Document:

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                                                                     Ex 10 (xiv)

                        AMERICAN STANDARD COMPANIES INC.
                              STOCK INCENTIVE PLAN

                      (AS AMENDED THROUGH DECEMBER 7, 2000)

                                   SECTION 1.

                                     PURPOSE

     The purpose of the Plan is to foster and promote the long-term financial
success of the Company and materially increase shareholder value by (a)
motivating superior performance by means of performance-related incentives, (b)
encouraging and providing for the acquisition of an ownership interest in the
Company by Employees, and (c) enabling the Company to attract and retain the
services of an outstanding management team upon whose judgment, interest and
special effort the successful conduct of its operations is largely dependent.

                                   SECTION 2.

                                   DEFINITIONS

     2.1  Definitions. Whenever used herein, the following terms shall have the
respective meanings et forth below:

     (a)  "Act" means the Securities Exchange Act of 1934, as amended.

     (b)  "Adjustment Event" shall mean any stock dividend, stock split or share
          combination of, or extraordinary cash dividend on, the Common Stock or
          recapitalization, reorganization, merger, consolidation, split-up,
          spin-off, combination, exchange of shares, warrants or rights offering
          to purchase Common Stock at a price substantially below Fair Market
          Value, or other similar event affecting the Common Stock of the
          Company.

     (c)  "Board" means the Board of Directors of the Company.

     (d)  "Cause" means a Participant's (i) willful and continued failure

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          substantially to perform his duties with the Company or any Subsidiary
          (other than any such failure resulting from incapacity due to
          reasonably documented physical or mental illness), after a demand for
          substantial performance is delivered to such Participant by the
          Chairman of the Board or any executive officer which specifically
          identifies the manner in which it is believed that such Participant
          has not substantially performed his duties, or (ii) the willful
          engaging by such Participant in illegal misconduct materially and
          demonstrably injurious to the Company or any Subsidiary or to the
          trustworthiness or effectiveness of such Participant in the
          performance of his duties. For purposes hereof, no act, or failure to
          act, on such Participant's part shall be considered "willful" unless
          done, or omitted to be done, by him not in good faith and without
          reasonable belief that his action or omission was in the best interest
          of the Company or a Subsidiary. Any act, or failure to act, based upon
          authority given pursuant to a resolution duly adopted by the Board or
          based upon the advice of counsel for the Company shall be conclusively
          presumed to be done, or omitted to be done, by such Participant in
          good faith and in the best interest of the Company or such Subsidiary.

     (e)  "Change of Control" shall mean the occurrence of any of the following
          events:

          (i)  any person is or becomes the Beneficial Owner, directly or
               indirectly, of securities of the Company representing 15% or more
               of the combined voting power of the Company's then-outstanding
               securities (a "15% Beneficial Owner"); provided, however, that
               (a) the term "15% Beneficial Owner" shall not include any
               Beneficial Owner who has crossed such 15% threshold solely as a
               result of an acquisition of securities directly from the Company,
               or solely as a result of an acquisition by the Company of Company
               securities, until such time thereafter as such person acquires
               additional voting securities other than directly from the Company
               and, after giving effect to such acquisition, such person would
               constitute a 15% Beneficial Owner; and (b) with respect to any
               person eligible to file a Schedule 13G pursuant to Rule
               13d-1(b)(1) under the Act with respect to Company securities (an
               "Institutional Investor"), there shall be excluded from the
               number of securities deemed to be beneficially owned by such
               person a number of securities representing not more than 10% of
               the combined voting power of the Company's then-outstanding
               securities;

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          (ii) during any period of two consecutive years beginning after
               December 1, 1996, individuals who at the beginning of such period
               constitute the Board together with those individuals who first
               become directors during such period (other than by reason of an
               agreement with the Company or the Board in settlement of a proxy
               contest for the election of directors) and whose election or
               nomination for election to the Board was approved by a vote of at
               least two-thirds of the directors then still in office who either
               were directors at the beginning of the period or whose election
               or nomination for election was previously so approved (the
               "Continuing Directors"), cease for any reason to constitute a
               majority of the Board;

         (iii) the shareholders of the Company approve a merger, consolidation,
               recapitalization or reorganization of the Company, or a reverse
               stock split of any class of voting securities of the Company, or
               the consummation of any such transaction if shareholder approval
               is not obtained, other than such transaction which would result
               in at least 75% of the total voting power represented by the
               voting securities of the Company or the surviving entity
               outstanding immediately after such transaction being beneficially
               owned by persons who together owned at least 75% of the combined
               voting power of the voting securities of the Company outstanding
               immediately prior to such transaction, with the relative voting
               power of each such continuing holder compared to the voting power
               of each other continuing holder not substantially altered as a
               result of the transaction; provided that, for purposes of this
               paragraph (iii), (a) such continuity of ownership (and
               preservation of relative voting power) shall be deemed to be
               satisfied if the failure to meet such 75% threshold (or to
               preserve such relative voting power) is due solely to the
               acquisition of voting securities by an employee benefit plan of
               the Company or of such surviving entity or of any subsidiary of
               the Company or such surviving entity and (b) voting securities
               beneficially owned by such persons who receive them other than as
               holders of voting securities of the Company outstanding
               immediately prior to such transaction shall not be taken into
               account for purposes of determining whether such 75% threshold
               (or such relative voting power) is satisfied;

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          (iv) the shareholders of the Company approve a plan of complete
               liquidation or dissolution of the Company or an agreement for the
               sale or disposition of all or substantially all the assets of the
               Company unless following the completion of such liquidation or
               dissolution, or such sale or disposition, the 75% threshold (and
               relative voting power) requirements set forth in sub-paragraph
               (iii) above are satisfied; or

          (v)  any other event which the Committee determines shall constitute a
               Change of Control for purposes of this Plan;

     provided, however, that a Change of Control shall not be deemed to have
     occurred if one of the following exceptions applies:

          (1)  Unless a majority of the Continuing Directors and of the
               Committee determine that the exception set forth in this
               paragraph (1) shall not apply, none of the foregoing conditions
               would have been satisfied but for one or more of the following
               persons acquiring or otherwise becoming the Beneficial Owner of
               securities of the Company: (A) any person who has entered into a
               binding agreement with the Company, which agreement has been
               approved by two-thirds of the Continuing Directors, limiting the
               acquisition of additional voting securities by such person, the
               solicitation of proxies by such person or proposals by such
               person concerning a business combination with the Company (a
               "Standstill Agreement"); (B) any employee benefit plan, or
               trustee or other fiduciary thereof, maintained by the Company or
               any Subsidiary; (C) any Subsidiary; or (D) the Company.

          (2)  Unless a majority of the Continuing Directors and of the
               Committee determine that the exception set forth in this
               paragraph (2) shall not apply, none of the foregoing conditions
               would have been satisfied but for the acquisition by or of the
               Company of or by another entity (whether by the merger or
               consolidation, the acquisition of stock or assets, or otherwise)
               in exchange, in whole or in part, for securities of the Company,
               provided that, immediately following such acquisition, the
               Continuing Directors constitute a majority of the Board, or a
               majority of the board of

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               directors of any other surviving entity, and, in either case, no
               agreement, arrangement or understanding exists at that time which
               would cause such Continuing Directors to cease thereafter to
               constitute a majority of the Board or of such other board of
               directors.

               Notwithstanding the foregoing, unless otherwise determined by a
          majority of the Continuing Directors, no Change of Control shall be
          deemed to have occurred with respect to a particular Participant if
          the Change of Control results from actions or events in which such
          Participant is involved in a capacity other than solely as an officer,
          employee or director of the Company.

               For purposes of the foregoing definition of Change of Control,
          the term "Beneficial Owner," with respect to any securities, shall
          mean any person who, directly or indirectly, has or shares the right
          to vote or dispose of such securities or otherwise has "beneficial
          ownership" of such securities (within the meaning of Rule 13d-3 and
          Rule 13d-5 (as such Rules are in effect on December 1, 1996) under the
          Act), including pursuant to any agreement, arrangement or
          understanding (whether or not in writing); provided, however, that (i)
          a person shall not be deemed the Beneficial Owner of any security as a
          result of any agreement, arrangement or understanding to vote such
          security (A) arising solely from a revocable proxy or consent
          solicited pursuant to, and in accordance with, the applicable
          provisions of the Act and the rules and regulations thereunder or (B)
          made in connection with, or otherwise to participate in, a proxy or
          consent solicitation made, or to be made, pursuant to, and in
          accordance with, the applicable provisions of the Act and the rules
          and regulations thereunder, in either case described in clause (A) or
          clause (B) above whether or not such agreement, arrangement or
          understanding is also then reportable by such person on Schedule 13D
          under the Act (or any comparable or successor report), and (ii) a
          person engaged in business as an underwriter of securities shall not
          be deemed to be the Beneficial Owner of any securities acquired
          through such person's participation in good faith in a firm commitment
          underwriting until the expiration of forty days after the date of such
          acquisition.

     (f)  "Change of Control Settlement Value" shall mean, with respect to a
          share of Common Stock, the excess of the Change of Control Stock Value
          over the option price of the Option covering such share of Common
          Stock, provided that, with respect to

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          any Option which is an Incentive Stock Option immediately prior to the
          election to receive the Change of Control Settlement Value, the Change
          of Control Settlement Value shall not exceed the maximum amount
          permitted for such Option to continue to qualify as an Incentive Stock
          Option.

     (g)  "Change of Control Stock Value" shall mean the value of a share of
          Common Stock determined as follows:

          (i)  if the Change of Control results from an event described in
               clause (iii) of the Change of Control definition, the highest per
               share price paid for shares of Common Stock of the Company in the
               transaction resulting in the Change of Control;

          (ii) if the Change of Control results from an event described in
               clauses (i), (ii) or (v) of the Change of Control definition and
               no event described in clauses (iii) or (iv) of the Change of
               Control definition has occurred in connection with such Change of
               Control, the highest sale price of a share of Common Stock of the
               Company on any trading day during the 60 consecutive trading days
               immediately preceding and following the date of such Change of
               Control as reported on the New York Stock Exchange Composite
               Tape, or other national securities exchange on which the Common
               Stock is traded, and published in The Wall Street Journal; or

         (iii) if the Change of Control results from an event described in
               clause (iv) of the Change of Control definition, the price per
               share at which shares of Common Stock are redeemed or exchanged
               by their holders in the transaction described in such clause (iv)
               or, if there has been no such redemption or exchange, the higher
               of the amounts determined in accordance with clause (i) or clause
               (ii) of this Change of Control Stock Value definition.

     (h)  "Code" means the Internal Revenue Code of 1986, as amended.

     (i)  "Committee" means the Management Development and Nominating Committee
          of the Board (or such other committee of the Board that the Board
          shall designate), which shall consist of two or more members, each of
          whom shall be a non-employee director within the meaning of Rule
          16b-3, as promulgated under the Act and serving at the pleasure of the
          Board. Notwithstanding the foregoing, with respect to

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          Incentive Awards granted to non-employee directors, the Committee
          shall mean the entire Board.

     (j)  "Common Stock" means the common stock of the Company, par value $0.01
          per share.

     (k)  "Company" means American Standard Companies Inc., a Delaware
          corporation, and any successor thereto.

     (l)  "Disability" means a Participant's inability, due to reasonably
          documented physical or mental illness, for more than six months to
          perform his duties with the Company or a Subsidiary on a full time
          basis if, within 30 days after written notice of termination has been
          given to such Participant, he shall not have returned to the full time
          performance of his duties.

     (m)  "Dividend Equivalents" means an amount equal to the cash dividends
          paid by the Company upon one share of Common Stock for each Restricted
          Unit awarded to a Participant in accordance with Section 7 of the
          Plan.

     (n)  "Employee" means any officer or other key employee of the Company or
          any of its Subsidiaries, including any employee of a minority-owned
          joint venture.

     (o)  "Fair Market Value" means, on any date, the average of the highest and
          lowest sales price reported for such day on a national exchange or the
          average of the highest and lowest bid and asked prices on such date as
          reported on a nationally recognized system of price quotation. In the
          event that there are no Common Stock transactions reported on such
          exchange or system on such date, Fair Market Value shall mean the
          closing price on the immediately preceding date on which Common Stock
          transactions were so reported.

     (p)  "Incentive Award" means the award of an Option, a Stock Appreciation
          Right, a Restricted Unit, or Restricted Stock under the Plan and shall
          also include an award of Common Stock or Restricted Units made in
          conjunction with other incentive programs established by the Company.

     (q)  "Option" means the right to purchase Common Stock at a stated price
          for a specified period of time. For purposes of the Plan, an Option
          may be either (i) an "Incentive Stock Option" with the meaning of
          Section 422 of the Code or (ii) an Option

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          which is not an Incentive Stock Option (a "Non-Qualified Stock
          Option").

     (r)  "Participant" means any Employee or any non-employee director of the
          Company designated by the Committee to receive an Incentive Award
          under the Plan.

     (s)  "Plan" means the American Standard Companies Inc. Stock Incentive
          Plan, as set forth herein and as the same may be amended from time to
          time.

     (t)  "Public Offering" means the Company's offering of Common Stock to the
          general public through a registration statement filed with the
          Securities and Exchange Commission that covers (together with prior
          effective registrations) not less than 15% of the shares of Common
          Stock outstanding at the closing of such offering on a fully diluted
          basis.

     (u)  "Restricted Period" means the period during which Restricted Units or
          shares of Restricted Stock are subject to forfeiture or restrictions
          on transfer (if applicable) pursuant to Section 7 of the Plan.

     (v)  "Restricted Stock" means Common Stock awarded to a Participant
          pursuant to the Plan which is subject to forfeiture and restrictions
          on transferability in accordance with Section 7 of the Plan.

     (w)  "Restricted Unit" means a Participant's right to receive pursuant to
          the Plan one share of Common Stock at the end of a specified period of
          time, which right is subject to forfeiture in accordance with Section
          7 of the Plan.

     (x)  "Retirement" means

          (i)  with respect to Incentive Awards granted before December 7, 2000,
               termination of a Participant's employment on or after the date
               the Participant attains age 55 with 10 years of service;

          (ii) with respect to Incentive Awards granted on or after December 7,
               2000, termination of a Participant's employment on or after the
               date the Participant attains age 55 with 5 years of service.

     (y)  "Stock Appreciation Right" means the right to receive a payment from
          the Company, in cash or Common Stock, in an amount determined under
          Section 6.12 of the Plan.

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     (z)  "Subsidiary" means any corporation or partnership in which the Company
          owns, directly or indirectly, 50% or more of the total combined voting
          power of all classes of stock of such corporation or of the capital
          interest or profits interest of such partnership.

     2.2. Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.

                                   SECTION 3.

                          ELIGIBILITY AND PARTICIPATION

     Participants in the Plan shall be those Employees and non-employee
directors selected by the Committee to participate in the Plan.

                                   SECTION 4.

                                 ADMINISTRATION

     4.1. Power to Grant and Establish Terms of Awards. The Committee shall have
the authority, subject to the terms of the Plan, to determine the Participants
to whom Incentive Awards shall be granted and the terms and conditions of any
and all Incentive Awards, including but not limited to the number of shares of
Common Stock to be covered by each Incentive Award, the time or times at which
Incentive Awards shall be granted, and the terms and provisions of the
instruments by which Options shall be evidenced; to designate Options as
Incentive Stock Options or Non-Qualified Stock Options; and to determine the
period of time during which restrictions on Restricted Stock or Restricted Units
shall remain in effect. The proper officers of the Company may suggest to the
Committee the Participants who should receive Incentive Awards. The terms and
conditions of each Incentive Award shall be determined by the Committee at the
time of grant, and such terms and conditions shall not be subsequently changed
in a manner which would be adverse to the Participant without the consent of the
Participant to whom such Incentive Award has been granted. The Committee

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may establish different terms and conditions for different Participants
receiving Incentive Awards and for the same Participant for each Incentive Award
such Participant may receive, whether or not granted at different times. The
grant of any Incentive Award to any Participant shall neither entitle such
Participant to, nor disqualify him from, the grant of any other Incentive
Awards. Notwithstanding anything else contained in the Plan to the contrary, the
Committee may delegate, subject to such terms and conditions as it shall
determine, to any officer of the Company or to a committee of officers of the
Company the authority to grant Incentive Awards (and to make any and all
determinations related thereto) to Participants who are not subject to the
reporting requirements of Section 16(a) of the Act.

     4.2. Substitute Options. The Committee shall have the right, subject to the
consent of Participants to whom Options have been granted, to grant in
substitution for outstanding Options, replacement Options which may contain
terms more favorable to the Participant than the Options they replace,
including, without limitation, a lower exercise price (subject to Section 6.2),
and to cancel replaced Options.

     4.3. Administration. The Committee shall be responsible for the
administration of the Plan. Any Incentive Award granted by the Committee may be
subject to such conditions, not inconsistent with the terms of the Plan, as the
Committee shall determine. The Committee, by majority action thereof, is
authorized to prescribe, amend and rescind rules and regulations relating to the
Plan, to provide for conditions deemed necessary or advisable to protect the
interests of the Company to interpret the Plan and to make all other
determinations necessary or advisable for the administration and interpretation
of the Plan to carry out its provisions and purposes. Determinations,
interpretations or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final, binding and conclusive for all purposes
and upon all persons. The Committee may consult with legal counsel, who may be
counsel to the Company, and shall not incur any liability for any action taken
in good faith in reliance upon the advice of counsel.

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                                   SECTION 5.

                              STOCK SUBJECT TO PLAN

     5.1. Number. Subject to the provisions of Section 5.3, the number of shares
of Common Stock subject to Incentive Awards under the Plan may not exceed
14,504,475, provided that, no more than 7,604,475 of such shares may be granted
as Incentive Stock Options under the Plan. The shares to be delivered under the
Plan may consist, in whole or in part, of Common Stock held in treasury or
authorized but unissued Common Stock, not reserved for any other purpose.

     5.2. Canceled, Terminated, or Forfeited Awards. Any shares of Common Stock
subject to an Incentive Award which for any reason expires, or is canceled,
terminated or otherwise settled without the issuance of any Common Stock shall
again be available under the Plan.

     5.3. Adjustment in Capitalization. The aggregate number of shares of Common
Stock available for Incentive Awards under Section 5.1 or subject to outstanding
Incentive Awards and the respective prices and/or vesting criteria applicable to
outstanding Incentive Awards shall be proportionately adjusted to reflect, as
deemed equitable and appropriate by the Committee, an Adjustment Event. To the
extent deemed equitable and appropriate by the Committee, subject to any
required action by stockholders, in any merger, consolidation, reorganization,
liquidation, dissolution, or other similar transaction, any Incentive Award
granted under the Plan shall pertain to the securities and other property to
which a holder of the number of shares of Common Stock covered by the Incentive
Award would have been entitled to receive in connection with such event.

     Any shares of stock (whether Common Stock, shares of stock into which
shares of Common Stock are converted or for which shares of Common Stock are
exchanged or shares of stock distributed with respect to Common Stock) or cash
or other property received with respect to any award of Restricted Stock or
Restricted Units granted under the Plan as a result of any Adjustment Event, any
distribution of property or any merger, consolidation, reorganization,
liquidation, dissolution or other similar transaction shall, except as provided
in Section 7.4 or as otherwise provided by the Committee at or after the date an
award of Restricted Stock or Restricted Units is made by the Committee, be
subject to the same terms and conditions, including restrictions on transfer, as
are applicable to such shares of Restricted

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Stock or Restricted Units and any stock certificate(s) representing or
evidencing any shares of stock so received shall be legended in substantially
the same manner as provided in Section 7.5 hereof.

                                   SECTION 6.

                                  STOCK OPTIONS

     6.1. Grant of Options. Options may be granted to Participants at such time
or times as shall be determined by the Committee. Options granted to
non-employee directors shall be in such amounts and intervals as determined by
the Board from time to time. Options granted under the Plan may be of two types:
(i) Incentive Stock Options and (ii) Non-Qualified Stock Options, except that no
Incentive Stock Option may be granted to a non-employee director or to any
Employee of a Subsidiary which is not a corporation. The date of grant of an
Option under the Plan will be the date on which the Option is awarded by the
Committee or, if so determined by the Committee, the date on which occurs any
event the occurrence of which is an express condition precedent to the grant of
the Option. The Committee shall determine the number of Options, if any, to be
granted to the Participant, provided that, in no event shall the number of
shares of Common Stock subject to any Options or related Stock Appreciation
Rights granted to any Participant during any 12 month period exceed 1,000,000
shares as such number may be adjusted pursuant to Section 5.3. Each Option shall
be evidenced by an Option agreement that shall specify the type of Option
granted, the exercise price, the duration of the Option, the number of shares of
Common Stock to which the Option pertains, and such other terms and conditions
not inconsistent with the Plan as the Committee shall determine.

     6.2. Option Price. Non-Qualified Stock Options and Incentive Stock Options
granted pursuant to the Plan shall have an exercise price which is not less than
the Fair Market Value on the date the Option is granted.

     6.3. Exercise of Options. Options awarded to a Participant under the Plan
shall be exercisable at such times and shall be subject to such restrictions and
conditions including the performance of a minimum period of service or the
satisfaction of performance goals, as the Committee may impose either at or
after the time of grant of such Options, subject

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to the Committee's right to accelerate the exercisability of such Option in its
discretion. Notwithstanding the foregoing, unless otherwise determined by the
Committee, Options shall become exercisable in three equal installments on each
of the first three anniversaries of the date of grant. Except as may be provided
in any provision approved by the Committee pursuant to this Section 6.3, after
becoming exercisable each installment shall remain exercisable until expiration,
termination or cancellation of the Option. An Option may be exercised from time
to time, in whole or in part, up to the total number of shares of Common Stock
with respect to which it is then exercisable. Notwithstanding the foregoing, no
Option shall be exercisable for more than 10 years after the date on which it is
granted.

     6.4. Payment. The Committee shall establish procedures governing the
exercise of Options, which shall require that written notice of exercise be
given and that the Option price be paid in full at the time of exercise (i) in
cash or cash equivalents, (ii) in the discretion of the Committee, in shares of
Common Stock which have been owned by the Participant for at least six months'
(or such greater or lesser period as the Committee shall determine) having a
Fair Market Value on the date of exercise equal to such Option price or in a
combination of cash and Common Stock or (iii) in accordance with such procedures
or in such other form as the Committee shall from time to time determine. As
soon as practicable after receipt of a written exercise notice and payment of
the exercise price in accordance with this Section 6.4, the Company shall
deliver to the Participant a certificate or certificates representing the
acquired shares of Common Stock.

     6.5. Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, no term of the Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of any Participant affected thereby, to
cause any Incentive Stock Option previously granted to fail to qualify for the
Federal income tax treatment afforded under Section 421 of the Code.

     6.6. Settlement. At the time a Participant exercises an Option in lieu of
accepting payment of the exercise price of the Option and delivering the number
of shares of

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Common Stock for which the Option is being exercised, the Committee may direct
that the Company either (i) pay the Participant a cash amount, or (ii) issue a
lesser number of shares of Common Stock having a Fair Market Value on the date
of exercise, equal to the amount, if any, by which the aggregate Fair Market
Value of the shares of Common Stock as to which the Option is being exercised
exceeds the aggregate exercise price for such shares, based on such terms and
conditions as the Committee shall establish.

     6.7. Termination of Employment Due to Retirement. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment with the Company or a Subsidiary terminates by reason of Retirement,
any Options granted to such Participant which are exercisable at the date of
such Participant's termination of employment may be exercised at any time prior
to three (3) years following the Participant's termination of employment or the
expiration of the term of the Options, whichever period is shorter.
Notwithstanding the foregoing, for all Options granted on or after December 7,
2000, unless otherwise determined by the Committee at the time of grant, in the
event a Participant's employment with the Company or a Subsidiary terminates by
reason of Retirement, any such Options granted to such Participant which are
exercisable at the date of such Participant's termination of employment may be
exercised at any time during the period ending on the tenth anniversary of the
grant date of such Options.

     6.8. Termination of Employment Due to Death or Disability. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment with the Company or a Subsidiary terminates by reason of death or
Disability, any Options granted to such Participant which are exercisable at the
date of such Participant's termination of employment may be exercised by the
Participant or the Participant's designated beneficiary, and if none is named,
in accordance with Section 10.2, at any time prior to one (1) year following the
Participant's termination of employment or the expiration date of the term of
the Options, whichever period is shorter. Notwithstanding the foregoing, for all
Options granted on or after December 7, 2000, unless otherwise determined by the
Committee at the time of grant, in the event a Participant's employment with the
Company or a Subsidiary terminates by reason of death or Disability, any such
Options granted to such Participant which are exercisable at the

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date of such Participant's termination of employment may be exercised by the
Participant or the Participant's designated beneficiary, and if none is named,
in accordance with Section 10.2, at any time during the period ending on the
tenth anniversary of the grant date of such Options.

     6.9. Termination of Employment for Cause. Unless otherwise determined by
the Committee at the time of grant, in the event a Participant's employment with
the Company or a Subsidiary is terminated for Cause, all Options granted to such
Participant which are then outstanding (whether or not exercisable prior to the
date of such termination) shall be forfeited.

     6.10. Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at or after the time of grant, in the event a
Participant's employment with the Company or a Subsidiary terminates for any
reason other than one described in Section 6.7, 6.8 or 6.9, any Options granted
to such Participant which are exercisable at the date of such Participant's
termination of employment shall be exercisable at any time prior to 90 days
following such Participant's termination of employment or the expiration of the
term of such Options, whichever period is shorter.

     6.11. Committee Discretion. Notwithstanding anything else contained in this
Section 6 to the contrary, the Committee may permit all or any portion of any
Options to be exercised following a Participant's termination of employment for
any reason on such terms and subject to such conditions as the Committee shall
determine for a period up to and including, but not beyond, the expiration of
the term of such Options.

     6.12. Stock Appreciation Rights. The Committee may, in its discretion,
include in any Option, either at the time the Option is granted or thereafter at
any time prior to the exercise, termination or expiration of the Option, a right
of the Participant to elect, in lieu of purchasing any shares of Common Stock in
respect of which such Option is exercisable at any time, to relinquish his
Option with respect to any and all of such shares of Common Stock and to receive
from the Company a payment, in cash or Common Stock, equal to the amount by
which (i) the product of (x) the Fair Market Value of a share of Common Stock on
the date of

                                      -15-
<PAGE>   16

such election multiplied by (y) the number of shares of Common Stock as to which
the Participant shall have made such election exceeds (ii) the total exercise
price for that number of shares of Common Stock under the terms of such Option.
If the Participant shall exercise Stock Appreciation Rights appertaining to any
Option, such Option shall thereafter remain exercisable, according to its term,
only with respect to the number of shares of Common Stock as to which it would
otherwise be exercisable less the number of shares of Common Stock with respect
to which such Stock Appreciation Rights have been exercised. Each Stock
Appreciation Right shall be subject to the same terms and conditions as the
related Option and shall be exercisable only to the extent the related Option is
exercisable.

                                   SECTION 7.

                      RESTRICTED STOCK AND RESTRICTED UNITS

     7.1. Grant of Restricted Stock and Restricted Units. Any award made
hereunder of Restricted Stock or Restricted Units shall be subject to the terms
and conditions of the Plan and to any other terms and conditions not
inconsistent with the Plan (including, but not limited to, requiring the
Participant to pay the Company an amount equal to the par value per share for
each share of Restricted Stock awarded) as shall be prescribed by the Committee
in its sole discretion. As determined by the Committee, with respect to an award
of Restricted Stock, the Company shall either (i) transfer or issue to each
Participant to whom an award of Restricted Stock has been made the number of
shares of Restricted Stock specified by the Committee or (ii) hold such shares
of Restricted Stock for the benefit of the Participant for the Restricted
Period. In the case of an award of Restricted Units, no shares of Common Stock
shall be issued at the time an award is made, and the Company shall not be
required to set aside a fund for the payment of such award.

     7.2. Restrictions on Transferability. Shares of Restricted Stock may not be
sold, assigned, transferred, pledged, hypothecated or otherwise encumbered by
the Participant during the Restricted Period, except as hereinafter provided.
Notwithstanding the foregoing, the Committee may permit (on such terms and
conditions as it shall establish) shares of Restricted Stock to be transferred
during the Restricted Period by the Participant to a member of the Participant's
immediate family or to a trust or similar vehicle for the benefit of such

                                      -16-
<PAGE>   17

immediate family members, provided that any shares of Restricted Stock so
transferred shall remain subject to the provisions of this Section 7.

     7.3. Rights as a Shareholder. Except for the restrictions set forth herein
and unless otherwise determined by the Committee, the Participant shall have all
the rights of a shareholder with respect to such shares of Restricted Stock,
including but not limited to, the right to vote and the right to receive
dividends. A Participant shall not have any right, in respect of Restricted
Units awarded pursuant to the Plan, to vote on any matter submitted to the
Company's stockholders until such time as the shares of Common Stock
attributable to such Restricted Units have been issued. At the discretion of the
Committee, a Participant's Restricted Unit account may be credited with Dividend
Equivalents during the Restricted Period.

     7.4. Restricted Period. Unless the Committee shall otherwise determine at
or after the date an award of Restricted Stock or Restricted Units is made to
the Participant by the Committee, the Restricted Period shall commence upon the
date of grant and shall lapse with respect to the shares of Restricted Stock or
Restricted Units on the third anniversary of the date of grant, unless sooner
terminated as otherwise provided herein. Without limiting the generality of the
foregoing, the Committee may provide for termination of the Restricted Period
upon the achievement by the Participant of performance goals specified by the
Committee at the date of grant. The determination of whether the Participant has
achieved such performance goals shall be made by the Committee in its sole
discretion.

     7.5. Legend. Each certificate issued to a Participant in respect of shares
of Restricted Stock awarded under the Plan shall be registered in the name of
the Participant and Shall bear the following (or similar) legend:

          "The shares of stock represented by this certificate are subject to
     the terms and conditions contained in the American Standard Companies Inc.
     Stock Incentive Plan and may not be sold, pledged, transferred, assigned,
     hypothecated or otherwise encumbered in an manner (except as provided in
     Section 7.2 of the Plan) until _____________________."

                                      -17-
<PAGE>   18

     7.6. Death, Disability or Retirement. Unless the Committee shall otherwise
determine at the date of grant, if a Participant ceases to be employed by the
Company or any Subsidiary by reason of death, Disability or Retirement, the
Restricted Period will lapse as to a pro rated portion of the shares of
Restricted Stock and Restricted Units transferred or issued to such Participant
under the Plan based on the number of days the Participant actually worked since
the date the shares of Restricted Stock or Restricted Units were granted (or in
the case of an award which becomes vested in installments, since the date, if
any, on which the last installment of such Restricted Stock or Restricted Units
became vested); provided that, in the case of an award with respect to which the
restrictions will lapse, if at all, based on the attainment of performance goals
or targets, such vesting shall be deferred until the end of the applicable
performance period and be based on that number of shares of Restricted Stock or
Restricted Units, if any, that would have been earned based on the attainment or
partial attainment of such performance goals or targets. Any shares of
Restricted Stock or Restricted Units as to which the Restricted Period has not
lapsed at the date of a Participant's termination of employment by reason of
death, Disability or Retirement (or which do not become vested after such date
under the preceding sentence) shall revert back to the Company upon such
Participant's termination of employment (or, if applicable, such deferred
vesting date).

     7.7. Termination of Employment. Unless the Committee shall otherwise
determine at or after the date of grant, if a Participant ceases to be employed
by the Company or any Subsidiary for any reason other than those specified in
Section 7.6 at any time prior to the date when the Restricted Period lapses, all
shares of Restricted Stock held by the Participant shall revert back to the
Company and all Restricted Units and any Dividend Equivalents credited to such
Participant shall be forfeited upon the Participant's termination of employment.

     7.8. Issuance of New Certificates; Settlement of Restricted Units. Upon the
lapse of the Restricted Period with respect to any shares of Restricted Stock,
such shares shall no longer be subject to the restrictions imposed under Section
7.2 and the Company shall issue or have issued new share certificates without
the legend described in Section 7.5 in exchange for those previously issued.
Upon the lapse of the Restricted Period with respect to any Restricted

                                      -18-
<PAGE>   19

Units, the Company shall deliver to the Participant, or the Participant's
beneficiary or estate, as provided in Section 10.2, one share of Common Stock
for each Restricted Unit as to which restrictions have lapsed and any Dividend
Equivalents credited with respect to such Restricted Units and any interest
thereon. The Committee may, in its sole discretion, elect to pay cash or part
cash and part Common Stock in lieu of delivering only Common Stock for
Restricted Units. If a cash payment is made in lieu of delivering Common Stock,
the amount of such cash payment for each share of Common Stock to which a
Participant is entitled shall be equal to the Fair Market Value of the Common
Stock on the date on which the Restricted Period lapsed with respect to the
related Restricted Unit.

     7.9. Performance Related Awards. Notwithstanding anything else contained in
the Plan to the contrary, unless the Committee otherwise determines at the time
of grant, any award of Restricted Shares or Restricted Units, or an award of
Common Stock or Restricted Units made in conjunction with other incentive plans
established by the Company, to an officer of the Company or a Subsidiary who is
subject to the reporting requirements of Section 16(a) of the Exchange Act,
other than an award which will vest solely on the basis of the passage of time,
shall become vested, if at all, upon the determination by the Committee that
performance objectives established by the Committee have been attained, in whole
or in part (a "Performance Award"), to the extent required to ensure that the
grant of such awards are deductible by the Company or such Subsidiary pursuant
to Section 162(m) of the Code. Such performance objectives shall be determined
over a measurement period or periods established by the Committee and related to
at least one of the following criteria, which may be determined solely by
reference to the performance of (i) the Company, (ii) a Subsidiary, (iii) an
affiliate of the Company, or (iv) a division or unit of any of the foregoing or
based on comparative performance of any of the foregoing relative to other
companies: (A) earnings per share; (B) revenues; (C) operating cash flow; (D)
operating earnings; (E) working capital; (F) inventory turnover rates; (G)
earnings to sales ratio; and (H) return on capital (the "Performance Criteria").
The maximum number of shares of Common Stock that may be subject to any such
Performance Award in any 12 month period shall not exceed 500,000 shares, as
such number may be adjusted pursuant to Section 5.3.

                                      -19-
<PAGE>   20

                                   SECTION 8.

                                CHANGE OF CONTROL

     8.1. Accelerated Vesting and Payment. In the event of a Change of Control,
the Restricted Period with respect to each share of Restricted Stock and each
Restricted Unit will lapse and each Option and Stock Appreciation Right shall
become immediately exercisable on the date of such Change of Control.

     8.2. Alternative Awards. Notwithstanding any provision of Section 6, any
Participant who holds on the date of a Change of Control an Option or Stock
Appreciation Right granted under this Plan shall be entitled to elect, during
the 60-days period immediately following such Change of Control, in lieu of
acquiring the shares of Common Stock covered by any such Option (or, in the case
of a Stock Appreciation Right, the amount of cash and Common Stock such
Participant would otherwise be entitled to receive upon the relinquishment of
the Option related to such Stock Appreciation Right), to receive, and the
Company shall be obligated to pay, the Change of Control Settlement Value with
respect to shares of Common Stock up to the number of shares covered by such
Option or Stock Appreciation Right, which amount shall be paid in cash.

     8.3. No Amendment. Notwithstanding Section 9, the provisions of this
Section 8 may not be amended in any respect following a Change of Control.

                                   SECTION 9.

                AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

     The Board may at any time terminate or suspend the Plan, and from time to
time may amend or modify the Plan. No action of the Board may, without the
consent of a Participant alter or impair his rights under any previously granted
Incentive Award.

                                      -20-
<PAGE>   21

                                   SECTION 10.

                            MISCELLANEOUS PROVISIONS

     10.1. Nontransferability of Awards. Unless the Committee shall permit (on
such terms and conditions as it shall establish) an Incentive Award to be
transferred, no Incentive Award granted under the Plan may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. All rights with respect to any
Incentive Award granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant or, if transferred as contemplated
by the previous sentence, a permitted transferee.

     10.2. Beneficiary Designation. Each Participant under the Plan may from
time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
or by whom any right under the Plan is to be exercised in case of his death.
Each designation will revoke all prior designations by the same Participant,
shall be in a form prescribed by the Committee, and will be effective only when
filed by the Participant in writing with the Committee during his lifetime. In
the absence of any such designation, benefits remaining unpaid or Incentive
Awards outstanding at the Participant's death shall be paid to or exercised by
the Participant's surviving spouse, if any, or otherwise to or by his estate.

     10.3. No Guarantee of Employment or Participation. Nothing in the Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary or affiliate. No Employee or non-employee director shall have a right
to be selected as a Participant, or, having been so selected, to receive any
future Incentive Awards.

     10.4. Tax Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company promptly upon notification of the
amount due, an amount sufficient to satisfy Federal, state and local withholding
tax requirements on with respect to any Incentive Award, and the Company may
defer payment of cash or issuance or delivery of Common Stock until such
requirements are satisfied. The Committee may, in its discretion, permit a
Participant to elect, subject to such conditions as the Committee shall impose
(i) to

                                      -21-
<PAGE>   22

have Common Stock otherwise issuable or deliverable under the Plan withheld by
the Company or (ii) to deliver to the Company previously acquired shares of
Common Stock, in each case, having a Fair Market Value sufficient to satisfy not
more than the Participant's statutory minimum Federal, state and local tax
obligation associated with the transaction.

     10.5. Indemnification. Each person who is or shall have been a member of
the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of any
judgment in any such action, suit or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-laws, by contract,
as a matter of law, or otherwise.

     10.6. No Limitation on Compensation. Nothing in the Plan shall be construed
to limit the right of the Company to establish other plans or to pay
compensation to its employees in cash or property, in a manner which is not
expressly authorized under the Plan.

     10.7. Requirements of Law. The granting of Incentive Awards and the
issuance of shares of Common Stock shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.

     10.8. Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.

                                      -22-
<PAGE>   23

     10.9. No Impact On Benefits. Incentive Awards granted under the Plan are
not compensation for purposes of calculating an Employee's rights under any
employee benefit plan.

     10.10. Securities Law Compliance. Instruments evidencing Incentive Awards
may contain such other provisions, not inconsistent with the Plan, as the
Committee deems advisable, including (i) a provision limiting the period during
which Stock Appreciation Rights could be exercised to the extent required in
order to avoid the application of Section 16(b) of the Act in the case of
officers of the Company and (ii) a requirement that the Participant represent to
the Company in writing, when an Incentive Award is granted or when he receives
shares with respect to such Award (or at such other time as the Committee deems
appropriate) that he is accepting such Incentive Award, or receiving or
acquiring such shares (unless they are then covered by a Securities Act of 1933
registration statement), for his own account for investment only and with no
present intention to transfer, sell or otherwise dispose of such shares except
such disposition by a legal representative as shall be required by will or the
laws of any jurisdiction in winding up the estate of the Participant. Such
shares shall be transferable only if the proposed transfer shall be permissible
pursuant to the Plan and if, in the opinion of counsel satisfactory to the
Company, such transfer at such time will be in compliance with applicable
securities laws.

     10.11 Term of Plan. The Plan shall be effective upon its adoption by the
Board and approval by the holders of the Common Stock, provided, however, that
in no event shall the Plan become effective until immediately prior to the
occurrence of a Public Offering. The Plan shall expire on the tenth anniversary
of the date on which it is adopted by the Board (except as to Incentive Awards
outstanding on that date), unless sooner terminated pursuant to Section 9.

                                      -23-<PAGE>   1
                                                                  Exhibit 10.35

                                                             [Execution Version]

                            SEVENTEENTH AMENDMENT TO
                           LOAN AND SECURITY AGREEMENT

             THIS SEVENTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as
of January 5, 2001, is entered into by and among CONGRESS FINANCIAL CORPORATION,
a Delaware 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"), LWI HOLDINGS, INC., a
Delaware corporation ("LWI"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover
Realty"), THE COMPANY STORE FACTORY, INC., a Delaware corporation ("TCS
Factory"), THE COMPANY OFFICE, INC., a Delaware corporation ("TCS Office"),
TWEEDS, LLC, a Delaware limited liability company ("Tweeds LLC"), SILHOUETTES,
LLC, a Delaware limited liability company ("Silhouettes LLC"), HANOVER COMPANY
STORE, LLC, a Delaware limited liability company ("HCS LLC"), DOMESTICATIONS,
LLC, a Delaware limited liability company ("Domestications LLC"; and together
with HDPI, Brawn, GBM, Gump's, LWI, HDV, Hanover Realty, TCS Factory, TCS
Office, Tweeds LLC, Silhouettes and HCS LLC, each individually referred to
herein as an "Existing Borrower" and collectively, as "Existing Borrowers"), and
HANOVER DIRECT, INC., a Delaware corporation, ("Hanover"), AMERICAN DOWN &
TEXTILE COMPANY, a Wisconsin corporation ("American Down"), D.M. ADVERTISING,
INC., a New Jersey corporation ("DM Advertising"), SCANDIA DOWN CORPORATION, a
Delaware corporation ("Scandia"), KEYSTONE LIQUIDATIONS, INC., a Delaware
Corporation, formerly known as Tweeds of Vermont, Inc., HANOVER HOME FASHIONS
GROUP, LLC, a Delaware limited liability company ("HHFG LLC"), KITCHEN & HOME,
LLC, a Delaware limited liability company ("Kitchen & Home, LLC"),
DOMESTICATIONS KITCHEN & GARDEN, LLC, a Delaware limited liability company
("Domestications K&G, LLC"), ENCORE CATALOG, LLC, a Delaware limited liability
company ("Encore LLC"), CLEARANCE WORLD OUTLETS, LLC, a Delaware limited
liability company ("Clearance World"), SCANDIA DOWN, LLC, a Delaware limited
liability company ("Scandia Down, LLC"), ERIZON, INC., a Delaware corporation
("erizon, inc."), HANOVER BRANDS, INC., a Delaware corporation ("Hanover
Brands"), ERIZON.COM, INC., a Delaware corporation ("erizon.com"), LACROSSE
FULFILLMENT, LLC, a Delaware limited liability company ("LaCrosse, LLC"), SAN
DIEGO TELEMARKETING, LLC, a Delaware limited liability company ("San Diego LLC";
each individually a "Guarantor" and collectively "Guarantor" and KEYSTONE
INTERNET SERVICES, INC. ("Keystone Internet"). Each Existing Borrower, together
with Keystone Internet shall hereinafter be referred to individually as a
"Borrower" and collectively as "Borrowers".
<PAGE>   2
                              W I T N E S S E T H:

       WHEREAS, Existing Borrowers, 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 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, the Eleventh Amendment to Loan and Security Agreement, dated as of March
25, 1998, the Twelfth Amendment to Loan and Security Agreement, dated as of
September 30, 1998, the Thirteenth Amendment to Loan and Security Agreement,
dated as of September 30, 1998, the Fourteenth Amendment to Loan and Security
Agreement, dated as of February 28, 2000, the Fifteenth Amendment to Loan and
Security Agreement, dated as of March 24, 2000, and the Sixteenth Amendment to
Loan and Security Agreement, dated as of August 8, 2001 (as so amended, the
"Loan Agreement"), pursuant to which Lender has made loans and advances to
Existing Borrowers; and

       WHEREAS, Borrowers have requested that Lender make available to Revolving
Loan Borrowers, Letter of Credit Accommodations in the form of bankers'
acceptances of up to $750,000 at any one time outstanding;

       WHEREAS, the parties to the Loan Agreement desire to enter into this
Seventeenth 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 are hereby acknowledged, the parties hereto agree as follows:

         I. Definitions. All capitalized terms used herein and not defined
herein shall have the meanings given to such terms in the Loan Agreement.

         II. Letter of Credit Accommodation consisting of Banker's Acceptances.

                  A. Section 2.3(a)(i) of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:

                         "(i) issue, open or cause the issuance or opening of
                         letters of credit for the purchase of goods and
                         services or banker's acceptances issued with respect

                                      -2-
<PAGE>   3
                           to drafts presented under letters of credit for the
                           purchase of goods and services or purchase or other
                           guarantees for the purchase of goods and services in
                           the ordinary course of a Revolving Loan Borrower's
                           business or for any other purpose approved by Lender
                           or provide for the amendment or extension of any of
                           the foregoing or".

             B. Section 2.3(f) of the Loan Agreement is hereby amended by
redesignating existing clauses (ii) and (iii) as clauses (iii) and (iv),
respectively, and adding a replacement clause (ii) as follows:

                           "(ii) two and one-half percent (2-1/2%) per annum on
                           the daily outstanding balance of Letter of Credit
                           Accommodations consisting of banker's acceptances,
                           and"

             C. Section 2.3(g) of the Loan Agreement is hereby amended by adding
the following proviso before the period at the end of the first sentence as
follows:

             "; provided, however, the aggregate amount of all outstanding
             Letter of Credit Accommodations consisting of or relating to
             banker's acceptances and any other commitments and obligations made
             or incurred by Lender in connection therewith, shall not at any
             time exceed $750,000."

       III. 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 Borrower and/or Guarantor hereunder have been
duly authorized, executed and delivered by all necessary action on the part of
each of Borrower and each Guarantor which is a party 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 Borrower and/or Guarantor, as the case may be, contained
herein and therein constitute legal, valid and binding obligations of each
Borrower and/or Guarantor, as the case may be, enforceable against them in
accordance with their terms.

                   B. Neither the execution and delivery of this Amendment, any
of the Hanover Preferred Stock Offering Agreements or any other agreements,
documents or instruments to be delivered pursuant to this Agreement has violated
or shall violate 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 applicable to Borrowers or Guarantors, or does or shall conflict

                                      -3-
<PAGE>   4
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 Borrowers or Guarantors is a party or may be bound, or shall violate any
provision of the Certificates of Incorporation or By-Laws of Borrowers or
Guarantors.

                   C. No action of, or filing with, or consent of any
governmental or public body or authority, 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 and each other
agreement or instrument to be executed and delivered pursuant to this Amendment.

                   D. All of the representations and warranties set forth in the
Loan Agreement as amended hereby, and the other 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.

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

       IV. 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 an executed original or
executed original counterparts of this Amendment, as the case may be, duly
authorized, executed and delivered by Borrowers and Guarantors; and

                   B. after giving effect to the provisions of this Amendment,
no Event of Default or Incipient Default exists or has occurred and is
continuing.

       V. 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.

                                      -4-
<PAGE>   5
       VI. 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.

       VII. 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 conflicts of laws).

       VIII. 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.

       IX. 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.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -5-
<PAGE>   6
       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. Last
                                                 -------------------------------
                                           Title: First Vice President
                                                 -------------------------------

                                           HANOVER DIRECT PENNSYLVANIA, INC.

                                           By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                           Title: Vice President
                                                 -------------------------------

                                           BRAWN OF CALIFORNIA, INC.

                                           By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                           Title: Vice President
                                                 -------------------------------

                                           GUMP'S BY MAIL, INC.

                                           By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                           Title: President
                                                 -------------------------------

                                           GUMP'S CORP.

                                           By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                           Title:  Vice President
                                                 -------------------------------

                                           LWI HOLDINGS, INC.

                                           By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                           Title: Vice President
                                                 -------------------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                      -6-
<PAGE>   7
                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

                                            HANOVER DIRECT VIRGINIA INC.

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: President
                                                 -------------------------------

                                            HANOVER REALTY, INC.

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: President
                                                 -------------------------------

                                            THE COMPANY STORE FACTORY, INC.

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: Vice President
                                                 -------------------------------

                                            THE COMPANY OFFICE, INC.

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: Vice President
                                                 -------------------------------

                                            KEYSTONE INTERNET SERVICES, INC.

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: Vice President
                                                 -------------------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                      -7-
<PAGE>   8
                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

                                            TWEEDS, LLC

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: Vice President

                                                 -------------------------------
                                            SILHOUETTES, LLC

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: Vice President
                                                 -------------------------------

                                            HANOVER COMPANY STORE, LLC

                                            By:    /s/ Brian C. Harriss
                                                 -------------------------------
                                            Title: Vice President
                                                 -------------------------------

                                            DOMESTICATIONS, LLC

                                            By:     President
                                                 -------------------------------

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/ Brian C. Harriss
      ----------------------------
Title: Senior Vice President & CFO
      ----------------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                       -8-
<PAGE>   9
                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

AMERICAN DOWN & TEXTILE COMPANY

By:    /s/ Brian C. Harriss
      -----------------------------
Title: Vice President
      -----------------------------

D.M. ADVERTISING, INC.

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

LWI RETAIL, INC.

By:    /s/ Brian C. Harriss
      -----------------------------
Title: Vice President
      -----------------------------

SCANDIA DOWN CORPORATION

By:    /s/ Brian C. Harriss
      -----------------------------
Title: Vice President
      -----------------------------

KEYSTONE LIQUIDATIONS, INC.

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                      -9-
<PAGE>   10
                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

HANOVER HOME FASHIONS GROUP, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: Vice President
      -----------------------------

KITCHEN & HOME, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: Vice President
      -----------------------------

DOMESTICATIONS KITCHEN & GARDEN, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

ENCORE CATALOG, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

CLEARANCE WORLD OUTLETS, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                      -10-
<PAGE>   11
                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

SANDIA DOWN, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: Vice President
      -----------------------------

ERIZON, INC.

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

HANOVER BRANDS, INC.

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

ERIZON.COM, INC.

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

LA CROSSE FULFILLMENT, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

SAN DIEGO TELEMARKETING, LLC

By:    /s/ Brian C. Harriss
      -----------------------------
Title: President
      -----------------------------

                                      -11-

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