Document:

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                                                                    EXHIBIT 10.5

                            SUBORDINATION AGREEMENT

         THIS SUBORDINATION AGREEMENT ("Subordination Agreement"), dated as of
March 24, 2000, is by and between CONGRESS FINANCIAL CORPORATION, a Delaware
corporation ("Senior Creditor", as hereinafter further defined), and RICHEMONT
FINANCE S.A., a societe anonyme organized under the laws of the Grand Duchy of
Luxembourg ("Junior Creditor", as hereinafter further defined).  Senior
Creditor and Junior Creditor are sometimes individually referred to herein as
"Creditor" and collectively as "Creditors."

                              W I T N E S S E T H:

         WHEREAS, Junior Creditor has made a loan in the original principal
amount of up to $25,000,000 to Hanover Direct, Inc. ("Debtor", as hereinafter
defined), which loan is and shall be unsecured; and

         WHEREAS, Senior Creditor has entered into financing arrangements with
Debtor and certain of its subsidiaries, pursuant to which Senior Creditor has,
upon certain terms and conditions, made loans and provided other financial
accommodations to certain subsidiaries of Debtor, guaranteed by Debtor and
certain subsidiaries of Debtor, secured by substantially all of the assets and
properties of Debtor and of such borrower subsidiaries and guarantor
subsidiaries of Debtor; and

         WHEREAS, in order to induce Senior Creditor to continue the financing
arrangements with Debtor and certain subsidiaries of Debtor, Junior Creditor
has agreed to the subordination in favor of Senior Creditor as provided herein
of its right to payment of the existing and future obligations of Debtor to
Junior Creditor arising in connection with a loan of up to $25,000,000 to
Debtor to the prior indefeasible payment of the existing and future obligations
of Debtor to Senior Creditor under the Senior Creditor Agreements, and related
matters as set forth below;

         NOW THEREFORE, in consideration of the mutual benefits accruing to
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:

         1.   DEFINITIONS

         As used above and in this Subordination Agreement, the following terms
shall have the meanings ascribed to them below:
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         1.1   "Agreements" shall mean, individually and collectively, the
Senior Creditor Agreements and the Junior Creditor Agreements.

         1.2   "Banking Day" shall mean any day, other than Saturday or Sunday,
when Senior Creditor and commercial banks are open in New York, New York and
Europe.

         1.3   "Creditors" shall mean, individually and collectively, Senior
Creditor and Junior Creditor and their respective successors and assigns.

         1.4   "Debtor" shall mean Hanover Direct, Inc., a Delaware
corporation, and its successors and assigns, including, without limitation, a
receiver, trustee, or debtor-in-possession on behalf of any such person or on
behalf of any such successor or assign.

         1.5   "Event of Default" shall have the meaning given in the Loan
Agreement.

         1.6   "Incipient Default" shall have the meaning given in the Loan
Agreement.

         1.7   "Excess Loan Availability" shall have the meaning given in the
Loan Agreement.

         1.8   "Insolvency Proceeding" shall have the meaning given in Section
2.3 hereof.

         1.9   "Junior Creditor" shall mean Richemont Finance S.A., a societe
anonyme organized under the laws of the Grand Duchy of Luxembourg, and its
successors and assigns.

         1.10  "Junior Creditor Agreements" shall mean, individually and
collectively, the "Hanover Direct, Inc. - Unsecured Line of Credit & Promissory
Note", dated March 1, 2000, by and between Debtor and Junior Creditor in the
original principal amount of up to $25,000,000, and all agreements, documents
and instruments at any time executed and/or delivered by Debtor or any other
person to, with or in favor of Junior Creditor in connection therewith or
related thereto, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

         1.11  "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Junior
Creditor under the Junior Creditor Agreements, including principal, interest,
charges, fees, premiums, indemnities and expenses, however evidenced, whether
as principal, surety, endorser, guarantor or otherwise, arising under or
evidenced by or in connection with the Junior Creditor Agreements, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Junior Creditor Agreements or after the
commencement of any case with respect to Debtor under the U.S. Bankruptcy Code
or any similar statute (and including, without limitation, any principal,
interest, fees, costs, expenses and other amounts, whether or not such amounts
are allowable in whole or in part, in any such case or similar proceeding),
whether direct or indirect, absolute or contingent, joint or several, due or
not due, primary or secondary, liquidated or unliquidated,

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secured or unsecured, and whether arising directly, or by way of subrogation,
contribution, reimbursement, indemnification, exoneration or otherwise, or
howsoever acquired by Junior Creditor in connection with the Junior Creditor
Agreements.

         1.12   "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
company, trust, joint venture, limited liability company, limited liability
partnership, or other entity or any government or any agency or instrumentality
or political subdivision thereof.

         1.13   "Senior Creditor" shall mean Congress Financial Corporation, a
Delaware corporation, and its successors and assigns.

         1.14   "Senior Creditor Agreements" shall mean, individually and
collectively, the Loan and Security Agreement, dated November 14, 1995, by and
among Senior Creditor, Debtor and certain subsidiaries of Debtor, as amended
through the Fifteenth Amendment to Loan and Security Agreement, dated as of the
date hereof (the "Loan Agreement"), any related guarantees by Debtor in favor
of Lender, any related security agreements, by Debtor in favor of Senior
Creditor and all agreements, documents and instruments at any time executed
and/or delivered by Debtor or any other person to, with or in favor of Senior
Creditor in connection therewith or related thereto, as all of the foregoing
now exist or, subject to the terms and conditions contained in this
Subordination Agreement, as may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.

         1.15   "Senior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor or any other
Subsidiary of Debtor to Senior Creditor and/or its affiliates, or participants,
including principal, interest, charges, fees, premiums, indemnities and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, owing in connection with the Senior Creditor Agreements, whether
now existing or hereafter arising, whether arising before, during or after the
initial or, subject to the terms and conditions contained in this Subordination
Agreement, any renewal term of the Senior Creditor Agreements or after the
commencement of any case with respect to Debtor under the U.S. Bankruptcy Code
or any similar statute (and including, without limitation, any principal,
interest, fees, costs, expenses and other amounts, whether or not such amounts
are allowable either in whole or in part, in any such case or similar
proceeding), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and whether arising directly, or by way of subrogation,
contribution, reimbursement, indemnification, exoneration or otherwise, or
howsoever acquired by Senior Creditor in connection with the Senior Creditor
Agreements.

         1.16   All terms used herein which are defined in the Uniform
Commercial Code as in effect in the State of New York, unless otherwise defined
herein shall have the meanings set forth

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therein.  All references to any term in the plural shall include the singular
and all references to any term in the singular shall include the plural.

         2.      SUBORDINATION OF JUNIOR DEBT

         2.1   Subordination.  Except as specifically set forth in Section 2.2
hereof, Junior Creditor hereby subordinates its right to payment and
satisfaction of the Junior Debt, and the payment and satisfaction thereof,
directly or indirectly, by any means whatsoever, is hereby deferred, to the
prior indefeasible payment and satisfaction in full of all Senior Debt.

         2.2   Permitted Payments.  Senior Creditor hereby agrees that,
notwithstanding anything to the contrary contained in Section 2.1 hereof,

                 (a)  unless and until Senior Creditor sends written notice to
Junior Creditor of the occurrence of an Event of Default or Incipient Default
under the Senior Creditor Agreements, Debtor may make and Junior Creditor may
receive and retain from Debtor, regularly scheduled payments of interest in
respect of the Junior Debt and of a monthly fee in the amount of $62,500, in
each case as provided by the Junior Creditor Agreements as in effect on the
date hereof; and

                 (b)      Debtor may make, and Junior Creditor may receive and
retain, payments by Debtor to Junior Creditor of the Junior Debt solely out of
cash proceeds pursuant to a rights offering by Hanover Direct, Inc., Hanover
Brands, Inc. or erizon, inc. or any other equity offering(s) or equity private
placement(s) of capital stock of Hanover Direct, Inc,  Hanover Brands, Inc. or
erizon, inc. and Junior Creditor may convert the then outstanding amount of
Junior Debt for capital stock of Hanover Direct, Inc. or Hanover Brands, Inc.
or erizon, inc.; provided, that, (i) Senior Creditor has received not less than
fifteen (15) Banking Days prior written notice from Debtor of the intention to
make such payment out of cash proceeds of such rights offering or other equity
offering or such conversion of the Junior Debt to capital stock, (ii) such
capital stock consists of ordinary common stock as in effect on the date hereof
or of other capital shares if consented to by Senior Creditor, which consent
shall not be unreasonably withheld in Senior Creditor's good faith judgment.
To the extent any such cash proceeds of any such equity offering or conversion
of Junior Debt permitted hereby reduces the amount of any commitment to advance
funds pursuant to the Junior Creditor Agreements, any such net cash proceeds or
conversion shall not also reduce the amount of any commitment to advance funds
pursuant to the Richemont $10,000,000 Credit Agreements as such term is defined
in the Senior Creditor Agreements.

         2.3   Distributions.

                 (a)  In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of Debtor or the proceeds
thereof to the creditors of Debtor or readjustment of the obligations and
indebtedness of Debtor, whether by reason of liquidation, bankruptcy,
arrangement, receivership,

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assignment for the benefit of creditors, marshalling of assets of Debtor or any
other action or proceeding involving the readjustment of all or any part of
indebtedness of Debtor or the application of the assets of Debtor to the payment
or liquidation thereof (each of the foregoing, an "Insolvency Proceeding"), or
upon the dissolution or other winding up of Debtor's business, or upon the sale
of all or substantially all of Debtor's assets, then, and in any such event, (i)
Senior Creditor shall first receive indefeasible payment in full in cash of all
of the Senior Debt prior to the payment of all or any part of the Junior Debt,
and (ii) Senior Creditor shall be entitled to receive any payment or
distribution of any kind or character, whether in cash, securities or other
property, which is payable or deliverable in respect of any or all of the Junior
Debt.

                 (b)  In order to enable Senior Creditor to enforce its rights
under Section 2.3(a) hereof, Senior Creditor is hereby irrevocably authorized
and empowered (in its own name or in the name of Junior Creditor or otherwise),
but shall have no obligation, to enforce claims comprising any of the Junior
Debt by proof of debt, proof of claim, suit or otherwise and take generally any
action which Junior Creditor might otherwise be entitled to take, as Senior
Creditor may deem necessary or advisable for the enforcement of its rights or
interests hereunder.

                 (c)  To the extent necessary for Senior Creditor to realize
the benefits of the subordination of the Junior Debt provided for herein
(including the right to receive any and all payments and distributions which
might otherwise be payable or deliverable with respect to the Junior Debt in
any Insolvency Proceeding or otherwise), Junior Creditor shall execute and
deliver to Senior Creditor such instruments or documents (together with such
assignments or endorsements as Senior Creditor shall deem necessary), as may be
reasonably requested by Senior Creditor.

         2.4  Payments Received by Junior Creditor.  Except for payments
received by Junior Creditor as provided in Section 2.2 hereof, should any
payment or distribution or security or instrument or proceeds thereof be
received by the Junior Creditor in respect of the Junior Debt, Junior Creditor
shall receive and hold the same in trust, as trustee, for the benefit of Senior
Creditor, segregated from other funds and property of Junior Creditor and shall
forthwith deliver the same to Senior Creditor (together with any endorsement or
assignment of Junior Creditor where necessary), for application to any of the
Senior Debt.  In the event of the failure of Junior Creditor to make any such
endorsement or assignment to Senior Creditor, Senior Creditor, or any of its
officers or employees, are hereby irrevocably authorized on behalf of Junior
Creditor to make the same.

         2.5  Instrument Legend and Notation.  Any instrument at any time
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Subordination Agreement, and (a) after being so marked
certified copies thereof shall be delivered to Senior Creditor and (b) the
original of any such instrument shall be immediately delivered to Senior
Creditor upon Senior Creditor's request, at any time on or after the
commencement of an Insolvency Proceeding.  In the event

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any legend or endorsement is omitted, Senior Creditor, or any of its officers or
employees, are hereby irrevocably authorized on behalf of Junior Creditor to
make the same.  No specific legend, further assignment or endorsement or
delivery of notes, guarantees or instruments shall be necessary to subject any
Junior Debt to the subordination thereof contained in this Agreement.

         3.   COVENANTS, REPRESENTATIONS AND WARRANTIES

         3.1   Additional Covenants.  Junior Creditor and Debtor agree in
favor of Senior Creditor that:

                 (a)  Except as specifically set forth in Section 2.2 hereof,
Debtor shall not, directly or indirectly, make and Junior Creditor shall not,
directly or indirectly, accept or receive any payment of or any prepayment or
any payment pursuant to acceleration or claims of breach or any payment to
acquire Junior Debt or otherwise in respect of any Junior Debt;

                 (b)  notwithstanding any rights or remedies available to it
under the Junior Creditor Agreements, applicable law or otherwise, Junior
Creditor shall not, directly or indirectly, (i) seek to collect from Debtor any
of the Junior Debt or exercise any of its rights or remedies upon a default or
event of default by Debtor under the Junior Creditor Agreements or otherwise or
(ii) commence any action or proceeding against Debtor or Debtor's properties
under the U.S. Bankruptcy Code or any state insolvency law or any similar
present or future statute, law or regulation or any proceedings for voluntary
liquidation, dissolution or other winding up of Debtor's business, or the
appointment of any trustee, receiver or liquidator for Debtor or any part of
Debtor's properties or any assignment for the benefit of creditors or any
marshalling of assets of Debtor or (iii) take any other action against Debtor
or Debtor's properties in respect of the Junior Debt;

                 (c)  Debtor shall not grant to Junior Creditor and Junior
Creditor shall not acquire any security interest, lien, claim or encumbrance on
any assets or properties of Debtor, and Junior Creditor shall not acquire any
guarantees or other agreements under which any person, other than Debtor, is or
may become obligated, directly or indirectly, for all or any portion of the
Junior Debt;

                 (d)  Junior Creditor and Debtor shall not amend, modify, alter
or change in any material respect the terms of any arrangements related to the
Junior Debt;

                 (e)  Junior Creditor shall not sell, assign, pledge, encumber
or otherwise dispose of any of the Junior Debt, or subordinate any of the
Junior Debt to any indebtedness of Debtors other than the Senior Debt, without
the prior written consent of Senior Creditor, which consent shall not be
unreasonably withheld in Senior Creditor's good faith determination;

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                 (f)  Junior Creditor and Debtor shall, at any time or times
upon the request of Senior Creditor, promptly furnish to Senior Creditor a
true, correct and complete statement of the outstanding Junior Debt; and

                 (g)  Junior Creditor and Debtor shall execute and deliver to
Senior Creditor such additional agreements, documents and instruments and take
such further actions as may be reasonably necessary or desirable in the opinion
of Senior Creditor to effectuate the provisions and purposes of this
Subordination Agreement.

          3.2   Additional Representations and Warranties.  Junior Creditor and
Debtor represent and warrant to Senior Creditor that:

                 (a)  as of the date hereof, the total principal amount of the
Junior Debt outstanding is $5,000,000;

                 (b)  Junior Creditor has no security interest, lien, claim or
encumbrance on any assets and properties of Debtor and the Junior Debt is
unsecured;

                 (c)  as of the date hereof, no default or event of default, or
event which with notice or passage of time or both would constitute an event of
default, exists or has occurred under the Junior Creditor Agreements;

                 (d)  Junior Creditor is the exclusive legal and beneficial
owner of all of the Junior Debt;

                 (e)  none of the Junior Debt is subject to any lien, security
interest, financing statements, subordination, assignment or other claim,
except in favor of Senior Creditor; and

                 (f)  this Subordination Agreement constitutes the legal, valid
and binding obligations of Junior Creditor, enforceable in accordance with its
terms.

         3.3  Waivers.  Notice of acceptance hereof, the making of loans,
advances and extensions of credit or other financial accommodations to, and the
incurring of any expenses by or in respect of, Debtor or its subsidiaries by
Senior Creditor, and presentment, demand, protest, notice of protest, notice of
nonpayment or default and all other notices to which Junior Creditor and Debtor
are or may be entitled are hereby waived (except as expressly provided for
herein or as to Debtor, in the Senior Creditor Agreements).  Junior Creditor
also waives notice of, and hereby consents to, (a) subject to the terms and
conditions contained in this Subordination Agreement, any amendment,
modification, supplement, renewal, restatement or extensions of time of payment
of or increase or decrease in the amount of any of the Senior Debt or to the
Senior Creditor Agreements or any collateral at any time granted to or held by
Senior Creditor, (b) the taking, exchange, surrender and releasing of
collateral at any time granted to or held by Senior Creditor or guarantees now
or at any time held by or available to Senior Creditor for the

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Senior Debt or any other person at any time liable for or in respect of the
Senior Debt, (c) the exercise of, or refraining from the exercise of any rights
against Debtor or any other obligor or any collateral at any time granted to or
held by Senior Creditor, (d) the settlement, compromise or release of, or the
waiver of any default with respect to, any of the Senior Debt, and/or (e) Senior
Creditor's election, in any proceeding instituted under the U.S. Bankruptcy Code
of the application of Section 1111(b)(2) of the U.S. Bankruptcy Code.  Any of
the foregoing shall not, in any manner, affect the terms hereof or impair the
obligations of Junior Creditor hereunder.  All of the Senior Debt shall be
deemed to have been made or incurred in reliance upon this Subordination
Agreement.

         3.4  Subrogation; Marshalling.  Junior Creditor shall not be subrogated
to, or be entitled to any assignment of any Senior Debt or Junior Debt or of any
collateral for or guarantees or evidence of any thereof until all of the Senior
Debt is indefeasibly paid and satisfied in full.  Junior Creditor hereby waives
any and all rights to have any collateral or any part thereof granted to or held
by Senior Creditor marshalled upon any foreclosure or other disposition of such
collateral by Senior Creditor or Debtor with the consent of Senior Creditor.
When the Senior Debt shall have been indefeasibly paid in full and discharged
and all the Senior Creditor Agreements have been terminated, the Junior Creditor
shall, to the extent permitted by law, be subrogated to the rights of the Senior
Creditor to receive payments or distribution of assets in respect of the Junior
Debt.

         3.5  No Offset.  In the event Junior Creditor at any time incurs any
obligation to pay money to Debtor, Junior Creditor hereby irrevocably agrees
that it shall pay such obligation in cash or cash equivalents in accordance
with the terms of the contract governing such obligation and shall not deduct
from or setoff against any amounts owed by Junior Creditor to Debtor in
connection with any such transaction any amounts the Junior Creditor claims are
due to it with respect to the Junior Debt.

         3.6  Certain Amendments to Senior Creditor Agreements. Senior
Creditor shall not make loans or advances to Debtors under the Loan Agreement
that would result in the Senior Debt to be greater than $90,000,000 outstanding
at any one time and Senior Creditor shall not extend the Renewal Date (as such
term is defined in the Loan Agreement) beyond six (6) months without the prior
written consent of Junior Creditor; provided, that, if the Junior Creditor
Agreements are terminated to the extent provided herein, this Section 3.6 shall
automatically and without further action by the parties hereto shall no longer
be deemed to apply and have no further force and effect.

         4.   MISCELLANEOUS

         4.1  Amendments.  Any waiver, permit, consent or approval by either
Creditor of or under any provision, condition or covenant to this Subordination
Agreement must be in writing and shall be effective only to the extent it is
set forth in writing and as to the specific facts or

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circumstances covered thereby.  Any amendment of this Subordination Agreement
must be in writing and signed by each of the parties to be bound thereby.

         4.2  Successors and Assigns.

                 (a)  This Subordination Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of each of Creditors and its respective successors, participants
and assigns.

                 (b)  Senior Creditor reserves the right to grant participations
in, or otherwise sell, assign, transfer or negotiate all or any part of, or any
interest in, the Senior Debt and the collateral securing same; provided, that,
Junior Creditor shall not be obligated to give any notices to or otherwise in
any manner deal directly with any participant in the Senior Debt and no
participant shall be entitled to any rights or benefits under this Subordination
Agreement except through Senior Creditor.  In connection with any participation
or other transfer or assignment, Senior Creditor (i) may disclose to such
assignee, participant or other transferee or assignee all documents and
information which Senior Creditor now or hereafter may have relating to the
Senior Debt or any collateral and (ii) shall disclose to such participant or
other transferee or assignee the existence and terms and conditions of this
Subordination Agreement.

                 (c)  In connection with any assignment or transfer of any or
all of the Senior Debt, or any or all rights of Senior Creditor in any of the
property of Debtor or its subsidiaries (other than pursuant to a
participation), Junior Creditor agrees to execute and deliver an agreement
containing terms substantially identical to those contained herein in favor of
any such assignee or transferee and, in addition, will execute and deliver an
agreement containing terms substantially identical to those contained herein in
favor of any third person who succeeds to or replaces any or all of Senior
Creditor's financing of certain subsidiaries of Debtor, whether such successor
financing or replacement occurs by transfer, assignment, "takeout" or any other
means.

         4.3  Insolvency.  This Subordination Agreement shall be applicable
both before and after the filing of any petition by or against Debtor or any of
its subsidiaries under the U.S. Bankruptcy Code and all converted or succeeding
cases in respect thereof, and all references herein to Debtor or any of
Debtor's subsidiaries shall be deemed to apply to a trustee for Debtor or any
of its subsidiaries, as well as to Debtor or any of its subsidiaries as
debtor-in-possession.  The relative rights of Senior Creditor and Junior
Creditor to repayment of the Senior Debt and the Junior Debt, respectively, and
in or to any distributions from or in respect of Debtor or any proceeds of
Debtor's property and assets, shall continue after the filing thereof on the
same basis as prior to the date of the petition, subject to any court order
approving the financing of, or use of cash collateral by, Debtor or any of its
subsidiaries as debtor-in-possession.

         4.4  Bankruptcy Financing.  If Debtor or any of its subsidiaries
shall become subject to a proceeding under the U.S. Bankruptcy Code and if
Senior Creditor desires to permit the use of cash collateral or to provide
financing to Debtor or any of its subsidiaries under either Section

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363 or Section 364 of the U.S. Bankruptcy Code, Junior Creditor agrees as
follows: (a) adequate notice to Junior Creditor (if required) shall have been
provided for such financing or use of cash collateral if Junior Creditor
receives notice two (2) business days prior to the entry of the order approving
such financing or use of cash collateral and (b) no objection will be raised by
Junior Creditor to any such use of cash collateral or financing.  For purposes
of this Section, notice of a proposed financing or use of cash collateral shall
be deemed given when given in the manner prescribed by Section 4.5 hereof to
Junior Creditor.

         4.5  Notices.  All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed to have been
duly given or made:  if delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if mailed by certified mail, return receipt requested, five (5)
days after mailing.  All notices, requests and demands are to be given or made
to the respective parties at their addresses set forth below (or to such other
addresses as either party may designate by notice in accordance with the
provisions of this Section:

To Senior Creditor:                     Congress Financial Corporation
                                        1133 Avenue of the Americas
                                        New York, New York 10036
                                        Attention:  Mr. Laurence S. Forte
                                        Telecopier: 212-545-4283
                                        Phone: 212-545-4280

To Junior Creditor:                     Richemont Finance S.A.
                                        35 Boulevard Prince Henri
                                        L 1724 Luxembourg
                                        Attention:  Mr. J. Alan Grieve
                                        Telecopier: 011-4141-711-7138
                                        Phone: 011-4141-710-3322

       with a copy to:                  Robert P. Wessely, Esq.
                                        Dorsey & Whitney
                                        250 Park Avenue
                                        New York, New York 10036
                                        Telecopier: (212) 953-7201
                                        Phone: (212) 415-9200

Either Creditor may change the address(es) to which all notices, requests and
other communications are to be sent by giving written notice of such address
change to the other Creditor in conformity with this Section 4.5, but such
change shall not be effective until notice of such change has been received by
the other Creditor.

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         4.6  Counterparts.  This Subordination Agreement may be executed in
any number of counterparts, each of which shall be an original with the same
force and effect as if the signatures thereto and hereto were upon the same
instrument.

         4.7  Governing Law.  The validity, construction and effect of this
Subordination Agreement shall be governed by the laws of the State of New York
(without giving effect to principles of conflicts of laws).

         4.8  Consent to Jurisdiction; Waiver of Jury Trial.  Each of the
parties hereto hereby irrevocably consents to the non-exclusive jurisdiction of
the Supreme Court of the State of New York for New York County and the United
States District Court for the Southern District of New York and waives trial by
jury in any action or proceeding with respect to this Subordination Agreement.

         4.9  Complete Agreement.

                 (a)  This written Subordination Agreement is intended by the
parties as a final expression of their agreement and is intended as a complete
statement of the terms and conditions of their agreement.

                 (b)  The obligations of Junior Creditor under this
Subordination Agreement are in addition to, and in no way limited by the terms
of the Subordination Agreement, dated as of the date hereof, between Junior
Creditor and Senior Creditor, as acknowledged by Debtor and certain direct and
indirect subsidiaries of Debtor in respect of the Richemont $10,000,000 Credit
Agreements as such term is defined in the Loan Agreement, nor shall any of the
terms thereof be limited or affected by the terms of this Subordination
Agreement.

                 (c)  The obligations of Junior Creditor under this
Subordination Agreement are in addition to, and in no way limited by the terms
of any other subordination agreement, heretofore entered into between Junior
Creditor and Senior Creditor, as acknowledged by Debtor and/or certain of its
subsidiaries and affiliates, nor shall any of the terms of any such
subordination agreement be limited or affected by the terms of this
Subordination Agreement.

         4.10  No Third Parties Benefitted.  This Subordination Agreement is
solely for the benefit of the Creditors and their respective successors,
participants and assigns, and no other person shall have any right, benefit,
priority or interest under, or because of the existence of, this Subordination
Agreement.

         4.11  Disclosures, Non-Reliance.  Each Creditor has the means to, and
shall in the future remain, fully informed as to the financial condition and
other affairs of Debtor and neither Creditor shall have any obligation or duty
to disclose any such information to any other Creditor.  Except as expressly
set forth in this Subordination Agreement, the parties hereto have not
otherwise made to each other nor do they hereby make to each other any
warranties, express or implied, nor do they assume any liability to each other
with respect to:  (a) the enforceability, validity, value or collectability of
any of the Junior Debt or the Senior Debt or any collateral or guarantee which
may have been granted to any of them in connection therewith, (b) Debtor's
title

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<PAGE>   12
to or right to any of Debtor's assets and properties or (c) any other
matter except as expressly set forth in this Subordination Agreement.

         4.12  Term.  This Subordination Agreement is a continuing agreement
and shall remain in full force and effect until the indefeasible satisfaction
in full of all Senior Debt and the termination of the financing arrangements
among Senior Creditor, Debtor and certain subsidiaries of Debtor.

               [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                     - 12 -
<PAGE>   13
         IN WITNESS WHEREOF, the parties have caused this Subordination
Agreement to be duly executed as of the day and year first above written.

                                CONGRESS FINANCIAL CORPORATION

                                By: /s/ Janet Last
                                   --------------------------

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

                                RICHEMONT FINANCE S.A.

                                By: /s/ Jan P. du Plessis
                                   --------------------------

                                Title: Director
                                      -----------------------

                                By: /s/ Alan Grieve
                                   --------------------------

                                Title: Director
                                      -----------------------

                                     - 13 -
<PAGE>   14
                                 ACKNOWLEDGMENT

         The undersigned hereby acknowledges and agrees to the foregoing terms
and provisions.  By its signature below, the undersigned agrees that it shall,
together with its successors and assigns, be bound by the provisions hereof.

         The undersigned acknowledges and agrees that: (i) although it may sign
this Subordination Agreement, it is not a party hereto and does not and shall
not receive any right, benefit, priority or interest under or because of the
existence of the foregoing Subordination Agreement, (ii) in the event of a
breach by the undersigned of any of the terms and provisions contained in the
foregoing Subordination Agreement, such a breach shall constitute an "Event of
Default" as defined in and under the Senior Creditor Agreements, and (iii) it
shall execute and deliver such additional documents and take such additional
action as may be necessary in the opinion of either Creditor to effectuate the
provisions and purposes of the foregoing Subordination Agreement.

                                HANOVER DIRECT, INC.

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

                                Title: SVP & CFO
                                      -----------------------

                                     - 14 -<PAGE>   1
                                                                    Exhibit 10.6

                                CREDIT AGREEMENT

         THIS CREDIT AGREEMENT, dated as of March 24, 2000, is by and between
HANOVER DIRECT, INC., a corporation organized under the laws of the State of
Delaware ("Hanover"), 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"), Tweeds, LLC, a Delaware limited liability
company ("Tweed's 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"), Hanover Direct Virginia Inc., a Delaware corporation
("HDV"), LWI Holdings, Inc., a Delaware corporation ("LWI"), and Keystone
Internet Services, Inc., a Delaware corporation ("Keystone Internet" which,
collectively with Hanover, HDPI, Brawn, GBM, Gump's, Tweed's LLC, Silhouettes
LLC, HCS LLC, Domesticiations LLC, and HDV, are collectively referred to herein
as the "Borrowers" and each individually, a "Borrower") and RICHEMONT FINANCE
S.A., a societe anonyme organized under the laws of the Grand Duchy of
Luxembourg (the "Lender").

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         Section 1.1 Defined Terms. As used in this Agreement the following
terms shall have the following respective meanings:

         "Advance": As defined in Section 2.1.

         "Business Day": Any day (other than a Saturday, Sunday or legal holiday
in the State of New York or in Luxembourg) on which banks are permitted to be
open in the State of New York and in Europe.

         "Call Agreement": The letter agreement dated as of the date hereof
between the Lender and the Senior Lender, and agreed to and acknowledged by the
Borrowers, as the same may be amended, modified, supplemented or restated from
time to time.

         "Capital Stock": (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalent (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of profits and losses of, or distributions of assets of, the
issuing Person.
<PAGE>   2
         "Closing Date": Any Business Day selected by the Borrowers for the
making of the initial Advance hereunder; provided that all the conditions
precedent to the obligation of the Lender to make the initial Advance, as set
forth in Article III, have been, or, on such Closing Date, will be, satisfied.
The Borrowers shall give the Lender not less than one Business Day's prior
notice of the day selected as the Closing Date.

         "Commitment": The obligation of the Lender to make Advances to or for
the account of a Borrower in an aggregate principal amount outstanding at any
time not to exceed the Commitment Amount upon the terms and subject to the
conditions and limitations of this Agreement.

         "Commitment Amount": $10,000,000, as the same may be reduced from time
to time pursuant to Section 2.6 hereof.

         "Commitment Fees": As defined in Section 2.7.

         "Default": Any event which, with the giving of notice (whether such
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.

         "Equity Interests": Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

         "Excess Loan Availability": As defined in the Senior Credit Agreement.

         "Existing Note": The Unsecured Line of Credit and Promissory Note dated
March 1, 2000, made by Hanover in favor of the Lender, in the principal amount
of $25,000,000, as said note may be amended, supplemented or restated from time
to time.

         "Event of Default": Any event described in Section 7.1.

         "GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.

         "Guarantees": The Guarantees, as defined in the Senior Credit
Agreement.

                                       2
<PAGE>   3
         "Guarantors": The Guarantors as defined in the Senior Credit Agreement.

         "Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.

         "Loan Document": This Agreement, the Note, the Existing Note, the Call
Agreement and the Subordination Agreements.

         "Maturity Date": The earlier of (a) the date on which the revolving
loan facility under the Senior Credit Agreement is terminated and all
obligations of the Borrowers thereunder have been fully paid, and (b) the date
on which the Commitment Amount is reduced to ZERO.

         "Note": As defined in Section 2.3.

         "Person": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.

         "Revolving Loan Advances": As defined in Section 2.1.

         "Senior Credit Agreement": The Loan and Security Agreement dated as of
November 14, 1995, among the Borrowers, certain Affiliates of the Borrowers and
the Lender, as amended and supplemented 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,
Fourteenth Amendment to Loan and Security Agreement, dated as of February 28,
2000, and the Fifteenth Amendment to Loan and Security Agreement dated as of
March 24, 2000.

                                       3
<PAGE>   4
         "Senior Lender": Congress Financial Corporation, a Delaware
corporation, and its successors and assigns under the Senior Credit Agreement.

         "Senior Lender Advances": As defined in Section 2.1.

         "Subordination Agreements": Collectively, the $10,000,000 Subordination
Agreement and the $25,000,000 Subordination Agreement.

         "Subsidiary": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Borrower either directly or through one or more Subsidiaries.

         "$10,000,000 Subordination Agreement": The Subordination Agreement
dated as of the date hereof between the Lender and the Senior Lender, and
acknowledged by the Borrowers, providing for, among other things, subordinating
certain payments under this Credit Agreement, as the same may be amended,
modified or supplemented from time to time.

         "$25,000,000 Subordination Agreement": The Subordination Agreement
dated as of the date hereof between the Lender and the Senior Lender, and
acknowledged by the Borrowers, providing for, among other things, subordinating
certain payments under the Existing Note, as the same may be amended, modified
or supplemented from time to time.

         "Trade Payables Sublimit": At any time, the lesser of (i) $5,000,000
and (ii) the Commitment Amount less $3,000,000.

         Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.

         Section 1.3 Other Definitional Terms, Terms of Construction. The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and the
like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include," "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation." Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or." All
incorporations by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and include all necessary definitions and related
provisions from such other agreements. All covenants, terms, definitions and
other provisions from other agreements incorporated into this Agreement by
reference shall survive any

                                       4
<PAGE>   5
termination of such other agreements until the obligations of the Borrowers
under this Agreement and the Note are irrevocably paid in full and the
Commitment is terminated.

                                   ARTICLE II

                                TERMS OF LENDING

         Section 2.1 The Revolving Commitment. On the terms and subject to the
conditions hereof, the Lender agrees to make advances (each an "Advance"), (a)
to the Borrowers on a revolving basis ("Revolving Loan Advances"), and (b) to
the Senior Lender for the account of the Borrowers in accordance with the Call
Agreement and Section 2.2(b) hereof ("Senior Lender Advances"), at any time and
from time to time from the Closing Date to the Maturity Date. Until the Maturity
Date, (i) the Borrower may borrow, repay and reborrow Revolving Loan Advances in
accordance with the provisions hereof, and (ii) the Senior Lender may request
payment of Senior Lender Advances for the account of the Borrowers under the
Call Agreement, provided that the unpaid aggregate principal amount of all
outstanding Advances shall not at any time exceed the Commitment Amount at such
time.

         Section 2.2  Procedure for Advances.

         (a) Procedure for Revolving Loan Advances. Any request by the Borrowers
for an Advance shall be in writing or by telephone and must be given so as to be
received by the Lender not later than 12:00 Noon (New York City time) on the
Business Day prior to requested Advance date. Each request for a Revolving Loan
Advance shall be irrevocable and shall be deemed a representation by the
Borrowers that on the requested Advance date and after giving effect to such
Advance the applicable conditions specified in Article III have been and will
continue be satisfied. Each request for an Advance shall specify (i) the
requested Advance date (which must be a Business Day) and (ii) the amount of
such Advance. Unless the Lender determines that any applicable condition
specified in Article III has not been satisfied, the Lender will make available
to the Borrower or its designee at the Lender's principal office (or if the
$10,000,000 Subordination Agreement is in effect, by wire transfer to the Senior
Lender in accordance with such Subordination Agreement), in immediately
available funds not later than 3:00 p.m. (New York City time) on the requested
Advance date the amount of the requested Advance.

         (b) Procedures for Senior Lender Advances. Requests by the Senior
Lender for an Advance for the account of the Borrowers shall be given in the
manner provided for in the Call Agreement, which the Borrowers hereby approve
and authorize. Unless the Lender determines that the requested Senior Loan
Advance either (i) does not meet the requirements of the Call Agreement, or (ii)
exceeds the Commitment Amount then available to be advanced, the Lender will
make the requested Senior Lender Advance to the Senior Lender. In the event the
requested Senior Lender Advance exceeds then available Commitment Amount, the
Lender will make an Advance to the Senior Lender only in the amount of the then
available Commitment Amount.

                                       5
<PAGE>   6
         In no event will outstanding Advances at any time exceed the Available
Commitment Amount. The Borrowers are jointly and severally liable to the Lender
to reimburse the Lender for any and all Senior Lender Advances and interest
thereon, as if such Advances were made directly to the Borrowers as a Revolving
Loan Advance hereunder.

         Section 2.3 The Note. The Advances (including the Borrowers'
reimbursement obligations with respect to any Senior Loan Advances) shall be
evidenced by a single promissory note of the Borrowers (the "Note"),
substantially in the form of Exhibit 2.3 hereto, in the amount of the Commitment
Amount originally in effect. The Lender shall enter in its ledgers and records
the amount of each Advance made and the payments made thereon, and the Lender is
authorized by the Borrower to enter on a schedule attached to the Note a record
of such Advances and payments.

         Section 2.4 Interest Rates, Interest Payments and Default Interest.
Interest shall accrue and be payable at a rate equal to 0.125% of the average
monthly unpaid balance of the Note during such month; provided, however, that
upon the happening of any Event of Default, then, at the option of the Lender,
the Note shall thereafter bear interest at the rate specified above, plus 2% per
annum. Interest shall be payable monthly in arrears on the last day of each
month and upon final payment of the Note.

         Section 2.5 Repayment and Prepayment. Principal of the Note shall be
payable in full on the Maturity Date. The Borrowers may prepay the Note, in
whole or in part, at any time, without premium or penalty provided that, so long
as the Call Agreement or the $10,000,000 Subordination Agreement is in effect,
the Borrowers shall accompany such optional repayment with a certificate stating
that (a) no "Default" or "Event of Default" (as such terms are defined in the
Senior Credit Agreement) under the Senior Credit Agreement has occurred and is
continuing, and (b) for the 30 consecutive day period preceding the date of such
optional prepayment, Excess Loan Availability was not less than $5,000,000.
Amounts so optionally prepaid under this Section will increase the Commitment
Amount and may be reborrowed as Revolving Loan Advances or be available for
advance to the Senior Lender as Senior Lender Advances, upon the terms and
subject to the conditions and limitations of this Agreement. Principal of this
Note is subject to mandatory prepayment, which amounts may not be reborrowed,
upon mandatory reduction of the Commitment Amount pursuant to Section 2.6.

         Section 2.6 Reduction of Commitment Amount.

         (a) Mandatory Reduction. The Commitment Amount shall be reduced at the
times of any rights offering by Hanover, Hanover Brands, Inc. or erizon, inc. or
any other equity offering(s) or equity private placement(s) of Capital Stock of
any of such companies after the Closing Date which offering or placement may
take the form, in whole or in part, of a conversion of outstanding Indebtedness
under this Agreement to an Equity Interest of a Borrower or

                                       6
<PAGE>   7
Guarantor. The Commitment Amount shall be reduced by the net cash proceeds of
such offering or placement plus the dollar amount of such Indebtedness
converted.

         (b) Mandatory Prepayment Upon Reduction of Commitment Amount. Upon any
reduction in the Commitment Amount pursuant to this Section 2.6, the Borrowers
shall pay to the Lender the amount, if any, by which the aggregate unpaid
principal amount of the Note exceeds the Commitment Amount as so reduced.
Amounts so paid cannot be reborrowed. The Borrowers may, at any time, upon not
less than 3 Business Days prior written notice to the Lender, terminate the
Commitment in its entirety provided that the Senior Credit Agreement is
terminated and all obligations of the Borrowers thereunder have been paid. Upon
termination of the Commitment pursuant to this Section, the Borrowers shall pay
to the Lender all unpaid obligations of the Borrowers to the Lender hereunder.

         Section 2.7 Commitment Fee. The Borrowers shall pay to the Lender
monthly fees (the "Commitment Fees") in an amount equal to $79,200 per month,
payable monthly in arrears on the last day of each month and on the Maturity
Date.

         Section 2.8 Computation. Interest on the Note shall be computed on the
basis of actual days elapsed and a year of 360 days.

         Section 2.9 Use of Proceeds. The proceeds of Revolving Loan Advances
shall be used for working capital by the payment of trade creditors in the
ordinary course of business, not to exceed the Trade Payables Sublimit; the
proceeds of Advances may be used to make payments on the Senior Credit Agreement
in accordance with the provisions of the Call Agreement and the Senior Credit
Agreement.

         Section 2.10 Conversion. The contribution of cash for an Equity
Interest by the Lender may be contributed, at the Lender's option, by conversion
of all or a designated portion of the principal amount of all Advances made
under the Note and then outstanding into such Equity Interest.

                                   ARTICLE III

                              CONDITIONS PRECEDENT

         Section 3.1 Conditions of Initial Advance. The obligation of the Lender
to make the initial Advance hereunder shall be subject to the prior or
simultaneous fulfillment of each of the following conditions:

         (a) Documents. The Lender shall have received the following:

                  (i) The Note executed by a duly authorized officer (or
         officers) of each Borrower and dated the Closing Date.

                                       7
<PAGE>   8
                  (ii) A copy of the corporate or limited liability company
         resolutions of each Borrower authorizing the execution, delivery and
         performance of the Loan Documents and containing an incumbency
         certificate showing the names and titles, and bearing the signatures
         of, the officers of such Borrower authorized to execute the Loan
         Documents, certified as of the Closing Date by the Secretary or an
         Assistant Secretary of each such Borrower.

                  (iii) A copy of the articles of incorporation or limited
         liability company agreement of each Borrower with all amendments
         thereto, certified by the appropriate governmental official of the
         jurisdiction of its incorporation or formation as of a current date.

                  (iv) A certificate of good standing for each Borrower in the
         jurisdiction of its incorporation or formation, certified by the
         appropriate governmental officials as of a current date.

                  (v) A copy of the bylaws of each corporate Borrower, certified
         as of the Closing Date by the Secretary or an Assistant Secretary of
         such Borrower.

                  (vi) The opinion of counsel to the Borrowers covering such
         matters as the Lender may reasonably request.

                  (vii) Copies of the fully executed Senior Credit Agreement and
         all related documents, certified as of the Closing Date by the
         Secretary or an Assistant Secretary of Hanover.

         (b) Other Matters. All organizational and legal proceedings relating to
the Borrowers and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Lender and its counsel, and the Lender shall have received
all information and copies of all documents, including records of corporate
proceedings, which it may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper Borrower or
governmental authorities.

         (c) Fees and Expenses. The Lender shall have received all fees and
other amounts due and payable by the Borrowers on or prior to the Closing Date,
including the reasonable fees and expenses of counsel to the Lender payable
pursuant to Section 8.2.

         Section 3.2 Conditions Precedent to all Advances. The Lender shall not
have any obligation to make any Revolving Loan Advance (including Advances after
the initial Advance) hereunder unless all representations and warranties of the
Borrowers made in this Agreement remain true and correct and no Default or Event
of Default exists. The Lender shall not have any

                                       8
<PAGE>   9
obligation to make any Senior Lender Advance hereunder or under the Call
Agreement unless the Senior Lender has strictly complied with the requirements
of the Call Agreement.

         Section 3.3 Obligations Absolute. The obligations of the Borrowers
under this Agreement shall be absolute, unconditional and irrevocable, and shall
not be subject to any right of setoff or counterclaim and shall be paid or
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including, without limitation, the following
circumstances: (a) any lack of validity or enforceability of the Call Agreement,
the Subordination Agreements, the Senior Credit Agreement or any other related
document; (b) any amendment or waiver of any provision of all or any of the Loan
Documents or the Senior Credit Agreement; (c) the existence of any claim,
setoff, defense or other rights which the Borrowers or any of them may have at
any time against the Senior Lender or the Lender (other than the defense of
payment to the Lender in accordance with the terms of this Agreement)or any
other Person, whether in connection with this Agreement, the Loan Documents, the
Senior Credit Agreement or any transaction contemplated thereby; (d) any request
for payment, demand, statement, certification, determination, calculation or any
other document presented to the Lender under the Call Agreement or the
Subordination Agreement or otherwise proving to be false, forged, fraudulent,
invalid, unauthorized or insufficient in any respect, or any statement therein
being untrue or inaccurate in any respect whatsoever; (e) payment by the Lender
under the Call Agreement upon a request therefor which does not comply with the
terms of the Call Agreement or the Subordination Agreements.

                                   ARTICLE IV

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

         Each Borrower represents, warrants and covenants to the 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 and warranties and
covenants in the other Loan Documents and in the Senior Credit Agreement (which
are hereby incorporated herein, as if fully set forth herein, and if the Senior
Credit Agreement is terminated, shall continue in the form immediately prior to
such termination) are conditions to the effectiveness of this Agreement and all
Advances:

         Section 4.1 Organization, Standing, Etc. Such Borrower is a corporation
or limited liability company (as applicable) duly incorporated or organized and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate or limited
liability company power and authority to carry on its business as now conducted,
to enter into this Agreement and to issue the Note and to perform its
obligations hereunder and thereunder. This Agreement, the Note and each other
Loan Document have been duly authorized by all necessary corporate or limited
liability company action and when executed and delivered will be the legal and
binding obligations of such Borrower. The execution and

                                       9
<PAGE>   10
delivery of this Agreement, the Note and the other Loan Documents will not
violate such Borrower's organizational documents or any law applicable to such
Borrower. No governmental consent or exemption is required in connection with
such Borrower's execution and delivery of this Agreement and the Note.

         Section 4.2 Financial Statements and No Material Adverse Change. The
Borrowers' audited consolidated financial statements as at December 31, 1999, as
heretofore furnished to the Lender, have been prepared in accordance with GAAP.
The Borrowers have no material obligation or liability not disclosed in such
financial statements, and there has been no material adverse change in the
condition of the Borrowers since the dates of such financial statements.

         Section 4.3 Year 2000. The Borrowers have reviewed and assessed their
business operations and computer systems and applications to address the Ayear
2000 problem (that is, that computer applications and equipment used by the
Borrowers, directly or indirectly through third parties, may have been or may be
unable to properly perform date-sensitive functions before, during and after
January 1, 2000). The Borrowers represent and warrant that the year 2000 problem
has not resulted in and will not result in a material adverse change in the
Borrowers' business condition (financial or otherwise), operations, properties
or prospects or ability to repay the Lender. The Borrowers agree that this
representation and warranty will be true and correct on and shall be deemed made
by the Borrowers on each date a Borrower requests any Advance under this
Agreement or the Note or delivers any information to the Lender. The Borrowers
will promptly deliver to the Lender such information relating to this
representation and warranty as the Lender requests from time to time.

         Section 4.4 Financial Statements, Reports and Notices. The Borrowers
will furnish to the Lender each of the financial statements, reports,
certificates and notices required to be furnished to the Senior Lender under the
Senior Credit Agreement, by the times and in the forms (except addressed to and
for the benefit of the Lender) required to be delivered to the Senior Lender.

         Section 4.5 Inspection. The Borrowers will permit any Person designated
by the Lender to visit and inspect any of the properties, books and financial
records of the Borrowers, to examine and to make copies of the books of accounts
and other financial records of the Borrowers, and to discuss the affairs,
finances and accounts of the Borrowers with officers at such reasonable times
and intervals as the Lender may designate.

         Section 4.6 Payment. The Borrowers shall cause the net proceeds of any
rights offering or equity offering or private placement referred to in Section
2.6(a) to be paid directly into the Payment Account, as defined in the Call
Agreement.

                                    ARTICLE V

                                       10
<PAGE>   11
                         EVENTS OF DEFAULT AND REMEDIES

         Section 5.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:

         (a) Any Borrower shall fail to make when due, whether by acceleration
or otherwise, any payment of principal of or interest on the Note or any other
obligations of the Borrower to the Lender pursuant to this Agreement.

         (b) Any representation, warranty or statement of fact made by or on
behalf of a Borrower in this Agreement or by or on behalf of a Borrower in any
certificate, statement, report or document herewith or hereafter furnished to
the Lender at any time is false or misleading in any material respect.

         (c) Any Borrower shall breach any of the terms, covenants, conditions
or provisions of this Agreement, any supplement hereto or any other agreement
between Lender and any Borrower or Subsidiary, including any of the other Loan
Documents or any other default or Event of Default occurs or exists under any of
the foregoing.

         (d) Any Borrower or any other Person at any time liable on or in
respect of the obligations under this Agreement shall default in the payment of
an amount greater than Two Hundred Fifty Thousand Dollars ($250,000),
individually or in the aggregate, at any time due or any Indebtedness at any
time owing to any Person other than Lender or in the performance of any other
terms or covenants or any evidence of same or other agreement relating thereto
or securing same, or with respect to any material contract, lease (other than
leases under which Hanover, as successor to The Horn & Hardart Company, is the
sole obligor relating to property not used in the business of Borrowers),
license or other obligation owed to any Person other than Lender, which default
continues for more than the applicable cure period, if any, with respect
thereto, but in no event more than thirty (30) days after the occurrence of any
such default.

         (e) Any Borrower or any Guarantor having assets in excess of Two
Hundred Fifty Thousand Dollars ($250,000), shall become insolvent, fail to meet
its debts as they mature, call a meeting of creditors or have a creditors'
committee appointed, make an assignment for the benefit of creditors, commence
or have commenced against it any action or proceeding for relief under the U.S.
Bankruptcy Code or any other bankruptcy law or similar statute or statutes
providing for reorganization, adjustment of debts, liquidation or dissolution
(except in the case of any such action or proceeding commenced against any
Borrower or any Guarantor having assets in excess of Two Hundred Fifty Thousand
Dollars ($250,000), such action or proceeding is dismissed within thirty (30)
days from the date such action or proceeding was commenced, unless such Borrower
or Guarantor against whom such action was brought shall acquiesce to the relief
sought or such relief sought is sooner granted; provided, however, that during
such thirty (30) day period Lender shall have no obligation to make or provide
any Advances, except

                                       11
<PAGE>   12
pursuant to the Call Agreement, or if any Borrower or any Guarantor having
assets in excess of Two Hundred Fifty Thousand Dollars ($250,000) suspends or
discontinues doing business for any reason (other than as permitted in Section
6.7 hereof), or if a receiver, custodian or trustee of any kind is appointed for
any Borrower or any Guarantor having assets in excess of Two Hundred Fifty
Thousand Dollars ($250,000) or any of their respective properties.

         (f) One (1) or more judgments, decrees or orders for the payment of
damages in an amount greater than Two Hundred Fifty Thousand Dollars ($250,000)
in the aggregate at any time shall be issued by one or more courts, governmental
agencies, administrative tribunals or other bodies having jurisdiction against
any Borrower or any Guarantor with assets greater than Two Hundred Fifty
Thousand Dollars ($250,000) and a stay of execution thereof shall not be
procured within thirty (30) days after the date of entry thereof, or such
judgment(s), decree(s) or order(s) shall not be fully bonded within such period
of thirty (30) days, unless sooner enforced.

         (g) Any guarantor of any of the obligations of the Borrowers under this
Agreement shall seek to revoke its guaranty or any such guaranty shall become
unenforceable for any reason.

         (h) Any default shall occur under the Existing Note.

         (i) Any "Event of Default" (as defined in the Senior Credit Agreement)
shall occur under the Senior Credit Agreement.

         Section 5.2 Remedies. Except as provided for in the Call Agreement and
the $10,000,000 Subordination Agreement, (a) any Event of Default described in
Sections 5.1 (e), (f) or (g) shall occur with respect to a Borrower or a
Subsidiary, the Commitment shall automatically terminate and the Note and all
other obligations of the Borrowers to the Lender under this Agreement shall
automatically become immediately due and payable, or (b) any other Event of
Default shall occur and be continuing, then the Lender may (i) declare the
Commitment terminated, whereupon the Commitment shall terminate, and (ii)
declare the Note and all other obligations of the Borrowers to the Lender under
this Agreement to be forthwith due and payable, whereupon the same shall
immediately become due and payable, in each case without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything in this Agreement or in the Note to the contrary notwithstanding. Upon
the occurrence of any of the events described in clauses (a) or (b) of the
preceding sentence the Lender may exercise all rights and remedies under this
Agreement, the Note and any related agreements and under any applicable law.

         Section 5.3 Offset. In addition to the remedies set forth in Section
5.2, upon the occurrence of any Event of Default and thereafter while the same
be continuing, the Borrowers hereby irrevocably authorize the Lender to set off
all sums owing by the Borrowers to the Lender

                                       12
<PAGE>   13
against all deposits and credits of the Borrowers or any of them, with, and any
and all claims of the Borrowers against, the Lender.

         Section 5.4 Subordination Agreement. Anything to the contrary contained
in this Article V notwithstanding, as long as the $10,000,000 Subordination
Agreement and the Call Agreement are in effect, the provisions of the
$10,000,000 Subordination Agreement and the Call Agreement shall govern the
Lender's rights to exercise remedies hereunder.

                                   ARTICLE VI

                                  MISCELLANEOUS

         Section 6.1 Modifications. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrowers; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by a Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.

         Section 6.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, the Borrowers agree to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of counsel to
the Lender) in connection with the negotiation, preparation, approval, review,
execution, delivery, amendment, modification, interpretation, collection and
enforcement of this Agreement or any other Loan Document and the Existing Note.
The obligations of the Borrowers under this Section shall survive any
termination of this Agreement.

         Section 6.3 Waivers, etc. No failure on the part of the Lender or the
holder of the Note to exercise and no delay in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and remedies of the Lender
hereunder are cumulative and not exclusive of any right or remedy the Lender
otherwise has.

         Section 6.4 Notices. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex

                                       13
<PAGE>   14
or facsimile transmission, from the first Business Day after the date of sending
if sent by overnight courier, or from four days after the date of mailing if
mailed; provided, however, that any notice to the Lender under Article II hereof
shall be deemed to have been given only when received by the Lender.

         Section 6.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that a Borrower may not assign its rights or
delegate its obligations hereunder without the prior written consent of the
Lender.

         SECTION 6.6 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF.

         SECTION 6.7 CONSENT TO JURISDICTION. AT THE OPTION OF THE LENDER, THIS
AGREEMENT AND THE NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR NEW YORK STATE
COURT SITTING IN NEW YORK, NEW YORK; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT ANY BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

         SECTION 6.8 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND THE LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

         Section 6.9 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.

         Section 6.10 Entire Agreement. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrowers
and the Lender with

                                       14
<PAGE>   15
respect to the subject matter hereof and thereof. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.

         Section 6.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.

         Section 6.12 Joint and Several Obligations; Terms with Respect to
Guaranteed Obligations. Each Borrower shall be jointly and severally liable for
the obligations arising in connection with Advances, and the obligations arising
in connection with Advances made to or for the account of the other Borrowers;
provided, however, that if it is at any time determined that any Borrower is
liable as a guarantor (and not jointly and severally) with respect to such
obligations arising in connection with Advances made to or for the account of
the other Borrowers (the "Guaranteed Obligations"), each Borrower hereby agrees
to the following terms:

         (a) Obligations Absolute. No act or thing need occur to establish the
liability of each Borrower for its Guaranteed Obligations, and no act or thing,
except full payment and discharge of all such Guaranteed Obligations, shall in
any way exonerate such Borrower or modify, reduce, limit or release the
liability of such Borrower for its Guaranteed Obligations. The obligations of
each Borrower for its Guaranteed Obligations shall be absolute, unconditional,
and irrevocable, and shall not be subject to any right of setoff or counterclaim
by such Borrower.

         (b) Continuing Guaranty. Each Borrower shall be liable for its
Guaranteed Obligations, plus accrued interest thereon and all attorneys' fees,
collection costs and enforcement expenses referable thereto. Guaranteed
Obligations may be created and continued in any amount without affecting or
impairing the liability of such Borrower therefor. No notice of such Guaranteed
Obligations already or hereafter contracted or acquired by the Lender, or any
renewal or extension of any thereof need be given to such Borrower and none of
the foregoing acts shall release such Borrower from liability hereunder. The
agreement of each Borrower pursuant to this Agreement with respect to its
Guaranteed Obligations is an absolute, unconditional and continuing guaranty of
payment of such Guaranteed Obligations and shall continue to be in force and be
binding upon such Borrower until such Guaranteed Obligations are paid in full
and this Agreement is terminated, and the Lender may continue, at any time and
without notice to such Borrower, to extend credit or other financial
accommodations and loan monies to or for the benefit of the other Borrowers on
the faith thereof. Each Borrower hereby waives, to the fullest extent permitted
by law, any right it may have to revoke or terminate its guaranty of the
Guaranteed Obligations before the Guaranteed Obligations are paid in full and
this Agreement is terminated. In the event any Borrower shall have any right
under applicable law to otherwise terminate or revoke its guaranty of the
Guaranteed Obligations which cannot be waived, such termination or revocation
shall not be effective until written notice of such termination or revocation,
signed by such Borrower, is actually received by the Lender's officer
responsible for such matters. Any notice of termination or revocation described
above shall not

                                       15
<PAGE>   16
affect such Borrower's guaranty of the Guaranteed Obligations in relation to (i)
any of the Guaranteed Obligations that arose prior to receipt thereof or (ii)
any of the Guaranteed Obligations created after receipt thereof, if such
Guaranteed Obligations were incurred either through loans by the Lender or
letters of credit issued by the Lender pursuant to its existing financing
arrangements with the other Borrowers, including, without limitation, advances,
readvances or letters of credit in an aggregate outstanding amount not to exceed
the aggregate amount of the Revolving Commitment as of the time such notice of
termination or revocation was received, including, but not limited, to all
protective advances, costs, expenses, and attorneys' and paralegals' fees,
whensoever made, advanced or incurred by the Lender in connection with the
Guaranteed Obligations. If, in reliance on any Borrower's guaranty of its
Guaranteed Obligations, the Lender makes loans or other advances to or for the
benefit of the other Borrower or takes other action under this Agreement after
such aforesaid termination or revocation by the undersigned but prior to the
receipt by the Lender of said written notice as set forth above, the rights of
the Lender shall be the same as if such termination or revocation had not
occurred.

         (c) Other Transactions. Whether or not any existing relationship
between the Borrowers has been changed or ended, the Lender may, but shall not
be obligated to, enter into transactions resulting in the creation or
continuance of other obligations of any Borrower to the Lender, without consent
or approval by the other Borrowers and without notice to the other Borrowers,
and all such obligations shall be guaranteed by virtue of this Agreement. The
liability of the Borrowers under this Agreement with respect to the Guaranteed
Obligations shall not be affected or impaired by any of the following acts or
things (which the Lender is expressly authorized to do, omit or suffer from time
to time, without notice to or approval by the Borrowers): (i) any acceptance of
collateral security, other guarantors, accommodation parties or sureties for any
or all Guaranteed Obligations; (ii) any one or more extensions or renewals of
Guaranteed Obligations (whether or not for longer than the original period) or
any modification of the interest rates, maturities or other contractual terms
applicable to any Guaranteed Obligations; (iii) any waiver or indulgence granted
to the other Borrowers, any delay or lack of diligence in the enforcement of
Guaranteed Obligations, or any failure to institute proceedings, file a claim,
give any required notices or otherwise protect any Guaranteed Obligations; (iv)
any full or partial release of, settlement with, or agreement not to sue, any
other Borrower or any other guarantor or other person liable in respect of any
Guaranteed Obligations; (v) any discharge of any evidence of Guaranteed
Obligations or the acceptance of any instrument in renewal thereof or
substitution therefor; (vi) any failure to obtain collateral security for
Guaranteed Obligations, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to protect, ensure,
or enforce any collateral security, or any modification, substitution,
discharge, impairment or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any Guaranteed
Obligations or any evidence thereof; (ix) any order of application of any
payments or credits upon Guaranteed Obligations; (x) any release of any
collateral security for Guaranteed Obligations; (xi) any amendment to or
modification of, any agreement between the Lender and any other Borrower, or

                                       16
<PAGE>   17
any waiver of compliance by any other Borrower with the terms thereof; and (xii)
any election by the Lender under Section 1111(b) of the United States Bankruptcy
Code.

         (d) Waivers of Defenses and Rights. Each Borrower waives any and all
defenses, claims and discharges of the other Borrowers, or any other obligor,
pertaining to the Guaranteed Obligations, except the defense of discharge by
payment in full. Without limiting the generality of the foregoing, no Borrower
will assert, plead or enforce against the Lender any defense of waiver, release,
discharge in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, usury, illegality or unenforceability
which may be available to any other Borrower or any other person liable in
respect of any Guaranteed Obligations, or any setoff available against the
Lender to any other Borrower or any such other person, whether or not on account
of a related transaction. Each Borrower waives presentment, demand for payment,
notice of dishonor or nonpayment, and protest of any instrument evidencing
Guaranteed Obligations. Each Borrower agrees that its liability under this
Agreement for the Guaranteed Obligations shall be primary and direct, and that
the Lender shall not be required first to resort for payment of the Guaranteed
Obligations to the other Borrower or other persons or their properties, or first
to enforce, realize upon or exhaust any collateral security for the Guaranteed
Obligations, or to commence any action or obtain any judgment against any other
Borrower or against any such collateral security or to pursue any other right or
remedy the Lender may have against any other Borrower before enforcing the
liability of such Borrower for the Guaranteed Obligations under this Agreement.

         (e) Approval of Credit. Each of the Borrowers has, independently and
without reliance upon the Lender or the directors, officers, agents or employees
of the Lender, and instead in reliance upon information furnished by the other
Borrowers and upon such other information as such Borrower deemed appropriate,
made its own independent credit analysis and decision to guaranty the
obligations of the other Borrowers pursuant to this Agreement.

         (f) Waiver of Subrogation. Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution or
any other claim which it may now or hereafter have against the other Borrowers,
any endorser or any other guarantor of all or any part of the Guaranteed
Obligations, and each Borrower hereby waives any benefit of, and any right to
participate in, any security or collateral given to the Lender to secure payment
of the Guaranteed Obligations or any other liability of the other Borrowers to
the Lender. Each Borrower further agrees that any and all claims it may have
against the other Borrowers, any endorser or any other guarantor of all or any
part of the Guaranteed Obligations or against any of their respective
properties, whether arising by reason of any payment by such Borrower to the
Lender pursuant to the provisions hereof or otherwise, is hereby waived.

         Section 6.13 Indemnification. Each Borrower hereby jointly and
severally indemnified and holds harmless the Lender from and against any and all
claims, damages, losses, liabilities, reasonable costs or expenses whatsoever
(including attorneys fees) which the Lender may incur

                                       17
<PAGE>   18
(or which may be claimed against the Lender by any Person whatsoever) by reason
of or in connection with the execution and delivery or assignment or transfer
of, or payment or failure to make payment under , the Call Agreement or the
Subordination Agreements; provided that the Borrowers shall not be required to
indemnify the Lender for any claims , damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, caused by the wilful misconduct
or gross negligence of the Lender. Nothing in this Section 6.13 is intended to
limit the obligations of the Borrowers to pay or reimburse the Lender otherwise
contained in this Agreement.

         Section 6.14 Liability of the Lender. As between the Lender and the
Borrowers, the Borrowers assume all risks of the acts or omissions of the Senior
Lenders with respect to its use of the Call Agreement. Neither the Lender nor
any of its affiliates, or officers or directors, shall be liable or responsible
for: (a) the use which may be made of the proceeds of any Advance by the
Borrowers or the Senior Lender or any other Person or for any acts or omissions
of the Senior Lender in connection therewith; (b) the validity, sufficiency or
genuineness of any notices, demands, requests, statements, certificates or
documents even if such communications or documents should in fact rove to be in
any or all respects invalid, insufficient, fraudulent or forged; or (c) any
other circumstances whatsoever in making or failing to make payment under the
Call Agreement, except only that the Borrowers shall have a claim against the
Bank , and the Lender shall be liable to the Borrowers, to the extent but only
to the extent of any direct, as opposed to consequential damages suffered by the
Borrowers or any of them which the Borrowers prove, by clear and convincing
evidence, were caused by the Lender's willful misconduct or gross negligence in
determining whether under the Call Agreement the terms of the Call Agreement
were satisfied by the Senior Lender. In furtherance and not in limitation of the
foregoing, the Lender may accept communications and documents from the Senior
Lender that appear to be in order, and may assume that the statements made
thereunder are accurate, without responsibility for further investigation (and
without notice to or consent by the Borrowers).

                                       18
<PAGE>   19
         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

Address:                                HANOVER DIRECT, INC.
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harris
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Senior Vice President
                                             --------------------------------

Address:                                HANOVER DIRECT PENNSYLVANIA, INC.
500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harris
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

Address:                                BRAWN OF CALIFORNIA, INC.
741 "F" Street
San Diego, California
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

                                       19
<PAGE>   20
Address:                                GUMPS BY MAIL, INC.
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

Address:                                GUMP'S CORP.
135 Post Street
San Francisco, California
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

Address:                                TWEEDS, LLC
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

                                     20
<PAGE>   21
Address:                                SILHOUETTES, LLC
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

Address:                                HANOVER COMPANY STORE, LLC
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

Address:                                DOMESTICATIONS, LLC
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

                                     21
<PAGE>   22
Address:                                HANOVER DIRECT VIRGINIA INC.
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

Address:                                LWI HOLDINGS, INC.
23297 Commerce Pkwy
Beachwood, Ohio
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

Address:                                KEYSTONE INTERNET SERVICES, INC.
1500 Harbor Boulevard
Weehawken, New Jersey  07087
                                        By /s/ Brian C. Harriss
                                           -----------------------------------
Fax:
    --------------------------------
                                        Title Vice President
                                             --------------------------------

                                     22
<PAGE>   23
                                        RICHEMONT FINANCE S.A.

                                        By         /s/ Jan du Plessis
                                           ------------------------------------
                                           Print Name  Jan du Plessis
                                                     --------------------------
                                           Title       Director
                                                -------------------------------

                                        By        /s/ Alan Grieve
                                           ------------------------------------
                                           Print Name Alan Grieve
                                                     --------------------------
                                           Title      Director
                                                -------------------------------

                                        Lender's Address:
                                             Richemont Finance, S.A.
                                             35 Boulevard, Prince Henri
                                             L1724 Luxembourg
                                             Attention: General Manager
                                             Fax : 011-352 22 42 19
                                             Phone: 011 352 22 42 10

                                        with a copy to:

                                             Richemont Finance S.A.
                                             Rigistrasse 2
                                             Zug 6300
                                             Switzerland
                                             Attention: Mr. J. Alan Grieve
                                             Fax: 011-4141-711-7138
                                             Phone: 011-4141-710-3322

                                                                              23

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