<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A1
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000

                         COMMISSION FILE NUMBER 1-12082

                              HANOVER DIRECT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              DELAWARE                                    13-0853260
   (STATE OR OTHER JURISDICTION OF            (IRS Employer Identification No.)
   INCORPORATION OR ORGANIZATION)

1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY                  07087
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                  (ZIP CODE)

                                 (201) 863-7300
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                     NAME OF EACH EXCHANGE
          TITLE OF EACH CLASS                         ON WHICH REGISTERED
          -------------------                        ---------------------

   COMMON STOCK, $.66 2/3 PAR VALUE                AMERICAN STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:   None

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

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

        As of March 16, 2001, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
$12,309,576 (based on the closing price of the Common Stock on the American
Stock Exchange on March 16, 2001 of $0.29 per share; shares of Common Stock
owned by directors and officers of the Company are excluded from this
calculation; such exclusion does not represent a conclusion by the Company that
all of such directors and officers are affiliates of the Company).

        As of March 16, 2001, the registrant had 212,186,331 shares of Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE


        None.

<PAGE>   2



                                EXPLANATORY NOTE

        This Amendment No. 1 to Annual Report on Form 10-K for the fiscal year
ended December 30, 2000 is being filed by Hanover Direct, Inc., a Delaware
corporation (the "Company"), in order to provide the information required by
Items 11, 12 and 13 of Part III of Form 10-K which the Company had intended to
incorporate by reference to its definitive proxy statement. Such definitive
proxy statement will not be ready for filing by the Company with the Securities
and Exchange Commission within the time period required by the securities laws
for incorporation by reference herein.

























                                       2




<PAGE>   3


                                    PART III

ITEM 11.  EXECUTIVE COMPENSATION


EXECUTIVE COMPENSATION AND OTHER INFORMATION:

        The following table shows salaries, bonuses, and long-term compensation
paid during the last three years for the Chief Executive Officer and our four
next highly compensated executive officers whose total annual salary and bonus
exceeded $100,000.
<TABLE>
<CAPTION>


                                                                                  LONG-TERM
                                        ANNUAL COMPENSATION                     COMPENSATION
                                      ----------------------                    -------------

       NAME AND                FISCAL                           OTHER ANNUAL       OPTIONS         ALL OTHER
  PRINCIPAL POSITION           YEAR   SALARY($)    BONUS($)    COMPENSATION($)    AWARDED(#)    COMPENSATION($)
--------------------           -----  ----------  -----------  ---------------  --------------  ---------------
<S>                            <C>    <C>         <C>          <C>              <C>             <C>
Thomas C. Shull (1)            2000   $ 75,000(2)      -           $ 15,000(8)  2,700,000(14)            -
President and Chief            1999       -            -                  -           -                  -
Executive Officer              1998       -            -                  -           -                  -

Rakesh K. Kaul (1)             2000   $562,840    $744,599(3)      $ 63,493(9)        -             $ 3,000(17)
President and Chief            1999   $595,679    $887,577(3)      $ 57,749(9)        -             $11,365(18)
Executive Officer              1998   $547,382    $174,541(3)      $ 57,749(9)        -             $11,446(19)

Richard B. Hoffmann (1)        2000   $296,154    $297,093(4)      $ 19,965(10)   250,000(15)       $ 3,159(20)
Senior Vice President and      1999   $315,385    $316,731(4)      $ 12,000(10)   300,000(16)       $ 3,386(21)
Chief Marketing Officer        1998   $226,437    $ 25,000(4)      $ 10,000(10)   250,000(16)       $   590(22)

Michael G. Lutz (1)            2000   $321,634    $224,489(5)      $ 62,444(11)   202,000 (15)      $ 3,379(23)
Executive Vice President       1999   $304,904    $224,489(5)      $ 12,000(11)       -             $ 7,280(24)
and Chief Operating            1998   $293,014    $ 31,849(5)      $ 16,555(11)   100,000(16)       $ 4,823(25)
Officer

Brian C. Harriss (1)           2000   $296,154    $129,500(6)      $ 12,000(12)   100,000(15)       $ 3,159(26)
Senior Vice President          1999   $140,000         -           $  6,000(12)       -             $   138(27)
and Chief Financial            1998       -            -                  -           -                  -
Officer

Michael D. Contino (1)         2000   $243,269    $182,718(7)      $ 12,000(13)   150,000(15)       $ 2,887(28)
Senior Vice President          1999   $197,533    $182,718(7)      $ 12,000(13)       -             $ 3,080(29)
and Chief Information          1998   $177,152         -           $ 48,864(13)       -             $ 3,093(30)
Officer
</TABLE>

--------------------------
(1)  Thomas C. Shull was named President and Chief Executive Officer and was
     elected to the Company's Board of Directors on December 5, 2000. Rakesh K.
     Kaul resigned as President and Chief Executive Officer and from the
     Company's Board of Directors as of December 5, 2000. Richard B. Hoffmann
     resigned from the Company on January 5, 2001 and Michael G. Lutz resigned
     on April 6, 2001. On April 25, 2001, Mr. Harriss became Executive Vice
     President and Chief Financial Officer of the Company and Mr. Contino
     became Executive Vice President and Chief Operating Officer of the
     Company.

(2)  Paid to Meridian Ventures, LLC, a limited liability company controlled by
     Mr. Shull, ("Meridian") in consideration for providing the services of
     Mr. Shull, pursuant to the provisions of a Services Agreement dated as
     of December 5, 2000 (the "Services Agreement") among Meridian, the
     Company and Mr. Shull. See "Employment Contracts, Termination of
     Employment and Change-in-Control Arrangements."

(3)  Includes the following payments made by the Company on behalf of Mr. Kaul:
     for fiscal 2000, a $744,599 2000 performance bonus paid in 2001; for fiscal
     1999, a $887,577 1999 performance bonus paid in 2000 and a $142,978 bonus
     representing the excess of the lesser of the option price of certain vested
     options over $1.03;




                                       3
<PAGE>   4
     and for fiscal 1998, a $174,541 bonus representing the excess of the lesser
     of the option price of certain vested options over $1.03.

(4)  Includes the following payments made by the Company on behalf of Mr.
     Hoffmann: for fiscal 2000, a $297,093 2000 performance bonus paid in 2001;
     for fiscal 1999, a $291,731 1999 performance bonus paid in 2000 and $25,000
     representing the second installment of a $50,000 sign-on bonus from 1998;
     and for fiscal 1998, $25,000 representing the first installment of a
     $50,000 sign-on bonus.

(5)  Includes the following payments made by the Company on behalf of Mr. Lutz:
     for fiscal 2000, a $224,489 2000 performance bonus paid in 2001; for fiscal
     1999, a $224,489 1999 performance bonus paid in 2000; and for fiscal 1998,
     a $31,849 1998 performance bonus paid in 1999.

(6)  Includes the following payments made by the Company on behalf of Mr.
     Harriss: for fiscal 2000, a $129,500 2000 performance bonus paid in 2001.

(7)  Includes the following payments made by the Company on behalf of Mr.
     Contino: for fiscal 2000, a $182,718 2000 performance bonus paid in 2001;
     and for fiscal 1999, a $182,718 1999 performance bonus paid in 2000.

(8)  Paid to Meridian pursuant to the Services Agreement, and is deemed to cover
     Meridian's over-head (including legal and accounting), health care costs,
     payroll costs, and other expenses relating to Mr. Shull. See "Employment
     Contracts, Termination of Employment and Change-In-Control Arrangements."

(9)  Includes the following payments made by the Company on behalf of Mr. Kaul:
     $63,493 in car allowance and related benefits in 2000; $57,749 in car
     allowance and related benefits in 1999; and $57,749 in car allowance and
     related benefits in 1998.

(10) Includes the following payments made by the Company of behalf of Mr.
     Hoffmann: $19,965 in car allowance and related benefits in 2000; $12,000 in
     car allowance and related benefits in 1999; and $10,000 in car allowance
     and related benefits in 1998.

(11) Includes the following payments made by the Company on behalf of Mr. Lutz:
     $ 50,444 in relocation expenses and $12,000 in car allowance and related
     benefits in 2000; $12,000 in car allowance and related benefits in 1999;
     and $4,555 in relocation expenses and $12,000 in car allowance and related
     benefits in 1998.

(12) Includes the following payments made by the Company on behalf of Mr.
     Harriss: $12,000 in car allowance and related benefits in 2000; and $6,000
     in car allowance and related benefits in 1999.

(13) Includes the following payments made by the Company on behalf of Mr.
     Contino: $12,000 in car allowance and related benefits in 2000; $12,000 in
     car allowance and related benefits in 1999; and $36,864 in relocation
     expenses and $12,000 in car allowance and related benefits in 1998.

(14) Granted pursuant to the Services Agreement and allocated to Mr. Shull. See
     "Employment Contracts, Termination of Employment and Change-in-Control
     Arrangements."

(15) Issued by the Company pursuant to the Company's 2000 Management Stock
     Option Plan. See "Report of the Compensation Committee on Executive
     Compensation - 2000 Management Stock Option Plan."

(16) Issued by the Company pursuant to the Company's 1996 Stock Option Plan.
     See "Report of the Compensation Committee on Executive Compensation - 1996
     Stock Option Plan."


(17) Includes the following payments made by the Company on behalf of Mr. Kaul
     in 2000: $2,833 in matching contributions under the Company's 401(k)
     Savings Plan; $8,132 in long-term disability premiums; $328 in term life
     insurance premiums and $40 of accidental death insurance premiums.

(18) Includes the following payments made by the Company on behalf of Mr. Kaul
     in 1999: $2,666 in matching contributions under the Company's 401(k)
     Savings Plan; $8,241 in long-term disability premiums; $418 in term life
     insurance premiums and $40 of accidental death insurance premiums.



                                       4
<PAGE>   5


(19) Includes the following payments made by the Company on behalf of Mr. Kaul
     in 1998: $2,666 in matching contributions under the Company's 401(k)
     Savings Plan; $8,241 in long-term disability premiums; $499 in term life
     insurance premiums and $40 of accidental death insurance premiums.

(20) Includes the following payments made by the Company on behalf of Mr.
     Hoffmann in 2000: $2,833 in matching contributions under the Company's
     401(k) Savings Plan; $110 in long-term disability premiums; $438 in term
     life insurance premiums and $40 of accidental death insurance premiums.

(21) Includes the following payments made by the Company on behalf of Mr.
     Hoffmann in 1999: $2,666 in matching contributions under the Company's
     401(k) Savings Plan; $110 in long-term disability premiums; $570 in term
     life insurance premiums and $40 of accidental death insurance premiums.

(22) Includes the following payments made by the Company on behalf of Mr.
     Hoffmann in 1998: $55 in long-term disability premiums; $515 in term life
     insurance premiums and $20 of accidental death insurance premiums.

(23) Includes the following payments made by the Company on behalf of Mr. Lutz
     in 2000: $2,833 in matching contributions under the Company's 401(k)
     Savings Plan; $3,722 in long-term disability premiums; $658 in term life
     insurance premiums and $40 of accidental death insurance premiums.

(24) Includes the following payments made by the Company on behalf of Mr. Lutz
     in 1999: $2,666 in matching contributions under the Company's 401(k)
     Savings Plan; $3,722 in long-term disability premiums; $852 in term life
     insurance premiums and $40 of accidental death insurance premiums.

(25) Includes the following payments made by the Company on behalf of Mr. Lutz
     in 1998: $3,722 in long-term disability premiums; $1,061 in term life
     insurance premiums and $40 of accidental death insurance premiums.

(26) Includes the following payments made by the Company on behalf of Mr.
     Harriss in 2000: $2,833 in matching contributions under the Company's
     401(k) Savings Plan; $110 in long-term disability premiums; $438 in term
     life insurance premiums and $40 of accidental death insurance premiums.

(27) Includes the following payments made by the Company on behalf of Mr.
     Harriss in 1999: $37 in long-term disability premiums; $41 in term life
     insurance premiums and $10 of accidental death insurance premiums.

(28) Includes the following payments made by the Company on behalf of Mr.
     Contino in 2000: $2,833 in matching contributions under the Company's
     401(k) Savings Plan; $110 in long-term disability premiums; $270 in term
     life insurance premiums and $40 of accidental death insurance premiums.

(29) Includes the following payments made by the Company on behalf of Mr.
     Contino in 1999: $2,666 in matching contributions under the Company's
     401(k) Savings Plan; $110 in long-term disability premiums; $264 in term
     life insurance premiums and $40 of accidental death insurance premiums.

(30) Includes the following payments made by the Company on behalf of Mr.
     Contino in 1998: $2,666 in matching contributions under the Company's
     401(k) Savings Plan; $110 in long-term disability premiums; $277 in term
     life insurance premiums and $40 of accidental death insurance premiums.



                                       5
<PAGE>   6


STOCK OPTIONS:

        The following table contains information concerning options granted to
the Chief Executive Officer and our four next highly compensated executive
officers whose total annual salary and bonus exceeded $100,000 during fiscal
2000.


                          OPTION GRANTS IN FISCAL 2000

<TABLE>
<CAPTION>
                          NUMBER OF
                            SHARES
                          UNDERLYING   PERCENT OF TOTAL
                           OPTIONS      OPTIONS GRANTED
                          GRANTED IN    TO EMPLOYEES IN     EXERCISE      EXPIRATION     GRANT DATE
         NAME            FISCAL YEAR    FISCAL YEAR (%)     PRICE ($)         DATE         VALUE ($)
--------------------   --------------  -----------------   -----------    -----------    -------------
<S>                    <C>             <C>                 <C>            <C>            <C>
Thomas C. Shull               -               -                 -              -              -
Rakesh K. Kaul                -               -                 -              -              -
Richard B. Hoffmann        250,000            5%              $3.18          1/3/10        $469,750
Michael G. Lutz            202,000            4%              $3.18          1/3/10        $379,558
Brian C. Harriss           100,000            2%              $3.18          1/3/10        $187,900
Michael D. Contino         150,000            3%              $3.18          1/3/10        $281,850

</TABLE>
     (a)  Stock Options granted to Thomas C. Shull are subject to the terms and
conditions of the Services Agreement. See "Employment Contracts, Termination of
Employment and Change-in-Control Arrangements."


     (b)  The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for grants in January 2000: risk free interest rate of 5.59%,
expected lives of 6 years, expected volatility of 56.59%, and no expected
dividends.

     The following table contains information concerning the fiscal 2000
year-end values of all options granted to the Chief Executive Officer and our
four next highly compensated executive officers whose total annual salary and
bonus exceeded $100,000.

                        FISCAL YEAR-END OPTION VALUES(1)

<TABLE>
<CAPTION>
                                    NUMBER OF SECURITIES                  VALUE OF UNEXERCISED
                                   UNDERLYING UNEXERCISED                 IN-THE-MONEY OPTIONS
                               OPTIONS AT FISCAL YEAR-END (#)            AT FISCAL YEAR-END (#)
                               ------------------------------            ----------------------
           NAME               EXERCISABLE       UNEXERCISABLE       EXERCISABLE       UNEXERCISABLE
----------------------    ----------------     ---------------    --------------  ------------------
<S>                       <C>                  <C>                <C>             <C>
Thomas C. Shull                  -                -                  -                -
Rakesh K. Kaul              7,530,000             -            ($5,911,050)           -
Richard B. Hoffmann           260,834          539,166           ($673,492)       ($1,393,133)
Michael G. Lutz               297,083          244,917           ($402,446)       ($687,112)
Brian C. Harriss              133,334          366,666           ($266,668)       ($813,732)
Michael D. Contino            225,000          225,000           ($228,175)       ($598,725)
</TABLE>

----------------------
(1)  Options for Mr. Kaul represent options granted in 1996 by the Company under
     the Tandem Option, the Closing Price Option and the Performance Year Option
     Plans, and by NAR under the Six, Seven, Eight and Nine Year Stock Option
     Plans. 40,000 options for Mr. Lutz represent tandem options granted
     pursuant to the 1993 Executive Equity Incentive Plan. Under this plan,
     options generally become exercisable after three years and expire after six
     years from the date grant. 300,000 options for Mr. Lutz, 550,000 options
     for Mr. Hoffmann, 200,000 options for Mr. Contino and 400,000 options for
     Mr. Harriss represent options granted pursuant to the 1996 Stock Option
     Plan. Under this plan, these options become exercisable after three years
     and expire after six years from the date of the grant. 250,000 options for
     Mr. Hoffmann, 202,000 options for Mr. Lutz, 150,000 options for Mr. Contino
     and 100,000 options for Mr. Harriss represent options granted pursuant to
     the 2000

                                       6
<PAGE>   7

     Management Stock Option Plan. Under this plan, these options become
     exercisable after four years and expire after ten years from the date of
     grant. 100,000 options for Mr. Contino represents options granted effective
     November 3, 1999. These options become exercisable after four years.


EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS:

        The Company entered into a new Executive Employment Agreement, dated as
of March 6, 2000, with Rakesh K. Kaul, the President and Chief Executive Officer
of the Company (the "Employment Agreement"). The Employment Agreement provides
for a three-year evergreen term commencing on March 6, 2000, at a base salary of
$597,300 per year. The base salary is subject to review on an annual basis. On
each anniversary, the Employment Agreement will automatically be extended for an
additional year unless either party has given at least 90 days prior notice of
nonrenewal. The Employment Agreement also provides that the Company, in its
discretion, may assign Mr. Kaul to be Chief Executive Officer of erizon, Inc.
under certain circumstances. The Employment Agreement provides for Mr. Kaul's
participation in the 2000 Short-Term Incentive Plan for Rakesh K. Kaul. That
plan, provides for an annual bonus of between 0% and 150% of Mr. Kaul's base
salary, depending on the attainment of various performance objectives as
determined in accordance with the objective formula or standards adopted by the
Compensation Committee as part of the performance goals for each such year. The
Employment Agreement also provides for Mr. Kaul's participation in the 2000
Long-Term Incentive Plan for Rakesh K. Kaul. That plan, provides Mr. Kaul with
an option to purchase 6% of the Common Stock of erizon, Inc. (with protection
against dilution through erizon, Inc.'s next round of financing) at the fair
market value on the date of grant, which option vests in equal parts over four
years and expires ten years following the date of grant (the "erizon Option").
The plan also provides for the modification to an option granted to Mr. Kaul on
March 7, 1996 and expiring on March 7, 2006, to purchase 2,000,000 shares of
Common Stock of the Company (the "Closing Price Option"). The option is now
subject to a three-year vesting schedule, provided that it shall vest and become
immediately exercisable upon satisfaction of the condition that the closing
price of the Common Stock of the Company has attained an average of $4.50 per
share during any period of 91 consecutive calendar days commencing after August
23, 1996 and ending on or before March 7, 2002. The Closing Price Option also
provides that within thirty days after the Closing Price Option vests with
respect to all or a portion of the shares of Common Stock underlying such
option, the Company shall pay Mr. Kaul an additional cash amount equal to the
number of shares of Common Stock with respect to which such option has vested on
such vesting date, multiplied by the excess of (i) the lesser of the per share
option price of such shares or the fair market value on such vesting date of a
share of Common Stock, over (ii) $1.03. The Employment Agreement also provides
for the grant of registration rights under the Securities Act of 1933, as
amended (the "Securities Act"), for shares of Common Stock owned by Mr. Kaul and
for (i) the registration of shares underlying the erizon Option within 90 days
of erizon, Inc. becoming eligible to use an S-8 or other similar form, and (ii)
the registration of shares underlying the Closing Price Option and of shares
underlying options previously granted to Mr. Kaul by the Company, within 90 days
of the execution of the Employment Agreement. In the event Mr. Kaul's employment
is terminated by the Company other than for cause (as defined in the Employment
Agreement) or he resigns without good reason (as defined in the Employment
Agreement), he will be entitled to (i) continuation of his base salary for a
period of 24-months; (ii) continued participation in the benefit plans of the
Company for a period of 24-months; (iii) a bonus payable over 24 months equal to
two times the greater of (x) his base salary or (y) the average of the
short-term bonus amounts paid or payable to Executive (as defined in the
Employment Agreement) for the two years preceding the year of termination; (iv)
to the extent not previously paid, any short-term bonus for the year preceding
the year of termination; and (v) for the year of termination, an additional
bonus equal to his base salary, pro-rated to reflect the portion of such year
during which Mr. Kaul is employed. In the event Mr. Kaul's employment terminates
as a result of death or disability (as defined in the Employment Agreement), he
will be eligible to receive (i) to the extent not previously paid, the
short-term bonus for the year preceding the year of termination; and (ii) for
the year of termination an additional bonus equal to his base salary, pro-rated
to reflect the portion of such year during which Mr. Kaul is employed. The
Employment Agreement and attachments thereto also provide that in the event Mr.
Kaul's employment is terminated by Company without cause, by Mr. Kaul with good
reason or due to death or disability, the erizon Option and the Closing Price
Option shall vest and become exercisable in full. In the event that Mr. Kaul's
employment terminates other than as a result of termination by the Company
without cause, by Mr. Kaul with good reason or due to death or disability, he
will not be entitled to any payment or bonus, other than, to the extent not
previously paid, short-term bonus for the year preceding the year of
termination. Mr. Kaul is also a participant in a change of control plan that is
substantially similar to the change of control plan described below for other
executives of the Company (the "Thirty-Six Month Compensation Continuation
Plan"), provided that in the event of his termination without cause (as such
term is


                                       7
<PAGE>   8

defined in the plan) or his resignation with good reason (as such term is
defined in the plan) within 24-months of a change of control (as such term is
defined in the plan) he shall be entitled to receive, in a lump sum payment, an
amount equal to: (i) three times his base salary; (ii) three times the greater
of (x) his base salary or (y) the average of the short-term bonus amounts paid
or payable to Executive for the two years preceding the year of termination;
(iii) to the extent not previously paid, any short-term bonus for the year
preceding the year of termination; and (iv) for the year of termination, an
additional bonus equal to his base salary, pro-rated to reflect the portion of
such year during which Mr. Kaul is employed. In addition, in the event of a
termination following a change of control, Mr. Kaul will continue to participate
in the Company's benefit plans for a period of 36-months and unvested options
shall vest and become exercisable immediately. In the event Mr. Kaul's payments
pursuant to the change of control plan exceed 110% of his "safe harbor," as
provided for in Internal Revenue Code Section 280(G), Mr. Kaul's payments will
be grossed-up for any excise taxes resulting therefrom. If the payments do not
exceed 110% of his safe harbor, his payments will be reduced to the safe harbor
limits of Internal Revenue Code Section 280(G). The Employment Agreement also
provides that Mr. Kaul is subject to confidentiality and non-competition
obligations set forth in an agreement annexed to the Employment Agreement (the
"Non-Competition Agreement"). The Non-Competition Agreement provides in
pertinent part that, for a period of 24-months following the termination of his
employment for any reason, Mr. Kaul may not (i) be employed by or otherwise
provide services to a person, business, enterprise or legal entity that is
engaged in the same Business (as defined in the Employment Agreement) as the
Company, including its subsidiaries, affiliates and successors; (ii) solicit the
customers of the Company, including its subsidiaries, affiliates and successors;
or (iii) solicit employees of the Company, including its subsidiaries,
affiliates and successors.

        On December 5, 2000, Rakesh K. Kaul resigned as President and Chief
Executive Officer, and resigned from the Board of Directors of the Company. The
Company is involved in negotiations with Rakesh K. Kaul, regarding the amount of
cash and benefits to which Mr. Kaul is entitled as a result of his resignation
on December 5, 2000. The Company agrees with certain claims made on behalf of
Mr. Kaul, including Mr. Kaul's entitlement to receive in excess of $3,000,000 as
payment of short-term bonus, severance payable to Mr. Kaul under his Employment
Agreement, and benefits continuation. The Company disagrees with other claims
made on behalf of Mr. Kaul, including that Mr. Kaul is entitled to benefits
under the Key Executive Thirty-Six Month Salary Continuation Plan, the valuation
of Mr. Kaul's options in erizon, Inc. and whether Mr. Kaul is entitled to a
bonus in connection with the Tandem Plan. The Company does not intend to make
any payments to Mr. Kaul, other than salary and benefits continuation, until all
outstanding issues are resolved and Mr. Kaul executes a general release in favor
of the Company. No legal proceedings have been commenced to date with respect to
this matter.

        On December 5, 2000, Thomas C. Shull was named President and Chief
Executive Officer and was elected to the Board of Directors of the Company.
Effective on that date, Mr. Shull, Meridian and the Company entered into the
Services Agreement. Under the Services Agreement, Meridian will provide for the
benefit of the Company the services of Mr. Shull and the services of two (or
more, at Meridian's discretion) additional consultants (the "Consultants"). The
term of the Services Agreement, and the term for the services of Mr. Shull,
began on December 5, 2000 and terminate on December 4, 2001 (the "Agreement
Term"), while the term for the services of the Consultants terminates on June 4,
2001.

        Under the Services Agreement, Meridian is to receive from the Company
$75,000 per month for the services of Mr. Shull and, during the first six months
of the Agreement Term, an additional $75,000 per month for the services of the
Consultants (collectively, the "Base Fees"). The Company also is required to pay
Meridian $30,000 per month during the first six months of services and $15,000
per month during the remaining six months of services (collectively, the "Flat
Fees"). The Company also reimburses Mr. Shull and the Consultants for reasonable
out-of-pocket expenses incurred on behalf of the Company.

        Pursuant to the Services Agreement, the Company has granted Mr. Shull
and the Consultants stock options (the "Meridian Options") for an aggregate of
four million (4,000,000) shares of the Company's Common Stock. Each option has
an exercise price of $0.25 per share.

        Under the Services Agreement, additional amounts are payable to Meridian
under certain circumstances upon the termination of the Services Agreement. If
the termination is pursuant to a Company Breach or a Company Termination (as
defined in the Services Agreement), Meridian shall be entitled to receive a lump
sum payment equal to the greater of (i) $540,000 or (ii) the aggregate amount of
Base Fees and Flat Fees to which it would have


                                       8
<PAGE>   9

otherwise been entitled through the end of the Agreement Term. If the
termination is a Liquidation Termination (as defined in the Services Agreement)
and the amount realized in the related transaction equals or exceeds $0.50 per
common share (or the equivalent of $0.50 per common share), Meridian shall be
entitled to receive a lump sum payment equal to the aggregate amount of Base
Fees and Flat Fees to which it would have otherwise been entitled through the
end of the Agreement Term. If the termination is a Liquidation Termination and
the amount realized in the related transaction is less than $0.50 per common
share (or the equivalent of $0.50 per common share), Meridian shall be entitled
to receive a lump sum payment equal to the greater of the aggregate amount of
Base Fees and Flat Fees to which it would have otherwise been entitled through
the end of the Agreement Term, or $1,000,000.

        The Company is required, under the Services Agreement, to maintain
directors' and officer's liability insurance during the term of the Services
Agreement. The Company is also required to indemnify Meridian, Mr. Shull and any
member, officer or employee of, or consultant, contractor or subcontractor to,
Meridian who serves as a Consultant to the Company.

        Effective December 26, 1999, the Company established the Hanover Direct,
Inc. Key Executive Twenty-Four Month Compensation Continuation Plan for
corporate executive vice presidents, corporate senior vice presidents, strategic
unit presidents, or other employees selected by the Chief Executive Officer of
the Company, all of whom are approved by the Plan Administrator (except Mr.
Kaul, who has a separate agreement which is discussed above, including the named
executives). The purpose of this plan is to attract and retain key management
personnel by reducing uncertainty and providing greater personal security in the
event of a Change of Control. For purposes of the plan, a "Change in Control"
will occur: (i) when any person becomes, through an acquisition, the beneficial
owner of shares of the Company having at least fifty percent (50%) of the total
number of votes that may be cast for the election of directors of the Company
(the "Voting Shares"); provided, however, that the following acquisitions shall
not constitute a Change of a Control: (a) if a person owns less than fifty
percent (50%) of the voting power of the Company and that person's ownership
increases above fifty percent (50%) solely by virtue of an acquisition of stock
by the Company, then no Change of Control has occurred unless and until that
person subsequently acquires one or more additional shares representing voting
power of the Company; or (b) any acquisition by a person who as of the date of
the establishment of the plan owned at least thirty-three percent (33%) of the
Voting Shares; (ii) (a) notwithstanding the foregoing when the shareholders of
the Company approve any of the following (each, a "Transaction"): (I) any
reorganization, merger, consolidation or other business combination of the
Company; (II) any sale of fifty percent (50%) or more of the Company's assets;
or (III) a complete liquidation or dissolution of the Company; (b)
notwithstanding (ii) (a) above, shareholder approval of either of the following
types of Transactions will not give rise to a Change of Control: (I) a
Transaction involving only the Company and one or more of its subsidiaries; or
(II) a Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity; (iii) when, within any twenty-four (24) month
period, persons who were directors of the Company immediately before the
beginning of such period (the "Incumbent Directors") shall cease (for any reason
other than death) to constitute at least a majority of the Board of Directors or
the board of directors of any successor to the Company; or (iv) when the Company
sells, assigns or transfers more than fifty percent (50%) of its interests in,
or the assets of, one or more subsidiaries (each, a "Sold Subsidiary" and,
collectively, "Sold Subsidiaries"); provided, however, that such a sale,
assignment or transfer will constitute a Change of Control only for: (a) the
participants who are employees of that Sold Subsidiary; and (b) the participants
who are employees of a direct or indirect parent company of one or more Sold
Subsidiaries of the Company, and then only if: (I) the gross assets of its Sold
Subsidiaries constitute more than fifty percent (50%) of the gross assets of
such parent company (calculated on a consolidated basis with the direct and
indirect subsidiaries of such parent company with reference to the most recent
balance sheets of the Sold Subsidiaries and the parent company); (II) the
property, plant and equipment of its Sold Subsidiaries constitute more than
fifty percent (50%) of the property, plant and equipment of such parent company
(calculated on a consolidated basis with the direct and indirect subsidiaries of
such parent company with reference to the most recent balance sheets of the Sold
Subsidiaries and the parent company); or (III) in the case of a publicly-traded
parent company, the ratio (as of the date a binding agreement for the sale is
entered) of (x) the capitalization (based on the sale price) of its Sold
Subsidiaries to (y) the market capitalization of the parent company, is greater
than 0.50. For purposes of this subsection (iii), any director who was not a
director as of the effective date of this plan shall be deemed to be an
Incumbent Director if such director was elected to the Board of Directors by, or
on the recommendation of, or with the approval of, at least a majority of the
members of the Board of Directors or the nominating committee who, at the time
of the vote, qualified as Incumbent Directors either actually or by prior
operation of this clause. In addition, persons (and their successors from time
to time) who are designated by a holder of thirty-three percent (33%) or

                                       9
<PAGE>   10

more of the Voting Shares to stand for election and serve as a director in lieu
of other such designees serving as directors, shall be deemed to be Incumbent
Directors for the purposes of this subsection (iii). Notwithstanding the
foregoing, any director elected to the Board of Directors to avoid or settle a
threatened or actual proxy contest shall not, under any circumstances, be deemed
to be an Incumbent Director. For purposes of subsection (iv), a Transaction
shall be deemed to involve the sale of more than fifty percent (50%) of a
company's assets if: (a) the gross assets being sold constitute more than fifty
percent (50%) of the gross assets of the company as stated on the most recent
balance sheet of the company; (b) the property, plant and equipment being sold
constitute more than fifty percent (50%) of the property, plant and equipment of
the company as stated on the most recent balance sheet of the company; or (c) in
the case of a publicly-traded company, the ratio (as of the date a binding
agreement for the sale is entered) of (x) the capitalization (based on the sale
price) of the division, subsidiary or business unit being sold to (y) the market
capitalization of the company, is greater than 0.50. For purposes of subsection
(iv), no Change of Control shall be deemed to have occurred if, immediately
following a sale, assignment or transfer by the Company of more than fifty
percent (50%) of its interest in, or the assets of, a Sold Subsidiary, any
shareholder of the Company owning thirty-three percent (33%) or more of the
voting power of the Company immediately prior to such transactions owns no less
than the equivalent percentage of the voting power of the Sold Subsidiary.

        A participant in this plan shall be entitled to severance pay and
benefits under the plan only if there occurs a Change of Control and thereafter
the Company terminates the participant's employment without cause or the
participant terminates his/her employment for good reason during the two (2)
year period following the Change of Control. A participant shall not be entitled
to severance pay and benefits under the plan if he/she (i) resigns other than
for good reason, (ii) is terminated for cause, (iii) dies prior to a Change of
Control or prior to a termination qualifying for severance pay and benefits
under the plan, or (iv) voluntarily or involuntarily terminates employment as a
result of a disability.

        The amount of severance pay and benefits to which a participant will be
entitled shall include (i) an amount equal to twenty-four (24) months of the
participant's base annualized salary; (ii) an amount equal to the lesser of (a)
two (2) times the target bonus for the participant as defined in the Company's
Management Incentive Plan, or (b) two (2) times the largest bonus calculated as
a percentage of base salary earned by the participant during any of the three
(3) years prior to the Change of Control, except that those participants with
less than one (1) full year of service as of the date of the Change of Control
will be paid at two (2) times their target bonus amount as defined in the
Company's Management Incentive Plan; (iii) an amount equal to the premiums
needed to procure twenty-four (24) months of health insurance for the
participant, the participant's spouse and the dependents of the participant at
the COBRA rate then existing as of the date of the termination of the
participant; (iv) an amount equal to twenty-four (24) months of the
participant's car allowance then in effect as of the date of the termination of
the participant; and (v) an amount equal to the cost of twelve (12) months of
executive-level outplacement services at a major outplacement services firm.




                                       10
<PAGE>   11

STOCK OPTION AND EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION:

        At various times, during the fiscal year ended December 30, 2000, the
Stock Option and Executive Compensation Committee of the Board of Directors of
the Company consisted of Shailesh J. Mehta (Chairman), Ralph Destino, Jan P. du
Plessis, Alan G. Quasha, Howard M.S. Tanner, Eloy Michotte (Chairman) and Alan
Grieve. None of such persons was, during such fiscal year or formerly, an
officer or employee of the Company or any of its subsidiaries or had any
relationship with the Company other than serving as a Director of the Company.
During the 2000 fiscal year, no member of the Stock Option and Executive
Compensation Committee served as an executive of another entity where any of the
Company's executives served on that entity's compensation committee.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION:

        The Stock Option and Executive Compensation Committee (the "Compensation
Committee"), currently consisting of four (4) outside directors, has the
responsibility, under delegated authority from the Company's Board of Directors,
for developing, administering and monitoring the executive compensation policies
of the Company and making recommendations to the Company's Board of Directors
with respect to these policies. The Board of Directors has accepted the
Compensation Committee's recommendations for 2000 compensation.



                                      12
<PAGE>   12


Executive Compensation Philosophy

        The Compensation Committee's executive compensation philosophy supports
the Company's overall business strategy and has at its core a strong link
between pay, performance and retention. The philosophy emphasizes recognition of
achievement at both the Company and individual level. A significant portion of
compensation delivered to executives to reflect such achievement is intended to
be in the form of long-term incentives. This long-term focus emphasizes
sustained performance and encourages retention of executive talent. In addition,
executives are encouraged to hold a significant ownership stake in the Company
so that their interests are closely aligned with those of the shareholders in
terms of both risk and reward.

        The specific executive compensation plans are designed to support the
executive compensation philosophy. Compensation of the Company's executives
consists of three components, which are discussed below: salary, annual
incentive awards and long-term incentive awards. Base salary levels have been
established in order to attract and retain key executives, commensurate with
their level of responsibility within the organization. Annual incentives closely
link executive pay with performance in areas that are critical to the Company's
short-term operating success. Long-term incentives motivate executives to make
decisions that are in the best interests of the Company's owners and reward them
for the creation of shareholder value. It is the intent of both the Company and
the Compensation Committee that the components of the executive compensation
program will support the Company's compensation philosophy, reinforce the
Company's overall business strategy, and ultimately drive shareholder value
creation.

  Base Salaries

        Individual salaries for executives of the Company, other than Mr. Shull,
are generally influenced by several equally weighted factors: the qualifications
and experience of the executive, the executive's level of responsibility within
the organization, pay levels at firms which compete with the Company for
executive talent, individual performance, and performance-related factors used
by the Company to determine annual incentive awards. Mr. Shull joined the
Company effective December 5, 2000. Mr. Shull's compensation and other benefits
are specified in the Services Agreement. See "Employment Contracts, Termination
of Employment and Change-in-Control Arrangements."

        The base salaries of the Company's executives are subject to periodic
review and adjustment. Annual salary adjustments are made based on the factors
described above.

  Annual Incentive Awards

        In addition to base salaries, each of the Company's executives and
selected key managers participate in the Company's Incentive Compensation Plan.
Currently, approximately 240 executives and key managers are eligible to
participate in the annual incentive plan. Under this plan, each participant is
assigned a target bonus, expressed as a percentage of his/her base salary, which
is paid if all performance targets are fully met. It is the policy of the
Compensation Committee to position target bonuses at competitive levels.
Individual target bonuses are based on the person's responsibility level in the
organization and the bonus award opportunity at the other organizations included
in the performance chart. Target bonus levels range from 5% to 100% of salary.
Target bonus opportunities for Messrs. Hoffmann and Lutz are 50% of salary while
maximum bonuses are 100% of salary.

        Participants are eligible to receive an annual bonus depending upon the
extent to which certain goals are achieved. As in past years, performance goals
for 2000 were based on Earnings Before Interest and Taxes (EBIT), cash flow and
other customer satisfaction and performance-related goals including Inventory
Fill, Inventory Turns, Returns and Order Cancellations. Goals are set at both
the corporate and business unit levels, depending on the participant's scope of
responsibility thus encouraging teamwork amongst the Company's employees. The
importance of each goal in determining a participant's bonus award also depends
on his/her scope of responsibility. Actual bonus levels vary depending upon the
degree of achievement in relationship to the performance goals.

        Payouts of awards have been determined based on the Company's
performance during fiscal 2000. 100% of awards made under the bonus plan are
currently paid in cash.


                                       13
<PAGE>   13


  Long-Term Incentive Awards

  1993 Executive Equity Plan

        The 1993 Executive Equity Incentive Plan terminated in accordance with
its terms on December 31, 1996. Such plan provided executives and other key
employees with incentives to maximize the long-term creation of shareholder
value. The long-term incentive plan encouraged executives to acquire and retain
a significant ownership stake in the Company. Under the plan, executives were
given an opportunity to purchase shares of Common Stock with up to 80% of the
purchase price financed with a full recourse Company loan. For each share of
stock an employee purchased, he/she received an option to acquire two additional
shares of Common Stock, to a maximum of 250,000 shares in the aggregate, which
vest after three years and expire after six years. By creating this opportunity,
the Company encouraged executives to own Common Stock thereby aligning
executives' interests with those of the shareholders. The number of shares
offered for purchase to each executive and the corresponding number of tandem
options increased with the executive's level of responsibility within the
organization.

        In December 2000, the rights of certain participants in this plan
expired. These participants had cumulative promissory notes of approximately
$0.4 million payable to the Company, comprised of $0.3 million of principal and
$0.1 million of interest, on the expiration date. Accordingly, collateral
encompassing 80,000 shares of Common Stock, held in escrow on behalf of each
participant, was transferred to and retained by the Company in satisfaction of
the aforementioned promissory notes, which were no longer required to be
settled.

  1996 Stock Option Plan

        The purpose of the 1996 Stock Option Plan is to provide employees of the
Company and its subsidiaries with a larger personal and financial interest in
the success of the Company through the grant of stock-based incentive
compensation. Under the plan, employees may be granted options to purchase
shares of Common Stock at the fair market value on the date of grant. The total
options granted to an employee is one-half performance-based. The 1996 Stock
Option Plan provides that options may be granted for terms of not more than 10
years.

        All employees are eligible to participate in the 1996 Stock Option Plan.
During 2000, options to purchase shares of Common Stock were not granted to any
employees of the Company pursuant to the 1996 Stock Option Plan.

  1999 Stock Option Plan for Directors

        The purpose of the 1999 Stock Option Plan for Directors is to advance
the interests of the Company by providing non-employee directors of the Company,
through the grant of options to purchase shares of Common Stock, with a larger
personal and financial interest in the success of the Company. Under the terms
of the plan, directors who are neither employees of the Company nor nonresident
aliens shall be granted an option to purchase 50,000 shares of Common Stock as
of the effective date of his or her initial appointment or election to the Board
or, if later, the effective date of the plan, and shall be granted an option to
purchase 10,000 shares of Common Stock on August 4, 2000 and August 3, 2001,
provided that such directors continue to serve as directors on such dates. The
price at which shares of Common Stock may be purchased upon the exercise of the
options granted under the plan shall be the fair market value of such shares on
the date of grant of the options. The plan provides that options shall be
granted for terms of 10 years and shall vest one-third, one-third and one-third
on the first, second and third anniversaries of the date of grant. In addition,
options may not be exercised more than 3 months after a participant ceases to be
a director of the Company, except in the case of death or disability, in which
cases options may be exercised within 12 months after the date of such death or
disability.

        During 2000, a total of 540,000 options to purchase shares of Common
Stock were granted to the 9 eligible directors all in accordance with the 1999
Stock Option Plan for Directors. A total of 120,000 options to purchase shares
of Common Stock which were granted to 2 eligible directors during 1999 and 2000
have expired following the resignation of such directors from the Company's
Board of Directors.



                                       14
<PAGE>   14

2000 Management Stock Option Plan

        The purpose of the 2000 Management Stock Option Plan is to advance the
interests of the Company and its shareholders by providing employees of the
Company, through the grant of options to purchase shares of Common Stock, with a
larger personal and financial interest in the success of the Company. Under the
terms of the plan, officers, directors, agents, and employees of the Company and
consultants to the Company or of any subsidiary of the Company may be granted
options to purchase shares of Common Stock at their fair market value on the
date of grant. The plan provides that options may be granted for terms of not
more than 10 years and shall vest according to the terms of the grant of the
options. In addition, options may not be exercised more than 30 days after a
participant ceases to be an employee of the Company, except in the case of
death, disability or retirement, in which cases options may be exercised within
90 days after the date of death, disability or retirement.

        During 2000 and to date in 2001, 5,459,000 options to purchase shares of
Common Stock were granted to approximately 126 employees in accordance with the
plan including options to purchase an aggregate of 702,000 shares granted to the
executives named in the executive compensation table.

Chief Executive Officer Compensation

        On December 5, 2000, Rakesh K. Kaul resigned as President and Chief
Executive Officer, and resigned from the Board of Directors of the Company. See
"Employment Contracts, Termination of Employment and Change-in-Control
Arrangements."

        On December 5, 2000, Thomas C. Shull was named President and Chief
Executive Officer and was elected to the Board of Directors of the Company.
Effective on that date, Mr. Shull, Meridian and the Company entered into the
Services Agreement. Under the Services Agreement, Meridian will provide for the
benefit of the Company the services of Mr. Shull and the Consultants. The term
of the Services Agreement, and the term for the services of Mr. Shull, began on
December 5, 2000 and terminate on December 4, 2001, while the term for the
services of the Consultants terminates on June 4, 2001. See "Employment
Contracts, Termination of Employment and Change-in-Control Arrangements."


Nondeductible Compensation

        The Compensation Committee currently does not anticipate that payments
of compensation in 2001 to the Named Executives which are subject to the $1
million deduction limit under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "$1 Million Limit"), will exceed $1 million in 2001.
Consequently, the Company expects its executive compensation program to be fully
deductible.

                                             Respectfully Submitted,

                                             The Stock Option and Executive
                                             Compensation Committee

                                             Mr. Eloy Michotte (Chairman)
                                             Mr. Ralph Destino
                                             Mr. Alan G. Quasha
                                             Mr. Alan Grieve


                                       15
<PAGE>   15


DIRECTOR COMPENSATION:

        Non-employee directors of the Company or its subsidiaries receive an
annual cash fee of $15,000 plus $500 for each Board meeting and $250 for each
committee meeting they attended. In addition, such directors were entitled to
share equally 1% of any pre-tax profits of the Company. We do not compensate our
employees or employees of our subsidiaries who serve as directors. During fiscal
2000, the Company provided $50,000 of term life insurance for each director.
During fiscal 2000, members of the Company's Compensation Committee, with the
exception of J. David Hakman, were paid a cash bonus of $5,000 each for serving
as members. J. David Hakman was paid a cash bonus of $25,000 for his services to
the Compensation Committee during fiscal 2000.

        During 2000, 540,000 options to purchase shares of Common Stock were
granted to the 9 eligible directors in accordance with the 1999 Stock Option
Plan for Directors. A total of 120,000 options to purchase shares of Common
Stock which were granted to 2 eligible directors during 1999 and 2000, have
expired following the resignation of such directors from the Company's Board of
Directors.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


CERTAIN BENEFICIAL OWNERS:

        The following table lists the beneficial owners known by management of
at least 5% of the Company's Common Stock as of April 25, 2001. Information in
the table is based on information furnished to us by such persons or groups and
statements filed with the SEC.

<TABLE>
<CAPTION>
NAME AND ADDRESS                                SHARES OF                    PERCENT OF
OF BENEFICIAL OWNER                             COMMON STOCK                 CLASS(1)
----------------------------------------------  ---------------------------  ----------------
<S>                                             <C>                          <C>
Richemont Finance S.A.                          102,790,657(2)               48.4%
35 Boulevard Prince Henri
L 1724 Luxembourg

Regan Partners, L.P. and Basil P.                38,728,350(3)               18.2%
  Regan
6 East 43rd Street
New York, New York 10017
</TABLE>
------------------------

(1)  Percentages computed on the basis of 212,186,331 shares of Common Stock
     outstanding as of April 25, 2001.

(2)  Information concerning the number of shares beneficially owned has been
     taken from Amendment No. 3 to the Statement on Schedule 13D filed by
     Richemont on August 6, 1998 with the SEC. Such figure does not include
     1,510,000 shares of Common Stock owned by NAR Group Limited, of which
     Richemont is a shareholder, which could also be deemed to be beneficially
     owned by Richemont (which has shared power to vote and dispose of such
     shares). Richemont also holds an irrevocable proxy to vote an additional
     4,289,000 shares of Common Stock currently held by a third party,
     representing an additional 2.0% of the Common Stock outstanding as of April
     25, 2001. Richemont disclaims beneficial ownership of the shares owned by
     NAR and the shares subject to the proxy.

(3)  Information concerning the number of shares beneficially owned has been
     taken from the Statement on Schedule 13D filed by Regan Partners L.P. and
     Basil P. Regan on February 12, 2001 with the SEC. The Schedule 13D
     indicates that Mr. Regan and Regan Partners L.P. have shared voting and
     dispositive power with respect to 37,773,450 shares of Common Stock and Mr.
     Regan has sole voting and dispositive power with respect to 954,900 shares
     of Common Stock.



                                       16
<PAGE>   16





SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY:


        The following table lists share ownership of the Common Stock as of
April 25, 2001. The information includes beneficial ownership by each of our
directors and executive officers and by all directors and officers as a group.
Except as noted below, to our knowledge, each person named in the table has sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.

<TABLE>
<CAPTION>
                                                    SHARES OF
BENEFICIAL OWNER                                   COMMON STOCK                PERCENT OF CLASS(1)
----------------                                   ------------                -------------------
<S>                                             <C>                      <C>
Ralph Destino                                               21,666(3)             *
J. David Hakman(2)                                         291,058(4)             *
Alan Grieve                                                    15,180             *
June R. Klein                                               31,766(5)             *
Kenneth Krushel                                             16,666(6)             *
Theodore H.  Kruttschnitt(2)                            10,090,666(7)           4.7%
Eloy Michotte                                                      --            --
Alan G. Quasha                                           1,962,764(8)             *
Thomas C. Shull                                                    --            --
Robert F. Wright                                           104,719(9)             *
Brian C. Harriss                                               53,600             *
Michael D. Contino                                        264,900(10)             *
William C. Kingsford                                      160,165(11)             *
Frank J. Lengers                                           13,000(12)             *
Steven Lipner                                              17,174(13)             *
Directors and executives officers
as a group (15 persons)                                    13,043,324           6.1%
                                                           ----------           ---
</TABLE>

------------------------
*  Less than 1%

(1)  Includes in each case shares of Common Stock issuable upon exercise of
     options or warrants exercisable within 60 days for the subject individual
     only. Percentages computed on the basis of 212,186,331 shares of Common
     Stock outstanding as of April 25, 2001.

(2)  Information concerning the number of shares beneficially owned has been
     taken from Amendment No. 13 to the Statement on Schedule 13D filed by Mr.
     Kruttschnitt on June 16, 1997 with the Commission. Such statement sets
     forth the number of shares beneficially owned by Mr. Kruttschnitt and, of
     such shares, the number as to which he holds sole voting power, shared
     voting power, sole dispositive power or shared dispositive power. The
     amended Schedule 13D also indicated that Mr. Kruttschnitt is a member of a
     group which includes Mr. Hakman, who beneficially owns 291,058 shares.

(3)  Represents options to purchase 21,666 shares exercisable within 60 days.

(4)  Includes options to purchase 16,666 shares exercisable within 60 days.

(5)  Includes options to purchase 16,666 shares exercisable within 60 days.

(6)  Represents options to purchase 16,666 shares exercisable within 60 days.

(7)  Includes 16,666 shares exercisable within 60 days.



                                       17
<PAGE>   17

(8)  Includes 1,510,000 shares owned by NAR Group Limited. All of the shares
     owned by NAR Group Limited could also be deemed to be beneficially owned by
     Mr. Quasha, due to his shared investment and voting power in NAR Group
     Limited. Also includes options to purchase 16,666 shares exercisable within
     60 days.

(9)  Includes options to purchase 16,666 shares exercisable within 60 days. Also
     includes 33,950 shares owned by Robert F. Wright Associates Inc. All of the
     shares owned by Robert F. Wright Associates Inc. could also be deemed to be
     beneficially owned by Mr. Wright as he is the sole shareholder of the
     corporation.

(10) Includes options to purchase 262,500 shares exercisable within 60 days.

(11) Represents options to purchase 160,165 shares exercisable within 60 days.

(12) Represents options to purchase 13,000 shares exercisable within 60 days.

(13) Includes options to purchase 15,000 shares exercisable within 60 days.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

        The Company is or has been a party to various agreements with Richemont,
which at December 30, 2000, owned approximately 48% of the Company's common
stock through direct ownership. On June 1, 1998, Richemont entered into an
agreement with a third party whereby Richemont was granted an irrevocable proxy
to vote approximately 4.3 million shares currently held by the third party.
Accordingly, Richemont has voting control of approximately 50% of the Company.

        In December 1996, the Company finalized its agreement (the
"Reimbursement Agreement") with Richemont, that provided the Company with up to
approximately $28 million of letters of credit through Swiss Bank Corporation,
New York Branch. The Company also paid a facility fee equal to 5% of the
principal amount of the letters of credit as well as all other fees incurred in
connection with providing the facility. The three letters of credit, which were
to expire on February 18, 1998, carried an interest rate of 3.5% above the prime
rate and were payable to Swiss Bank Corporation quarterly on amounts drawn under
the letters of credit. In the event that the Company had not paid in full, by
the expiration date, any outstanding balances under the letters of credit,
Richemont had the option, exercisable at any time prior to payment in full of
all amounts outstanding under the letters of credit, to convert such amount into
Common Stock of the Company at the mean of the bid and ask prices of the
Company's Common Stock on November 8, 1996, or the mean of the bid and ask
prices of the Company's Common Stock on each of the thirty days immediately
prior to the date of exercise of the conversion privilege. The Reimbursement
Agreement was subordinate to the Company's Credit Facility with Congress
Financial Corporation. On December 5, 1996, Richemont advanced the Company $10
million against the anticipated $28 million line of credit. The Company repaid
the $10 million loan after the letter of credit agreement was completed on
December 19, 1996. In November 1997, Richemont definitively agreed to extend its
guarantee under the Reimbursement Agreement to March 30, 1999. As consideration
for this transaction, the Company paid to Richemont a fee of 4% of the principal
amount of each letter of credit aggregating $1,113,483.28. The extension
required the approval of Congress Financial Corporation ("Congress") and Swiss
Bank, which approvals were obtained in February 1998 and was subject to certain
other conditions. On February 18, 1998, the extension of the Richemont guarantee
and the closing of this transaction were consummated. Accordingly, the
expiration dates of two of the letters of credit were extended through March 30,
1999, and the letters of credit were amended to reflect the assignment of all
obligations thereon from Swiss Bank, New York Branch to Swiss Bank, Stamford
Branch. A substitute letter of credit having an expiration date of March 30,
1999 was issued to replace the third letter of credit. In February 1999,
Richemont definitively agreed to extend its guarantee under the Reimbursement
Agreement to March 31, 2000. As consideration for this transaction, the Company
paid Richemont a fee equal to 9.5% of the principal amount of each letter of
credit aggregating $2,486,000. The extension required the approval of Congress
and UBS AG, the successor to Swiss Bank, which approvals were obtained in March
1999, and was subject to certain other conditions. On March 30, 1999, the
closing of the transaction was consummated. Accordingly, the expiration dates of
all three letters of credit were extended through March 30, 2000. On March 24,
2000, the securities which were supported by




                                       18
<PAGE>   18

the three UBS letters of credit were redeemed by the Trustees for such
securities drawing on the letters of credit for the outstanding principal
balance of the securities and accrued and unpaid interest. No further draws may
be made under the letters of credit. The Company has reimbursed UBS for the
drawings under the letters of credit, and no amounts are owing by the Company to
Richemont under the Reimbursement Agreement.

        From March 1, 2000 through August 24, 2000, the Company was a party to a
$25.0 million unsecured line of credit facility (the "Richemont $25,000,000 Line
of Credit") with Richemont. Borrowings under the Richemont $25,000,000 Line of
Credit bore interest at a rate of 0.583% per month (an annualized rate of 7.0%)
on the average monthly balance outstanding. In addition, the Company paid
Richemont a monthly fee of $62,500 each month from March 1, 2000 up to August
24, 2000. On August 24, 2000, the Richemont $25,000,000 Line of Credit was
terminated and all borrowings outstanding as of August 24, 2000 of approximately
$25.0 million, plus accrued and unpaid interest and fees, were repaid and
retired from a portion of the net proceeds obtained from the issuance of the
Company's Series A Preferred Stock (as defined below) to Richemont.

        From March 24, 2000 through August 24, 2000, the Company was a party to
a $10.0 million unsecured line of credit facility (the "Richemont $10,000,000
Line of Credit") with Richemont. Borrowings under the Richemont $10,000,000 Line
of Credit bore interest at a rate of 0.125% per month (an annualized rate of
1.5%) on the average monthly balance outstanding. In addition, the Company paid
Richemont a monthly facility fee of $79,200 each month during the term of the
Richemont $10,000,000 Line of Credit. The Richemont $10,000,000 Line of Credit
facility provided the Company with financing from Richemont should the excess
availability under the Congress Credit Facility fall below $3.0 million.
Additionally, the Company could have borrowed up to $5.0 million under the
Richemont $10,000,000 Line of Credit to pay trade creditors in the ordinary
course of business. On August 24, 2000, the Richemont $10,000,000 Line of Credit
was terminated and all borrowings outstanding as of August 24, 2000 of
approximately $5.0 million, plus accrued and unpaid interest and fees, were
repaid and retired from a portion of the net proceeds obtained from the issuance
of the Company's Series A Preferred Stock to Richemont.

        The Richemont $25,000,000 Line of Credit and the Richemont $10,000,000
Line of Credit were conditions to a March 24, 2000 amendment to the Company's
credit facility with Congress Financial Corporation, which amendment provided
for a maximum credit of up to $82,500,000. Such Richemont Lines of Credit were
subordinated to the amended Congress credit facility.

        On August 24, 2000, the Company issued 1.4 million shares of preferred
stock designated as Series A Cumulative Participating Preferred Stock (the
"Series A Preferred Stock") to Richemont for $70.0 million. The Company used the
proceeds of the issuance of the Series A Preferred Stock to repay in full all
borrowings outstanding under the Richemont $10,000,000 Line of Credit and the
Richemont $25,000,000 Line of Credit, plus accrued and unpaid interest and fees
thereon, and for working capital purposes. No dividends have been paid on the
Series A Preferred Stock, and as of March 31, 2001, the Company had accreted
dividends of $6.5 million, and had reserved 130,829 additional shares of Series
A Preferred Stock for the payment of such accreted dividends.

        Of the Named Executives, only Michael G. Lutz purchased shares of the
Company's Common Stock pursuant to the 1993 Executive Equity Incentive Plan.
Pursuant to such plan, Mr. Lutz financed 80% of the purchase price of the shares
he purchased with a full recourse Company loan due in 2001. This loan was
outstanding at the end of fiscal 1997, 1998, 1999 and 2000 and, as of March XX,
2001, was outstanding in the following amount and with the following interest
rate: $44,000/6.83%.

        On August 23, 1996, Rakesh K. Kaul, the Company's former Chief Executive
Officer and President, purchased 1,510,000 shares of Common Stock pursuant to
the Long-Term Incentive Plan for Rakesh K. Kaul. Pursuant to such plan, Mr. Kaul
financed 80% of the purchase price of such shares ($1,396,750) with a
nonrecourse Company loan (the "Tandem Loan") originally due in four equal
consecutive annual installments of $349,187.50, together with interest thereon.
The Tandem Loan is secured by a pledge of such shares. In March 1998, the terms
of the Tandem Loan were amended and restated to provide for payment due in two
installments. The first installment of $349,187.50 was made by Mr. Kaul to the
Company on August 23, 1997 and the balance of principal is due on August 23,
2000. The Tandem Loan, which bears interest at 6.84%, was outstanding at the end
of fiscal 1997, 1998 and 1999 and, as of March 31, 2000, in the principal amount
of $1,047,562. The Company has agreed to pay Mr. Kaul, on or before the due
dates, a bonus equal to the amount of the principal and/or interest due on the
Tandem Loan. The Company also paid Mr. Kaul a sign-on bonus equal to the amount
of the purchase price of the


                                       19
<PAGE>   19

shares required to be paid in cash. In addition, in connection with the
amendment and restatement of the terms of the Tandem Loan in March 1998, a
second note (the "Tax Note") was issued by Mr. Kaul to the Company in the amount
of $211,729 to cover the tax consequences of the payment of the first
installment on the Tandem Loan. The Tax Note bears interest at 6.84% and is due
in full on August 23, 2001.

        Pursuant to an Executive Employment Agreement dated as of March 7, 1996
between the Company and Mr. Kaul, the Company and NAR were obligated to pay Mr.
Kaul, within 30 days after each date as of which any stock option granted under
the Long-Term Plan for Rakesh K. Kaul vested with respect to all or a portion of
the shares of Common Stock covered by such option, an additional cash amount
equal to the number of shares of Common Stock with respect to which such option
became vested on such vesting date multiplied by the excess of (i) the lesser of
the option price of such option or the fair market value on such vesting date
(equal to the closing price of the Common Stock on the American Stock Exchange)
of a share of Common Stock, over (ii) $1.03. Pursuant to such provision, the
Company paid Mr. Kaul $349,083 and NAR paid Mr. Kaul an additional $142,977 from
1997 through 1999.

        Diana Quasha, the wife of Alan Quasha, a Director of the Company,
entered into an employment agreement (the "Henre Employment Agreement") with
Henre, Inc. ("Henre"), a subsidiary of the Company and party to a distribution
arrangement with Compagnie de la Chine, on June 25, 1999. Pursuant to the Henre
Employment Agreement, Ms. Quasha served as President of Henre retroactive to May
10, 1999 at the base salary of $115,000 per year. She was eligible for an annual
cash bonus of up to fifty percent (50%) of her base salary, with a target of
twenty-five percent (25%) of her base salary, based on the business's achieving
planned performance levels. Under the Henre Employment Agreement, she also was
entitled to receive a five percent (5%) non-voting equity stake in any joint
venture between Henre and Compagnie de la Chine upon the formation of the joint
venture company: one-half of this stake would vest over five (5) years in ten
percent (10%) increments upon each anniversary date of her employment provided
she remains employed and the other half would vest in the sole discretion of the
Chief Executive Officer of the Company based on her performance. The
distribution agreement under which any such joint venture would have been formed
has been terminated. In addition, under the Henre Employment Agreement, Ms.
Quasha was eligible to participate in the Company's various employee benefit
plans and was entitled to three (3) weeks paid vacation per year.

        Ms. Quasha resigned as President of Henre effective January 5, 2001,
and the Henre Employment Agreement has terminated. Under an Agreement and
General Release of Claims between the Company and Ms. Quasha, the Company has
agreed to pay Ms. Quasha discretionary severance of $57,500 over a period of six
(6) months. Ms. Quasha has released all claims against the Company and its
subsidiaries.

        Paul Quattro, the brother-in-law of Michael Contino, Senior Vice
President and Chief Information Officer of the Company, was hired by the Company
in May 2000 as an independent contractor. Mr. Quattro held various project
manager positions at Desius LLC in the internet group. Mr. Quattro's employment
with the Company was terminated on January 5, 2001 in connection with the
Company's cessation of operations with respect to Desius LLC. Mr. Quattro was
paid $68,214.93 for his eight (8) months of service to the Company.

        On December 5, 2000, Mr. Shull, Meridian, and the Company entered into
the Services Agreement. See "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements."

        Either the Company's Board of Directors, a committee of the Company's
Board of Directors, or the Shareholders have approved these relationships and
transactions and, to the extent that such arrangements are available from
non-affiliated parties, all relationships and transactions are on terms no less
favorable to the Company than those available from non-affiliated parties.


                                       20
<PAGE>   20





                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to report to
be signed on its behalf by the undersigned, thereunto duly authorized.


April 26, 2001                  HANOVER DIRECT, INC.
                                (Registrant)

                                By: /s/ Thomas C. Shull
                                   ---------------------------------------------
                                           Thomas C. Shull
                                           President and Chief Executive Officer
                                           (On behalf of the registrant and as
                                                principal executive officer)



        Pursuant to the requirements of the Securities Exchange Act of 1934,
this amendment to report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated and on the date
indicated below.

Principal Officers:

        /s/ Brian C. Harriss
        ---------------------------------------------
        Brian C. Harriss, Executive Vice President and
                 Chief Financial Officer
           (principal financial officer)

        /s/ William C. Kingsford
        -------------------------------------------
        William C. Kingsford, Vice President and
                 Corporate Controller
           (principal accounting officer)

Board of Directors:

        /s/ Ralph Destino
        -------------------------------------------
        Ralph Destino, Director

        /s/ Alan Grieve
        -------------------------------------------
        Alan Grieve, Director

        /s/ J. David Hakman
        -------------------------------------------
        J. David Hakman, Director

        /s/ June R. Klein
        -------------------------------------------
        June R. Klein, Director


        -------------------------------------------
        Theodore H. Kruttschnitt, Director

        /s/ Kenneth Krushel
        -------------------------------------------
        Kenneth Krushel, Director


        -------------------------------------------
        Eloy Michotte, Director


                                       21

<PAGE>   21


        /s/ Alan G. Quasha
        -------------------------------------------
        Alan G. Quasha, Director


        /s/ Thomas C. Shull
        -------------------------------------------
        Thomas C. Shull, Director


        /s/ Robert F. Wright
        -------------------------------------------
        Robert F. Wright, Director


Date:  April 26, 2001


















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