STOCK PURCHASE AND SETTLEMENT AGREEMENT AND MUTUAL RELEASES

Exhibit 10.1

STOCK PURCHASE AND SETTLEMENT AGREEMENT AND MUTUAL RELEASES

This Stock Purchase and Settlement Agreement and Mutual Releases (the “Agreement”), dated as of August 4, 2008, is entered into by and among Ludwig Kuttner, Beatrice Ost-Kuttner, Fabian Kuttner and K Holdings LLC (each a “Selling Party” and collectively, the “Selling Parties”) on the one hand, and Hampshire Group, Limited, a Delaware corporation (“Hampshire”), on the other hand, and shall be effective immediately upon execution by all parties. The Selling Parties and Hampshire shall each be referred to as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS , Hampshire has asserted certain Claims (as defined in Section 2.3(a)) against Ludwig Kuttner, including, without limitation, Claims arising out of or relating to (i) the costs of the investigation (the “Investigation”) of Ludwig Kuttner by the Audit Committee of the Board of Directors of Hampshire (the “Board of Directors”), (ii) the costs related to the termination of Ludwig Kuttner’s employment, (iii) the costs of tax filings related to the Investigation or that required resubmission based on findings of the Investigation, (iv) the repayment of bonuses, other incentive-based and equity based compensation, and profits realized from the sale of Hampshire securities, (v) the misuse and misappropriation of assets for personal benefit, (vi) certain related party transactions, (vii) internal control deficiencies and improper financial reporting and accounting for expense reimbursement and (viii) breach of loyalty (collectively, the “Hampshire Claims”); and

WHEREAS , Ludwig Kuttner has asserted certain Claims against Hampshire and certain of its current and former officers and directors and subsidiaries in an arbitration and otherwise, including, without limitation, Claims arising out of or relating to (i) Hampshire’s actions with respect to Ludwig Kuttner’s employment and the termination thereof, (ii) his role and status as an employee, officer, director and stockholder of Hampshire, (iii) the Investigation including with respect to his tax filings and the termination of his employment, (iv) termination benefits including health, dental and life insurance, (v) stock options, bonuses payable, expense reimbursements and personal and other property withheld, and (vi) indemnification obligations (collectively, the “Kuttner Claims”); and

WHEREAS , none of the Parties has made or makes any admission with respect to any of the aforementioned Claims asserted against such Parties; and

WHEREAS , the Parties wish to resolve all Claims which have been or could have been alleged as against each other relating to the foregoing and otherwise, without admitting any liability or wrongdoing, so as to avoid the burden, expense and inconvenience of further litigation between the Parties; and

WHEREAS , in connection with a settlement of the aforementioned Claims, the Selling Parties desire to sell and Hampshire desires to purchase all shares of Hampshire’s Common Stock, par value $0.10 per share (the “Common Stock”), that are beneficially owned by the Selling Parties, consisting of the following shares of Common Stock (the “Purchased Shares”):

NOW, THEREFORE , for good and valuable consideration, including the mutual promises, releases, representations, covenants and obligations contained herein, the sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

Article I.

SALE AND PURCHASE

Section 1.1. Purchase of Shares . (a) Subject to the terms, provisions and conditions contained in this Agreement, the Selling Parties do hereby assign, transfer, convey and deliver to Hampshire all of the Selling Parties’ right, title and interest in and to the Purchased Shares and Hampshire does hereby accept and purchase the Purchased Shares from the Selling Parties for a purchase price per share of $5.00 and an aggregate purchase price of $11,951,700 (the “Purchase Price”). Such assignment, transfer, conveyance, delivery and purchase of the Purchased Shares shall be effective automatically as of the execution of this Agreement and the payment to the Selling Parties of the Purchase Price (net of any payments due to Hampshire pursuant to Section 2.1 hereof and $77,941.44 of applicable employment and income tax withholding pursuant to Section 1.1(b) hereof), without the necessity of the execution and delivery by either party of any further agreement, instrument or document or the taking of any other action, except that the Selling Parties shall deliver herewith the stock certificates representing the Purchased Shares and duly executed stock powers with Medallion signature guarantees or other guarantees acceptable to Hampshire’s transfer agent (the “Stock Powers”) authorizing the transfer of the Purchased Shares in accordance with the terms of this Agreement, or, in the case of any Purchased Shares held by the Selling Parties in book entry form, Hampshire shall have received confirmation that such shares have been transferred in book entry form to the account of Hampshire at a broker designated by Hampshire, in each case free and clear of any Lien (as defined herein). In the event any certificate representing the Purchased Shares has been lost, destroyed or stolen, the Selling Parties, as a condition to the receipt of the Purchase Price, shall execute a customary lost certificate affidavit in the form required by Hampshire’s transfer agent (the “Lost Certificate Affidavit”).

(b) Each of the Selling Parties and Hampshire acknowledge and agree that (i) 35,794 of the Purchased Shares consist of Common Stock held for the benefit of Ludwig Kuttner under the Hampshire Group, Limited and Affiliates Common Stock Purchase Plan (the “SPP”), (ii) the portion of the Purchase Price attributable to such Purchased Shares held under the SPP will be subject to all applicable employment and income tax withholding of $77,941.44 and will be reported to Ludwig Kuttner on Form W-2, and (iii) after the date hereof, the Selling Parties will have no right, title, interest or ownership (beneficial or otherwise) in any shares of Hampshire’s stock issuable or distributable under the SPP.

(c) Subject to the terms, provisions and conditions contained in this Agreement, in the event that the Selling Parties become aware of any additional shares of Common Stock that any Selling Party beneficially owns (such shares of Common Stock, “Additional Purchased Shares”), the Selling Parties shall, promptly after such Selling Parties become aware of such Additional Purchased Shares, assign, transfer, convey and deliver to Hampshire all of the Selling Parties’ right, title and interest in and to such Additional Purchased Shares and Hampshire shall accept and purchase such Additional Purchased Shares from the Selling Parties for a purchase price per share of $5.00; provided , however , that Hampshire shall have no obligation to purchase such Additional Purchased Shares and the Selling Parties shall have no obligation to sell such Additional Purchased Shares after the date that is 90 days after the date hereof, provided , further , that in no event shall Hampshire be required to purchase in excess of 170,000 Additional Purchased Shares in the aggregate. Hampshire agrees to make reasonable efforts (which in no event shall require Hampshire to incur any fees or expenses) to cooperate with the Selling Parties to identify and locate Additional Purchased Shares. Concurrently with the delivery of the purchase price for such Additional Purchased Shares by Hampshire, the Selling Parties shall deliver the stock certificates representing the Additional Purchased Shares and duly executed Stock Powers authorizing the transfer of such Additional Purchased Shares in accordance with the terms of this Agreement, or, in the case of any Additional Purchased Shares held by the Selling Parties in book entry form, Hampshire shall have received confirmation that such shares have been transferred in book entry form to the account of Hampshire at a broker designated by Hampshire, in each case free and clear of any Lien. In the event any certificate representing such Additional Purchased Shares has been lost, destroyed or stolen, the Selling Parties, as a condition to the receipt of the purchase price therefor, shall execute a customary lost certificate affidavit in the form required by Hampshire’s transfer agent. In the event that Hampshire purchases any Additional Purchased Shares pursuant to the terms of this Section 1.1(c) , such Additional Purchased Shares shall be deemed Purchased Shares for the purposes of the representations an warranties contained in Section 4.1(c) .

Section 1.2. Payment of Purchase Price . Concurrently with the execution hereof and the delivery of the stock certificates representing the Purchased Shares and the Stock Powers in accordance with Section 1.1 hereof (or a Lost Certificate Affidavit), Hampshire shall make payment of the Purchase Price, less any payments due to Hampshire pursuant to Section 2.1 hereof, to the Selling Parties by certified or bank check or wire transfer of immediately available funds to the accounts designated by the Selling Parties and specified on Schedule A hereto.

Article II.

SETTLEMENT AND RELEASE

Section 2.1. Payments to Hampshire . (a) Taking into consideration and in full satisfaction and settlement of all Claims that Hampshire has asserted or has represented that it can assert against Ludwig Kuttner, including, without limitation, the Hampshire Claims, and excluding the Indemnified Claims as contemplated below in Section 3. 1 and taking into consideration and in full satisfaction of all Claims that Ludwig Kuttner has asserted or has represented that he can assert against Hampshire, including, without limitation, the Kuttner Claims and excluding the indemnifications provided by Hampshire in Sections 3.2 and 3.3 below, Ludwig Kuttner shall pay Hampshire the sum of $1,554,000 (the “Settlement Amount”) which shall be credited against the Purchase Price as provided in Section 1.2 .

(b) Promptly following the date hereof (but in no event later than 60 days following the date hereof), each of the Selling Parties shall return to Hampshire any and all property owned or leased by Hampshire that is in the possession or control of such Selling Party on the date hereof or that comes within such Selling Party’s possession or control at any time following the date hereof.

(c) Certain personal property (the “Personal Property”) owned by Ludwig Kuttner is currently in storage at the 120 Enterprise Avenue South, Secaucus, New Jersey (the “Warehouse”). Ludwig Kuttner shall remove all such Personal Property from the Warehouse within 60 days following the date hereof at Ludwig Kuttner’s cost and expense. If Ludwig Kuttner does not remove such Personal Property, the parties hereto acknowledge that Hampshire shall have the right to dispose of such Personal Property in any manner and Hampshire shall have no liability to Ludwig Kuttner or to any of the other Selling Parties with respect to such Personal Property. As of the date hereof, all of Ludwig Kuttner’s personal property that is known by Hampshire to be in Hampshire’s possession or control is located at the Warehouse.

Section 2.2. No Admission . Each of the Parties denies any fault, wrongdoing or liability whatsoever. This Agreement shall not be deemed to be an admission or concession (i) on the part of any of the Parties as to any of the facts alleged or the validity of any Claims asserted by another Party, or (ii) on the part of any of the Parties as to any weakness of such Claims.

Section 2.3. Release of Claims .

(a)  Release of the Selling Parties by Hampshire . In exchange for the consideration set forth herein, the sufficiency of which is hereby acknowledged, Hampshire, individually and for each of its direct and indirect subsidiaries, Affiliates, officers, directors, employees, predecessors, successors and assigns (collectively, the “Hampshire Releasors”) hereby releases and forever discharge the Selling Parties and all of their respective Affiliates, associates, general or limited partners or partnerships, predecessors, successors, heirs, executors, administrators or assigns, or any of their respective present or former officers, directors, trustees, employees, agents, attorneys, representatives, stockholders and insurers (collectively, the “Seller Releasees”) from all rights, damages, losses, injuries, liabilities, demands, actions, claims, suits, proceedings, investigations or causes of action of any kind whatsoever, in any court, administrative agency or other forum (collectively, “Claims”) whether known or unknown, fixed or contingent, asserted or unasserted, that the Hampshire Releasors ever had or hereafter may have by reason of any matter, cause or thing whatsoever, from the beginning of the world to the day of the date of this Agreement, including, but not limited to, claims which were, or could have been, asserted in, or which arise out of or relate to the matters at issue in, the Hampshire Claims, provided , however , that, subject to Section 5.15, nothing herein shall affect or release Hampshire’s rights to the proceeds, if any, arising from the assertion of any Claim that the Securities and Exchange Commission (the “SEC”) may bring pursuant to Section 304 of the Sarbanes-Oxley Act or otherwise for the benefit of Hampshire or its stockholders, subsidiaries or Affiliates, provided , further , that no release pursuant to this Section 2.3(a) shall release the Indemnified Claims (as defined below).

(b)  Release of Hampshire by the Selling Parties . In exchange for the consideration set forth herein, the sufficiency of which is hereby acknowledged, the Seller Releasees, jointly and severally, individually and in their capacity as stockholders of Hampshire, each on their own behalf and on behalf of each other Seller Releasee, hereby release and forever discharge the Hampshire Releasors and all of their respective Affiliates, associates, general or limited partners or partnerships, predecessors, successors, heirs, executors, administrators or assigns, or any of their respective present or former officers, directors, trustees, employees, agents, attorneys, representatives, stockholders and insurers from all Claims that the Seller Releasees ever had or hereafter may have by reason of any matter, cause or thing whatsoever, whether known or unknown, fixed or contingent, asserted or unasserted, from the beginning of the world to the day of the date of this Agreement, including, but not limited to, claims which were, or could have been, asserted in, or which arise out of or relate to the matters at issue in, the Kuttner Claims, provided , however , that no release pursuant to this Section 2.3(b) shall release the indemnities provided by Hampshire pursuant to Sections 3.2 and 3.3 , below.

(c) Simultaneous with the execution of this Agreement, counsel for the Parties shall execute the attached Stipulation of Dismissal with Prejudice (in the form attached hereto as Exhibit C ) and cause such Stipulation to be submitted to the American Arbitration Association thereby dismissing for all purposes the arbitration designated Ludwig Kuttner v. Hampshire Group, Limited, No. 13 166 01880 06.

(d) Simultaneous with the execution of this Agreement, counsel for the Parties shall execute the attached Stipulation of Dismissal with Prejudice (in the form attached hereto as Exhibit D ) and cause such Stipulation to be submitted to the Court of Chancery of the State of Delaware thereby dismissing for all purposes Ludwig Kuttner only from the action designated Hampshire Group, Limited v. Ludwig Kuttner, Charles Clayton and Roger Clark, C.A. No. 3607-VCS.

Article III.

INDEMNIFICATION

Section 3.1. Indemnification of Hampshire . Ludwig Kuttner shall indemnify and hold harmless Hampshire and its subsidiaries, Affiliates, associates, predecessors, successors or assigns or insurers, or any of its or their respective present or former officers, directors, employees, agents, attorneys, representatives and stockholders (collectively the “Hampshire Indemnitees”), against any Claims by federal, state or local taxing authorities against the Hampshire Indemnitees arising out of Ludwig Kuttner’s alleged failure to pay personal taxes to such taxing authorities (collectively the “Indemnified Claims”) provided that Hampshire (i) affords timely notice to Ludwig Kuttner of any such Indemnified Claims, (ii) cooperates to afford Ludwig Kuttner reasonable access during normal business hours to relevant books and records of Hampshire, and (iii) affords Ludwig Kuttner timely opportunity to address such matters with such taxing authorities and to participate in the defense of such Claim at his own expense.

Section 3.2. Indemnification of the Selling Parties . Hampshire shall indemnify and hold harmless the Selling Parties to the full extent permissible under Delaware law and Hampshire’s Certificate of Incorporation and Bylaws (each as amended to date) for all Claims against the Selling Parties based upon or arising out of this Agreement and Claims between Hampshire and the Selling Parties, other than the Selling Parties’ failure to perform under this Agreement.

Section 3.3. Indemnification of Ludwig Kuttner . Hampshire shall indemnify and hold harmless Ludwig Kuttner to the full extent permissible under Delaware law and Hampshire’s Certificate of Incorporation and Bylaws (each as amended to date) and consistent with the indemnification agreements between Hampshire and certain Hampshire directors dated as of January 4, 2007 against all Claims or threatened Claims alleging misconduct by him as an officer, employee or director of Hampshire or any of its subsidiaries. If such a Claim or threatened Claim is brought against Ludwig Kuttner as provided in this Section 3.3 , Lud