Document:

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                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT dated as of March 6, 2000 between HANOVER DIRECT,
INC., a Delaware corporation (the "Company"), and Rakesh K. Kaul (the
"Executive").

         WHEREAS, Company desires to continue retaining the services of
Executive and Executive desires to continue providing services to Company;

         WHEREAS, Company and Executive desire to formalize the terms and
conditions of Executive's continued employment with Company.

         NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Company and the Executive agree
as follows:

         1.    TERM. The employment of Executive by Company shall be for a
period of thirty-six (36) months commencing on the date of this Agreement (the
"Employment Period"). On the first annual anniversary of the date of this
Agreement, and on each annual anniversary thereafter, the Employment Period
shall be extended by twelve (12) months unless, at least ninety (90) days prior
to such annual anniversary, either party has delivered to the other party
written notice that the period of employment will terminate at the expiration of
the then existing Employment Period, including any previous extensions.

         2.    DUTIES. During the Employment Period, Executive shall continue to
serve as Chief Executive Officer of Company and maintain his current offices at
each of its wholly-owned subsidiaries. During the Employment Period, Executive
shall continue to serve as a member of the Company's Board of Directors.
Executive shall have the full authority customary to a Chief Executive Officer's
office to manage the Company, subject to the policies and direction of the
Board. The Executive shall devote his full working time and effort during the
Employment Period exclusively to the performance of his duties hereunder and to
the furtherance of the best interests of the Company. During the Employment
Period, the Executive shall not undertake any business or professional activity
except for the benefit of the Company or engage in any business or profession
other than the rendition of management services for and on behalf of the Company
and the performance of the other duties herein prescribed unless the Company
shall consent thereto in advance in writing. Nothing in this Section 2 shall be
interpreted as precluding the Executive from acting as a volunteer for, or
serving on the boards of, non-profit corporations or trusts. Notwithstanding the
foregoing, during the Employment Period and subject to the same terms and
conditions of this Agreement, the Board of Directors may at its discretion
assign Executive to be Chief Executive Officer solely of erizon, Inc. provided
that (a) the Company's stock in or the assets of Hanover Brands, Inc. have been
sold, assigned or otherwise transferred; and (b) erizon, Inc. is a public
company at the

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time of such assignment or, if not, erizon, Inc. is using its best efforts to
cause it to become a public company within 180 days of such assignment. In the
event of such assignment, (i) Executive shall have the full authority customary
to a chief executive officer's office to manage erizon, Inc. subject to the
policies and direction of its Board of Directors; (ii) Executive shall be
appointed to the Executive Committee of the Company's Board of Directors; and
(iii) Executive shall report directly to the Board of Directors of erizon, Inc.
In the event of Executive's assignment to erizon, Inc., erizon, Inc. shall
assume all of the Company's obligations hereunder. Until the conditions set
forth in (a) and (b) of this Section 2 have been met, Executive agrees that, at
the request of the Board of Directors of the Company in its sole discretion, he
shall serve as Chief Executive Officer of both the Company and erizon, Inc.
under the terms set forth in this Agreement.

         3.    SALARY. As compensation for his services hereunder, the Company
shall continue to pay the Executive a base salary at the annual rate of $597,300
("Base Salary"), payable in accordance with the regular payroll procedures of
the Company. Such Base Salary shall be subject to annual review, but shall not
be decreased below $597,300.

         4.    2000 SHORT-TERM INCENTIVE PLAN. During the Term, the Executive
shall participate in the Short-Term Incentive Plan for Rakesh K. Kaul (the "2000
Short-Term Plan"), attached hereto as EXHIBIT 1, subject to shareholder approval
of such plan.

         5.    2000 LONG-TERM INCENTIVE PLAN.

         (a)   During the Term, the Executive shall participate in the 2000
Long-Term Incentive Plan for Rakesh K. Kaul (the "2000 Long-Term Plan"),
attached hereto as EXHIBIT 2, subject to shareholder approval of such plan.

         (b)   Except as provided in Section 5 of the erizon Option Agreement
(Attachment A to Exhibit 2 hereto), the Executive agrees that there will be no
disposition of all or any part of shares of common stock of the Company or
erizon, Inc. (collectively "Common Stock"), or of any interest or interests
therein, unless and until such disposition has been registered under the
Securities Act of 1933, as amended (the "Act"), or the Company or erizon, Inc.
receives an opinion of its counsel that registration under the Act is not
required in connection with such disposition. The Executive agrees that unless
such shares have been registered under the Act, the certificate or certificates
to be issued representing shares of Common Stock acquired pursuant to this
Section 5 will conspicuously bear a legend substantially as follows:

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

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Notwithstanding the foregoing, Company agrees as follows:

               (i)   All shares underlying the Option provided for in the erizon
Option Agreement (Attachment A to Exhibit 2 hereto), shall be registered within
ninety (90) days of erizon, Inc. becoming eligible to use an S-8 or other
similar form; and

               (ii)  All shares underlying the Option provided for in the
Amended and Restated Closing Price Option Agreement (Attachment B to Exhibit 2
hereto) as well as any shares underlying options previously granted to Executive
by the Company, shall be registered within ninety (90) days of the execution of
this Agreement.

         (c)   The Company shall grant the Executive "piggyback" rights and a
demand registration right with respect to shares of Common Stock acquired
pursuant to this Section 5, as set forth in a Registration Rights Agreement in
substantially the form set forth in EXHIBIT 3.

         (d)   Within 30 days after each date as of which any stock option
granted under Section 5 of the 2000 Long-Term Plan (regarding the Closing Price
Option) vests with respect to all or a portion of the shares of Common Stock of
the Company covered by such option, the Company shall pay the Executive an
additional cash amount equal to the number of shares of Common Stock with
respect to which such option became vested on such vesting date multiplied by
the excess of (i) the lesser of the option price of such option or the fair
market value on such vesting date of a share of Common Stock, over (ii) $1.03.

         (e)   An assignment of Executive to erizon, Inc. as provided for in
Section 2 of this Agreement shall not constitute a termination of Executive's
employment within the meaning of the 2000 Long-Term Plan or Attachment A and B
thereto or within the meaning of the agreements set forth in Section 10 of this
Agreement.

         6.    BENEFIT PLANS. During the Term, the Executive (and, to the extent
provided under the terms of such plans, members of his family) shall be eligible
to participate in the Company's medical, dental, life insurance, and retirement
plans offered to senior executives ("Benefits"), subject to the terms of such
plans as are in effect from time to time and provided that nothing herein shall
obligate Company to adopt any particular plans nor maintain any such plans.

         7.    TERMINATION OF EMPLOYMENT. In the event of a termination of the
Executive's employment during the Employment Period except in connection with or
following a Change of Control as such term is defined in the Hanover Direct,
Inc. Key Executive Thirty-Six Month Compensation Continuation Plan ("Change of
Control Plan"), he shall be entitled to compensation and benefits on and after
the date of such termination only as provided in this Section 7, the 2000
Short-Term Plan and the 2000 Long-Term Plan and under the terms of any prior
agreement still in effect on the date of

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termination as set forth in Section 10, or pursuant to the terms of any benefit
plan maintained by Company and in which Executive is a participant or a
beneficiary at the time of his termination. An assignment of Executive to
erizon, Inc. as provided for in Section 2 of this Agreement shall not constitute
a termination of employment within the meaning of this Section 7.

         (a)   In the event of a termination of Executive's employment for Cause
during the Employment Period, Executive's Base Salary, entitlement to a
short-term bonus under the 2000 Short-Term Plan and Benefits shall cease as of
the date of termination. The Executive shall be entitled to receive, to the
extent not previously paid, Base Salary through the date of termination and any
short-term bonus that is payable pursuant to the 2000 Short-Term Plan for the
year preceding the year of termination, but shall not be entitled to any bonus
for the year in which such termination occurs.

         (b)   In the event of a termination of the Executive's employment
during the Employment Period by Company without Cause or by Executive within
ninety (90) days of an occurrence constituting Good Reason, Executive shall be
entitled as a severance benefit for a 24-month period commencing on the date of
such termination to (i) a continuation of his Base Salary (at the rate in effect
immediately prior to such termination), payable in monthly installments, (ii)
continued participation in the Benefit plans of Company to the same extent and
on the same term as he participated immediately prior to the date of termination
and consistent with the terms of such plans, (iii) an amount equal to two times
the greater of (x) a short term bonus calculated pursuant to the 2000 Short-Term
Plan as if Company had met 100% of its target for the year of termination or (y)
the average of the short-term bonus amounts paid or payable to Executive
pursuant to the 2000 Short-Term Plan for the two years preceding the year of
termination, payable in 24 monthly installments; (iv) to the extent not
previously paid, the short-term bonus payable pursuant to the 2000 Short-Term
Plan for the year preceding the year of termination, and (v) for the year of
termination a short-term bonus calculated pursuant to the 2000 Short-Term Plan
as if the Company had met 100% of its target for such year, but pro-rated to
reflect the portion of such year during which the Executive was employed payable
within thirty (30) days of the termination date.

         (c)   In the event of a termination of the Executive's employment
during the Employment Period due to the death or Disability of Executive,
Executive's Base Salary and Benefits shall cease as of the date of termination.
The Executive (or, in the event of his death, his estate) shall be entitled to
receive, to the extent not previously paid, the short-term bonus payable
pursuant to the 2000 Short-Term Plan for the year preceding the year of
termination and for the year of termination a short-term bonus calculated
pursuant to the 2000 Short-Term Plan as if the Company had met 100% of its
target for such year, but pro-rated to reflect the portion of such year during
which the Executive was employed payable within thirty (30) days of the
termination date. In addition, if Executive is terminated due to death or
Disability, Company will provide disability and life insurance to Executive or,
if applicable, his estate pursuant to the terms of the applicable plans.

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         (d)   For purposes of this Agreement, the term Cause shall mean (i)
misappropriating any funds or property of the Company, (ii) attempting to obtain
any personal profit from any transaction in which the Executive has an interest
that is adverse to the interest of the Company, other than a transaction
disclosed to and approved by the Company, (iii) the Executive's willful and
continuing neglect or refusal to perform his duties pursuant to this Agreement
which is not remedied promptly by Executive after receipt of written notice
thereof given by Company, (iv) the commission by the Executive of any material
act of misconduct or dishonesty or any wrongful act which has a direct,
substantial and adverse effect on the Company's business or reputation, or (v)
Executive's conviction of a felony.

         (e)   For purposes of this Agreement, the term Good Reason shall mean
(i) the assignment to Executive of any duties inconsistent in any respect with
Executive's position (including status, offices, titles and reporting
requirements), authority or duties or responsibilities as contemplated by
Section 2 of this Agreement, or any other action by the Company which results in
a diminution in such position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial or inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt of written
notice thereof given by the Executive and also excluding Company's exercise of
its discretion to reassign Executive as provided for in Section 2 of this
Agreement; (ii) any failure of the Company to comply with any of the provisions
of Sections 3, 4, 5 or 6 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of written notice thereof given
by the Executive; (iii) a relocation of the Executive's principal office and/or
Company's headquarters to a location that is more than fifty (50) miles from its
present location without the Executive's prior written consent; (iv) any
purported termination by the Company of Executive's employment other than as
expressly permitted by this Agreement; or (v) either (a) the Company or (b)
erizon, Inc. (if Executive has been assigned to erizon, Inc. as provided for in
Section 2), has ceased to be a public company and has become a private company,
provided that Good Reason shall not exist if this change was the result of a
buyout by the then existing principal shareholders or management group and
Executive was a principal shareholder or member of such management group.

         (f)   For purposes of this Agreement, the term Disability shall mean
the inability of Executive to perform the essential duties of his position on a
full-time basis for a period of 180 days (whether or not consecutively) out of
365 days as a result of incapacity due to mental or physical illness.

         (g)   In order to be eligible for the payments and benefits as set
forth in Section 7(b), (i) Executive must execute and deliver to Company a
general release in favor of the Company, excepting statutory contribution and
indemnity rights to which Executive is entitled, and (ii) must be and remain in
material compliance with his obligations under the Non-Competition and
Confidentiality Agreement.

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     Except as expressly provided for in this Section 7(g), in the event Company
deems that Executive has breached the obligations set forth in the
Non-Competition and Confidentiality Agreement attached as Exhibit 4 in a
material respect, the payments and benefits provided for in Section 7(b) shall
continue until such time as there has been a Final Determination that Executive
has materially breached the Non-Competition and Confidentiality Agreement. In
the event of a Final Determination that Executive has materially breached the
Non-Competition and Confidentiality Agreement, all payments and benefits under
Section 7(b) shall cease immediately and Executive shall reimburse the Company
for all payments and the value of the benefits provided to Executive under
Section 7(b), with interest calculated at the Prime Rate as announced in the
eastern edition of the Wall Street Journal on the last business day immediately
preceding the Final Determination, from the date the breach occurred, or if
continuing in nature the date such breach commenced, through the date of the
Final Determination.

         Notwithstanding the foregoing, in the event Company deems that
Executive has breached Section 5 of the Non-Competition and Confidentiality
Agreement in a material respect, the Company may at its discretion cease making
the payments and providing the benefits as set forth in Section 7(b) until a
Final Determination. In the event of a Final Determination that Executive did
not breach Section 5 of the Confidentiality and Non-Competition Agreement in a
material respect, the Company shall pay to Executive an amount equal to the
payments and the value of the benefits to which Executive was entitled under
Section 7(b), with interest calculated at the Prime Rate as announced in the
eastern edition of the Wall Street Journal on the last business day immediately
preceding the Final Determination, from the date such payments and benefits
ceased through the date of the Final Determination.

         As used herein, a "Final Determination" shall mean (i) a judgment of
any court, if no appeal is pending from such judgment and if the time to appeal
therefrom has elapsed, (ii) a determination by an arbitrator in any arbitration
proceedings, if there is not pending any motion to set aside such determination
and if the time within which to move to set aside such determination has
elapsed, or (iii) a written acknowledgement signed by Executive.

         8.    COVENANTS OF THE EXECUTIVE. Executive's continued employment is
conditioned upon his execution of the Non-Competition and Confidentiality
Agreement attached as EXHIBIT 4.

         9.    SEVERABILITY. If any term or provision of this Agreement shall be
determined to be invalid or unenforceable to any extent or in any application,
the remainder of this Agreement, and the remainder of such term or provision
except to such extent or in such application, shall not be affected thereby, and
each term and provision of this Agreement shall be enforced to the fullest
extent and in the broadest application permitted by law.

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         10.   ENTIRE AGREEMENT. This Agreement and attachments hereto
constitute the entire Agreement between the parties pertaining to the subject
matter contained herein and supersede all prior and contemporaneous agreements,
representations and understandings of the parties with respect to the subject
matter hereof, including without limitation, the Employment Agreement, dated as
of March 6, 1996, between the Company and Executive and the Closing Price
Option, dated as of August 23, 1996, between the Company and Executive.
Notwithstanding the foregoing, this Agreement shall have no effect on and shall
not supercede the following agreements: Registration Rights Agreement, dated as
of August 23, 1996, between the Company and Executive; Tandem Loan in the
principal amount of $1,047,562, payable to the Company; Tax Note due August 23,
2001 in the principal amount of $211,729, payable to the Company; Pledge
Agreement, dated as of August 23, 1996, from the Executive to and for the
benefit of the Company; Tandem Option Agreement, dated as of August 23, 1996
between the Company and Executive; Performance Year Option Agreement, dated as
of August 23, 1996, between the Company and Executive; Six-Year Stock Option
Agreement, dated as of August 23, 1996, between NAR Group and Executive;
Seven-Year Stock Option Agreement dated as of August 23, 1996; Eight-Year Stock
Option Agreement, dated as of August 23, 1996, between NAR and Executive;
Nine-Year Stock Option Agreement, dated as of August 23, 1996, between NAR and
Executive. No provision of this Agreement may be altered or waived except in a
writing executed by both parties hereto.

         11.   BINDING EFFECT AND ASSIGNABILITY. The rights and obligations of
the Company under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company. The rights and
obligations of the Executive hereunder may not be assigned or alienated by the
Executive.

         12.   ATTORNEY'S FEES. Company shall pay Executive's reasonable legal
fees in full in the event that he must seek legal counsel to enforce any of his
rights under this Agreement, provided that before he retains legal counsel he
must notify the Company of any alleged failure to abide by the terms of this
Agreement and, to the extent the matter is subject to cure, provide the Company
with a reasonable opportunity to cure.

         13.   GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal substantive laws of the State of New Jersey without
giving effect to the conflict of law rules thereof.

         14.   COUNTERPARTS. This Agreement may be executed in one or more
counterparts and shall become effective when one or more counterparts have been
signed by each of the parties.

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         IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.

                                         HANOVER DIRECT, INC.

                                         /s/ Ralph Bulle
                                         ----------------------------------
                                         By: Ralph Bulle

                                         Title: Senior Vice President

                                         /s/ Curt Johnson
                                         ----------------------------------
                                         By: Curt Johnson

                                         Title: Senior Vice President

                                         /s/ Rakesh K. Kaul
                                         ----------------------------------
                                         Rakesh K. Kaul

                                        8<PAGE>   1
                                                                    EXHIBIT 10.4

                             FIFTEENTH AMENDMENT TO
                           LOAN AND SECURITY AGREEMENT

         THIS FIFTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
March 24, 2000, is entered into by and among CONGRESS FINANCIAL CORPORATION, a
Delaware corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a
Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California
corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation ("GBM"),
GUMP'S CORP., a California corporation ("Gump's"), LWI HOLDINGS, INC., a
Delaware corporation ("LWI"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover
Realty"), THE COMPANY STORE FACTORY, INC., a Delaware corporation ("TCS
Factory"), THE COMPANY OFFICE, INC., a Delaware corporation ("TCS Office"),
TWEEDS, LLC, a Delaware limited liability company ("Tweeds LLC"), SILHOUETTES,
LLC, a Delaware limited liability company ("Silhouettes LLC"), HANOVER COMPANY
STORE, LLC, a Delaware limited liability company ("HCS LLC"), DOMESTICATIONS,
LLC, a Delaware limited liability company ("Domestications LLC"; and together
with HDPI, Brawn, GBM, Gump's, LWI, HDV, Hanover Realty, TCS Factory, TCS
Office, Tweeds LLC, Silhouettes and HCS LLC, each individually referred to
herein as an "Existing Borrower" and collectively, as "Existing Borrowers"), and
HANOVER DIRECT, INC., a Delaware corporation, ("Hanover"), AMERICAN DOWN &
TEXTILE COMPANY, a Wisconsin corporation ("American Down"), D.M. ADVERTISING,
INC., a New Jersey corporation ("DM Advertising"), SCANDIA DOWN CORPORATION, a
Delaware corporation ("Scandia"), YORK FULFILLMENT COMPANY, INC., a Pennsylvania
corporation ("York Fulfillment"), KEYSTONE LIQUIDATIONS, INC., a Delaware
Corporation, formerly known as Tweeds of Vermont, Inc., HANOVER HOME FASHIONS
GROUP, LLC, a Delaware limited liability company ("HHFG LLC"), KITCHEN & HOME,
LLC, a Delaware limited liability company ("Kitchen & Home, LLC"),
DOMESTICATIONS KITCHEN & GARDEN, LLC, a Delaware limited liability company
("Domestications K&G, LLC"), ENCORE CATALOG, LLC, a Delaware limited liability
company ("Encore LLC"), CLEARANCE WORLD OUTLETS, LLC, a Delaware limited
liability company ("Clearance World"), SCANDIA DOWN, LLC, a Delaware limited
liability company ("Scandia Down, LLC"), ERIZON, INC., a Delaware corporation
("erizon, inc."), HANOVER BRANDS, INC., a Delaware corporation ("Hanover
Brands"), ERIZON.COM, INC., a Delaware corporation ("erizon.com"), LACROSSE
FULFILLMENT, LLC, a Delaware limited liability company ("LaCrosse, LLC"), SAN
DIEGO TELEMARKETING, LLC, a Delaware limited liability company ("San Diego LLC";
each individually a "Guarantor" and collectively "Guarantor" and KEYSTONE
INTERNET SERVICES, INC. ("Keystone Internet"). Each Existing Borrower, together
with Keystone Internet shall hereinafter be referred to individually as a
"Borrower" and collectively as "Borrowers".

                              W I T N E S S E T H:

         WHEREAS, Existing Borrowers, Guarantors and Lender are parties to the
Loan and Security Agreement, dated November 14, 1995, as amended by the First
Amendment to Loan and Security Agreement, dated February 22, 1996, the Second
Amendment to Loan and Security Agreement, dated April 16, 1996, the Third
Amendment to Loan and Security Agreement, dated May 24, 1996, the Fourth
Amendment to Loan and Security Agreement, dated May 31, 1996, the Fifth
Amendment

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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 ("Seventh
Amendment to Loan Agreement"), 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 (as so
amended, the "Loan Agreement"), pursuant to which Lender has made loans and
advances to Existing Borrowers; and

         WHEREAS, Existing Borrowers and Guarantors have requested that Keystone
Internet become a Revolving Loan Borrower pursuant to the terms and conditions
of the Loan Agreement, as amended hereby; and

         WHEREAS, Borrowers and Guarantors have requested that Lender, among
other things (a) make an additional term loan to HDPI, consolidate the principal
amount of that term loan with the outstanding principal balance of the existing
HDPI Term Loan, and agree to amend and restate the terms of the HDPI Term Loan
as so consolidated, (b) make an additional term loan to Hanover Realty,
consolidate the principal amount of that term loan with the outstanding
principal balance of the existing Hanover Realty Term Loan, and agree to amend
and restate the terms of the Hanover Realty Term Loan as so consolidated, (c)
make an additional term loan to TCS Factory, consolidate the principal amount of
that term loan with the outstanding principal balance of the existing TCS
Factory Term Loan, and agree to amend and restate the terms of the TCS Factory
Term Loan as so consolidated, (d) make an additional term loan to TCS Office,
consolidate the principal amount of that term loan with the outstanding
principal balance of the existing TCS Office Term Loan, and agree to amend and
restate the terms of the TCS Office Term Loan as so consolidated, (e) make an
additional term loan to the Tranche B Term Loan Borrowers (as hereinafter
defined) in the aggregate amount of $7,500,000, (f) make available Revolving
Accounts Loans to certain Revolving Loan Borrowers in respect of Eligible Credit
Card Receivables (as hereinafter defined) and of Eligible Fulfillment Contract
Receivables, and (g) extend the Renewal Date to January 31, 2004; and

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

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

         1.       Definitions.

                  (a)    Additional Definitions. As used herein or in any of the
other Financing Agreements, the following terms shall have the meanings given to
them below, and the Loan

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Agreement shall be deemed and is hereby amended to
include, in addition and not in limitation, the following definitions:

                         (i)    "Capital Expenditures" shall mean (A) all
expenditures for any fixed or capital assets or improvements, for all
replacements, substitutions or additions thereto, which should be capitalized on
a balance sheet in accordance with GAAP, whether acquired by way of purchase,
capital or finance lease, increase product service charges, offset items or
otherwise, plus (B) to the extent not included in clause (A), any expenditures
for any fixed or capital assets or improvements in connection with the
acquisition, construction, expansion or improvement of any present or future
fulfillment center or warehouse facility owned, leased or otherwise used by
Borrowers or Guarantors.

                         (ii)   "Consolidated Net Income" shall mean, with
respect to any Person and its Subsidiaries for any period, the aggregate of the
net income (loss) of such Person and its Subsidiaries, on a consolidated basis,
for such period (excluding to the extent included therein any extraordinary
and/or unusual and non-recurring gains) after deducting all charges which should
be deducted before arriving at the net income (loss) for such period and,
without duplication, after deducting the Provision for Taxes for such period,
all as determined in accordance with GAAP; provided, that, (A) the net income of
any Person that is not a wholly-owned Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid or payable to such Person or a wholly-owned
Subsidiary of such Person; (B) except to the extent included pursuant to the
foregoing clause, the net income of any Person accrued prior to the date it
becomes a wholly-owned Subsidiary of such Person or is merged into or
consolidated with such Person or any of its wholly-owned Subsidiaries or that
Person's assets are acquired by such Person or by its wholly-owned Subsidiaries
shall be excluded; and (C) the net income (if positive) of any wholly-owned
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such wholly-owned Subsidiary to such Person or to any other
wholly-owned Subsidiary of such Person is not at the time permitted by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such wholly-owned
Subsidiary shall be excluded. For the purposes of this definition, (1) net
income excludes any gain (or loss) together with any related Provision for Taxes
for such gain (or loss) realized upon the sale or other disposition of any
assets that are not sold in the ordinary course of business (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or of any
Capital Stock of such Person or a Subsidiary of such Person and any net income
realized or loss incurred as a result of changes in accounting principles or the
application thereof to such Person, (2) the term "Provision for Taxes" shall
mean an amount equal to all taxes imposed on or measured by net income, whether
Federal, State, Provincial, county or local, and whether foreign or domestic,
that are paid or payable by any Person in respect of any period in accordance
with GAAP, and (3) the term "Capital Stock" shall mean, with respect to any
Person, any and all shares, interests, participation or other equivalents
(however designated) of such Person's capital stock at any time outstanding, and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock (but excluding any debt security that is exchangeable for or
convertible into such capital stock).

                         (iii)  "Credit Card Processor" shall mean any servicing
or processing agent or any factor or financial intermediary who facilitates,
services, processes or manages the credit authorization, billing transfer and/or
payment procedures with respect to any of any Borrower's sales

                                       -3-

<PAGE>   4
transactions involving credit card or debit card purchases by customers using
credit cards or debit cards issued by any Credit Card Issuer, and shall include,
without limitation, Paymentech and Capital One.

                         (iv)   "EBITDA" shall mean, as to any Person and its
Subsidiaries, with respect to any period, an amount equal to: (A) the
Consolidated Net Income of such Person and its Subsidiaries for such period
determined in accordance with GAAP, plus (B) depreciation, amortization and
other non-cash charges (including, but not limited to, imputed interest and
deferred compensation) for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person), all in accordance with
GAAP, plus (1) Interest Expense for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person), plus (2) charges for
Federal, State, local and foreign income taxes for such period (to the extent
deducted in the computation of Consolidated Net Income of such Person).

                         (v)    "Eligible Credit Card Receivables" shall mean
Credit Card Receivables of Revolving Loan Borrowers which are and continue to be
acceptable to Lender based on the criteria set forth below. In general, Credit
Card Receivables shall be Eligible Credit Card Receivables if:

                                (A) such Credit Card Receivables arise from the
actual and bona fide sale and delivery of goods or rendition of services by such
Revolving Loan Borrower in the ordinary course of the business of such Revolving
Loan Borrower, which transactions are completed in accordance with the terms and
provisions contained in any documents binding on such Revolving Loan Borrower or
the other party or parties related thereto;

                                (B) such Credit Card Receivables are not past
due pursuant to the terms set forth in the Credit Card Agreements with the
Credit Card Issuer or Credit Card Processor of the credit card or debit card
used in the purchase giving rise to such Credit Card Receivables;

                                (C) such Credit Card Receivables are neither
Deferred Billing Receivables nor Installment Billing Receivables;

                                (D) such Credit Card Receivables comply with
the applicable terms and conditions contained in Section 6.12A of the Loan
Agreement;

                                (E) the chief executive office of the Credit
Card Issuer or Credit Card Processor with respect to such Credit Card
Receivables is located in the United States of America;

                                (F) the Credit Card Issuer or Credit Card
Processor with respect to such Credit Card Receivables has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Credit
Card Receivables (other than transactions in the ordinary course of the business
of such Revolving Loan Borrower) and such Credit Card Issuer or Credit Card
Processor has not setoff against amounts otherwise payable by such Credit Card
Issuer or Credit Card Processor to such Revolving Loan Borrower for the purpose
of establishing a reserve or collateral for obligations of such Revolving Loan
Borrower to such Credit Card Issuer or Credit Card Processor;

                                       -4-

<PAGE>   5
                                (G) there are no facts, events or occurrences
which would impair the validity, enforceability or collectability of such Credit
Card Receivables or reduce the amount payable or delay payment thereunder;

                                (H) such Credit Card Receivables are subject to
the first priority, valid and perfected security interest of Lender and any
goods giving rise thereto are not, and were not at the time of the sale thereof,
subject to any liens except those permitted in the Loan Agreement;

                                (I) Lender shall have received, in form and
substance satisfactory to Lender, a Credit Card Acknowledgment duly authorized,
executed and delivered by the Credit Card Issuer or Credit Card Processor for
the credit card or debit card used in the sale which gave rise to such Credit
Card Receivable, such Credit Card Acknowledgment shall be in full force and
effect and the Credit Card Issuer or Credit Card Processor party thereto shall
have complied with the terms thereof;

                                (J) there are no proceedings or actions which
are threatened or pending against the Credit Card Issuers or Credit Card
Processors with respect to such Credit Card Receivables which might result in
any material adverse change in the financial condition of any such Credit Card
Issuer or Credit Card Processor;

                                (K) such Credit Card Receivables are owed by
Credit Card Issuers or Credit Card Processors deemed creditworthy at all times
by Lender;

                                (L) no default or event of default has occurred
under the Credit Card Agreement of such Revolving Loan Borrower with the Credit
Card Issuer or Credit Card Processor who has issued the credit card or debit
card or handles payments under the credit card or debit card used in the sale
which gave rise to such Credit Card Receivables, which default gives such Credit
Card Issuer or Credit Card Processor the right to cease or suspend payments to
such Revolving Loan Borrower, and no event shall have occurred which gives such
Credit Card Issuer or Credit Card Processor the right to setoff against amounts
otherwise payable to such Revolving Loan Borrower (other than for then current
fees and chargebacks consistent with the current practices of such Credit Card
Issuer or Credit Card Processor) or the right to establish reserves or establish
or demand collateral and such Credit Card Agreements are otherwise in full force
and effect; and

                                (M) the Credit Card Issuer or Credit Card
Processor has not sent any notice of default and/or notice of its intention to
cease or suspend payments to Hanover or any Revolving Loan Borrower in respect
of such Credit Card Receivables or to establish reserves or cash collateral for
obligations of Hanover or any Revolving Loan Borrower to such Credit Card Issuer
or Credit Card Processor.

General criteria for Eligible Credit Card Receivables may be established and
revised from time to time by Lender in its discretion. Any Credit Card
Receivables which are not Eligible Credit Card Receivables shall nevertheless be
part of the Collateral.

                         (vi)   "Eligible Fulfillment Contract Receivables"
shall mean Fulfillment Contract Receivables created by Fulfillment Contract
Borrowers which are and continue to be

                                       -5-

<PAGE>   6
acceptable to Lender based on the criteria set forth below. In general,
Fulfillment Contract Receivables shall be Eligible Fulfillment Contract
Receivables if:

                                (A) such Fulfillment Contract Receivables arise
from the actual and bona fide sale and delivery of goods by such Fulfillment
Contract Borrowers or rendition of services by Borrower in the ordinary course
of its business which transactions are completed in accordance with the terms
and provisions contained in any documents related thereto;

                                (B) such Fulfillment Contract Receivables are
not unpaid more than the sixty (60) days after the original maturity date of the
invoice therefor or more than ninety (90) days after the date of the original
invoice for them;

                                (C) such Fulfillment Contract Receivables comply
with the terms and conditions contained in Section 6.12A of the Loan Agreement;

                                (D) such Fulfillment Contract Receivables do
not arise from sales on consignment, guaranteed sale, sale and return, sale on
approval, or other terms under which payment by the account debtor may be
conditional or contingent;

                                (E) the chief executive office of the account
debtor with respect to such Fulfillment Contract Receivables is located in the
United States of America or Canada;

                                (F) such Fulfillment Contract Receivables do
not consist of progress billings (such that the obligation of the account
debtors with respect to such Fulfillment Contract Receivables is conditioned
upon such Fulfillment Contract Borrower's satisfactory completion of any further
performance under the agreement giving rise thereto), bill and hold invoices or
retainage invoices;

                                (G) the account debtor with respect to such
Fulfillment Contract Receivables has not asserted a counterclaim, defense or
dispute and does not have, and does not engage in transactions which may give
rise to, any right of setoff or recoupment against such Fulfillment Contract
Receivables (but the portion of the Fulfillment Contract Receivables of such
account debtor in excess of the amount at any time and from time to time owed by
such Fulfillment Contract Borrower to such account debtor or claimed owed by
such account debtor may be deemed Eligible Fulfillment Contract Receivables);

                                (H) there are no facts, events or occurrences
which would impair the validity, enforceability or collectability of such
Fulfillment Contract Receivables or reduce the amount payable or delay payment
thereunder;

                                (I) such Fulfillment Contract Receivables are
subject to the first priority, valid and perfected security interest of Lender
and any goods giving rise thereto are not, and were not at the time of the sale
thereof, subject to any liens except those permitted in the Loan Agreement;

                                       -6-

<PAGE>   7
                                (J) neither the account debtor nor any officer
or employee of the account debtor with respect to such Fulfillment Contract
Receivables is an officer, employee, agent or other Affiliate of such
Fulfillment Contract Borrower;

                                (K) the account debtors with respect to such
Fulfillment Contract Receivables are not any foreign government, the United
States of America, any State, political subdivision, department, agency or
instrumentality thereof, unless, if the account debtor is the United States of
America, any State, political subdivision, department, agency or instrumentality
thereof, upon Lender's request, the Federal Assignment of Claims Act of 1940, as
amended or any similar State or local law, if applicable, has been complied with
in a manner satisfactory to Lender;

                                (L) there are no proceedings or actions which
are threatened or pending against the account debtors with respect to such
Fulfillment Contract Receivables which might result in any material adverse
change in any such account debtor's financial condition;

                                (M) such Fulfillment Contract Receivables of a
single account debtor, other than KB Kids.com, LLC or its affiliates do not
constitute more than ten (10%) percent of all otherwise Eligible Fulfillment
Contract Receivables (but the portion of the Fulfillment Contract Receivables
not in excess of such percentage may be deemed Eligible Fulfillment Contract
Receivables );

                                (N) such Fulfillment Contract Receivables of KB
Kids.com, LLC or its affiliates do not constitute more than fifty (50%) percent
of all otherwise Eligible Fulfillment Contract Receivables (but the portion of
the Fulfillment Contract Receivables not in excess of such percentage may be
deemed Eligible Fulfillment Contract Receivables );

                                (O) such Fulfillment Contract Receivables are
not owed by an Fulfillment Contract Receivables debtor who has Accounts unpaid
more sixty (60) days after the original maturity date of the invoice therefor or
more than ninety (90) days after the original invoice date for them which
constitute more than fifty (50%) percent of the total Fulfillment Contract
Receivables of such account debtor;

                                (P) such Fulfillment Contract Receivables are
owed by account debtors whose total indebtedness to such Fulfillment Contract
Borrower does not exceed the credit limit with respect to such account debtors
as determined by such Fulfillment Contract Borrower from time to time and as is
reasonably acceptable to Lender (but the portion of the Fulfillment Contract
Receivables not in excess of such credit limit may be deemed Eligible
Fulfillment Contract Receivables); and

                                (Q) such Fulfillment Contract Receivables are
owed by account debtors deemed creditworthy at all times by such Fulfillment
Contract Borrower consistent with its current practice and who are reasonably
acceptable to Lender.

General criteria for Eligible Fulfillment Contract Receivables may be
established and revised from time to time by Lender in good faith based on an
event, condition or other circumstance arising after the date hereof, or
existing on the date hereof to the extent Lender has no written notice thereof
from Fulfillment Contract Borrowers, which adversely affects or could reasonably
be expected to

                                       -7-

<PAGE>   8
adversely affect the Fulfillment Contract Receivables in the good faith
determination of Lender. Any Fulfillment Contract Receivables which are not
Eligible Fulfillment Contract Receivables shall nevertheless be part of the
Collateral.

                         (vii)  "Excess Loan Availability" shall mean, at any
time, the amount, if any, as determined by Lender, by which:

                                (A) the amount of the Revolving Loans determined
by Lender to be available to Revolving Loan Borrowers pursuant to the Revolving
Loan Formulas (but not to exceed (1) in the case of each Revolving Loan
Borrower, the applicable lending sublimits under the Loan Agreement and the
other Financing Agreements, or (2) in the case of Revolving Loan Borrowers
considered together, the Revolving Loan Limit) exceeds

                                (B) the sum of

                                    (1) the amount of all outstanding and unpaid
                                Obligations of Revolving Loan Borrowers, plus

                                    (2) the aggregate amount of all reserves
                                established by Lender under the Loan Agreement
                                and the other Financing Agreements.

                         (viii) "Fulfillment Contract Borrower" shall mean
Keystone Internet and such other Revolving Loan Borrowers acceptable to Lender
that may provide fulfillment services pursuant to Fulfillment Contracts.

                         (ix)   "Fulfillment Contract Receivables" shall mean
all present and future rights of a Fulfillment Contract Borrower to payment for
goods sold or services performed pursuant to Fulfillment Contracts.

                         (x)    "Fulfillment Contract" shall mean an agreement
between a Fulfillment Contract Borrower and a third party pursuant to which a
Fulfillment Contract Borrower, among other things, will provide telemarketing,
fulfillment and other services, including, without limitation, processing orders
of customers of such third party, and warehousing and shipping merchandise of
such third party to customers, which agreements include, without limitation, the
agreements listed on Schedule A hereto.

                         (xi)   "Interest Expense" shall mean, for any period,
as to any Person and its Subsidiaries, all of the following as determined in
accordance with GAAP: (A) total interest expense, whether paid or accrued
(including the interest component of Capitalized Lease Obligations for such
period), including, without limitation, all bank fees, commissions, discounts
and other fees and charges owed with respect to letters of credit, banker's
acceptances or similar instruments, but excluding (1) amortization of discount
and amortization of deferred financing fees and closing costs, (2) interest paid
in property other than cash and (3) any other interest expense not payable in
cash, minus (B) any net payments received during such period as interest income
received in respect of its investments in cash and cash equivalents.

                                       -8-

<PAGE>   9
                         (xii)  "Net Amount of Eligible Credit Card Receivables"
shall mean the gross amount of Eligible Credit Card Receivables, less discounts,
fees and chargebacks and other amounts payable by Revolving Loan Borrowers to
Credit Card Issuers or Credit Card Processors.

                         (xiii) "Net Amount of Eligible Fulfillment Contract
Receivables" shall mean the aggregate amount of regularly scheduled payments due
to the Fulfillment Contract Borrower under the terms of the Fulfillment Contract
giving rise to such Eligible Fulfillment Contract Receivables, exclusive of any
amounts otherwise payable by such Fulfillment Contract Borrower in connection
with the Fulfillment Contract and of any discounts, prepayments, fees, claims,
credits and allowances of any nature at any time issued, owing or granted with
respect to such Fulfillment Contract.

                         (xiv)  "Restated TCS Factory Term Note" shall mean the
Amended and Restated Term Promissory Note, dated as of the date hereof, made by
TCS Factory payable to the order of Lender in the original principal amount of
$2,790,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

                         (xv)   "Restated TCS Office Term Note" shall mean the
Amended and Restated Term Promissory Note, dated as of the date hereof, made by
TCS Office payable to the order of Lender in the original principal amount of
$945,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

                         (xvi)   "Richemont Credit Facilities" shall mean the
credit facilities of Richemont made available to Hanover and Borrowers and
Guarantors evidenced by the Richemont $10,000,000 Credit Agreements and the
Richemont $25,000,000 Credit Agreements.

                         (xvii)  "Richemont $10,000,000 Call Agreement" shall
mean the letter agreement, dated as of the date hereof, between Lender and
Richemont, acknowledged by Hanover and Borrowers, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

                         (xviii) "Richemont $10,000,000 Credit Agreements"
shall mean the unsecured credit facility provided by Richemont to Hanover and
Borrowers in the principal amount of up to $10,000,000 as set forth in the
Revolving Loan Agreement, dated as of the date hereof, between Hanover and
Richemont, and any notes, agreements, documents and instruments executed or
delivered in connection therewith, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

                         (xix)   "Richemont $25,000,000 Credit Agreements" shall
mean the unsecured credit facility provided by Richemont to Hanover in the
principal amount of up to $25,000,000 as set forth in the Unsecured Line of
Credit & Promissory Note, dated March 1, 2000, between Hanover and Richemont,
and any agreements, documents and instruments executed or delivered in
connection therewith, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

                         (xx)    "Second Restated Hanover Realty Term Note"
shall mean the Second Amended and Restated Term Promissory Note, dated as of the
date hereof, by Hanover Realty

                                       -9-

<PAGE>   10
payable to the order of Lender in the original principal amount of $10,200,000,
as such note now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.

                         (xxi)   "Second Restated HDPI Term Note" shall mean the
Second Amended and Restated Term Promissory Note, dated as of the date hereof,
made by HDPI payable to the order of Lender in the original principal amount of
$3,600,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

                         (xxii)  "Tranche B Term Loan Borrowers" shall mean
HDPI, Brawn, GBM, Gump's, LWI, HDV, Hanover Realty, Tweeds LLC, Silhouettes LLC,
Domestications LLC, HCS LLC, TCS Factory, TCS Office and Keystone Internet.

                         (xxiii) "Tranche B Term Loan Participant" shall mean
Ableco Finance LLC, a Delaware limited liability company, and its successors and
assigns.

                         (xxiv)  "Tranche B Term Loan Participation Agreement"
means the Participation Agreement between Participant and Lender, dated on or
about the date hereof, as from time to time amended, extended, renewed,
restated, supplemented or replaced.

                         (xxv)   "Tranche B Term Note" shall mean the Tranche B
Term Promissory Note, dated as of the date hereof, made by the Tranche B Term
Loan Borrowers payable to the order of Lender in the original principal amount
of $7,500,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

                  (b)    Amendments to Definitions.

                         (i)    Accounts Loan Formula. Section 1.4 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:

                                "1.4    "Accounts Loan Formula" shall mean,
                         collectively, the Deferred Billing Loan Formula, the
                         Installment Billing Loan Formula, the Credit Card
                         Receivable Loan Formula and the Fulfillment Contract
                         Receivable Loan Formula."

                         (ii)   Credit Card Acknowledgments. All references to
the term "Third Party Credit Card Acknowledgment" in the Loan Agreement and the
other Financing Agreements are hereby deleted and replaced with the term "Credit
Card Acknowledgments" which shall mean, individually and collectively, the
agreements by Credit Card Issuers or Credit Card Processors who are parties to
Credit Card Agreements in favor of Lender acknowledging Lender's first priority
security interest in the monies due and to become due to Borrowers (including,
without limitation, credits and reserves) under the Credit Card Agreements, and
agreeing to transfer all such amounts to the Blocked Accounts, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.

                         (iii)  Credit Card Agreements. All references to the
term "Third Party Credit Card Agreements" in the Loan Agreement and the other
Financing Agreements are hereby

                                      -10-

<PAGE>   11
deleted and replaced with the term "Credit Card Agreements" which mean all
agreements now or hereafter entered into by a Borrower with any Credit Card
Issuer or any Credit Card Processor, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

                         (iv)   Credit Card Issuer. All references to the term
"Third Party Credit Card Issuer" in the Loan Agreement and the other Financing
Agreements are hereby deleted and replaced with the term "Credit Card Issuer"
which shall mean any person (other than Borrower) who issues or whose members
issue credit cards, including, without limitation, MasterCard or VISA bank
credit or debit cards or other bank credit or debit cards issued through
MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and
American Express, Discover, Diners Club, Carte Blanche and other non-bank credit
or debit cards, including, without limitation, credit or debit cards issued by
or through American Express Travel Related Services Company, Inc. and Novus
Services, Inc.

                         (v)    Credit Card Receivables.  All references to the
term "Third Party Credit Card Receivables" in the Loan Agreement and the other
Financing Agreements is hereby deleted and replaced with the term "Credit Card
Receivables" which shall mean, collectively, all present and future rights of
Borrower to payment from any Credit Card Issuer, Credit Card Processor,
including, without limitation, all MasterCard/VISA Receivables or other third
party arising from sales of goods or rendition of services to customers who have
purchased such goods or services using a credit or debit card and all present
and future rights of Borrower to payment from any Credit Card Issuer, Credit
Card Processor or other third party in connection with the sale or transfer of
Accounts arising pursuant to the sale of goods or rendition of services to
customers who have purchased such goods or services using a credit card or a
debit card, including, but not limited to, all amounts at any time due or to
become due from any Credit Card Issuer or Credit Card Processor under the Credit
Card Agreements or otherwise.

                         (vi)   Interest Rate. With respect to interest accruing
on or after April 1, 2000 all references to the term "Interest Rate" in the Loan
Agreement and the other Financing Agreements shall be deemed and each such
reference is hereby amended to mean (A) as to Prime Rate Revolving Loans, a rate
of one-half of one percent (.5%) per annum in excess of the Prime Rate, (B) as
to Prime Rate Term Loans, a rate of three-quarters of one percent (.75%) per
annum in excess of the Prime Rate, (C) as to the Tranche B Term Loan, a rate of
four and one quarter percent (4 1/4%) per annum in excess of the Prime Rate, but
in no event less than thirteen percent (13%), (D) as to Eurodollar Rate
Revolving Loans, a rate of two and one-half percent (2.5%) per annum in excess
of the Adjusted Eurodollar Rate, and (E) as to Eurodollar Rate Term Loans, a
rate of three and one-half (3.5%) per annum in excess of the Adjusted Eurodollar
Rate (in each case under clauses (C) or (D), based on the Eurodollar Rate
applicable for the Interest Period selected by or on behalf of the applicable
Borrower as in effect three (3) Banking Days prior to the commencement of such
Interest Period for such Eurodollar Rate Loans in accordance with the terms of
the Loan Agreement as amended hereby, whether such rate is higher or lower than
any rate previously quoted to or for such Borrower); provided, that, the
Interest Rate, as to Prime Rate Loans and Eurodollar Rate Loans, shall mean the
rate two percent (2%) per annum more than the otherwise applicable variable
Interest Rate provided under clause (A), (B), (C), (D) or (E) above (as
applicable), at Lender's option, without notice, for the period from and after
the date of the occurrence of any Event of Default, and for so long as such
Event of Default is continuing, or after termination or non-renewal of the Loan
Agreement and the other Financing Agreements. If the aggregate amount of
Revolving Loans and

                                      -11-

<PAGE>   12
Letter of Credit Accommodations to one or more Revolving Loan Borrowers exceeds
the amounts determined by Lender to be available pursuant to the Revolving Loan
Formulas, net of reserves and subject to the applicable lending sublimits as to
each Revolving Loan Borrower, and subject to the Revolving Loan Limit as to all
Revolving Loan Borrowers considered together, the Interest Rate, as to Prime
Rate Revolving Loans and Eurodollar Rate Revolving Loans, shall mean the rate
two percent (2%) per annum more than the otherwise applicable Interest Rate
provided under clause (A) or (D) above (as applicable) as to the amount of any
such excess(es) (whether or not such excess(es) arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event
of Default); provided, that, if such excess(es) arise solely by reason of the
exercise of Lender's discretion under the Loan Agreement to reduce the Revolving
Loan Formulas in the absence of an Event of Default that is continuing, the
Interest Rate, shall not be so increased as to the amount of any such excess(es)
for a period of five (5) days after Lender notifies the affected Revolving Loan
Borrowers of such discretionary reduction in the Revolving Loan Formulas and, at
and after the expiration of such period of five (5) days, the Interest Rate, may
be so increased by Lender as to the amount of any such excess(es) then
remaining.

                         (vii)  Maximum Credit. Section 1.83 of the Loan
Agreement shall be deemed deleted and replaced in its entirety with the
following:

                                "1.83  "Maximum Credit" shall mean the
                         aggregate principal amount of $82,500,000, less
                         payments and pre-payments made in respect of the
                         Tranche A Term Loans and the Tranche B Term Loan."

                         (viii) Mortgages. Section 1.86 of the Loan Agreement
shall be deemed deleted in its entirety and replaced with the following:

                                "1.86 "Mortgages" shall mean, individually
                         and collectively, each of the following (as the same
                         now exist or may hereafter be amended, modified,
                         supplemented, extended, renewed, restated or
                         replaced): (a) the Open-End Fee and Leasehold
                         Mortgage and Security Agreement, dated as of November
                         14, 1995, by HDPI in favor of Lender with respect to
                         the Real Property and related assets of HDPI located
                         in Hanover, Pennsylvania, as amended by the Mortgage
                         Modification Agreement, dated as of June 26, 1998,
                         and the Second Mortgage Modification Agreement, dated
                         as of the date hereof, (b) the Deed of Trust,
                         Assignment and Security Agreement, dated as of
                         November 14, 1995, by Hanover Realty in favor of
                         Lender with respect to the Real Property and related
                         assets of Hanover Realty in Roanoke, Virginia, as
                         amended by Amendment No. 1 to Deed of Trust,
                         Assignment and Security Agreement, dated as of June
                         26, 1998, and Amendment No. 2 to Deed of Trust,
                         Assignment and Security Agreement, dated as of the
                         date hereof, (c) the Mortgage and Security Agreement,
                         dated as of September 30, 1998, by TCS Factory in
                         favor of Lender with respect to the Real Property and
                         related assets of TCS Factory located at 2929 Airport
                         Road, La Crosse, Wisconsin, as amended by the
                         Mortgage Modification Agreement, dated as of the date
                         hereof and (d) the Mortgage and Security Agreement,
                         dated as of September 30, 1998, by TCS Office in
                         favor of Lender with respect to the Real Property and
                         related assets of TCS Office located at 455 Park
                         Plaza Drive, La Crosse,

                                      -12-

<PAGE>   13
                         Wisconsin, as amended by the Mortgage Modification
                         Agreement, dated as of the date hereof ."

                         (ix)   Participants. The term "Participant" contained
in the Loan Agreement and the other Financing Agreements is hereby amended to
include, in addition and not in limitation, the Tranche B Term Loan Participant.

                         (x)    Revolving Loan Borrowers. Section 1.117 of the
Loan Agreement shall be deemed deleted in its entirety and replaced with the
following:

                                "1.117 "Revolving Loan Borrowers" shall
                         mean, individually and collectively, HDPI, Brawn,
                         GBM, Gump's, Tweeds LLC, Silhouettes LLC, HCS LLC,
                         Domestications LLC, HDV, LWI and Keystone Internet."

                         (xi)   Revolving Loan Limit.  Section 1.119 of the Loan
Agreement shall be deemed deleted and replaced in its entirety with the
following:

                                "1.119 "Revolving Loan Limit" shall mean, at
                         any time, the amount equal to (a) $82,500,000 minus
                         (b) the sum of (i) the amount of outstanding Letter
                         of Credit Accommodations at such time, (ii) the
                         original principal amount of all of the Tranche A
                         Term Loans, and (iii) the original principal amount
                         of the Tranche B Term Loan."

                         (xii)  Tranche A Term Loans.  All references to the
"Term Loans" herein and in the Loan Agreement and the other Financing Agreements
are hereby redesignated "Tranche A Term Loans" and shall be deemed amended to
mean, individually and collectively, the Obligations evidenced by the Second
Restated HDPI Term Note, the Second Restated Hanover Realty Term Note, the
Restated TCS Factory Term Note and the Restated TCS Office Term Note.

                  (c)    Interpretation. All capitalized terms used herein and
not defined herein shall have the meanings given to such terms in the Loan
Agreement.

         2.       Assumption of Obligations; Amendments to Guarantees and
Financing Agreements;

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

                                      -13-

<PAGE>   14
properties as if Keystone Internet had originally executed and had been an
original Borrower and Guarantor party signatory to the Loan Agreement and the
other Financing Agreements.

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

                  (f)    Keystone Internet, in its capacity as Guarantor, hereby
expressly and specifically ratifies, restates and confirms the terms and
conditions of the Guarantee and Waiver, dated as of September 30, 1998, by
Keystone Internet and the other Guarantor parties thereto in favor of Lender and
its liability for all of the Obligations (as defined in such Guarantee), and all
other obligations, liabilities, agreements and covenants in respect of the
Existing Borrowers thereunder.

         3.       Tranche A Term Loans.

                  (g)    Restated HDPI Term Loan.

                         (i)    HDPI hereby acknowledges, confirms and agrees
that as of the date hereof and immediately before giving effect to this
Amendment, HDPI is indebted to Lender for the Obligations evidenced by the
Restated HDPI Term Note in the principal amount of $3,600,000 (the "Existing
HDPI Term Loan"), plus accrued fees and interest thereon. On the date hereof,
subject to the terms and conditions contained herein, Lender is making an
additional term loan to HDPI in the amount of $800,000, which, together with the
Existing HDPI Term Loan Balance, shall be consolidated and evidenced by and be
due and payable pursuant to the terms of the Second Restated HDPI Term Note.

                         (ii)   The Second Restated HDPI Term Note shall (i)
supersede, amend and restate the Restated HDPI Term Note in its entirety and
(ii) be secured by all of the Collateral.

                         (iii)  The amendment and restatement contained herein
and in the Second Restated HDPI Term Note, shall not, in any manner, be
construed to constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, any of the Obligations evidenced by or
arising under the Financing Agreements, and the liens and security interests
securing such Obligations shall not in any manner be impaired, limited,
terminated, waived or released.

                  (h)    Restated Hanover Realty Term Loan.

                                      -14-

<PAGE>   15
                         (i)    Hanover Realty hereby acknowledges, confirms and
agrees that as of the date hereof and immediately before giving effect to this
Amendment, Hanover Realty is indebted to Lender for the Obligations evidenced by
the Restated Hanover Realty Term Note in the principal amount of $10,200,000
(the "Existing Hanover Realty Term Loan"), plus accrued fees and interest
thereon. On the date hereof, subject to the terms and conditions contained
herein, Lender is making an additional term loan to Hanover Realty in the amount
of $3,160,000, which, together with the Existing Hanover Realty Term Loan
Balance, shall be consolidated and evidenced by and be due and payable pursuant
to the terms of the Second Restated Hanover Realty Term Note.

                         (ii)   The Second Restated Hanover Realty Term Note
shall (i) supersede, amend and restate the Restated Hanover Realty Term Note in
its entirety and (ii) be secured by all of the Collateral.

                         (iii)  The amendment and restatement contained herein
and in the Second Restated Hanover Realty Term Note, shall not, in any manner,
be construed to constitute payment of, or impair, limit, cancel or extinguish,
or constitute a novation in respect of, any of the Obligations evidenced by or
arising under the Financing Agreements, and the liens and security interests
securing such Obligations shall not in any manner be impaired, limited,
terminated, waived or released.

                  (i)    Restated TCS Factory Term Loan.

                         (i)    TCS Factory hereby acknowledges, confirms and
agrees that as of the date hereof and immediately before giving effect to this
Amendment, TCS Factory is indebted to Lender for the Obligations evidenced by
the TCS Factory Term Note in the principal amount of $2,790,000 (the "Existing
TCS Factory Term Loan"), plus accrued fees and interest thereon. On the date
hereof, subject to the terms and conditions contained herein, Lender is making
an additional term loan to TCS Factory in the amount of $1,073,000, which,
together with the Existing TCS Factory Term Loan Balance, shall be consolidated
and evidenced by and be due and payable pursuant to the terms of the Restated
TCS Factory Term Note.

                         (ii)   The Restated TCS Factory Term Note shall (i)
supersede, amend and restate the TCS Factory Term Note in its entirety and (ii)
be secured by all of the Collateral.

                         (iii)  The amendment and restatement contained herein
and in the Restated TCS Factory Term Note, shall not, in any manner, be
construed to constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, any of the Obligations evidenced by or
arising under the Financing Agreements, and the liens and security interests
securing such Obligations shall not in any manner be impaired, limited,
terminated, waived or released.

                  (j)    Restated TCS Office Term Loan.

                         (i)    TCS Office hereby acknowledges, confirms and
agrees that as of the date hereof and immediately before giving effect to this
Amendment, TCS Office is indebted to Lender for the Obligations evidenced by the
TCS Office Term Note in the principal amount of $945,000 (the "Existing TCS
Office Term Loan"), plus accrued fees and interest thereon. On the

                                      -15-

<PAGE>   16
date hereof, subject to the terms and conditions contained herein, Lender is
making an additional term loan to TCS Office in the amount of $344,000, which,
together with the Existing TCS Office Term Loan Balance, shall be consolidated
and evidenced by and be due and payable pursuant to the terms of the Restated
TCS Office Term Note.

                         (ii)   The Restated TCS Office Term Note shall (i)
supersede, amend and restate the TCS Office Term Note in its entirety and (ii)
be secured by all of the Collateral.

                         (iii)  The amendment and restatement contained herein
and in the Restated TCS Office Term Note, shall not, in any manner, be construed
to constitute payment of, or impair, limit, cancel or extinguish, or constitute
a novation in respect of, any of the Obligations evidenced by or arising under
the Financing Agreements, and the liens and security interests securing such
Obligations shall not in any manner be impaired, limited, terminated, waived or
released.

         4.       Tranche B Term Loan.

                  (k)    Subject to and upon the terms and conditions contained
herein and in the other Financing Agreements, Lender shall, contemporaneously
herewith, make a term loan to the Tranche B Term Loan Borrowers in the principal
amount of $7,500,000 (the "Tranche B Term Loan"). The Tranche B Term Loan is (i)
evidenced by the Tranche B Term Note in such original principal amount duly
executed and delivered by the Tranche B Term Loan Borrowers to Lender
concurrently herewith; (ii) to be repaid, together with interest and other
amounts, in accordance with this Agreement, the Tranche B Term Note, and the
other Financing Agreements; and (iii) secured by all of the Collateral;

                  (l)    All Obligations in respect of the Tranche B Term Loan
shall be due and payable upon the earlier of (i) the termination of the Loan
Agreement and the other Financing Agreements or (ii) March 24, 2003.

         5.       Amendments to Revolving Accounts Loans. Section 2.1(a) of the
Loan Agreement is hereby deleted in its entirety and replaced with the
following:
                  "(a)   Revolving Accounts Loans.  Subject to and upon the
terms and conditions contained herein and in the other Financing Agreements,
Lender shall, from time to time, make Revolving Loans as follows:

                         (i)    to each of the Deferred Billing Borrowers, at
its request, Revolving Loans of up to seventy percent (70%) of its respective
Net Amounts of Eligible Deferred Billing Receivables, or such greater or lesser
percentages thereof as Lender shall, in its sole discretion, determine from time
to time (the "Deferred Billing Loan Formula"); provided, however, that no
Revolving Loans in respect of Eligible Deferred Billing Receivables shall be
made available or be permitted to remain outstanding, unless Lender receives
written notification from the applicable Deferred Billing Borrowers of their
intention to commence or continue as to new sales one or more Deferred Billing
Option Programs, which notice shall describe the program in reasonable detail
and be received by Lender not less than thirty (30) days prior to the
commencement of each applicable Program Quarter;

                                      -16-

<PAGE>   17
                         (ii)   to each of the Installment Billing Borrowers, at
its request, Revolving Loans of up to seventy percent (70%) of its respective
Net Amounts of Eligible Installment Billing Receivables, or such greater or
lesser percentages thereof as Lender shall, in its sole discretion, determine
from time to time (the "Installment Billing Loan Formula"); provided, however,
that no Revolving Loans in respect of Eligible Installment Billing Receivables
shall be made available or be permitted to remain outstanding, unless Lender
receives written notification from the applicable Installment Billing Borrowers
of their intention to commence or continue as to new sales one or more
Installment Billing Programs, which notice shall describe the program in
reasonable detail and be received by Lender not less than thirty (30) days prior
to the commencement of each applicable Program Quarter;

                         (iii)  to each of the Revolving Loan Borrowers, at its
request, Revolving Loans of up to seventy percent (70%) of its respective Net
Amounts of Eligible Credit Card Receivables, or such greater or lesser
percentages thereof as Lender shall, in its sole discretion, determine from time
to time (the "Credit Card Receivable Loan Formula"); and

                         (iv)   to each of the Fulfillment Contract Borrowers,
at its request, Revolving Loans of up to eighty percent (80%) of its respective
Net Amounts of Eligible Fulfillment Contract Receivables, or such greater or
lesser percentages thereof as Lender shall, in its sole discretion, determine
from time to time (the "Fulfillment Contract Receivable Loan Formula")."

         6.       Revolving Accounts Loans. Section 2.2(j) of the Loan Agreement
is hereby deleted in its entirety and replaced with the following:

                  "(j)   Without limiting the foregoing lending sublimits, (i)
         the aggregate amount of Revolving Loans shall not at any one time
         outstanding exceed the Revolving Loan Limit for all Revolving Loan
         Borrowers and (ii) the aggregate amount of Revolving Accounts Loans for
         all Deferred Billing Borrowers, Installment Billing Borrowers,
         Fulfillment Contract Borrowers and any other applicable Revolving Loan
         Borrowers shall not at any one time outstanding exceed $15,000,000.
         Lender shall have the right, from time to time, to establish and revise
         Revolving Accounts Loan sublimits for each Deferred Billing Borrower,
         Installment Billing Borrower, Fulfillment Contract Borrower and each
         other applicable Revolving Loan Borrower within the overall $15,000,000
         sublimit applicable to all Revolving Accounts Loans."

         7.       Additional Condition Precedent to Revolving Loans. A new
Section 3.3 of the Loan Agreement is hereby added immediately after Section 3.2
as follows:

                  "3.3 Minimum Excess Loan Availability Requirement. Each
         Revolving Loan and each Letter of Credit Accommodation to be made on
         March __, 2000 and thereafter is subject to the prior or
         contemporaneous satisfaction of the additional condition precedent
         (which may be waived, in whole or in part, only by Lender in writing)
         that, as of the date of any such request for a Revolving Loan or Letter
         of Credit Accommodation, the sum, as determined by Lender, of Excess
         Loan Availability of Revolving Loans Borrowers plus the undrawn amounts
         under the Richemont $10,000,000 Credit Agreements shall be not less
         than $3,000,000 after giving effect to such Revolving Loan or Letter of
         Credit Accommodation."

                                      -17-

<PAGE>   18
         8.       Fees. In addition to all other fees, charges, interest and
expenses payable by Borrowers to Lender under the Loan Agreement and the other
Financing Agreements, Borrowers shall pay to Lender the following additional
fees:

                  (m)    Closing Fee. Borrowers shall pay to Lender,
contemporaneously herewith, a closing fee in the amount of $1,250,000, which fee
is fully earned as of the date hereof; provided, that Borrowers shall be
entitled to a credit of $250,000 against such closing fee in respect of the
commitment fee paid by Hanover in consideration of the issuance of the
Commitment Letter, dated March 9, 2000, among Borrowers, Guarantors and Lender.

                  (n)    Tranche B Closing Fee. Tranche B Term Loan Borrowers
shall pay to Lender, contemporaneously herewith, a closing fee in the amount of
$150,000, which fee is fully earned as of the date hereof and may be charged
into the loan account of any Tranche B Term Loan Borrower.

                  (o)    Tranche B Facility Fees. Borrowers shall pay to Lender
an annual facility fee in respect of the Tranche B Term Loan of $75,000, for
each year or part thereof during the Term of the Loan Agreement, which fee shall
be fully earned and payable on each anniversary date of the Loan Agreement
during the Term and for so long thereafter as any of the Obligations are
outstanding and may be charged into the loan account of any Tranche B Term Loan
Borrower.

         9.       No Prepayments of Tranche A and Tranche B Term Loans.  Section
2.9(c) of the Loan Agreement is hereby deleted and replaced with the following:
"[(c) Intentionally Omitted]"

         10.      Indebtedness.

                  (p)    Effective on the effectiveness of this Amendment, (i)
Section 6.3(h) of the Loan Agreement is hereby deleted and such Indebtedness of
Borrowers to UBS shall no longer be permitted other than obligations and
liabilities under the UBS Agreements that expressly survive the termination
thereof; provided, that, all such Indebtedness shall be subordinated in right of
payment of Lender to receive the prior indefeasible payment in full of all
Obligation as provided in Section 6.3(h) hereof remain subject to the terms and
conditions of the Subordination Agreement, dated December 18, 1996, between
Richemont and the Borrower and Guarantor parties thereto and (ii) Section 3 of
the Seventh Amendment to Loan Agreement is hereby deleted and such contingent
Indebtedness of Borrowers to UBS shall no longer be permitted other than
obligations and liabilities under the UBS Agreements that expressly survive the
termination thereof; provided, that, all such Indebtedness shall remain shall be
subordinated in right of payment of Lender to receive the prior indefeasible
payment in full of all Obligation as provided in Section 6.3(h) hereof remain
subject to the terms and conditions of the Subordination Agreement, dated
December 18, 1996.

                  (q)    Section 6.3 of the Loan Agreement is hereby amended by
deleting the word "and" appearing at the end of Section 6.3(g), replacing the
period with a semicolon and the word "and" appearing at the end of Section
6.3(h) and adding new Sections 6.3(i) and (j) immediately thereafter, as
follows:

                                      -18-

<PAGE>   19
                         "(i)   unsecured Indebtedness of Borrowers and
                  Guarantors to Richemont evidenced by the Richemont $10,000,000
                  Credit Agreements; provided, that, each of the following
                  conditions are satisfied as determined by Lender:

                         (i)    if at any time Excess Loan Availability, as
                  determined by Lender, is less than $3,000,000, Lender shall
                  have the right to request and Richemont shall be obligated to
                  remit proceeds of amounts that otherwise would be available
                  under the Richemont $10,000,000 Credit Agreements directly to
                  the Blocked Account as provided by the Richemont $10,000,000
                  Call Agreement to repay Obligations in an amount sufficient in
                  Lender's discretion, such that Excess Loan Availability shall,
                  after application of such payments to the Obligations, be at
                  least $3,000,000;

                         (ii)   such Indebtedness and related obligations are
                  subject to, and subordinated in right of payment to, the prior
                  right of Lender to receive the prior indefeasible payment in
                  full of the Obligations in accordance with the terms and
                  conditions of the written subordination agreement, dated March
                  24, 2000, between Lender and Richemont related to such
                  Indebtedness;

                         (iii)  Borrowers and Guarantors shall not, directly or
                  indirectly, make any payments or prepayments of principal or
                  interest in respect of such Indebtedness, or any expenses
                  related thereto, except, that, (A) Borrowers and Guarantors
                  may make regularly scheduled payments of interest to Richemont
                  when due and a facility fee each month in the amount of
                  $79,200 so long as no Event of Default or Incipient Default
                  exists or has occurred and is continuing and (B) Borrowers and
                  Guarantors may make from time to time payments of principal to
                  Richemont in respect of such Indebtedness; provided, that, as
                  to any such payment, each of the following conditions shall
                  have been satisfied as determined by Lender: (1) Lender shall
                  have received not less than five (5) Business Days' prior
                  written notice of the intention of Borrowers or Guarantors to
                  make such payment, which written notice shall set forth the
                  amount of the payment intended to be made, the then current
                  outstanding amount of principal and such other information
                  with respect thereto as Lender may reasonably request, (2) as
                  of the date of and after giving effect to any such payment,
                  the Excess Availability of Borrowers on such date and for each
                  of the immediately preceding thirty (30) consecutive days
                  shall have been not less than $5,000,000, and (3) as of the
                  date of any such payment and after giving effect thereto, no
                  Event of Default or Incipient Default shall exist or have
                  occurred and be continuing;

                         (iv)   Borrowers and Guarantors shall not, directly or
                  indirectly, (A) amend, modify, alter or change the terms of
                  the arrangements or any agreements with respect to such
                  Indebtedness, or (B) redeem, retire, defease, purchase or
                  otherwise acquire any such Indebtedness or set aside or
                  otherwise deposit or invest any sums for such purpose, other
                  than through the exercise by Richemont of the right to convert
                  all or any part of such Indebtedness to common stock in
                  accordance with the terms and conditions of the Richemont
                  $10,000,000 Credit Agreements as in effect on the date of
                  execution and delivery thereof and the written subordination
                  agreement referred to in Section 6.3(i) hereof;

                                      -19-

<PAGE>   20
                  and (v) Borrowers and Guarantors shall furnish to Lender all
                  notices, demands or other materials in connection with such
                  Indebtedness promptly after the receipt thereof by them or
                  currently with the sending thereof by them or on their behalf,
                  as the case may be; and

                  (j)    unsecured Indebtedness of Borrowers and Guarantors to
         Richemont evidenced by the Richemont $25,000,000 Credit Agreements;
         provided, that, each of the following conditions are satisfied as
         determined by Lender:

                         (i)    such Indebtedness and related obligations are
                  subject to, and subordinated in right of payment to, the prior
                  right of Lender to receive the prior indefeasible payment in
                  full of the Obligations in accordance with the terms and
                  conditions of the written subordination agreement, dated March
                  24, 2000, between Lender and Richemont related to such
                  Indebtedness;

                         (ii)   Borrowers and Guarantors shall not, directly or
                  indirectly, make any payments or prepayments of principal or
                  interest in respect of such Indebtedness, or any expenses
                  related thereto, except, that, Borrowers and Guarantors may
                  make regularly scheduled payments of interest to Richemont
                  when due and a facility fee each month in the amount of
                  $62,500 so long as no Event of Default or Incipient Default
                  exists or has occurred and is continuing;

                         (iii)  Borrowers and Guarantors shall not, directly or
                  indirectly, (A) amend, modify, alter or change the terms of
                  the arrangements or any agreements with respect to such
                  Indebtedness, or (B) redeem, retire, defease, purchase or
                  otherwise acquire any such Indebtedness or set aside or
                  otherwise deposit or invest any sums for such purpose, other
                  than through the exercise by Richemont of the right to convert
                  all or any part of such Indebtedness to common stock in
                  accordance with the terms and conditions of the Richemont
                  $25,000,000 Credit Agreements as in effect on the date of
                  execution and delivery thereof and the written subordination
                  agreement referred to in Section 6.3(j) hereof;

                         and (v) Borrowers and Guarantors shall furnish to
                  Lender all notices, demands or other materials in connection
                  with such Indebtedness promptly after the receipt thereof by
                  them or currently with the sending thereof by them or on their
                  behalf, as the case may be."

         11.      Additional Collateral Reporting. Section 6.18(a) of the Loan
Agreement is hereby amended by adding new subsections (xiv) and (xv) immediately
after subsection (xiii) as follows:

                  "(xiv) Weekly (or more frequently if requested by Lender)
         reports on the Accounts of each Borrower and Guarantor in respect of
         Credit Card Receivables, including, without limitation, Accounts in
         respect of Deferred Billing Option Programs and Installment Billing
         Programs and other deferred billing and installment billing Accounts of
         Borrowers and Guarantors and monthly agings with respect to all other
         Accounts of each Borrower and

                                      -20-

<PAGE>   21
         Guarantor, including, as to the foregoing, the aggregate outstanding
         amounts, prepayments, accruals and returns and other credits.

                  (xv)   Weekly (or more frequently if requested by Lender), a
         schedule of all sales made, credits and collections on the Accounts of
         each Borrower and Guarantor in respect of all Fulfillment Contract
         Receivables of Borrowers and Guarantors and monthly agings with detail
         by each account debtors party to any Fulfillment Contracts of such
         Borrowers and all Fulfillment Contract Receivables of each Borrower and
         Guarantor, including, as to the foregoing, the aggregate outstanding
         amounts, prepayments, accruals and returns and other credits.

                  (xvi)  Borrowers shall upon the request of Lender furnish or
         cause to be furnished to Lender copies of all Fulfillment Contracts."

         12.      Additional Accounts Covenants.

                  (a)    Subsection 6.12A(a)(iii) of the Loan Agreement is
hereby amended by inserting between word "Receivables" and the period appearing
in the fourth line of that Subsection the following: "or Eligible Credit Card
Receivables and all Eligible Fulfillment Contract Receivables".

                  (b)    As of the date hereof, all of the Fulfillment Contracts
of Fulfillment Contracts Borrowers are set forth on Schedule A hereto. Borrowers
shall furnish, or cause to be furnished, to Lender upon the execution and
delivery of any Fulfillment Contract entered into by Fulfillment Contract
Borrower, a true, correct and complete copy of such Fulfillment Contract.

         13.      Consolidated Working Capital. Section 6.19 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:

                  "6.19  Consolidated Working Capital.

                         (a)    Hanover shall maintain Consolidated Working
                  Capital, calculated on a consolidated basis for Hanover and
                  its Subsidiaries, of not less than the following amounts as at
                  the end of each of the following fiscal months:

                                Period                      Amount
                         (i)    January 1997 through        ($5,000,000)
                                March 1997

                         (ii)   April 1997 through                ($-0-)
                                November 1997

                         (iii)  December 1997              ($10,000,000)"
                                March 2000

                                      -21-

<PAGE>   22
                         (b)    Hanover shall, commencing with the fiscal month
                  ending April 2000 and for each fiscal month thereafter in any
                  fiscal year thereafter, maintain Consolidated Working Capital,
                  calculated on a consolidated basis for Hanover and its
                  Subsidiaries, of not less than the following amounts as at the
                  end of each such fiscal month for each such fiscal:

                                Period                             Amount

                                April                              $20,000,000
                                May                                $20,000,000
                                June                               $20,000,000
                                July                               $20,000,000
                                August                             $20,000,000
                                September                          $20,000,000
                                October                            $20,000,000
                                November                           $20,000,000
                                December                           $20,000,000
                                January                            $12,500,000
                                February                           $12,500,000
                                March                              $20,000,000"

         14.      Consolidated Net Worth. Section 6.20 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:

                  "6.20  Consolidated Net Worth.

                         (a)    Hanover shall maintain Consolidated Net Worth,
                  calculated on a consolidated basis for Hanover and its
                  Subsidiaries, of not less than the following amounts as at the
                  end of each of the following fiscal months:

                                Period                            Amount

                         (i)    January 1997                      $14,000,000
                                through March 1997

                         (ii)   April 1997 through                $21,500,000
                                March 2000

                         (b)    Hanover shall commencing with the fiscal month
                  ending April 2000 and for each fiscal month thereafter in any
                  fiscal year thereafter, maintain Consolidated Net Worth,
                  calculated on a consolidated basis for Hanover and its
                  Subsidiaries, of not less than the following amounts as at the
                  end of each such fiscal month for each such fiscal:

                                    Period                       Amount

                                    April                        $34,000,000

                                      -22-

<PAGE>   23
                                    May                          $34,000,000
                                    June                         $34,000,000
                                    July                         $30,000,000
                                    August                       $30,000,000
                                    September                    $30,000,000
                                    October                      $30,000,000
                                    November                     $30,000,000
                                    December                     $37,500,000
                                    January                      $37,500,000
                                    February                     $37,500,000
                                    March                        $34,000,000"

         15.      Capital Expenditures.  A new Section 6.30  of the Loan
Agreement is hereby added at the end of Section 6.29 as follows:

                         "6.30 Capital Expenditures. Hanover and its
                  Subsidiaries shall not, directly or indirectly, in any fiscal
                  year of Hanover and its Subsidiaries make any Capital
                  Expenditures of an aggregate amount not to exceed $5,000,000,
                  plus the amount of any cash proceeds obtained by Hanover and
                  its Subsidiaries from the sale of any Capital Stock or from
                  subordinated indebtedness under the Richemont Credit
                  Facilities other than proceeds of loans under the Richemont
                  $10,000,000 Credit Agreements, in each case, to the extent
                  permitted hereunder."

         16.      EBITDA.  A new Section 6.31  of the Loan Agreement is hereby
added at the end of Section 6.30 as follows:

                  "6.31  EBITDA.

                         (a)    Hanover and its Subsidiaries shall not, as to
                  any fiscal quarter commencing on April 1, 2000, permit EBITDA
                  of Hanover and its Subsidiaries commencing on the first day of
                  each fiscal quarter of Hanover and its Subsidiaries and ending
                  on the last day of the applicable fiscal quarter set forth
                  below on a cumulative nine month year-to-date ("YTD") basis
                  beginning April 1, 2000 through and including December 31,
                  2000, to be less than the respective amount set forth below
                  opposite such fiscal quarter end YTD period:

                                    Fiscal Quarter
                                    End YTD Periods                Cumulative
                                 for Fiscal Year 2000            Minimum EBITDA

                                (i) April 1 through June 30       ($1,250,000)

                                (ii) April 1 through              ($1,250,000)
                                September 30

                                (iii) April through                $7,527,000
                                December 31

                                      -23-
<PAGE>   24

                         (b)    Hanover and its Subsidiaries shall not, as to
                  any fiscal quarter during the fiscal year 2001 of Hanover and
                  its Subsidiaries, permit EBITDA of Hanover and its
                  Subsidiaries commencing on the first day of such fiscal year
                  and ending on the last day of the applicable fiscal quarter
                  set forth below on a cumulative year-to-date basis ("YTD"), to
                  be less than the respective amount set forth below opposite
                  such fiscal quarter end YTD period:

                                     Fiscal Quarter
                                     End YTD Periods              Cumulative
                                  for Fiscal Year 2001          Minimum EBITDA

                                (i) January 1 through           ($ 1,000,000)
                                March 31

                                (ii)  January 1 through          $ 2,525,000
                                June 30

                                (iii) January 1 through          $ 5,555,000
                                September 30

                                (iv) January 1 through           $17,812,000
                                December 31

                         (c)    Hanover and its Subsidiaries shall not, as to
                  any fiscal quarter during the fiscal year 2002 of Hanover and
                  its Subsidiaries, permit EBITDA of Hanover and its
                  Subsidiaries commencing on the first day of such fiscal year
                  and ending on the last day of the applicable fiscal quarter
                  set forth below on a cumulative year-to-date basis ("YTD"), to
                  be less than the respective amount set forth below opposite
                  such fiscal quarter end YTD period:

                                     Fiscal Quarter
                                     End YTD Periods                Cumulative
                                  for Fiscal Year 2002            Minimum EBITDA

                                (i) January 1 through             ($ 1,000,000)
                                March 31, 2002

                                (ii) January 1 through             $ 2,525,000
                                June 30, 2002

                                (iii) January 1 through            $ 5,555,000
                                September 30, 2002

                                (iv) January 1 through             $17,812,000
                                December 31, 2002

                         (d)    Hanover and its Subsidiaries shall not, as to
                  the first fiscal quarter during the fiscal year 2003 of
                  Hanover and its Subsidiaries, permit EBITDA of Hanover and its
                  Subsidiaries commencing on the first day of such fiscal year
                  and ending on the last day of the first fiscal quarter set
                  forth below on a cumulative year-

                                      -24-

<PAGE>   25
                  to-date basis ("YTD"), to be less than the respective amount
                  set forth below opposite such fiscal quarter end YTD period:

                                     Fiscal Quarter
                                     End YTD Periods              Cumulative
                                  for Fiscal Year 2002          Minimum EBITDA

                                (i) January 1 through           ($ 1,000,000)
                                March 31, 2003

                         (e)    provided, that, as to any applicable period in
                  Section 6.31(a), (b), (c) or (d) , to the extent that Hanover
                  and Borrowers shall have received any cash proceeds from the
                  sale of any Capital Stock or from the proceeds of loans in
                  respect of any subordinated indebtedness under the Richemont
                  Credit Facilities other than proceeds of loans under the
                  Richemont $10,000,000 Credit Agreements, in each case, to the
                  extent permitted hereunder, then the amount of such cash
                  proceeds shall be added back to EBITDA for purposes of
                  determining cumulative EBITDA for the applicable period and
                  for each subsequent quarterly period during the then-current
                  fiscal year."

         17.      Excess Loan Availability Test.  A new Section 6.32  of the
Loan Agreement is hereby added at the end of Section 6.31 as follows:

                  "6.32  Excess Loan Availability.

                         (a)    If at any time no amounts are available under
                  the Richemont $10,000,000 Credit Agreements or the Richemont
                  $10,000,000 Credit Agreements have been terminated or not
                  renewed, Borrowers shall at all times thereafter maintain
                  Excess Loan Availability of not less $3,000,000.

                         (b)    Upon receipt of any amounts remitted to Lender
                  under the Richemont Credit Facilities or the Richemont
                  $10,000,000 Call Agreement as provided hereunder, Lender may,
                  at its option, either (i) apply such amounts to the repayment
                  of the Obligations in such order and manner as Lender may
                  determine subject to the right of Lender to establish a
                  reserve against the Revolving Loans and Letter of Credit
                  Accommodations available under the lending formulas in an
                  amount equal to the amounts received pursuant to the Richemont
                  Credit Facility or the Richemont $10,000,000 Call Agreement or
                  (ii) hold any or all of the funds received by Lender pursuant
                  to any of the loans as cash collateral, on terms and
                  conditions acceptable to Lender. In such event Borrowers shall
                  execute and deliver to Lender such other agreements with
                  respect thereto as Lender may require. Borrowers do not have
                  and shall not have any property or other interest in any of
                  the loans under the Richemont $10,000,000 Credit Facilities or
                  any amounts under the Richemont $10,000,000 Call Agreement.
                  This Section 6.31(b) shall survive the repayment of the
                  Obligations and the termination or non-renewal of this
                  Agreement."

                                      -25-

<PAGE>   26
         18.      Additional Events of Default. Section 7.1 of the Loan
Agreement is hereby amended by replacing the period appearing at the end of
Section 7.1(j) with a semicolon and the word "and" and adding a new Section
7.1(k) as follows:

                         "(k)   Richemont shall send notice that the Richemont
                  $10,000,000 Call Agreement shall otherwise not be extended or
                  renewed or shall cease to be in full force and effect except
                  in accordance with their terms or shall be void or invalid or
                  Richemont shall fail to make any advances under the Richemont
                  Credit Facilities or remit any amounts to Lender pursuant to
                  the Richemont $10,000,000 Call Agreement, as the case may be,
                  in accordance with their terms, or deny it has any further
                  liability or obligation thereunder or shall revoke, terminate
                  or purport to revoke or terminate any of Richemont Credit
                  Facilities or the Richemont $10,000,000 Call Agreement, or any
                  injunctive relief or restraining order is sought or granted
                  which does or would, if granted, limit or impair the right of
                  Lender to request that payments be made pursuant to the
                  Richemont $10,000,000 Call Agreement in accordance with the
                  terms or retain any funds remitted to Lender thereunder, as
                  the case may be."

         19.      Term.

                  (a)    The first sentence of Section 9.1(a) of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:

                         "(a)   This Agreement and the other Financing
                  Agreements shall become effective as of the date hereof and
                  this Agreement shall continue in full force and effect for a
                  term ending on January 31, 2004 (the "Renewal Date"), and from
                  year-to-year thereafter, unless sooner terminated pursuant to
                  the terms hereof."

                  (b)    The first sentence of Section 9.1(f) of the Loan
Agreement is hereby deleted and replaced with the following, effective with
respect to any termination after the date hereof:

                         "(f)   If Lender terminates this Agreement or the other
                  Financing Agreements after the occurrence and during the
                  continuance of an Event of Default or at the request of
                  Borrowers prior to the Renewal Date, in view of the
                  impracticality and extreme difficulty of ascertaining actual
                  damages, and by mutual agreement of the parties as to a
                  reasonable calculation of Lender's lost profits as a result
                  thereof, Borrowers hereby agree to pay to Lender, upon the
                  effective date of such termination, a fee (the "Early
                  Termination Fee") in an amount equal to one-half of one
                  percent ( 1/2%) of the Maximum Credit, if such termination is
                  effective on or before January 30, 2004."

         20.      Costs and Expenses. Section 9.9 of the Loan Agreement is
hereby amended by adding between the word "hereunder" and the comma appearing in
the fifth line up from the last line of that Section, the following: "including,
without limitation, the right to demand payment of all costs and expenses in
connection with this Agreement and the other Financing Agreements, as provided
by Section 9.2 hereof,".

                                      -26-

<PAGE>   27
         21.      Use of Proceeds. Borrowers shall use the initial proceeds of
the Revolving Loans, the additional advances of the Tranche A Term Loans and the
Tranche B Term Loan provided by Lender hereunder only for: (a) payments to each
of the other persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof, and (b) costs, expenses and
fees in connection with the preparation, negotiation, execution and delivery of
this Amendment and the other Financing Agreements. All other Loans made or
Letter of Credit Accommodations provided by Lender to Borrowers pursuant to the
provisions hereof shall be used by Borrowers only for general operating, working
capital and other proper corporate purposes of Borrowers not otherwise
prohibited by the terms of the Loan Agreement.

         22.      Exhibits.

                  (a)    Exhibits A, B-3, B-4, E, G, H-1, H-2 and H-3 to the
Loan Agreement are hereby deleted in their entirety and replaced with the
information set forth on Exhibits A, B, C, D, F, G, H and I hereto.

                  (b)    Exhibit F to the Loan Agreement is hereby amended to
include, in addition and not in limitation, the information set forth on Exhibit
E attached hereto.

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

                  (a)    This Amendment and each other agreement or instrument
to be executed and delivered by each Borrower and/or Guarantor hereunder have
been duly authorized, executed and delivered by all necessary action on the part
of each of Borrower and each Guarantor which is a party hereto and thereto and,
if necessary, their respective stockholders (with respect to any corporation) or
members (with respect to any limited liability company), and is in full force
and effect as of the date hereof, as the case may be, and the agreements and
obligations of each Borrower and/or Guarantor, as the case may be, contained
herein and therein constitute legal, valid and binding obligations of each
Borrower and/or Guarantor, as the case may be, enforceable against them in
accordance with their terms.

                  (b)    Each of the Richemont $10,000,000 Credit Agreements and
the Richemont $25,000,000 Credit Agreements (i) has been duly authorized,
executed and delivered by all necessary action on the part of each of Borrowers
and Guarantors, and, if necessary, their respective stockholders (with respect
to any corporation) or members (with respect to any limited liability company),
and (ii) is in full force and effect as of the date hereof, as the case may be.
The agreements and obligations of each of each Borrower and Guarantor under the
Richemont $10,000,000 Credit Agreements and the Richemont $25,000,000 Credit
Agreements constitute legal, valid and binding obligations of each Borrower
and/or Guarantor, as the case may be, enforceable against them in accordance
with terms. Borrowers and Guarantors have delivered, or cause to be

                                      -27-

<PAGE>   28
delivered to Lender, true, correct and complete copies of each of the Richemont
$10,000,000 Credit Agreements and the Richemont $25,000,000 Credit Agreements

                  (c)    Neither the execution and delivery of this Amendment or
any of the agreements, documents or instruments to be delivered pursuant to this
Agreement has violated or shall violate any Federal or State securities laws or
any other law or regulation or any order or decree of any court or governmental
instrumentality in any respect applicable to Borrowers or Guarantors, or does or
shall conflict with or result in the breach of, or constitute a default in any
respect under any mortgage, deed of trust, security agreement, agreement or
instrument to which Borrowers or Guarantors is a party or may be bound, or shall
violate any provision of the Certificates of Incorporation or By-Laws of
Borrowers or Guarantors.

                  (d)    No action of, or filing with, or consent of any
governmental or public body or authority, other than the recording of the
modification agreements with respect to the Mortgages executed and delivered to
Lender pursuant to this Amendment, and no approval or consent of any other
party, is required to authorize, or is otherwise required in connection with,
the execution, delivery and performance of this Amendment and each other
agreement or instrument to be executed and delivered pursuant to this Amendment.

                  (e)    Neither the execution and delivery of the Richemont
$10,000,000 Credit Agreements and the Richemont $25,000,000 Credit Agreements,
or any other agreements, documents or instruments in connection therewith, nor
the consummation of the transactions therein contemplated, nor compliance with
the provisions thereof has violated or shall violate any Federal or State
securities laws or any other law or regulation or any order or decree of any
court or governmental instrumentality in any respect, or does, or shall conflict
with or result in the breach of, or constitute a default in any respect under
any mortgage, deed of trust, security agreement, agreement or instrument to
which Hanover or any other Guarantor or any Borrower is a party or may be bound,
or does or shall violate any provision of the Certificate of Incorporation or
By-Laws of Hanover of any other Guarantor or any Borrower.

                  (f)    All of the representations and warranties set forth in
the Loan Agreement as amended hereby, and the other Financing Agreements, are
true and correct in all material respects after giving effect to the provisions
of this Amendment, except to the extent any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct as of such date.

                  (g)    All necessary amendments, supplements and agreements
have been executed and delivered, and all necessary actions required by the
Series A Note Agreements the Series B note Agreements and the Littlestown IDB
Agreements have been taken in accordance with the Series A Note Agreements, the
Series B Note Agreements and the Littlestown IDB Agreements, as the case may be,
in connection with the transactions contemplated by this Amendment. All notices,
supplements and disclosure documents required to be delivered to any trustee or
other person under the Series A Note Agreements, the Series B Note Agreements
and the Littlestown IDB Agreements in connection with the transactions
contemplated by this Amendment, have been timely delivered.

                  (h)    All of the obligations, liabilities and indebtedness
arising under each of the UBS Agreements, the Richemont Reimbursement Agreement,
the Series A Note Agreements, the

                                      -28-

<PAGE>   29
Series B Note Agreements, and the Littlestown IDB Agreements after giving effect
to the transactions contemplated by this Amendment, shall have been indefeasibly
discharged and paid in full, other than (i) non-material liabilities that may be
owed to the remarketing agent under the Series A Note Agreements and the Series
B Note Agreements and to the Littlestown Industrial Development Authority under
the Littlestown IDB Agreements and (ii) the liabilities and obligations under
any such agreements that by their terms expressly survive the termination
thereof. All agreements, documents and instruments in respect of the UBS
Agreements, the Richemont Reimbursement Agreement, the Series A Note Agreements,
the Series B Note Agreements and the Littlestown IDB Agreements have been
terminated in accordance with their terms as amended, modified or supplemented
through the date hereof.

                  (i)    Neither the redemption of any of the Littlestown Bonds
nor the repurchase of any of the Series A Notes or the Series B Notes, nor the
termination of the UBS Agreements and the cancellation of any of the UBS Letters
of Credit, nor any other agreements, documents or instruments in connection
therewith, nor the consummation of such transactions, nor compliance with the
provisions thereof has violated or shall violate any Federal or State securities
laws or any other law or regulation or, to the knowledge of Borrowers or
Guarantors, any order or decree of any court or governmental instrumentality in
any respect, or does, or shall conflict with or result in the breach of, or
constitute a default in any respect under any mortgage, deed of trust, security
agreement, agreement or instrument to which any Guarantor or any Borrower is a
party or may be bound, or does or shall violate any provision of the Certificate
of Incorporation or By-Laws of any Borrower or any Guarantor.

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

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

                  (a)    Lender shall have received an executed original or
executed original counterparts of this Amendment, as the case may be, duly
authorized, executed and delivered by Borrowers and Guarantors;

                  (b)    Each of Borrowers and Guarantors shall have delivered
to Lender, in form and substance satisfactory to Lender, each of the following
agreements to which it is a party, duly authorized, executed and delivered:

                         (i)    Guarantee and Waiver by Guarantors, other than
Borrowers and Hanover, in favor of Lender with respect to the Obligations of
Keystone Internet; and

                         (ii)   Guarantee and Waiver by Borrowers in favor of
Lender with respect to the Obligations of Keystone Internet;

                         (iii)  Guarantee and Waiver by Hanover in favor of
Lender with respect to the Obligations of Keystone Internet;

                                      -29-

<PAGE>   30
                         (iv)   Blocked Account Agreements by and among The
First National Bank of Maryland, Borrowers, certain Guarantors and Lender
providing for the establishment of a Blocked Account for Keystone Internet;

                         (v)    each of the Second Restated HDPI Term Note, the
Second Restated Hanover Realty Term Note, the Restated TCS Factory Term Note,
the Restated TCS Office Term Note and the Tranche B Term Note; and

                         (vi)   original Second Mortgage Modification Agreement
between HDPI and Lender, an original Amendment No. 2 to the Deed of Trust,
Assignment and Security Agreement between Hanover Realty and Lender, Mortgage
Modification Agreement, between TCS Factory and Lender, and Mortgage
Modification Agreement, between TCS Office and Lender;

                  (c)    Lender shall have received, in form and substance
satisfactory to Lender, updated endorsements to the existing title insurance
policy or a new title insurance policy issued by Lawyers Title Insurance
Corporation acceptable to Lender (vii) insuring the priority, amount and
sufficiency of each of the Mortgages made by HDPI, Hanover Realty, TCS Factory
and TCS Office, as amended, and (viii) containing any legally available
endorsements, assurance or affirmative coverage requested by Lender for
protection of its interests;

                  (d)    Lender shall have received, in form and substance
satisfactory to Lender, the Tranche B Term Loan Participation Agreement;

                  (e)    Lender shall have received, in form and substance
satisfactory to Lender, from the appraisal firms that have conducted the
appraisals of the Real Property and Equipment, addressed to Lender or upon which
Lender is expressly permitted to rely with respect to each such Appraisal;

                  (f)    Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination (ix) of each of
the UBS Letters of Credit and the UBS Agreements, (x) of the Richemont Guaranty
and the Hanover Reimbursement Agreement, and (xi) of the Series A Note
Agreements and the Series B Note Agreements, respectively, and evidence that all
obligations have been paid in full with respect thereto, other than obligations
and liabilities under such agreements that by their terms expressly survive the
termination thereof;

                  (g) Lender shall have received, each in form and substance
satisfactory to Lender, (xii) a true and complete copy of all of the Richemont
Credit Facility agreements, documents and instruments related thereto, (xiii)
the Richemont $10,000,000 Call Agreement, (xiv) written subordination agreement,
dated as of the date hereof, between Richemont, and Lender, pursuant to which,
among other things, Richemont shall have subordinated its right to payment under
the Richemont $10,000,000 Credit Agreements to the prior indefeasible payment in
full of all of the Obligations, to the extent provided therein, and (xv) written
subordination agreement, dated as of the date hereof, between Richemont, and
Lender, pursuant to which, among other things, Richemont shall have subordinated
its right to payment under the Richemont $25,000,000 Credit Agreements to the
prior indefeasible payment in full of all of the Obligations, to the extent
provided therein, each duly authorized, executed and delivered by Hanover and
Richemont;

                                      -30-

<PAGE>   31
                  (h)    Lender shall have received, in form and substance
satisfactory to Lender, evidence of the adoption and subsistence of authorizing
resolutions of Richemont approving the execution, delivery and performance by
Richemont of such Subordination Agreement and an opinion of Luxembourg counsel
to Richemont addressed to Lender with respect to the due authorization,
execution, validity and enforceability of such Subordination Agreement, and as
to such other matters as Lender shall reasonably require.

                  (i)    Borrowers and Guarantors shall have duly executed and
delivered to Lender such UCC financing statements and other documents and
instruments which Lender in its sole discretion has determined are necessary to
perfect the security interests of Lender in all Collateral now or hereafter
owned Borrowers and Guarantors;

                  (j)    Each of the Keystone Internet, Tranche A Term Loan
Borrowers and the Tranche B Term Loan Borrowers shall have delivered to Lender
evidence, as of the most recent practicable date, that it is duly qualified and
in good standing in each jurisdiction set forth in Exhibit A annexed hereto;

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

                  (l)    Lender shall have received an opinion of counsel to
Borrowers and other Guarantors with respect to the transactions contemplated by
this Amendment and such other matters as Lender shall reasonably request,
addressed to Lender, in form and substance and satisfactory to Lender; and

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

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

                                      -31-

<PAGE>   32
         26.      Further Assurances. Borrowers and Guarantors shall execute and
deliver such additional documents and take such additional action as may be
reasonably requested by Lender to effectuate the provisions and purposes of this
Amendment.

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

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

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

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -32-
<PAGE>   33

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

                         CONGRESS FINANCIAL CORPORATION

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

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

                         HANOVER DIRECT PENNSYLVANIA, INC.

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

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

                         BRAWN OF CALIFORNIA, INC.

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

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

                         GUMP'S BY MAIL, INC.

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

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

                         GUMP'S CORP.

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

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

                         LWI HOLDINGS, INC.

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

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

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                      -33-

<PAGE>   34

                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

                         HANOVER DIRECT VIRGINIA INC.

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

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

                         HANOVER REALTY, INC.

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

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

                         THE COMPANY STORE FACTORY, INC.

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

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

                         THE COMPANY OFFICE, INC.

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

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

                         KEYSTONE INTERNET SERVICES, INC.

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

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

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                      -34-

<PAGE>   35

                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

                         TWEEDS, LLC

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

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

                         SILHOUETTES, LLC

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

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

                         HANOVER COMPANY STORE, LLC

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

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

                         DOMESTICATIONS, LLC

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

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

HANOVER DIRECT, INC.

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

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

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                      -35-

<PAGE>   36

                    [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

AMERICAN DOWN & TEXTILE COMPANY

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

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

D.M. ADVERTISING, INC.

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

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

LWI RETAIL, INC.

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

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

SCANDIA DOWN CORPORATION

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

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

KEYSTONE LIQUIDATIONS, INC.

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

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

YORK FULFILLMENT COMPANY, INC.

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

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

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                     -36-

<PAGE>   37

                   [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

HANOVER HOME FASHIONS GROUP, LLC

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

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

KITCHEN & HOME, LLC

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

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

DOMESTICATIONS KITCHEN & GARDEN, LLC

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

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

ENCORE CATALOG, LLC

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

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

CLEARANCE WORLD OUTLETS, LLC

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

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

                      [SIGNATURES CONTINUE ON NEXT PAGE]

                                     -37-

<PAGE>   38

                  [SIGNATURES CONTINUED FROM PREVIOUS PAGE]

SANDIA DOWN, LLC

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

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

ERIZON, INC.

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

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

HANOVER BRANDS, INC.

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

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

ERIZON.COM, INC.

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

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

LA CROSSE FULFILLMENT, LLC

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

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

SAN DIEGO TELEMARKETING, LLC

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

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

                                       38

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