AMENDMENT NO. 2 to AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY

Exhibit 10.2

AMENDMENT NO. 2

to

AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY

This AMENDMENT NO. 2 dated as of August 4, 2008 (this “Amendment”), is by and among HAMPSHIRE GROUP, LIMITED (the “Borrower”), HAMPSHIRE DESIGNERS, INC., ITEM-EYES, INC., SHANE HUNTER, INC., SB CORPORATION (“SB”), the Banks party hereto and HSBC Bank USA, National Association, as Agent for the Banks.

RECITALS:

A. The Borrower, the Guarantors, SB, the Banks and the Agent have entered into an Amended and Restated Credit Agreement and Guaranty dated as of February 15, 2008, as amended by Amendment No. 1 dated as of April 15, 2008 (as amended, the “Credit Agreement”).

B. The Borrower has informed the Banks and the Agent that the Borrower desires to enter into a settlement arrangement with Ludwig Kuttner (“Kuttner”), with respect to which the Borrower shall repurchase approximately 2,442,340 shares of its common stock from Kuttner and certain of his family members and affiliates for a net price of not more than $29,000,000, after taking into account the settlement of certain claims made by the Borrower against Kuttner and by Kuttner against the Borrower.

C. The Borrower requested, and the Banks agreed, to amend Sections 2.10 (Use of Proceeds), 9.05 (Transactions with Affiliates), 9.10 (Restricted Payments) and 10.01 (Consolidated Tangible Net Worth) of the Credit Agreement to avoid any violation of such representations and/or covenants caused by the Kuttner Repurchase, all upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration whose receipt and sufficiency are acknowledged, the Borrower, the Guarantors, SB, the Banks and the Agent hereby agree as follows:

Section 1. Definitions. Each capitalized term used but not defined in this Amendment shall have the meaning ascribed to such term in the Credit Agreement.

Section 2. Amendment of Credit Agreement.

2.01 New definitions of “Kuttner” and “Kuttner Repurchase” are hereby added to Section 1.01 of the Credit Agreement to read as follows:

“Kuttner” means Ludwig Kuttner.

“Kuttner Repurchase” means the repurchase by the Borrower of approximately 2,442,340 shares of its common stock from Kuttner and certain of his family members and affiliates for a net price of not more than Twenty Nine Million Dollars ($29,000,000), after taking into account the settlement of certain claims made by the Borrower against Kuttner and by Kuttner against the Borrower.

2.02 The first sentence of Section 2.10 of the Credit Agreement is hereby amended in its entirety to read as follows:

On and after the date hereof, the proceeds of the Revolving Credit Loans and the Term Loan will be used by Borrower (a) to provide working capital for Borrower and its Restricted Subsidiaries and (b) for the Kuttner Repurchase.

2.03 Section 9.05 of the Credit Agreement is hereby amended by adding “the Kuttner Repurchase,” after “except for” in the fourth line thereof.

2.04 Section 9.10 of the Credit Agreement is hereby amended by deleting the reference “repurchase treasury stock in an aggregate amount not to exceed Seven Million Five Hundred Thousand Dollars ($7,500,000) per Fiscal Year” appearing in clause (i) thereof, and substituting “repurchase treasury stock (A) in connection with the Kuttner Repurchase and (B) in an aggregate amount not to exceed (x) Seven Million Five Hundred Thousand Dollars ($7,500,000) per Fiscal Year or (y) Five Million Dollars ($5,000,000) per Fiscal Year following the consummation of the Kuttner Repurchase,” therefor.

2.05 Section 10.01 of the Credit Agreement is hereby amended by deleting the reference “Eighty Five Million Dollars ($85,000,000)”, and substituting “Fifty Million Dollars ($50,000,000)” therefor.

Section 3. Acknowledgments, Confirmations and Consent.

3.01 Each of the Borrower and the Guarantors acknowledges and confirms that the Liens granted pursuant to the Security Documents to which it is a party continue to secure the Obligations.

3.02 Each Guarantor consents in all respects to the execution by the Borrower of this Amendment and acknowledges and confirms that the Guaranty by such Guarantor, as set forth in Article V of the Credit Agreement, guarantees the full payment and performance of all of the Obligations, and remains in full force and effect in accordance with its terms.

Section 4. Representations and Warranties. The Borrower, SB and each Guarantor, as the case may be, each represents and warrants to the Banks and the Agent as follows:

4.01 After giving effect to this Amendment, (i) each of the representations and warranties set forth in Article VII of the Credit Agreement is true and correct in all respects as if made on the date of this Amendment, and (ii) no Default or Event of Default exists under the Credit Agreement.

4.02 Each of the Borrower, SB and Guarantors has the power to execute, deliver and perform, and has taken all necessary action to authorize the execution, delivery and performance of, this Amendment and the other agreements, instruments and documents to be executed by it in connection with this Amendment. No consent or approval of any Person, no waiver of any Lien or right of distraint or other similar right and no consent, license, certificate of need, approval, authorization or declaration of, or filing with, any governmental authority, bureau or agency is or will be required in connection with the execution, delivery or performance by the Borrower, SB or any Guarantor, or the validity, enforcement or priority, of this Amendment and the other agreements, instruments and documents executed in connection with this Amendment.

4.03 The execution, delivery and performance by each of the Borrower, SB and Guarantors of this Amendment will not violate any Law, and will not result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any Law except those in favor of the Agent.

4.04 This Amendment has been duly executed and delivered by the Borrower, SB or such Guarantor, as the case may be, and constitutes the valid and legally binding obligation of the Borrower, SB or such Guarantor, as the case may be, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws, now or hereafter in effect, relating to or affecting the enforcement of creditors’ rights generally and except that the remedy of specific performance and other equitable remedies are subject to judicial discretion.

Section 5. Miscellaneous.

5.01 Except as specifically modified by this Amendment, the Credit Agreement and each of the other Loan Documents shall remain in full force and effect in accordance with their respective terms.

5.02 THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK BY RESIDENTS OF SUCH STATE.

5.03 This Amendment may be signed in any number of counterparts with the same effect as if all parties to this Amendment signed the same counterpart.

5.04 The Borrower agrees to pay the Agent upon demand all reasonable expenses, including reasonable fees of attorneys for the Agent, incurred by the Agent in connection with the preparation, negotiation and execution of this Amendment and any other agreements, instruments and documents executed or furnished in connection with this Amendment.

Section 6. Effectiveness of Amendment. This Amendment shall become effective upon receipt by the Agent of (i) a copy of the fully executed settlement agreement between the Borrower and Kuttner and each material document executed in connection therewith, (ii) original counterparts of this Amendment duly executed by the Borrower, SB, the Guarantors and the Banks party hereto constituting the Required Banks, and (iii) payment of the Agent’s legal fees and expenses.

[signature pages follow]

IN WITNESS WHEREOF, the Borrower, SB, the Guarantors, the Banks party hereto and the Agent have signed and delivered this Amendment as of the date first written above.