Document:

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                                                                   Exhibit 10.16

                              HANOVER DIRECT, INC.

                          SUPPLEMENTAL RETIREMENT PLAN

                              HANOVER DIRECT, INC.

                          SUPPLEMENTAL RETIREMENT PLAN

                                  INTRODUCTION

                 The Hanover Direct, Inc. Supplemental Retirement Plan,
previously adopted as The Horn & Hardart Company Supplemental Retirement Plan,
which was effective January 1, 1989, is hereby amended and restated in its
entirety, effective as of October 1, 1993, to read as follows:

                                    ARTICLE I
                                   DEFINITIONS

                 As used in this Plan, the following terms shall have the
meanings set forth below, unless the context clearly requires otherwise:
         1.01 ACCOUNT shall mean the accumulated Annual Earned Accruals and
Matching Earned Accruals determined for the Designated Executive, including any
investment earnings. Any active employee who participated in the Horn & Hardart
Company Supplemental Retirement Plan in effect prior to October 1, 1993 shall
have his Account under this Plan credited with the value of his Contribution

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Account (as defined under such prior plan) as of September 30, 1993.
         1.02    AFFILIATE shall mean any entity (whether or not incorporated)
which controls, is controlled by, or under common control with the Company.
         1.03    BOARD shall mean the Board of Directors of the Company.
         1.04    BREAK-IN-SERVICE shall mean any Plan Year during which a
Participant has not completed more than five hundred (500) Hours of Service.
         1.05 CODE shall mean the Internal Revenue Code of 1986, as amended
from time to time. Reference to a specific provision of the Code shall include
such provision, any valid regulation or ruling promulgated thereunder and any
comparable provision of future law that amends, supplements or supersedes such
provision.
         1.06    COMPANY shall mean Hanover Direct, Inc. and any successor
thereto by merger, consolidation or otherwise.
         1.07 COMPENSATION shall mean the fixed salary or base pay which is paid
or made available to a Designated Executive during a Plan year for his personal
services actually rendered to the Company or any Affiliate, but shall not
include any amounts paid as cost-of-living supplements, bonuses, overtime
payments, expense reimbursements, golden parachutes, stock options, other
contractual stock payments, severance payments, or any incentive or other
compensation predicated or computed as a percentage of, or as a commission on,
sales. Any contributions made by a salary reduction election (in accordance with
Code Sections 401(k), 125 or 129) and

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which would have otherwise reduced a fixed salary or base pay shall be counted
as Compensation under the Plan.
         1.08 DESIGNATED EXECUTIVE shall mean any employee whose Compensation
exceeds $70,000 and becomes eligible to become a Participant in the Plan as
prescribed in Article II. In addition, any active employee, who participated in
the Plan in effect prior to this Plan and who is not otherwise eligible for this
Plan, shall become a Designated Executive and continue to have any existing
Account held under the Plan credited with interest under Section 3.03, but shall
have no earned accruals credited under Sections 3.01 and 3.02. In no event,
however, shall an employee be eligible to become a Designated Executive unless
he is employed at one of the following Affiliates or such other Affiliate who
adopts this Plan from time to time, with the approval of the board:

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         1.09 DISABILITY shall mean a physical or mental condition of such
severity and probable prolonged duration as to cause the Participant to be
unable to continue his duties as an Employee. The existence of any Disability
shall be determined by a physician chosen by the Benefits Committee, based on
medical evidence of a physical or mental impairment that can be expected to last
more than 12 months or result in death, or on other uniform and non-

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discriminatory criteria as established by the Benefits Committee.
Notwithstanding the foregoing, eligibility for Social Security Disability
benefits or for long term disability benefits under an insured plan sponsored by
the Company shall be deemed conclusive proof of disability.
         1.10 NORMAL RETIREMENT DATE shall mean the first day of the month
following the date a Designated Executive attains his sixty-fifth (65th)
birthday.
         1.11 BENEFITS COMMITTEE shall mean the Committee appointed to
administer the Plan, as provided in Section 4.0l.
         1.12    PARTICIPANT shall mean a Designated Executive who has met the
requirements of Section 2.01.
         1.13 PLAN shall mean the Hanover Direct, Inc. Supplemental Retirement
Plan, as amended from time to time.
         1.14    PLAN YEAR shall mean the calendar year.
         1.15 SALARY DEFERRAL ELECTION shall mean the percentage reduction in
Compensation (not to exceed 4%) elected by a Designated Executive which will be
credited in accordance with Section 3.01.
         1.16 SCHEDULED PAYMENT DATES shall mean the date(s) 45 days following a
Valuation Date.
         1.17 VALUATION DATE shall mean the last day of the Plan Year and any
other date(s) as of which the Benefits Committee, in its sole discretion, elects
to value the Account of a Designated Executive.

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         1.18 YEAR OF SERVICE shall mean a Plan Year in which an Employee has at
least one thousand (1,000) hours of service. Solely for purposes of determining
whether a Designated Executive is eligible to become a participant after his
initial year of employment under Section 2.01, a Year of Service shall be
credited to a Designated Executive who has at least one thousand (1,000) hours
of service during the initial twelve (12) month period commencing with such
Designated Executive's date of employment. In addition, solely for purposes of
determining vesting under Section 3.04, Years of Service shall be counted from a
Designated Executive's date of participation as determined under Section 2.01.

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                                   ARTICLE II
                                  PARTICIPATION

         2.01 DESIGNATION OF PARTICIPANTS A Designated Executive shall commence
participation under this Plan as of the January 1st coincident with or next
following attainment of age 21 and the completion of one Year of Service.

         2.02 MODIFICATION OF REQUIREMENTS The Benefits Committee, in its sole
discretion, reserves the right to change the requirements to become a
participant under Section 2.01 at any time.

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                                   ARTICLE III
                    BENEFIT DETERMINATIONS AND DISTRIBUTIONS

         3.01 ANNUAL EARNED ACCRUALS A Designated Executive shall have earned
accruals credited to his Account for each Plan Year on the same frequency as
payroll deductions have been taken, provided the Designated Executive is
employed at a rate such that he will work at least 1,000 hours during the Plan
Year. A Designated Executive shall have an Annual Earned Accrual credited to his
Account in accordance with the terms set forth below:
         (a) The Annual Earned Accrual credited to the Designated Executive's
Account for each Plan Year shall be equal to his Salary Deferral Election
multiplied by his Compensation for such Plan Year.
         (b) Termination of Employment - Notwithstanding the foregoing, if a
Designated Executive terminates employment for any reason during a Plan Year, he
shall receive an Annual Earned Accrual for that Plan Year, based on his
Compensation while employed for the Plan Year.
         3.02 MATCHING EARNED ACCRUALS The Company shall make a contribution
called a Matching Earned Accrual contribution on behalf of each Designated
Executive in the same amount and on the same frequency as Annual Earned Accruals
are credited to his account. In no event, however, shall the Matching Earned
Accrual credited to a Designated Executive exceed 4% of Compensation earned
during the Plan Year.

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         3.03 INTEREST On any Valuation Date during each Plan Year, an interest
amount will be credited to each Designated Executive's Account equal to that
Account's proportionate share of the investment return of all Accounts held
under the Plan.
         3.04 VESTING IN ACCOUNTS A Designated Executive shall be 100% vested in
his Annual Earned Accruals at all times. In addition, a Designated Executive
shall be 100% vested in the value of his Matching Earned Accruals when he
attains his Normal Retirement Date, or if his employment terminates due to death
or Disability (as defined in Section 1.08). Otherwise, he shall be vested in his
Matching Earned Accruals (even if his participation in the Plan has been
discontinued) in accordance with the following table:

                                                     Percentage
          Years of Service                             Vested
          ----------------                           ----------

          less than 2                                     0%
          2 but less than 3                              20%
          3 but less than 4                              40%
          4 but less than 5                              60%
          5 but less than 6                              80%
          6 or more                                     100%

         Any Designated Executive who was a participant in the Plan in effect
prior to this Plan shall also be entitled to credit for Years of Service for
such period and will be entitled to the greater of the vesting percentage
determined under the prior plan for each participant as of September 30, 1993 or
the vesting percentage determined under this Plan at retirement or other

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termination of employment. The vested percentage of a Designated Executive's
Account will not increase after the date as of which he terminates employment.
Solely for purposes of determining vesting under the Plan, Years of Service
shall be determined from the date a Designated Executive first became a
Participant under the Plan.
         3.05 DISTRIBUTIONS The vested Account of a Designated Executive will be
distributed on the first Scheduled Payment Date following the Valuation Date
coincident with or next following his retirement or other termination of
employment. The distribution will be made in a full lump sum payment of the
vested Account balance of the Designated Executive.
         3.06 DEATH BENEFITS If a Designated Executive dies, his named
beneficiary shall receive his vested Account as of the Valuation Date coincident
with or next following his death distributed in accordance with Section 3.05.
         If, at the time of the Designated Executive's death, there is no named
beneficiary, then the Designated Executive's estate shall be paid the benefits
otherwise due to the named beneficiary.
         3.07 VALUATION OF ACCOUNT As of each Valuation Date, each Designated
Executive's Account shall be updated with all earned accruals and interest for
such Plan Year based on Sections 3.01, 3.02, and 3.03. Each Designated Executive
shall receive a statement of his Account within ninety (90) days of such
Valuation Date.

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                                    ARTICLE 4
                                 ADMINISTRATION

         4.01 APPOINTMENT OF COMMITTEE The Plan shall be administered by the
Benefits Committee appointed by the Board.
         4.02 POWERS AND AUTHORITY OF COMMITTEE Whenever the Plan provides
authority to the Board or its designated representative, the Benefits Committee
may be, but is not required to be, the designated representative. Otherwise, the
Benefits Committee shall have the power and full discretionary authority to
interpret and construe this Plan, to determine all questions arising under this
Plan, to correct any defect or supply any omission or reconcile any
inconsistency in this Plan in such manner and to such extent as it shall deem
necessary or appropriate to effectuate the purpose and intent of this Plan, to
adopt and amend from time to time such by-laws and rules and regulations as are
necessary of the administration of this Plan which are not inconsistent with the
terms and provisions of this Plan, and to determine all questions of
eligibility, status and rights of Designated Executives and their beneficiaries
hereunder.
         4.03 QUORUM AND VOTING; PROCEDURES A majority of the members of the
Benefits Committee at the time in office shall constitute a quorum for the
transaction of business. The Benefits Committee may act by vote or consent of
the majority of its members then in office and may establish its own procedures.
The Benefits Committee may authorize any one or more of its members to sign and

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deliver any instrument, certificate or other paper or document on its behalf.
The Benefits Committee may appoint from its members such subcommittees (of one
or more such members), with such powers, as it shall determine.
         4.04 CLAIMS PROCEDURE The Benefits Committee shall establish a claims
procedure and shall afford a reasonable opportunity to any Designated Executive
or named beneficiary whose claim for benefits has been denied for a full and
fair review of the decision denying such claims.
         4.05 LIABILITY LIMITED AND INDEMNIFICATION Except as otherwise provided
by law, no person who is a member of the Benefits Committee or who is a
stockholder, employee, officer, or director of the Company or any affiliate
shall incur any liability whatsoever on account of any matter connected with or
related to the Plan or the administration of the Plan, unless such person shall
have acted in bad faith or have willfully neglected his duties in respect to the
Plan; and as a condition precedent to his participation in the Plan or the
receipt of benefits thereunder, or both, such liability, if any, is expressly
waived and released by each Designated Executive and named beneficiary, such
waiver and release to be conclusively evidenced by any act or participation in
or the acceptance of benefits under this Plan. The Company shall indemnify and
hold each such person harmless against any and all loss, liability, claim,
damage, cost and expense which may arise by reason of, or be based upon, any
matter connected with or related to the Plan or the administration of the Plan
(including, but not

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limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or in settlement of any such claim whatsoever) to the fullest extent
permitted under the Certificate of Incorporation and By-Laws of the Company.

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                                    ARTICLE 5
                            AMENDMENT AND TERMINATION

         The Company may amend, terminate or suspend this Plan at any time or
from time to time by a resolution of the Board; provided, however, that no
amendment or termination of the Plan shall deprive any Designated Executive or
named beneficiary of any of the benefits to which any is entitled under this
Plan by reason of the Designated Executive's prior Years of Service, death,
disability or other termination of employment. If the Plan is terminated or
contribution accruals are permanently suspended, the vesting schedule set forth
in Section 3.04 shall continue to apply to each Designated Executive, unless the
Board, in its sole discretion, elects to fully vest a particular Designated
Executive. If the Plan terminates within two years of a change in ownership of
the Company, all Designated Executives will become fully vested.

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                                    ARTICLE 6
                                  MISCELLANEOUS

         6.01 SOURCE OF PAYMENTS The Company shall establish and maintain
records which incorporate the crediting of earned accruals and interest under
this Plan; provided, that the Company is advised by tax counsel that the
maintenance of such records will not result in taxation of income to a
Designated Executive or a named beneficiary prior to payment of benefits to any
such person.
         6.02 NO EMPLOYMENT CONTRACT This Plan shall not be construed as
creating any contract of employment between the Company or any Affiliate and the
Designated Executive. The Company and all affiliates shall have the same control
over their employees as though this Plan had never been executed.
         6.03 FORFEITURE Notwithstanding any other provision of this Plan,
neither a Designated Executive nor his named beneficiary shall be entitled to
receive any benefits under the Plan if the Designated Executive's employment is
terminated because of (a) his willful misconduct in connection with the
performance of his duties to the Company or any Affiliate, including, but
without limiting the generality of the foregoing, misappropriation of funds or
property of the Company or any Affiliate, securing or attempting to secure
personally any profit in connection with any transaction entered into on behalf
of the Company or any Affiliate, or committing the Company or any Affiliate to
any transaction adverse

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to their respective interests except as a result of an honest error in judgment,
or (b) his conviction for a felony.
         6.04 NO ASSIGNMENT The interest in this Plan of a Designated Executive
or named beneficiary shall not be subject to assignment or transfer or otherwise
be alienable either by voluntary or involuntary acts of such person, or by
operation of law, nor shall it be subject to attachment, execution, garnishment,
sequestration or other seizure under any legal, equitable or other process. If
any Designated Executive or named beneficiary shall attempt to or shall
alienate, sell, transfer, pledge or otherwise encumber any amount to which he is
or might become entitled, or if by reason of the insolvency of any such person
or the issuance of any garnishment, writ of execution or other court process, or
other event happening at any time any amount otherwise payable hereunder to such
person should devolve upon anyone other than him or would not be enjoyed by him,
the Benefits Committee shall terminate such interest, but may, in its absolute
discretion, hold or apply it to or for the benefit of such Participant, the
spouse, children or other dependents of such person, in such manner as the
Benefits Committee may deem proper.
         6.05 INCAPACITY In the event that the Benefits Committee determines
that a Designated Executive or named beneficiary is unable to care for his
affairs due to illness or accident, any payment due to such individual under
this Plan may be made to his duly appointed legal representative. The Benefits
Committee may, in its discretion, make such payments to a child, parent or
spouse

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of such individual, or to any other person with whom he resides or who is
charged with his care. The Benefits Committee shall make such payment according
to such instructions, which shall be in writing and witnessed by a notary
public, as the Designed Executive or named beneficiary had delivered to it prior
to becoming unable to care for his affairs due to illness or accident. Any
payment made according to the provisions of this Section shall be a complete
discharge of the liability of the Company under this Plan.
         6.06 TAX WITHHOLDING Benefit payments hereunder shall be subject to
withholding, to the extent required (as advised by tax counsel) by applicable
tax or other laws.
         6.07 SEPARABILITY If any provision of this Plan is held invalid or
unenforceable, to the extent necessary to effectuate the purposes of this Plan,
its invalidity or unenforceability shall not affect any other provisions of the
Plan and the Plan shall be construed and enforced as if such provisions had not
been included therein.
         6.08 BINDING EFFECT This Plan shall be binding upon and shall inure to
the benefit of the successors and assigns of the Company and shall be binding
upon the Designated Executive and shall inure to his benefit and that of his
named beneficiary.
         6.09 GENDER AND NUMBER The masculine pronoun whenever used herein shall
include the feminine pronoun and the singular number shall include the plural
number and vice versa unless the context clearly requires otherwise.

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         6.10 GOVERNING LAW The Plan shall be construed in accordance with the
laws of the State of Delaware, where it is made and where it shall be enforced,
except to the extent such laws have been superseded by Federal law.

         IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this instrument to
be executed by its duly appointed officers this                 day of
                    , 1993.                    -----------------
---------------------

                                        HANOVER DIRECT, INC.

                                       BY
                                           -------------------------------

ATTEST

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

                                       17<PAGE>   1
                              HANOVER DIRECT, INC.
                             STOCK OPTION AGREEMENT

         Agreement made as of the 9th day of February, 1996 between HANOVER
DIRECT, INC. (the "Company"), a Delaware corporation, and Ralph Destino (the
"Optionee"), residing at 870 United Nations Plaza, Apt. 27D, New York, New York
10017.

         The Optionee has served as a director of the Company since 1991. In
consideration of Optionee's serving on the Search Committee of Directors to
find a replacement for the President and Chief Executive Officer of the
Company, the Company has agreed to grant to the Optionee a five-year option to
purchase 5,000 shares of Common Stock, par value 66 2/3 cents per share, of the
Company (the "Shares"), subject to and upon the terms and conditions set forth
herein (the "Option").

         Therefore, in consideration of the premises and for other good and
valuable consideration, the parties hereto have agreed as follows:

         1. (a) The price at which the Optionee shall have the right to
purchase Shares under this Agreement is $1.4375 per share, subject to
adjustment as provided in Paragraph 4.

         (b) Subject to Paragraph 4, unless the Option is previously terminated
pursuant to this Agreement, the Option shall be exercisable in whole or in part
with respect to all 5,000 Shares beginning on the date hereof through February
8, 2001; provided, however, that the Option shall cease to be exercisable on
the date which is thirty (30) days from the termination of the Optionee's
status as a director of the Company; and provided, however, that the Company
shall have the option, in its sole discretion, to extend the period that the
Option shall be exercisable to February 8, 2002, upon written notice to the
Optionee prior to November 8, 2000.

         (c) If the Optionee's status as a director of the Company terminates
due to disability or to death, the Option shall be exercisable as provided in
this subparagraph. The Optionee or, in the event of his/her disability, duly
appointed guardian or conservator or, in the event of his/her death, his/her
appointed executor or administrator, shall have the privilege of exercising the
unexercised portion of the Option which the Optionee could have exercised on
the day on which his/her status as a director of the Company terminated,
provided,

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however, that such exercise must be in accordance with the terms of this
Agreement and within one (1) year of the Optionee's disability or death, as the
case may be. In no event, however, shall the Optionee or his/her duly appointed
guardian or conservator or his/her duly appointed executor or administrator, as
the case may be, exercise the Option after February 8, 2001, unless the period
during which the Option is exercisable was extended pursuant to Paragraph 1(b).

         2. Nothing contained herein shall be construed (a) to confer on the
Optionee any right to continue to serve as a director of the Company or (b) to
obligate the Company (including its shareholders, directors and officers) to
either re-nominate the Optionee for election or re-elect the nominee to serve
as a director or (c) to derogate from any right of the Company (including its
shareholders, director and officers) to remove or request the resignation of
the Optionee from the Company's Board of Directors.

         3. (a) The Option shall not be sold, pledged, assigned or transferred
in any manner except (i) to the extent that the Option may be exercised as
provided in Paragraph 1(c) or (ii) as provided in Paragraph 3(b).

         (b) The Option may be transferred to any living spouse, child or
parent of the Optionee (a "Permitted Transferee"), provided that (i) such
transferee executes an instrument, satisfactory in form and substance to the
Company, stating that such transferee is bound by all the terms and conditions
of this Agreement, including, without limitation, Paragraph 1(c), and
(ii) the Option may not be sold, pledged assigned or transferred in any manner
by such transferee, except to another Permitted Transferee pursuant to this
Paragraph 3(b).

         (c) For all purposes of this Agreement except the Preamble and
Paragraph 1(b), the term "Optionee" shall include any Permitted Transferee or
any person entitled to exercise the Option pursuant to Paragraph 1(c).

         4. (a) If the outstanding Shares of the Company are subdivided,
consolidated, increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through reorganization,
merger, recapitalization, reclassification, capital adjustment or in a similar
transaction, or if the Company shall issue Shares as a dividend or upon a stock
split, then the number and kind of shares subject to the unexercised portion of
the Option and the exercise price of the Option shall be adjusted to prevent
the inequitable enlargement or dilution of any rights hereunder, provided,
however, that any such adjustment shall be made without change in the total
exercise price applicable to the unexercised portion of the Option. Adjustments
under this paragraph shall be made by the Board of Directors, whose
determination shall be final, binding and conclusive. In computing any
adjustment under this paragraph, any fractional shares shall be eliminated.
Nothing contained in this Agreement shall be construed to affect in any way the
right or power of the Company to make any adjustment, reclassification,
reorganization or changes to its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or transfer all or any part of its
business or assets.

         (b) If in the event of the dissolution or liquidation of the Company,
or in the event of a merger or consolidation in which (1) the Company is not
the surviving corporation, and (2) the agreements governing such merger or
consolidation do not provide for the issuance to the Optionee of a Substitute
Option (as hereinafter defined) or the express assumption of this Option, the
Company will make or cause to be mailed to the Optionee a notice specifying the
date on which holders of Shares shall be entitled to exchange their shares for
securities or other property deliverable in connection with such merger,
consolidation, dissolution or liquidation. Such notice shall be mailed at least
ten (10) days prior to the date therein specified to the address of the
Optionee

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specified on page 1 of this Agreement or to such other address as the
Optionee delivers or transmits by registered or certified mail to the Secretary
of the Company at its principal office. In the event the Option is not
exercised on or prior to the date specified herein, the Option and any rights
hereunder shall terminate as of said date. For purposes of this Paragraph 4, a
Substitute Option shall mean an option under which the Optionee has the right
to purchase on  substantially equivalent terms (as hereinafter defined)
(in lieu of Shares), the stock, securities or other property he/she would have
been entitled to receive upon the consummation of such merger or consolidation
had he/she exercised the Option immediately prior thereto. For purposes of the
preceding sentence, substantially equivalent terms shall be those terms given
approval by the Board of Directors in its sole discretion.

         5. The Option shall be exercised when written notice of such exercise,
signed by the Optionee, has been delivered or transmitted by registered or
certified mail, to the Secretary of the Company at its principal office. Said
written notice shall specify the number of Shares purchasable under the Option
which the Optionee then wishes to purchase and shall be accompanied by (i) such
documentation, if any, as may be required by the Company as provided in
Paragraphs 6 or 8 and (ii) payment of the aggregate option price. The Option
shall be exercised only with respect to full shares of Common Stock; no
fractional Shares shall be issued. Such payment shall be in the form of (i)
cash or a certified check (unless such certification is waived by the Company)
payable to the order of the Company in the amount of the aggregate option price
for such number of Shares, (ii) certificates duly endorsed for transfer (with
all transfer taxes paid or provided for) evidencing a number of Shares of which
the aggregate fair market value on the date of exercise is equal to the
aggregate option exercise price of the Shares being purchased, or (iii) a
combination of these methods of payment. Delivery of said notice and such
documentation shall constitute an irrevocable election to purchase the Shares
specified in said notice, and the date on which the Company received said
notice and documentation shall, subject to the provisions of Paragraphs 6 and
8, be the date as of which the Shares so purchased shall be deemed to have been
issued. The Optionee shall not have the right or status as a holder of the
Shares to which such exercise relates prior to receipt by the Company of such
payment, notice and documentation. For purposes of this Agreement, the fair
market value per Share on a given date shall be: (i) if the Shares are listed
on a registered securities exchange or included on the American Stock Exchange,
the closing price per Share on such date, (or, if there was not trading in the
Shares on such date, on the next preceding day on which there was trading);
(ii) if the Shares are not listed on a registered securities exchange or
included on the American Stock Exchange, but the bid and asked prices per Share
are provided by NASDAQ, the National Quotation Bureau Incorporated or any
similar organization, the average of the highest reported bid and lowest
reported asked price as furnished by NASDAQ, the National Quotation Bureau
Incorporated or any similar organization. In the absence of one or more
quotations, the Board of Directors of the Company shall in good faith determine
the fair market value per share.

<PAGE>   4

         6. Anything in this Agreement to the contrary notwithstanding, in no
event may the Option be exercisable if the Company shall determine in good
faith that (i) the listing, registration or qualification of any Shares
otherwise deliverable upon such exercise, upon any securities exchange or under
any state or federal law, or (ii) the consent or approval of any regulatory
body or the satisfaction of withholding tax or other withholding liabilities is
necessary or desirable in connection with such exercise. In such event, such
exercise shall be held in abeyance and shall not be effective unless and until
such withholding, listing, registration, qualification or approval shall have
been effected or obtained free of any conditions not reasonably acceptable by
the Company.

         7. (a) The Optionee agrees that there will be no disposition of all or
any part of the Shares acquired pursuant to any exercise of the Option or any
interest or interests therein, unless and until such disposition has been
registered under the Securities Act of 1933, as amended (the "Act"), or the
Company receives an opinion of its counsel that registration under the Act is
not required in connection with such disposition.

         (b) The Optionee agrees that upon the exercise of the Option, unless
the Shares acquired pursuant to such exercise have been registered under the
Act, the transfer agent for the Shares acquired pursuant to such exercise will
be instructed to place appropriate stop orders against the transfer of the
Shares and that the certificate or certificates to be issued representing the
Shares will conspicuously bear a legend substantially as follows:

         The shares represented by this certificate have not been registered
         under the Securities Act of 1933. The shares have been acquired for
         investment and may not be sold, transferred, pledged, hypothecated or
         otherwise disposed of in the absence of an effective registration
         statement for the shares under the Securities Act of 1933 or an
         opinion of counsel to the Company that registration is not required
         under said Act.

         (c) The Optionee acknowledges that he/she is presently familiar with
the Company's business, operations and financial condition. In this connection,
the Company agrees that, upon the request of the Optionee, it will provide the
Optionee with a copy of its then most recent Annual Report to Shareholders, its
then most recently definitive Proxy Statement in connection with a meeting of
its shareholders for the election of directors, its then most recent Annual
Report of Form 10-K, and all Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K filed by the Company with the Securities and Exchange Commission
subsequent to the filing of its then most recent Annual Report on Form 10-K.
The Optionee also acknowledges that he/she has received a description of the
Shares as contained in the Company's most recent Prospectus. In addition, the
principal officers of the Company will be reasonably available to discuss with
the Optionee the information contained in these documents, this Agreement, or
any other issues. To arrange such discussions he/she should contact
Monte E. Wetzler, Esq., counsel to the Company, at (201) 272-3434.

         8. The Company covenants and agrees with the Optionee that in the
event the Company proposes to file a registration statement under the Act with
respect to any class of security (other than in connection with an exchange
offer or a registration statement on Form S-4, S-8, or S-18 or other unsuitable
registration statement) which becomes or which the Company believes will become
effective at any time after the date hereof, then the Company shall in each
case give written notice of such proposed filing to the Optionee at least
twenty-five (25) days before the earlier of the anticipated and the actual
effective date of the registration statement and (unless the Board of Directors
determines in a duly adopted resolution that for reasons of confidentiality
notice prior to such filing is likely to adversely affect the Company) at least
seven (7) business days before the initial filing of such registration
statement (and, if requested, the Optionee shall maintain the confidentiality
of such information) and such notice shall offer to Optionee the opportunity to
include in such registration statement such number of Shares as he/she may
request, unless, in the opinion of counsel to the Company reasonably acceptable
to the Optionee, registration under the Act is not required for the transfer of
such Shares in the manner proposed by the Optionee. The Company shall have no
obligation to

<PAGE>   5
honor any such request (i) to register fewer than 2,500 Shares, (ii) to
register Shares on more than one occasion, (iii) to register Shares if the
Company is not notified in writing of any such request pursuant to this
Paragraph 8 at least three (3) business days prior to a proposed initial filing
and (iv) to register any Shares which at the time of the filing of such
registration statement are covered by or included in any other Statement
theretofore filed by the Company under the Act. The Company shall permit, or
shall cause the managing underwriter of a proposed offering to permit, the
Optionee to include the Shares requested to be included in the registration
(the "Piggy-back Shares") in the proposed offering on the same terms and
conditions as are applicable to securities of the Company, if any, included
therein for the account of any person other than the Company and the Optionee,
provided, however, that the Company need not register Shares pursuant to such
registration statement in the event the Company abandons such filing prior to
the effective date thereof. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company that it believes that the distribution of
all or a portion of the Piggy-back Shares requested to be included in the
registration statement concurrently with the securities being registered by the
Company would adversely affect the distribution of such securities by the
Company for its own account, then the Optionee shall delay the offering and
sale of Piggy-back Shares (or the portions thereof so designated by
such managing underwriter) for such period, not to exceed ninety (90) days, as
the managing underwriter shall request provided that no such delay shall be
required as to Piggy-back Shares if any securities of the Company are included
in such registration statement for the account of any person other than the
Company and the Optionee. In the event of such delay, the Company shall file,
at its option, such supplements, post-effective amendments or separate
registration statement, take any such other steps as may be necessary to permit
the Optionee to make the proposed offering and sale for the period of ninety
(90) days immediately following the end of such period of delay (the
"Piggy-back Termination Date"); provided, however, that if any of the
Piggy-back Shares are covered by a registration statement which is or will be
required to remain in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to
the Piggy-back Shares for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All expenses of
registration pursuant to this Paragraph 8 shall be borne by the Company, except
that underwriting commission, discounts, fees and expenses attributable to the
Piggy-back Shares and fees and disbursements of counsel (if any) to the
Optionee will be borne by the Optionee.

         9. This Agreement is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under Section
401(a) of the Internal Revenue Code. Any Shares purchased pursuant to this
Agreement shall be purchased directly from the Company out of its authorized
but unissued Shares.

         10. This Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware.

         11. Subject to Paragraphs 1(c) and 3(b), this Agreement shall be
binding upon that shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors or assigns, as the case
may be.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                    HANOVER DIRECT, INC.

                                    By: /s/ Ralph Bulle

                                    -----------------------------
                                    Name: Ralph Bulle
                                    Title: Senior Vice President

                                    /s/ RALPH DESTINO
                                    ---------------------------------
                                    Ralph Destino

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