each Participating Bank shall bear its Pro Rata
Share of the credit risk associated with each such draw. Accordingly, in the
event that the amount of any such draw is not paid in full by or on behalf of a
Letter of Credit Account Party when required in accordance with the terms of
this Agreement, for any reason, Letter of Credit Issuing Bank shall give prompt
notice by telephone (promptly confirmed in writing) or telex to each
Participating Bank of such event. Upon receipt of such telephone or telex
notice, each Participating Bank shall cause to be transmitted to Letter of
Credit Issuing Bank, to an account to be specified by Letter of Credit Issuing
Bank, an amount in immediately available funds equivalent to its Pro Rata Share
of such draw or payment in such manner to ensure that such funds are received
by, and available to, Letter of Credit Issuing Bank by 3:00 P.M., New York City
time, on the date demand therefor was made by Letter of Credit Issuing Bank (if
demand was made by 11:00 A.M., New York City time) or by 10:00 A.M., New York
City time, on the Banking Day following the date demand therefore was made (if
demand was made after 11:00 A.M., New York City time) and any such payment by
each Participating Bank shall be deemed a Revolving Loan.

     Letter of Credit Issuing Bank shall advise each Participating Bank
quarterly of its Pro Rata Share of the Letter of Credit Obligations (but shall
have no liability for its failure to do so). In addition, Letter of Credit
Issuing Bank shall supply any notices of reasonable requests in the ordinary
course of business.

     Section 4.05 Collections and Remittances. Whenever Letter of Credit Issuing
Bank receives any payment, interest reimbursement, collection, recovery, setoff,
counterclaim or banker's lien on account of a Letter of Credit, whether from a
Letter of Credit Account Party, the Collateral, or otherwise, it shall allocate
such receipt as follows:

     (a) First, to the payment of taxes, assessments, insurance premiums, legal
fees, or for similar purposes as required by the Letter of Credit, as the case
may be, or any other Loan Document, and, if previously paid by Agent or Letter
of Credit Issuing Bank, such sums shall be retained by Agent or Letter of Credit
Issuing Bank, as the case may be; and

                                      -34-
<PAGE>
     (b) Second, in the event a Letter of Credit Account Party fails to
reimburse Letter of Credit Issuing Bank, when due, for any draw under a Letter
of Credit, and Letter of Credit Issuing Bank receives a payment of or on account
of such defaulted amount as to which a Participating Bank has paid Letter of
Credit Issuing Bank the amount of its Pro Rata Share pursuant to Section 4.04
hereof, that portion of the amount received shall be allocated between each such
Participating Bank and Letter of Credit Issuing Bank pro rata, with each such
Participating Bank's percentage of the principal amount based on its Pro Rata
Share and with each such Participating Bank's portion of the interest and fees
on its Pro Rata Share based upon the amounts set forth above.

     If any payment received by Letter of Credit Issuing Bank and distributed or
credited to a Participating Bank is later rescinded or is otherwise returned by
Letter of Credit Issuing Bank for whatever reason (including, without
limitation, settlement of an alleged claim), each such Participating Bank, upon
demand by Letter of Credit Issuing Bank, shall immediately pay to Letter of
Credit Issuing Bank, such Participating Bank's Pro Rata Share of the amount so
returned, with interest at the Federal Funds Rate from and after the date of
demand. The covenants contained in this paragraph shall survive the termination
of this Agreement.

     Section 4.06 Sharing of Setoffs and Collections. Each Participating Bank
agrees that to the extent any payment is received by it on any of a Letter of
Credit Account Party's obligations under a Letter of Credit, whether by
counterclaim, setoff, banker's lien, by realizing on collateral or otherwise and
such payment results in such Participating Bank receiving a greater payment than
it would have been entitled to under Section 4.05 hereof had the total amount of
such payment been paid directly to Letter of Credit Issuing Bank for
disbursement according to that Section, then such Participating Bank shall
immediately purchase for cash from Letter of Credit Issuing Bank an additional
Participation and a participation from the other Participating Banks in such
Letter of Credit (subject to the same terms and conditions provided for herein),
sufficient in amount so that such payment shall effectively be shared pro rata
with HSBC and the other Participating Banks in accordance with the amount, and
to the extent, of their respective interests in the Letter of Credit; provided
however, that if all or any portion of such payment is thereafter recovered from
such Participating Bank at any time, the purchase shall be rescinded and the
purchase price returned to the extent of such recovery upon demand by such
Participating Bank with interest at the Federal Funds Rate from and after the
date of demand.

     Section 4.07 Indemnification; Costs and Expense. To the extent not
reimbursed by a Letter of Credit Account Party, and without limiting the
obligation of the Letter of Credit Account Parties to do so, each Participating
Bank agrees to, on demand, reimburse each Letter of Credit Issuing Bank for,
indemnify each Letter of Credit Issuing Bank against, and hold each Letter of
Credit Issuing Bank harmless from, to the extent of each such Participating
Banks Pro Rata Share of, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, or disbursements of any
kind whatsoever (including, without limitation, disbursements necessary, in the
reasonable judgment of such Letter of Credit Issuing Bank, to preserve or
protect the Collateral), that may, at any time, be imposed on, incurred by, or
asserted against such Letter of Credit Issuing Bank in any way relating to this
Agreement, a Letter of Credit, the Collateral or any other Revolving Credit Loan
Document or other instrument relating to any of the foregoing, or the
transactions contemplated thereby and hereby, or any action taken or omitted by
such Letter of Credit Issuing Bank under or in connection with any of the
foregoing; provided however, that no Participating Bank shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, or disbursements
resulting from such Letter of Credit Issuing Bank's gross negligence or willful
misconduct. The covenants contained in this Section 4.07 hereof shall survive
the termination of this Agreement.

                                      -35-
<PAGE>
     Section 4.08 Administration; Standard of Care. Letter of Credit Issuing
Bank will administer each Letter of Credit in the ordinary course of business
and in accordance with its usual practices, modified from time to time as it
deems appropriate under the circumstances. Except as expressly set forth in the
third paragraph of this Section 4.08, Letter of Credit Issuing Bank shall be
entitled to use its discretion in taking or refraining from taking any actions
in connection with any of the foregoing as if it were the sole party involved in
any of the foregoing and no Participation existed.

     Each Participating Bank acknowledges that its Participation hereunder is
without recourse to any Letter of Credit Issuing Bank and that each such
Participating Bank expressly assumes all risk of loss in connection with its
Participation in the Letters of Credit as if such Participating Bank had
directly provided such Letters of Credit. No Letter of Credit Issuing Bank shall
have any liability express or implied, for any action taken or omitted to be
taken by such Letter of Credit Issuing Bank or for any failure or delay in
exercising any right or power possessed by such Letter of Credit Issuing Bank
under any of the Loan Documents except for actual losses, if any, suffered by
any Participating Bank that are proximately caused either by such Letter of
Credit Issuing Bank's gross negligence or by such Letter of Credit Issuing
Bank's willful misconduct. Without limiting the foregoing, each Letter of Credit
Issuing Bank (a) may consult with legal counsel, independent public accountants,
appraisers, and other experts, selected by such Letter of Credit Issuing Bank,
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such persons, (b) shall be entitled
to rely on, and shall incur no liability by acting upon, any conversation,
notice, consent, certificate, statement, order, or any document or other writing
(including, without limitation, telegraph, telex, telecopy, TWX, or other
telecommunication device) believed by such Letter of Credit Issuing Bank to be
genuine and correct and to have been signed, sent, or made by the proper person,
(c) makes no warranty or representation of any kind or character relating to any
Letter of Credit Account Party or the Collateral, and shall not be responsible
for any warranty or representation made in or in connection with any of the Loan
Documents, (d) makes no warranty or representation as to, and shall not be
responsible for the correctness as to form, the due execution, legality,
validity, enforceability, genuineness, sufficiency, or collectability of any of
the Loan Documents, for any failure by any Letter of Credit Account Party or any
Person to perform its obligations thereunder, for a Letter of Credit Account
Party's use of the proceeds therefrom, or for the preservation of the Collateral
or the loss, depreciation, or release thereof, (e) makes no warranty or
representation as to, and assumes no responsibility for, the authenticity,
validity, accuracy, or completeness of any notice, financial statement, or other
document or information received by such Letter of Credit Issuing Bank or any
Participating Bank in connection with, or otherwise referred to in, any of the
Loan Documents, and (f) shall not be required to make any inquiry concerning the
observance or performance of any agreement contained in, or conditions of, any
of the Loan Documents, or to inspect the property, books, or records of any
Letter of Credit Account Party or any Person.

     Notwithstanding the provisions of the first paragraph of this Section 4.08,
each Letter of Credit Issuing Bank agrees that it will not waive any Event of
Default without the consent of the requisite Banks and it will not take any of
the following actions without the written consent of each Participating Bank:
(i) [reserved]; (ii) extend the maturity date of any Letter of Credit beyond
ninety (90) days after the Revolving Credit Termination Date; (iii) increase the
amount of the Trade Letter of Credit Commitment or the Standby Letter of Credit

                                      -36-
<PAGE>
Commitment; (iv) reduce the fees charged on the Letters of Credit below the
amount required to be paid to such Letter of Credit Issuing Bank or to the
Participating Banks pursuant to the terms of this Article IV; or (v) release any
Guarantor or any Collateral, except as otherwise contemplated in any Loan
Documents. Each Letter of Credit Issuing Bank shall be fully justified in
failing or refusing to take any action under any of the Loan Documents unless it
shall first receive such advice or concurrence of the requisite Participating
Banks.

     Each Letter of Credit Issuing Bank and the Participating Banks may lend
money to, accept deposits from, and generally engage in any kind of business
with each Letter of Credit Account Party as freely as though no Participation
had been granted to a Participating Bank.

     Section 4.09 Independent Investigation by the Participating Banks. Each
Participating Bank acknowledges (a) that each Letter of Credit Issuing Bank has
provided such Participating Bank with copies of all of the Loan Documents and
each Letter of Credit Account Party and each Letter of Credit Issuing Bank has
provided or granted such Participating Bank access to, certain financial data
and other information pertaining to the Letter of Credit Account Parties and the
Guarantors that such Participating Bank has requested in order to enable it to
make an independent, informed judgment with respect to the desirability of
purchasing Participation in the Letters of Credit, (b) that no Letter of Credit
Issuing Bank has made any representations or warranties to such Participating
Bank and that no prior or future act by any Letter of Credit Issuing Bank,
including, without limitation, any review of the affairs of any Letter of Credit
Account Party, shall be deemed to constitute a representation or warranty of
such Letter of Credit Issuing Bank, and (c) that such Participating Bank has
independently, without reliance upon any Letter of Credit Issuing Bank, and
based on such information as such Participating Bank has deemed appropriate,
made its own appraisal of and investigation into the business, operations,
property, financial condition, and general credit worthiness of each Letter of
Credit Account Party, made its own analysis of the value and Lien status of any
Collateral, and made its own decision to execute this Agreement and thereby
purchase from the applicable Letter of Credit Issuing Bank(s) a Participation in
accordance with this Article IV in the Letters of Credit. Each Participating
Bank agrees that, independently and without reliance upon any Letter of Credit
Issuing Bank or any representations or statements of any Letter of Credit
Issuing Bank, and based on such information as such Participating Bank deems
appropriate at the time, it will continue to make and rely upon its own credit
analysis and decisions in taking or not taking any action under this Article IV
or any of the Loan Documents.

     Section 4.10 Participating Banks' Ownership of Interests in the
Participation; Repurchases by the Letter of Credit Issuing Banks. Each
Participating Bank hereby represents and warrants to each Letter of Credit
Issuing Bank that the purchase of its Participation in the Letters of Credit (a)
is a legal investment pursuant to the Law under which such Participating Bank is
organized and operates, (b) has been duly authorized and approved by all
necessary action of the management of such Participating Bank, and (c) is made
for such Participating Bank's own account for the purpose of investment only and
with no present intention of disposing of the same.

     Upon the occurrence of an Event of Default and failure to consent to a
change in this Agreement where such Participating Bank's consent is required
pursuant to this Article IV, each Letter of Credit Issuing Bank, or any party
designated by it, shall have the right (but not the obligation) to repurchase
such Participating Bank's Participation in any Letter of Credit for a purchase
price equal to any unpaid amount due the Participating Bank with respect to such
Participation. Upon demand and payment therefor, such Participating Bank shall

                                      -37-
<PAGE>
promptly transfer to such Letter of Credit Issuing Bank its Participation in any
such Letter of Credit by executing and delivering to such Letter of Credit
Issuing Bank an instrument of transfer in form and substance satisfactory to
such Letter of Credit Issuing Bank and such Participating Bank; provided
however, that failure by such Participating Bank to do so shall not affect such
Letter of Credit Issuing Bank's repurchase of such Participating Bank's
Participation in any such Letter of Credit, which repurchase shall be effective
upon payment therefor by such Letter of Credit Issuing Bank to such
Participating Bank. At any time before each payment, such Letter of Credit
Issuing Bank may withdraw and terminate its offer to repurchase such
Participating Bank's Participation in any such Letter of Credit prior to the
payment of such price.

                                   ARTICLE V

                                   GUARANTY

     Section 5.01 Guaranty. Each Guarantor hereby, jointly and severally,
irrevocably, absolutely and unconditionally guarantees to each Bank Party and
their successors, endorsees, transferees and assigns the prompt and complete
payment by Borrower and each Letter of Credit Account Party, as and when due and
payable (whether at stated maturity or by required prepayment, acceleration,
demand or otherwise), of all Obligations and agrees to pay on demand any and all
expenses (including counsel fees and expenses) which may be paid or incurred by
any Bank Party in collecting any or all of the Obligations and/or enforcing any
rights under any of the Loan Documents or under the Obligations (the
"Guaranty"). The Guaranty of each Guarantor of the payment of the Obligations is
such Guarantor's "Guaranty Obligation".

     Section 5.02 Guarantor's Guaranty Obligations Unconditional.

     (a) Each Guarantor hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents, regardless of any
Law now or hereafter in effect in any jurisdiction affecting any such terms or,
the rights of any Bank Party with respect thereto. The obligations and
liabilities of each Guarantor under this Guaranty shall be to the extent
permitted by applicable law absolute and unconditional irrespective of: (i) any
lack of validity or enforceability of any of the Obligations, any Loan
Documents, or any agreement or instrument relating thereto; (ii) any change in
the time, manner or place of payment of, or in any other term in respect of, all
or any of the Obligations, or any other amendment or waiver of or consent to any
departure from any Loan Documents or any other documents or instruments executed
in connection with or related to the Obligations; (iii) any exchange or release
of, or non-perfection of any Lien on or in, any Collateral, or any release or
amendment or waiver of or consent to any departure from any other guaranty, for
all or any of the Obligations; or (iv) any other circumstances which might
otherwise constitute a defense (other than indefeasible payment in full)
available to, or a discharge of, Borrower, any Letter of Credit Account Party or
any other guarantor in respect of the Obligations of any Guarantor in respect of
this Guaranty.

     (b) This Guaranty is a continuing guaranty and shall remain in full force
and effect until: (i) the payment in full of all the Obligations and the
termination of the Commitment; and (ii) the payment of the other expenses to be
paid by the Guarantors pursuant hereto. This Guaranty shall continue to be
effective or shall be reinstated, as the case may be, if, at any time, any
payment, or any part thereof, of any of the Obligations is rescinded or must
otherwise be returned by any Bank Party upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of Borrower and/or any Letter of
Credit Account Party or otherwise, all as though such payment had not been made.

                                      -38-
<PAGE>
     (c) The obligations and liabilities of each Guarantor under this Guaranty
shall not be conditioned or contingent upon the pursuit by the Agent or any Bank
or any other Person at any time of any right or remedy against Borrower, any
Letter of Credit Account Party or any other Person which may be or become liable
in respect of all or any part of the Obligations or against any Collateral or
security or guarantee therefor or right of setoff with respect thereto.

     (d) Each Guarantor hereby consents that, without the necessity of any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by any Bank Party may be rescinded by such Bank Party and any of the Obligations
continued after such rescission.

     Section 5.03 Waivers. To the extent permitted by applicable law, each
Guarantor hereby waives: (a) promptness and diligence; (b) notice of or proof of
reliance by any Bank Party upon this Guaranty or acceptance of this Guaranty;
(c) notice of the incurrence of any Obligation by Borrower and/or any Letter of
Credit Account Party or the renewal, extension or accrual of any Obligation; (d)
notice of any actions taken by any Bank Party or Borrower, any Letter of Credit
Account Party or any other party under any Loan Document, or any other agreement
or instrument relating to the Obligations; (e) all other notices, demands and
protests, and all other formalities of every kind other than such as are
provided for in the Loan Documents in connection with the enforcement of the
Obligations or of the obligations of any Guarantor hereunder, the omission of or
delay or which, but for the provisions of this Section 5.03, might constitute
grounds for relieving any Guarantor of its obligations hereunder; and (f) any
requirement that any Bank Party protect, secure, perfect or insure any Lien on
any property subject thereto or exhaust any right or take any action against
Borrower, any Letter of Credit Account Party or any other Person or any
Collateral.

     Section 5.04 Subrogation. Each Guarantor agrees that it hereby defers any
rights which it may acquire by way of subrogation under this Guaranty, whether
acquired by any payment made hereunder, by any setoff or application of funds of
such Guarantor by any Bank Party or otherwise until the Obligations have been
paid in full.

     Section 5.05 Limitation of Liability. The obligations of each Guarantor
hereunder shall be limited to an aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance under
Section 548 of the United States Bankruptcy Code or any comparable provision of
any applicable state law.

                                   ARTICLE VI

                              CONDITIONS PRECEDENT

     Section 6.01 Conditions Precedent to Initial Use of a Credit Facility on
and after the Effective Date. The obligations of the Banks on or after the date
of this Agreement to make a Revolving Credit Loan and the obligation of HSBC to
issue the initial Letter of Credit and for the Existing Letters of Credit to
become Letters of Credit hereunder is subject to the condition precedent that
the Banks shall have received on or before the Effective Date each of the
following documents, in form and substance satisfactory to the Banks and their
counsel, and each of the following requirements shall have been fulfilled:

     (a) Evidence of Due Organization and all Corporate Actions by Borrower and
each Guarantor. A certificate of the Secretary or Assistant Secretary of
Borrower and each Guarantor, dated the date of this Agreement, attesting to the

                                      -39-
<PAGE>
certificate of incorporation and by-laws of Borrower and each Guarantor and all
amendments thereto and to all corporate actions taken by Borrower and each
Guarantor, including resolutions of its board of directors, authorizing the
execution, delivery and performance of the Loan Documents, and each other
document to be delivered pursuant to the Loan Documents;

     (b) Incumbency and Signature Certificates of Borrower and each Guarantor. A
certificate of the Secretary or Assistant Secretary of Borrower and each
Corporate Guarantor, dated the date of this Agreement, certifying the names and
true signatures of the officers of Borrower and each Guarantor authorized to
sign the Loan Documents to which it is a party, and the other documents to be
delivered pursuant to the Loan Documents;

     (c) Good Standing Certificates of Borrower and each Guarantor. A
Certificate, dated reasonably near the date of this Agreement, from the
Secretary of State (or other appropriate official) of the jurisdiction of
incorporation of Borrower and each Guarantor certifying as to the due
incorporation and good standing of Borrower or such Guarantor and certificates,
dated reasonably near the date of this Agreement, from the Secretary of State
(or other appropriate official) of each other jurisdiction where Borrower and
each Guarantor is required to be qualified to conduct business, certifying that
Borrower or such Guarantor is duly qualified to do such business and is in good
standing in each such state;

     (d) Notes. The Revolving Credit Notes;

     (e) Borrower Security Agreement. Borrower Security Agreement duly executed
by Borrower together with (i) financing statements (UCC-1) to be filed under the
Uniform Commercial Code of all jurisdictions necessary or, in the opinion of the
Agent or any Bank, desirable to perfect the security interest created by such
Security Agreement; (ii) Uniform Commercial Code searches identifying all of the
financing statements on file with respect to Borrower in all jurisdictions
referred to under (i), including the financing statements filed by the Agent
against such party indicating that no party other than the Agent claims an
interest in any of the Collateral except with respect to Permitted Liens and
(iii) endorsement, without recourse, of the Intercompany Demand Note payable to
the order of Borrower and the original of each such Intercompany Demand Note;

     (f) Guarantor Security Agreements. Security Agreements duly executed by the
Guarantors (other than HIL) together with (i) financing statements (UCC-1) to be
filed under the Uniform Commercial Code of all jurisdictions necessary or, in
the opinion of the Agent or any Bank, desirable to perfect the security interest
created by such Security Agreement and (ii) Uniform Commercial Code searches
identifying all of the financing statements on file with respect to the
Guarantors (other than HIL) in all jurisdictions referred to under (i) including
the financing statements filed by the Agent against such party indicating that
no party other than the Agent claims an interest in any of the Collateral except
with respect to Permitted Liens;

     (g) Borrower Pledge Agreement. Borrower Pledge Agreement duly executed by
Borrower, together with the certificates representing the shares pledged
pursuant to such Pledge Agreement and undated stock powers executed in blank for
each such certificate;

     (h) Designers Pledge Agreement. Designers Pledge Agreement duly executed by
Designers, together with the certificates representing the shares pledged
pursuant to the such Pledge Agreement and undated stock powers executed in blank
for such certificates;

                                      -40-
<PAGE>
     (i) Borrower Trademark Security Agreement. Borrower Trademark Security
Agreement and the Special Power of Attorney related thereto each duly executed
by Borrower;

     (j) Designers Trademark Security Agreement. Designers Trademark Security
Agreement and the Special Power of Attorneys related to the foregoing, duly
executed by Designers;

     (k) Item-Eyes Trademark Security Agreement. Item-Eyes Trademark Security
Agreement and the Special Power of Attorneys related to the foregoing, each duly
executed by Item-Eyes;

     (l) Intercreditor Agreement. The Intercreditor Agreement duly executed by
each of the Insurance Companies, the Agent for the Insurance Companies, the
Banks and the Agent;

     (m) Existing Loan Documents. The Agent shall have received (i) a payoff
letter (in form and substance reasonable satisfactory to the Agent) with respect
to the obligations under the Existing Loan Documents (other than the Existing
Letters of Credit) which shall include an agreement or authorization by Chase to
file uniform commercial code termination statements with respect to all
financing statements filed naming Chase as secured party and naming as debtor
either Borrower, a Guarantor or a trade name of the foregoing and (ii) a
direction letter from Borrower to satisfy all such obligations with the first
advance under this Agreement.

     (n) Opinions of Counsel for Borrower and Guarantors. A favorable opinion of
Willkie Farr & Gallagher, counsel for Borrower and each Guarantor, addressed to
all Banks, dated the date of this Agreement;

     (o) Insurance Coverage. A certificate from Borrower's and Guarantors'
insurance carriers evidencing the coverage required by Section 8.05 hereof
(which certificates shall show that the Agent or the Insurance Companies is an
additional insured and loss payee);

     (p) Payment of Fees. Payment in full to the Agent of all fees required to
be paid to the Agent pursuant to the terms of a separate letter agreement
between Agent and Borrower; and payment in full of all other fees required to be
paid in accordance with the Loan Documents;

     (q) Officer's Certificate. The following statements shall be true and the
Agent shall have received a certificate signed by a duly authorized officer of
Borrower dated the date of this Agreement stating that:

          (i) The representations and warranties contained in this Agreement and
     in each of the other Loan Documents are correct on and as of the date of
     this Agreement as though made on and as of such date; and

          (ii) No Default or Event of Default has occurred and is continuing;

     (r) Terminations. Termination or Assignment of UCC Financing Statements
terminating or assigning Liens other than Permitted Liens;

     (s) Assignment of Proceeds Agreement. Assignment of Proceeds Agreement duly
executed by Borrower and the Restricted Subsidiaries and a Consent and
Acknowledgment thereto duly executed by Factor;

                                      -41-
<PAGE>
     (t) Field Examination. Collateral Monitor and/or its designee shall have
conducted an examination of the books and records of Borrower and its
Subsidiaries, at the expense of the Borrower, and the results of such
examination shall be in form and substance reasonably satisfactory to the
Required Banks; provided, that, the signature of a Bank to this Agreement shall
be deemed to be its approval of such field examination.

     (u) Pre-Closing Borrowing Base Certificate. Based upon Collateral Monitor's
completion of an updated field examination of the books and records of Borrower
and its Subsidiaries and, after giving effect to any Revolving Credit Loans and
Letter of Credit Obligations and any other extension of credit to be made by the
Banks on the date of this Agreement, a Borrowing Base Certificate of Borrower
and its Restricted Subsidiaries showing Net Availability of a positive amount
(the Borrowing Base Certificate shall reflect all extensions of credit to be
made on the Effective Date and other than such extensions of credit to be made
on the Effective Date, all information in the Borrowing Base Certificate shall
be as of August 2, 2003); and

     (v) Additional Documentation. Such other approvals, opinions or documents
as the Agent or any Bank may reasonably request.

     Section 6.02 Conditions Precedent to All Credit Facilities. The obligations
of the Bank Parties, as the case may be, to provide each Credit Facility, shall
be subject to the further conditions precedent that on the date of providing
such Credit Facility:

     (a) The following statements shall be true:

          (i) (A) the representations and warranties with a materiality
     provision contained in this Agreement and in each of the other Loan
     Documents are correct on and as of the date of providing such Credit
     Facility as though made on and as of such date and (B) all the
     representations and warranties with no materiality provision contained in
     this Agreement and in each of the other Loan Documents are correct in all
     material respects on and as of the date of providing such Credit Facility
     as though made on and as of such date, except, in each case, to the extent
     that such representations and warranties expressly relate to an earlier
     date (in which case, such representations and warranties shall have been
     correct on and as of such earlier date); and

          (ii) no Default or Event of Default has occurred and is continuing, or
     could result from providing such Credit Facility;

     (b) The Agent shall have received such other approvals, opinions or
documents as the Agent or any Bank may reasonably request.

     Section 6.03 Deemed Representation. Each request under a Credit Facility
and acceptance by Borrower of any proceeds of such Revolving Credit Loan or the
issuance of any Letter of Credit, as the case may be, shall constitute (a) for
representations and warranties with a materiality provision, a representation
and warranty that the statements contained in Section 6.02(a) hereof are true
and correct both on the date of such notice and as of the date of the providing
of such Revolving Credit Loan or issuance of such Letter of Credit, as the case
may be, and (b) for representations and warranties with no materiality
provision, a representation and warranty that the statements contained in
Section 6.02(a) hereof are true and correct in all material respects both on the
date of such notice and as of the date of the providing of such Revolving Credit
Loan or issuance of such Letter of Credit, as the case may be.

                                      -42-
<PAGE>
                                  ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

     Borrower and each Guarantor hereby represents and warrants that:

     Section 7.01 Incorporation. Good Standing and Due Qualification. Borrower
and each Guarantor is duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, has the corporate power
and authority to own its assets and to transact the business in which it is now
engaged or proposed to be engaged, and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required, except to the extent that its failure to
be so qualified could not result in a Material Adverse Change.

     Section 7.02 Corporate Power and Authority; No Conflicts. The execution,
delivery and performance by Borrower and each Guarantor of the Loan Documents to
which it is a party have been duly authorized by all necessary corporate action
and do not and will not: (a) require any consent or approval of its stockholders
which has not been obtained; (b) contravene its certificate of incorporation or
by-laws; (c) violate any provision of, or require any filing (other than the
filing of the financing statements contemplated by the Security Documents),
registration, consent or approval under any Law (including, without limitation,
Regulations T, U and X of the Board of Governors), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to Borrower or any Guarantor; (d) result in a breach of or
constitute a default under or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which Borrower
or any Guarantor is a party or by which it or its properties may be bound or
affected; (e) result in, or require, the creation or imposition of any Lien
(other than as created under the Security Documents), upon or with respect to
any of the properties now owned or hereafter acquired by Borrower or any
Guarantor; or (f) cause such corporation to be in default under any such Law,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument.

     Section 7.03 Legally Enforceable Agreements. Each Loan Document to which
Borrower and each Guarantor is a party is a legal, valid and binding obligation
of Borrower and each Guarantor, enforceable against Borrower and each Guarantor
in accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally.

     Section 7.04 Litigation. There are no actions, suits or proceedings
(private or governmental) pending or, to the knowledge of Borrower or any
Guarantor, threatened, against or affecting Borrower or any Guarantor before any
Governmental Authority or arbitrator, except as set forth in Schedule 7.04. None
of the actions set forth on Schedule 7.04 are reasonably expected to result in a
Material Adverse Change.

     Section 7.05 Financial Statements. Each of: (a) the consolidated balance
sheets of Borrower and its Subsidiaries as of December 31, 2002 and the related
consolidated statements of income and retained earnings, and consolidated
statements of cash flows of Borrower and its Subsidiaries for the Fiscal Year,
then ended, and the accompanying footnotes, together, with the opinion thereon,
dated December 31, 2002, of Deloitte & Touche LLP, independent certified public
accountants, copies of which have been furnished to the Banks, and (b) the
internally prepared financial statements as of December 31, 2002 showing

                                      -43-
<PAGE>
Borrower and the Restricted Subsidiaries and the internally prepared financial
statements as of March 29, 2003 showing Borrower and the Restricted
Subsidiaries, fairly present the financial condition of Borrower and its
Subsidiaries as at such dates and the results of the operations of Borrower and
its Subsidiaries for the periods covered by such statements, all in accordance
with GAAP consistently applied except as set forth in the notes thereto and
subject in the case of interim financials statements to normal year end
adjustments. There has been no Material Adverse Change since December 31, 2002.
There are no liabilities of Borrower or any of the Subsidiaries, fixed or
contingent, which are material but are not reflected in the financial statements
referred to above or in the notes thereto, other than liabilities arising in the
ordinary course of business since December 31, 2002. No information, exhibit, or
report furnished by Borrower or any Restricted Subsidiaries to the Agent or any
Bank in connection with the negotiation of this Agreement and the other Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
materially misleading.

     Section 7.06 Ownership and Liens. Borrower and each Restricted Subsidiary
have title to, or valid leasehold interests in, all of their properties and
assets, real and personal, including the properties and assets, and leasehold
interests reflected in the financial statements referred to in Section 7.05
hereof (other than any properties or assets disposed of in the ordinary course
of business), and none of the properties and assets owned by Borrower or any
Restricted Subsidiary and none of their leasehold interests are subject to any
Lien, except as may be permitted under this Agreement. Neither Borrower nor any
Restricted Subsidiary has any copyright or patent. All trademarks owned by
Borrower and/or the Restricted Subsidiaries are indicated on Schedule 7.06
hereto.

     Section 7.07 Taxes. Borrower and each Guarantor have filed all tax returns
(federal, state and local) required to be filed and have paid all taxes,
assessments and governmental charges and levies thereon to be due, including
interest and penalties, except to the extent they are the subject of a Good
Faith Contest.

     Section 7.08 ERISA. Each Plan is administered in compliance in all material
respects with all applicable provisions of ERISA and the Code except where such
failure would not reasonably be expected to result in a Material Adverse Change.
Neither a Reportable Event nor a Prohibited Transaction has occurred with
respect to any Plan; no notice of intent to terminate a Plan has been filed nor
has any Plan been terminated; no circumstance exists which constitutes grounds
under Section 4042 of ERISA entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administer, a Plan, nor has the PBGC
instituted any such proceedings; neither Borrower nor any Guarantor nor any
ERISA Affiliate has completely or partially withdrawn under Section 4201 or 4204
of ERISA from a Multiemployer Plan; and no Plan which is a Multiemployer Plan is
in reorganization (within the meaning of Section 4241 of ERISA), is insolvent
(within the meaning of Section 4245 of ERISA) or is terminating; Borrower, each
Guarantor and each ERISA Affiliate has met its minimum funding requirements
under ERISA with respect to all of its Plans subject to Title IV of ERISA and
there are no unfunded vested liabilities except as set forth in Schedule 7.08;
and neither Borrower nor any Guarantor nor any ERISA Affiliate has incurred any
liability to the PBGC under ERISA; and neither Borrower, any Guarantor, nor any
ERISA Affiliate has liability for retiree medical, life insurance or other death
benefits (contingent or otherwise) other than as a result of a continuation of
medical coverage required under Section 4980B of the Code or as required
pursuant to an employment agreement.

     Section 7.09 Subsidiaries; Ownership of Guarantors; Investments. As of the
Effective Date, all of the outstanding capital stock or other interest of each
Guarantor is set forth on Schedule 7.09 and has been validly issued, is fully

                                      -44-
<PAGE>
paid and nonassessable and, is owned free and clear of all Liens other than
Permitted Liens. As of the Effective Date, Schedule 7.09 lists each of the
Borrower's direct and indirect Subsidiaries and all other capital stock and
other equity securities or other debt or equity investments owned or held by
Borrower or any Restricted Subsidiary.

     Section 7.10 Operation of Business. Borrower and each Restricted Subsidiary
possesses all licenses, permits, franchises, and trade names, or rights thereto,
to conduct its business substantially as now conducted and as presently proposed
to be conducted, and Borrower and each Restricted Subsidiary is not in violation
of any valid rights of others with respect to any of the foregoing.

     Section 7.11 No Default on Outstanding Judgments or Orders. Borrower and
each Guarantor have satisfied all judgments and Borrower and each Guarantor are
not in default with respect to any judgment, writ, injunction, or decree of any
court, arbitrator or any rule or regulation of any federal, state, municipal or
other Governmental Authority, commission, board, bureau, agency or
instrumentality, domestic or foreign.

     Section 7.12 No Defaults on Other Agreements. Neither Borrower nor any
Restricted Subsidiary is a party to any indenture, loan or credit agreement or
any lease or other agreement or instrument or subject to any certificate of
incorporation or corporate restriction which is likely to result in a Material
Adverse Change. Neither Borrower nor any Restricted Subsidiary is in default in
any respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument.
Neither Borrower nor any Guarantor is a party to any agreement which restricts
or prohibits any Guarantor from declaring and/or paying dividends to Borrower.

     Section 7.13 Labor Disputes and Acts of God. Neither the business nor the
properties of Borrower or any Restricted Subsidiary are affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), except as specified in Schedule 7.13.

     Section 7.14 Governmental Regulation. Neither Borrower nor any Guarantor is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Investment Company Act of 1940, the Interstate Commerce Act, the Federal Power
Act or any statute or regulation limiting its ability to incur indebtedness for
money borrowed as contemplated hereby.

     Section 7.15 Partnerships. Neither Borrower nor any Restricted Subsidiary
is a partner in any partnership.

     Section 7.16 Environmental Protection. Borrower and each Restricted
Subsidiary have obtained all permits, licenses and other authorizations which
are required under all Environmental Laws, except to the extent failure to have
any such permit, license or authorization is not likely to result in a Material
Adverse Change. Borrower and each Restricted Subsidiary are in compliance with
all Environmental Laws and the terms and conditions of the required permits,
licenses and authorizations, and is also in compliance with all other applicable
limitations, restrictions, obligations, schedules and timetables contained in
those Laws or contained in any plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved by a Governmental
Authority thereunder, except to the extent failure to comply is not likely to
result in a Material Adverse Change.

                                      -45-
<PAGE>
     The Collateral contains no Hazardous Materials that, under any
Environmental Law then in effect, (a) would impose liability on Borrower or any
Guarantor that could result in a Material Adverse Change or (b) could result in
the imposition of a Lien on the Collateral or any portion thereof or any other
assets of Borrower or any Guarantor, in each case if not properly handled in
accordance with applicable Law.

     Section 7.17 Solvency. Borrower and each Guarantor is, and upon
consummation of the transactions contemplated by this Agreement, the other Loan
Documents, and any other documents, instruments or agreements relating thereto,
will be Solvent.

     Section 7.18 Properties; Priority of Liens. All of the properties and
assets owned by the Borrower and the Guarantors (excluding HIL) are owned by
each of them, respectively, free and clear of any Lien of any nature whatsoever,
except as provided for in the Security Documents, and Permitted Liens. The Liens
that, simultaneously with the execution and delivery of this Agreement and the
consummation of the initial extensions of credit, have been created and granted
by the Security Documents constitute valid perfected first Liens on the
properties and assets covered by the Security Documents, subject to no prior or
equal Lien except Permitted Liens.

                                  ARTICLE VIII

                              AFFIRMATIVE COVENANTS

     So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank Party shall have a Commitment
hereunder, or any other amount is owing by Borrower to any Bank Party hereunder
or under any other Loan Document, Borrower and each Guarantor, (except HIL and
its Subsidiaries as to the covenants contained in Sections 8.07, 8.08, and 8.10
hereof), shall:

     Section 8.01 Maintenance of Existence. Preserve and maintain its corporate
existence and good standing in the jurisdiction of its incorporation, and
qualify and remain qualified as a foreign corporation in each jurisdiction in
which such qualification is required, except to the extent that its failure to
so qualify could not result in a Material Adverse Change.

     Section 8.02 Conduct of Business. Continue to operate its business in a
manner consistent with the conduct of it on and prior to the Effective Date.

     Section 8.03 Maintenance of Properties. Maintain, keep and preserve all of
its properties, (tangible and intangible) necessary or used in the proper
conduct of its business in good working order and condition, ordinary wear and
tear excepted.

     Section 8.04 Maintenance of Records. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP,
reflecting all of its financial transactions.

     Section 8.05 Maintenance of Insurance. Maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated and such other insurance as reasonably
required by the Banks.

                                      -46-
<PAGE>
     Section 8.06 Compliance with Laws. Comply in all respects with all
applicable Laws, such compliance to include, without limitation, paying before
the same become delinquent all taxes, assessments and governmental charges
imposed upon it or upon its property, except (a) in the case of the failure to
pay taxes, such taxes are the subject of a Good Faith Contest, and (b) to the
extent that its failure to so comply is not likely to result in a Material
Adverse Change.

     Section 8.07 Right of Inspection.

     (a) Permit Collateral Monitor and/or its designee, at any time and from
time to time, upon reasonable prior notice, to examine and make copies of the
extracts from the books and records of Borrower and its Subsidiaries, and visit
the properties of Borrower and its Subsidiaries, and discuss the affairs,
finances and accounts of Borrower and its Subsidiaries with any of their
respective employees, officers, directors and independent accountants examine
and audit the inventory and receivables of Borrower and each Subsidiary (such
foregoing right of inspection and review to be referred to as the "Field
Examination"), with the cost of one such Field Examination during each twelve
month period from and after the Effective Date being borne by the Borrower;
provided, that, for each such Field Examination the Borrower shall not be
required to pay more than $750 per day per examiner plus the reasonable
out-of-pocket costs incurred by Collateral Monitor in conducting such Field
Examination, capped at $20,000.00 for each such Field Examination; provided,
further, that, if a Default has not occurred, only one such Field Examination
may be conducted in any twelve month period from and after the Effective Date
and at any time a Default has occurred and is continuing, Collateral Monitor
and/or its designee shall be authorized to conduct at any time and from time to
time (without any requirement for prior notice) as many Field Examinations as
it, the Agent or the Required Banks request and the Borrower shall be required
to pay the entire cost of all such Field Examinations (even if more than one
Field Examination is conducted in a twelve month period).

     (b) In consideration for serving as Collateral Monitor, pay to Collateral
Monitor (i) a fee of $10,000, non-refundable and earned regardless of
circumstances, on the date of this Agreement and (ii) an additional $10,000 on
each anniversary thereof. Such fee is in addition to the payment to Collateral
Monitor of any other fees referred to in this Section 8.07.

     Section 8.08 Reporting Requirements. Furnish directly to each of the Banks:

     (a) Borrower's Quarterly Financial Statements. As soon as available and in
any event within forty-five (45) days after the end of each of the first three
quarters of each Fiscal Year of Borrower, the consolidating balance sheets of
Borrower, and (i) its Restricted Subsidiaries, and (ii) all of its Subsidiaries
as of the end of such quarter, consolidated and consolidating statements of
income, statements of stockholders' equity and cash flow statements of Borrower
and (A) its Restricted Subsidiaries and (B) all of its Subsidiaries both for
such quarter and for the period commencing at the end of the previous Fiscal
Year and ending with the end of such quarter, all in reasonable detail and
stating in comparative form corresponding unaudited consolidated figures for the
corresponding date and period in the previous Fiscal Year and all prepared in
accordance with GAAP consistently applied and certified by the chief financial
officer of Borrower (subject to year-end adjustments).

     (b) Borrower's Annual Financial Statements. As soon as available and in any
event within one hundred twenty (120) days after the end of each Fiscal Year of
Borrower: (i) for Borrower and its Subsidiaries, on a consolidated and
consolidating basis, the balance sheets, statements of changes in stockholders'
equity, income statements and statements of cash flow for such Fiscal Year, all
in reasonable detail and stating in comparative form the respective consolidated

                                      -47-
<PAGE>
figures for the corresponding date and period in the Fiscal Year and all
prepared in accordance with GAAP consistently applied, and the consolidated
financials referenced in this Section 8.08(b)(i) shall be audited by such
independent certified public accountants selected by Borrower and acceptable to
Banks and the consolidating financial statements referenced in this Section
8.08(b)(i) shall be certified by the chief financial officer of Borrower; and
(ii) for Borrower and the Restricted Subsidiaries, on a consolidated and
consolidating basis, the balance sheets, statements of changes in stockholders'
equity, income statements and statements of cash flow for such Fiscal Year, all
in reasonable detail and stating in comparative form the respective consolidated
figures for the corresponding date and period for such Fiscal Year and all
prepared in accordance with GAAP consistently applied, and which shall be
certified by the chief financial officer of Borrower, and (iii) for Borrower and
the Restricted Subsidiaries, the balance sheets and income statements prepared
on a consolidated basis in accordance with GAAP consistently applied, and which
shall be audited by such independent certified public accountants selected by
Borrower and acceptable to Banks. As of the date hereof, Deloitte & Touche, LLP
is acceptable to Banks.

     (c) Borrowing Base Certificate. Within twenty-one (21) days after each
Fiscal Month End Date, a Borrowing Base Certificate, in form and substance
satisfactory to the Agent reporting that all Revolving Credit Loans and Letter
of Credit Obligations as of such Fiscal Month End Date are in compliance with
the Net Borrowing Base as of such Fiscal Month End Date and such Borrowing Base
Certificate shall be accompanied by a summary accounts receivable aging.

     (d) Management Letters. Promptly upon receipt thereof, copies of any
reports submitted to Borrower and any Consolidated Subsidiary by independent
certified public accountants in connection with the examination of the financial
statements of such Borrower and Consolidated Subsidiary made by such
accountants.

     (e) Certificate of No Default. Within forty-five (45) days after the end of
each quarter of each Fiscal Year of Borrower, a certificate of the chief
financial officer of Borrower (i) certifying that no Default or Event of Default
has occurred and is continuing or, if a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto, and (ii) with computations
demonstrating compliance with the covenants contained in Article X, as of the
end of that fiscal period.

     (f) Notice of Litigation. Promptly after receipt of notice of the
commencement thereof, notice of all actions, suits, and proceedings before any
Governmental Authority, affecting Borrower or any Restricted Subsidiary which,
if determined adversely to Borrower or any Restricted Subsidiary, could result
in a Material Adverse Change.

     (g) Notices of Defaults and Events of Default. As soon as possible and in
any event within ten (10) days after the occurrence of each Default or Event of
Default a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken with respect thereto.

     (h) ERISA Reports. As soon as possible and in any event within twenty (20)
days after Borrower knows or has reason to know that any Reportable Event or
Prohibited Transaction has occurred with respect to any Plan or that the PBGC or
Borrower has instituted or will institute proceedings under Title IV of ERISA to
terminate any Plan or that Borrower, or any ERISA Affiliate has completely or
partially withdrawn from a Multiemployer Plan or that a Plan which is a
Multiemployer Plan is in reorganization (within the meaning of Section 4241 of

                                      -48-
<PAGE>
ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is
terminating, Borrower will deliver to each of the Banks a certificate of the
chief financial officer of Borrower setting forth details as to such Reportable
Event or Prohibited Transaction or Plan termination or withdrawal or
reorganization or insolvency and the action Borrower proposes to take with
respect thereto.

     (i) Annual Business Plan. As soon as possible and in any event no later
than March 31 in any year, a copy of an annual consolidated business plan in
form and substance acceptable to the Banks with respect to the subsequent Fiscal
Year (consisting of consolidated balance sheets of Borrower and its
Subsidiaries, and consolidated statements of earnings and cash flow statements
of Borrower and its Subsidiaries, prepared on a quarterly basis for such year)
for Borrower and its Subsidiaries approved by Borrower's Board of Directors,
together with the assumptions and projections on which the business plan is
based. Based on the information provided in the submitted annual business plan,
the Banks may reconsider, in their sole and absolute discretion, the amount of
the Supplemental Amount for such subsequent Fiscal Year; provided, that, any
change to the Supplemental Amount shall require the consent of all Banks (in
their sole and absolute discretion). Any material changes made to the plan
during the year will be provided by Borrower as soon as possible.

     (j) Insurance. Upon the occurrence of any casualty, damage or loss, whether
or not giving rise to a claim under any insurance policy, in an amount greater
than Five Hundred Thousand ($500,000) Dollars, notice thereof, together with
copies of any document relating thereto (including copies of any such claim) in
possession or control of Borrower and any Restricted Subsidiary or any agent of
Borrower and any Restricted Subsidiary; and immediately after the occurrence
thereof, written notice of any cancellation of any insurance policy required to
be maintained by Borrower and any Restricted Subsidiary pursuant to Section 8.05
hereof.

     (k) Material Adverse Change. As soon as possible and in any event within
five (5) days after the occurrence of any event or circumstance which is likely
to result in or has resulted in a Material Adverse Change, written notice
thereof.

     (l) Environmental Notices. As soon as possible and in any event within ten
(10) days after receipt by any corporate executive officer, copies of all
Environmental Notices received by Borrower or any Restricted Subsidiary which
are not received in and do not relate to the ordinary course of Borrower or such
Restricted Subsidiary's business.

     (m) Required Licensors. At any time a licensor that has licensed a
trademark to the Borrower and/or a Restricted Subsidiary becomes a Required
Licensor, written notice thereof as soon as possible and in any event within
five (5) days after such licensor becomes a Required Licensor.

     (n) General Information. Such other information respecting the conditions
or operations, financial or otherwise, of Borrower or any Restricted Subsidiary
as the Agent or any Bank may from time to time reasonably request.

     Section 8.09 Compliance With Environmental Laws. Comply in all respects
with all applicable Environmental Laws where the failure to comply could result
in a Material Adverse Change.

                                      -49-
<PAGE>
                                   ARTICLE IX

                               NEGATIVE COVENANTS

     So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank Party shall have any Commitment
hereunder or any other amount is owing by Borrower to any Bank Party hereunder
or under any other Loan Document, Borrower and each Guarantor (excluding HIL and
its Subsidiaries with respect to this Article IX), shall not:

     Section 9.01 Debt. Create, incur, assume or suffer to exist any Debt,
except:

     (a) Debt of Borrower and the Guarantors under this Agreement, the Notes, or
any other Loan Document;

     (b) Accounts payable to any Person that supplies goods or services to
Borrower or any Guarantor, and other current liabilities (other than Debt)
incurred, in the ordinary course of business; provided that, all such accounts
and liabilities are paid in the ordinary course of business;

     (c) Debt of Borrower under the Insurance Company Loan Documents;

     (d) Debt secured by purchase money Liens (i) permitted by Section 9.03
hereof and (ii) of acquired properties and acquired Persons who become
Restricted Subsidiaries;

     (e) up to an aggregate Three Million ($3,000,000) Dollars in unsecured
lines of credit to be used for general corporate purposes, which is currently
provided exclusively by Merchant National Bank;

     (f) up to an aggregate Two Million ($2,000,000) Dollars in unsecured lines
of credit to be used for trade letters of credit payable at sight (the
"Unsecured Lines"), which is currently provided exclusively by Regions Bank;

     (g) Guaranties permitted under Section 9.02 hereof;

     (h) Debt under Interest Rate Contracts with a counter-party that is a Bank
or with another counter-party that is reasonably satisfactory to the Agent and
the Required Banks; and

     (i) Debt owing by Borrower to HIL in an aggregate amount at any one time
outstanding not in excess of $10,000,000; provided that, such Debt shall only be
permitted to the extent HIL remains a Guarantor as long as such Debt remains
outstanding and only as long as, upon the occurrence and during the continuance
of a Default, such Debt is completely subordinated to the Obligations pursuant
to a subordination agreement in form and substance satisfactory to Agent.

     Section 9.02 Guaranties. Assume, guarantee, endorse or otherwise be or
become directly or contingently responsible or liable (including, but not
limited to an agreement to purchase any obligation, stock, assets, goods or
services or to supply or advance any funds, assets, goods or services, or an
agreement to maintain or cause such Person to maintain a minimum working capital
or net worth or otherwise to assure the creditors of any Person against loss)
for the obligations of any Person, except:

     (a) guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;

                                      -50-
<PAGE>
     (b) the Guaranty Obligations;

     (c) guaranties by Borrower or any Restricted Subsidiary of accounts payable
incurred in the ordinary course of business by Borrower or any Restricted
Subsidiary, as the case may be;

     (d) guaranties by Borrower and the Restricted Subsidiaries for the benefit
of HIL, but not in excess of the amount provided in Section 9.10 hereof;

     (e) guaranties under Insurance Company Loan Documents;

     (f) guaranties of trade obligations of HIL provided such guaranties are
Restricted Payments permitted under Section 9.10 hereof and guarantees of up to
$200,000 of trade obligations of Borrower or a Restricted Subsidiary or; and

     (g) Guaranties permitted under Section 9.06(e) hereof.

     Section 9.03 Liens. Create, incur, assume or suffer to exist any Lien, upon
or with respect to any of its real or personal properties (including, without
limitation, leasehold interests, leasehold improvements and any other interest
in real property or fixtures), now owned or hereafter acquired, except the
following ("Permitted Liens"):

     (a) Liens granted under and pursuant to the Loan Documents;

     (b) Liens granted under and pursuant to the Insurance Company Loan
Documents.

     (c) Liens for taxes or assessments or other government charges or levies if
not yet due and payable or if due and payable if they are the subject of a Good
Faith Contest;

     (d) Liens imposed by law, such as mechanic's, materialmen's, landlord's,
warehousemen's and carrier's Liens, and other similar Liens, securing
obligations incurred in the ordinary course of business which are not past due
for more than ninety (90) days, or which are the subject of a Good Faith
Contest;

     (e) Liens under workmen's compensation, unemployment insurance, social
security or similar legislation (other than ERISA) or to secure letters of
credit obtained in connection therewith;

     (f) Liens of GMAC Commercial Credit LLC ("GMAC") and/or The CIT
Group/Commercial Services, Inc. ("CIT"), or any other Person, each in its
capacity as factor for Borrower or a Restricted Subsidiary and/or provides
credit protection with respect to the Accounts of Borrower or a Restricted
Subsidiary (each a "Factor") so long as, with respect to each such Factor, Agent
has obtained the following in form and substance satisfactory to Agent: (i) a
copy of the executed Factoring Agreement; (ii) a duly executed Assignment of
Proceeds Agreement and (iii) an agreement duly executed by Factor pursuant to
which Factor agrees, among other things, (A) not to make any loans or advances
to Borrower or a Restricted Subsidiary or to guaranty on behalf of Borrower or
any Restricted Subsidiary any amounts and (B) to waive the right of setoff
against Accounts or proceeds thereof of amounts owed by Borrower or a Restricted
Subsidiary to Factor or Factor's clients arising out of claims or accounts
receivable owed by Borrower or a Restricted Subsidiary to such other clients of
Factor or other third parties and (C) except for Accounts factored by Factor,
that the Lien of Agent in the property of Borrower and each Restricted
Subsidiary is senior to the Lien of Factor in such property;

                                      -51-
<PAGE>
     (g) Liens, deposits or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases (permitted
under the terms of this Agreement), public or statutory obligations, surety,
stay, appeal, indemnity, performance or other similar bonds, or other similar
obligations arising in the ordinary course of business;

     (h) judgment and other similar Liens arising in connection with court
proceedings, provided that, the existence of such Liens does not constitute an
Event of Default;

     (i) easements, rights-of-way, restrictions, zoning and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by Borrower or any Guarantor of the property or
assets encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;

     (j) each of the Liens listed on Schedule 9.03 securing the Debt specified
on such schedule, including any extension or modification thereof but not the
extension of such Lien to other property in whole or in part;

     (k) purchase money Liens on any real property, fixtures or equipment
hereafter acquired or the assumption of or taking subject to any Lien on real
property, fixtures or equipment existing at the time of such acquisition, or a
Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided that:

          (i) any property subject to any of the foregoing is acquired by
     Borrower or any Guarantor in the ordinary course of its business and the
     Lien on any such property (if not preexisting) is created contemporaneously
     with such acquisition or within 90 days thereof;

          (ii) the Debt secured by any Lien so created, assumed or existing
     shall not exceed one hundred percent (100%) of the lesser of the cost or
     fair market value as of the time of acquisition of the property covered
     thereby including shipping and installation costs; and

          (iii) each such Lien shall attach only to the property so acquired and
     fixed improvements thereon.

     Section 9.04 Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of any of its now owned or hereafter acquired assets to any Person or
any capital stock of the Borrower's Subsidiaries to any Person, except for (a)
inventory disposed of in the ordinary course of business; (b) the sale or other
disposition of worn out or obsolete assets or no longer necessary for the
conduct of its business; (c) the sale or other dispositions of assets not
exceeding Three Hundred Thousand ($300,000) Dollars per Fiscal Year; (d) the
leasing of assets having an aggregate book value at any one time not exceeding
Three Hundred Thousand ($300,000) Dollars; (e) accounts receivable pursuant to a
Factoring Agreement acceptable to Agent in its sole discretion; (f) Borrower's
issuance of capital stock or other equity interest or options to purchase such
capital stock or equity interests.

     Section 9.05 Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the

                                      -52-
<PAGE>
rendering of any service, with any Affiliate other than Borrower or any
Restricted Subsidiary or enter into any transaction, including, without
limitation, the purchase, sale or exchange of property or the rendering of any
service, with any such Affiliate, except for transactions among Borrower and its
Restricted Subsidiaries or in the ordinary course of and pursuant to the
reasonable requirements of Borrower's or the Restricted Subsidiary's business
and upon fair and reasonable terms no less favorable to Borrower or Restricted
Subsidiary than it would obtain in a comparable arms' length transaction with a
Person not an Affiliate, provided however that Borrower and Restricted
Subsidiaries may make loans, and advances to and investments in HIL; provided
that, all such loans, advances, investments, together with guaranties provided
in Section 9.02, hereof do not, in the aggregate, exceed the amount of permitted
Restricted Payments allowed in Section 9.10 hereof.

     Section 9.06 Investments; Acquisitions. Without the written approval of the
Banks, except as provided in Sections 9.05 and 9.10 hereof, make any loan or
advance to any Person or purchase or otherwise acquire any capital stock,
assets, obligations or other securities of, make any capital contribution to, or
otherwise invest in, or acquire any interest in, any Person in an amount in
excess of $5,000,000 (which for purposes of acquisitions shall include the
amount of any Debt assumed), except the following: (a) Permitted Investments;
(b) investments made in accordance with Section 9.10 hereof; (c) the formation
(but not by way of acquisition) of additional wholly owned Subsidiaries of
Borrower or the Restricted Subsidiaries; provided, that, in connection
therewith, unless Agent shall waive such requirements, each such Subsidiary
shall deliver to Agent a joinder to this Agreement, the Intercreditor Agreement
shall be amended to the extent necessary to include such Subsidiary, the capital
stock or other equity interest of such Subsidiary shall be pledged to Agent for
the benefit of Banks and such Subsidiary shall deliver to Agent a Security
Agreement and, to the extent such Subsidiary owns stock of another Person, a
Pledge Agreement, and, to the extent such Subsidiary owns any intellectual
property, a Trademark Security Agreement and shares of stock, stock powers and
powers of attorney and each other agreement, document or instrument reasonably
requested by Agent in connection with the foregoing and in connection therewith
such Subsidiary shall satisfy the conditions precedent set forth in Sections
6.01(a), (b), (c), (f), (h) (except same shall be deemed to apply to such
Subsidiary instead of Designers), (j) except same shall be deemed to apply to
such Subsidiary instead of Designers), (n), (o), (p) and (r) to the same extent
as if such Subsidiary were an original party to this Agreement; (d) investments
in Borrower's common stock made with director and officer deferred compensation
pursuant to the terms Borrower's common stock purchase plan and investments made
with director or officer deferred compensation pursuant to Borrower's deferred
compensation plan; and (e) loans or advances to any employees of Borrower or a
Restricted Subsidiary or guaranties made by Borrower and the Restricted
Subsidiaries of indebtedness or obligations of any of their employees not to
exceed $200,000 in the aggregate during any Fiscal Year outstanding in the
ordinary course of business for reasonable and necessary work-related, moving,
entertainment and other ordinary business expenses to be incurred by such
employee(s) in connection with their employment, provided, that, as of the date
of such loan or guarantee and after giving effect thereto, no Event of Default
shall exist or have occurred; provided, further, with respect to the Permitted
Investments (1) all certificates of deposit, bankers acceptances and money
market funds shall be issued or offered by a domestic office of a commercial
bank organized under the laws of the United States of America or any State
thereof which has a combined capital and surplus and undivided profits ("Bank
Equity") of not less than $500,000,000, except that amounts up to the aggregate
of $5,000,000 is permitted with banks with Bank Equity of less than $500,000,000
but greater than $50,000,000; (2) all money market funds shall comply with the
criteria set forth in Securities and Exchange Commission Rule 2a-7 under the
Investment Company Act of 1940 and have portfolio assets of at least
$5,000,000,000; (3) the aggregate amount of commercial paper rated less than
A1/P1, asset backed commercial paper rated less than A1/P1, medium term notes,
variable rate demand notes, corporate bonds and municipal notes/bonds shall not

                                      -53-
<PAGE>
exceed $20,000,000 at any time; and (4) the aggregate amount of Permitted
Investments of the type referred to in the preceding clause (3) with respect to
any individual issuer shall not exceed $10,000,000 at any time.

     Section 9.07 Mergers. Merge or consolidate with, or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
to any Person or form any Subsidiary, except that the foregoing shall not
prohibit (i) the formation of a new Subsidiary in accordance with the
requirements of Section 9.06 hereof, or (ii) the merger of Restricted
Subsidiaries with and into each other or into Borrower (with the Borrower as the
surviving corporation), so long as at the time thereof or as a result thereof
there shall be no Default or Event of Default.

     Section 9.08 Leases. Create, incur, assume, or suffer to exist any
obligation as lessee for the rental or hire of any real or personal property
except: (a) Capital Leases permitted under Section 9.03(k) hereof, (b) each of
the retail and warehouse leases in effect on this date and those retail and
warehouse leases entered into in the future, and (c) leases that do not in the
aggregate require Borrower and its Subsidiaries to make payments (including
taxes, insurance, maintenance, and similar expenses which Borrower is required
to pay under the terms of the lease but excluding all payments based upon a
percentage of sales or revenues) in any Fiscal Year in excess of the amount
permitted under Section 10.04 hereof.

     Section 9.09 Dividends. Declare or pay any cash dividends on capital stock
of Borrower; or purchase, redeem, retire, or otherwise acquire for value any of
the capital stock or securities convertible into capital stock of Borrower now
or hereafter outstanding or make any distribution of assets to its stockholders
as such whether in cash, assets, or in obligations of Borrower or any Restricted
Subsidiary, or allocate or otherwise set apart any sum for the payment of any
dividend or distribution on, or for the purchase, redemption, or retirement of
any shares of its capital stock, except in all cases for transactions that are
(a) made in common stock of Borrower or (b) otherwise permitted under Section
9.10 hereof.

     Section 9.10 Restricted Payments. Notwithstanding anything to the contrary
contained in this Article IX, make any Restricted Payment; except that, so long
as no Default exists and is continuing, (i) Borrower may repurchase treasury
stock in an aggregate amount not to exceed $1,500,000 from the date of this
Agreement and all times thereafter as long as this Agreement remains in effect,
net of amounts received by Borrower upon the sale of its capital stock,
including capital stock of Borrower which may be sold including those through
its stock plans and (ii) at any time prior to the consummation of the HIL
Spin-off Transaction, Borrower may make advances or payments to or investments
in, or issue guaranties for HIL as long as the aggregate amount of such
investments in, advances or payments to or investments in, or guaranties for
HIL, whether made prior or subsequent to the Effective Date, do not in the
aggregate, at any one time outstanding, as long as this Agreement remains in
effect, exceed $40,000,000. In calculating the amount of payments under
Subsection 9.10(ii), investments shall be valued at cost without adjustment for
losses or earnings incurred by HIL.

     Section 9.11 Fiscal Year. Change its fiscal year to a period other than its
fiscal year in effect on the date hereof.

     Section 9.12 Changes, Amendments or Modifications. Change, amend, modify or
supplement any of the following: (a) its certificate of incorporation; or (b)
by-laws, or (c) any other material agreement to which Borrower is a party, to

                                      -54-
<PAGE>
the extent any of the foregoing is likely to result in a Material Adverse
Change.

     Section 9.13 Nature of Business. Materially alter the nature of its
business.

     Section 9.14 Double Negative Pledge. Enter into any agreement which
prohibits or limits the ability of the Borrower or any Restricted Subsidiary to
create, incur, assume or suffer to exist any Lien upon any of its property or
revenues, whether now owned or hereafter acquired.

     Section 9.15 Senior Secured Debt. Permit the sum of (i) the aggregate
outstanding amount of the Debt of Borrower and the Guarantors under this
Agreement, the Notes, and/or the other Loan Documents, plus (ii) the aggregate
outstanding amount of Debt of Borrower under the Insurance Company Loan
Documents, to at any one time exceed One Hundred Ten Million ($110,000,000)
Dollars.

     Section 9.16 Insurance Company Provisions. (i) Permit the financial
covenants contained in the Insurance Company Loan Documents to be amended from
those in existence on the date of this Agreement in a manner that is more
stringent as to the Borrower or any Guarantor (that is a Restricted Subsidiary),
unless the same financial covenant that is to be amended is contained in this
Agreement and the Agent and the requisite Banks have agreed, in their sole and
absolute discretion, to amend such financial covenant in the same manner as is
proposed to be amended in the Insurance Company Loan Documents, or (ii) provide
security or other sources of payment for obligations of the Borrower which have
not been provided hereunder or in connection herewith.

     Section 9.17 Factoring Agreements. Enter into, amend or modify any
Factoring Agreement with a Factor unless same shall theretofore been approved in
writing by Agent.

                                   ARTICLE X

                               FINANCIAL COVENANTS

     So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank Party shall have any Commitment
hereunder or any other amount hereunder is owing by Borrower to any Bank Party
hereunder or under any other Loan Document:

     Section 10.01 Consolidated Tangible Net Worth. Borrower and its Restricted
Subsidiaries shall maintain at all times a Consolidated Tangible Net Worth of
not less than the $56,000,000, plus, or minus, as the case may be, the Net Worth
Adjustment Amount.

     Section 10.02 Consolidated Fixed Charge Coverage Ratio. Borrower and its
Restricted Subsidiaries will maintain as at the last day of each fiscal quarter
of the Borrower, beginning with the fiscal quarter ending December 31, 2002, in
each case calculated on a rolling four (4) quarter basis, a Consolidated Fixed
Charge Ratio in a proportion of not less than 1.75 to 1.

     Section 10.03 Consolidated Average Current Ratio. Borrower and its
Restricted Subsidiaries shall maintain a ratio of (a) consolidated current
assets (determined in accordance with GAAP) to (b) consolidated current
liabilities (determined in accordance with GAAP) in a proportion of not less
than 1.75 to 1.00, determined as at the last day of each fiscal quarter of the
Borrower on an average basis with respect to the most recent four fiscal
quarters then ending, in each case excluding the performance of HIL from any of
such calculations.

                                      -55-
<PAGE>
     Section 10.04 Consolidated Capital Expenditures. Borrower and its
Restricted Subsidiaries shall not, in any Fiscal Year, make Consolidated Capital
Expenditures in the aggregate amount in excess of $1,500,000.

     Section 10.05 Revolving Credit Loan and Insurance Loan Coverage. During a
single period comprised of any sixty (60) consecutive days during each calendar
year, the sum of the aggregate amount of outstanding Revolving Credit Loans and
the aggregate Debt outstanding under the Insurance Company Loan Documents shall
not exceed eighty-five (85%) percent of the Net Amount of Eligible Accounts of
Borrower and the Restricted Subsidiaries.

                                   ARTICLE XI

                                EVENTS OF DEFAULT

     Section 11.01 Events of Default. Any of the following events shall be an
"Event of Default":

     (a) (i) Borrower shall fail to pay the principal of any Note as and when
due and payable, or any Letter of Credit Account Party shall fail to reimburse
the Letter of Credit Issuing Bank on a Letter of Credit as and when due and
payable; (ii) Borrower shall fail to pay interest on any Note within five (5)
Banking Days of when such interest is due and payable; (iii) Borrower or any
Letter of Credit Account Party shall fail to pay within ten (10) days after the
request for payment is made any fees or expenses or other payments required to
be paid under the terms of any of the Loan Documents; (iv) Borrower shall fail
to make any payments or prepayments under Section 2.07 (b) hereof within three
(3) Banking Days; (iv) Borrower shall fail to make any payments under Section
2.07 (c) hereof on the date required by that Section or (v) Borrower shall fail
to deliver, in accordance with Section 8.08 (c) hereof, a Borrowing Base
Certificate showing all Revolving Credit Loans and Letter of Credit Obligations
as of such Fiscal Month End Date are in compliance with the Net Borrowing Base
as of such Fiscal Month End Date; or

     (b) any representation or warranty made or deemed made by Borrower or any
Guarantor in this Agreement or in any other Loan Document to which it is a party
or which is contained in any certificate, document, opinion, financial or other
statement furnished at any time under or in connection with any Loan Document
shall prove to have been incorrect in any material respect on or as of the date
made or deemed made; or

     (c) Borrower or any Guarantor shall fail to perform or observe any term,
covenant or agreement contained in this Agreement or any of the Loan Documents
(other than those covered by any other Event of Default) and such failure shall
continue for five (5) days or more following the earlier of the time (i) an
executive officer of Borrower knew or should have known of such Event of
Default; or (ii) written notice of such Event of Default is given to Borrower by
the Agent (except that this Section 11.01(c) shall not apply to the delivery of
a Borrowing Base Certificate not in compliance with Section 8.08(c) hereof); or

     (d) Borrower or any Guarantor shall: (i) fail to pay any Debt of Borrower
or any Guarantor in an amount greater than Two Hundred Fifty Thousand ($250,000)
Dollars (other than the payment obligations described in (a) above or Debt under
the Insurance Company Loan Documents) when due (whether by scheduled maturity,

                                      -56-
<PAGE>
required prepayment, acceleration, demand or otherwise) after giving effect to
any applicable grace period, (ii) or fail to pay all or any portion of the Debt
under the Insurance Company Loan Documents when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) after giving
effect to any applicable grace period; or (iii) fail to perform or observe any
term, covenant or condition on its part to be performed or observed or an event
of default has occurred under any agreement or instrument relating to the Debt
under the Insurance Company Loan Documents or any such other Debt, when required
to be performed or observed, the effect of which is to cause the Debt under the
Insurance Company Loan Documents or any such other Debt to become, or to permit
the Debt under the Insurance Company Loan Documents or any such other Debt to be
declared to be, due and payable prior to its scheduled maturity; or

     (e) Borrower or any Guarantor: (i) shall generally not, or be unable to, or
shall admit in writing its inability to, pay its debts as such debts become due;
or (ii) shall make an assignment for the benefit of creditors, petition or apply
to any tribunal for the appointment of a custodian, receiver or trustee for it
or a substantial part of its assets; or (iii) shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or (iv) shall have had any such petition or application
filed or any such proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered, or which
petition, application or proceeding remains undismissed or unstayed for a period
of sixty (60) days or more; or shall be the subject of any proceeding under
which its assets may be subject to seizure, forfeiture or divestiture; or (v) by
any act or omission shall indicate its consent to, approval of or acquiescence
in any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any substantial part
of its property; or (vi) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of thirty (30) days or more;
or

     (f) one or more judgments, decrees or orders for the payment of money in
excess of Five Hundred Thousand ($500,000) Dollars in the aggregate shall be
rendered against Borrower or any Guarantor, and such judgments, decrees or
orders shall continue unsatisfied and in effect for a period of thirty (30)
consecutive days without being vacated, discharged, satisfied or stayed or
bonded pending appeal; or

     (g) any of the following events shall occur or exist with respect to
Borrower or any Guarantor or any ERISA Affiliate: (i) any Prohibited Transaction
involving any Plan; (ii) any Reportable Event shall occur with respect to any
Plan; (iii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan; (iv) any event or
circumstance exists which might constitute grounds entitling the PBGC to
institute proceedings under Section 4042 of ERISA for the termination of, or for
the appointment of a trustee to administer, any Plan, or the institution by the
PBGC of any such proceedings; (v) complete or partial withdrawal under Section
4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization,
insolvency, or termination of any Multiemployer Plan; (vi) an accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code) exists with respect to a Plan, whether or not waived; and in each case
above, such event or condition, together with all other events or conditions, if
any, would reasonably be expected to subject Borrower or any Guarantor or any
ERISA Affiliate to any tax, penalty, or other liability to a Plan, Multiemployer
Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate
exceeds or may exceed Three Hundred Fifty Thousand ($300,000) Dollars; or

                                      -57-
<PAGE>
     (h) Article V shall, at any time after the execution and delivery of this
Agreement and for any reason, cease to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by any Guarantor or any Guarantor shall deny it has any further
liability or obligation under or shall fail to perform its obligations under
Article V; or

     (i) the occurrence of a Change of Control; or

     (j) the Liens of the Agent in any of the Collateral shall for any reason
fail to be perfected Liens, subject to no other Lien other than Permitted Liens
and such failure shall continue for ten (10) days or more following the earlier
of the time (i) an executive officer of Borrower knew or should have known of
such Event of Default; or (ii) written notice of such Event of Default is given
to Borrower by the Agent; or

     (k) if on or before October 15, 2003, Agent shall not have entered into a
licensor waiver letter, in form and substance satisfactory to Agent, with
Geoffrey Beene, Inc. (and consented to by Borrower and each applicable
Guarantor) with respect to the rights of Agent to use the trademark to sell or
otherwise dispose of inventory sold under a licensed trademark from Geoffrey
Beene, Inc.; provided, that, notwithstanding this additional Event of Default
(and without limiting Agent's or any Bank's rights in connection therewith),
commencing on the date of this Agreement, no inventory sold under a licensed
trademark from Geoffrey Beene, Inc. shall be included in the Borrowing Base
unless and until the Agent shall have received such fully executed waiver
letter.

     Section 11.02 Remedies. If any Event of Default shall occur and be
continuing, the Agent may and, upon request of the Required Banks, shall by
notice to Borrower, (a) declare the Revolving Credit Commitment, the Trade
Letter of Credit Commitment and the Standby Letter of Credit Commitment to be
terminated, whereupon the same shall forthwith terminate; (b) require Borrower
to provide Cash Collateral or the equivalent thereof in an aggregate amount of
one hundred and five percent (105%) of all outstanding Letter of Credit
Obligations; (c) declare the outstanding Notes, all interest thereon, and all
other amounts payable under this Agreement, and any other Loan Documents to be
forthwith due and payable, whereupon the Notes, all such interest, and all such
amounts due under this Agreement, and under any other Loan Document shall become
and be forthwith due and payable, without presentment, demand, protest, or
further notice of any kind, all of which are hereby expressly waived by
Borrower; (d) exercise any remedies provided in any of the Loan Documents;
and/or (e) exercise any remedies provided by Law; provided however, that upon
the occurrence of an Event of Default referred to in Section 11.01(e) hereof,
the Revolving Credit Commitment, and the Trade Letter of Credit Commitment or
Standby Letter of Credit Commitment shall automatically terminate and the
outstanding Notes, Letters of Credit, and any other amounts payable under this
Agreement or any of the other Loan Documents, and all interest on any of the
foregoing shall be forthwith due and payable without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower. Furthermore, upon and following an Event of Default, at the
direction of the Required Banks, all Revolving Credit Loans, any and all accrued
and unpaid interest, fee or amount due hereunder and all other Obligations, to
the extent permitted by applicable law, shall bear interest (payable on demand,
and in any event on the last day of each month, and computed daily on the basis
of a 360-day year for actual days elapsed) at the Default Rate until paid. In no
event, however, shall any amount payable hereunder be in excess of the maximum
rate of interest permitted under applicable law. The obligation to so pay
interest upon any Obligation shall not be construed so as to waive or limit any
of the other remedies hereinabove set forth or to waive the requirement for
payment on the same date that payment is to be made as set forth in this
Agreement.

                                      -58-
<PAGE>
                                  ARTICLE XII

                        THE AGENT AND COLLATERAL MONITOR

     Section 12.01 Appointment, Powers and Immunities of Agent. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under any other Loan Document with such powers as are specifically delegated to
the Agent by the terms of this Agreement and any other Loan Document, together
with such other powers as are reasonably incidental thereto. The Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and any other Loan Document, and shall not by reason of this Agreement
be a trustee for any Bank. The Agent shall not be responsible to the Banks for
any recitals, statements, representations or warranties made by Borrower or any
Guarantor or any officer or official of the Borrower or any Guarantor or anyone
purporting to be an Authorized Person or any other Person contained in this
Agreement or any other Loan Document, or in any certificate or other document or
instrument referred to or provided for in, or received by any of them under,
this Agreement or any other Loan Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document or instrument referred to or
provided for herein or therein, for the perfection or priority of any Lien
securing the Obligations or for any failure by Borrower or any Guarantor to
perform any of its obligations hereunder or thereunder. The Agent may employ
agents and attorneys-in-fact and shall not be responsible, except as to money or
securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Neither the Agent nor any of its directors, officers, employees
or agents shall be liable or responsible for any action taken or omitted to be
taken by it or them hereunder or under any other Loan Document or in connection
herewith or therewith, except for its or their own gross negligence or willful
misconduct. Borrower shall pay any fee agreed to by Borrower and the Agent with
respect to the Agents services hereunder at the date of this Agreement and each
anniversary thereof during the term of this Agreement.

     Section 12.02 Reliance by Agent. The Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) reasonably believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. The Agent may
deem and treat each Bank as the holder of the Revolving Credit Loans made by it
and Participation purchased by it for all purposes hereof unless and until a
notice of the assignment or transfer thereof satisfactory to the Agent signed by
such Bank shall have been furnished to the Agent but the Agent shall not be
required to deal with any Person who has acquired a participation in any
Revolving Credit Loan or Bank. As to any matters not expressly or any other
Revolving Credit provided for by this Agreement, the Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in accordance
with instructions signed by the Required Banks, and such instructions of the
Required Banks and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks and any other holder of all or any portion of any
Revolving Credit Loan or Participation.

     Section 12.03 Defaults. The Agent shall not be deemed to have knowledge of
the occurrence of a Default or Event of Default, other than a payment default,
unless the Agent has received notice from a Bank or Borrower or any Guarantor
specifying such Default or Event of Default and stating that such notice is a
"Notice of Default." In the event that the Agent receives such a notice of the

                                      -59-
<PAGE>
occurrence of a Default or Event of Default, the Agent shall give prompt notice
thereof to the Banks. The Agent shall (subject to Section 12.08 hereof) take
such action with respect to such Default or Event of Default which is continuing
as shall be directed by the Required Banks; provided that, unless and until the
Agent shall have received such directions, the Agent may take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks; and
provided further that, the Agent shall not be required to take any such action
which it determines to be contrary to Law.

     Section 12.04 Rights of Agent as a Bank. With respect to its Commitment and
the Revolving Credit Loans provided by it and the Letters of Credit issued by
it, the Agent in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include the Agent in its capacity as a Bank. The
Agent and its Affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to (on a secured or unsecured basis), and
generally engage in any kind of banking, trust or other business with Borrower
or any Guarantor and any of their Affiliates as if it were not acting as the
Agent, and the Agent may accept fees and other consideration from Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks.

     Section 12.05 Indemnification of Agent. The Banks agree to indemnify the
Agent (to the extent not reimbursed under Section 13.03 hereof or under the
applicable provisions of any other Loan Document, but without limiting the
obligations of Borrower under Section 13.03 hereof or such provisions), for its
Pro Rata Share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, any
other Loan Document or any other documents contemplated by or referred to herein
or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses which Borrower or any Guarantor are obligated
to pay under Section 13.03 hereof) or under the applicable provisions of any
other Loan Document or the enforcement of any of the terms hereof or thereof or
of any such other documents or instruments; provided that, no Bank shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent.

     Section 12.06 Documents. The Agent will forward to each Bank, promptly
after the Agent's receipt thereof, a copy of each report, notice or other
document required by this Agreement or any other Loan Document to be delivered
to the Agent for such Bank.

     Section 12.07 Non-Reliance on Agent and Other Banks. Each Bank agrees that
it has, independently and without reliance on the Agent, HSBC or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of Borrower and each Guarantor and the decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent, HSBC or any other Bank, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any other Loan
Document. The Agent shall not be required to keep itself informed as to the
performance or observance by Borrower or any Guarantor of this Agreement or any
other Loan Document or any other document referred to or provided for herein or

                                      -60-
<PAGE>
therein or to inspect the properties or books of Borrower or any guarantor.
Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder, the Agent shall
not have any duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of Borrower
or any Guarantor (or any of their Affiliates) which may come into the possession
of the Agent or any of its Affiliates. The Agent shall not be required to file
this Agreement, any other Loan Document or any document or instrument referred
to herein or therein, for record or give notice of this Agreement, any other
Loan Document or any document or instrument referred to herein or therein, to
anyone; provided however, the Agent shall (a) file each Trademark Security
Agreement with the United States Patent and Trademark Office, and (b) with
respect to Borrower and the Restricted Subsidiaries that a parties to a Security
Agreement, file financing statements (UCC-1) set forth in Section 6.01 hereof in
the state where such Borrower and Restricted Subsidiary is organized.

     Section 12.08 Failure of Agent to Act. Except for action expressly required
of the Agent hereunder, the Agent shall in all cases be fully justified in
failing or refusing to act hereunder unless it shall have received further
assurances (which may include Cash Collateral) of the indemnification
obligations of the Banks under Section 12.05 hereof in respect of any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.

     Section 12.09 Resignation or Removal of Agent. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving written notice thereof to the Banks, Borrower and each
Guarantor, and the Agent may be removed at any time with or without cause by the
Required Banks; provided that, Borrower, each Guarantor and the other Banks
shall be promptly notified thereof. Upon any such resignation or removal, the
Required Banks shall have the right to appoint a successor Agent, which, unless
an Event of Default shall have occurred and be continuing, shall be reasonably
acceptable to Borrower. If no successor Agent shall have been so appointed by
the Required Banks and shall have accepted such appointment within thirty (30)
days after the retiring Agent's giving of notice of resignation or the Required
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, which shall be a bank which has an office
in New York, New York and assets in an amount not less than One Billion
($1,000,000,000) Dollars, which, unless an Event of Default shall have occurred
and be continuing, shall be reasonably acceptable to Borrower. The Required
Banks or the retiring Agent, as the case may be, shall upon the appointment of a
successor Agent promptly so notify Borrower and the other Banks. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article XII shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent.

     Section 12.10 Amendments Concerning Agency Function. The Agent shall not be
bound by any waiver, amendment, supplement or modification of this Agreement or
any other Loan Document which affects its duties hereunder or thereunder unless
it shall have given its prior consent thereto.

     Section 12.11 Liability of Agent. The Agent shall not have any liabilities
or responsibilities to Borrower or any Guarantor on account of the failure of
any Bank to perform its obligations hereunder or to any Bank on account of the
failure of Borrower or any Guarantor to perform its obligations hereunder or
under any other Loan Document.

     Section 12.12 Transfer of Agency Function. Without the consent of Borrower,
any Guarantor or any Bank, the Agent may at any time or from time to time

                                      -61-
<PAGE>
transfer its functions as Agent hereunder to any of its offices located in New
York, New York, provided that, the Agent shall promptly notify Borrower and the
Banks thereof.

     Section 12.13 Withholding Taxes. Each Bank represents that it is entitled
to receive any payments to be made to it hereunder without the withholding of
any tax and will furnish to the Agent such forms, certifications, statements and
other documents as the Agent may request from time to time to evidence such
Bank's exemption from the withholding of any tax imposed by any jurisdiction or
to enable the Agent to comply with any applicable laws or regulations relating
thereto. Without limiting the effect of the foregoing, if any Bank is not
created or organized under the laws of the United States of America or any state
thereof, such Bank will furnish to the Agent Form 4224 or Form W-8BEN of the
Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
complete exemption from the withholding of U.S. tax with respect thereto. The
Agent shall not be obligated to make any payments hereunder to such Bank in
respect of any Revolving Credit Loan or Participation or such Bank's Revolving
Credit Commitment or obligation to purchase a Participation until such Bank
shall have furnished to the Agent the requested form, certification, statement
or document.

     Section 12.14 Collateral Monitor. Each Bank and Agent acknowledge and agree
that: (i) any and all reports prepared by Collateral Monitor are being supplied
to them solely to assist them in their own independent credit analysis of
Borrower and its Subsidiaries and (ii) Collateral Monitor makes absolutely no
representation or warranty whatsoever regarding (x) the accuracy completeness or
adequacy of such reports or (y) any financial or other information contained
therein or the financial condition of Borrower and its Subsidiaries. It is
further understood and agreed that Collateral Monitor shall not incur any
liability to Agent or Banks whatsoever in connection with the delivery of such
reports or the contents of such reports or their use thereof or reliance thereon
and Agent and Banks each hereby waive any and all claims that they may now or
hereafter have against Collateral Monitor in connection therewith.

     Borrower and its Subsidiaries hereby waive any and all claims that they may
now or hereafter have against Collateral Monitor arising in connection with such
reports and/or Collateral Monitor's performance of its duties and functions as
Collateral Monitor and hereby indemnifies and holds Collateral Monitor harmless
from any and all loss liability or expense incurred by Borrower and its
Subsidiaries as a result of such reports or the contents thereof.

     Collateral Monitor's reports may contain confidential information which is
non-public, confidential or proprietary in nature, and therefore is being
provided to Agent and Banks on a confidential basis and is to be used for the
sole purpose of assisting Agent and Banks in their independent credit analysis
of Borrower and its Subsidiaries as described above.

     Except as may be required by applicable law or by any federal regulator or
any auditor of Agent or any Bank, each Bank and Agent will not disclose any of
the contents of such reports to any person, including Borrower and its
Subsidiaries, other than those officers, directors, employees, representatives
and professional advisors of such Bank or Agent or who need to know the contents
thereof for the purpose of such credit analysis described above.

     The Collateral Monitor shall have no duties or responsibilities except
those expressly set forth in this Agreement and any other Loan Document. The
Collateral Monitor shall not be bound by any waiver, amendment, supplement or
modification of this Agreement or any other Loan Document which affects its
duties hereunder or thereunder unless it shall have given its prior written
consent.

                                      -62-
<PAGE>
                                  ARTICLE XIII

                                YIELD PROTECTION

     Section 13.01 Additional Costs. (a) Borrower shall pay directly to the
Agent from time to time on demand such amounts as any Bank may reasonably
determine to be necessary to compensate it for any costs which the Bank
determines are attributable to its making or maintaining any Eurodollar Loans
under this Agreement or its obligation to make any such loans hereunder, or any
reduction in any amount receivable by the Bank hereunder in respect of any such
loans or such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to the Bank under this Agreement in respect of any of such loans (other
than taxes imposed on the overall net income of the Bank for any of such loans
by the jurisdiction in which the Bank has its principal office or is deemed to
hold the loans); or (ii) imposes or modifies any reserve, special deposit,
deposit insurance or assessment, minimum capital, capital ratio or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, the Bank (including any of such loans or
any deposits referred to in the definition of "Eurodollar Base Rate"; or (iii)
imposes any other condition affecting this Agreement (or any extensions of
credit or liabilities), except to the extent any such Regulatory Change has
previously resulted in a change in the calculation of Eurodollar Rate as a
result of being included in the Reserve Requirement used in calculating such
Eurodollar Rate. The Agent will notify Borrower of any event occurring after the
date of this Agreement which will entitle the Bank to compensation pursuant to
this Section 13.01(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation.

     (b) Without limiting the effect of the foregoing provisions of this Section
13.01, in the event that, by reason of any Regulatory Change, the Bank either
(i) incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of the Bank
which includes deposits by reference to which the interest rate on Eurodollar
Loans is determined as provided in this Agreement or a category of extensions of
credit or other assets of the Bank which includes Eurodollar Loans or (ii)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if the Bank so elects by notice to Borrower,
the obligation of the Bank to make or renew, and to convert loans of any other
type into, loans of such type hereunder shall be suspended until the date such
Regulatory Change ceases to be in effect.

     (c) Without limiting the effect of the foregoing provisions of this Section
13.01 (but without duplication), Borrower shall pay directly to the Agent from
time to time on request such amounts as the Agent may determine to be necessary
to compensate any Bank for any costs which it determines are attributable to the
maintenance by it or any of its affiliates pursuant to any Regulatory Change of
any court or governmental or monetary authority of capital in respect of its
loans hereunder or its obligation to make loans hereunder (such compensation to
include, without limitation, an amount equal to any reduction in return on
assets or equity of the Bank to a level below that which it could have achieved
but for such Regulatory Change), except to the extent the Eurodollar Base Rate
has been adjusted to reflect such costs. The Agent will notify Borrower if any
Bank is entitled to compensation pursuant to this Section 13.01(c) as promptly
as practicable after it determines to request such compensation.

                                      -63-
<PAGE>
     (d) Determinations and allocations by the Agent or Bank for purposes of
this Section 13.01 of the effect of any Regulatory Change pursuant to
subsections (a) or (b), or of the effect of capital maintained pursuant to
subsection (c), on its costs of making or maintaining loans or its obligation to
make loans, or on amounts receivable by, or the rate of return to, it in respect
of loans or such obligation, and of the additional amounts required to
compensate the Bank under this Section 13.01, shall be conclusive, provided
that, such determinations and allocations are made on a reasonable basis and
absent manifest error and having a retroactive effect of no more than one
hundred twenty (120) days.

     Section 13.02 Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for a Bank to (a) honor its
obligation to make or renew Eurodollar Loans hereunder or convert loans of any
type into loans of such type, or (b) maintain Eurodollar Loans hereunder, then
the Bank shall promptly notify Borrower thereof and the Bank's obligation to
make or renew Eurodollar ^ Loans and to convert other types of loans into loans
of such type hereunder shall be suspended until such time as the Bank may again
make, renew, or convert and maintain such affected loans and the Bank's
outstanding Eurodollar ^ Loans shall be converted to Prime Rate Loans at the end
of the then current Interest Period unless earlier required by law.

     Section 13.03 Certain Compensation. Borrower shall pay to the Agent, upon
the request of the Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Agent) to compensate any Bank for any loss, cost or
expense which the Bank determines is attributable to:

     (a) any payment or prepayment of a Eurodollar Loan made by the Bank on a
date other than the last day of an Interest Period for such Loan (whether by
reason of acceleration or otherwise); or

     (b) any failure by Borrower to borrow a Eurodollar Loan to be made by the
Bank on the date specified therefor in the relevant notice.

     Without limiting the foregoing, such compensation shall include an amount
equal to the excess, if any, of (i) the amount of interest which otherwise would
have accrued on the principal amount so paid, prepaid or not borrowed for the
period from and including the date of such payment, prepayment or failure to
borrow to but excluding the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, to but excluding the last day
of the Interest Period for such Loan which would have commenced on the date
specified therefor in the relevant notice) at the applicable rate of interest
for such Loan provided for herein; over (ii) the amount of interest (as
reasonably determined by the Bank) the Bank would have bid in the London
interbank market for Dollar deposits for amounts comparable to such principal
amount and maturities comparable to such period. A determination of the Bank as
to the amounts payable pursuant to this Section 13.03 shall be conclusive absent
manifest error.

                                  ARTICLE XIV

                                  MISCELLANEOUS

     Section 14.01 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document nor consent to any
departure by Borrower or any Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent and the
Required Banks and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided

                                      -64-
<PAGE>
however, that no amendment, waiver or consent, shall, unless in writing and
signed by all Banks do any of the following: (a) increase the Revolving Credit
Commitment or the Trade Letter of Credit Commitment or Standby Letter of Credit
Commitment ; (b) reduce the principal of, or interest on (other than imposition
of the Default Rate), the Notes; (c) postpone the date fixed for the payment of
principal of, or interest on, the Notes or any other amount due hereunder or
under any Loan Document, or waive any default in the payment of principal,
interest or any other amount due hereunder or under any Loan Document; (d)
change the definition of "Required Banks" or "Pro Rata Share"; (e) release any
Guarantor or release or subordinate any Collateral (except as contemplated by
the Loan Documents); (f) change the definition of Borrowing Base, or Net
Borrowing Base or any defined term referenced therein or change the definition
of Supplemental Amount; or (g) amend this Section 14.01 or any other provision
requiring the consent of all Banks; provided further, that no amendment, waiver
or consent of any matter relating to a Letter of Credit, shall be effective
unless also signed by the Letter of Credit Issuing Bank that issued such Letter
of Credit. No failure on the part of the Agent or any Bank to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof or
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by Law.

     Section 14.02 Usury. Anything herein to the contrary notwithstanding, the
obligations of Borrower and the Guarantors under this Agreement and the other
Loan Documents shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt thereof would be contrary to
provisions of Law applicable to a Bank limiting rates of interest which may be
charged or collected by such Bank.

     Section 14.03 Expenses; Indemnification. Borrower agrees to reimburse the
Agent, Collateral Monitor and each of the Banks, on demand for all costs,
expenses, and charges (including, without limitation, all reasonable fees and
charges of external legal counsel for the Agent, Collateral Monitor, HSBC and
each Bank) incurred by Agent, Collateral Monitor, or any Bank, in connection
with the preparation of the Loan Documents. Borrower agrees to reimburse the
Agent, Collateral Monitor, each Letter of Credit Issuing Bank, and each of the
Banks on demand for all costs, expenses, and charges (including, without
limitation, all fees and charges of external legal counsel for the Agent,
Collateral Monitor, and each Bank) incurred by the Agent, Collateral Monitor, or
any Bank in connection with the performance, or enforcement of this Agreement,
the Notes, or any other Loan Documents. Borrower agrees to indemnify the Agent,
Collateral Monitor, each Letter of Credit Issuing Bank and each Bank and their
respective directors, officers, employees and agents (collectively, the
"Indemnified Persons), from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other proceedings)
relating to any actual or proposed use by Borrower of the proceeds of the
Revolving Credit Loans or the Letters of Credit or to any violation or alleged
violation of any Environmental Law by Borrower or any Guarantor, including
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of any Indemnified Person
or any other Indemnified Person of which such Indemnified Person is an affiliate
or agent).

     The obligations of Borrower under this Section shall survive the repayment
of the Obligations and all amounts due under or in connection with any of the
Loan Documents and the termination of the Commitments.

                                      -65-
<PAGE>
     Section 14.04 Assignment; Participation; Additional Bank.

     (a) This Agreement shall be binding upon, and shall inure to the benefit
of, Borrower, the Guarantors, the Agent, the Letter of Credit Issuing Bank and
their respective successors and permitted assigns. No Borrower or Guarantor may
assign or transfer its rights or obligations hereunder (and any attempted
assignment or transfer by the Borrower or any Subsidiary signatory hereto
without such consent shall be null and void). Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto) and their respective successors and assigns permitted hereby
(including any Affiliate of the Letter of Credit Issuing Bank that issues any
Letter of Credit) any legal or equitable right, remedy or claim under or by
reason of this Agreement.

     (b) Any Bank may assign to one or more assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Revolving Credit Loans and other Obligations at the time
owing to it); provided that (i) except in the case of an assignment to a Bank or
an Affiliate of a Bank, each of the Borrower and the Agent must give their prior
written consent to such assignment (which consent shall not be unreasonably
withheld), (ii) except in the case of an assignment to a Bank or an Affiliate of
a Bank or an assignment of the entire remaining amount of the assigning Bank's
Commitment, the amount of the Commitment of the assigning Bank subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Agent) shall not be less than
$10,000,000 unless each of the Borrower and the Agent otherwise consent, (iii)
each partial assignment shall be made as an assignment of a proportionate part
of all the assigning Bank's rights and obligations under this Agreement, (iv)
the parties to each assignment shall execute and deliver to the Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500, and (v) the assignee, if it shall not be a Bank, shall deliver to the
Agent an administrative questionnaire in form and substance reasonably
satisfactory to the Agent; and provided further that any consent of the Borrower
otherwise required under this paragraph shall not be required if an Event of
Default has occurred and is continuing. Subject to acceptance and recording
thereof pursuant to paragraph (d) of this Section, from and after the effective
date specified in each Assignment and Acceptance the assignee thereunder shall
be a party hereto and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Bank under this Agreement,
and the assigning Bank thereunder shall, to the extent of the interest assigned
by such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Bank's rights and obligations under this Agreement, such Bank shall
cease to be a party hereto but shall continue to be entitled to the benefits of
Article XIII hereof and Section14.03 hereof). Any assignment or transfer by a
Bank of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Bank of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.

     (c) The Agent, acting for this purpose as an agent of the Borrower, shall
maintain at one of its offices in the City of New York a copy of each Assignment
and Acceptance delivered to it and a register for the recordation of the names
and addresses of the Bank's, and the Commitment of, and principal amount of the
Obligations owing to, each Bank pursuant to the terms hereof from time to time
(the "Register"). The entries in the Register shall be conclusive, and the
Borrower, the Agent, the Letter of Credit Issuing Bank and the Banks may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Bank hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the Borrower,
the Agent and any Bank, at any reasonable time and from time to time upon
reasonable prior notice.

                                      -66-
<PAGE>
     (d) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Bank and an assignee, the assignee's completed administrative
questionnaire (unless the assignee shall already be a Bank hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section and
any written consent to such assignment required by paragraph (b) of this
Section, the Agent shall accept such Assignment and Acceptance and record the
information contained therein in the Register. No assignment shall be effective
for purposes of this Agreement unless it has been recorded in the Register as
provided in this paragraph.

     (e) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its portion of
the Revolving Credit Loans and the Participation. In the event of any such grant
by a Bank of a participating interest to a Participant, such Bank shall remain
responsible for the performance of its obligations hereunder, and Borrower and
the Agent shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations hereunder. Any agreement
pursuant to which any Bank may grant such a participating interest shall provide
that such Bank shall retain the sole right and responsibility to enforce the
obligations of Borrower and the Guarantors hereunder and under any other Loan
Document including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement or any other Loan
Document; provided that, such participation agreement may provide that such Bank
will not agree to any modification, amendment or waiver of this Agreement that
would require the consent of all Banks under Sections 14.01 (a) through (g)
hereof without the consent of the Participant.

     (f) A Participant shall not be entitled to receive any greater payment
under Article XIII hereof than the applicable Bank would have been entitled to
receive with respect to the participation sold to such Participant, unless the
sale of the participation to such Participant is made with the Borrower's prior
written consent. If a Participant is a Foreign Lender such Participant shall,
for the benefit of the Borrower, comply with Section 12.13 hereof as though it
were a Bank.

     (g) Any Bank may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of such
Bank, including any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section shall not apply to any such pledge or assignment
of a security interest; provided that no such pledge or assignment of a security
interest shall release a Bank from any of its obligations hereunder or
substitute any such pledgee or assignee for such Bank as a party hereto.

     Section 14.05 Notices. Unless the party to be notified otherwise notifies
the other party in writing as provided in this Section, and except as otherwise
provided in this Agreement, notices shall be given to the Agent by telephone,
confirmed by telex, telecopy or other writing, and to the Banks and to Borrower
by ordinary mail, telecopy or telex addressed to such party at its address on
the signature page of this Agreement. Copies of notices mailed to Borrower
should also be mailed by ordinary mail to Willkie, Farr & Gallagher, 787 Seventh
Avenue, New York, NY 10019, Attention: Steven J. Gartner, counsel to Borrower.
Notices shall be effective: (a) if given by mail upon receipt; and (b) if given
by telex, when the telex is transmitted to the telex number as aforesaid;
provided that, notices to the Agent, and the Banks shall be effective upon
receipt.

     Section 14.06 Setoff; Sharing. Borrower agrees that, in addition to, and
without limitation of any right of setoff, bankers' lien or counterclaim a Bank

                                      -67-
<PAGE>
may otherwise have, each Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of Borrower at any of such Bank's offices, in Dollars or in any
other currency, against any amount payable by Borrower to such Bank under this
Agreement or such Bank's Note, or any other Loan Document which is not paid when
due (regardless of whether such balances are then due to Borrower), in which
case it shall promptly notify Borrower and the Agent thereof; provided that,
such Bank's failure to give such notice shall not affect the validity thereof.
Each Bank agrees that to the extent any such payment is received by it as the
result of a set-off or otherwise and such payment results in such Bank receiving
a greater payment than it would have been entitled to, had the total amount of
such payment been paid directly to the Agent for disbursement to the Banks, then
such Bank shall immediately purchase for cash from the other Banks
participations in the loans sufficient in amount so that such payment shall
effectively be shared pro rata with the other Banks in accordance with the
amount, and to the extent, of their respective interests in all the Revolving
Credit Loans; provided however, that if all or any portion of such payment is
thereafter recovered from such Bank at any time, the purchase shall be rescinded
and the purchase price returned to the extent of such recovery, but without
interest or other return thereof.

     Section 14.07 Jurisdiction; Immunities. Borrower and each Guarantor hereby
irrevocably submit to the jurisdiction of any New York State or United States
Federal court sitting in New York City over any action or proceeding arising out
of or relating to this Agreement, the Notes, the Letters of Credit, or any other
Loan Document, and Borrower and each Guarantor hereby irrevocably agree that all
claims in respect of such action or proceeding may be heard and determined in
such New York State or Federal court. Borrower and each Guarantor irrevocably
consent to the service of any and all process in any such action or proceeding
by the mailing of copies of such process to Borrower and each Guarantor at their
respective addresses specified in Section 14.05 hereof. Borrower and each
Guarantor agree that a final non-appealable judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Borrower and each
Guarantor further waive any objection to venue in such State and any objection
to an action or proceeding in such State on the basis of forum non conveniens.
Borrower and each Guarantor agree that any action or proceeding brought against
the Agent or any Bank shall be brought only in New York State or United States
Federal Court sitting in New York County.

     Nothing in this Section 14.07 hereof shall affect the right of the Agent or
any Bank to serve legal process in any other manner permitted by law or affect
the right of the Agent or any Bank to bring any action or proceeding against any
of Borrower or any Guarantor or their property in the courts of any other
jurisdictions.

     To the extent that Borrower or any Guarantor has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
from service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Borrower and each Guarantor hereby irrevocably waive such immunity in respect of
its obligations under this Agreement, the Notes, and any other Revolving Credit
Loan Document.

     Section 14.08 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.

                                      -68-
<PAGE>
     Section 14.09 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which, when so executed and delivered,
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the parties
hereto.

     Section 14.10 Exhibits and Schedules. The Exhibits and Schedules are a part
of this Agreement as if fully set forth herein.

     Section 14.11 Table of Contents; Headings. The headings in the Table of
Contents and in this Agreement are for reference only, and shall not affect the
interpretation or construction of this Agreement.

     Section 14.12 Severability. If any word, phrase, sentence, paragraph,
provision or section of this Agreement shall be held, declared, pronounced or
rendered invalid, void, unenforceable or inoperative for any reason by any court
of competent jurisdiction, governmental authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect any
other word, phrase, sentence, paragraph, provision or section of this Agreement,
which shall otherwise remain in full force and effect and be enforced in
accordance with its terms.

     Section 14.13 Integration. The Loan Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect to such transactions.

     Section 14.14 Jury Trial Waiver. The Agent, the Banks, Borrower and its
Restricted Subsidiaries each waive any right it may have to a jury trial in any
action or proceeding which pertains directly or indirectly to this Agreement,
the Obligations, the Collateral or, in any way, directly or indirectly, arises
out of or relates to the relationship between or among Borrower, the Restricted
Subsidiaries, the Agent and the Banks.

     Section 14.15 Spin-off of HIL. Notwithstanding anything to the contrary
contained in this Agreement or any other Loan Document, if the Borrower at any
time provides written evidence to Agent, in form and substance reasonably
satisfactory to Agent, that an HIL Spin-off Transaction is expected to occur, no
consent (except as qualified by the proviso set forth below) shall be required
from any Bank, Letter of Credit Issuing Bank or Agent in order for Borrower to
consummate such HIL Spin-off Transaction and upon consummation of such HIL
Spin-off Transaction, Agent, Letter of Credit Issuing Bank and each Bank agree
to (i) release HIL from its Guaranty, (ii) terminate any Lien Agent may have in
the Intercompany Demand Note and in connection with such termination return the
original Intercompany Demand Note in its possession to Borrower (it being
understood that Borrower, in its sole and absolute discretion, may forgive such
Intercompany Demand Note in connection with such transaction) and (iii) permit
the Borrower to advance to HIL amounts sufficient to fund certain of HIL's
unfunded commitments relating to real property owned by HIL as long as after
giving effect to such advance the Borrower remains in compliance with Section
9.10(ii) hereof; provided, that, the consent provided above is conditioned on
(x) Agent's being furnished a copy of an opinion as to the fairness of such
transaction, which opinion shall opine, among other things, that the value of
the sale is fair in light of the values attributed to HIL's underlying assets
and shall otherwise be in form and substance reasonably satisfactory to Agent,
(y) the Agent's receipt of a certificate from an authorized officer of the
Borrower confirming that neither the Borrower nor any of its Subsidiaries shall
have any guarantees (or similar contingent obligations) outstanding with respect
to any obligations of HIL after the consummation of such transaction and (z)
there being no Default at the time of such HIL Spin-off Transaction.

                                      -69-
<PAGE>
     Section 14.16 HSBC. Notwithstanding the definition of the name "HSBC" and
notwithstanding anything to the contrary contained in this Agreement or any
other Loan Document, no obligations of HSBC Bank USA as Agent or HSBC Bank USA
as Letter of Credit Issuing Bank may be delegated to any Affiliate of HSBC Bank
USA (other than in compliance with Section 3.12) unless such Affiliate has the
same or better credit rating as HSBC Bank USA based on the credit rating
assigned by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(a division of The McGraw Hill Companies, Inc.) (or any successor or assignee of
the business of each such company in the business of rating securities credit
rating).

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                      -70-
<PAGE>
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the respective officers hereunder duly authorized as of the day and
year first above written.


             HAMPSHIRE GROUP, LIMITED, as a Borrower,
             a Letter of Credit Account Party and a Guarantor



             By:    /s/ Charles W. Clayton
                  ---------------------------------------------------
             Name:      Charles W. Clayton
             Title:     Secretary and Treasurer




             HAMPSHIRE DESIGNERS, INC., as a Letter of Credit
                  Account Party and a Guarantor



             By:    /s/ William W. Hodge
                  ---------------------------------------------------
             Name:      William W. Hodge
             Title:     Vice President and Chief Financial Officer




              HAMPSHIRE INVESTMENTS, LIMITED,
              as a Guarantor



              By:   /s/ Charles W. Clayton
                 -----------------------------------------------------
              Name:     Charles W. Clayton
              Title:    Vice President, Secretary and Treasurer




              GLAMOURETTE FASHION MILLS, INC.,
              as a Guarantor


              By:   /s/ Charles W. Clayton
                 -----------------------------------------------------
              Name:     Charles W. Clayton
              Title:    Secretary and Treasurer


                      S-1 to Credit Agreement and Guaranty
<PAGE>
              ITEM-EYES , INC., as a Letter of Credit
              Account Party and a Guarantor


              By:   /s/ William W. Hodge
                 ------------------------------------------------------
              Name:     William W. Hodge
              Title:    Vice President



              Address of Borrower, each Letter of Credit Account Party
              and each Guarantor for Notices:

              c/o Hampshire Group, Limited
              215 Commerce Boulevard
              Anderson, South Carolina 29625
              Attention: Charles Clayton
              Fax Number: 864-225-4421











                      S-2 to Credit Agreement and Guaranty

<PAGE>
               HSBC BANK USA , as a Bank, as Letter of Credit Issuing Bank
               (for all Letters of Credit other than Existing Letters of Credit)
               and as Agent


               By:   /s/ Ignatius Marotta
                   ----------------------------------------------------
               Name:     Igantius Marotta
               Title:    Vice President


               Address for Notices:

               HSBC Bank USA
               452 Fifth Avenue
               New York, New York 1 0018
               Attention: Ignatius Marotta
               Fax Number: 212-525-5676




















                      S-3 to Credit Agreement and Guaranty
<PAGE>

                THE CIT GROUP/COMMERCIAL SERVICES, INC.,
                  as a Bank



                By:    /s/ Lisa Murakami
                    --------------------------------------------------
                Name:      Lisa Murakami
                Title:     Vice President


                Address for Notices:

                The CIT Group/Commercial Services, Inc.
                1211 Avenue of the Americas
                New York, New York  10036
                Attention: Lisa Murakami
                Fax Number: (212) 382-6814





















                      S-4 to Credit Agreement and Guaranty
<PAGE>


                JPMORGAN CHASE BANK, as a Bank and as Letter of Credit Issuing
                  Bank (for the Existing Letters of Credit)



                By:     /s/ James A. Knight
                     -------------------------------------------
                Name:       James A. Knight
                Title:      Vice President


                Address for Notices:

                JPMorgan Chase Bank
                1411 Broadway, 5th Floor
                New York, New York  10018
                Attention:  James A. Knnight
                Fax Number:  (212) 391-2102





















                      S-5 to Credit Agreement and Guaranty
<PAGE>


                   FLEET NATIONAL BANK, as a Bank



                   By:   /s/ Cynthia Selover
                        -------------------------------------
                   Name:     Cynthia Selover
                   Title:    Vice President


                   Address for Notices:

                   Fleet National Bank
                   1185 Avenue of the Americas
                   New York, New York  10036
                   Attention:
                   Fax Number:






















                      S-6 to Credit Agreement and Guaranty
<PAGE>


                    ISRAEL DISCOUNT BANK OF NEW YORK, as a Bank



                    By:     /s/ Matilde Reyes
                         ---------------------------------------
                    Name:       Matilde Reyes
                    Title:      Vice President


                    Address for Notices:


                    Israel Discount Bank of New York
                    511 Fifth Avenue
                    New York, New York  10017
                    Attention: Howard Weinberg
                    Fax Number:  (212) 551-8720






















                      S-7 to Credit Agreement and Guaranty
<PAGE>



                        BANK OF AMERICA, N.A., as a Bank



                        By:       /s/ Matthew S. Cardone
                             --------------------------------------
                        Name:         Matthew S. Cardone
                        Title:        Senior Vice President


                        Address for Notices:

                        Bank of America, N.A.
                        P.O. Box 608
                        Greenville, South Carolina 29602-0608
                        Location Code SC 2-530--04-4
                        Attention: Matthew S. Cardone
                        Fax Number: (864) 271-5836















                      S-8 to Credit Agreement and Guaranty


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>exhib107.txt
<DESCRIPTION>EXHIBIT 10.7-AMENDMENT NO. 3-NOTE PURCHASE AGREE.
<TEXT>
                                                                    EXHIBIT 10.7



                            HAMPSHIRE GROUP, LIMITED






               ---------------------------------------------------
                   AMENDMENT NO. 3 TO NOTE PURCHASE AGREEMENTS
               ---------------------------------------------------






                           DATED AS OF AUGUST 19, 2003





              $15,000,000 SENIOR SECURED NOTES DUE JANUARY 2, 2008




<PAGE>
                            Hampshire Group, Limited

              $15,000,000 Senior Secured Notes Due January 2, 2008

                   AMENDMENT NO. 3 TO NOTE PURCHASE AGREEMENTS


                                                        As of August 19, 2003

To each of the Current Noteholders
Named in Annex 1 hereto:

Ladies and Gentlemen:

     HAMPSHIRE GROUP, LIMITED, a Delaware corporation (together with any
successors and assigns, the "Company"), HAMPSHIRE DESIGNERS, INC., a Delaware
corporation, and each of HAMPSHIRE INVESTMENTS, LIMITED, a Delaware corporation
(together with its permitted successors, "HIL"), GLAMOURETTE FASHION MILLS,
INC., a Delaware corporation, and ITEM EYES, INC., a Delaware corporation (the
foregoing Persons other than the Company being referred to herein individually
as a "Guarantor" and collectively as the "Guarantors"; the Company and the
Guarantors (other than HIL) being referred to herein individually as an
"Obligor" and collectively as the "Obligors"), hereby agree, jointly and
severally, with each of you as follows:

1.   PRIOR ISSUANCE OF NOTES, ETC.

     The Company issued and sold $15,000,000 in aggregate principal amount of
its Adjustable Rate Senior Secured Notes (formerly called 7.05% Senior Secured
Notes) due January 2, 2008 (as may be amended, restated or otherwise modified
from time to time, the "Notes", such term to include any such notes issued in
substitution therefor pursuant to Section 14 of any of the Note Purchase
Agreements) pursuant to the separate Note Purchase Agreements, each dated as of
May 15, 1998, among the Company, the Guarantors and the purchasers named in
Schedule A thereto (the "Original Note Purchase Agreements"). The Original Note
Purchase Agreements were amended by Amendment No. 1 to Note Purchase Agreements
dated as of May 15, 1998 and Other Financing Documents, which amendment was
dated as of September 5, 2000 ("Amendment No. 1") and by Amendment No. 2 to Note
Purchase Agreements, which amendment was dated as of March 31, 2002 ("Amendment
No. 2", and the Original Note Purchase Agreements as amended by Amendment No. 1
and Amendment No. 2 and as in effect immediately prior to giving effect to the
amendments provided for by this Amendment No. 3 to Note Purchase Agreements
(this "Agreement") are referred to herein as the "Existing Note Purchase
Agreements" and, as may be amended pursuant to this Agreement and as may be
further amended, restated or otherwise modified from time to time, the "Note
Purchase Agreements"). The register kept by the Company for the registration and
transfer of the Notes indicates that each of the Persons named in Annex 1 hereto
(collectively, the "Current Noteholders") is currently a holder of the aggregate
principal amount of the Notes indicated in such Annex.
<PAGE>
2.   REQUEST FOR AMENDMENTS, CONSENT AND RELEASE.

     The Company requests that each of the Current Noteholders (a) agree to the
amendments (the "Amendments") to the Existing Note Purchase Agreements set forth
in Exhibit A hereto, (b) consent (the "Consent") to the execution and delivery
by the Company and the Guarantors of that certain Credit Agreement and Guaranty
(the "HSBC Credit Agreement") dated as of the date hereof among the Company and
the Guarantors and HSBC Bank USA, as agent and lender, and the other lenders
party thereto and substantially in the form of Exhibit B hereto to the extent
that such consent is required by the terms of the Existing Note Purchase
Agreements and the other Financing Documents and (c) release (the "Release") the
assignments to the Collateral Agent of benefits due under life insurance
policies which the Company maintains upon the lives of Martin H. Axman and
Ludwig Kuttner.

3.   WARRANTIES AND REPRESENTATIONS.

     To induce the Current Noteholders to enter into this Agreement and to agree
to the Amendments, the Consent and the Release, the Company warrants and
represents as follows (it being agreed, however, that nothing in this Section 3
shall affect any of the warranties and representations previously made by the
Company in or pursuant to the Existing Note Purchase Agreements, and that all of
such other warranties and representations, as well as the warranties and
representations in this Section 3, shall survive the effectiveness of the
Amendments, the Consent and the Release).

     3.1. Organization; Power and Authority.

     Each Obligor and HIL is a corporation, duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and each
is duly qualified as a foreign corporation and is in good standing (to the
extent such concept is recognized) in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each
Obligor and HIL has the corporate power and authority to own or hold under lease
the properties it purports to own or hold under lease, to transact the business
it transacts and proposes to transact, to execute and deliver this Agreement and
to perform the provisions hereof.

     3.2. Authorization, etc.

     This Agreement has been duly authorized by all necessary corporate action
on the part of the Company and each of the Guarantors, and this Agreement
constitutes and, upon execution and delivery thereof, will constitute, a legal,
valid and binding obligation of the Company and each of the Guarantors
enforceable against the Company and each of the Guarantors in accordance with
its terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

                                      -2-
<PAGE>
     3.3. No Material Adverse Change.

     Since the date of the most recent audited financial statements of the
Company delivered to the Current Noteholders, there has been no change in the
business operations, profits, financial condition, properties or business
prospects of the Company except changes that, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

     3.4. Full Disclosure.

     Neither the financial statements and other certificates previously provided
to the Current Noteholders pursuant to the provisions of the Existing Note
Purchase Agreements nor the statements made in this Agreement nor any other
written statements furnished by or on behalf of the Company to the Current
Noteholders in connection with the proposal and negotiation of the Amendments,
the Consent or the Release, taken as a whole, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein and herein not misleading. There is no fact relating to any event or
circumstance that has occurred or arisen since the date of the Closing that the
Company has not disclosed to the Current Noteholders in writing that has had or,
so far as the Company can now reasonably foresee, could reasonably be expected
to have, a Material Adverse Effect.

     3.5. Intent.

     Neither the Company nor any Guarantor is entering into the transactions
contemplated by this Agreement and the HSBC Credit Agreement with any intent to
hinder, delay or defraud either current creditors or future creditors of the
Company or any Guarantor.

     3.6. No Defaults.

     No event has occurred and no condition exists that, upon the execution and
delivery of this Agreement and the effectiveness of the Amendments, the Consent
and the Release, would constitute a Default or an Event of Default.

     3.7. Guaranties of Subsidiaries.

     There is no Subsidiary that, in accordance with Section 10.7 of the
Existing Note Purchase Agreements, should have become a Guarantor under the Note
Purchase Agreements, but has not executed and delivered the requisite documents,
as required by such Section, to become a Guarantor under the Note Purchase
Agreements. All Subsidiaries are listed on the signature pages hereto.

     3.8. HSBC Credit Agreement.

     The Company has delivered to each of the Current Noteholders a true and
correct copy of the HSBC Credit Agreement. Each of the representations and
warranties contained in Article VII of the HSBC Credit Agreement are true and
correct as of the date hereof.

                                      -3-
<PAGE>
4.   AMENDMENTs; CONSENT; RELEASE.

     4.1. Amendment to Existing Note Purchase Agreements; Consent; Release.

     Subject to Section 4.2 of this Agreement, the Current Noteholders and the
Company hereby agree to each of the Amendments, the Consent and the Release.

     4.2. Effectiveness of the Amendments, the Consent and the Release.

     The Amendments, the Consent and the Release contemplated by Section 4.1
shall, in accordance with Section 18.1 of the Existing Note Purchase Agreements,
become effective as of the date first written above (the date of such
effectiveness is herein referred to as the "Effective Date"), if at all, at such
time as the Company and the Current Noteholders shall have indicated their
written consent to the Amendments, the Consent and the Release by executing and
delivering the applicable counterparts of this Agreement. It is understood that
any Current Noteholder may withhold its consent for any reason or for no reason,
and that, without limitation of the foregoing, any Current Noteholder hereby
makes the granting of its consent contingent upon satisfaction of each of the
following conditions:

          (a) each of the Current Noteholders shall have received true and
     correct copies of the fully executed HSBC Credit Agreement substantially in
     the form of Exhibit B hereto;

          (b) that certain Intercreditor Agreement dated as of the date hereof
     among HSBC Bank USA, each of the other lenders under the HSBC Credit
     Agreement and the Current Noteholders and acknowledged and agreed to by the
     Obligors shall have been fully executed and delivered substantially in the
     form of Exhibit C hereto;

          (c) each of the representations and warranties set forth in Section 3
     hereof shall be true and correct as of the Effective Date;

          (d) each of the conditions precedent set forth in Section 6.01 of the
     HSBC Credit Agreement shall have been fully satisfied;

          (e) the Company shall have paid the fees and disbursements of special
     counsel to the Current Noteholders reflected on a statement delivered in
     connection with the execution and delivery of this Agreement to the
     Company; and

          (f) each of the Current Noteholders shall have received any additional
     information, certification or other item as such Current Noteholder shall
     have reasonably requested on or before the Effective Date.

     4.3. No Other Amendments; Confirmation.

     Except as expressly provided herein, (a) no terms or provisions of any
agreement are modified or changed by this Agreement, (b) the terms of this
Agreement shall not operate as a waiver by any Current Noteholder of, or
otherwise prejudice any Current Noteholder's rights, remedies or powers under,

                                      -4-
<PAGE>
the Existing Note Purchase Agreements or any other Financing Document or under
any applicable law, and (c) the terms and provisions of the Existing Note
Purchase Agreements and each other Financing Document shall continue in full
force and effect.

5.   DEFINED TERMS.

     Capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to them in the Existing Note Purchase Agreements.

6.   EXPENSES.

     Whether or not any of the Amendments, the Consent or the Release becomes
effective, the Company will promptly (and in any event within thirty (30) days
of receiving any statement or invoice therefor) pay all fees, expenses and costs
relating to this Agreement, including, but not limited to, (a) the reasonable
cost of reproducing this Agreement and the other documents delivered in
connection herewith and (b) the reasonable fees and disbursements of the Current
Noteholders' special counsel, Bingham McCutchen LLP, incurred in connection with
the preparation, negotiation and delivery of this Agreement. This Section 6
shall not be construed to limit the Company's obligations under Section 16.1 of
the Note Purchase Agreements.

7.   MISCELLANEOUS.

     7.1. Part of Note Purchase Agreements, Future References, etc.

     This Agreement shall be construed in connection with and as a part of each
of the Existing Note Purchase Agreements and, except as expressly amended by
this Agreement, all terms, conditions and covenants contained in the Existing
Note Purchase Agreements and the other Financing Documents are hereby ratified
and shall be and remain in full force and effect. Any and all notices, requests,
certificates and other instruments executed and delivered after the execution
and delivery of this Agreement may refer to the Note Purchase Agreements without
making specific reference to this Agreement, but nevertheless all such
references shall include this Agreement unless the context otherwise requires.

     7.2. Governing Law.

     THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA,
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

     7.3. Duplicate Originals, Execution in Counterpart.

     Two (2) or more duplicate originals hereof may be signed by the parties,
each of which shall be an original but all of which together shall constitute
one and the same instrument. This Agreement may be executed in one or more
counterparts and shall become effective at the time provided in Section 4.2

                                      -5-
<PAGE>
hereof, and each set of counterparts that, collectively, show execution by the
Company and each consenting Current Noteholder shall constitute one duplicate
original. Delivery of a facsimile of an executed signature page hereto shall be
effective as delivery of an original.

     7.4. Binding Effect.

     This Agreement shall be binding upon and shall inure to the benefit of the
Company and the Current Noteholders and their respective successors and assigns.







 [Remainder of page intentionally left blank.  Next page is signature page.]




















                                      -6-
<PAGE>

     If this Agreement is satisfactory to you, please so indicate by signing the
applicable acceptance on a counterpart hereof and returning such counterpart to
the Company, whereupon this Agreement shall become binding among you, the
Obligors and HIL in accordance with its terms.


                                Very truly yours,

                                HAMPSHIRE GROUP, LIMITED


                                By:  /s/ Charles W. Clayton
                                -------------------------------------
                                Name:    Charles W. Clayton
                                Title:   Treasurer



Accepted:


PHOENIX LIFE INSURANCE COMPANY


By:  /s/ Michael E. Haylon
---------------------------------------
Name:    Michael E. Haylon
Title:   Executive Vice President and Chief Investment Officer


THE OHIO NATIONAL LIFE INSURANCE COMPANY


By:  /s/ Jed R. Martin
---------------------------------------
Name:    Jed R. Martin
Title:   Investment Vice President, Private Placements


        [Signature Page to Amendment No. 3 to Note Purchase Agreements]

<PAGE>
     Each undersigned Guarantor hereby consents to the Amendments and confirms
its obligations as Guarantor under the Note Purchase Agreements:


                          HAMPSHIRE DESIGNERS, INC.


                          By:  /s/ William W. Hodge
                          -------------------------------------
                          Name:    William W. Hodge
                          Title:   Vice President


                          HAMPSHIRE INVESTMENTS, LIMITED


                          By: /s/ Charles W. Clayton
                          -------------------------------------
                          Name:   Charles W. Clayton
                          Title:  Treasurer


                          GLAMOURETTE FASHION MILLS, INC.


                          By: /s/ Charles W. Clayton
                          -------------------------------------
                          Name:   Charles W. Clayton
                          Title:  Treasurer


                          ITEM-EYES, INC.
                          (formerly VINTAGE III, INC.)


                          By: /s/ William W. Hodge
                          -------------------------------------
                          Name:   William W. Hodge
                          Title:  Vice President



         [Signature Page to Amendment No. 3 to Note Purchase Agreements]
<PAGE>

                                     ANNEX 1

                    CURRENT NOTEHOLDERS AND PRINCIPAL AMOUNTS


                                            Aggregate Principal
Name of Current Noteholder                  Amount of Notes Held
------------------------------------------- ----------------------

Phoenix Life Insurance Company                  $5,625,000
------------------------------------------- ----------------------

The Ohio National Life Insurance Company        $2,812,500
------------------------------------------- ----------------------






















                                   Annex 1-1

<PAGE>
                                                                   EXHIBIT A

                                   AMENDMENTS


     1. Section 10.2 of the each of the Existing Note Purchase Agreements is
hereby amended and restated in its entirety to read as follows:

          10.2 Insurance.

               The Company will and will cause each of its Restricted
          Subsidiaries to, maintain, with financially sound and reputable
          insurers, insurance with respect to their respective properties and
          businesses against such casualties and contingencies, of such types,
          on such terms and in such amounts (including deductibles) as is
          customary in the case of entities of established reputations engaged
          in the same or a similar business and similarly situated, provided
          that nothing in this Section 10.2 shall affect or reduce the
          obligations of the Company under section 3D of the Security Agreements
          with respect to the Collateral.

     2. Section 11.1 of the each of the Existing Note Purchase Agreements is
hereby amended and restated in its entirety to read as follows:

          11.1 Transactions with Affiliates.

               The Company will not and will not permit any Restricted
          Subsidiary to enter into directly or indirectly any Material
          transaction or Material group of related transactions (including,
          without limitation, the purchase, lease, sale or exchange of
          properties of any kind or the rendering of any service) with any
          Affiliate (other than the Company or a Restricted Subsidiary), except
          in the ordinary course and pursuant to the reasonable requirements of
          the Company's or such Restricted Subsidiary's business and upon fair
          and reasonable terms no less favorable to the Company or such
          Restricted Subsidiary than would be obtainable in a comparable
          arm's-length transaction with a Person not an Affiliate and except
          that (a) the Company may make loans and provide equity capital to HIL
          from time to time pursuant to the reasonable requirements of HIL's and
          the Company's businesses, upon such terms as the Board of Directors
          have determined, in good faith, are appropriate and in the best
          interests of HIL and the Company and so long as the making of such
          loans and provision of equity capital comply with the terms of Section
          11.10(a) and (b) the Company may incur and have outstanding HIL
          Subordinated Debt.

     3. Section 11.3 of the each of the Existing Note Purchase Agreements is
hereby amended and restated in its entirety to read as follows:




                                  Exhibit A-1
<PAGE>
          11.3 Consolidated Adjusted Tangible Net Worth.

               The Company will not at any time permit Consolidated Adjusted
          Tangible Net Worth, determined as of the end of the fiscal quarter of
          the Company then most recently ended, to be less than the sum of

                    (a) $56,000,000, plus

                    (b) the sum of the Fiscal Year Net Worth Increase Amounts
               for all fiscal years of the Company the last day of which
               occurred during the period beginning January 1, 2003 and ending
               at such time.

                    As used in Section 11.3, "Fiscal Year Net Worth Increase
               Amount" means, for any fiscal year of the Company, the greater of

                    (i) 50% of Consolidated Adjusted Net Income for such fiscal
               year and

                    (ii) $0.

     4. Section 11.9(a)(iii) of the each of the Existing Note Purchase
Agreements is hereby amended and restated in its entirety to read as follows:

          (iii) (A) such Transfer is subject to Section 11.2 and satisfies the
     requirements thereof or (B) the property that is the subject of such
     Transfer constitutes solely the capital stock or other equity interests of
     HIL so long as HIL has no Subsidiaries which are Restricted Subsidiaries at
     the time of such Transfer; or

     5. Section 11.10 of each of the Existing Note Purchase Agreements is hereby
amended and restated in its entirety to read as follows:

          11.10 Restricted Payments and Restricted Investments.

               (a) Restricted Investments. The Company will not, and will not
          permit any Restricted Subsidiary to, make any Restricted Investment
          other than (a) Restricted Investments existing and outstanding on June
          30, 2003 (which the Company represents were valued at $29,844,169 as
          of such date); and (b) Restricted Investments in HIL so long as (i)
          the aggregate cost of such Restricted Investments in HIL then
          outstanding does not exceed $40,000,000 at any time and (ii) at the
          time of each such Restricted Investment, HIL is a Wholly-Owned
          Subsidiary.

               (b) Restricted Payments. The Company will not, and will not
          permit any Restricted Subsidiary to, declare or make any Restricted
          Payment, other than, (a) so long as no Default or Event of Default
          exists and is continuing, on or after August 31, 2003, the Company may
          repurchase its own stock (which upon such purchase shall be held as
          treasury stock) in an aggregate amount not to exceed $1,500,000 and
          (b) redemption of up to 800,000 shares of the common stock of the
          Company in exchange for the capital stock or assets of HIL so long as
          (i) no Default or Event of Default exists and is continuing
          immediately before and/or after the consummation of such redemption

                                  Exhibit A-2
<PAGE>
          and exchange and (ii) the Company shall have received (and promptly
          delivered a copy to each of the holders) from a recognized investment
          bank or other similar financial institution a customary form fairness
          opinion with respect to the fairness of such redemption and exchange
          in relation to the interests of the Company.

     6. Schedule B of the Existing Note Purchase Agreements is hereby amended by
amending and restating the following terms in their entirety to read as follows:

          Consolidated Funded Debt -- means, at any time, the aggregate amount
     of all Funded Debt of the Company and the Restricted Subsidiaries
     determined on a consolidated basis in accordance with GAAP (including,
     without limitation, any HIL Subordinated Debt).

          Credit Agreement -- means that certain Credit Agreement and Guaranty,
     dated as of August 15, 2003, among the Company, the Guarantors, HSBC Bank
     USA, as agent and lender, and the other lenders party thereto.

     7. Schedule B of the Existing Note Purchase Agreements is hereby amended by
adding the following new term in the appropriate alphabetical order to read as
follows:

          HIL Subordinated Debt - means Debt of the Company owing to HIL so long
     as (a) the aggregate principal amount of such Debt does not exceed
     $10,000,000 at any time, (b) HIL is a Subsidiary of the Company at all
     times during which the principal of or any other amount owing under such
     Debt is outstanding and (c) such Debt is fully subordinated to the payment
     and performance obligations of the Company under this Agreement and the
     other Financing Documents on the terms and conditions set forth in Exhibit
     11.1 hereto or on terms and conditions otherwise acceptable to the holders
     of all of the Notes.

     8. Schedule B of the Existing Note Purchase Agreements is hereby amended by
deleting therefrom the term "Key-Person Policy".

     9. The Existing Note Purchase Agreements are hereby amended by adding a new
Exhibit 11.1 thereto to be in the form of Exhibit D hereto.








                                  Exhibit A-3
<PAGE>

                                                                     EXHIBIT B

                             [HSBC CREDIT AGREEMENT]























                                  Exhibit B-1
<PAGE>

                                                                     EXHIBIT C

                            [INTERCREDITOR AGREEMENT]






















                                  Exhibit C-1

<PAGE>
                                                                 EXHIBIT D

                                                                 Exhibit 11.1

                       Form of Subordination Provisions

     Each instrument, document or agreement representing HIL Subordinated Debt
shall contain the following provisions regarding subordination:

          The holder of this instrument (the "Subordinated Holder") by
     acceptance of this instrument agrees that the indebtedness evidenced by
     this instrument (whether for principal, interest, premium, fees, expenses
     or otherwise), and any renewals or extensions thereof, shall at all times
     and in all respects be subordinate and junior in right of payment to all
     Senior Debt (as defined below). As used herein, the term "Senior Debt"
     shall mean all indebtedness evidenced by each of the Adjustable Rate Senior
     Secured Notes (formerly called 7.05% Senior Secured Notes), dated May 15,
     1998 in favor of the holder named therein or any assignee or successor
     thereof as may be amended, modified or restated from time to time
     (collectively, the "Notes") in each case issued by Hampshire Group, Limited
     (the "Company") under and pursuant to the terms of the Company's Note
     Purchase Agreements (as amended by that certain Amendment No. 1 to Note
     Purchase Agreements dated as of May 15, 1998 and Other Financing Documents,
     dated as of September 5, 2000, that certain Amendment No. 2 to Note
     Purchase Agreements, dated as of March 31, 2002, and that certain Amendment
     No. 3 to Note Purchase Agreements, dated as of August 19, 2003, and as may
     be further amended, modified or restated from time to time, collectively,
     the "Note Purchase Agreement"), dated as of May 15, 1998, with Phoenix Life
     Insurance Company and The Ohio National Life Insurance Company and
     including all principal, "Make-Whole Amount" (as such term is defined in
     the Note Purchase Agreement), fees, costs, expenses, and interest
     (including all interest accruing after the commencement of any bankruptcy
     or insolvency proceeding of the Company, whether or not permitted as an
     allowed claim in such proceeding) in respect of the Notes, and all other
     amounts now or hereafter owed by the Company to any holder of the Notes
     pursuant to the terms of the Note Purchase Agreement or any other
     "Financing Document" (as such term is defined in the Note Purchase
     Agreement) or otherwise in connection therewith (including, without
     limitation, fees, premiums, costs and expenses), and all renewals,
     extensions, refinancings and refundings of any of such indebtedness.

          Without limiting the effect of the foregoing, "subordinate" and
     "junior" as used herein shall include within their meanings the following:

          that

               (a) notwithstanding anything else to the contrary contained in
          this instrument or otherwise, so long as any Senior Debt is
          outstanding:

                                  Exhibit D-1
<PAGE>
                    (i) this instrument shall not be secured by any lien or
               security interest on property of the Company, any "Guarantor" (as
               such term is defined in the Note Purchase Agreement) or any other
               direct or indirect subsidiary of the Company; and

                    (ii) no payments or prepayments of principal, interest,
               costs, fees, expenses or any other amounts shall be due or
               payable on or in respect of this instrument and the Company shall
               not make any such payments or prepayments, at any time

                         (A) after the occurrence of a "Default" or an "Event of
                    Default" (as such terms are defined in the Note Purchase
                    Agreement), or if the effect of such payment was to create a
                    Default or an Event of Default, unless such Default or Event
                    of Default shall have been cured or waived or shall have
                    ceased to exist and at least one hundred eighty (180) days
                    shall have elapsed since the date such Default or Event of
                    Default shall have been cured or waived or shall have ceased
                    to exist, or

                         (B) after any such payment would be prohibited by the
                    terms of any of the Note Purchase Agreement;

                         (b) in the event of any dissolution, winding up,
                    liquidation, arrangement, reorganization, adjustment,
                    protection, relief or composition of the Company, or any of
                    its debts, whether voluntary or involuntary, in any
                    bankruptcy, insolvency, arrangement, reorganization,
                    receivership, relief or other similar case or proceeding
                    under any federal or state bankruptcy or similar law or upon
                    an assignment for the benefit of creditors or any other
                    marshaling of the assets and liabilities of the Company,
                    then all principal, Make-Whole Amount, if any, and interest
                    to the date of payment on all Senior Debt (including,
                    without limitation, interest thereon accruing after the
                    commencement of any such case or proceedings whether or not
                    permitted as an allowed claim in such case or proceedings)
                    shall first be finally and indefeasibly paid in full in cash
                    before any payment (regardless of the form thereof) on
                    account of principal, or premium, if any, or interest or
                    other amount is made upon the indebtedness evidenced by this
                    instrument and in such case or proceedings any payment or
                    distribution of any kind or character, whether in cash or
                    property or securities, that may be payable or deliverable
                    in respect of this instrument shall be paid or delivered
                    directly to the holders of Senior Debt for application, on a
                    ratable basis, in payment thereof, unless and until all
                    principal, Make-Whole Amount, if any, fees, costs, expenses
                    and interest to the date of payment on all such Senior Debt
                    shall have been finally and indefeasibly paid and satisfied
                    in full (including, without limitation, interest thereon
                    accruing after the commencement of any such case or
                    proceedings, whether or not allowed as a claim in such case
                    or proceedings) in cash;

                                  Exhibit D-2
<PAGE>
                         (c) in the event that any Senior Debt shall become and
                    be due and payable before its expressed maturity for any
                    reason (and by way of confirmation of clause (a) above), the
                    Subordinated Holder shall be entitled to payment only after
                    there shall first have been finally and indefeasibly paid in
                    full in cash the Senior Debt outstanding at such time
                    (including, without limitation, principal, interest,
                    Make-Whole Amount, fees, costs, expenses and other amounts
                    due in respect thereof); and

                         (d) unless final and indefeasible payment in full in
                    cash shall have first been made on all Senior Debt
                    (including, without limitation, principal, interest,
                    Make-Whole Amount, fees, costs, expenses and other amounts
                    due in respect thereof), the Subordinated Holder shall not

                         (i) institute any suit or make any demand for payment
                    in respect of this instrument (and if any such suit or
                    demand shall have been commenced or made, it shall
                    immediately be suspended or withdrawn),

                         (ii) accelerate this instrument or otherwise implement
                    or exercise any remedy it may have in respect of this
                    instrument, or

                         (iii) institute against the Company, any Guarantor or
                    any other direct or indirect subsidiary of the Company, any
                    bankruptcy, reorganization, arrangement, insolvency or
                    liquidation case or proceedings, or any other case or
                    proceedings under any United States federal or state
                    bankruptcy or similar law.

     In the event that, notwithstanding the provisions of this instrument
prohibiting such payment or distribution, the Subordinated Holder shall receive
or retain in violation of such provisions any payment or distribution of any
kind or character (including, without limitation, any collateral), whether in
cash, property or securities, including any such payment or distribution that
may be payable or deliverable by reason of the payment of any other indebtedness
of the Company subordinated to the indebtedness evidenced by this instrument,
before all Senior Debt is finally and indefeasibly paid in full in cash, then
and in such event such payment or distribution shall be received and held by the
Subordinated Holder in trust for the benefit of the holders of Senior Debt, and
shall be paid over or delivered, in the same form as so received (with any
necessary endorsements), forthwith to the holders of Senior Debt, ratably in
accordance with their respective interests, for application to the payment or
prepayment in full of all Senior Debt remaining unpaid, to the extent necessary
to pay all Senior Debt in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.

     In the event that the Subordinated Holder does not file, within thirty (30)
days before the expiration of the time for such filing, a proof of claim or
other appropriate proof of debt in any insolvency or bankruptcy case or
proceedings involving the Company, the holders of at least fifty-one percent

                                  Exhibit D-3
<PAGE>
(51%) in aggregate outstanding principal amount of the Senior Debt (or any
trustee acting on their behalf) are hereby irrevocably authorized and empowered
to file such proof of claim for or on behalf of the Subordinated Holder and to
take any necessary action to collect any amounts due in respect of such claim in
such case or proceeding. The holders of Senior Debt shall have the right, at
their option, to vote any claim or claims in respect of this instrument in
connection with any insolvency or bankruptcy case or proceedings involving the
Company.

     The Subordinated Holder shall be subrogated to the rights of the holders of
Senior Debt at the time outstanding to receive payments and distributions of
cash, property and securities applicable to the Senior Debt under these
subordination provisions until all amounts payable for or on account of this
instrument shall be paid in full; provided, however, that no payment or
distribution to any holder of Senior Debt pursuant to these subordination
provisions shall entitle the Subordinated Holder to exercise any rights of
subrogation in respect thereof until all Senior Debt shall have been finally and
indefeasibly paid in full in cash. For purposes of such subrogation, no payments
or distributions to the holders of Senior Debt of any cash, property or
securities to which the Subordinated Holder would be entitled except for these
subordination provisions, shall, as among the Company, its creditors other than
holders of Senior Debt and the Subordinated Holder, be deemed to be a payment or
distribution by the Company to or on account of Senior Debt.

     No right of any present or future holder of any Senior Debt to enforce its
rights under the subordination provisions of this instrument shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this instrument or of any other instrument or document, regardless of any
knowledge thereof any such holder may have or be otherwise charged with. Without
in any way limiting the generality of the foregoing sentence, the holders of
Senior Debt (or any trustee or other person acting on their behalf, including,
without limitation, the "Collateral Agent" (as such term is defined in the Note
Purchase Agreement)) may, at any time and from time to time, without the consent
of or notice to the Subordinated Holder, without incurring responsibility to the
Subordinated Holder and without impairing or releasing the subordination
provided in this instrument or the obligations hereunder of the Subordinated
Holder to the holders of Senior Debt, do any one or more of the following:

          (1) change the manner, place or terms of payment or extend the time of
     payment of, or renew or alter, all or any of the Senior Debt, or otherwise
     amend or supplement in any manner any Senior Debt or any instrument
     evidencing the same or the Note Purchase Agreement or any other agreement
     under which Senior Debt is outstanding;

          (2) sell, exchange, release, not perfect or otherwise deal with any
     property pledged, assigned or mortgaged to secure, or otherwise securing,
     Senior Debt;

                                  Exhibit D-4
<PAGE>
          (3) release or substitute any Guarantor or any other guarantor of any
     of the Senior Debt;

          (4) as holders of Senior Debt, exercise or refrain from exercising any
     rights against the Company, any Guarantor, any direct or indirect
     subsidiary of the Company or any other person; and

          (5) apply or cause to be applied any sums from time to time received
     to the payment of the Senior Debt.

          The Subordinated Holder, by its acceptance hereof, shall be
     conclusively presumed to have agreed that

               (A) all holders of Senior Debt, in determining to acquire and
          retain Senior Debt, have relied upon the subordination of this
          instrument to the Senior Debt, and

               (B) promptly upon request of any holder of Senior Debt, the
          Subordinated Holder shall execute and deliver to such holder of Senior
          Debt a written instrument by which such Subordinated Holder confirms
          and agrees that this instrument is subordinate and junior in right of
          payment to such Senior Debt on the terms and conditions provided
          herein and take such other action as may be reasonably requested to
          protect the rights of the holders of Senior Debt.

     The foregoing subordination provisions are solely for the purpose of
defining the relative rights of the holders of Senior Debt on the one hand, and
the Subordinated Holder on the other hand, and nothing herein shall impair, as
between the Company and the Subordinated Holder, the obligation of the Company,
which is unconditional and absolute, to pay to the Subordinated Holder the
principal and interest on this instrument in accordance with its terms.

     For the avoidance of doubt, any payment on or in respect of the Senior Debt
other than in cash recovered or received by any holder of Senior Debt shall be
treated as having not been paid for the purposes of this instrument.

     The Company agrees, and the Subordinated Holder by accepting this
instrument agrees, to the subordination and other provisions herein contained
and each of the Company and the Subordinated Holder agrees that none of the
terms or provisions of this instrument may be amended, modified or restated
except as expressly permitted by, or in accordance with any waiver or consent
granted pursuant to, the Note Purchase Agreement.

     The Company and the Subordinated Holder acknowledge and agree that a
violation of any of the terms of this instrument by either the Company or the
Subordinated Holder will cause the holders of the Senior Debt irreparable injury
for which adequate remedy at law is not available. Therefore, the Company and

                                  Exhibit D-5
<PAGE>
the Subordinated Holder agree that the holders of Senior Debt shall be entitled
to an injunction, restraining order or other equitable relief from any court of
competent jurisdiction, restraining the Company or the Subordinated Holder from
committing any violations of the provisions of this instrument.

     The Company and the Subordinated Holder hereby waive notice of (i)
acceptance of this instrument and (ii) the occurrence of a Default or Event of
Default under the Note Purchase Agreement and generally, all demands and notices
of every kind in connection with the Note Purchase Agreement.

     EACH OF THE HOLDERS OF SENIOR DEBT MAY ENFORCE ANY CLAIM ARISING OUT OF
THIS INSTRUMENT IN ANY STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION
AND LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK. FOR THE PURPOSE OF ANY
ACTION OR PROCEEDING INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, THE COMPANY AND
THE SUBORDINATED HOLDER HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH
COURTS. THE COMPANY AND THE SUBORDINATED HOLDER IRREVOCABLY CONSENT TO THE
SERVICE OF PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF, BY REGISTERED
MAIL, POSTAGE PREPAID, TO THE SUBORDINATED HOLDER AND AGREE THAT SUCH SERVICE,
TO THE FULLEST EXTENT BY LAW, (I) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION OR PROCEEDING AND (II) SHALL
BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO IT.
NOTHING HEREIN CONTAINED SHALL AFFECT THE RIGHT OF ANY OF THE HOLDERS OF SENIOR
DEBT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE ANY OF
THE HOLDERS OF SENIOR DEBT FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT
HEREOF IN ANY OTHER COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH
ACTION. EACH OF THE COMPANY AND THE SUBORDINATED HOLDER HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT LOCATED IN THE CITY OF NEW YORK, STATE OF
NEW YORK AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH
COURT HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM.





                                  Exhibit D-6


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>exhib108.txt
<DESCRIPTION>EXHIBIT 10.8-RENEWED LEASE AGREEMENT
<TEXT>
                                                                    EXHIBIT 10.8

STATE OF SOUTH CAROLINA      }
                             }                          LEASE AGREEMENT
COUNTY OF ANDERSON           }


THIS LEASE, made and entered into this first ay of March 18, 2004, by and
between COMMERCE CENTER ASSOCIATES, INC., a South Carolina corporation,
hereinafter called "Owner", and HAMPSHIRE DESIGNERS, INC., a corporation
organized and existing under the laws of the State of Delaware, hereinafter
called "Tenant".

                                   WITNESSETH

     1. Owner is the owner of a tract of land consisting of approximately 4.35
acres and improvements thereon located on By-Pass 28, Commerce Center Industrial
Park, Anderson County, South Carolina.

     2. Owner hereby leases to Tenant, and Tenant hereby leases and takes, upon
the terms, conditions and covenants hereinafter set forth approximately 10,500
square feet of space in the building on said lot, being the total square
footage.

     3. Owner further grants to Tenant all space on the exterior of the
building, including all parking spaces for automobiles at the front and rear of
the building and together with rights of use for all driveways furnishing access
to the building and to the parking spaces.

     4. To have and to hold the leased premises unto Tenant for a term set forth
below commencing on the first day of May 2004, unless sooner terminated as
hereinafter provided.

     5. Improvements to the premises, above the basic building described in the
plans and specifications, above referenced, will be designed and completed by
Owner, in accordances with the specification of Tenant, and subject to his
approval. Owner will submit to Tenant an itemization of the desired
improvements, including the price of said improvements, for Tenant's approval
and acceptance. The cost of improvements will be the expense of Tenant.

     6. Tenant hereby covenants and agrees to pay Owner on the first day of each
month, in advance, at its principal offices, or at such other place as Owner may
from time to time designate, as rent for the premises during the continuance of
this Lease, as shown on the following schedule:

          Term              Amount Monthly     Amount Annually
  ----------------------  ------------------ -------------------
   05/01/04 - 06/30/05         $7,300            $87,600


Note: A late penalty of $50.00 shall be assessed if the payment is not received
by the first Thursday of each month.
<PAGE>
Page Two -  Lease-Corporate Office

     7. The Owner hereby grants to the Tenant an option to extend this Lease for
up to an additional twelve (12) months at a rate equal to 105% of the rates set
forth above and under the terms set forth herein. The Tenant hereby agrees to
give written notice of at least ninety (90) days in advance of any extension
under this option. Such notice shall provide the term selected by the Tenant.

     8. All real estate taxes and increases thereof, are the total
responsibility of the Tenant.

     9. Tenant shall carry fire and casualty insurance on the structure in an
amount not less than $500,000.

     10. Owner shall have no further responsibility for repairs or maintenance
of the leased premises, including, but not limited to the mechanical system of
heating, ventilating, and air conditioning, plumbing and electrical equipment,
other than items in warranty. Tenant agrees that it will at its own expense keep
and maintain the building, including plumbing, heating and air conditioning
equipment in good working order and repair during the term of the Lease.

     11. It is understood and agreed that the Tenant shall not make or suffer to
be made any alterations or additions to said building unless it first obtained
the written consent of the Owner.

     12. Tenant shall have the right to place signs or other advertising devices
on the building or premises provided that such signs comply in all respects with
laws and municipal ordinance relating thereto, and upon approval of Owner, which
approval shall not be unreasonably withheld. Upon termination of this Lease or
any extension thereof, the Tenant agrees to remove such signs and other devices
and to repair any and all damages the signs, their installation or removal may
have caused.

     13. Tenant, at its sole expense, shall comply with all laws, orders and
regulations of federal, state and municipal authorities, and with any directions
of any public officer, pursuant to law, which shall impose any duty upon the
Owner or the Tenant with respect to the leased premises. Tenants, at its sole
expense, shall obtain all licenses or permits which may be required for the
conduct of its business within the terms of this Lease, or for the making of
repairs, alterations, improvements or additions, and the Owner, when necessary,
will join the Tenant in applying for such permits or licenses.

     14. Tenant, at its sole cost and expense, will maintain public liability
and property damage insurance applicable to the leased premises in a minimum
amount of $1,000,000. It shall be Tenant's sole responsibility to provide
whatever adequate insurance coverage is deemed proper for any goods, equipment,
furnishings, and fixtures installed for Tenant, or occupying the demised
premises.

     15. The Tenant shall pay for all charges for gas, electricity, light, heat,
power and telephone, or other communication service used, rendered, or supplied
upon or in connection with the leased premises and shall indemnify the Owner
against any liability or damages on such account.

<PAGE>
Page Three -  Lease-Corporate Office

     16. The Tenant shall, on the last day of the term or upon the sooner
termination, peaceably and quietly surrender the leased premises to the Owner in
as good condition and repair as at the commencement of the term and any new
buildings, structures, replacements, or additions or improvements constructed,
erected, added or placed thereon, or when completed with the natural wear and
tear thereof expected.

     17. All signs, moveable equipment, and trade fixtures which shall be placed
or installed in or on the leased premises shall remain the property of the
Tenant which shall have the right to remove same in five (5) days after the
termination of this Lease, provided Tenant shall not be in default hereunder and
provided further, that Tenant shall repair or reimburse the Owner for the cost
of repair of any and all damage resulting to the leased premises from the
removal of such equipment. All other fixtures and equipment which are become and
remain the property of the Owner.

     18. If any rent payable by Tenant shall remain unpaid for more than ten
(10) days after the same becomes due and payable, or if the Tenant shall violate
or default in any of the covenants or agreements herein set forth, and said
default continues for a period of twenty (20) days after written notice thereof,
Owner may at its option, declare the Lease terminated and take immediate
possession of the premises, or it may institute suit to enforce the lease
agreement, and in the latter event, Tenant shall be liable for all costs
incident of such action, including reasonable attorney's fees. If the Lease is
terminated as aforesaid, Owner shall release property if a new Lease is
obtainable and the Tenant shall continue liable for such loss as Owner may
sustain during the life of said Lease, either by way of loss or rents or
expenses, including, but not to redecorating and commissions incident to any
releasing.

     19. The Tenant, upon the payment of the rents herein reserved and upon the
performance of all terms of this Lease, shall at all times during the Lease term
peaceably and quietly enjoy the leased premises without any disturbance from
Owner and from any other person claiming through Owner.

     20. This Lease Agreement shall be construed under the laws of the State of
South Carolina.

     21. No waiver of any condition or legal right or remedy shall be implied by
the failure of Owner to declare forfeiture, or for any other reason, and no
waiver of any condition or covenant shall be valid unless it be in writing
signed by Owner.

     22. The covenants and agreements herein contained shall be binding upon and
inure to the benefits of the parties hereto and their respective heirs,
successors, and assigns.

     23. This Lease and the exhibits attached hereto and forming a part hereto,
set forth all of the covenants, promises, agreements, conditions, and
understandings between Owner and Tenant concerning the demised premises, and
there are no covenants, promises, agreements, conditions, or understandings
either oral or written, express or implied, between them other than are herein
set forth. Except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to the Lease shall be binding upon Tenant and
Owner unless reduced to writing and signed by both parties. The Tenant agrees
that the Owner and its agents have made to representations or promises with
respect to the premises or the building or property of which the same are a part
except as herein expressly set forth.
<PAGE>

Page Four -  Lease-Corporate Office

     24. If any provision of this Agreement be determined to be invalid by any
court of competent jurisdiction, the remaining portions of this Agreement shall
nevertheless remain in full force and effect.

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


                                   COMMERCE CENTER ASSOCIATES, INC.


/s/ Lanna M. Taylor                By:  /s/ Charles W. Clayton
--------------------------------   -------------------------------------
Witness                            Its:  President


                                   HAMPSHIRE DESIGNERS, INC.


/s/ Crystal Lewis                  By:  /s/ Ed Hurley
--------------------------------   -------------------------------------
Witness                            Tenant




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14
<SEQUENCE>9
<FILENAME>exhib14.txt
<DESCRIPTION>EXHIBIT 14-CODE OF ETHICS
<TEXT>
                                                                      EXHIBIT 14


                            HAMPSHIRE GROUP, LIMITED
                                 & SUBSIDIARIES
                       CODE OF ETHICS AND BUSINESS CONDUCT

I. CODE OF ETHICS

     It is the policy of Hampshire Group, Limited and its Subsidiaries
(collectively "Hampshire Group" or the "Company") that its worldwide operations
are conducted according to the highest standard of business integrity and that
its global associates (as defined below) shall not engage in activities that
might conflict with their responsibilities to the Company. This Code of Ethics
and Business Conduct ("Policy Guide") contains guidelines that are intended to
assist employees in making decisions on behalf of the Company and in avoiding
conflicts of interest. No policy guide can be all-inclusive; therefore
responsibility for proper conduct rests with each employee. There is no
substitute for personal integrity and good judgment. An employee faced with
making a decision in a difficult situation should consider whether he or she
would feel comfortable if the decision became public knowledge. If the decision
could be criticized from a legal or ethical standpoint, the decision probably is
incorrect.

     It is the policy of Hampshire Group to manufacture and sell only products
that are safe, of high quality, and otherwise fully in compliance with all
applicable legal requirements. Further, it is the policy of the Company to
comply fully with all laws, regulations, and standards of conduct that apply to
the Company or its products, in every jurisdiction in which it conducts
business. All Hampshire Group employees shall conduct the business of the
Company in accordance with the highest standards of honesty and integrity.
Hampshire Group employees shall make only true and accurate statements and
representations in the corporate records and to government agencies, suppliers,
customers, the press, and the general public.

II. PERSONS COVERED

     This Code of Ethics and Business Conduct was adopted by the Board of
Directors of Hampshire Group and is effective for all employees, officers and
directors ("associates"). With regard to personal securities trading and certain
other matters, the Policy Guide also applies to spouses, family members and
others who live in their households. In particular, Hampshire Group employees
may not do indirectly through a family member what they are prohibited from
doing directly. Therefore, all references in the Policy Guide to Hampshire Group
employees include such individuals as well as, where appropriate, their
immediate families.

     Because this important Policy Guide applies to all employees, each employee
must read it carefully. In addition, Hampshire Group will periodically circulate
notices reminding all employees of their obligations under the Policy Guide.

     Employees should not hesitate to ask their supervisor or any senior manager
if they have questions concerning this Policy Guide. The President of any
Hampshire Group subsidiary or division ("Division Head") or any corporate
officer may be consulted regarding interpretation or applicability of this
Policy Guide in general, or with regard to a specific situation.

                                       -1-
<PAGE>
III. BUSINESS CONDUCT

     While it is not possible to describe every situation that may violate this
Policy Guide, the Company deems the following guidelines to be particularly
important.

A.   Payments to Customers or Suppliers

     No effort may be made, directly or indirectly, to influence improperly a
     customer or supplier. The payment of bribes, payoffs, kickbacks or other
     benefits that may improperly influence business relationships between the
     Company and its customers or suppliers is prohibited. Such conduct is
     illegal and may violate state and federal criminal laws.

B. Payments to Government Officials or Employees

     Corporate funds or other assets may not be paid or furnished, directly or
     indirectly, to a government official, politician or employee for the
     purpose of obtaining or maintaining business on behalf of Hampshire Group
     or any of its subsidiaries or divisions. Such conduct is illegal and may
     violate state and federal criminal laws, including the Foreign Corrupt
     Practices Act (discussed below).

C.   Political Contributions

     No corporate funds or other assets may be paid or furnished, directly or
     indirectly, to a political party or political candidate or incumbent,
     except if legally permissible and if approved in advance by the Company.
     All requests must be presented in writing to the Chief Financial Officer.
     No political contributions by individual employees may be made in the name
     of Hampshire Group or be reimbursed by it, directly or indirectly.

D.   Gifts and Entertainment

     Gifts, favors or entertainment may not be provided by or on behalf of
     Hampshire Group to a customer, supplier, government employee or other
     person or organization, unless all of the following criteria are met:

o    The item is consistent with the normal and accepted business ethics of the
     country in which it is provided;

o    It does not violate the laws of the United States or the country in which
     it is provided (see discussion of Foreign Corrupt Practices Act below);

o    It is reasonable and not excessive;

o    It cannot, in the surrounding circumstances, be reasonably construed as a
     bribe, payoff or kickback; and o Public disclosure of it would not
     embarrass the Company.

     In no circumstances may gifts be made of cash or cash equivalents. Gift
certificates, however, may be given if they are reasonable, comply with the
foregoing standards, and are properly documented and approved in writing by any
two of the following: a Division Head, Executive Vice President, the President,
Chief Financial Officer, or the Chief Executive Officer.

                                       -2-
<PAGE>
E. Payments Outside Recipient's Domicile Or Resident Country

     Payment by Hampshire Group of salaries or amounts for goods or services
     that is to be made outside the domicile or resident country of the
     recipient must be reviewed and approved in advance by Hampshire Group's
     Chief Financial Officer, or Chief Executive Officer.

F.   Agents, Brokers and Consultants

     Payments to agents, brokers, consultants, professionals or other parties
     representing Hampshire Group must be limited to reasonable compensation for
     services rendered plus reimbursement for legitimate expenses incurred.
     Contracts entered into with such parties must disclose fully the fees to be
     paid and the services to be rendered. No such party may be engaged by
     Hampshire Group to make payments or take action that would be in conflict
     with any provisions of this Policy Guide.

G.   Accounting Procedures

     All transactions must be properly recorded on the books and records of
     Hampshire Group. No unrecorded bank accounts, corporate funds or assets of
     any kind may be maintained, and all entries made in any corporate books or
     records must be accurate and comply with Company policies and procedures.
     Corporate funds may not be paid with the intent or understanding that any
     part of such payment is to be used for a purpose other than that described
     by the documents supporting such payment.

H.   Compliance With Laws

     It is Hampshire Group's policy to comply with the laws of all jurisdictions
     in which it does business. Therefore, it is each employee's responsibility
     to ensure that Hampshire Group's business is conducted in a manner that
     complies with governmental regulations; antitrust laws (see discussion
     below); environmental laws; exchange and import/export controls; workplace
     safety laws; equal employment opportunity laws; securities laws (see
     discussion below); tax laws; and all other laws and regulations of the
     United States and other jurisdictions that may be applicable to its
     business.

I.   International Boycotts

     Several United States laws prohibit cooperation with certain international
     country boycotts. Penalties apply even for failure promptly to report any
     requests for boycott-related information or action. The boycott laws are
     extremely complex, and any request received by Hampshire Group that could
     possibly fall within the context of a boycott law (such as a request to
     refrain from doing business in a particular country) should be brought to
     the immediate attention the Chief Financial Officer before any response is
     made to the request.

                                       -3-
<PAGE>
IV. FOREIGN CORRUPT PRACTICES ACT

     The Foreign Corrupt Practices Act (the "FCPA") prohibits any Hampshire
Group employee from, directly or indirectly, paying or giving (or offering or
promising to pay or give) any funds or anything of value to any foreign official
or other "Covered Person" (as defined below) for the purpose of: (a) influencing
any act or decision of the Covered Person in that person's official capacity;
(b) inducing the Covered Person to do or omit to do any act in violation of that
person's lawful duty; or (c) inducing the Covered Person to use his, her or its
influence with a foreign government or instrumentality to affect or influence
any act or decision of that government or instrumentality. The FCPA also
prohibits paying or giving funds or anything of value to any person while
knowing that all or a portion thereof will be forwarded to a Covered Person for
a purpose proscribed by the FCPA.

     For purposes of the FCPA, "foreign" means outside of the United States.
"Covered Person" includes any foreign official (which includes, without
limitation, an officer or employee of any foreign government of any governmental
department, agency or instrumentality or any government owned or controlled
enterprise or any person acting in an official capacity for or on behalf of such
governmental department, agency, instrumentality or enterprise), foreign
political party, foreign party official or candidate for foreign political
office.

     Facilitating payments in nominal amounts may be requested by low-ranking
government employees outside the United States regarding their performance of
routine, non-discretionary functions or services which they are obliged to
perform as part of their responsibilities but which they may delay or refuse to
perform unless compensated. Examples of such services would be the issuing of
visas or customs documents. Such payments are discouraged, but if absolutely
necessary should be made only after consultation with a Division Head, or the
Chief Financial Officer. Any such payments must be accounted for properly in the
corporate books and records.

V. CONFLICTS OF INTEREST

     A.   Gifts and Entertainment

     No employee may accept a gift, favor or entertainment from a customer,
     vendor or other person or organization in connection with business of the
     Company unless all of the following criteria are met:

     o    The item is consistent with the normal and accepted business ethics of
          the country in which it is provided;

     o    It does not violate the laws of the United States or the country in
          which it is provided (see discussion of Foreign Corrupt Practices Act
          above);

     o    It is reasonable and not excessive;

     o    It cannot, in the surrounding circumstances, be reasonably construed
          as a bribe, payoff or kickback; and
                                       -4-
<PAGE>
     o    Public disclosure of it would not embarrass the Company. In no
          circumstances may gifts of cash or cash equivalents be accepted.

Note 1: Tickets to concerts, sporting events, shows, and fund raising events may
     be acceptable by employees and are generally not considered gifts, but must
     be reasonable and are subject to the above criteria. Tickets may not be
     used for resale.

Note 2: Trips and symposiums offered by customers or vendors may be attended by
     employees if such are offered in the context of a group session with other
     similar suppliers or purchasers in attendance as guests, are reasonable and
     meet the above criteria.

     B.   Acting Against Company Interests

     No employee may take personal advantage of, or make available to others,
     any business opportunity in which it is known or could reasonably be known
     that Hampshire Group might be interested, such as a purchase of a company,
     real estate, a license or other property, or any interest in a firm or
     product in which Hampshire Group is known to have an interest in acquiring.
     In no event may an employee deal for his or her own account in products
     sold or services performed by Hampshire Group

     C.   Outside Employment

     An employee serving as a director of, or having a business or financial
     interest in, a firm having current or prospective dealings with Hampshire
     Group (such as a competitor, customer, supplier, landlord, tenant, or
     merger/acquisition candidate) must disclose that fact in writing to the
     Chief Financial Officer so that it may be determined whether the situation
     presents a conflict of interest. The business or financial interests of
     members of an employee's family living with the employee also shall be
     considered to be the financial interests of the employee. Any subsequent
     approval to continue or engage in such outside directorship or investment
     must be made in writing. The Company will presume that ownership of not
     more than one percent (1%) of a publicly traded company's securities (other
     than Hampshire Group) does not involve a conflict of interest and does not
     need to be disclosed.

     D.   Government Service

     While service by employees in government positions is encouraged, in some
     cases such service may present a conflict of interest. If election or
     appointment to such a position is anticipated, the employee must request
     the written approval of his or her President. An employee holding a
     government office should abstain from any vote or decision that involves
     Hampshire Group interests.

                                       -5-
<PAGE>
VI. CONFIDENTIALITY OF INSIDE INFORMATION

     Hampshire Group associates and each person affiliated with Hampshire Group
must maintain the confidentiality of information belonging or relating to
Hampshire Group and its business or relating to others and obtained through a
relationship with Hampshire Group. Adhering to this principle is a condition of
continued employment. Section 10 of this Policy Guide contains a discussion of
"material information" in the context of "insider trading" and "tipping"
provisions of the securities laws.

     The information that must be kept confidential by Hampshire Group
associates is much broader, however. Confidential information also includes any
information not generally known about Hampshire Group business (such as, but not
limited to, unpublished financial data, marketing, financial or other plans,
customer or vendor lists, sales reports, price lists, blueprints, formulas,
manufacturing processes, inventions, product development information or other
proprietary data). Misuse of information entrusted to or made available to an
employee by Hampshire Group or by other persons with whom Hampshire Group has a
relationship is inappropriate as a business practice and could lead to civil and
criminal prosecution of the individuals involved under various state and federal
laws.

     In addition to using your own judgment, you should take the following
actions to preserve the confidentiality of Hampshire Group's information:

     A.   Do not discuss or disclose confidential information in public places
          where you can be overheard such as elevators, hallways, restaurants,
          airplanes or taxicabs. Discussions relating to confidential
          information with persons entitled to that information should be
          confined to closed offices or other secure locations.

     B.   Do not read confidential documents in public places or discard them
          where they can be retrieved by others. Do not leave confidential
          documents in unattended conference rooms or where visitors can see
          them. Confidential information sent to others within or outside should
          be placed in sealed envelopes.

     C.   Be aware that voices carry and that conversations conducted on speaker
          telephones in offices and on car or airplane telephones may be
          overheard.

     D.   Be aware that conversations about where Hampshire Group personnel are
          traveling or the presence of certain visitors in the office may reveal
          confidential information.

     E.   Avoid sending or receiving confidential information by fax machines
          located in hotels, airport lounges, or the offices of third persons.


     F.   Under no circumstances are employees to provide confidential documents
          or information (including documents relating to customers, competitors
          or suppliers) to third parties without the express consent of an
          officer of the Company.

     The above list gives examples of steps designed to insure confidentiality.
In some situations, other steps may be necessary. Each employee is responsible
for taking whatever practical steps are appropriate to preserve the
confidentiality of information.

                                       -6-
<PAGE>
     You agree that you will not, during or after the termination of your
relationship with the Company, disclose (other than in the proper performance of
your duties ) any information, knowledge, data or property that you have
obtained or developed as a Hampshire Group employee concerning Hampshire Group
business. You also agree that all analyses, charts, drawings, reports and other
documents prepared by you or inventions or ideas developed or discovered by you
in the course of your association with Hampshire Group shall be Hampshire
Group's property. Upon termination of your association with Hampshire Group you
will return all documents (including data and documents on computer disks) and
all copies thereof to Hampshire Group.

VII. HONESTY

     No employee shall commit or contribute to acts of dishonesty against
Hampshire Group such as fraud, theft, embezzlement or misappropriation of
corporate assets. Employees are encouraged to report suspected problems to the
Audit Committee and will be protected against retaliation. (See "Complaint
Procedures" attached.) In addition to appropriate disciplinary action, a
criminal complaint will be filed against the offending employee if the evidence
and circumstances so warrant.

VIII. COMPETITION AND COMPETITIVE PRODUCTS

     It is Hampshire Group's policy to sell its products on their merits.
Hampshire Group employees, representatives and agents should not falsely
disparage or make unfair negative comments about its competitors or their
products and services. (See also Section 11: Antitrust Laws).

IX. DISCLOSURE OF COMPANY INFORMATION

     As a "public company," Hampshire Group is committed to timely, consistent,
fair and credible dissemination of information to the public, in keeping with
legal and regulatory requirements, to enable orderly behavior in the capital
markets. Hampshire Group regularly prepares comprehensive reports for filing
with the Securities and Exchange Commission and dissemination to the public. Our
management is often asked, however, to provide additional business and financial
information. It is the policy of Hampshire Group never to release material,
non-public information to any third party except (a) pursuant to signed
confidentiality agreements, or (b) communications made to a person who owes the
Company a duty of trust or confidence, such as an attorney, investment or
commercial banker or accountant. If the Company releases material, non-public
information to an investor or securities market professional other than under
the special circumstances referred to above, in compliance with Regulation FD,
the Company immediately makes public disclosure of such information.

          A.   Authorized Spokespersons

          For various reasons, including ensuring the accuracy and proper
          disclosure of information, it is the Company's policy to limit the
          individuals responding to requests for information to authorized

                                       -7-
<PAGE>
          spokespersons. Employees who are not authorized spokespersons shall
          continue to refer all calls from shareholders, securities market
          professionals, banks and media to persons authorized to speak on
          behalf of the Company. Any request for such business or financial
          information should be directed to the following authorized
          spokespersons:

          o    Chairman, President and Chief Executive Officer ("CEO"),

          o    Chief Financial Officer ("CFO") or Treasurer.

          B.   General Principles and Procedures

          The principles set forth below are designed to permit the fullest
          possible disclosure of corporate news to securities market
          professionals, reporters and other responsible people, while avoiding
          prohibited selective disclosure and potential trading abuses. All
          Company associates are expected to follow these principles and, where
          applicable, the disclosure procedures set forth below. Any questions
          about compliance with these principles and procedures should be
          addressed to the CFO at (864) 225-6232.

          1.   Sensitive information should be disseminated within the Company
               only to those individuals who need to know it.

          2.   Voluntary public disclosure of financial projections prepared for
               internal use are potentially problematic for the Company given
               the inherent unreliability of such information and the possible
               need to update it. Statements about other future events, which
               may or may not occur, also raise similar issues. Accordingly,
               briefings of securities market professionals, reporters or other
               "outsiders" should be limited to historical financial data and
               completed business transactions. "Forecasts," financial or
               otherwise, in these types of circumstances should not be made,
               confirmed or denied.

          3.   Unless the Company is the source of a "market rumor," there is
               generally no duty to respond to the rumor. When asked to respond
               to a "market rumor," members of management should in most
               circumstances respond with a firm "it is the Company's policy not
               to respond to market rumors," and they should do so consistently,
               without regard to whether the particular rumor may be good or
               bad, true or false. Such inquiries should be reported immediately
               to the CFO.

          4.   Special rules apply to disclosures proposed to be made if the
               Company were to take substantial steps to commence a "tender
               offer." In that context, no one in the Company may respond to any
               inquiry for sensitive information without the prior approval of
               the CFO.

          5.   While it is indeed the Company's policy to provide helpful
               information to the extent possible, it is not our policy to edit
               or revise written work produced by others. The Company cannot
               assume responsibility for the contents of reports of securities
               analysts or other third parties concerning the Company.
               Accordingly, none of our associates should review "drafts" of
               reports produced by others concerning the Company; however, any
               of the persons designated above as authorized spokespersons may
               review a draft report for misstatements of history or fact only.

                                       -8-
<PAGE>
          C.   Inquiries on Value of Company's Stock

          From time to time, investors or individuals representing investment
          banks, commercial banks, and other financial institutions with an
          interest in determining facts relevant to the value of the Company's
          securities, make inquiries. Subject to the General Principles and
          Procedures stated above, it is appropriate to respond to such
          inquiries with reliable information, but only in accordance with the
          following additional procedures:

          1.   Determine whether or not you are the right person (the "Contact
               Person") to talk to the individual who is making the inquiry. If
               someone else in the Company would be in a better position to
               respond, refer the inquirer to that person.

          2.   The Contact Person should make and keep legible notes of his or
               her conversations with the individual seeking Company
               information, especially as it relates to any information that may
               be conveyed.

          3.   The Contact Person should satisfy himself or herself that he or
               she would not be providing the inquirer with any information that
               he or she could not or would not provide under these guidelines
               to any other qualified inquirer.

          4.   Never release material, non-public information to any third party
               unless such release is approved by the CFO, and either (i) the
               communication is made pursuant to a signed confidentiality
               agreement, or (ii) the communication is made to a person who owes
               the Company a duty of trust or confidence such as the Company's
               attorney, investment or commercial banker or accountant. (Refer
               to Section 10 for definitions of "material" and "non-public"
               information.)

          5.   If a Contact Person or senior official of the Company (i.e., a
               Company executive officer or a member of the Company's Board of
               Directors) should disclose material, non-public information
               during any communication with an investor or securities market
               professional, the Company's CFO should be immediately notified
               and immediate public disclosure should be made.

     These procedures should be repeated at the time of each inquiry, even if
the particular caller has made prior inquiries.

          D.   Planned Disclosures

          From time to time, meetings may be scheduled by the Company's senior
     financial executives with outside financial analysts, security holders
     and/or other securities market professionals and responsible interested
     persons to provide a forum for distribution of information to the investing
     public of previously non-public information relating to recent corporate
     developments or the Company's performance since the last quarterly earnings
     release. If such non-public information is deemed to be material in nature,
     the Company will disclose such information to the public, at least
     concurrently, in a press release. Additionally, when the Company makes
     planned disclosures of material information, such as a scheduled earnings
     release, the following model should be used:

                                       -9-
<PAGE>
          1.   Provide adequate notice, by a press release and/or website
               posting, of a scheduled conference call to discuss the announced
               results, giving investors both the time and date of the
               conference call, and instructions on how to access the call.

          2.   Issue a press release, distributed through regular channels,
               containing the information.

          3.   File Form 8-K incorporating the press release containing the
               information to the extent required.

          4.   Hold the conference call in an open manner, permitting investors
               to listen in, either by telephonic means or through internet
               webcasting.

          5.   Such conference calls will be taped and will generally be
               available for replay for one week after the call by means
               indicated in the announcing press release and/or website posting.

     E.   Press Releases

          It should be expected that any statement made to the press, whether
     written or oral, would be disseminated promptly and simultaneously to all
     elements of the investing public. As a result, you need not fear that any
     such statement could assist an "insider trading" violation. Liability may
     be incurred, nevertheless, with statements emanating from the Company
     concerning "future events" such as financial results for periods not yet
     ended. Therefore, when dealing with the press, take care to observe the
     General Principles and Procedures stated above, particularly the limitation
     on disclosure of forward-looking information. In addition,

     1.   Inquiries made on behalf of a "wire service" (such as Dow Jones, AP or
          Reuters) or other national or international institution should be
          directed at once to the CFO.

     2.   All requests for financial data should be answered by or under the
          direction of the CFO or Treasurer.

X. INSIDER TRADING OF COMPANY SECURITIES

     Hampshire Group seeks to foster a reputation for integrity and honesty. The
confidence and trust placed in us by our stockholders is something we value and
want to protect. Accordingly, the Company has adopted a policy governing insider
trading in Hampshire Group securities (this "Policy Statement"), which
implements procedures designed to avoid the misuse of material, nonpublic
information about the Company and the market for its securities in the purchase
and sale of Company securities.

     Material, nonpublic information about the Company and the market for its
stock is the Company's property. Any misuse of such information by any associate
of the Company for personal gain, or the gain of others, is theft. Consequently,
unauthorized insider trading or the unauthorized "tipping" of inside information
are grounds for the Company to sue you. In addition, purchasing or selling

                                      -10-
<PAGE>
Company securities while in the possession of material, nonpublic information,
or improperly communicating that information to others, can expose you to
criminal and civil penalties. The Securities and Exchange Commission can recover
from you all profits or losses avoided by you through trading or by those whom
you tipped -- even if you did not directly benefit -- and can impose penalties
against you. You can also be sued by stockholders of the Company seeking
damages.

     This Policy Statement is drafted broadly and will be applied and
interpreted in a similar manner. It applies to the purchase and sale of Company
stock, and the handling of information about the Company, by all associates of
the Company, as well as their spouses, minor children and adult members of their
households.

     Since the insider trading laws are sometimes confusing, asking questions in
advance can help prevent problems from arising. Direct any questions concerning
this Policy Statement to the CFO at (864) 225-6232. Also, notify the CFO if you
believe that a violation of this Policy Statement has occurred or is about to
occur.

     A.   Policy

     No person to whom this Policy Statement applies, including you, may
purchase or sell Company securities while in possession of material, nonpublic
information about the Company or the market for its securities; nor may any such
person communicate any such information to anyone else in violation of the law.

     "Material" Information. "Material" information is any information that a
reasonable investor would consider important in deciding whether to buy, hold or
sell Company securities. In other words, it is any information that could
reasonably affect the price of Company securities. While it is impossible to
list all types of information that would be material under particular
circumstances, information dealing with the following subjects often is regarded
as "material": sales and earnings estimates; purchases and sales of substantial
assets or businesses; mergers; tender offers; significant changes in credit
arrangements; significant write-downs and write-offs; the resolution of
significant contingent liabilities; liquidity problems; unexpected management
developments; stock and bond offerings; major price and marketing changes; the
loss or gain of a major contract; significant litigation and government
investigations.

     "Nonpublic" Information. Information that has not yet been disclosed to the
public generally is "nonpublic." Therefore, it would be improper for any person
to whom this Policy Statement applies to purchase or sell Company securities the
day after an announcement of material information by the Company (as well as the
days before such an announcement) because more time than that is necessary for
the information to become generally known. Markets and investors need time to
obtain material information, understand it and act upon it. To demonstrate that
a particular piece of information is "public," you must be able to point to some
evidence that the information was widely disseminated or broadcast. Information
would be considered widely disseminated after a period of time following
disclosure by, for example, the Dow Jones ticker tape, news wire services (such
as AP, UPI, Reuters or Bloomberg), radio, television, other electronic media,
newspapers, magazines or public filings with the SEC.

                                      -11-
<PAGE>
     B.   Procedures

     The following procedures have been established by the Company to help the
associates of the Company, as well as their spouses, minor children and adult
members of their households, in avoiding insider trading and to help the Company
in preventing, detecting and imposing sanctions against insider trading. Every
associate of the Company must comply with these procedures and must assure
compliance by their spouses, minor children and adult members of their
households, or else risk serious sanctions, including personal liability and
criminal penalties. If you have questions, consult the CFO.

     Report. All directors and officers of the Company (including those titled
CEO, President and Vice President of the Company or any business unit or
subsidiary) must submit to the CFO a report of every purchase or sale of, or
other transaction in, Company stock, options or other securities in which they
or their families (including spouses, minor children and adult members of their
households), directly or indirectly, shall participate, no later than one (1)
day after each transaction. The report should include the date of the
transaction, the quantity and, if applicable, the price of the securities and
the name of the broker-dealer that effected the transaction.

     Trading. During the period beginning two (2) business days following the
issuance of the Company's quarterly earnings press release until fifteen (15)
days before the last day of that quarter (a "Quarterly Trading Period") all
associates of the Company may, except as otherwise provided below, purchase or
sell Company stock owned directly, and may permit the purchase or sale of
Company securities owned indirectly, by themselves and their families (including
their spouses, minor children and adult members of their households) (but, in
the case of directors and officers, only after obtaining clearance from the CFO
or, in his absence, from the Treasurer at (864) 225-6232). Options to purchase
Company stock granted under a Company stock option plan may be exercised for
cash at any time without obtaining clearance (although a report under subsection
1 above must still be provided).

     Developments constituting material, nonpublic information may arise or
become known to the Company at any time, including during a Quarterly Trading
Period. Consequently, even during a Quarterly Trading Period, the ability of
associates (and their families) to purchase or sell Company securities shall be
suspended if they are so notified by the Company. No explanation for such notice
need be given.

     At all times outside the Quarterly Trading Periods, the associates of the
Company, as well as their families (including spouses, minor children and adults
members of their households), are not permitted directly or indirectly to
purchase or sell Company securities, unless clearance has been obtained from the
CFO.

     A "business day" is any day, other than a Saturday or Sunday, that the
Company is open for business in Anderson, South Carolina. Individuals who
request clearance will be notified promptly of clearance or denial. Such notice
may be given orally and must be kept confidential. Clearance or denial for a
particular trade is within the discretion of the Company. No explanation for a
denial need be given.

                                      -12-
<PAGE>
     C. Confidential Treatment of Sensitive Information

     The Company's associates must not disclose nonpublic information (whether
or not material) relating to the Company, or to the market for its securities,
to any person outside the Company, unless the Company has authorized the
particular disclosure. Moreover, material, nonpublic information shall not be
communicated to anyone, including persons within the Company, except as provided
in this Section 10. Such information must be kept confidential. For example,
access to files containing material, nonpublic information and computer files
containing such information should be restricted to persons who need to know
such information, and conversations including or concerning such information, to
the extent that they are appropriate at all, should be conducted in private
(e.g., not in public elevators or restaurants).

     If someone outside the Company (such as the news media or a securities
analyst or investor) asks you questions, either directly or through another
person, do not attempt to answer them. You should obtain the name of the person
making the inquiry and immediately notify the Chief Financial Officer. If you
have any questions regarding this policy, you should contact the Chief Financial
Officer for clarification.

     Do not discuss confidential information or acknowledge its existence, even
to persons from governmental or self-regulatory bodies, unless there is a legal
obligation to do so. Simply and politely inform the inquirer that Company policy
requires that he or she be referred to the Chief Financial Officer.

XI. ANTITRUST LAWS

     The discussion that follows is designed to familiarize you with United
States antitrust laws. You should be aware that many foreign countries
(including the European Community and most of its member countries, and others)
have their own antitrust laws, which must be complied with when their markets
would be affected. This presentation is, of necessity, only a general guide.

     It is important to be sensitive to the types of issues that may be
violations of the antitrust laws. Should you become aware of any situation that
may raise questions under the antitrust laws, contact Hampshire Group's Chief
Financial Officer immediately.

     A.   Overview

     Among other things, the antitrust laws prohibit contracts, combinations or
agreements that unreasonably restrain trade. Agreements among competitors with
respect to prices and other terms and conditions of sale may be unlawful "per
se," that is they may be considered to be illegal without regard to the business
purpose for that agreement. To be unlawful, there does not necessarily have to
be a formal agreement. Informal, oral agreements and understandings have been
found to be agreements prohibited by the antitrust laws.

                                      -13-
<PAGE>
     B. Specific Practices Prohibited by the Antitrust Laws

     o    Price-fixing. Agreements between competitors to raise, lower or
          stabilize prices, or to set maximum or minimum prices, or agreements
          concerning terms and conditions of sale that affect price, may be
          unlawful per se. Negotiations and agreements between buyer and seller
          or between supplier and customer that are part of a bona fide
          transaction do not violate the antitrust laws. Agreements setting or
          restricting the prices at which a purchaser may resell can involve a
          violation of the prohibition against price fixing.

     o    Market Allocation. Agreements among competitors to allocate markets,
          customers or business opportunities likely will violate the antitrust
          laws.

     o    Boycotts/Concerted Refusals to Deal. The antitrust laws permit a
          company, acting alone, to select the persons with whom it will and
          will not do business. However, when two or more companies agree not to
          do business with another person, that agreement may violate the
          antitrust laws.

     o    Monopolization and Attempts and Conspiracies to Monopolize. The
          antitrust laws prohibit monopolizing (or attempting or conspiring to
          monopolize) the market for a particular product. Defining a product
          market for purposes of the antitrust laws is a complex issue. Merely
          possessing significant market power or market share is not illegal; a
          violation may occur, however, when a person with monopoly or
          near-monopoly power engages in unfair or predatory conduct with the
          purpose or effect of maintaining or increasing that market power.

     o    Tying. A tying arrangement is an agreement by a party to sell one
          product or service but only on the condition that the buyer also
          purchase a different product or service. Such an arrangement may
          violate the antitrust laws, and may be unlawful per se.

     o    Reciprocity. It also may violate the antitrust laws for a buyer to
          condition his or her purchases from another person on that person
          making purchases from the first person. It is not unlawful, however,
          for a person to transact business with a present or potential
          customer, even if done for the purpose of inducing that customer to
          transact other business. What can make the conduct unlawful is the
          attempt to coerce the customer to engage in reciprocal business.

     o    Restrictions on Resale. Restrictions on resale raise antitrust
          concerns. Restrictions, particularly those that relate to price terms,
          may be illegal.

     C.   Enforcement of the Antitrust Laws

     In the United States, the antitrust laws constitute both civil and criminal
laws. Their violation could expose you, and perhaps the Company, to criminal
penalties. Furthermore, any person or class of persons injured by reason of a

                                      -14-
<PAGE>
violation of the antitrust laws may recover three times the amount of their
actual damages, plus costs and attorneys fees. Antitrust suits have often
resulted in multi-million dollar judgments or settlements.

     Violations also may result in court orders that will restrict the way you
and the Company can do business. Violations also may cause agreements entered
into unlawfully to be unenforceable in court.

XII. IMPLEMENTATION

     All managers shall, within their areas of responsibility, be responsible
for explanation of this Policy Guide so as to assure employee knowledge and
compliance. Managers are also responsible for enforcement of this Policy Guide
within their areas of responsibility. Written certification concerning Policy
Guide compliance will be periodically required from those employees so
designated by the Chairman of the Board, the Chief Executive Officer or the
Chief Financial Officer of Hampshire Group.

     An actual or contemplated conduct that an employee discovers and which he
or she reasonably believes may constitute a violation of this Policy Guide must
be promptly reported to a Division Head or a corporate officer.

XIII. WAIVER PROCEDURES

     If any situation should arise where a course of action would likely result
in a violation of this Policy Guide but for which the associate thinks that a
valid reason for the course of action exists, the associate should contact the
Chief Financial Officer ("CFO") to obtain a waiver prior to the time the action
is taken. No waivers will be granted after the fact for actions already taken.
Except as noted below, the will review all the facts surrounding the proposed
course of action and will determine whether a waiver from any policy in this
Policy Guide should be granted.

     Waiver Procedures for Executive Officers and Directors. Waiver requests by
an executive officer or member of the Board of Directors shall be referred by
the CFO, with his recommendation, to the Board of Directors for consideration.
If either (i) a majority of the independent directors on the Board of Directors,
or (ii) a committee comprised solely of independent directors agrees that the
waiver should be granted, it will be granted. Hampshire Group will disclose the
nature and reasons for the waiver on a Form 8-K to be filed promptly with the
Securities and Exchange Commission or otherwise as required by the Securities
and Exchange Commission or The NASDAQ Stock Market. If the Board denies the
request for a waiver, the waiver will not be granted and the associate may not
pursue the intended course of action.

XIV. REPORTING VIOLATIONS UNDER THE CODE

     Any associate having any information or knowledge regarding the existence
of any violation or suspected violation of this Policy Guide has a duty to
report the violation or suspected violation to a Division Head or corporate
officer. Failure to report suspected or actual violations is itself a violation

                                      -15-
<PAGE>
of this Policy Guide and may subject the associate to disciplinary action, up to
and including termination of employment or legal action. Hampshire Group will
endeavor to keep reports confidential to the fullest extent practicable under
the circumstances.

     Any associate who reports a suspected violation under this Policy Guide by
Hampshire Group, or its agents acting on behalf of Hampshire Group, to a
Division Head or corporate officer, may not be fired, demoted, reprimanded or
otherwise harmed for, or because of, the reporting of the suspected violation.

     In addition, any associate who reports a suspected violation under this
Policy Guide that the associate reasonably believes constitutes a violation of a
local, state or federal statute by Hampshire Group, or its agents acting on
behalf of Hampshire Group, to a local, state or federal regulatory or law
enforcement agency, may not be reprimanded, discharged, demoted, suspended,
threatened, harassed or in any manner discriminated against in the terms and
conditions of the associate's employment for, or because of, the reporting of
the suspected violation. For additional information concerning Hampshire Group's
non-retaliation policy as it relates to the disclosure of accounting and legal
violations, associates should refer to Hampshire Group's Complaint Procedures, a
copy of which was previously distributed and is available from the Office of
Treasure or on the Company's website www.hamp.com.

XV   ENFORCEMENT

     Violation of this Policy Guide may result in disciplinary action, including
termination of employment. Legal proceedings may also be commenced, if
necessary, to recover the amount of any improper expenditures, any profits
realized by the offending employee, and any financial detriment sustained by
Hampshire Group. In appropriate circumstances, violations of this Policy Guide
will be reported to the applicable authority.

XVI  APPLICATION

     This Policy Guide applies to all employees, officers and directors of
Hampshire Group and its subsidiaries.







                                      -16-

<PAGE>

                            HAMPSHIRE GROUP, LIMITED
                                 & SUBSIDIARIES
                            COMPLAINT PROCEDURES FOR
                         ACCOUNTING AND AUDITING MATTERS

     Pursuant to the provisions of Section 301 of the Sarbanes-Oxley Act of 2002
and Rule 10A-3 under the Securities Exchange Act of 1934, the Audit Committee of
the Board of Directors of Hampshire Group, Limited (the "Committee") has
established the procedures set forth below for the receipt, retention and
treatment of complaints regarding accounting, internal accounting controls and
auditing matters and for the confidential, anonymous submissions by employees or
shareholders of Hampshire Group, Limited and its subsidiaries (the "Company") of
concerns regarding questional accounting or auditing matters.

I.   RESPONSIBILITIES OF COMMITTEE WITH RESPECT TO COMPLAINTS

     A.   The Committee shall receive, retain, investigate and act on complaints
          and concerns ("Reports") of employees and shareholders ("Associates")
          regarding:

          1.   Questionable accounting, internal accounting controls and
               auditing matters, including those regarding the circumvention or
               attempted circumvention of internal accounting controls or that
               would otherwise constitute a violation of the Company's
               accounting policies (an "Accounting Allegation");

          2.   Compliance with legal and regulatory requirements (a "Legal
               Allegation"); and

          3.   Retaliation against employees who make Accounting Allegations or
               Legal Allegations (a "Retaliatory Act").

     B.   In the discretion of the Committee, responsibilities of the Committee
          created by these procedures may be delegated to the Chair of the
          Committee or to a subcommittee of the Committee.

II.  PROCEDURES FOR RECEIVING REPORTS

     A.   Any Report that is made directly to management, whether openly,
          confidentially or anonymously, shall be promptly reported to the
          Committee.

     B.   Each Report forwarded to the Committee by management and each Report
          that is made directly to the Committee, whether openly, confidentially
          or anonymously, shall be reviewed by the Committee, who may, in their
          discretion, consult with any member of management who is not the
          subject of the allegation and who may have appropriate expertise to
          assist the Committee. The Committee shall determine whether the
          Committee or management should investigate the Report, taking into
          account the considerations set forth in Section C below.

                                       1
<PAGE>
     C.   If the Committee determines that management should investigate the
          Report, the Committee shall notify the Chief Executive Officer in
          writing of that conclusion. Management shall thereafter promptly
          investigate the Report and shall report the results of its
          investigation, in writing, to the Committee. Management shall be free
          in its discretion to engage outside auditors, counsel or other experts
          to assist in the investigation and in the analysis of results.

     D.   If the Committee determines that it should investigate the Report, the
          Committee shall promptly determine what professional assistance, if
          any, it needs in order to conduct the investigation. The Committee
          shall be free in its discretion to engage outside auditors, counsel or
          other experts to assist in the investigation and in the analysis of
          results.

III. SCOPE OF MATTERS COVERED BY THESE PROCEDURES

These procedures relate to complaints made by Associates relating to any
questionable accounting or auditing matters. The following is a non-exclusive
list of the matters that may be reported:

     A.   Fraud or deliberate error in the preparation, evaluation, review or
          audit of any financial statement of the Company;

     B.   Fraud or deliberate error in the recording and maintaining of
          financial records of the Company;

     C.   Deficiencies in or noncompliance with the Company's internal
          accounting controls;

     D.   Misrepresentation or false statement to or by a senior officer or
          accountant regarding a matter contained in the financial records,
          financial reports or audit reports of the Company; or

     E.   Deviation from full and fair reporting of the Company's financial
          condition.

IV.  CONSIDERATIONS RELATIVE TO WHO SHOULD INVESTIGATE A REPORT

In determining whether management or the Committee should investigate a Report,
the Committee shall consider, among any other factors that are appropriate under
the circumstances, the following:

     A.   Who is the alleged wrongdoer? If an executive officer, senior
          financial officer or other high management official is alleged to have
          engaged in wrongdoing, that factor alone may militate in favor of the
          Committee conducting the investigation.

     B.   How serious is the alleged wrongdoing? The more serious the alleged
          wrongdoing, the more appropriate that the Committee should undertake
          the investigation. If the alleged wrongdoing would constitute a crime
          involving the integrity of the financial statements of the Company,
          that factor alone may militate in favor of the Committee conducting
          the investigation.

                                       2
<PAGE>
     C.   How credible is the allegation of wrongdoing? The more credible the
          allegation, the more appropriate that the Committee should undertake
          the investigation. In assessing credibility, the Committee should
          consider all facts surrounding the allegation, including but not
          limited to whether similar allegations have been made in the press or
          by analysts.

V.   TREATMENT OF COMPLAINTS

Upon receipt of a complaint, the Chairman of the Committee will (i) determine
whether the complaint actually pertains to accounting or auditing matters and
(ii) when possible, acknowledge receipt of the complaint to the sender. Copies
of all complaints will be provided to the members of the Committee, along with
the determination of whether or not an accounting or auditing matter has been
raised.

     A.   Complaints relating to accounting and auditing matters will be
          reviewed under Committee direction and oversight by the Chairman,
          internal auditor or such other persons as the Committee determines to
          be appropriate. Confidentiality will be maintained to the fullest
          extent possible, consistent with the need to conduct an adequate
          review.

     B.   Prompt and appropriate corrective action will be taken when and as
          warranted in the judgment of the Committee.

     C.   The Company will not discharge, demote, suspend, threaten, harass or
          in any manner discriminate against any Associate in the terms and
          conditions of employment based upon any lawful actions of such
          Associate with respect to good faith reporting of complaints regarding
          Accounting Matters or otherwise as specified in Section 806 of the
          Sarbanes-Oxley Act of 2002.

VI.  PROTECTION OF ASSOCIATES

Consistent with the policies of the Company, the Committee shall not retaliate,
and shall not tolerate any retaliation by management or any other person or
group, directly or indirectly, against anyone who, in good faith, makes an
Accounting Allegation or Legal Allegation, reports a Retaliatory Act or provides
assistance to the Committee, management or any other person or group, including
any governmental, regulatory or law enforcement body, investigating a Report.
The Committee shall not, unless compelled by judicial or other legal process,
reveal the identity of any person who makes an Accounting Allegation or Legal
Allegation or reports a Retaliatory Act and who asks that his or her identity as
the person who made such Report remain confidential and shall not make any
effort, or tolerate any effort made by any other person or group, to ascertain
the identity of any person who makes a Report anonymously.

                                       3
<PAGE>
VII. RECORDS

The Committee shall retain for a period of five years all records relating to
any Accounting Allegation or Legal Allegation or report of a Retaliatory Act and
to the investigation of any such Report.

VIII. PROCEDURES FOR MAKING COMPLAINTS

In addition to any other avenue available to an Associate, any employee or
shareholder may report to the Committee openly, confidentially or anonymously
any Accounting Allegation or Legal Allegation or report of a Retaliatory Act.
Accounting Allegations, Legal Allegations and reports of a Retaliatory Act may
be made in writing to Mr. Irwin Winter, Chairman of the Committee, 149 West 40th
Street, New York, NY 10010, or by Email to iwinter007@aol.com. Reports may be
made orally by calling the Ethics Hotline at (212) 737-0214 at any time. The
line is managed by the Chairman of the Committee and allows anyone to make a
Report without divulging his or her name if so desired. Such Reports can also be
made directly to management either (a) confidentially by contacting the Chief
Executive Officer in writing or in person at the Company's offices or by phone
at (864) 225-6232. Management is required to share the information provided in
the Report with the Committee, if requested by the individual making the Report,
as promptly as practicable













                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>10
<FILENAME>exhib21.txt
<DESCRIPTION>EXHIBIT 21-SUBSIDIARIES OF THE CO.
<TEXT>
                                                                    EXHIBIT 21

                            HAMPSHIRE GROUP, LIMITED
                            SCHEDULE OF SUBSIDIARIES
                                DECEMBER 31, 2003



                                      State/Country       Percentage of Voting
                                  of Incorporation or      Securities Owned by
Name of Subsidiary                    Organization          Immediate Parent
----------------------------      --------------------    --------------------

Hampshire Designers, Inc.                Delaware                100

Item Eyes, Inc.                          Delaware                100

Keynote Services, Limited                Hong Kong               100

Glamourette Fashion Mills, Inc.          Delaware                100
(Inactive)



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>11
<FILENAME>exhib23.txt
<DESCRIPTION>EXHIBIT 23-CONSENT OF DELOITTE & TOUCHE
<TEXT>
                                                                Exhibit 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No.
33-86312 and No. 333-53750 of Hampshire Group, Limited on Forms S-3/S-8 of our
report dated March 26, 2004 (which report expresses an unqualified opinion),
appearing in this Annual Report on Form 10-K of Hampshire Group, Limited for the
year ended December 31, 2003.



/s/ Deloitte & Touche
---------------------------------
Deloitte & Touche

Greenville, South Carolina
March 29, 2004



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>12
<FILENAME>exhib311.txt
<DESCRIPTION>EXHIBIT 31.1-CERTIFICATION
<TEXT>
                                                                 EXHIBIT 31.1


                                 EXHIBIT 31.1

I, Ludwig Kuttner, Chief Executive Officer, does hereby certify that:

1. I have reviewed the 2003 Annual Report of Hampshire Group, Limited on Form
10-K;

2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

         b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

         c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the Audit Committee of
registrant's Board of Directors (or persons performing the equivalent function):

         a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting, which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

         b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.

Date:  March 22, 2004

/s/ LUDWIG KUTTNER
-------------------------
Ludwig Kuttner
Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>13
<FILENAME>exhib312.txt
<DESCRIPTION>EXHIBIT 31.2-CERTIFICATION
<TEXT>
                                                                  EXHIBIT 31.2

I, Charles W. Clayton, Chief Financial Officer, does hereby certify that:

1. I have reviewed the 2003 Annual Report of Hampshire Group, Limited on Form
10-K;

2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the Audit Committee of
registrant's Board of Directors (or persons performing the equivalent function):

     a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting, which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date:   March 22, 2004

/s/ CHARLES W. CLAYTON
---------------------------
Charles W. Clayton
Chief Financial Officer



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>14
<FILENAME>exhib321.txt
<DESCRIPTION>EXHIBIT 32.1-CERTIFICATION
<TEXT>
                                                                  EXHIBIT 32.1

Ludwig Kuttner, Chief Executive Officer and Charles W. Clayton, Chief Financial
Officer of Hampshire Group, Limited (the "Company"), each hereby certify that:

     1) The Annual Report on Form 10-K for the period ended December 31, 2003,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and

     2) The information contained in the Report fairly presents, in all material
respects, the financial condition as of December 31, 2003 and the results of
operations of the Company for the period then ended.


Date   March 22, 2004



/s/ LUDWIG KUTTNER
--------------------------------
Ludwig Kuttner
Chief Executive Officer



/s/ CHARLES W. CLAYTON
--------------------------------
Charles W. Clayton
Chief Financial Officer

</TEXT>
</DOCUMENT>
</SUBMISSION>
