<PAGE>   1

                                                                  Exhibit 10.74
                             TWELFTH AMENDMENT TO
                         LOAN AND SECURITY AGREEMENT

            THIS TWELFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
September 30, 1998, is entered into by and among CONGRESS FINANCIAL CORPORATION,
a Delaware corporation, successor by merger to Congress Financial Corporation, a
California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a
Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California
corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation ("GBM"),
GUMP'S CORP., a California corporation ("Gump's"), HANOVER HOLDING CORP., a
Delaware corporation, successor by merger of The Company Store, Inc. with and
into Tweeds, Inc., which has changed its name to Hanover Holding Corp. ("HH
Corp."; as hereinafter further defined), LWI HOLDINGS, INC., a Delaware
corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation
("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER
REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY,
a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM,
Gump's, HH Corp., LWI, Aegis, HDV and Hanover Realty, each individually referred
to herein as an "Existing Borrower" and collectively, "Existing Borrowers"), and
HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL
CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware
corporation ("Aegis Holdings"), AEGIS VENTURES, INC., a Delaware corporation
("Aegis Ventures"), AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation,
BRAWN WHOLESALE CORP., a California corporation ("Brawn Wholesale"), THE COMPANY
STORE FACTORY, INC., a Delaware corporation, successor by merger of The Company
Factory, Inc., a Wisconsin corporation, with and into The Company Store Factory,
Inc. ("TCS Factory"), THE COMPANY OFFICE, INC., a Delaware corporation,
successor by merger to The Company Office, Inc., a Wisconsin corporation ("TCS
Office"), COMPANY STORE HOLDINGS, INC., a Delaware corporation ("CSHI"), D.M.
ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware
corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS,
INC., a Delaware corporation ("Hanover Casuals"), HANOVER CATALOG HOLDINGS,
INC., a Delaware corporation ("Hanover Catalog"), HANOVER FINANCE CORPORATION, a
Delaware corporation ("HFC"), HANOVER LIST MANAGEMENT INC., a New Jersey
corporation ("Hanover List"), HANOVER VENTURES, INC., a Delaware corporation
("Hanover Ventures"), LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN
CORPORATION, a Delaware corporation ("Scandia"), AUSTAD HOLDINGS, INC., a
Delaware corporation ("Austad Holdings"), YORK FULFILLMENT COMPANY, INC., a
Pennsylvania corporation ("York Fulfillment"), and TWEEDS OF VERMONT, INC., a
Delaware corporation (each individually an "Existing Guarantor" and
collectively, "Existing Guarantors"), TWEEDS, LLC, a Delaware limited liability
company ("Tweeds LLC"; as hereinafter further defined), SILHOUETTES, LLC, a
Delaware limited liability company ("Silhouettes LLC"; as hereinafter further
defined), HANOVER COMPANY STORE, LLC, a Delaware limited
<PAGE>   2

liability company ("HCS LLC"; as hereinafter further defined), DOMESTICATIONS,
LLC, a Delaware limited liability company ("Domestications LLC"; as hereinafter
further defined), COLONIAL GARDEN KITCHENS, INC., a Delaware corporation
("Colonial Garden"; as hereinafter further defined), HANOVER HOME FASHIONS
GROUP, LLC, a Delaware limited liability company ("HHFG LLC"; as hereinafter
further defined), HANOVER WOMEN'S APPAREL, LLC, a Delaware limited liability
company ("HWA LLC"; as hereinafter further defined), and KEYSTONE FULFILLMENT,
INC., a Delaware corporation ("Keystone"; as hereinafter further defined). Each
Existing Borrower, together with Tweeds LLC, Silhouettes LLC, HCS LLC,
Domestications LLC and Colonial Garden, shall hereinafter be referred to
individually as a "Borrower" and collectively as "Borrowers", and each Existing
Guarantor, together with HWA LLC, HHFG LLC and Keystone, shall hereinafter be
referred to individually as a "Guarantor" and collectively as "Guarantors".

                             W I T N E S S E T H:

            WHEREAS, Existing Borrowers, Existing Guarantors and Lender are
parties to the Loan and Security Agreement, dated November 14, 1995, as amended
by the First Amendment to Loan and Security Agreement, dated February 22, 1996,
the Second Amendment to Loan and Security Agreement, dated April 16, 1996 (the
"Second Amendment to Loan Agreement"), the Third Amendment to Loan and Security
Agreement, dated May 24, 1996, the Fourth Amendment to Loan and Security
Agreement, dated May 31, 1996, the Fifth Amendment to Loan and Security
Agreement, dated September 11, 1996, the Sixth Amendment to Loan and Security
Agreement, dated as of December 5, 1996, the Seventh Amendment to Loan and
Security Agreement, dated as of December 18, 1996, the Eighth Amendment to Loan
and Security Agreement, dated as of March 26, 1997, the Ninth Amendment to Loan
and Security Agreement, dated as of April 18, 1997, the Tenth Amendment to Loan
and Security Agreement, dated as of October 31, 1997, and the Eleventh Amendment
to Loan and Security Agreement, dated as of March 25, 1998 (as so amended, the
"Loan Agreement"), pursuant to which Lender has made loans and advances to
Existing Borrowers; and

            WHEREAS, Existing Borrowers and Existing Guarantors have requested
that Lender consent to, and enter into certain amendments to the Loan Agreement
and agreements with respect to certain transactions as described herein in
connection with, the corporate reorganization of certain Existing Borrowers and
certain Existing Guarantors; and

            WHEREAS, Existing Borrowers and Existing Guarantors have requested
that each of Tweeds LLC, Silhouettes LLC, HCS LLC, Domestications LLC and
Colonial Garden become a Revolving Loan Borrower pursuant to the terms and
conditions of the Loan Agreement, as amended hereby, and that each of HWA LLC,
HHFG LLC


                                      -2-
<PAGE>   3

and Keystone become a Guarantor pursuant to the terms and conditions of the Loan
Agreement, as amended hereby; and

            WHEREAS, Existing Borrowers and Existing Guarantors have also
requested that Lender acknowledge that it has released certain availability
reserves previously established by Lender against the Revolving Loan
availability of LWI and HDPI; and

            WHEREAS, Existing Borrowers and Existing Guarantors have also
requested that Lender consent to the assignment by Hanover Catalog and Brawn of,
and that Lender release its security interest in and lien on, certain Trademarks
described herein; and

            WHEREAS, the parties to the Loan Agreement desire to enter into this
Twelfth Amendment to Loan and Security Agreement (this "Amendment") to evidence
and effectuate such consents, amendments and agreements, and certain other
amendments to the Financing Agreements relating thereto, in each case subject to
the terms and conditions and to the extent set forth herein;

            NOW, THEREFORE, in consideration of the premises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

            1. Definitions.

                  (a) Additional Definitions. As used herein or in any of the
other Financing Agreements, the following terms shall have the meanings given to
them below, and the Loan Agreement shall be deemed and is hereby amended to
include, in addition and not in limitation, the following definitions:

                        (i) "Additional Hanover Subsidiary Merger Agreements"
shall mean, collectively, the certificates or agreements executed, delivered or
filed in connection with, or otherwise evidencing, the Hanover List/DM
Advertising Merger, the Austad/Austad Holdings Merger, the LWI Retail/LWI
Holdings Merger, the TCS Factory/Company Factory Merger, the TCS Office/Company
Office Merger, the TCSI/Tweeds Merger, and the Aegis Safety/HDI Merger and all
related agreements, documents and instruments, as the same now exist or may
hereafter be entered into, amended, modified, supplemented, extended, renewed,
restated or replaced.

                        (ii) "Aegis Safety/HDI Merger" shall mean the merger of
Aegis Safety Holdings, Inc. with and into Hanover Direct, Inc., with Hanover
Direct, Inc. as the surviving corporation.


                                      -3-
<PAGE>   4

                        (iii) "Austad/Austad Holdings Merger" shall mean the
merger of The Austad Company with and into Austad Holdings, Inc., with Austad
Holdings, Inc. as the surviving corporation, which shall, contemporaneously with
that merger and pursuant thereto, change its name to The Austad Company.

                        (iv) "Colonial Garden" shall mean Colonial Garden
Kitchens, Inc., a Delaware corporation, and its successors and assigns.

                        (v) "Colonial Garden Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by HDPI immediately before
the consummation of Phase I of the Hanover 1998 Reorganization as to Colonial
Garden and (B) are or have been owned or acquired by Colonial Garden at any time
on or after the effective date of Phase I of the Hanover 1998 Reorganization as
to Colonial Garden, which assets and properties were and are primarily related
to or primarily used in connection with or arise from the sale of merchandise or
services sold through the "Colonial Garden Kitchens" mail order catalog,
including, without limitation, all Accounts, Inventory, Customer Lists and other
General Intangibles so related, used or sold.

                        (vi) "Colonial Garden Eligible Inventory" shall mean all
Colonial Garden Catalog Assets consisting of finished goods Inventory of
Colonial Garden in the merchandise categories of work saving and lifestyle
enhancing items for the kitchen and home offered for sale by Colonial Garden in
its "Colonial Garden Kitchen" catalog, or such other catalogs created or
acquired by Colonial Garden covering substantially similar merchandise which
Colonial Garden has requested Lender to include in this Inventory category.

                        (vii) "Company Store Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by HH Corp. immediately
before the consummation of Phase I of the Hanover 1998 Reorganization as to HH
Corp. and (B) are or have been owned or acquired by HCS LLC at any time after
the effective date of Phase I of the Hanover 1998 Reorganization as to HH Corp.,
which assets and properties were and are primarily related to or primarily used
in connection with or arise from the sale of merchandise or services sold
through the "The Company Store" mail order catalog, including, without
limitation, all Accounts, Inventory, Customer Lists and other General
Intangibles so related, used or sold.

                        (viii) "Domestications Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by HDV immediately before
the consummation of Phase I of the Hanover 1998 Reorganization as to HDV, and
(B) are or have been owned or acquired by Domestications LLC at any time on or
after the effective date of Phase I of the Hanover 1998 Reorganization


                                      -4-
<PAGE>   5

as to HDV, which assets and properties were and are primarily related to or
primarily used in connection with or arise from the sale of merchandise or
services sold through the "Domestications" mail order catalog, including,
without limitation, all Accounts, Inventory, Customer Lists and other General
Intangibles so related, used or sold.

                        (ix) "Domestications LLC" shall mean Domestications,
LLC, a Delaware limited liability company, and its successors and assigns.

                        (x) "Domestications LLC Eligible Inventory" shall mean
all Domestications Catalog Assets consisting of Inventory of Domestications LLC
in the merchandise categories of home fashions offered for sale by
Domestications LLC in its "Domestications" catalog or such other catalogs
created or acquired by Domestications LLC covering substantially similar
merchandise which Domestications LLC has requested Lender to include in this
Inventory category.

                        (xi) "HCS LLC" shall mean Hanover Company Store, LLC, a
Delaware limited liability company, and its successors and assigns.

                        (xii) "HCS LLC Eligible Inventory" shall mean all the
Company Store Catalog Assets consisting of Inventory of HCS LLC in the
merchandise categories of comforters, blankets, sheets, towels, curtains,
pillows, featherbeds, decorative home products, loungewear and outer garments
offered for sale by HCS LLC in its "The Company Store" catalog, or such other
catalog created by HCS LLC covering substantially similar merchandise which HCS
LLC has requested Lender to include in this Inventory category.

                        (xiii) "HH Corp." shall mean Hanover Holding Corp., a
Delaware corporation, and its successors and assigns, the surviving corporation
of the TCSI/Tweeds Merger.

                        (xiv) "HHFG LLC" shall mean Hanover Home Fashions Group,
LLC, a Delaware limited liability company, and its successors and assigns.

                        (xv) "HWA LLC" shall mean Hanover Women's Apparel, LLC,
a Delaware limited liability company, and its successors and assigns.

                        (xvi) "Hanover List/DM Advertising Merger" shall mean
the merger of Hanover List Management, Inc. with and into D.M. Advertising,
Inc., with D.M. Advertising, Inc. as the surviving corporation.


                                      -5-
<PAGE>   6

                        (xvii) "Hanover 1998 Reorganization" shall mean,
individually and collectively, the reorganization steps and transactions
effected under the Hanover 1998 Reorganization Agreements.

                        (xviii) "Hanover 1998 Reorganization Agreements" shall
mean, collectively, the agreements, documents and instruments listed in Schedule
1 hereto, the Hanover Subsidiary Dissolution Agreements, the Additional Hanover
Subsidiary Merger Agreements, and all related agreements, documents and
instruments executed, delivered or filed in connection with, or otherwise
evidencing, each of the transactions consented to in Section 2 hereof, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

                        (xix) "Hanover Subsidiary Dissolution Agreements" shall
mean, collectively, the certificates or agreements executed, delivered or filed
in connection with, or otherwise evidencing, the dissolution of Aegis Ventures,
Hanover Casuals, Gump's Catalog, HFC, York Fulfillment, Brawn Wholesale, Hanover
Ventures, and all related agreements, documents and instruments, as the same now
exist or may hereafter entered into, be amended, modified, supplemented,
extended, renewed, restated or replaced.

                        (xx) "Keystone Fulfillment" shall mean Keystone
Fulfillment, Inc., a Delaware corporation, and its successors and assigns.

                        (xxi) "La Crosse, Wisconsin Telemarketing Center Assets"
shall mean all of the fixed assets that (A) are or were owned by HH Corp.
immediately before the consummation of Phase I of the Hanover 1998
Reorganization as to HH Corp. and (B) are or have been owned or acquired by HHFG
LLC at any time on or after the effective date of Phase I of the Hanover 1998
Reorganization as to HH Corp, which fixed assets were and are primarily related
to or primarily used in connection with the business and operations of the
telemarketing and call center located at 455 Park Plaza, La Crosse, Wisconsin.

                        (xxii) "LWI Retail/LWI Holdings Merger" shall mean the
merger of LWI Retail, Inc. with and into LWI Holdings, Inc., with LWI Holdings,
Inc. as the surviving corporation.

                        (xxiii) "Phase I of the Hanover 1998 Reorganization"
shall mean the transactions comprising part of the Hanover 1998 Reorganization
consented to in Section 2(a) hereof.


                                      -6-
<PAGE>   7

                        (xxiv) "Roanoke, Virginia Fulfillment Center Assets"
shall mean all of the fixed assets that (A) are or were owned by HDV immediately
before the consummation of Phase I of the Hanover 1998 Reorganization as to HDV,
and (B) are or have been owned or acquired by HHFG LLC at any time on or after
the effective date of Phase I of the Hanover 1998 Reorganization as to HDV,
which fixed assets were and are primarily related to or primarily used in
connection with the business and operations of the mail order fulfillment center
located at 5022 Hollins Road, Roanoke, Virginia, also known as The Home Fashion
Center, including, without limitation, any leasehold interest of HDV with
respect to such premises.

                        (xxv) "Silhouettes Catalog Assets" shall mean all of the
assets and properties that (A) are or were owned by HDPI immediately before the
consummation of Phase I of the Hanover 1998 Reorganization as to HDPI, and (B)
are or have been owned or acquired by Silhouettes LLC at any time on or after
the effective date of Phase I of the Hanover 1998 Reorganization as to HDPI,
which assets and properties were and are primarily related to or primarily used
in connection with or arise from the sale of merchandise or services sold
through the "Silhouettes" mail order catalog, including, without limitation, all
Accounts, Inventory, Customer Lists and other General Intangibles so related,
used or sold.

                        (xxvi) "Silhouettes LLC" shall mean Silhouettes, LLC, a
Delaware limited liability company, and its successors and assigns.

                        (xxvii) "Silhouettes LLC Eligible Inventory" shall mean
all Silhouettes Catalog Assets consisting of finished goods Inventory of
Silhouettes LLC in the merchandise category of women's apparel and accessories
offered for sale by Silhouettes LLC in its "Silhouettes" catalog, or such other
catalogs created or acquired by Silhouettes LLC covering substantially similar
merchandise which Silhouettes LLC has requested Lender to include in this
Inventory category.

                        (xxviii) "TCS Factory/Company Factory Merger" shall mean
the merger of The Company Factory, Inc., a Wisconsin corporation, with and into
The Company Store Factory, Inc., a Delaware corporation, with The Company Store
Factory, Inc. as the surviving corporation.

                        (xxix) "TCS Office/Company Office Merger" shall mean the
merger of The Company Office, Inc., a Wisconsin corporation, with and into The
Company Office, Inc., a Delaware corporation, with The Company Office, Inc., a
Delaware corporation, as the surviving corporation.


                                      -7-
<PAGE>   8

                        (xxx) "TCSI/Tweeds Merger" shall mean the merger of The
Company Store, Inc. with and into Tweeds, Inc., with Tweeds, Inc. as the
surviving corporation, which thereafter has changed its name to Hanover Holding
Corp.

                        (xxxi) "Tweeds Catalog Assets" shall mean all of the
assets and properties (A) that are or were owned by Tweeds immediately before
the consummation of Phase I of the Hanover 1998 Reorganization as to Tweeds, and
(B) are or have been owned or acquired by Tweeds LLC at any time on or after the
effective date of Phase I of the Hanover 1998 Reorganization as to Tweeds, which
assets and properties were and are primarily related to or used in connection
with or arise from the sale of merchandise or services through the "Tweeds" mail
order catalog, including, without limitation, all Accounts, Inventory, Customer
Lists and other General Intangibles so related, used or sold.

                        (xxxii) "Tweeds LLC" shall mean Tweeds, LLC, a Delaware
limited liability company, and its successors and assigns.

                        (xxxiii) "Tweeds LLC Eligible Inventory" shall mean all
Tweeds Catalog Assets consisting of Inventory of Tweeds LLC in the merchandise
categories of men's and women's apparel, shoes, hosiery, costume jewelry,
accessories and outerwear offered for sale by Tweeds LLC in its "Tweeds" catalog
or such other catalogs created or acquired by Tweeds LLC covering substantially
similar merchandise which Tweeds LLC has requested Lender to include in this
Inventory category.

                        (xxxiv) "Tweeds of Vermont" shall mean Tweeds of
Vermont, Inc., a Delaware corporation, and its successors and assigns.

                        (xxxv) "Wisconsin Retail Outlet Assets" shall mean all
of the assets and properties that (A) are or were owned by HH Corp. immediately
before the consummation of Phase I of the Hanover 1998 Reorganization as to HH
Corp., and (B) are or have been owned or acquired by HH Corp. on and after the
effective date of Phase I of the Hanover 1998 Reorganization as to HH Corp.,
which assets and properties are primarily related to or primarily used in
connection with or arise from the business and operations of the four (4) retail
outlet stores previously operated by HH Corp. and located in La Crosse,
Wisconsin, including, without limitation, all Accounts, Inventory, and other
General Intangibles so related, used or sold.

                  (b) Amendments to Definitions.

                        (i) Revolving Loan Borrowers. Effective as of the
consummation of Phase I of the Hanover 1998


                                      -8-
<PAGE>   9

Reorganization, Section 1.117 of the Loan Agreement shall be deemed deleted in
its entirety and replaced with the following:

                  "1.117 "Revolving Loan Borrowers" shall mean, individually and
                  collectively, HDPI, Brawn, GBM, Gump's, HH Corp., Tweeds LLC,
                  Silhouettes LLC, HCS LLC, Domestications LLC, Colonial Garden,
                  LWI, HDV, Aegis and Austad."

                        (ii) General Merchandise Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to Colonial
Garden, Section 1.47 of the Loan Agreement shall be deemed amended by deleting
the reference to "Colonial Garden Kitchens" referred to in that Section.

                        (iii) Home Furnishings Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to HDV, Section
1.66 of the Loan Agreement shall be deemed amended by deleting the reference to
the catalog "Domestications" referred to in that Section.

                        (iv) Eligible Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization, the first sentence
of Section 1.34 of the Loan Agreement is hereby shall be deemed amended by
deleting the references to "TCS Eligible Inventory", "Tweeds Eligible Inventory"
and "Women's Fashion Inventory", which shall be replaced with the following
references: "Tweeds LLC Eligible Inventory", "HCS LLC Eligible Inventory",
"Silhouettes LLC Eligible Inventory", "Domestications LLC Eligible Inventory"
and "Colonial Gardens Eligible Inventory."

                        (v) TCS Eligible Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to HH Corp., (A)
Section 1.130 of the Loan Agreement shall be deemed deleted in its entirety and
replaced with the following: "[Intentionally Deleted]" and (B) all references to
the term "TCS Eligible Inventory" contained in the Loan Agreement and any of the
other Financing Agreements shall be deemed deleted.

                        (vi) Tweeds Eligible Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to Tweeds, (A)
Section 1.140 of the Loan Agreement shall be deemed deleted in its entirety and
replaced with the following: "Section 1.140 [Intentionally Deleted]" and (B) all
references to the term "Tweeds Eligible Inventory" contained in the Loan
Agreement or in any of the other Financing Agreements shall be deemed deleted.

                        (vii) Women's Fashion Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to HDPI, (A)
Section 1.145 of the Loan


                                      -9-
<PAGE>   10

Agreement shall be deemed deleted in its entirety and replaced with the
following: "1.145 [Intentionally Deleted]" and (B) all references to the term
"Women's Fashion Inventory" contained in the Loan Agreement or in any of the
other Financing Agreements shall be deemed deleted.

                  (c) Interpretation. For purposes of this Amendment, unless
otherwise defined herein, all capitalized terms used herein that are defined in
the Loan Agreement, shall have the respective meanings given to such terms in
the Loan Agreement.

            2. Consents.

                  (a) Phase I of Hanover 1998 Reorganization. Subject to the
terms and conditions contained herein and in the Loan Agreement and in the other
Financing Agreements, and notwithstanding anything contained in Sections 6.2,
6.5, 6.6(a), 6.6(c) or 6.9 of the Loan Agreement to the contrary, Lender
consents to the following transactions:

                        (i) the merger of TCSI with and into Tweeds, Inc.,
pursuant to the TCSI/Tweeds Merger, with Tweeds, Inc. as the surviving
corporation, pursuant to which merger Tweeds, Inc. changed its name to Hanover
Holding Corp. in accordance with the applicable Hanover 1998 Reorganization
Agreements;

                        (ii) the formation of Silhouettes LLC and the
contribution, assignment and transfer by HDPI to Silhouettes LLC of all of the
Silhouettes Catalog Assets, subject to the security interests and liens of
Lender therein, in consideration of a one hundred percent (100%) membership
interest in Silhouettes LLC, and the assumption by Silhouettes LLC of all
obligations, liabilities and indebtedness of HDPI allocated to the Silhouettes
Catalog Assets (including the Obligations of HDPI allocated thereto, but without
thereby releasing HDPI from liability therefor), all in accordance with the
applicable Hanover 1998 Reorganization Agreements;

                        (iii) the formation of Tweeds LLC and the contribution,
assignment and transfer by HH Corp. to Tweeds LLC of all of the right, title and
interest of HH Corp., in and to the Tweeds Catalog Assets, but in any event
excluding (A) the fifty percent (50%) ownership interest of HH Corp. in the Blue
Ridge Associates general partnership, and (B) the leasehold interest of HH Corp.
in the premises located at One Avery Row, Roanoke, Virginia, in each case,
subject to the security interests and liens of Lender therein, in consideration
of a one hundred percent (100%) membership interest in Tweeds LLC, and the
assumption by Tweeds LLC of all obligations, liabilities and indebtedness of HH
Corp. allocated to the Tweeds Catalog Assets (including the Obligations of HH
Corp. allocated thereto, but


                                      -10-
<PAGE>   11

without thereby releasing HH Corp. from liability therefor, but excluding in any
event any obligations, liabilities and indebtedness of HH Corp. as a general
partner of Blue Ridge Associates general partnership and also excluding loans
made by Hanover to Tweeds, Inc. before the TCSI/Tweeds Merger for the purpose of
funding the capital contribution of Tweeds, Inc. to the Blue Ridge Associates
general partnership and those relating to the leasehold interest in One Avery
Row) all in accordance with the applicable Hanover 1998 Reorganization
Agreements;

                        (iv) the formation of HWA LLC by HDPI and HH Corp. and
(A) the contribution, assignment and transfer by HH Corp. to HWA LLC of
ninety-nine and nine tenths percent (99.9%) of HH Corp.'s membership interest in
Tweeds LLC in consideration of a membership interest in HWA LLC, expressed as a
percentage equal to the fraction, (1) the numerator of which is the book value
of the net assets contributed by HH Corp. to HWA LLC as of the effective date of
Phase I of the Hanover 1998 Reorganization as to HH Corp. and (2) the
denominator of which is equal to the sum of the book value of net assets
contributed by each of HH Corp. and HDPI to HWA LLC as of the effective date of
Phase I of the Hanover 1998 Reorganization as to HH Corp. and HDPI, and (B) the
contribution, assignment and transfer by HDPI to HWA LLC of ninety-nine and nine
tenths percent (99.9%) of HDPI's membership interest in Silhouettes LLC in
consideration of a membership interest in HWA LLC, expressed as a percentage,
equal to the fraction, (1) the numerator of which is the book value of the net
assets contributed by HDPI to HWA LLC as of the effective date of Phase I of the
Hanover 1998 Reorganization as to HDPI and (2) the denominator of which is the
sum of the book value of the net assets contributed by each of HH Corp. and HDPI
to HWA LLC as of the effective date of Phase I of the Hanover 1998
Reorganization as to HH Corp. and HDPI, in each case subject to the security
interests and liens of Lender in the assets of HH Corp. and HDPI; provided,
that, HWA LLC shall deliver to Lender, as soon as available, but in any event no
later than January 15, 1999, a Secretary's or Assistant Secretary's Certificate
stating the percentage membership interests of HDPI and HH Corp. in HWA LLC as
of the effective date of that portion of Phase I of the Hanover 1998
Reorganization described in this Section 2(a)(iv) as reflected on the books and
records of HWA LLC;

                        (v) the formation of HCS LLC and the contribution,
assignment and transfer by HH Corp. to HCS LLC of all of the Company Store
Catalog Assets (excluding in any event the Wisconsin Retail Outlet Assets and
the La Crosse, Wisconsin Telemarketing Center Assets), subject to the security
interests and liens of Lender therein, in consideration of a one hundred percent
(100%) membership interest in HCS LLC, and the assumption by HCS LLC of all
obligations, liabilities and indebtedness of HH Corp., as the surviving
corporation to the TCSI/Tweeds Merger, allocated to the Company Store Catalog
Assets (including the


                                      -11-
<PAGE>   12

Obligations of HH Corp., as the surviving corporation of the TCSI/Tweeds Merger,
allocated thereto, but excluding in any event any obligations, liabilities and
indebtedness of HH Corp. allocated to the Wisconsin Retail Outlet Assets and the
La Crosse, Wisconsin Telemarketing Center Assets, but without thereby releasing
HH Corp. from liability therefor), all in accordance with the applicable Hanover
1998 Reorganization Agreements;

                        (vi) the formation of Domestications LLC and the
contribution, assignment and transfer by HDV to Domestications LLC of all of the
Domestications Catalog Assets (excluding in any event, the Roanoke, Virginia
Fulfillment Center Assets), subject to the security interests and liens of
Lender therein, in consideration of a one hundred percent (100%) membership
interest in Domestications LLC, and the assumption by Domestications LLC of all
obligations, liabilities and indebtedness of HDV allocated to the Domestications
Catalog Assets (including the Obligations of HDV allocated thereto, but
excluding in any event any obligations, liabilities and indebtedness of HDV
allocated to the Roanoke, Virginia Fulfillment Center Assets, but without
thereby releasing HDV from liability therefor), all in accordance with the
applicable Hanover 1998 Reorganization Agreements;

                        (vii) the formation of HHFG LLC by HDV and HH Corp., and
(A) the contribution, assignment and transfer by HH Corp. to HHFG LLC of the La
Crosse, Wisconsin Telemarketing Center Assets and ninety-nine and nine tenths
percent (99.9%) of HH Corp.'s membership interest in HCS LLC in consideration of
a membership interest in HHFG LLC expressed as a percentage equal to the
fraction, (1) the numerator of which is the book value of the net assets
contributed by HH Corp. to HHFG LLC as of the effective date of Phase I of the
Hanover 1998 Reorganization as to HDV and (2) the denominator of which is the
sum of the book value of the net assets contributed by each of HDV and HH Corp.
to HHFG LLC, as of the effective date of Phase I of the Hanover 1998
Reorganization as to HDV and HH Corp. and (B) the contribution, assignment and
transfer by HDV to HHFG LLC of the Roanoke, Virginia Fulfillment Center Assets
and the ninety-nine and nine tenths percent (99.9%) of HDV's membership interest
in Domestications LLC in consideration of a membership interest in HHFG LLC,
expressed as a percentage, equal to the fraction, (1) the numerator of which is
the book value of the net assets contributed by HDV as of the effective date of
Phase I of the Hanover 1998 Reorganization and (2) the denominator of which is
the sum of the book value of net assets contributed by each of HDV and HH Corp.
to HHFG LLC as of the effective date of Phase I of the Hanover 1998
Reorganization, in each case, subject to the security interests and liens of
Lender in the assets of HDV and HH Corp.; provided, that, HHFG LLC shall deliver
to Lender, as soon as available, but in any event no later than January 15,


                                      -12-
<PAGE>   13

1999, a Secretary's or Assistant Secretary's Certificate stating the percentage
membership interests of HDV and HH Corp. in HHFG LLC as of the effective date of
that portion of Phase I of the Hanover 1998 Reorganization described in this
Section 2(a)(vii) as reflected on the books and records of HHFG LLC;

                        (viii) the formation of Colonial Garden and the
contribution, assignment and transfer by HDPI to Colonial Garden of all of the
Colonial Garden Catalog Assets, subject to the security interests and liens of
Lender therein, in consideration of all of the issued and outstanding shares of
capital stock of Colonial Garden, and the assumption by Colonial Garden of all
obligations, liabilities and indebtedness of HDPI allocated to the Colonial
Garden Catalog Assets (including the Obligations of HDPI allocated thereto, but
without thereby releasing HDPI from liability therefor), all in accordance with
the applicable Hanover 1998 Reorganization Agreements;

                        (ix) the formation of Keystone Fulfillment and the
capital contribution by Hanover of Ten Dollars ($10) in consideration of all of
the issued and outstanding shares of capital stock of Keystone Fulfillment, in
accordance with the applicable Hanover 1998 Reorganization Agreements;

                        (x) the merger of The Company Factory, Inc. with and
into The Company Store Factory, Inc., pursuant to the TCS Factory/Company
Factory Merger, with The Company Store Factory, Inc. as the surviving
corporation, in accordance with the applicable Hanover 1998 Reorganization
Agreements; and

                        (xi) the merger of The Company Office, Inc., a Wisconsin
Corporation, with and into The Company Office, Inc., a Delaware corporation,
pursuant to the TCS Office/Company Office Merger, with The Company Office, Inc.,
a Delaware corporation, as the surviving corporation, in accordance with the
applicable Hanover 1998 Reorganization Agreements.

                  (b) Additional Hanover Subsidiary Mergers. Subject to the
terms and conditions contained herein and in the Loan Agreement and in the other
Financing Agreements, and notwithstanding anything contained in Section 6.7 of
the Loan Agreement to the contrary, Lender consents to the Hanover List/DM
Advertising Merger, the Austad/Austad Holdings Merger, the LWI Retail/LWI
Holdings Merger and the Aegis Safety/HDI Merger, conditioned on the following:

                        (i) as soon as available, but in any event no later than
ten (10) days after the date of the effectiveness of each of the Hanover List/DM
Advertising Merger, the Austad/Austad Holdings Merger, the LWI Retail/LWI
Holdings Merger and the Aegis Safety/HDI Merger, Lender shall have received, in
form and substance satisfactory to Lender, (A) true and complete


                                      -13-
<PAGE>   14

copies of all of the Additional Hanover Subsidiary Merger Agreements with
respect to each such merger and (B) evidence that the Additional Hanover
Subsidiary Merger Agreements with respect to each such merger have been duly
executed and delivered by and to the appropriate parties thereto and the
transactions contemplated under the terms of such Additional Hanover Subsidiary
Merger Agreements have been duly and validly effected;

                        (ii) as soon as available, but in any event no later
than ten (10) days after the date of the effectiveness of each of the Hanover
List/DM Advertising Merger, the Austad/Austad Holdings Merger, the LWI
Retail/LWI Holdings Merger and the Aegis Safety/HDI Merger, Lender shall have
received, in form and substance satisfactory to Lender, evidence that the
certificates of merger with respect to each such merger have been filed with the
Secretary of State of the appropriate States of incorporation of each
constituent corporation;

                        (iii) after giving effect to the consummation of the
respective mergers consented to in this Section 2(b), no Event of Default or
Incipient Default shall exist or have occurred and be continuing; and

                        (iv) the mergers consented to under this Section 2(b)
and contemplated by the Additional Hanover Subsidiary Merger Agreements shall
have occurred and be effective by no later than December 26, 1998 or such later
date or dates as Lender shall approve in writing.

                  (c) Guarantor dissolutions. Subject to the terms and
conditions contained herein and in the Loan Agreement and in the other Financing
Agreements, and notwithstanding anything contained in Section 6.7 of the Loan
Agreement to the contrary, Lender consents to the dissolution of Aegis Ventures,
Hanover Casuals, Gump's Catalog, HFC and York Fulfillment, conditioned on the
following:

                        (i) as soon as available, but in any event, no later
than ten (10) days after the effectiveness of each of the dissolutions described
in this Section 2(c), Borrowers and Guarantors shall deliver to Lender, in form
and substance satisfactory to Lender, (A) true and complete copies of all of the
Hanover Subsidiary Dissolution Agreements with respect to the dissolution of
each such Guarantor and (B) evidence that the Hanover Subsidiary Dissolution
Agreements with respect to the dissolution of each such Guarantor have been duly
executed and delivered by and to the appropriate parties thereto, and the
transactions contemplated under the terms of such Hanover Subsidiary Dissolution
Agreements have been effected;


                                      -14-
<PAGE>   15

                        (ii) as soon as available, but in any event, no later
than ten (10) days after the effectiveness of each of the dissolutions consented
to in this Section 2(c), Lender shall have received, in form and substance
satisfactory to Lender, evidence that the certificate of dissolution with
respect to such Guarantor has been issued by the appropriate State governmental
authority;

                        (iii) after giving effect to the respective dissolutions
consented to in this Section 2(c), no Event of Default or Incipient Default
shall exist or have occurred and be continuing; and

                        (iv) the dissolutions consented to under this Section
2(c) and contemplated by the Hanover Subsidiary Dissolution Agreements shall
have occurred, and be effective, by no later than December 26, 1998 or such
later date as Lender shall approve in writing.

                  (d) Withdrawal of Foreign Qualification by Tweeds of Vermont.

                        (i) Borrowers and Guarantors hereby notify Lender that
Tweeds of Vermont intends to withdraw its qualification to do business as a
foreign corporation in the State of Vermont on or before December 26, 1998.
Borrowers and Guarantors jointly and severally represent and warrant to Lender
that the nature of the business of Tweeds of Vermont as presently conducted does
not require Tweeds of Vermont to qualify to do business as a foreign corporation
in the State of Vermont, and the failure to be qualified does not and shall not
have a material adverse effect on Borrowers or on the rights and interests of
Lender in the Collateral or Guarantor Collateral.

                        (ii) As soon as available, but in any event no later
than ten (10) days after the date of the effectiveness of the withdrawal by
Tweeds of Vermont from qualification to do business as a foreign corporation in
the State of Vermont, Borrowers shall deliver, or cause to be delivered, to
Lender a certificate of withdrawal to do business as a foreign corporation that
has been issued by the Vermont Secretary of State with respect to Tweeds of
Vermont.

            3. Assumption of Obligations; Amendments to Guarantees and Financing
Agreements; Acknowledgments with respect to Hanover 1998 Reorganization.

            Effective as of the earlier of the date hereof or effective date of
completion of Phase I of the Hanover 1998 Reorganization as to the respective
parties thereto:


                                      -15-
<PAGE>   16

                  (a) Each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC and Colonial Garden hereby expressly (i) assumes and agrees to
be directly liable to Lender, jointly and severally with the other Borrowers,
for all Obligations under, contained in, or arising out of the Loan Agreement
and the other Financing Agreements applicable to all Borrowers and as applied to
each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial
Garden as a Borrower and Guarantor, (ii) agrees to perform, comply with and be
bound by all terms, conditions and covenants of the Loan Agreement and the other
Financing Agreements applicable to all Borrowers and as applied to each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden as
a Borrower and Guarantor, with the same force and effect as if each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden had
originally executed and been an original Borrower and Guarantor party signatory
to the Loan Agreement and the other Financing Agreements, and (iii) agrees that
Lender shall have all rights, remedies and interests, including security
interests in and to the Collateral granted pursuant to Section 4(a) hereof, the
Loan Agreement and the other Financing Agreements, with respect to each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden and
their respective properties and assets with the same force and effect as Lender
has with respect to the other Borrowers and their respective assets and
properties as if each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes
LLC and Colonial Garden had originally executed and had been an original
Borrower and Guarantor party signatory to the Loan Agreement and the other
Financing Agreements.

                  (b) Each of the respective Guarantee and Waivers, dated
November 14, 1995, made by the Existing Borrowers as of that date in their
capacities as Guarantors, as heretofore amended (collectively, the "Borrower
Guarantees") shall be deemed further amended to include each of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden as an additional
Guarantor party signatory thereto. Each of Domestications LLC, HCS LLC, Tweeds
LLC, Silhouettes LLC and Colonial Garden hereby expressly (i) assumes and agrees
to be directly liable to Lender, jointly and severally with the other Borrowers
signatories thereto and the Guarantors, for all Obligations as defined in the
Borrower Guarantees, (ii) agrees to perform, comply with and be bound by all
terms, conditions and covenants of the Borrower Guarantees with the same force
and effect as if each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes
LLC and Colonial Garden had originally executed and been an original party
signatory to each of the Borrower Guarantees, and (iii) agrees that Lender shall
have all rights, remedies and interests with respect to each of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden and their
respective properties under the Borrower Guarantees with the same force and
effect as if each of Domestications LLC, HCS LLC, Tweeds LLC,


                                      -16-
<PAGE>   17

Silhouettes LLC and Colonial Garden had originally executed and been an original
party signatory to each of the Borrower Guarantees.

                  (c) The Guarantee and Waiver, dated November 14, 1995,
executed by the Existing Guarantors as of such date, other than Hanover and the
Existing Borrowers as of such date, in favor of Lender, as heretofore amended
(the "Subsidiary Guarantee"), shall be deemed further amended to include HHFG
LLC, HWA LLC and Keystone as an additional Guarantor party signatory thereto.
Each of HHFG LLC, HWA LLC and Keystone hereby expressly (i) assumes and agrees
to be directly liable to Lender, jointly and severally with the other Guarantors
signatories thereto and the Borrowers, for all Obligations (as defined in the
Subsidiary Guarantee), (ii) agrees to perform, comply with and be bound by all
terms, conditions and covenants of the Subsidiary Guarantee with the same force
and effect as if each of HHFG LLC, HWA LLC and Keystone had originally executed
and been an original party signatory to the Subsidiary Guarantee, and (iii)
agrees that Lender shall have all rights, remedies and interests with respect to
each of HHFG LLC, HWA LLC and Keystone and their respective properties with the
same force and effect as if each of HHFG LLC, HWA LLC and Keystone had
originally executed and been an original party signatory to the Subsidiary
Guarantee.

                  (d) Each of HHFG LLC, HWA LLC and Keystone hereby expressly
(i) assumes and agrees to be directly liable for all Obligations under,
contained in, or arising out of the Loan Agreement, the General Security
Agreement, dated November 14, 1995, by the Existing Guarantors as of such date,
other than Hanover and Borrowers as of such date, in favor of Lender, as
heretofore amended (the "Subsidiary General Security Agreement") and the other
Financing Agreements applicable to all Guarantors and as applied to each of HHFG
LLC, HWA LLC and Keystone as a Guarantor, (ii) agrees to perform, comply with
and be bound by all terms, conditions and covenants of the Loan Agreement, the
Subsidiary General Security Agreement and the other Financing Agreements
applicable to all Guarantors and as applied to each of HHFG LLC and HWA LLC and
Keystone as a Guarantor with the same force and effect as if each of HHFG LLC,
HWA LLC and Keystone had originally executed and been an original Guarantor or
Debtor, as the case may be, party signatory to the Loan Agreement, the
Subsidiary General Security Agreement and the other Financing Agreements, and
(iii) agrees that Lender shall have all rights, remedies and interests,
including security interests in the Collateral granted pursuant to Section 4(b)
hereof, the Loan Agreement, the Subsidiary General Security Agreement, and the
other Financing Agreements, with respect to each of HHFG LLC, HWA LLC and
Keystone and their respective properties and assets with the same force and
effect as if each of HHFG LLC, HWA LLC and Keystone had originally executed and
had been an original Guarantor or Debtor, as the case may be, party signatory to
the


                                      -17-
<PAGE>   18

Loan Agreement, the Subsidiary General Security Agreement and the other
Financing Agreements, and such agreements shall be deemed so amended.

                  (e) Each Guarantor, including without limitation,
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden, in
its capacity as Guarantor pursuant hereto, and each of HHFG LLC, HWA LLC and
Keystone as a Guarantor pursuant hereto, hereby expressly and specifically
ratifies, restates and confirms the terms and conditions of its respective
Guarantee(s) in favor of Lender and its liability for all of the Obligations (as
defined in its Guarantee(s)), and all other obligations, liabilities, agreements
and covenants thereunder.

                  (f) Each Borrower, including, without limitation,
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden,
and each Guarantor, including, without limitation, HHFG LLC, HWA LLC and
Keystone, hereby agrees that all references to Borrower or Borrowers or other
terms intended to refer to a Borrower or Borrowers, such as Debtor or Debtors,
contained in any of the Financing Agreements are hereby amended to include each
of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden,
and each other person or entity at any time hereafter made a "Borrower" under
the Loan Agreement, as an additional Borrower or Debtor, or other appropriate
term of similar import, as the case may be. Each Borrower, including, without
limitation, Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden, and each Guarantor, including, without limitation, HHFG LLC,
HWA LLC and Keystone, hereby agrees that all references to Guarantor or
Guarantors or other terms intended to refer to a Guarantor or Guarantors, such
as Debtor or Debtors, contained in any of the Financing Agreements are hereby
amended to include each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes
LLC and Colonial Garden, in its capacity as Guarantor and each of HHFG LLC, HWA
LLC and Keystone and each other person or entity at any time hereafter made a
"Guarantor" under the Loan Agreement, as an additional Guarantor or Debtor, or
other appropriate term of similar import, as the case may be.

                  (g) Each Borrower and Guarantor hereby acknowledges, confirms
and agrees that, by operation of law and as provided in the Hanover 1998
Reorganization Agreements, as the case may be, and this Amendment:

                        (i) HH Corp., as the surviving corporation pursuant to
the TCSI/Tweeds Merger, has continued and shall continue to be directly and
primarily liable in all respects for the Obligations of TCSI arising prior to
the effective time of the TCSI/Tweeds Merger;


                                      -18-
<PAGE>   19

                        (ii) Lender shall continue to have valid and perfected
security interests, liens and rights in and to all of the Silhouettes Catalog
Assets and the Company Store Catalog Assets and any other assets and properties
owned and acquired (A) by HH Corp., as the surviving corporation of the
TCSI/Tweeds Merger, and (B) by each Borrower or Guarantor that is the purchaser,
assignee or transferee of any such assets and properties, pursuant to the
Hanover 1998 Reorganization Agreements or otherwise, and all such assets and
properties shall be deemed included in the Collateral or the Guarantor
Collateral, as the case may be, and such security interests, liens and rights
and their perfection and priorities have continued and shall continue in all
respects in full force and effect;

                        (iii) The Company Store Factory, Inc., as the surviving
corporation pursuant to the TCS Factory/Company Factory Merger, has continued
and shall continue to be directly and primarily liable in all respects for the
Obligations of The Company Factory, Inc. arising prior to the effective time of
the TCS Factory/Company Factory Merger;

                        (iv) The Company Office, Inc., a Delaware corporation,
as the surviving corporation pursuant to the TCS Office/Company Office Merger,
has continued and shall continue to be directly and primarily liable in all
respects for the Obligations of The Company Office, Inc., a Wisconsin
corporation, arising prior to the effective time of the TCS Office/Company
Office Merger;

                        (v) Lender has and shall continue to have valid and
perfected security interests, liens and rights in and to all of the assets and
properties owned and acquired (A) by The Company Store Factory, Inc., as the
surviving corporation of the TCS Factory/Company Factory Merger, and (B) by The
Company Office, Inc., a Delaware corporation, as the surviving corporation of
the TCS Office/Company Factory Merger, pursuant to the Hanover 1998
Reorganization Agreements or otherwise, and all such assets and properties shall
be deemed included in the Collateral and such security interests, liens and
rights and their perfection and priorities have continued and shall continue in
all respects in full force and effect;

                        (vi) Without limiting the generality of the foregoing,
(A) none of the transactions contemplated by the Hanover 1998 Reorganization
Agreements shall in any way limit, impair or adversely affect the Obligations
now or hereafter owed to Lender by any existing or former Borrowers or
Guarantors or any security interests or liens in any assets or properties
securing the same, (B) the security interests, liens and rights of Lender in and
to the assets and properties of (1) The Company Store Factory, Inc., as the
surviving corporation of the TCS Factory/Company Factory Merger, (2) The Company
Office, Inc., a


                                      -19-
<PAGE>   20

Delaware corporation, as the surviving corporation of the TCS Office/Company
Office Merger, (3) HH Corp., as the surviving corporation of the TCSI/Tweeds
Merger, or (4) any Borrower or Guarantor that is the recipient, assignee or
transferee of any such assets and properties contributed, assigned or
transferred pursuant to the Hanover 1998 Reorganization Agreements have
continued and, upon and after the consummation of the TCSI/Tweeds Merger, TCS
Factory/Company Factory Merger, the TCS Office/Company Office Merger, or such
contribution, assignment or transfer, as the case may be, shall continue to
secure all Obligations to Lender of HH Corp., TCS Factory, TCS Office, or the
predecessor owner of such assets and properties, as the case may be, in addition
to all other existing and future Obligations of HH Corp, TCS Factory, TCS Office
or such Borrower or Guarantor, as the case may be, to Lender.

            4. Collateral.

                  (a) New Borrower Collateral. Without limiting the provisions
of Section 3(a) hereof, the Loan agreement and the other Financing Agreements,
as collateral security for the prompt performance, payment and performance when
due of all of the Obligations of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC and Colonial Garden to Lender, each of Domestications LLC, HCS
LLC, Tweeds LLC, Silhouettes LLC and each of Colonial Garden hereby grant to
Lender, a continuing security interest in, and liens upon, and rights of setoff
against, and Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden hereby pledges and assigns to Lender, all of its now owned and
hereafter acquired and arising assets and properties, all of which shall be
included in the definition of Collateral as set forth in the Loan Agreement
(which definition is hereby amended accordingly), including, without limitation,
the following:

                        (i) all of the following, whether now owned or hereafter
acquired or arising: (A) all Accounts, including, without limitation, all
MasterCard/VISA Receivables and all other Third Party Credit Card Receivables,
and all monies, credit balances and other amounts due from or through or held by
Third Party Credit Card Issuers, or other parties to the Third Party Credit Card
Agreements, all monies paid by or through the Private Credit Card Purchaser, all
rentals or license fees receivable in respect of sale, lease, or license of
Customer Lists, all monies, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, Lender from or
for it, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of its respective deposits (general or special), balances,
sums and credits with Lender at any time existing; (B) all its right, title and
interest, and all rights, remedies, security and liens, in, to and in respect of
the Accounts and other Collateral, including, without limitation,


                                      -20-
<PAGE>   21

rights of stoppage in transit, replevin, repossession and reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, guarantees or
other contracts of suretyship with respect to the Accounts, deposits or other
security for the obligations of any Account Debtor, all credit and other
insurance; (C) all its right, title and interest in, to and in respect of all
goods relating to, or which by sale have resulted in, Accounts, including,
without limitation, all goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, any
Account or other Collateral, including, without limitation, all returned,
reclaimed or repossessed goods; (D) all deposit accounts; and (E) all other
general intangibles of every kind and description, including, without
limitation, (1) tradenames and trademarks, and the goodwill of the business
symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) Federal,
State and local tax and duty refund claims of all kinds, (6) catalogs and
promotional materials, (7) all Customer Lists, and (8) all of its right, title
and interest in and to Mail Order Joint Ventures, and other joint ventures,
partnerships and other Persons;

                        (ii) Inventory;

                        (iii) Equipment;

                        (iv) Real Property;

                        (v) all present and future books, records, ledger cards,
computer software (including all manuals, upgrades, modifications, enhancements
and additions thereto), computer tapes, disks, other electronic data storage
media, documentation of file and record formats and source code, documents,
other property and general intangibles evidencing or relating to any of the
above, any other Collateral or any Account Debtor, together with the file
cabinets or containers in which the foregoing are stored; and

                        (vi) all present and future products and proceeds of the
foregoing, in any form whatsoever, including, without limitation, any insurance
proceeds and any claims against third persons for loss or damage to or
destruction of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include (a) the GECC
Collateral owned by Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden, other than the respective right, title and interest of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden in
and to the GECC Reserve Balance or (b) any leasehold interests of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden in real property.


                                      -21-
<PAGE>   22

                  (b) New Guarantor Collateral. Without limiting the provisions
of Section 3(d) hereof, the Loan Agreement, the Subsidiary General Security
Agreement and the other Financing Agreements, as collateral security for the
prompt payment and performance when due of all of the Obligations of HHFG LLC,
HWA LLC and Keystone to Lender, each of HHFG LLC, HWA LLC and Keystone hereby
grants to Lender, a continuing security interest in, and lien upon, and right of
setoff against, and each of HHFG LLC, HWA LLC and Keystone hereby pledges and
assigns to Lender, all of its now owned and hereafter acquired and arising
assets and properties, all of which shall be included in the definition of
Collateral as set forth in the Subsidiary General Security Agreement (which
definition is hereby amended accordingly), including, without limitation, the
following:

                        (i) all present and future: (A) accounts, credit card
receivables (including credit card charge records and other evidences of credit
card transactions), contract rights, general intangibles, chattel paper,
documents and instruments (collectively, "Accounts"), including, without
limitation, all obligations for the payment of money arising out of the sale,
lease or other disposition of goods or other property or rendition of services,
all monies, all credit balances, reserve balances and other monies due from or
held by factors or credit card issuers or servicing agents or financial
intermediaries; (B) all monies, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, Lender or any
participant from or for it whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of its deposits (general or
special), balances, sums and credits with Lender or any participant at any time
existing; (C) all of its right, title and interest, and all of its rights,
remedies, security and liens, in, to and in respect of the Accounts and other
collateral, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any account debtor, credit and other insurance; (D) all of its
right, title and interest in, to and in respect of all goods relating to, or
which by sale have resulted in Accounts, including, without limitation, all
goods described in invoices, documents, contracts or instruments with respect
to, or otherwise representing or evidencing, any Account or other collateral,
including, without limitation, all returned, reclaimed or repossessed goods; (E)
all deposit accounts; and (F) all other general intangibles of every kind and
description, including, without limitation, (1) trade names and trademarks, and
the goodwill of the business symbolized thereby, (2) patents, (3) copyrights,
(4) licenses, (5) claims and other choses in action, (6) Federal, State, local
and foreign tax refund claims of all kinds, (7) catalogs and promotional
materials, customer and


                                      -22-
<PAGE>   23

mailing lists, and (8) all of its right, title and interest in and to joint
ventures and partnerships;

                        (ii) all Inventory;

                        (iii) all Equipment;

                        (iv) all Real Property;

                        (v) all present and future books, records, ledger cards,
computer programs and other property and general intangibles evidencing or
relating to any of the above, any other collateral or any account debtor,
together with the file cabinets or containers in which the foregoing are stored;
and

                        (vi) all present and future products and proceeds of the
foregoing, in any form, including, without limitation, any insurance proceeds
and any claims against third persons for loss or damage to or destruction of any
or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include (a) the GECC
Collateral owned by HHFG LLC, HWA LLC and Keystone, other than the respective
right, title and interest of HHFG LLC, HWA LLC and Keystone in and to the GECC
Reserve Balance or (b) any leasehold interests of HHFG LLC, HWA LLC and Keystone
in real property.

            5. Acknowledgments Regarding Additional Hanover Subsidiary Mergers
and Hanover Guarantor Subsidiary Dissolutions.

                  (a) Mergers. Each of Borrowers and Guarantors hereby
acknowledges, confirms and agrees that, upon the effectiveness of the mergers
consented to under Section 2(b) hereof, by operation of law and this Amendment:

                        (i) Effective as of the effective time of the
Austad/Austad Holdings Merger, (A) Austad Holdings, Inc. as the surviving
corporation pursuant to the Austad/Austad Holdings Merger, which shall have
contemporaneously therewith changed its name to The Austad Company, shall
continue to be directly and primarily liable in all respects for the Obligations
of Austad arising prior to the effective time of the Austad/Austad Holdings
Merger and (B) Section 1.13 of the Loan Agreement shall be deleted in its
entirety and replaced with the following:

                        "1.13  "Austad" shall mean The Austad
                  Company, a Delaware corporation, and its
                  successors and assigns."

                        (ii) Effective as of the effective time of the Hanover
List/D.M. Advertising Merger, D.M. Advertising, Inc.,


                                      -23-
<PAGE>   24

as the surviving corporation pursuant to the Hanover List/DM Advertising Merger,
shall continue to be directly and primarily liable in all respects for the
Obligations of Hanover List Management, Inc. arising prior to the effective time
of the Hanover List/DM Advertising Merger;

                        (iii) Effective as of the effective time of the LWI
Retail/LWI Holdings Merger, LWI Holdings, Inc., as the surviving corporation
pursuant to the LWI Retail/LWI Holdings Merger, shall continue to be directly
and primarily liable in all respects for the Obligations of LWI Retail, Inc.
arising prior to the effective time of the LWI Retail/LWI Holdings Merger;

                        (iv) Effective as of the effective time of the Aegis
Safety/HDI Merger, Hanover Direct, Inc., as the surviving corporation pursuant
to the Aegis Safety/HDI Merger, shall continue to be directly and primarily
liable in all respects for the Obligations of Aegis Safety Holdings, Inc.
arising prior to the effective time of the Aegis Safety/HDI Merger;

                        (v) Lender shall continue to have valid and perfected
security interests, liens and rights in and to all assets and properties owned
and acquired by the respective surviving corporations, including, without
limitation, all assets and properties acquired pursuant to the mergers consented
to under Section 2(b) hereof, and all such assets and properties shall be deemed
included in the Guarantor Collateral or the Collateral, as the case may be, and
such security interests, liens and rights and their perfection and priorities
shall continue in all respects in full force and effect; and

                        (vi) Without limiting the generality of the foregoing,
(A) none of the mergers to be consummated as consented to under Section 2(b)
hereof shall in any way limit, impair or adversely affect the Obligations then
or thereafter owed to Lender by any existing or former Borrowers or Guarantors
or any security interests or liens in any assets or properties securing the
same, and (B) the security interests, liens and rights of Lender in and to the
assets and properties of each Borrower and each Guarantor that is either the
merged or the surviving corporation pursuant to the mergers consented to under
Section 2(b) hereof, shall, upon and after the consummation of such mergers,
continue to secure all Obligations to Lender of the merged corporation and of
each surviving corporation, in addition to all other existing and future
Obligations of such surviving corporation to Lender.

                  (b) Guarantor dissolutions. Each of Borrowers and Guarantors
hereby acknowledges, confirms and agrees that, upon the effectiveness of the
dissolutions of those Guarantors consented to under Section 2(c) hereof:


                                      -24-
<PAGE>   25

                        (i) The dissolutions of those Guarantors consented to
under Section 2(c) hereof shall not in any way limit, impair or adversely affect
the Obligations now or hereafter owed to Lender by any continuing Borrower or
Guarantor, including, without limitation, any such Obligations they have as
shareholders of such dissolved Guarantors pursuant to applicable law; and

                        (ii) Lender shall continue to have valid and perfected
security interests, liens and rights in and to all assets and properties of each
existing or former Guarantor whose dissolution has been consented to under
Section 2(c) hereof. Such assets and properties shall continue to be deemed
included in the Guarantor Collateral, and such security interests, liens and
rights and their perfection and priorities shall continue in all respects in
full force and effect.

                        (iii) On or before the dissolution of HFC as consented
to under Section 2(c) hereof, the Austad Subordinated Notes shall, pursuant to
the Hanover Subsidiary Dissolution Agreements and by operation of law, be
assigned, distributed or conveyed to HDPI as the sole shareholder of HFC. The
security interests, liens, rights and their perfection and priority of Lender in
the Austad Subordinated Notes shall continue in all respects in full force and
effect. HDPI and HFC shall deliver to Lender, in form and substance satisfactory
to Lender, documents, agreements or instruments to amend the existing Allonge
Indorsements in favor of Lender to each of the Austad Subordinated Notes to
reflect such assignment, distribution or conveyance.

            6. Allocation of Revolving Loans and Letter of Credit
Accommodations. Each of Borrowers and Guarantors confirms, acknowledges and
agrees that:

                  (a) as of the effective date of Phase I of the Hanover 1998
Reorganization, the portion of the Revolving Loans and Letter of Credit
Accommodations to or for the account of HDPI determined by Lender to be
allocable to the Silhouettes Catalog Assets before the consummation of Phase I
of the Hanover 1998 Reorganization as to HDPI, shall be deemed to be Revolving
Loans and Letter of Credit Accommodations of Silhouettes LLC;

                  (b) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization as to Colonial Garden, the portion of the Revolving
Loans and Letter of Credit Accommodations to or for the account of HDPI
determined by Lender to be allocable to the Colonial Garden Catalog Assets
before the consummation of Phase I of the Hanover 1998 Reorganization as to
Colonial Garden, shall be deemed to be Revolving Loans and Letter of Credit
Accommodations of Colonial Garden;


                                      -25-
<PAGE>   26

                  (c) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization as HDV, the portion of the Revolving Loans and
Letter of Credit Accommodations to or for the account of HDV determined by
Lender to be allocable to the Domestications Catalog Assets before the
consummation of Phase I of the Hanover 1998 Reorganization shall be deemed to be
Revolving Loans and Letter of Credit Accommodations of Domestications LLC;

                  (d) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization as to HH Corp., the portion of the Revolving Loans
and Letter of Credit Accommodations to or for the account of HH Corp. determined
by Lender to be allocable to the Tweeds Catalog Assets before the consummation
of Phase I of the Hanover 1998 Reorganization as to HH Corp. shall be deemed to
be Revolving Loans and Letter of Credit Accommodations of Tweeds LLC;

                  (e) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization, the portion of the Revolving Loans and Letter of
Credit Accommodations to or for the account of HH Corp. determined by Lender to
be allocable to the Company Store Catalog Assets before the consummation of
Phase I of the Hanover 1998 Reorganization as to HH Corp., shall be deemed to be
Revolving Loans and Letter of Credit Accommodations of HCS LLC; and

                  (f) contemporaneously with any determination by Lender of the
outstanding amount of Revolving Loans and Letter of Credit Accommodations to be
allocated to each of Silhouettes LLC, Colonial Garden, Domestications LLC,
Tweeds LLC and HCS LLC, as provided in Sections 6(a) through (e) hereof,
respectively, the outstanding amount of Revolving Loans and Letter of Credit
Accommodations of the transferor Borrower shall be reduced by those amounts so
allocated, but without thereby relieving the transferor Borrower of liability
therefor.

            7. Amendments to Lending Sublimits.

                  (a) Brawn. Section 2.2(a) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(a) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to Brawn shall not exceed Five Million Five Hundred
                  Thousand Dollars ($5,500,000) at any one time outstanding."


                                      -26-
<PAGE>   27

                  (b) HDPI. Section 2.2(b) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(b) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to HDPI shall not exceed One Million Five Hundred
                  Thousand Dollars ($1,500,000) at any one time outstanding."

                  (c) GBM. Section 2.2(c) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(c) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to GBM shall not exceed Five Million Dollars
                  ($5,000,000) at any one time outstanding."

                  (d) Gump's. Section 2.2(d) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(d) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to Gump's shall not exceed Three Million Five
                  Hundred Thousand Dollars ($3,500,000) at any one time
                  outstanding."

                  (e) HCS LLC. Section 2.2(e) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(e) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to HCS LLC shall not exceed Ten Million Three
                  Hundred Fifty Thousand Dollars ($10,350,000) at any one time
                  outstanding."

                  (f) Tweeds LLC. Section 2.2(f) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(f)  Subject to, and upon the terms and
                  conditions contained herein, the aggregate


                                      -27-
<PAGE>   28

                  principal amount of Revolving Inventory Loans and Letter of
                  Credit Accommodations made available to Tweeds LLC shall not
                  exceed Three Million Five Hundred Thousand Dollars
                  ($3,500,000) at any one time outstanding."

                  (g) Domestications LLC. Section 2.2(g) of the Loan Agreement
is hereby deleted in its entirety and replaced with the following:

                        "(g) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to Domestications LLC shall not exceed Twenty-One
                  Million Five Hundred Thousand Dollars ($21,500,000) at any one
                  time outstanding."

                  (h) Silhouettes LLC. Section 2.2(h) of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:

                        "(h) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to Silhouettes LLC shall not exceed Four Million
                  Dollars ($4,000,000) at any one time outstanding."

                  (i) LWI. Section 2.2(i) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(i) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to LWI shall not exceed Two Million Five Hundred
                  thousand Dollars ($2,500,000) at any one time outstanding."

                  (j) Colonial Garden. Section 2.2(j) of the Loan Agreement (as
previously amended by the Eleventh Amendment to Loan Agreement) is hereby
redesignated Section 2.2(o) and a new Section 2.2(j) of the Loan Agreement is
hereby added as follows:

                        "(j) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to Colonial Garden shall not exceed Seven Hundred
                  Fifty Thousand Dollars ($750,000) at any one time
                  outstanding."


                                      -28-
<PAGE>   29

                  (k) Austad. Section 2.2(k) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

                        "(k) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to Austad shall not exceed Two Million Three Hundred
                  Thousand Dollars ($2,300,000) at any one time outstanding."


                  (l) Aegis. A new Section 2.2(l) of the Loan Agreement is
hereby added as follows:

                        "(l) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to Aegis shall not exceed Two Hundred Thousand
                  Dollars ($200,000) at any one time outstanding."

                  (m) HDV. A new Section 2.2(m) of the Loan Agreement is hereby
added as follows:

                        "(m) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to HDV shall not exceed zero ($0) at any one time
                  outstanding."

                  (n) HH Corp. A new Section 2.2(n) of the Loan Agreement is
hereby added as follows:

                        "(n) Subject to, and upon the terms and conditions
                  contained herein, the aggregate principal amount of Revolving
                  Inventory Loans and Letter of Credit Accommodations made
                  available to HH Corp. shall not exceed zero ($0) at any one
                  time outstanding."

            8. Exhibits.

                  (a) Exhibits A and B-1 to the Loan Agreement are hereby
amended to include, in addition and not in limitation, the information set forth
on Exhibits A and B attached hereto. Exhibit C to the Loan Agreement is hereby
deleted in its entirety and replaced with the information set forth on Exhibit C
hereto.


                                      -29-
<PAGE>   30

                  (b) Exhibit A to the Subsidiary General Security Agreement is
hereby amended to include, in addition and not in limitation, the information
set forth on Exhibit D attached hereto.

            9. Release of Certain Existing Availability Reserves. The parties
hereto acknowledge and agree that Lender has previously released the following
availability reserves under the Loan Agreement in the following amounts:

                  (a) the availability reserve in the amount of $641,740 against
      the amount of Revolving Loans and Letter of Credit Accommodations
      otherwise determined by Lender to be available to LWI, previously
      established and being maintained by Lender pursuant to Section 3 of the
      letter agreement, dated May 15, 1997, among Lender, Borrowers and
      Guarantors re: Sale of Certain Improved Property and Fixtures of LWI
      Holdings, Inc.;

                  (b) the availability reserve in the amount of $1,000,000
      against the amount of Revolving Loans and Letter of Credit Accommodations
      otherwise determined by Lender to be available to HDPI, previously
      established and being maintained by Lender pursuant to Section 3 of the
      Second Amendment to Loan Agreement; and

                  (c) the availability reserve in the amount of $317,540.59
      against the amount of Revolving Loans and Letter of Credit Accommodations
      otherwise determined by Lender to be available to HDPI, previously
      established and being maintained by Lender pursuant to Section 3(b) of the
      letter agreement, dated July 16, 1996, among Lender, Borrowers and
      Guarantors re: Sale of Certain Real Property, Fixtures and Equipment of
      The Austad Company.

            10. Consent and Release by Lender of Certain Trademarks.

                  (a) In accordance with the request by Borrowers, Hanover
Catalog and the other Guarantors, subject to the terms hereof, Lender consents
to the assignment by Hanover Catalog to the American Cancer Society Foundation
of all of the right, title and interest of Hanover Catalog in and to the
trademark entitled "TLC" and Design, Registration No. 2,002,663, together with
the goodwill of the business symbolized thereby (the "TLC Trademark"). Lender
hereby releases all interests in the TLC Trademark previously assigned to Lender
under the Trademark Security Agreement between certain Guarantors and Lender,
and all interests in the TLC Trademark previously assigned to Lender under that
Trademark Security Agreement are hereby reassigned to Hanover Catalog, without
representation or warranty of any kind, nature or description.


                                      -30-
<PAGE>   31

                  (b) In accordance with the request by Brawn and the other
Borrowers and Guarantors, subject to the terms hereof, Lender consents to the
assignment by Brawn to Eugene R. Burkard ("Burkard") of all of the right, title
and interest in and to the trademark entitled "FREIGHTER", Registration No.
1,365,700, together with the goodwill of the business symbolized thereby (the
"Freighter Trademark"), and Lender hereby releases all interests in the
Freighter Trademark previously assigned to Lender under the Trademark Security
Agreement between certain Borrowers and Lender, and all interests in the
Freighter Trademark previously assigned to Lender under that Trademark Security
Agreement are hereby reassigned to Brawn, without representation or warranty of
any kind, nature or description; provided, that, Brawn shall have delivered to
Lender, in form and substance satisfactory to Lender, (i) a royalty free license
agreement between Burkard and Brawn with respect to the license by Burkard to
Brawn of the trademark entitled "BUNS", Registration No. 1,023,313, together
with the goodwill of the business symbolized thereby (the "Buns Trademark"), and
(ii) an agreement between Lender and Burkard, as consented to by Brawn,
providing for, among other things, the use by Lender of the Buns Trademark upon
an Event of Default.

                  (c) Conditioned as provided in Sections 10(a) and (b) hereof,
Lender agrees, at the request of Borrowers and Guarantors, to deliver to
Borrowers and Guarantors or their counsel, at the sole cost and expense of
Borrowers and Guarantors, an instrument, in form and substance satisfactory to
Lender, evidencing the release and reassignment of the Freighter Trademark that
is part of the Collateral held by Lender.

            11. Representations, Warranties and Covenants. Borrowers and
Guarantors represent, warrant and covenant with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
Financing Agreements, being a condition of the effectiveness of this Amendment
and a continuing condition of the making or providing of any Revolving Loans or
Letter of Credit Accommodations by Lender to Borrowers:

                  (a) This Amendment and each other agreement or instrument to
be executed and delivered by each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone, the other
Borrowers and/or the other Guarantors hereunder have been duly authorized,
executed and delivered by all necessary action on the part of each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC and Keystone, the other Borrowers and each of the other Guarantors
which is a party


                                      -31-
<PAGE>   32

hereto and thereto and, if necessary, their respective stockholders (with
respect to any corporation) or members (with respect to any limited liability
company), and is in full force and effect as of the date hereof, as the case may
be, and the agreements and obligations of each of Domestications LLC, HCS LLC,
Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone,
the other Borrowers and/or the other Guarantors, as the case may be, contained
herein and therein constitute legal, valid and binding obligations of each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC and Keystone, the other Borrowers and/or the other Guarantors, as
the case may be, enforceable against them in accordance with their terms.

                  (b) Neither the execution and delivery of the Hanover 1998
Reorganization Agreements, nor the consummation of the transactions contemplated
by the Hanover 1998 Reorganization Agreements, nor compliance with the
provisions of the Hanover 1998 Reorganization Agreements, shall result in the
creation or imposition of any lien, claim, charge or encumbrance upon any of the
Silhouettes Catalog Assets, the Company Store Catalog Assets, the Tweeds Catalog
Assets, the Domestications Catalog Assets and the Colonial Garden Catalog
Assets, the La Crosse, Wisconsin Telemarketing Center Assets, the Wisconsin
Retail Outlet Assets, the Roanoke, Virginia Fulfillment Center Assets, or any
other Collateral, except in favor of Lender pursuant to this Amendment and the
Financing Agreements as amended hereby.

                  (c) Neither the execution and delivery of the Hanover 1998
Reorganization Agreements, nor the consummation of the transactions therein
contemplated, nor compliance with the provisions thereof, (i) has violated or
shall violate any Bulk Sales Act, Bulk Transfer Act or Article 6 of the UCC, if
applicable, the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended, if applicable, or any Federal or State securities laws or any other law
or regulation or any order or decree of any court or governmental
instrumentality in any respect or (ii) does, or shall conflict with or result in
the breach of, or constitute a default in any respect under any mortgage, deed
of trust, security agreement, agreement or instrument to which any of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC or Keystone, or any other Borrower or other Guarantor is a party or
may be bound, or (iii) shall violate any provision of the Certificates of
Incorporation or By-Laws of Keystone or Colonial Garden, or any other Borrower
or other Guarantor, or (iv) shall violate any provision of the Certificates of
Formation or Operating Agreements of any of Domestications LLC, HCS LLC, Tweeds
LLC, Silhouettes LLC, HHFG LLC or HWA LLC.

                  (d) All of the outstanding shares of capital stock of each of
Keystone and Colonial Garden have been duly


                                      -32-
<PAGE>   33

authorized, validly issued and are fully paid and non-assessable, free and clear
of all claims, liens, pledges and encumbrances of any kind. Hanover is the
beneficial and direct owner of record of one hundred (100%) percent of the
issued and outstanding shares of capital stock of each of Keystone and Colonial
Garden.

                  (e) None of the membership interests in any of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, HHFG LLC and HWA LLC have been
evidenced by a membership certificate or other certificate, document, instrument
or security. All of the membership interests in each of Domestications LLC, HCS
LLC, Tweeds LLC, Silhouettes LLC, HHFG LLC and HWA LLC (i) are noted in the
respective books and records of each such company, (ii) have been duly
authorized, validly issued and (iii) are fully paid and non-assessable, free and
clear of all claims, liens, pledges and encumbrances of any kind .

                  (f) No court of competent jurisdiction has issued any
injunction, restraining order or other order which has prohibited or prohibits
consummation of the Hanover 1998 Reorganization or any part thereof, and no
governmental action or proceeding has been threatened or commenced seeking any
injunction, restraining order or other order which seeks to void or otherwise
modify the transactions described in the Hanover 1998 Reorganization Agreements.

                  (g) Each of Keystone and Colonial Garden is a Delaware
corporation, duly organized and validly existing in good standing under the laws
of the State of Delaware. Each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, HHFG LLC and HWA LLC is a limited liability company, duly
formed and validly existing in good standing under the laws of the State of
Delaware. Each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC,
Colonial Garden, HHFG LLC, HWA LLC and Keystone (i) is duly licensed or
qualified to do business as a foreign limited liability company or foreign
corporation, as the case may be, and is in good standing in each of the
jurisdictions set forth in Exhibit A annexed hereto, which are the only
jurisdictions wherein the character of the properties owned or licensed or the
nature of the business of any of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC or Keystone, makes such
licensing or qualification to do business necessary; and (ii) has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and will be conducted in the future.

                  (h) The assets and properties of Domestications LLC, HCS LLC,
Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone are
owned by them, free and clear of all security interests, liens and encumbrances
of any kind, nature or description, as of the date hereof, except those


                                      -33-
<PAGE>   34

security interests existing in favor of Lender and those granted pursuant hereto
in favor of Lender, and except for Liens (if any) permitted under Section 6.4 of
the Loan Agreement or the other Financing Agreements.

                  (i) Upon the effectiveness of each of the mergers consented to
under Sections 2(a) or 2(b) hereof, each such merger has or shall become
effective in accordance with the terms of each of the Additional Hanover
Subsidiary Merger Agreements applicable to it and of the applicable corporate
statutes of the States of incorporation of each Borrower and each Guarantor that
is a constituent corporation pursuant to the mergers so consented to. As of the
respective date of the effectiveness of the respective mergers consented to
under Sections 2(a) or 2(b) hereof, (i) Austad Holdings, Inc. shall be the
surviving corporation of the Austad/Austad Holdings Merger and the name of
Austad Holdings, Inc. shall have been changed to The Austad Company in
accordance with the applicable State laws of Delaware and South Dakota, (ii)
D.M. Advertising, Inc. shall be the surviving corporation of the Hanover List/DM
Advertising Merger, (iii) LWI Holdings, Inc. shall be the surviving corporation
of the LWI Retail/LWI Holdings Merger, (iv) The Company Store Factory, Inc. was
and is the surviving corporation of the TCS Factory/Company Factory Merger, (v)
The Company Office, Inc. was and is the surviving corporation of the TCS
Office/Company Office Merger, and (vi) Hanover Direct, Inc. shall be the
surviving corporation of the Aegis Safety/HDI Merger.

                  (j) Neither the consummation of the mergers, as consented to
under Section 2(a) or 2(b) hereof, nor the dissolution of certain Guarantors as
consented to under Section 2(c) hereof, nor the execution, delivery and/or
filing of the Additional Hanover Subsidiary Merger Agreements, the Hanover
Subsidiary Dissolution Agreements or any other agreements, documents or
instruments in connection therewith, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof if consummated
or effected on or before the date hereof has resulted in or if consummated or
effected after the date hereof shall result in the creation or imposition of any
lien, claim, charge or incumbrance upon any of the Collateral, except in favor
of Lender.

                  (k) All actions and proceedings required by the Additional
Hanover Subsidiary Merger Agreements applicable to the mergers consented to
under Sections 2(a) and 2(b) hereof and the Hanover Subsidiary Dissolution
Agreements, applicable law and regulation, have been or shall be taken prior to
the effectiveness of such mergers and dissolutions and all transactions required
thereunder have been and shall be, or will be duly and validly consummated.


                                      -34-
<PAGE>   35

                  (l) No court of competent jurisdiction has, or prior to the
effectiveness thereof shall have, issued any injunction, restraining order or
other order which prohibits consummation of the mergers as consented to under
Sections 2(a) or 2(b) hereof or the dissolution of certain Guarantors as
consented to under Section 2(c) hereof, and no governmental action or proceeding
has been, or, prior to the effectiveness thereof, shall have been, threatened or
commenced, seeking any injunction, restraining order or other order which seeks
to void or otherwise modify the transactions described in the Additional Hanover
Subsidiary Merger Agreements or the Hanover Subsidiary Dissolution Agreements.

                  (m) Neither the consummation of the mergers consented to under
Section 2(a) or 2(b) hereof, nor the dissolution of certain Guarantors consented
to under Section 2(c) hereof, nor the execution, delivery or filing of the
Additional Hanover Subsidiary Merger Agreements, the Hanover Subsidiary
Dissolution Agreements or any other agreements, documents or instruments in
connection therewith, nor the consummation of the transactions therein
contemplated, nor compliance with the provisions thereof before the date hereof
or upon the effectiveness of such mergers and dissolutions (i) has violated or
will violate any Federal or State securities laws, any State corporation law, or
any other law or regulation or any order or decree of any court or governmental
instrumentality in any respect, or (ii) does or will conflict with or result in
the breach of, or constitute a default in any respect under any mortgage, deed
of trust, security agreement, agreement or instrument to which any existing or
former Guarantor or Borrower is a party or may be bound, or (iii) does or will
violate any provision of the Certificate of Incorporation or By-Laws of any
Guarantor or any Borrower.

                  (n) The aggregate amount of the actual and contingent
indebtedness, liabilities and obligations, other than those owed to Lender,
incurred by the Guarantors dissolved or which will be dissolved as consented to
under Section 2(c) hereof, including any such indebtedness, liabilities and
obligations arising in connection with or relating to such dissolutions, shall
not exceed $10,000 for any one such dissolved Guarantor.

                  (o) No action of, or filing with, or consent of any
governmental or public body or authority, other than the filing of UCC financing
statements, and no approval or consent of any other party, is required to
authorize, or is otherwise required in connection with, the execution, delivery
and performance of this Amendment.

                  (p) All of the representations and warranties set forth in the
Loan Agreement as amended hereby, and the other


                                      -35-
<PAGE>   36

Financing Agreements, are true and correct in all material respects after giving
effect to the provisions of this Amendment, except to the extent any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct as of such date.

                  (q) After giving effect to the provisions of this Amendment,
no Event of Default or Incipient Default exists or has occurred and is
continuing.

                  (r) Within fifteen (15) days after the date of the
consummation of the mergers consented to in Section 2(b) hereof, Borrowers and
Guarantors shall deliver and/or cause to be delivered to Lender, each in form
and substance satisfactory to Lender, appropriate UCC amendments to the existing
UCC financing statements filed by the Lender against the merged Borrower or
Guarantor changing the debtor's name and/or mailing address to that of the
respective surviving corporation of the merger with such merged corporation as
consented to under Section 2(b) hereof.

            12. Conditions Precedent. Concurrently with the execution and
delivery hereof (except to the extent otherwise indicated below), and as a
further condition to the effectiveness of this Amendment and the agreement of
Lender to the modifications and amendments set forth in this Amendment:

                  (a) Lender shall have received, in form and substance
satisfactory to Lender, evidence that (i) the Hanover 1998 Reorganization
Agreements in connection with Phase I of the Hanover 1998 Reorganization have
been duly executed and delivered by and to the appropriate parties thereto and
(ii) the transactions contemplated by Phase I of the Hanover 1998 Reorganization
have been consummated prior to, or contemporaneously with, the execution of this
Amendment;

                  (b) Each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone, Existing
Borrowers and Existing Guarantors shall have delivered to Lender, in form and
substance satisfactory to Lender, each of the following agreements to which it
is a party, duly authorized, executed and delivered:

                        (i) Second Amendment to Trademark Collateral Assignment
and Security Agreement, dated November 14, 1995, by and among Hanover, Hanover
Catalog, Scandia, Aegis Holdings, CSHI, Austad Holdings and Lender, providing
for certain amendments to the existing exhibit(s) to such Trademark Collateral
Assignment and Security Agreement, and any such documents, instruments or
filings with respect thereto with the U.S. Patent and Trademark Office to
protect such Collateral;


                                      -36-
<PAGE>   37

                        (ii) First Amendment to Trademark Collateral Assignment
and Security Agreement, dated November 14, 1995, by and among Gump's, Tweeds,
Brawn and Lender, providing for certain amendments to the existing exhibit(s) to
such Trademark Collateral Assignment and Security Agreement,, and any such
documents, instruments or filings with respect thereto with the U.S. Patent and
Trademark Office to protect such Collateral;]

                        (iii) amendments to the Third Party Credit Card
Acknowledgments setting forth such acknowledging parties' agreement to transfer
to the Blocked Accounts all monies due and other funds payable to or for the
account of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial
Garden under the applicable Third Party Credit Card Agreements;

                        (iv) evidence that notice has been received by the
Customer List Escrow Agent setting forth any changes in ownership to all
existing Customer Lists that are being held by the Customer List Escrow Agent
pursuant to the Customer List Escrow Agreement;

                        (v) Amended and Restated Agency Agreement by and among
Hanover, Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial
Garden and certain Borrowers;

                        (vi) Guarantee and Waiver by Borrowers, other than
Domestications LLC, HDPI and Hanover Realty, in favor of Lender with respect to
the Obligations of Domestications LLC to Lender (HDPI and Hanover Realty hereby
acknowledge and confirm that each of the Guarantee and Waivers, dated June 26,
1998, by each of them in favor of Lender with respect to the existing and future
Obligations of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden to Lender, are in full force and effect);

                        (vii) Guarantee and Waiver by Borrowers, other than HCS
LLC, HDPI and Hanover Realty, in favor of Lender with respect to the Obligations
of HCS LLC to Lender;

                        (viii) Guarantee and Waiver by Borrowers, other than
Tweeds LLC, HDPI and Hanover Realty, in favor of Lender with respect to the
Obligations of Tweeds LLC to Lender;

                        (ix) Guarantee and Waiver by Borrowers, other than
Silhouettes LLC, HDPI and Hanover Realty, in favor of Lender with respect to the
Obligations of Silhouettes LLC to Lender;

                        (x) Guarantee and Waiver by Borrowers, other than
Colonial Garden, HDPI and Hanover Realty, in favor of Lender with respect to the
Obligations of Colonial Garden to Lender;


                                      -37-
<PAGE>   38

                        (xi) Guarantee and Waiver by Guarantors, other than
Borrowers and Hanover, in favor of Lender with respect to the Obligations of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden to
Lender;

                        (xii) Guarantee and Waiver by Hanover in favor of Lender
with respect to the Obligations of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC and Colonial Garden to Lender; and

                        (xiii) Blocked Account Agreement(s) by and among The
First National Bank of Maryland, Borrowers, certain Guarantors and Lender
providing for the establishment of a Blocked Account for each of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden;

                  (c) Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC,
Colonial Garden, HHFG LLC, HWA LLC and Keystone and all other Borrowers and
Guarantors shall have duly executed and delivered to Lender such UCC financing
statements and other documents and instruments which Lender in its sole
discretion has determined are necessary to perfect the security interests of
Lender in all Collateral now or hereafter owned by Domestications LLC, HCS LLC,
Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone;

                  (d) Each of Colonial Garden and Keystone shall have delivered
to Lender (i) a copy of its Certificate of Incorporation, and all amendments
thereto, certified by the Secretary of State of its jurisdiction of
incorporation as of the most recent practicable date certifying that each of the
foregoing documents remains in full force and effect and has not been modified
or amended, except as described therein, (ii) a copy of its By-Laws, certified
by its Secretary or Assistant Secretary, (iii) a certificate from its Secretary
or Assistant Secretary dated the date hereof certifying that each of the
foregoing documents remains in full force and effect and has not been modified
or amended, except as described therein;

                  (e) Each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, HHFG LLC and HWA LLC shall have delivered to Lender (i) a copy
of its Certificate of Formation or Articles of Organization, and all amendments
thereto, certified by the Secretary of State of its jurisdiction of formation as
of the most recent practicable date certifying that each of the foregoing
documents remains in full force and effect and has not been modified or amended,
except as described therein, (ii) a copy of its Operating Agreement, certified
by the Secretary or Assistant Secretary of the company, and (iii) a certificate
from its Secretary or Assistant Secretary dated the date hereof certifying that
each of the foregoing documents remains in full


                                      -38-
<PAGE>   39

force and effect and has not been modified or amended, except as described
therein;

                  (f) Each of HWA LLC, HCS LLC, Domestications LLC, HHFG LLC and
Keystone shall have delivered to Lender evidence, as of the most recent
practicable date, that it is duly qualified and in good standing in each
jurisdiction set forth in Exhibit A annexed hereto;

                  (g) Lender shall have received, in form and substance
satisfactory to Lender, Secretary's or Assistant Secretary's Certificates of
Directors' Resolutions with Shareholders' Consent evidencing the adoption and
subsistence of corporate resolutions approving the execution, delivery and
performance by Borrowers, Colonial Garden, Keystone and the other Guarantors of
this Amendment and the agreements, documents and instruments to be delivered
pursuant to this Amendment;

                  (h) Lender shall have received, in form and substance
satisfactory to Lender, for each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, HHFG LLC and HWA LLC (i) a Management and Incumbency
Certificate of each such company identifying all managers, officers or other
persons authorized to act on behalf of such company and if applicable, the
specific management responsibilities of each such manager, officer or other
authorized person, including a description of any restriction on any such
manager's, officer's or other person's authority to act for such company or, if
no restrictions are so imposed, a statement to that effect, (ii) Company
Resolutions of each such company, evidencing the adoption and subsistence of
company resolutions approving the execution, delivery and performance by each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, HHFG LLC and HWA LLC,
respectively, of this Amendment and the agreements, documents and instruments to
be delivered pursuant to this Amendment, in each case signed by all members of
each such company, and (iii) Certificates of the Secretary or Assistant
Secretary of each such company identifying all members of such company and the
relative voting and/or management rights of the members, if applicable, of such
company;

                  (i) Lender shall have received, in form and substance
satisfactory to Lender, updates or amendments to the existing Evidence of
Property Insurance and Certificate of Liability Insurance issued by the existing
insurance broker or agent of Borrowers and Guarantors in favor of Lender;

                  (j) Lender shall have received an opinion of counsel to
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC and Keystone, the other Borrowers and other Guarantors with respect
to the transactions contemplated by this Amendment and the Hanover 1998
Reorganization Agreements, and such other matters as Lender shall


                                      -39-
<PAGE>   40

reasonably addressed to Lender, in form and substance and satisfactory to
Lender; and

                  (k) each of Borrowers and Guarantors shall deliver, or cause
to be delivered, to Lender a true and correct copy of any consent, waiver or
approval to or of this Amendment, which any Borrower or Guarantor is required to
obtain from any other Person, and such consent, approval or waiver shall be in a
form reasonably acceptable to Lender.

            13. Effect of this Amendment. This Amendment constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior oral or written communications, memoranda, proposals,
negotiations, discussions, term sheets and commitments with respect to the
subject matter hereof. Except as expressly provided herein, no other changes or
modifications to the Loan Agreement or any of the other Financing Agreements, or
waivers of or consents under any provisions of any of the foregoing, are
intended or implied by this Amendment, and in all other respects the Financing
Agreements are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent that any provision
of the Loan Agreement or any of the other Financing Agreements conflicts with
any provision of this Amendment, the provision of this Amendment shall control.

            14. Further Assurances. Borrowers and Guarantors shall execute and
deliver such additional documents and take such additional action as may be
reasonably requested by Lender to effectuate the provisions and purposes of this
Amendment.

            15. Governing Law. The rights and obligations hereunder of each of
the parties hereto shall be governed by and interpreted and determined in
accordance with the internal laws of the State of New York (without giving
effect to principles of conflict of laws).

            16. Binding Effect. This Amendment shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns.

            17. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.


                                      -40-
<PAGE>   41

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed on the day and year first written.


                                CONGRESS FINANCIAL CORPORATION

                                By: /s/ Janet S. Hart
                                   -------------------------------------

                                Title: 1st VP
                                      ----------------------------------


                                HANOVER DIRECT PENNSYLVANIA, INC.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                BRAWN OF CALIFORNIA, INC.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                GUMP'S BY MAIL, INC.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: President
                                      ----------------------------------


                                GUMP'S CORP.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                HANOVER HOLDING CORP., as successor
                                 to the merger of The Company Store,
                                 Inc. with and into Tweeds,Inc.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                LWI HOLDINGS, INC.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]


                                      -41-
<PAGE>   42

                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]


                                AEGIS CATALOG CORPORATION

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                HANOVER DIRECT VIRGINIA INC.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: President
                                      ----------------------------------


                                HANOVER REALTY, INC.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: President
                                      ----------------------------------


                                THE AUSTAD COMPANY

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                TWEEDS, LLC

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                SILHOUETTES, LLC

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------


                                HANOVER COMPANY STORE, LLC

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]


                                      -42-
<PAGE>   43

                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]


                                DOMESTICATIONS, LLC

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: President
                                      ----------------------------------


                                COLONIAL GARDEN KITCHENS, INC.

                                By: /s/ [ILLEGIBLE]
                                   -------------------------------------

                                Title: VP
                                      ----------------------------------

By their signatures below, the
undersigned Guarantors acknowledge and
agree to be bound by the applicable
provisions of this Amendment:


HANOVER DIRECT, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: Senior Vice President
      ----------------------------------


AEGIS RETAIL CORPORATION

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


AEGIS SAFETY HOLDINGS, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------

                      [SIGNATURES CONTINUE ON NEXT PAGE]


                                      -43-
<PAGE>   44

                  [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

AEGIS VENTURES, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


AMERICAN DOWN & TEXTILE COMPANY

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


BRAWN WHOLESALE CORP.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


THE COMPANY STORE FACTORY, INC., a
Delaware corporation, as successor by
merger to The Company Factory, Inc., a
Delaware corporation

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


THE COMPANY OFFICE, INC., a Delaware
corporation, as successor by merger to
The Company Office, Inc., a Wisconsin
corporation

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


COMPANY STORE HOLDINGS, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------

                      [SIGNATURES CONTINUE ON NEXT PAGE]


                                      -44-
<PAGE>   45

                  [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

D.M. ADVERTISING, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


GUMP'S CATALOG, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


GUMP'S HOLDINGS, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


HANOVER CASUALS, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


HANOVER CATALOG HOLDINGS, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


HANOVER FINANCE CORPORATION

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


HANOVER LIST MANAGEMENT INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------

                      [SIGNATURES CONTINUE ON NEXT PAGE]


                                      -45-
<PAGE>   46

                  [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

HANOVER VENTURES, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


LWI RETAIL, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


SCANDIA DOWN CORPORATION

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


TWEEDS OF VERMONT, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


YORK FULFILLMENT COMPANY, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: President
      ----------------------------------


AUSTAD HOLDINGS, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


HANOVER HOME FASHIONS GROUP, LLC

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------

                      [SIGNATURES CONTINUE ON NEXT PAGE]


                                      -46-
<PAGE>   47

                  [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

HANOVER WOMEN'S APPAREL, LLC

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


KEYSTONE FULFILLMENT, INC.

By: /s/ [ILLEGIBLE]
   -------------------------------------

Title: VP
      ----------------------------------


                                      -47-
<PAGE>   48

                                   SCHEDULE 1
                                       TO
                                TWELFTH AMENDMENT
                                       TO
                           LOAN AND SECURITY AGREEMENT

                      HANOVER 1998 REORGANIZATION DOCUMENTS

Formation/Contribution Agreements:

Silhouettes, LLC:

Certificate of Formation of Silhouettes, LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Operating Agreement of Silhouettes, LLC
Unanimous Consent of the Board of Managers of Silhouettes, LLC 
Unanimous Consent of Members of Silhouettes, LLC 
Unanimous Written Consent of the Board of Managers of Silhouettes, LLC 
Assignment and Assumption Agreement with HDPI
Written Consent of Sole Stockholder of HDPI 
Unanimous Written Consent of the Board of Directors of HDPI 
Membership Interest Subscription by HDPI

Tweeds, LLC:

Certificate of Formation of Tweeds, LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Operating Agreement of Tweeds, LLC
Unanimous Consent of the Board of Managers of Tweeds, LLC 
Unanimous Consent of Members of Tweeds, LLC 
Unanimous Written Consent of the Board of Managers of Tweeds, LLC 
Assignment and Assumption Agreement with HHC 
Written Consent of Sole Stockholder of HHC 
Unanimous Written Consent of the Board of Directors of HHC
Membership Interest Subscription by HHC

HWA LLC:

Certificate of Formation of HWA LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Unanimous Consent of the Board of Managers of HWA LLC 
Unanimous Consent of Members of HWA LLC 
Operating Agreement of HWA LLC
<PAGE>   49

Unanimous Written Consent of the Board of Managers of HWA LLC 
Assignment Agreement with HHC 
Assignment Agreement with HDPI 
Written Consent of Sole Stockholder of HHC 
Unanimous Written Consent of the Board of Directors of HHC
Membership Interest Subscription by HHC 
Membership Interest Subscription by HDPI

TCSI/Tweeds Merger and related name change:

Certificate of Merger -- TCSI/Tweeds becomes Hanover Holding Corp.
Articles of Merger of TCSI with Tweeds

HCS LLC:

Certificate of Formation of HCS LLC 
Registration of Foreign Limited Liability Company - NJ 
Certificate of Authority or Registration - WI 
Certificate of Correction 
Unanimous Consent of the Board of Managers of HCS LLC 
Unanimous Consent of Members of HCS LLC 
Operating Agreement of HCS LLC 
Unanimous Written Consent of the Board of Managers of HCS LLC 
Assignment and Assumption Agreement with HHC 
Written Consent of Sole Stockholder of HHC 
Unanimous Written Consent of the Board of Directors of HHC 
Membership Interest Subscription by HHC

Domestications, LLC:

Certificate of Formation of Domestications, LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Unanimous Consent of the Board of Managers of Domestications, LLC
Unanimous Consent of Members of Domestications, LLC
Operating Agreement of Domestications, LLC
Unanimous Written Consent of the Board of Managers of Domestications, LLC
Assignment and Assumption Agreement with HDV
Written Consent of Sole Stockholder of HDV
Unanimous Written Consent of the Board of Directors of HDV
Membership Interest Subscription by HDV

HHFG LLC:

Certificate of Formation of HHFG LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA Certificate of Authority or Registration - WI
Certificate of Correction 
Unanimous Consent of the Board of Managers of HHFG LLC
<PAGE>   50

Unanimous Consent of Members of HHFG LLC
Operating Agreement of HHFG LLC
Unanimous Written Consent of the Board of Managers of HHFG LLC 
Assignment and Assumption Agreement with HHC 
Assignment and Assumption Agreement with HDV
Written Consent of Sole Stockholder of HHC 
Unanimous Written Consent of the Board of Directors of HHC 
Membership Interest Subscription by HHC 
Membership Interest Subscription by HDV

Colonial Garden:

Certificate of Incorporation of Colonial Garden
By-laws of Colonial Garden
Statement of Sole Incorporator
Unanimous Written Consent of the Board of Directors of Colonial Garden
Written Consent to Action of the Sole Shareholder of Colonial Garden
Unanimous Written Consent to Action of the Executive Committee of the Board of
  Directors of HDI 
Subscription Agreement by HDI
Unanimous Written Consent of the Board of Directors of HDPI 
Stock Certificate issued to HDI 
Assignment and Assumption Agreement by HDI

Keystone:

Certificate of Incorporation of Keystone
By-laws of Keystone
Statement of Sole Incorporator of Keystone
Unanimous Written Consent of the Board of Directors of Keystone
Written Consent to Action of the Sole Shareholder of Keystone
Subscription Agreement by HDI
Stock Certificate issued to HDI

Hanover Subsidiary Dissolution and Withdrawal Agreements for filing in the
following States:

Aegis Ventures:                                  DE

Hanover Casuals:                                 DE, CA, MA, VA

Gump's Catalog:                                  DE, CA, TX

Hanover Finance Corporation:                     DE, CA
<PAGE>   51

York Fulfillment:                                CA

Tweeds of Vermont:                               MA

Additional Hanover Subsidiary Merger Agreements for filing in the following
States::

Hanover List Management, Inc. into DM Advertising, Inc.:
      Certificate of Merger to be filed in the state of New Jersey

The Austad Company into Austad Holdings, Inc.:
      Certificate of Merger to be filed in the states of South
      Dakota and Delaware
      (The name of the surviving corporation shall be amended to The Austad 
      Company)

LWI Retail, Inc. into LWI Holdings, Inc.:
      Certificate of Merger to be filed in the states of Ohio and Delaware

Additional Hanover Subsidiary Merger Agreements

TCS Factory/Company Factory Merger:
Articles of Merger of TCS Factory with Company Factory
Certificate of Authority or Registration - TCS Factory

TCS Office/Company Office Merger:
Articles of Merger of TCS Office with The Company Office
Certificate of Authority or Registration - The Company Office
<PAGE>   52

                                    Exhibit A
                                to 12th Amendment
                         to Loan and Security Agreement

              The following additional information is hereby added
                 to Exhibit A to the Loan and Security Agreement

                         Jurisdictions of Qualification

<TABLE>
<CAPTION>
Company                               State of Incorporation     Qualifications
-------                                        or                --------------
                                            Formation
                                            ---------
<S>                                         <C>                  <C> 
Colonial Garden Kitchens, Inc.              Delaware             New Jersey
                                                                 Ohio
                                                                 Virginia

Domestications, LLC                         Delaware             New Jersey
                                                                 Virginia

Hanover Company Store, LLC                  Delaware             New Jersey
                                                                 Wisconsin

Hanover Home Fashions Group, LLC            Delaware             New Jersey
                                                                 Virginia
                                                                 Wisconsin

Hanover Women's Apparel, LLC                Delaware             New Jersey
                                                                 Virginia

Keystone Fulfillment, Inc.                  Delaware             Pennsylvania

Silhouettes, LLC                            Delaware             New Jersey
                                                                 Virginia

Tweeds, LLC                                 Delaware             New Jersey
                                                                 Virginia
</TABLE>

<PAGE>   53

                                    EXHIBIT B
                                       TO
                TWELFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

                      The following additional subsidiaries
         are hereby added to Exhibit B-1 to Loan and Security Agreement

                              Existing Subsidiaries

Name of New Borrower Subsidiary
-------------------------------

Colonial Garden Kitchens, Inc.

Domestications, LLC

Hanover Company Store, LLC

Silhouettes, LLC

Tweeds, LLC

Name of Guarantor Subsidiary                       Percentage Owned by Parent
----------------------------                       --------------------------

Keystone Fulfillment, Inc.                         100%

Hanover Home Fashions Group, LLC                   Equal to the proportion the
                                                   book value of the net assets
                                                   contributed to the company
                                                   bears to the total book
                                                   value of the net assets of
                                                   the company.

Hanover Women's Apparel, LLC                       Equal to the proportion the
                                                   book value of the net assets
                                                   contributed to the company
                                                   bears to the total book
                                                   value of the net assets of
                                                   the company.
<PAGE>   54

                         AMENDED AND RESTATED EXHIBIT C
                                       TO
                  12th AMENDMENT TO LOAN AND SECURITY AGREEMENT

                            Borrowers and Guarantors
             Chief Executive Offices, Principal Places of Business,
                        Locations and Types of Collateral

<TABLE>
<CAPTION>
======================================================================================================================
                                    Location of Chief      Places of
Company                             Executive Office       Business       Location of Collateral   Types of Collateral
-------                             -----------------      ---------      ----------------------   -------------------
----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>               <C>                      <C>
Aegis Ventures, Inc. (1)
----------------------------------------------------------------------------------------------------------------------
Aegis Retail Corporation (2)        Roanoke, VA         Roanoke, VA       Roanoke, VA              Documents
                                                                                                   Instruments
                                                                                                   Inventory
                                                                                                   Lease
                                                                                                   Equipment
                                                                                                   Fixtures
----------------------------------------------------------------------------------------------------------------------
Aegis Safety Holdings, Inc.         Weehawken, NJ       Weehawken, NJ     Weehawken, NJ            Stock
----------------------------------------------------------------------------------------------------------------------
Aegis Catalog Corporation           Weehawken, NJ       Weehawken, NJ     Weehawken, NJ            Inventory
                                                        Hanover, PA       Hanover, PA              Accounts
                                                                                                   Documents
                                                                                                   Instruments
----------------------------------------------------------------------------------------------------------------------
American Down & Textile Company     La Crosse, WI       La Crosse, WI     La Crosse, WI            Accounts
                                                                                                   Equipment
                                                                                                   Fixtures
                                                                                                   General Intangibles
                                                                                                   Inventory
                                                                                                   Documents
                                                                                                   Instruments
----------------------------------------------------------------------------------------------------------------------
The Austad Company, SD (3)          San Diego, CA       San Diego, CA     San Diego, CA

----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>   55

<TABLE>
<CAPTION>
======================================================================================================================
                                    Location of Chief      Places of
Company                             Executive Office       Business       Location of Collateral   Types of Collateral
-------                             -----------------      ---------      ----------------------   -------------------
======================================================================================================================

----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>               <C>                      <C>
The Austad Company, DE (4)          San Diego, CA       San Diego, CA     San Diego, CA            Trademarks
                                                                                                   Accounts
                                                                          Conewago Township, PA    Equipment
                                                                                                   General Intangibles
                                                                                                   Documents
                                                                                                   Instruments
                                                                                                   Inventory
                                                                                                   Lease
----------------------------------------------------------------------------------------------------------------------
Brawn Wholesale Corp. (5)           San Diego, CA       San Diego, CA
----------------------------------------------------------------------------------------------------------------------
Brawn of California, Inc.           San Diego, CA       San Diego, CA     San Diego, CA            Accounts (CA)
                                                        Los Angeles, CA   Los Angeles, CA          Documents (CA)
                                                        Roanoke, VA       Roanoke, VA              Equipment (CA)
                                                                                                   Fixtures (CA)
                                                                                                   General Intangibles
                                                                                                     (CA)
                                                                                                   Inventory
                                                                                                     (VA and CA)
----------------------------------------------------------------------------------------------------------------------
Colonial Garden Kitchens, Inc. (6)  Beachwood, OH       Beachwood, OH     Beachwood, OH            Accounts (NJ)
                                                                          Conewago Township, PA    Documents (NJ)
                                    Weehawken, NJ       Weehawken, NJ                              General Intangibles 
                                                                                                     (NJ)
                                                                                                   Inventory (PA)
----------------------------------------------------------------------------------------------------------------------
Company Store Holdings, Inc. (7)    Weehawken, NJ       Weehawken, NJ     Weehawken, NJ            Stock
                                                                                                   General Intangibles
                                                                                                   Accounts
----------------------------------------------------------------------------------------------------------------------
D.M. Advertising, Inc.              Weehawken, NJ       Weehawken, NJ     Weehawken, NJ            Lease
                                                        Hanover, PA                                Fixtures
                                                        Roanoke, VA                                Equipment
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -2-
<PAGE>   56

<TABLE>
<CAPTION>
======================================================================================================================
                                    Location of Chief      Places of
Company                             Executive Office       Business       Location of Collateral   Types of Collateral
-------                             -----------------      ---------      ----------------------   -------------------
======================================================================================================================

----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>                <C>                      <C>
Domestications, LLC (8)             Weehawken, NJ       Weehawken, NJ      Weehawken, NJ            Accounts (NJ)
                                                        Roanoke, VA        Roanoke, VA              Documents (VA)
                                                                                                    General Intangibles
                                                                                                      (NJ)
                                                                                                    Instruments
                                                                                                    Inventory (VA)
-----------------------------------------------------------------------------------------------------------------------
Gump's By Mail, Inc.                Weehawken, NJ       Weehawken, NJ      Hanover, PA              Accounts
                                                        Hanover, PA                                 Documents
                                                        San Francisco, CA                           Equipment
                                                                                                    Fixtures
                                                                                                    General Intangibles
                                                                                                    Instruments
                                                                                                    Inventory
-----------------------------------------------------------------------------------------------------------------------
Gump's Corp.                        San Francisco, CA   San Francisco, CA  San Francisco, CA        Accounts
                                                                                                    Documents
                                                                                                    Equipment
                                                                                                    Fixtures
                                                                                                    General Intangibles
                                                                                                    Instruments
                                                                                                    Inventory
-----------------------------------------------------------------------------------------------------------------------
Gump's Holdings, Inc.               Weehawken, NJ       Weehawken, NJ      Weehawken, NJ            Stock
                                                                                                    General Intangibles
-----------------------------------------------------------------------------------------------------------------------
Gump's Catalog, Inc. (9)
-----------------------------------------------------------------------------------------------------------------------
Hanover Company Store, LLC (10)     Weehawken, NJ       LaCrosse, WI       Weehawken, NJ            Accounts (WI)
                                                        Weehawken, NJ      LaCrosse, WI             Documents (WI)
                                                                           Roanoke, VA              General Intangibles 
                                                                                                      (WI)
                                                                                                    Instruments
                                                                                                    Inventory (WI)
-----------------------------------------------------------------------------------------------------------------------
Hanover Direct Virginia Inc.        Weehawken, NJ       Weehawken, NJ      Weehawken, NJ            Ownership Interests
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -3-
<PAGE>   57

<TABLE>
<CAPTION>
==========================================================================================================================
                                      Location of Chief      Places of
Company                               Executive Office       Business         Location of Collateral   Types of Collateral
-------                               -----------------      ---------        ----------------------   -------------------
==========================================================================================================================

--------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                 <C>                <C>                      <C>
Hanover Finance Corporation (11)
--------------------------------------------------------------------------------------------------------------------------
Hanover Direct Pennsylvania, Inc.      Weehawken, NJ       Weehawken, NJ      Weehawken, NJ            Ownership Interests
                                                           Hanover, PA        Hanover, PA              Equipment
                                                                              Roanoke, VA              Fixtures
                                                                              LaCrosse, WI             General Intangibles
                                                                              San Diego, CA            Stock
                                                                              San Francisco, CA        Documents
                                                                                                       Instruments
--------------------------------------------------------------------------------------------------------------------------
Hanover Home Fashions Group, LLC (12)  Weehawken, NJ       Roanoke, VA        Weehawken, NJ            Equipment
                                                                              LaCrosse, WI             Ownership Interests
                                                                              Roanoke, VA              Fixtures
--------------------------------------------------------------------------------------------------------------------------
Hanover Ventures, Inc. (13)            Weehawken, NJ       Weehawken, NJ
--------------------------------------------------------------------------------------------------------------------------
Hanover Women's Apparel, LLC (14)      Weehawken, NJ       Weehawken, NJ      Weehawken, NJ            Ownership Interests
--------------------------------------------------------------------------------------------------------------------------
Hanover Realty, Inc.                   Roanoke, VA         Roanoke, VA        Roanoke, VA              Property
                                                                                                       Fixtures
--------------------------------------------------------------------------------------------------------------------------
Hanover List Management Inc. (15)
--------------------------------------------------------------------------------------------------------------------------
Hanover Casuals, Inc. (16)
--------------------------------------------------------------------------------------------------------------------------
Hanover Catalog Holdings, Inc.         Weehawken, NJ       Weehawken, NJ      Weehawken, NJ            General Intangibles
--------------------------------------------------------------------------------------------------------------------------
Keystone Fulfillment, Inc.             Weehawken, NJ       Weehawken, NJ      Weehawken, NJ
--------------------------------------------------------------------------------------------------------------------------
Hanover Direct, Inc.                   Weehawken, NJ       Weehawken, NJ      Weehawken, NJ            Accounts
                                                                                                       Stock
                                                                                                       General Intangibles
                                                                                                       Documents
                                                                                                       Instruments
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -4-
<PAGE>   58

<TABLE>
<CAPTION>
=============================================================================================================================
                                    Location of Chief      Places of
Company                             Executive Office       Business              Location of Collateral   Types of Collateral
-------                             -----------------      ---------             ----------------------   -------------------
=============================================================================================================================

-----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                    <C>                   <C>                      <C>
LWI Retail, Inc. (17)               Mayfield Heights, OH   Mayfield Heights, OH  Mayfield Heights, OH     Accounts
                                                                                                          Inventory
                                                                                                          Lease
                                                                                                          Fixtures
                                                                                                          Equipment
                                                                                                          Documents
                                                                                                          Instruments
-----------------------------------------------------------------------------------------------------------------------------
LWI Holdings, Inc.                  Beachwood, OH          Beachwood, OH         Beachwood, OH            Accounts
                                                                                 Conewago Township, PA    Equipment
                                                                                                          Fixtures
                                                                                                          Inventory (PA)
                                                                                                          Property
                                                                                                          Leases
                                                                                                          Documents
                                                                                                          Instruments
                                                                                                          General Intangibles
-----------------------------------------------------------------------------------------------------------------------------
Scandia Down Corporation            Weehawken, NJ          Weehawken, NJ         Weehawken, NJ            Documents
                                                                                                          General Intangibles
                                                                                                          Instruments
-----------------------------------------------------------------------------------------------------------------------------
Silhouettes, LLC (18)               Weehawken, NJ          Weehawken, NJ         Weehawken, NJ            Accounts
                                                           Roanoke, VA           Roanoke, VA              Documents
                                                                                                          General Intangibles
                                                                                                          Instruments
                                                                                                          Inventory (VA)
-----------------------------------------------------------------------------------------------------------------------------
The Company Office, Inc.            La Crosse, WI          La Crosse, WI         La Crosse, WI            Accounts
                                                                                                          Fixtures
                                                                                                          General Intangibles
                                                                                                          Real Property
                                                                                                          Documents
                                                                                                          Instruments
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -5-
<PAGE>   59

<TABLE>
<CAPTION>
=======================================================================================================================
                                    Location of Chief    Places of
Company                             Executive Office     Business          Location of Collateral   Types of Collateral
-------                             -----------------    ---------         ----------------------   -------------------
=======================================================================================================================

-----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                  <C>               <C>                      <C>
The Company Factory, Inc.           La Crosse, WI        La Crosse, WI     La Crosse, WI            Accounts
                                                                                                    Equipment
                                                                                                    Fixtures
                                                                                                    General Intangibles
                                                                                                    Real Property
                                                                                                    Documents
                                                                                                    Instruments
                                                                                                    Inventory
-----------------------------------------------------------------------------------------------------------------------
The Company Store, Inc. (19)       
-----------------------------------------------------------------------------------------------------------------------
Tweeds of Vermont, Inc. (20)
-----------------------------------------------------------------------------------------------------------------------
Tweeds, Inc.(21)                    Weehawken, NJ        Weehawken, NJ     Weehawken, NJ            Accounts
                                                         Roanoke, VA       Roanoke, VA              Equipment
                                                         LaCrosse, WI      LaCrosse, WI             Fixtures
                                                         Madison, WI       Madison, WI              General Intangibles
                                                         Kenoshat, WI      Kenoshat, WI             Inventory
                                                         Oshkosh, WI       Oshkosh, WI              Documents
                                                                                                    Instruments
                                                                                                    Ownership Interests
-----------------------------------------------------------------------------------------------------------------------
Tweeds, LLC (22)                    Weehawken, NJ        Weehawken, NJ     Weehawken, NJ            Accounts
                                                         Roanoke, VA       Roanoke, VA              Documents
                                                                                                    General Intangibles
                                                                                                    Instruments
                                                                                                    Inventory
=======================================================================================================================
York Fulfillment Company, Inc.(23)
=======================================================================================================================
</TABLE>


                                      -6-
<PAGE>   60

<TABLE>
<CAPTION>
=======================================================================================================================
                                    Location of Chief    Places of
Company                             Executive Office     Business          Location of Collateral   Types of Collateral
-------                             -----------------    ---------         ----------------------   -------------------
=======================================================================================================================
<S>                                 <C>                  <C>               <C>                      <C>
</TABLE>

--------------------------------------------------------------------------------

(1)   Hanover Direct, Inc. intends to liquidate Aegis Ventures, Inc. The
      corporation is inactive and has no assets.

(2)   The McLean, Virginia store will be closed and vacated by September 30,
      1998.

(3)   Hanover Direct, Inc., intends to merge The Austad Company with and into
      Austad Holdings, Inc.

(4)   Following the merger of The Austad Company with and into Austad Holdings,
      Inc., the name of Austad Holdings, Inc. is to be changed to The Austad
      Company.

(5)   Brawn Wholesale Corp. has been inactive since early 1998 and will be
      dissolved by December 26, 1998.

(6)   Colonial Garden Kitchens, Inc. is a newly formed entity which, following
      consummation of the transactions contemplated by the 12th Amendment to
      Loan and Security Agreement, will own the assets of the Hanover House and
      Colonial Garden Kitchens catalogs. All the assets located in Beachwood,
      Ohio will be moved to Weehawken, New Jersey by December 26, 1998.

(7)   Company Store Holdings, Inc. is to merge with Tweeds, Inc.; the name of
      the surviving company is to be changed to Hanover Holding Corp.

(8)   Domestications, LLC is a newly formed entity which, following consummation
      of the transactions contemplated by the 12th Amendment to Loan and
      Security Agreement, will own certain assets of the Domestications catalog.

(9)   Hanover Direct, Inc. intends to liquidate Gump's Catalog, Inc. The
      corporation is inactive and has no assets.

(10)  Hanover Company Store, LLC is a newly formed entity which, following
      consummation of the transactions contemplated by the 12th Amendment to
      Loan and Security Agreement, will own certain assets of The Company Store
      catalog.

(11)  Hanover Direct, Inc. intends to liquidate Hanover Finance Corporation.

(12)  Hanover Home Fashions, LLC is a newly formed entity which, following
      consummation of the transactions contemplated by the 12th Amendment to
      Loan and Security Agreement, will own the primary ownership interests in
      Domestications, LLC and Hanover Company Store, LLC.

(13)  Hanover Direct, Inc. intends to dissolve Hanover Ventures, Inc.

(14)  Hanover Women's Apparel, LLC is a newly formed entity which, following
      consummation of the transactions contemplated by the 12th Amendment to
      Loan


                                      -7-
<PAGE>   61

<TABLE>
<CAPTION>
=======================================================================================================================
                                    Location of Chief    Places of
Company                             Executive Office     Business          Location of Collateral   Types of Collateral
-------                             -----------------    ---------         ----------------------   -------------------
=======================================================================================================================
<S>                                 <C>                  <C>               <C>                      <C>
</TABLE>

--------------------------------------------------------------------------------

      and Security Agreement, will own the primary ownership interests in
      Tweeds, LLC and Silhouettes, LLC.

(15)  Hanover Direct, Inc. intends to liquidate Hanover List Management, Inc.
      The corporation is inactive and has no assets.

(16)  Hanover Direct, Inc. intends to liquidate Hanover Casuals, Inc. The
      corporation is inactive and has no assets.

(17)  LWI Retail, Inc. is to merge with and into LWI Holdings, Inc.

(18)  Silhouettes, LLC is a newly formed entity which, following consummation of
      the transactions contemplated by the 12th Amendment to Loan and Security
      Agreement, will own certain assets of the Silhouettes catalog.

(19)  The Company Store, Inc. is to merge with and into Tweeds, Inc.

(20)  Hanover Direct, Inc. intends to liquidate Tweeds of Vermont, Inc. The
      corporation is inactive and has no assets.

(21)  Tweeds, Inc. still has a lease for property at 155 River Road in
      Edgewater, NJ but is subleasing a portion of the space and has no
      intention of recommencing operations at that facility prior to the lease
      expiration.

(22)  Tweeds, LLC is a newly formed entity which, following consummation of the
      transactions contemplated by the 12th Amendment to Loan and Security
      Agreement, will own certain assets of the Tweeds catalog.

(23)  Hanover Direct, Inc. intends to liquidate York Fulfillment Company, Inc.
      The corporation is inactive and has no assets.


                                      -8-
<PAGE>   62

                                Mailing Addresses

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S>                                       <C>
Location                                  Addresses and Zip Codes
--------                                  -----------------------
--------------------------------------------------------------------------------
Beachwood, OH                             23297-99 Commerce Park Road, 44122
--------------------------------------------------------------------------------
Conewago Township, PA                     101 E. Kindig Lane, 17331
--------------------------------------------------------------------------------
Hanover, PA                               340 Poplar Street, 17331
                                          Baltimore Street, 17331
--------------------------------------------------------------------------------
Kenosha, WI                               7700 120th Avenue, 53142
--------------------------------------------------------------------------------
La Crosse, WI                             (a) 455 Park Plaza Drive, 54601
                                          (b) 2929 Airport Road, 54603
                                          301 Sky Harbor Drive, 54603
                                          2809 Losey Boulevard, 54601
--------------------------------------------------------------------------------
Los Angeles, CA                           9000-9006 Santa Monica Boulevard
--------------------------------------------------------------------------------
Madison, WI                               4050 University Avenue, 53705
--------------------------------------------------------------------------------
Mayfield Heights, OH                      5876 Mayfield Road, 44124
--------------------------------------------------------------------------------
McLean, VA                                7916 Tysons Corner Center, 22102
--------------------------------------------------------------------------------
Oshkosh, WI                               901 South Main Street, 54901
--------------------------------------------------------------------------------
Roanoke, VA (1)                           5022 Hollins Road, 24019
--------------------------------------------------------------------------------
San Francisco, CA                         135 Post Street, 94108
--------------------------------------------------------------------------------
San Diego, CA                             9369 Dowdy Drive, 92121
                                          3964 Fifth Avenue, 92103
                                          741 "F" Street, 92101
--------------------------------------------------------------------------------
Weehawken, NJ                             1500 Harbor Boulevard, 07087
--------------------------------------------------------------------------------
</TABLE>

(1)   The One Avery Row facility in Roanoke is not currently in use by Tweeds,
      Inc. and an attempt is being made to sublease the facility and sell the
      interest in the Partnership that owns it.


                                      -9-
<PAGE>   63

                                    EXHIBIT D
                                       TO
                  12th AMENDMENT TO LOAN AND SECURITY AGREEMENT

                                   Guarantors
             Chief Executive Offices, Principal Places of Business,
                        Locations and Types of Collateral

<TABLE>
<CAPTION>
============================================================================================================================
                                      Location of Chief         Places of
Company                               Executive Office          Business       Location of Collateral    Types of Collateral
-------                               ----------------          --------       ----------------------    -------------------
----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>                <C>                       <C>
Aegis Ventures, Inc. (1)
----------------------------------------------------------------------------------------------------------------------------
Aegis Retail Corporation (2)          Roanoke, VA           Roanoke, VA        Roanoke, VA               Documents
                                                                                                         Instruments
                                                                                                         Inventory
                                                                                                         Lease
                                                                                                         Equipment
                                                                                                         Fixtures
----------------------------------------------------------------------------------------------------------------------------
Aegis Safety Holdings, Inc.           Weehawken, NJ         Weehawken, NJ      Weehawken, NJ             Stock
----------------------------------------------------------------------------------------------------------------------------
American Down & Textile Company       La Crosse, WI         La Crosse, WI      La Crosse, WI             Accounts
                                                                                                         Equipment
                                                                                                         Fixtures
                                                                                                         General Intangibles
                                                                                                         Inventory
                                                                                                         Documents
                                                                                                         Instruments
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>   64

<TABLE>
<CAPTION>
============================================================================================================================
                                      Location of Chief         Places of
Company                               Executive Office          Business       Location of Collateral    Types of Collateral
-------                               ----------------          --------       ----------------------    -------------------
============================================================================================================================

----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>                <C>                       <C>
Brawn Wholesale Corp. (3)             San Diego, CA
----------------------------------------------------------------------------------------------------------------------------
Company Store Holdings, Inc. (4)      Weehawken, NJ          Weehawken, NJ     Weehawken, NJ             Stock
                                                                                                         General Intangibles
                                                                                                         Accounts
----------------------------------------------------------------------------------------------------------------------------
D.M. Advertising, Inc.                Weehawken, NJ          Weehawken, NJ     Weehawken, NJ             Lease
                                                             Hanover, PA                                 Fixtures
                                                             Roanoke, VA                                 Equipment
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -2-
<PAGE>   65

<TABLE>
<CAPTION>
============================================================================================================================
                                      Location of Chief         Places of
Company                               Executive Office          Business       Location of Collateral    Types of Collateral
-------                               ----------------          --------       ----------------------    -------------------
============================================================================================================================

----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>                <C>                       <C>
Gump's Holdings, Inc.                 Weehawken, NJ         Weehawken, NJ      Weehawken, NJ             Stock
                                                                                                         General Intangibles
----------------------------------------------------------------------------------------------------------------------------
Gump's Catalog, Inc. (5)
----------------------------------------------------------------------------------------------------------------------------
Hanover Finance Corporation (6)
----------------------------------------------------------------------------------------------------------------------------
Hanover Home Fashions Group, LLC (7)  Weehawken, NJ         Roanoke, VA        Weehawken, NJ             Equipment
                                                                               LaCrosse, WI              Ownership Interests
                                                                               Roanoke, VA               Fixtures
----------------------------------------------------------------------------------------------------------------------------
Hanover Ventures, Inc. (8)            Weehawken, NJ
----------------------------------------------------------------------------------------------------------------------------
Hanover Women's Apparel, LLC (9)      Weehawken, NJ         Weehawken, NJ      Weehawken, NJ             Ownership Interests
----------------------------------------------------------------------------------------------------------------------------
Hanover List Management Inc. (10)
----------------------------------------------------------------------------------------------------------------------------
Hanover Casuals, Inc. (11)
----------------------------------------------------------------------------------------------------------------------------
Hanover Catalog Holdings, Inc.        Weehawken, NJ         Weehawken, NJ      Weehawken, NJ             General Intangibles
----------------------------------------------------------------------------------------------------------------------------
Hanover Direct, Inc.                  Weehawken, NJ         Weehawken, NJ      Weehawken, NJ             Accounts
                                                                                                         Stock
                                                                                                         General Intangibles
                                                                                                         Documents
                                                                                                         Instruments
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -3-
<PAGE>   66

<TABLE>
<CAPTION>
=============================================================================================================================
                                      Location of Chief         Places of
Company                               Executive Office          Business          Location of Collateral  Types of Collateral
-------                               ----------------          --------          ----------------------  -------------------
=============================================================================================================================

-----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>                   <C>                     <C>
Keystone Fulfillment, Inc.            Weehawken, NJ         Weehawken, NJ         Weehawken, NJ           
-----------------------------------------------------------------------------------------------------------------------------
LWI Retail, Inc. (12)                 Mayfield Heights, OH  Mayfield Heights, OH  Mayfield Heights, OH    Accounts
                                                                                                          Inventory
                                                                                                          Lease
                                                                                                          Fixtures
                                                                                                          Equipment
                                                                                                          Documents
                                                                                                          Instruments
-----------------------------------------------------------------------------------------------------------------------------
Scandia Down Corporation              Weehawken, NJ         Weehawken, NJ         Weehawken, NJ           Documents
                                                                                                          General Intangibles
                                                                                                          Instruments
-----------------------------------------------------------------------------------------------------------------------------
The Company Office, Inc.              La Crosse, WI         La Crosse, WI         La Crosse, WI           Accounts
                                                                                                          Fixtures
                                                                                                          General Intangibles
                                                                                                          Real Property
                                                                                                          Documents
                                                                                                          Instruments
-----------------------------------------------------------------------------------------------------------------------------
The Company Factory, Inc.             La Crosse, WI         La Crosse, WI         La Crosse, WI           Accounts
                                                                                                          Equipment
                                                                                                          Fixtures
                                                                                                          General Intangibles
                                                                                                          Real Property
                                                                                                          Documents
                                                                                                          Instruments
                                                                                                          Inventory
-----------------------------------------------------------------------------------------------------------------------------
Tweeds of Vermont, Inc. (13)
-----------------------------------------------------------------------------------------------------------------------------
York Fulfillment Company, Inc.(14)
=============================================================================================================================
</TABLE>


                                      -4-
<PAGE>   67

<TABLE>
<CAPTION>
=============================================================================================================================
                                      Location of Chief         Places of
Company                               Executive Office          Business          Location of Collateral  Types of Collateral
-------                               ----------------          --------          ----------------------  -------------------
=============================================================================================================================
<S>                                   <C>                  <C>               <C>                      <C>

</TABLE>

--------------------------------------------------------------------------------

(1)   Hanover Direct, Inc. intends to liquidate Aegis Ventures, Inc. The
      corporation is inactive and has no assets.

(2)   The McLean, Virginia store will be closed and vacated by September 30,
      1998.

(3)   Brawn Wholesale Corp. has been inactive since early 1998 and will be
      dissolved by December 26, 1998.

(4)   Company Store Holdings, Inc. is to merge with Tweeds, Inc., the name of
      the surviving company is to be changed to Hanover Holding Corp.

(5)   Hanover Direct, Inc. intends to liquidate Gump's Catalog, Inc. The
      corporation is inactive and has no assets.

(6)   Hanover Direct, Inc. intends to liquidate Hanover Finance Corporation.

(7)   Hanover Home Fashions, LLC is a newly formed entity which, following
      consummation of the transactions contemplated by the 12th Amendment to
      Loan and Security Agreement, will own the primary ownership interests in
      Domestications, LLC and Hanover Company Store, LLC.

(8)   Hanover Direct, Inc. intends to dissolve Hanover Ventures, Inc.

(9)   Hanover Women's Apparel, LLC is a newly formed entity which, following
      consummation of the transactions contemplated by the 12th Amendment to
      Loan and Security Agreement, will own the primary ownership interests in
      Tweeds, LLC and Silhouettes, LLC.

(10)  Hanover Direct, Inc. intends to liquidate Hanover List Management, Inc.
      The corporation is inactive and has no assets.

(11)  Hanover Direct, Inc. intends to liquidate Hanover Casuals, Inc. The
      corporation is inactive and has no assets.

(12)  LWI Retail, Inc. is to merge with and into LWI Holdings, Inc.

(13)  Hanover Direct, Inc. intends to liquidate Tweeds of Vermont, Inc. The
      corporation is inactive and has no assets.

(14)  Hanover Direct, Inc. intends to liquidate York Fulfillment Company, Inc.
      The corporation is inactive and has no assets.


                                      -5-
<PAGE>   68

                                Mailing Addresses

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S>                                      <C>
Location                                 Addresses and Zip Codes
--------                                 -----------------------
--------------------------------------------------------------------------------
Beachwood, OH                            23297-99 Commerce Park Road, 44122
--------------------------------------------------------------------------------
Conewago Township, PA                    101 E. Kindig Lane, 17331
--------------------------------------------------------------------------------
Hanover, PA                              340 Poplar Street, 17331
                                         Baltimore Street, 17331
--------------------------------------------------------------------------------
Kenosha, WI                              7700 120th Avenue, 53142
--------------------------------------------------------------------------------
La Crosse, WI                            (a) 455 Park Plaza Drive, 54601
                                         (b) 2929 Airport Road, 54603
                                         301 Sky Harbor Drive, 54603
                                         2809 Losey Boulevard, 54601
--------------------------------------------------------------------------------
Los Angeles, CA                          9000-9006 Santa Monica Boulevard
--------------------------------------------------------------------------------
Madison, WI                              4050 University Avenue, 53705
--------------------------------------------------------------------------------
Mayfield Heights, OH                     5876 Mayfield Road, 44124
--------------------------------------------------------------------------------
McLean, VA                               7916 Tysons Corner Center, 22102
--------------------------------------------------------------------------------
Oshkosh, WI                              901 South Main Street, 54901
--------------------------------------------------------------------------------
Roanoke, VA (1)                          5022 Hollins Road, 24019
--------------------------------------------------------------------------------
San Francisco, CA                        135 Post Street, 94108
--------------------------------------------------------------------------------
San Diego, CA                            9369 Dowdy Drive, 92121
                                         3964 Fifth Avenue, 92103
                                         741 "F" Street, 92101
--------------------------------------------------------------------------------
Weehawken, NJ                            1500 Harbor Boulevard, 07087
--------------------------------------------------------------------------------
</TABLE>

(1)   The One Avery Row facility in Roanoke is not currently in use by Tweeds,
      Inc. and an attempt is being made to sublease the facility and sell the
      interest in the Partnership that owns it.


                                      -6-