On August 25, 2011, pursuant to a merger agreement, dated June 13, 2011 as amended (the “Merger Agreement”) by and among the Company, RG Merger Sub S.A. (a wholly owned subsidiary of the Company), Rio Garment S. de R.L. (“Rio”), the Rio equity holders, and BGY II, LLC, the Company completed its acquisition of Rio by way of a merger of Rio with and into RG Merger Sub S.A., (the “Merger”) for an aggregate purchase price of up to $21.4 million. Upon closing, pursuant to the Merger Agreement, the Company paid to the Rio equity holders, a total of $7.0 million in cash, $3.5 million of which was deposited into an escrow account pending certain post-closing purchase price adjustments. Approximately $0.5 million due from escrow relating to a purchase price adjustment is recorded in Other receivables as of October 1, 2011. Additionally, the Company issued to the Rio equity holders an aggregate of $2.6 million in Hampshire common stock, par value $0.10 (“Hampshire Common Stock”) (967,009 shares valued at a 90-day volume-weighted average price per share) and held back an additional $6.5 million of Hampshire Common Stock (1,781,798 shares) for potential post-closing purchase price adjustments and indemnification claims. The Company also paid in cash certain liabilities of Rio totaling approximately $5.9 million. The Company financed the cash portion of the acquisition with cash-on-hand.

The Company acquired Rio to diversify its distribution channels with the vertical specialty stores and improve its profitability and growth potential. The preliminary allocation of the purchase price used below is based upon preliminary estimates. These preliminary estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as we finalize the valuations of the net tangible and intangible assets acquired in connection with our acquisition of Rio. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

Of the intangible assets, $16.4 million represents customer relationships that are being amortized over 7 to 11 years. The Company recognized approximately $2.3 million of goodwill in the acquisition based on the enhancement of the Company’s creative design and retail industry and sourcing relationships through the acquired employees and the resulting cross-selling opportunities for the Company divisions. The Company expects the entire amount of goodwill to be deductible for tax purposes. In addition, the Company recorded an indemnification asset in the amount of $2.0 million in relation to certain tax obligations that were assumed by the Company upon the acquisition.

The additional installment of purchase price includes contingent consideration in the amount of approximately $6.5 million to be paid to the sellers based on post-closing purchase price adjustments in accordance with the Merger Agreement. The contingent consideration is in the form of an earn-out based on the performance of Rio during 2011 and an indemnification period. If the performance target is met, then approximately $1.8 million in cash already paid to escrow will be released to the sellers and $2.8 million in the Company’s common stock will be paid to the sellers. Also, approximately $3.7 million of the Company’s common stock is expected to be paid to the sellers at the conclusion of the indemnification period eighteen months from the acquisition date. The recorded value of the contingent consideration approximates fair value as of October 1, 2011.

The unaudited financial information in the table below summarizes the combined results of continuing operations of the Company and Rio, on a pro forma basis, as though the Merger had occurred as of the first date of the twelve months ended December 31, 2010. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on that date or of results that may occur in the future. The unaudited pro forma financial information for the three and nine months ended October 1, 2011 and October 2, 2010 combines the historical results for the Company and the historical results for Rio for the three and nine months ended October 1, 2011 and October 2, 2010.

The Company is preparing Rio's audited financial statements for the fiscal year ended December 31, 2010, unaudited financial statements for the nine month periods ended October 1, 2011 and October 2, 2010 and unaudited pro forma financial information for the nine month periods ended October 1, 2011 and October 2, 2010, as required by Item 9.01(a) and Item 9.01(b) of Form 8-K, and will disclose such information promptly upon completion on an amendment to its Form 8-K, which was filed with the SEC on August 30, 2011.

In connection with the Merger, the Company incurred approximately $0.7 million and $1.7 million of acquisition related costs during the three and nine month periods ended October 1, 2011, respectively. These costs were recorded in Selling, general, and administrative expenses in the unaudited condensed consolidated statement of operations. The Company's results of operations for the period ended October 1, 2011 include approximately $5.4 million attributable to the net sales of Rio since August 25, 2011, the date of the Merger.

On May 20, 2010, the Company consummated the acquisition of certain assets of S. Kuhlman, LLC and S Kuhlman Wholesale LLC (collectively, “scott james™”) for total consideration of $1.4 million. scott james™ is a men’s specialty retailer and wholesale provider of apparel. scott james™ operates one store and a wholesale business that sells primarily to upscale specialty stores. See Note 10 – Fair Value Measurements.