<PAGE>   1
                                                                  Exhibit 2.4
                   AGREEMENT AND PLAN OF CORPORATE SEPARATION
                               AND REORGANIZATION

         AGREEMENT AND PLAN OF CORPORATE SEPARATION AND REORGANIZATION dated as
of February 16, 1996 by and among AUSTAD HOLDINGS, INC. ("Holdings"), a Delaware
corporation; THE AUSTAD COMPANY ("TAC"), a South Dakota corporation and wholly
owned subsidiary of Holdings; HANOVER DIRECT, INC. ("Hanover"), a Delaware
corporation and the owner of 67.5% of the outstanding shares of capital stock of
Holdings; DAVID B. AUSTAD, a resident of the State of South Dakota, individually
("David Austad") and as custodian for certain members of his immediate family
under the South Dakota Uniform Transfer to Minors Act ("SDUTMA"); and DENISE
AUSTAD, also a resident of the State of South Dakota (collectively with David
Austad, both individually and as custodian as aforesaid, the "David Austad
Group", the members of such Group being collectively the owners of the remaining
32.5% of the outstanding shares of capital stock of Holdings).

                              W I T N E S S E T H:

         WHEREAS, TAC is, and since 1973 has been, actively engaged in the
business of direct marketing of golf equipment, supplies, apparel and related
goods and services through its Austad's catalog in Sioux Falls, South Dakota;
and

         WHEREAS, TAC is also actively engaged, through its Retail Division (the
"Division"), in the business of the retail sale of golf equipment, supplies,
apparel and related goods and services, such business having been commenced by
TAC in a single retail store in Sioux Falls in 1974 and expanded by two stores
in Minnesota and a fourth store in Illinois during the period 1989 through 1991;
and

         WHEREAS, Hanover and the David Austad Group acquired their respective
interests in Holdings on May 25, 1995, the former in exchange for a cash capital
contribution and certain other consideration, and the latter in exchange for all
the outstanding capital shares of TAC, in a transaction in which no gain or loss
was recognized in whole or in part under the Internal Revenue Code of 1986, as
amended (the "Code"); and

         WHEREAS, in consequence of the foregoing transactions,
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Holdings is the sole shareholder of TAC; and

         WHEREAS, TAC has offered to transfer all assets of the Division,
subject to all liabilities of the Division, such assets and liabilities being
substantially those appearing on the pro forma balance sheet prepared February
13, 1996 and dated February 16, 1996, attached hereto as Exhibit A (the "Balance
Sheet"), as adjusted from such date to the date on which the closing of such
transfer shall take place (the "Closing Date"), to AGS, Inc. ("Newco"), a South
Dakota corporation organized by TAC on January 19, 1996, in exchange for the
original issue of 100,000 shares of common stock, par value $1.00 per share, of
Newco (the "Newco Shares"), which shall constitute all of the outstanding common
stock of Newco, in a transaction qualifying as a tax-free reorganization under
Sections 368(a)(1)(D) and 355 of the Code; and

         WHEREAS, TAC has offered to spin off the Newco Shares acquired by it to
Holdings, in a transaction intended to qualify as a tax-free reorganization
under Section 355 of the Code; and

         WHEREAS, Holdings has offered to transfer the Newco Shares acquired
from TAC to the members of the David Austad Group, in exchange for (1) the
payment of $1,164,445 by the members of the David Austad Group to First National
Bank of Omaha, a national banking association ("FNBO"), as payment of a
liability of the Division, representing a partial paydown of TAC's existing
indebtedness to FNBO (the "FNBO Payment"), and (2) the surrender by the members
of the David Austad Group of all their respective shares of the Common Stock,
$1.00 par value, of Holdings, representing an aggregate of 32,500 such shares,
in a transaction intended to qualify as a tax-free split-off under Section 355
of the Code, and the members of the David Austad Group desire to accept such
offer subject to the terms and conditions set forth herein.

         NOW, THEREFORE, in reliance upon the representations, warranties and
agreements made herein and in consideration of the premises and mutual promises
herein contained, the parties agree as follows:

1.       PLAN OF REORGANIZATION.

         The parties hereby adopt a Plan of Reorganization intended





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         to effect a tax-free reorganization under Section 355 and various other
         Sections of the Code. Pursuant to the terms of this Agreement
         hereinafter set forth, the reorganization will consist of:

         a.      SECTION 351 TRANSFER: The transfer by TAC of the part of its 
                 assets constituting the Division, subject to all liabilities of
                 the Division, to Newco in exchange solely for all of the 
                 outstanding voting stock of Newco; 

         b.      SECTION 355 AND 368(A)(1)(D) TRANSFERS:

                 (1)      The transfer by TAC to Holdings of all the shares of 
                          Newco's voting stock acquired by TAC as aforesaid; and

                 (2)      The distribution by Holdings to the members of the 
                          David Austad Group of an aggregate of 100,000 Newco
                          Shares, constituting all the stock of Newco acquired
                          by Holdings, in exchange for the FNBO Payment and
                          32,500 shares of Holdings' Common Stock, $1.00 par
                          value, constituting all of the voting stock of
                          Holdings owned by such members.

2.       TRANSFER OF THE DIVISION TO NEWCO.

         The parties acknowledge that Newco's articles of incorporation, bylaws,
         and organizational minutes are in a form approved by counsel for TAC
         and the David Austad Group, its corporate name having been agreed upon
         by David Austad and TAC, and that the initial capitalization of Newco
         consists solely of 100,000 shares of Common Stock, par value $1.00 per
         share. The initial officers and the initial director of Newco shall be
         as follows:

                 Wayne Garten              President
                 Edward O'Brien            Vice President and Treasurer
                 Michael P. Sherman        Vice President, Secretary and Sole 
                                           Director

         TAC agrees to take, or cause to be taken, the following action at or
         prior to the Closing Date:



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         a.      TAC shall transfer to Newco, in exchange for the Newco Shares,
                 all of the assets, properties and business of the Division,
                 subject to all of the liabilities, debts, obligations and
                 contracts of the Division (including all assets and the
                 liabilities appearing on the books and records of the Division
                 and included in Exhibit A hereto, but subject to certain
                 adjustments as set forth in Section 4 below). The transfer and
                 assignment of assets shall be by bulk or individual assignments
                 substantially in the form set forth in Exhibits 2.a.1 through
                 2.a.__ attached hereto, in each case with such other
                 appropriate instruments of title as counsel for the David
                 Austad Group may reasonably request.

         b.      TAC shall then transfer the Newco Shares to Holdings pursuant
                 to a unanimous written consent of the Board of Directors and
                 Sole Shareholder of TAC.

3.       PAYMENT ON ACCOUNT OF CERTAIN INDEBTEDNESS; EXCHANGE OF STOCK.

         On the Closing Date, the members of the David Austad Group agree:

         a.      to pay, or cause Newco to pay, to FNBO, as payment of a
                 liability of the Division, by wire transfer to an account
                 designated by FNBO, the sum of $1,164,445, representing a
                 portion of the outstanding obligations of TAC to FNBO under the
                 Loan Agreement dated as of May 31, 1995 between TAC and FNBO,
                 such sum being reflected as the "Revolving Credit Facility"
                 line item in the Retail column of the Liabilities section of
                 the Balance Sheet (sometimes hereinafter referred to as the
                 "Balance Due Amount" as described in Section 4 below).

         b.      to deposit, or cause Newco to deposit, into the Escrow Account
                 (as defined in Section 4 below), the sum of $200,000 (along
                 with any interest or earnings thereafter earned thereon, the
                 "David Austad Escrow Deposit"), to be held as provided in
                 Section 4; and

         c.      to transfer, assign, and surrender to Holdings a total of
                 32,500 shares of the Common Stock, par value $1.00 



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                 per share, of Holdings, which shares shall constitute, in the
                 aggregate, all of the shares of voting stock of Holdings owned
                 by any of such members at the Closing Date;

         and in exchange solely for such payment and such transfer of shares,
         Holdings agrees:

         d.      to transfer to the respective members of the David Austad
                 Group, on the Closing Date, the number of Newco Shares set
                 forth opposite the name of each in Exhibit 3.d attached hereto,
                 representing a total of 100,000 Newco Shares, which shares
                 shall constitute all of the outstanding capital stock of Newco
                 at the Closing Date, and

         e.      to deposit, or cause TAC to deposit, into the Escrow Account
                 the sum of $200,000 (along with any interest or earnings
                 thereafter earned thereon, the "TAC Escrow Deposit"), to be
                 held as provided in Section 4 below.

4.       ESCROW ACCOUNT; POST-CLOSING ADJUSTMENTS.

         a.      CERTAIN DEFINITIONS. The parties agree that the following
                 capitalized terms shall have the meanings indicated:

                 (1)      Agreed Company Value--At February 16, 1996, 2,733,992,
                          representing $2,666,667(1) plus net income of Holdings
                          and subsidiary for the period May 26, 1995 through the
                          date of the Balance Sheet, the Balance Sheet having
                          been prepared in accordance with the methodology set
                          forth in Exhibit B attached hereto.

                 (2)      Balance Due Amount--The "Revolving Credit Facility"
                          line item in the Balance Sheet, representing the
                          amount by which Retail Net Asset 


----------------
    (1) In accordance with the parties' agreement, this calculation is based on
Hanover's May 1995 purchase price of $1,800,000 for 67.5% of Holdings'
outstanding shares.


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                          Value (ignoring the Revolving Credit Facility line
                          item) exceeds 32.5% of the Agreed Company Value at the
                          date of the Balance Sheet, for a calculation at
                          February 16, 1996 as follows:

<TABLE>
<S>                                                    <C>       
Total Retail Assets:                                   $2,836,072
less Total Retail Liabilities:                         -1,947,524
                                                       ----------
Retail Net Asset Value                                    888,548

plus Retail Revolving Credit
Facility line item:                                     1,164,445
                                                       ----------
                                                        2,052,993

less 32.5% of $2,733,992:                                 888,548
                                                       ----------
                                                       $1,164,445
</TABLE>

                 (3)      Retail Net Asset Value--Total Assets less Total
                          Liabilities as set forth in the Retail column in the
                          Balance Sheet.

         b.      FINAL BALANCE SHEET. As soon as reasonably practicable after
                 the Closing Date but in no event later than the thirtieth
                 (30th) day following the Closing Date, Holdings shall prepare,
                 in consultation with Newco, a pro forma balance sheet of
                 Holdings and subsidiary on a combined basis as at the Closing
                 Date (the "Final Balance Sheet"), which shall contain all
                 categories of assets and liabilities reflected in the Balance
                 Sheet, and shall separately identify Retail and Catalog line
                 items in the manner set forth in the Balance Sheet. The Escrow
                 Agent (as defined below in Section 4.c) shall make a cash
                 payment (the "Adjustment Payment") in accordance with the
                 Escrow Agreement referred to in Section 4.c, as follows: if the
                 Balance Due Amount set forth in the Final Balance Sheet exceeds
                 that set forth in the Balance Sheet, the Adjustment Payment
                 shall be made to TAC in an amount equal to such excess; if the
                 Balance Due Amount set forth in the Final Balance Sheet is less
                 than that set forth in the Balance Sheet, however, the
                 Adjustment Payment shall be made to Newco in an amount equal to
                 such deficit. In the event of a dispute between David Austad
                 and Holdings as to the Balance Due Amount in the Final Balance
                 Sheet, the 


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                 parties shall promptly negotiate in good faith to resolve the
                 issue or issues which form the basis for such dispute. If the
                 parties are unable to agree on the resolution of the dispute
                 within ten (10) days after delivery of the Final Balance Sheet
                 to David Austad and Holdings, the parties will refer such
                 dispute to Arthur Andersen LLP for determination of an
                 appropriate adjustment to the Final Balance Sheet to resolve
                 the disputed issues. The parties agree that such determination
                 shall be binding on all parties. David Austad and Holdings each
                 shall pay one-half of the fees, expenses and costs of such firm
                 for the services described herein.

         c.      ESCROW AGENT; ESCROW AGREEMENT. At the Closing, David Austad
                 shall deliver the David Austad Escrow Deposit, and TAC shall
                 deliver the TAC Escrow Deposit, in each case to The First
                 National Bank in Sioux Falls (the "Escrow Agent"), for deposit
                 into escrow in accordance with this Section 4 and the escrow
                 agreement among the Escrow Agent, David Austad, acting for
                 himself and the other members of the David Austad Group, TAC
                 and the Escrow Agent, such agreement to be in the form attached
                 as Exhibit 4.c (the "Escrow Agreement"). The Adjustment Payment
                 shall be made by the Escrow Agent in accordance with the Escrow
                 Agreement within ten (10) days following the delivery of the
                 Final Balance Sheet; provided, that in the event of a dispute
                 between David Austad and TAC regarding the Adjustment Payment,
                 the Escrow Agent shall retain an amount equal to the disputed
                 amount, and shall continue to hold such retained amount
                 pursuant to the Escrow Agreement pending resolution of such
                 dispute.

         d.      SALE OF FACILITY; SALE OF COMPUTER EQUIPMENT.

                 (1)      Sale or other disposition to a third party of TAC's
                          office and distribution facility commonly known as
                          4500 East 10th Street, Sioux Falls, South Dakota (the
                          "Facility"), and of the computer hardware and software
                          leased by TAC from Lease Finance Group, Inc. or its
                          assignees (the "Computer Equipment"), shall require
                          the written 





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                          consent of Newco, which consent shall not be
                          unreasonably withheld. Should Newco not respond to a
                          written request for consent within five business days
                          following delivery thereof, its consent shall be
                          presumed.

                 (2)      Within twenty (20) days following the sale or other
                          disposition of the Facility or the Computer Equipment
                          to a third party, (A) TAC shall pay to Newco a sum in
                          cash, notes or other consideration (in the same types
                          and the same proportion as received by TAC from the
                          third party) equal to 32.5% of any Gain (as defined
                          below) on such sale, or, as the case may be, (B) Newco
                          shall pay TAC an amount in cash equal to 32.5% of any
                          Loss (as defined below) on such sale. The parties
                          acknowledge that any sale of Computer Equipment to
                          Newco shall be treated as a sale to a third party for
                          purposes of this Section 4.d.

                 (3)      For purposes of this Section 4.d, "Gain" shall refer
                          to the excess of net proceeds of sale or other
                          disposition over the aggregate indebtedness secured by
                          the asset in question and remaining unpaid at the date
                          of sale, and "Loss" shall refer to the excess of such
                          indebtedness over the net proceeds of sale or
                          disposition, all determined net of any applicable
                          income or other taxes. "Net proceeds of sale or other
                          disposition" shall mean, in the event of a sale, the
                          selling price less any reasonable brokerage fee, the
                          South Dakota transfer fee(if any), attorneys fees, and
                          improvements required by the purchaser (if any), but
                          not including any reduction for fees or expenses
                          associated with the shutdown of the Facility or the
                          Computer Equipment; and to the extent shutdown fees
                          and expenses have previously been included in the
                          Balance Sheet, such fees and expenses will not be
                          deducted in the calculation of Gain or Loss. Federal
                          and state taxes shall be determined for such purposes
                          as if Holdings and TAC were filing applicable tax
                          returns on their own and not with Hanover on a
                          consolidated basis, 




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                          and payments shall be subject to adjustment following
                          any tax or other audits. The amount of income taxes
                          allocable to the computation of Gain or Loss shall be
                          the incremental income tax computed based on the
                          inclusion of the tax gain or loss on sale of the asset
                          in question in all applicable returns. In calculating
                          the applicable income tax, TAC shall maximize the use
                          of any available AMT and regulat net operating loss to
                          reduce the applicable tax, if any. In calculating Gain
                          or Loss, TAC shall ignore payments on the indebtedness
                          other than the regularly scheduled installments on the
                          indebtedness secured by the property in question, and
                          likewise shall ignore any increase in any such
                          indebtedness after the date hereof.

                 (3)      Payment in the case of any adjustment under this
                          Section 4.d will be made by check or wire transfer as
                          designated by the party to receive such payment.

5.       REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND TAC.

         Holdings and TAC, jointly and severally, represent and warrant to the
         members of the David Austad Group as follows:

         a.      On the Closing Date, Newco will be a corporation duly organized
                 and existing and in good standing under the laws of the State
                 of South Dakota, and will have all necessary corporate power
                 and authority to own and conduct the business now being
                 conducted by the Division.

         b.      On the Closing Date, the authorized capital of Newco shall
                 consist of 500,000 shares of Common Stock, par value $1.00 per
                 share, of which 100,000 shares shall be issued and outstanding.
                 All of the issued and outstanding shares shall have been duly
                 authorized, validly issued, fully paid, and nonassessable and
                 shall be owned beneficially and of record by Holdings, free and
                 clear of any liens, claims, charges, options or encumbrances.



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<PAGE>   10

         c.      On the Closing Date, all of the assets, properties and business
                 of every kind, character and description, whether tangible or
                 intangible, whether real, personal or mixed, and wherever
                 located, of the Division, subject to the debts, liabilities,
                 contracts and obligations of the Division, shall have been
                 transferred, assigned, conveyed and delivered to Newco, free
                 and clear of any liens or encumbrances, including, without
                 limitation, any liens in favor of FNBO (assuming payment in
                 full of outstanding obligations due to FNBO from TAC, release
                 by FNBO of its Form UCC- 3 termination statements and any other
                 applicable agreements or instruments terminating any security
                 interests of FNBO ("FNBO Termination Instruments"), and filing
                 of the FNBO Termination Instruments with governmental
                 authorities as applicable) or in favor of Congress Financial
                 Corporation ("Congress"), but subject however to the
                 adjustments provided for in Section 4 above.

         d.      At any time and from time to time after the Closing Date, upon
                 request of Newco or David Austad and without the payment of any
                 further consideration, Holdings or TAC or both of them shall
                 duly execute, acknowledge and deliver all such assignments,
                 conveyances and other instruments of transfer and other
                 assurances and documents, and will take such other action,
                 consistent with the terms of this Agreement, as reasonably may
                 be requested for the purpose of better assigning, transferring
                 and conveying to Newco or reducing to its possession any and
                 all of the assets, properties and business of the Division.

         e.      At the request of Newco or David Austad, and at Newco's
                 expense, TAC will prosecute or otherwise enforce in its own
                 name for the benefit of Newco, any and all claims or rights in
                 the name of TAC which, or the benefits of which, are
                 transferred to Newco pursuant to this Agreement and which are
                 required to be prosecuted or otherwise enforced in TAC's name.

         f.      On the Closing Date, Holdings and TAC will deliver or cause to
                 be delivered to David Austad the stock record 



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                 book, minute book, financial records and all other corporate
                 documents of Newco. Holdings and TAC shall thereafter be
                 entitled to reasonable access to such records and documents as
                 are applicable to periods prior to the Closing Date.

         g.      To the best of the knowledge of Patrick D. Penney and Chuck
                 Kurth, the Chief Financial Officers, respectively, of TAC and
                 of Brawn of California, Inc., an affiliate of Holdings, there
                 are no material assets of TAC or Holdings, and no material
                 agreements, commitments, liens, encumbrances, obligations or
                 liabilities (absolute, accrued, contingent or otherwise) of or
                 affecting TAC or Holdings or any of the property of either,
                 except as shown or reflected in the Balance Sheet or otherwise
                 disclosed in writing to David Austad. For purposes hereof, an
                 asset or liability is material if it involves an amount in
                 excess of $20,000.

         h.      The shares of Holdings' Common Stock to be acquired by Holdings
                 hereunder will be acquired for its own account for investment
                 only and not with a present view to, or for sale in connection
                 with, any distribution of such shares.

         i.      To the best of the knowledge of Chuck Kurth and of Wayne
                 Garten, Executive Vice President and Chief Financial Officer of
                 Hanover, in each case without specific inquiry, David Austad
                 has not breached any representation or warranty made by him and
                 set forth in the Stock Purchase Agreement referred to in
                 Section 18 below or in any related agreement of the parties
                 executed and delivered on or about May 19, 1995 or May 25,
                 1995; it being understood and agreed by the parties that the
                 representation and warranty set forth in this Section 5.i is
                 based in part on, and made in partial reliance on, a
                 certificate of David Austad dated on or about this date, a copy
                 of which is attached hereto as Exhibit 5.i.

6.       REPRESENTATIONS AND WARRANTIES OF THE DAVID AUSTAD GROUP MEMBERS.



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         The members of the David Austad Group, jointly and severally, represent
         and warrant to Holdings and TAC as follows:

         a.      The respective members of the David Austad Group own
                 beneficially and of record that number of shares of Holdings
                 Common Stock set forth opposite the name of each in Exhibit 6.a
                 attached hereto, and each member has full power and authority
                 to sell and transfer such shares to Holdings in the manner
                 provided herein, free and clear of any liens, claims, charges,
                 options and encumbrances.

         b.      At any time and from time to time after the Closing Date, upon
                 request of Holdings or TAC and without the payment of any
                 further consideration, the members of the David Austad Group or
                 Newco or any of them shall duly execute, acknowledge and
                 deliver all such assumption agreements, assignments,
                 conveyances and other instruments of transfer and other
                 assurances and documents, and will take such other action,
                 consistent with the terms of this Agreement, as reasonably may
                 be requested for the purpose of better assuming the liabilities
                 of the Division being assumed by Newco, or transferring and
                 conveying to Newco or reducing to its possession any and all of
                 the assets, properties and business of the Division.

         c.      The Newco Shares to be acquired by the members of the David
                 Austad Group hereunder will be acquired for their own account
                 for investment only and not with a present view to, or for sale
                 in connection with, any distribution of such shares.

         d.      To the best of David Austad's knowledge, there are no material
                 assets of TAC or Holdings, and no material agreements,
                 commitments, liens, encumbrances, obligations or liabilities
                 (absolute, accrued, contingent or otherwise) of or affecting
                 TAC or Holdings or any of the property of either, except as
                 shown or reflected in the Balance Sheet or otherwise disclosed
                 in writing to Hanover's Chief Financial Officer.



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7.       OTHER COVENANTS OF THE PARTIES.

         a.      Each of David Austad, Newco and Holdings agrees to use his or
                 its best efforts to obtain, prior to the Closing Date, all
                 third-party and other consents required by Congress in
                 connection with its contemplated provision of loans and/or
                 other financial accommodations to Holdings and TAC, including,
                 without limitation, the consent of Valley Bank, provider of
                 mortgage financing respecting the Facility, substantially in
                 the form set forth in the attached Exhibit 7.a.

         b.      As promptly as possible and in any event prior to the Closing
                 Date, TAC and Newco shall arrange for the transfer of
                 sponsorship of TAC's Go for the Green Plan (the "TAC Plan")
                 from TAC to Newco. The parties acknowledge that TAC Plan
                 participants who become eligible and choose to participate in
                 the Hanover 401(k) Plan following the Closing Date shall
                 continue to retain all appropriate rights in their
                 undistributed account balances in accordance with the TAC Plan.
                 TAC agrees to pay Newco a one-time fee of $2,000 in respect of
                 administration of the TAC Plan, payable on the Closing Date.

         c.      On the Closing Date, the appropriate parties shall execute and
                 deliver:

                 (1)      the Escrow Agreement, executed by the parties and the
                          Escrow Agent;

                 (2)      an Amended License Agreement among Holdings, TAC,
                          Hanover (as to Article IX only) and David Austad,
                          substantially in the form attached as Exhibit 7.c.2,
                          providing for an exclusive license for retail use in a
                          37-state territory and Canada of certain Holdings
                          trademarks and other intellectual property rights of
                          Holdings and TAC;

                 (3)      a Joint Buying and Mutual Cooperation Agreement among
                          TAC, Newco and DBA, Inc. ("DBA"), a South Dakota
                          corporation (DBA being wholly owned by David Austad
                          and having been formed by him to open 


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                          and operate a fifth Austad's retail store in Omaha,
                          Nebraska, pursuant to the foregoing Amended License
                          Agreement), substantially in the form attached as
                          Exhibit 7.c.3, providing for coordinated purchasing
                          and other activities; and

                 (4)      a Consulting Agreement between TAC and David Austad,
                          substantially in the form attached as Exhibit 7.c.4,
                          respecting consulting services to be provided by David
                          Austad to TAC and/or Holdings;

                 (5)      bulk or individual assignments substantially in the
                          form set forth in Exhibits 2.a.1 through 2.a.__
                          attached hereto, in each case with such other
                          appropriate instruments of title as counsel for the
                          David Austad Group may reasonably request.

         The foregoing agreements may be referred to collectively hereinafter as
         the "Other Agreements."

8.       CONDITIONS TO CLOSING--HOLDINGS AND TAC.

         The obligation of Holdings to exchange the Holdings shares owned by the
         members of the David Austad Group for the Newco Shares, and the
         obligations of Holdings and TAC to make the TAC Escrow Deposit and to
         execute and deliver the Other Agreements pursuant to this Agreement,
         shall be subject to the satisfaction, at or before the Closing Date, of
         the following conditions (any of which may be waived, in whole or in
         part, by Holdings):

         a.      The representations and warranties of the members of the David
                 Austad Group contained in this Agreement, or in any certificate
                 or document delivered to Holdings in connection herewith, shall
                 be true in all material respects at the Closing Date as if made
                 again on and as of the Closing Date, and such members and Newco
                 shall have duly performed and complied with all agreements and
                 conditions required by this Agreement to be performed or
                 complied with by them at or before the Closing Date. Holdings
                 shall have been furnished with certificates of such members and
                 of appropriate 


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<PAGE>   15
                 officers of Newco certifying in such detail as Holdings may
                 reasonably request to the fulfillment of the foregoing
                 conditions.

         b.      David Austad or Newco shall have paid to FNBO the FNBO Payment
                 and shall have deposited the David Austad Escrow Deposit with
                 the Escrow Agent.

         c.      David Austad shall have furnished Holdings with the following
                 documents:

                 (1)      Resignations of the following from all positions with
                          Holdings and TAC, effective on the Closing Date:

                          David Austad             Director, President and
                                                   Chief Executive Officer--
                                                   Holdings, TAC
                          Randall Stewart          Director--Holdings
                          Patrick Penney           Treasurer--Holdings, TAC

                 (2)      Evidence of the payment by TAC to the respective
                          Warrant Holders of the sums required by Exhibit 8.c.3,
                          it being agreed by the parties that 32.5% of each such
                          sum, or $8,125 in the aggregate, is being paid by TAC
                          on behalf of the members of the David Austad Group and
                          shall be reflected in the Final Balance Sheet as an
                          adjustment thereto.

                 (3)      The executed Warrant Holder Releases, together with
                          warrants submitted in proper form for cancellation.

         d.      The members of the David Austad Group and Newco shall have
                 executed and delivered the Other Agreements to which they are
                 parties.

         e.      All necessary authorizations and approvals required for the
                 execution, delivery and consummation of the transactions
                 provided for in this Agreement shall have been obtained,
                 including, without limitation, the consents of Congress and
                 Valley Bank.



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<PAGE>   16
         f.      Holdings shall have received either (1) executed agreements
                 from landlords for TAC's retail stores approving the assignment
                 to Newco of each of TAC's lease agreements respecting such
                 stores, as identified in Exhibit 8.e hereto (collectively, the
                 "Lease Agreements"), and releasing TAC from all obligations
                 under the Lease Agreements, or, at Holdings' election exercised
                 in its sole discretion, (2) agreements approving and effecting
                 the assignment of each of the Lease Agreements to Newco or
                 subleases executed by Newco in respect of each Lease Agreement,
                 in each case satisfactory in form and substance to Holdings and
                 its counsel.

         g.      Holdings and TAC shall have received a Certificate of the
                 Secretary of Newco certifying as to the incumbency and
                 authority of the officers of Newco executing all documents to
                 be executed and delivered by Newco in connection herewith.

9.       CONDITIONS TO CLOSING--DAVID AUSTAD GROUP AND NEWCO.

         The obligation of the members of the David Austad Group to exchange the
         Holdings shares owned by them for the Newco Shares, the obligation of
         David Austad to deposit funds with the Escrow Agent pursuant to the
         Escrow Agreement, and the respective obligations of David Austad and
         Newco to enter into the Other Agreements pursuant to this Agreement,
         shall be subject to the satisfaction, at or before the Closing Date, of
         the following conditions (any of which may be waived, in whole or in
         part, by David Austad):

         a.      The representations and warranties of Holdings and TAC
                 contained in this Agreement, or in any certificate or document
                 delivered to the members of the David Austad Group or Newco in
                 connection herewith, shall be true in all material respects at
                 the Closing Date as if made again on and as of the Closing
                 Date.

         b.      TAC shall have deposited the TAC Escrow Deposit with the Escrow
                 Agent.

         c.      Holdings shall have furnished David Austad with the 



                                       16
<PAGE>   17
                 following documents:

                 (1)      The Certificate or Articles of Incorporation of Newco
                          and all amendments thereto, duly certified by the
                          proper officials of the jurisdiction of Newco's
                          organization.

                 (2)      A certificate as to the good standing of Newco and
                          payment of all applicable state taxes thereby,
                          executed by the appropriate officials of the States of
                          South Dakota.

                 (3)      The by-laws of Newco, duly certified by the Secretary
                          of Newco and the Secretary or an Assistant Secretary
                          of Newco as being in full force and effect.

                 (4)      A certificate of the Secretary or an Assistant
                          Secretary of Newco, certifying (a) that attached
                          thereto is a true and complete copy of all instruments
                          reflecting actions of the incorporator of Newco, and
                          of all resolutions of the board of directors of Newco
                          pertaining to the transactions contemplated by this
                          Agreement, the latter being duly adopted at meetings
                          of such board at which a quorum of directors was
                          present and acting throughout, and certifying (b) as
                          to the incumbency and authority of the incorporator
                          and officers of Newco.

                 (5)      A favorable opinion of May, Johnson, Doyle and Becker,
                          P.C., dated the Closing Date, substantially in the
                          form of Exhibit 9.c.5, relating to the formation of
                          Newco, the issuance of its shares of Common Stock and
                          the transfer of such shares by TAC to Holdings.

                 (6)      Evidence of the payment by TAC to the respective
                          Warrant Holders of the sums required by Exhibit 8.c.3,
                          it being agreed by the parties that 67.5% of each such
                          sum, or $16,875 in the aggregate, is being paid by TAC
                          for its own account and the balance on behalf of the
                          members of the David 



                                       17
<PAGE>   18
                          Austad Group as provided in Section 8.c(3) above, such
                          balance to be reflected in the Final Balance Sheet as
                          an adjustment thereto.

         d.      TAC and Holdings shall have executed and delivered the Other
                 Documents to which they are parties.

         e.      All necessary authorizations and approvals required for the
                 execution, delivery and consummation of the transactions
                 provided for in this Agreement shall have been obtained,
                 including, without limitation, the consents of Valley Bank,
                 Congress and First National Bank in Sioux Falls.

10.      THE CLOSING.

         The closing of the transactions contemplated hereby (the "Closing")
         shall be held at the offices of Lynn, Jackson, Shultz & Lebrun, P.C.,
         141 North Main Avenue, Sioux Falls, South Dakota or at such other place
         or places as the parties may agree upon, at 10:00 A.M., local time, on
         February 16, 1996, or such other time and date as may be mutually
         approved by the parties in writing, but not later than February 28,
         1996.

11.      CERTAIN EXPENSES.

         Except as otherwise set forth below, neither Hanover, Holdings nor TAC
         shall pay or be liable for or be required to pay any of the following
         liabilities, fees or expenses related to the transactions contemplated
         hereby, all of which shall be borne and paid for by David Austad:

         a.      professional fees of counsel and any accountant or auditor for
                 any member of the David Austad Group, or for Newco in respect
                 of activities conducted following the Closing, or for a Warrant
                 Holder or other former stockholder of TAC; provided, that at
                 the Closing TAC shall reimburse David Austad for professional
                 fees of counsel respecting the obtaining of landlord consents
                 to assignment and releases of TAC's obligations thereunder,
                 upon receipt of itemized documentation 



                                       18
<PAGE>   19
                 thereof;

         b.      fees and expenses, if any, of Mesirow Financial, Inc. or any
                 other investment banking company or any person or entity
                 retained for financial services or services as a finder
                 rendered to a member of the David Austad Group or a Former
                 Stockholder or a Warrant Holder in connection with the
                 transactions contemplated hereby; and

         c.      any income, capital gains or other taxes incurred by one or
                 more members of the David Austad Group or Newco in connection
                 with the transactions contemplated hereby; provided, that in
                 the event the transactions contemplated in this Agreement fail
                 to qualify for treatment as a tax-free reorganization under the
                 Code as aforesaid, TAC shall pay to the members of the David
                 Austad Group an amount equal to 67.5% of any federal income tax
                 liability incurred by such members as a result of such failure,
                 it being understood that such members will be responsible for
                 the balance of such liability.

12.      CERTAIN OPERATIONAL AND TAX MATTERS; MAINTENANCE OF RECORDS

         a.      The parties acknowledge that they have been advised that the
                 written consent of United Properties Investment Company
                 ("Landlord") to the assignment to Newco of TAC's interest as
                 tenant under its undated lease for a 10-year lease term
                 expiring July 31, 1999 with The Northtown Triangle Limited
                 Partnership, Landlord's predecessor in interest, respecting
                 TAC's retail store premises at the Northcourt Commons Shopping
                 Center, Blaine, Minnesota (the "Northcourt Lease"), such
                 consent to include a release of TAC (such consent and release,
                 the "Northcourt Consent"), may not be received prior to the
                 Closing. In view of this possible delay, and in view of Newco's
                 expectation that such Consent will be received no more than
                 twenty (20) days following the Closing Date, Newco has
                 requested that TAC waive the condition to closing set forth in
                 Section 8.f above to the extent required to permit 


                                       19
<PAGE>   20
                 Newco to operate the retail store business in such premises, as
                 a Licensee's Store pursuant to the Amended License Agreement,
                 pending receipt of the expected consent. TAC agrees to permit
                 such operation, pending receipt of the Northcourt Consent,
                 under the terms and conditions set forth below:

                 (1)      Newco shall perform all obligations of TAC under the
                          Northcourt Lease, except that TAC shall continue to
                          pay rent and other sums due to the landlord from time
                          to time under the Northcourt Lease, and Newco shall
                          pay TAC, at the Closing, an amount equal to ten (10)
                          days' rent to cover the anticipated rent expenses;

                 (2)      Newco and David Austad shall use their best efforts to
                          obtain the Northcourt Consent as promptly as possible
                          and in any event not later than the twentieth (20th)
                          day following the Closing Date;

                 (3)      Should the Northcourt Consent not be received by the
                          close of business on the tenth (10th) day following
                          the Closing Date, Newco shall immediately commence to
                          perform all obligations under the Northcourt Lease,
                          including, without limitation, the direct payment to
                          the Landlord of rent and other sums due to the
                          Landlord from time to time under the Northcourt Lease.
                          The parties shall then use their best efforts to
                          obtain the Northcourt Consent, or if the parties are
                          unsuccessful in obtaining such Consent, some agreement
                          satisfactory to Landlord whereby Newco is assigned the
                          Northcourt Lease or Newco shall become a subtenant,
                          TAC being the Sublandlord, and in any such event Newco
                          and David Austad, jointly and severally, shall
                          indemnify and hold harmless TAC, its officers,
                          directors, shareholders, subsidiaries, affiliates,
                          agents and representatives as more fully set forth in
                          the Indemnification Agreement. In the event that no
                          mutually satisfactory agreement can be negotiated with
                          Landlord, the parties hereto shall negotiate 




                                       20
<PAGE>   21
                          in good faith to arrange for the transfer to TAC of
                          the Northcourt retail business assets and liabilities
                          and to agree upon a settlement among the parties
                          whereby TAC remains as tenant of the Northcourt Lease
                          and resumes operation of the Austad's retail store in
                          such premises.

         b.      From and after the Closing Date, Newco shall endorse its
                 insurance policies to be primary to any other policies in
                 effect, and shall provide TAC with satisfactory evidence of
                 such endorsement. Notwithstanding the assumption of the
                 Division's liabilities by Newco pursuant to this Agreement and
                 the Assignment and Assumption Agreement between TAC and Newco
                 being delivered at the Closing (the form of such agreement
                 being included as Exhibit 2.a.1 hereto), TAC agrees to be
                 responsible for any claim respecting the Division's assets and
                 business that arises prior to the Closing Date, provided TAC
                 receives notice of such claim, and provided such claim is
                 covered by TAC's liability policies under the applicable terms
                 and conditions of such policies in effect prior to the Closing
                 Date; and provided further, that TAC's responsibility hereunder
                 shall be only to the extent of such coverage.

         c.      From and after the Closing Date, each of the parties shall
                 cooperate with the other parties in connection with any audits
                 or other examinations by federal, state, local or other taxing
                 authorities, shall make reasonably available to the other
                 parties their respective books, records and other data relating
                 to the transactions contemplated by this Agreement and the
                 business and affairs of Holdings, TAC and Newco (which books,
                 records and other data such parties shall maintain until the
                 later of (i) six years after the Closing Date (and permanently
                 for personnel- related records) or (ii) the completion of any
                 Internal Revenue Service or state tax audits of Holdings and/or
                 TAC), and shall provide assistance to the other parties and
                 their counsel and accountants, all as reasonably requested and
                 during normal business hours. In addition to the foregoing,
                 each of Holdings and TAC, 



                                       21
<PAGE>   22
                 its counsel and accountants shall have the right to remove and
                 take possession of any of Holdings' or TAC's books, records and
                 other data that are transferred to Newco on the Closing Date,
                 as reasonably may be requested, provided that (i) Newco shall
                 have the right to make copies thereof at TAC's expense before
                 such removal and (ii) Holdings or TAC, as the case may be,
                 promptly will return such books, records and other data upon
                 the request of Newco. Except as otherwise provided in the
                 foregoing sentence, each party shall bear its own costs
                 incurred in connection with the cooperation and maintenance of
                 records provided for herein.

13.      SURVIVAL.

         The representations and warranties made in this Agreement and in any
         certificate, Schedule, Exhibit, release or other instrument or document
         delivered in connection therewith shall survive the Closing Date. The
         covenants of the parties hereto shall continue in full force and effect
         in accordance with their terms.

14.      NO BROKERS.

         Each party hereto represents and warrants that there are no claims for
         brokerage commissions or finder's fees in connection with the
         transactions contemplated hereby resulting from any action taken by any
         party, any Warrant Holder, or the officers or directors of any
         corporate party.

15.      GOVERNING LAW.

         This Agreement shall be construed and enforced in accordance with the
         internal, substantive laws of the State of New Jersey, without giving
         effect to the conflict of law rules thereof.

16.  NOTICES.

         All notices, consents, requests, instructions, approvals and other
         communications provided for herein shall be deemed validly given, made
         or served if in writing and delivered 



                                       22
<PAGE>   23
         personally (as of such delivery) or sent by certified mail, return
         receipt requested (as of two days after deposit in a United States post
         office), postage prepaid, or by facsimile transmission (as of such
         transmission provided it is subsequently confirmed in writing) or by
         prepaid overnight courier (as of the time of delivery):

                 (a)      if to Holdings, TAC or Hanover, addressed to:
                                  Hanover Direct, Inc.
                                  1500 Harbor Boulevard
                                  Weehawken, New Jersey 07087
                                  Attention: Michael P. Sherman, Esq.
                                  Fax No.: 201-392-5005

                 (b)      if to a member of the David Austad Group, addressed to
such member c/o David Austad as follows:
                                  c/o David Austad
                                  812 Bayberry Circle
                                  Sioux Falls, South Dakota 57106

or such other address as shall be furnished in writing by a party to the others.

17.      JURISDICTION; AGENT FOR SERVICE.

         Legal proceedings commenced by any party hereto arising out of any of
         the transactions or obligations contemplated by this Agreement shall be
         brought exclusively in the Federal courts or, in the absence of Federal
         jurisdiction, state courts, in either case in the State of New Jersey.
         The parties hereto irrevocably and unconditionally submit to the
         jurisdiction of such courts and agree to take any and all future action
         necessary to submit to the jurisdiction of such courts. Each of the
         parties hereto irrevocably waives any objection which it may now or
         hereafter have to the laying of venue of any suit, action or proceeding
         brought in any Federal or state court in the State of New Jersey and
         further irrevocably waives any claims that any such suit, action or
         proceeding brought in any such court has been brought in an
         inconvenient forum. Each of TAC and Newco hereby irrevocably
         designates, appoints and empowers Corporation Trust Company, whose
         present address is 820 Bear Tavern Road, West Trenton, New Jersey
         08628, as its 


                                       23
<PAGE>   24
         authorized agent to receive, for and on behalf of TAC and Newco,
         respectively, service of process in the State of New Jersey as and when
         such actions and proceedings may be brought, and such service of
         process shall be deemed completed upon the date of delivery thereof to
         such agent, whether or not such agent gives notice thereof to TAC or
         Newco, as the case may be, or upon the earliest of any other date
         permitted by applicable law. Final judgment against TAC or Newco in any
         such suit shall be conclusive and may be enforced in other
         jurisdictions by suit on the judgment, a certified or true copy of
         which shall be conclusive evidence of the fact and the amount of any
         indebtedness or liability of TAC or Newco therein described, or by
         appropriate proceedings under any applicable treaty or otherwise.

18.      ENTIRE AGREEMENT; ETC.

         This Agreement represents the entire agreement between the parties and
         supersedes and cancels any prior oral or written agreement, letter of
         intent or understanding related to the subject matter hereof, including
         (a) the Stockholders' Agreement dated as of May 25, 1995 to which the
         members of the David Austad Group and Hanover are parties, and the
         Reimbursement Agreement dated the same date between TAC and Hanover,
         but not including (b) the Stock Purchase Agreement dated as of May 19,
         1995 (the "Stock Purchase Agreement") to which TAC, Hanover, the
         members of the David Austad Group and Holdings are parties, which
         latter agreement shall continue in full force and effect.
         Notwithstanding the generality of the foregoing, the parties agree in
         respect of the Stock Purchase Agreement that the provisions of Sections
         1.04 (relating to an Additional Capital Contribution), 10.02(b)
         (relating to the expenditure of minimum amounts on two new Austad's
         stores by David Austad) and 10.03(a) through (c) (relating to
         relocation of certain TAC operations, MIS linkups and proposed new TAC
         stores) shall be superseded and of no further force or effect. Also
         notwithstanding the generality of the foregoing, the parties
         specifically agree that those certain Indemnification Agreements dated
         May 25, 1995 between Hanover and each of David Austad and Randall
         Austad shall remain in full force and effect. This Agreement shall be
         binding upon and shall inure to the benefit of the parties hereto and
         their respec-



                                       24
<PAGE>   25
         tive successors and permitted assigns, and no other person shall
         acquire or have any right under or by virtue of this Agreement. This
         Agreement may be executed in one or more



                 [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]



                                       25
<PAGE>   26
         counterparts, and shall become effective when one or more counterparts
         have been signed by each of the parties.

                 IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto on the day and year first above written.

                                          AUSTAD HOLDINGS, INC.


                                          By: /s/ Michael Sherman
                                              -------------------------------
                                          Name: Michael Sherman
                                          Title: Vice President

                                          THE AUSTAD COMPANY

                                          By: /s/ Michael P. Sherman
                                              -------------------------------
                                          Name: Michael P. Sherman
                                          Title: Vice President

                                          HANOVER DIRECT,  INC.

                                          By: /s/ Wayne Garten
                                              -------------------------------
                                          Name: Wayne Garten
                                          Title: Executive VP

                                          THE DAVID AUSTAD GROUP:

                                          /s/ David Austad
                                          -----------------------------------
                                          David Austad, individually

                                          /s/ David Austad
                                          -----------------------------------
                                          David Austad, as custodian under
                                          the SDUTMA for each of Ryan, Sara
                                          and Melissa Austad

                                          /s/ Denise Austad
                                          -----------------------------------
                                          Denise Austad



                                       26