Document:

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                                                                    Exhibit 10.7

                             SUBORDINATION AGREEMENT

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

                              W I T N E S S E T H:

         WHEREAS, Junior Creditor has or is about to enter into financing
arrangements pursuant to which Junior Creditor may make loans and advances to
certain direct and indirect subsidiaries of Hanover Direct, Inc. ("Debtor", as
hereinafter defined) of up to $10,000,000, which loans are and shall be
unsecured; and

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

         WHEREAS, in order to induce Senior Creditor to continue the financing
arrangements with Debtor and certain subsidiaries of Debtor, Junior Creditor has
agreed to the subordination in favor of Senior Creditor as provided herein of
its right to payment of the existing and future obligations of Debtor to Junior
Creditor arising in connection with the revolving credit facility in the amount
of up to $10,000,000 to the prior indefeasible payment of the existing and
future obligations of Debtor to Senior Creditor under the Senior Creditor
Agreements, and related matters as set forth below;

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

          1.   DEFINITIONS

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

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

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

         1.4 "Debtor" shall mean, individually and collectively, Hanover Direct,
Inc., a Delaware corporation, Hanover Direct Pennsylvania, Inc., a Pennsylvania
corporation, Brawn Of California, Inc., a California corporation, Gump's By
Mail, Inc., a Delaware corporation, Gump's Corp., a California corporation, LWI
Holdings, Inc., a Delaware corporation, Hanover Direct Virginia Inc., a Delaware
corporation, Hanover Realty, Inc., a Virginia corporation, The Company Store
Factory, Inc., a Delaware corporation, The Company Office, Inc., a Delaware
corporation, Tweeds, LLC, a Delaware limited liability company, Silhouettes,
LLC, a Delaware limited liability company, Hanover Company Store, LLC, a
Delaware limited liability company, Domestications, LLC, a Delaware limited
liability company, and Keystone Internet Services, Inc., a Delaware corporation,
and each of their respective successors and assigns, including, without
limitation, a receiver, trustee, or debtor-in-possession on behalf of any such
person or on behalf of any such successor or assign.

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

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

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

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

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

         1.10 "Junior Creditor Agreements" shall mean, individually and
collectively, the Credit Agreement, dated as of the date hereof, among Junior
Creditor and Debtor the Revolving Credit Note, dated as of the date hereof, by
Debtor payable to the order of Junior Creditor in the principal amount of up to
$10,000,000, and all agreements, documents and instruments at any time executed
and/or delivered by Debtor or any other person to, with or in favor of Junior
Creditor in connection therewith or related thereto, as all of the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.

         1.11 "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Junior
Creditor under the Junior Creditor Agreements, including principal, interest,
charges, fees, premiums, indemnities and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, arising under or

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evidenced by or in connection with the Junior Creditor Agreements, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Junior Creditor Agreements or after the
commencement of any case with respect to Debtor under the U.S. Bankruptcy Code
or any similar statute (and including, without limitation, any principal,
interest, fees, costs, expenses and other amounts, whether or not such amounts
are allowable in whole or in part, in any such case or similar proceeding),
whether direct or indirect, absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated, secured or unsecured, and
whether arising directly, or by way of subrogation, contribution, reimbursement,
indemnification, exoneration or otherwise, or howsoever acquired by Junior
Creditor in connection with the Junior Creditor Agreements.

         1.12 "Payment Account" shall have the meaning given in the Richmont
$10,000,000 Call Agreement.

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

         1.14 "Richemont $10,000,000 Call Agreement" shall mean the letter
agreement, dated as of the date hereof, between Senior Creditor and Junior
Creditor, acknowledged by Debtors, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

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

         1.16 "Senior Creditor Agreements" shall mean, individually and
collectively, the Loan and Security Agreement, dated November 14, 1995, by and
among Senior Creditor, Debtor and certain subsidiaries of Debtor, as amended
through the Fifteenth Amendment to Loan and Security Agreement, dated as of the
date hereof (the "Loan Agreement"), the Richemont $10,000,000 Call Agreement,
any related guarantees by Debtor in favor of Senior Creditor, any security
agreements by Hanover in favor of Senior Creditor and all agreements, documents
and instruments at any time executed and/or delivered by Debtor or any other
person to, with or in favor of Senior Creditor in connection therewith or
related thereto, as all of the foregoing now exist or, subject to the terms and
conditions contained in this Subordination Agreement, as may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

         1.17 "Senior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor or any other
subsidiary of Debtor to Senior Creditor and/or its affiliates, or participants,
including principal, interest, charges, fees, premiums, indemnities and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, owing in connection with the Senior Creditor Agreements, whether
now existing or

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hereafter arising, whether arising before, during or after the initial or,
subject to the terms and conditions contained in this Subordination Agreement,
any renewal term of the Senior Creditor Agreements or after the commencement of
any case with respect to Debtor under the U.S. Bankruptcy Code or any similar
statute (and including, without limitation, any principal, interest, fees,
costs, expenses and other amounts, whether or not such amounts are allowable
either in whole or in part, in any such case or similar proceeding), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
whether arising directly, or by way of subrogation, contribution, reimbursement,
indemnification, exoneration or otherwise, or howsoever acquired by Senior
Creditor in connection with the Senior Creditor Agreements.

         1.18 All terms used herein which are defined in the Uniform Commercial
Code as in effect in the State of New York, unless otherwise defined herein
shall have the meanings set forth therein. All references to any term in the
plural shall include the singular and all references to any term in the singular
shall include the plural.

         2. SUBORDINATION OF JUNIOR DEBT

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

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

                  (a) unless and until Senior Creditor sends written notice to
Junior Creditor of the occurrence and continuance of an Event of Default or
Incipient Default under the Senior Creditor Agreements:

                  (i) Debtor may make and Junior Creditor may receive and retain
from Debtor, from time to time payments of principal to Junior Creditor in
respect of the Junior Debt; provided, that, as to any such payment, each of the
following conditions shall have been satisfied as determined by Senior Creditor:
(A) Senior Creditor shall have received not less than five (5) Banking Days'
prior written notice of the intention of Debtors 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 Senior Creditor may reasonably request, (B) as of the date of
and after giving effect to any such payment, the Excess Availability on such
date and for each of the immediately preceding thirty (30) consecutive days
shall have been not less than $5,000,000; and

                  (ii) Debtor may make and Junior Creditor may receive and
retain from Debtor regularly scheduled payments of interest and of a monthly fee
in the amount of $79,200 as provided by the Junior Creditor Agreements as in
effect on the date hereof; and

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                  (b) Debtor may make, and Junior Creditor may receive and
retain, payments by Debtor to Junior Creditor of the Junior Debt solely out of
cash proceeds pursuant to a rights offering by Hanover Direct, Inc., Harvard
Brands, Inc. or erizon, inc. or any other equity offering(s) or equity private
placement(s) of capital stock of Hanover Direct, Inc, Hanover Brands, Inc. or
erizon, inc. and Junior Creditor may convert the then outstanding amount of
Junior Debt for capital stock of Hanover Direct, Inc. or Hanover Brands or
erizon, inc.; provided, that, (i) Senior Creditor has received not less than
fifteen (15) Banking Days prior written notice from Debtor of the intention to
make such payment out of cash proceeds of such rights offering or other equity
offering or such conversion of the Junior Debt to capital stock, (ii) such
capital stock consists of ordinary common stock as in effect on the date hereof
or of other capital shares if consented to by Senior Creditor, which consent
shall not be unreasonably withheld in Senior Creditor's good faith judgment. To
the extent any such cash proceeds of any such equity offering or conversion of
Junior Debt permitted hereby reduces the amount of any commitment to advance
funds pursuant to the Junior Creditor Agreements, any such net cash proceeds or
conversion shall not also reduce the amount of any commitment to advance funds
pursuant to the Richemont $25,000,000 Credit Agreements as such term is defined
in the Senior Creditor Agreements.

         2.3   Distributions.

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

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

                  (c) To the extent necessary for Senior Creditor to realize the
benefits of the subordination of the Junior Debt provided for herein (including
the right to receive any and all payments and distributions which might
otherwise be payable or deliverable with respect to the Junior Debt in any
Insolvency Proceeding or otherwise), Junior Creditor shall execute and

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deliver to Senior Creditor such instruments or documents (together with such
assignments or endorsements as Senior Creditor shall deem necessary), as may be
reasonably requested by Senior Creditor.

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

          2.5 Instrument Legend and Notation. Any instrument at any time
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Subordination Agreement, and (a) after being so marked
certified copies thereof shall be delivered to Senior Creditor and (b) the
original of any such instrument shall be immediately delivered to Senior
Creditor upon Senior Creditor's request, at any time on or after the
commencement of an Insolvency Proceeding. In the event any legend or endorsement
is omitted, Senior Creditor, or any of its officers or employees, are hereby
irrevocably authorized on behalf of Junior Creditor to make the same. No
specific legend, further assignment or endorsement or delivery of notes,
guarantees or instruments shall be necessary to subject any Junior Debt to the
subordination thereof contained in this Agreement.

         2.6 Reduction in Credit Limit of Junior Creditor Agreements. Junior
Creditor may reduce the maximum credit available to Debtor under the Junior
Credit Agreements equal to the amount of net cash proceeds received by Senior
Creditor by reason of equity contribution(s) to Debtor or conversions of Junior
Debt into capital stock of Hanover Direct, Inc., Hanover Brands, Inc. and
erizon, inc. so long as each of the following conditions shall have been
satisfied as determined by Senior Creditor:

                  (a) Senior Creditor shall have received not less than fifteen
(15) Banking Days' prior written notice of the intention of Richemont to effect
any such reduction in such maximum credit and to make any such cash equity
contribution or conversion, together with the terms and conditions of such cash
equity contribution or conversion;

                  (b) such cash equity contributions or conversions shall be in
the form of capital stock consisting of ordinary common stock as in effect on
the date hereof or of other capital stock if consented to by Senior Creditor,
which consent shall not be unreasonably withheld in Senior Creditor's good faith
judgment; and

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                  (c) any net proceeds of such cash equity contribution shall be
remitted directly to the Payment Account.

         3. COVENANTS, REPRESENTATIONS AND WARRANTIES

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

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

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

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

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

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

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

                  (g) Junior Creditor and Debtor shall execute and deliver to
Senior Creditor such additional agreements, documents and instruments and take
such further actions as may be

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reasonably necessary or desirable in the opinion of Senior Creditor to
effectuate the provisions and purposes of this Subordination Agreement.

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

                  (a) as of the date hereof, the total principal amount of the
Junior Debt outstanding is $-0-;

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

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

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

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

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

          3.3 Waivers. Notice of acceptance hereof, the making of loans,
advances and extensions of credit or other financial accommodations to, and the
incurring of any expenses by or in respect of, Debtor or its subsidiaries by
Senior Creditor, and presentment, demand, protest, notice of protest, notice of
nonpayment or default and all other notices to which Junior Creditor and Debtor
are or may be entitled are hereby waived (except as expressly provided for
herein or as to Debtor, in the Senior Creditor Agreements). Junior Creditor also
waives notice of, and hereby consents to, (a) subject to the terms and
conditions contained in this Subordination Agreement, any amendment,
modification, supplement, renewal, restatement or extensions of time of payment
of or increase or decrease in the amount of any of the Senior Debt or to the
Senior Creditor Agreements or any collateral at any time granted to or held by
Senior Creditor, (b) the taking, exchange, surrender and releasing of collateral
at any time granted to or held by Senior Creditor or guarantees now or at any
time held by or available to Senior Creditor for the Senior Debt or any other
person at any time liable for or in respect of the Senior Debt, (c) the exercise
of, or refraining from the exercise of any rights against Debtor or any other
obligor or any collateral at any time granted to or held by Senior Creditor, (d)
the settlement, compromise or release of, or the waiver of any default with
respect to, any of the Senior Debt, and/or (e) Senior Creditor's election, in
any proceeding instituted under the U.S. Bankruptcy Code of the application of
Section 1111(b)(2) of the U.S. Bankruptcy Code. Any of the foregoing shall not,
in any manner, affect the terms hereof or impair the obligations of Junior
Creditor hereunder. All

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of the Senior Debt shall be deemed to have been made or incurred in reliance
upon this Subordination Agreement.

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

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

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

          4. MISCELLANEOUS

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

          4.2 Successors and Assigns.

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

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

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

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

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

          4.5 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed to have been
duly given or made: if delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately upon

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

To Senior Creditor:                         Congress Financial Corporation
                                            1133 Avenue of the Americas
                                            New York, New York 10036
                                            Attention:  Mr. Laurence S. Forte
                                            Telecopier: 212-545-4283
                                            Phone: 212-0545-4280

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

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

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

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

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

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

                                      -11-
<PAGE>   12
          4.9 Complete Agreement.

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

                  (b) The obligations of Junior Creditor under this
Subordination Agreement are in addition to, and in no way limited by the terms
of the Subordination Agreement, dated as of the date hereof, between Junior
Creditor and Senior Creditor, as acknowledged by Debtor and certain direct and
indirect subsidiaries of Debtor in respect of the Richemont $25,000,000 Credit
Agreements as such term is defined in the Loan Agreement, nor shall any of the
terms thereof be limited or affected by the terms of this Subordination
Agreement.

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

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

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

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

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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

                                            CONGRESS FINANCIAL CORPORATION

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

                                            Title:  Vice President

                                            RICHEMONT FINANCE S.A.

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

                                            By:    /s/ Alan Grieve
                                               ---------------------------
                                            Title:   Director

                                      -13-
<PAGE>   14
                                 ACKNOWLEDGMENT

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

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

                                        HANOVER DIRECT, INC.

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

                       [SIGNATURES CONTINUED ON NEXT PAGE]

                                      -14-
<PAGE>   15
                     [SIGNATURES CONTINUED FROM PRIOR PAGE]

                                        GUMP'S CORP.

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

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

                                        LWI HOLDINGS, INC.

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

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

                                        HANOVER DIRECT VIRGINIA INC.

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

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

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

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

                       [SIGNATURES CONTINUED ON NEXT PAGE]

                                      -15-
<PAGE>   16
                     [SIGNATURES CONTINUED FROM PRIOR PAGE]

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

                                      -16-<PAGE>   1
                                                                    EXHIBIT 10.8

                             RICHEMONT FINANCE S.A.
                           35 Boulevard Prince Henri
                                L1724 Luxembourg

                                        As of March 24, 2000

Congress Financial Corporation,
1133 Avenue of the Americas
New York, New York  10036

          Re: Unsecured Line of Credit in the Maximum Amount of $10,000,000

Ladies and Gentlemen:

          Congress Financial Corporation ("Lender") has entered into financing
arrangements with Hanover Direct Pennsylvania, Inc., Brawn of California, Inc.,
Gump's By Mail, Inc., Gump's Corp., LWI Holdings, Inc., Hanover Direct Virginia
Inc., Hanover Realty, Inc., Tweeds, LLC, Silhouettes, LLC, Hanover Company
Store, LLC, Domestications, LLC, The Company Store Factory, Inc., The Company
Office, Inc. and Keystone Internet Services, Inc. (each individually, a
"Borrower" and collectively, "Borrowers") pursuant to which Lender may make
loans and provide other financial accommodations to Borrowers in accordance
with the terms and conditions of the Loan and Security Agreement, dated
November 14, 1995, by and among Lender, Borrowers and Hanover Direct, Inc.
("Hanover") and certain of Hanover's other subsidiaries (collectively, together
with Hanover, "Guarantors"), as amended through the Fifteenth Amendment to Loan
and Security Agreement (the "Fifteenth Agreement to Loan Agreement"), dated as
of the date hereof (as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement"), and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including, but not limited to, this letter agreement (all of
the foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the "Financing Agreements").
All capitalized terms used herein. unless otherwise defined herein, shall have
the meanings given to such terms in the Loan Agreement.

         In order to induce Lender to enter into the Fifteenth Amendment to
Loan Agreement and the other Financing Agreements related thereto and in
consideration of the Loans and Letter of Credit Accommodations to be provided
by Lender to Borrowers pursuant thereto, the parties hereto agree as follows:

         1.      Excess Availability Covenant Payments.

                 (a)  If at any time Excess Loan Availability, as determined by
Lender, is less than $3,000,000 under the Loan Agreement, upon receipt of
notice from Lender as provided in
<PAGE>   2
Section 1(b) hereof, Richemont hereby agrees for the account of Borrowers to pay
Lender in immediately available funds amounts requested by Lender in writing, as
to which the Lender certifies to Richemont as being the amount necessary to
repay the Obligations in an amount sufficient in Lender's discretion so that
Excess Loan Availability shall, after application of such payments, be
$3,000,000; provided, that, Richemont shall not be required to make any such
payments that would result in the total outstanding amount of principal under
the Richemont $10,000,000 Credit Agreements to exceed the maximum credit
availability then in effect as set forth in the Richemont $10,000,000 Credit
Agreements and the Richemont $10,000,000 Subordination Agreement.  Lender agrees
upon the written request of Borrowers to provide, at Borrower's sole cost and
expense, a copy to Borrowers of each notice so provided to Richemont, but the
failure of the Lender to so provide such copy to Borrowers shall not relieve
Richemont of its obligations to make payments to Lender hereunder.

                 (b) All amounts payable by Richemont to Lender hereunder shall
be paid within one (1) Banking Day after Lender gives telephonic notice (during
business hours, Luxembourg time) and sends written notice via telecopier to
Richemont.  Such amounts shall be sent by wire transfer, in immediately
available funds only to the following account, or such other account as Lender
may direct in writing from time to time (the "Payment Account") :

                              Chase Manhattan Bank, N.A.
                              4 New York Plaza
                              New York, New York,
                              ABA No. 021-000-021

                              For credit to Congress Financial Corporation
                              Account No. 322-001-293
                              Re: Subsidiaries of Hanover Direct, Inc.

For purposes of this letter agreement, the term "Banking Day" shall mean any
day, other than Saturday or Sunday, when Lender and commercial banks are open
in New York, New York and Europe.

                 (c)  All such loans and any other obligations, liabilities and
indebtedness of any Borrowers or Guarantors to Richemont under the Richemont
$10,000,000 Credit Agreements shall be subordinated to the right of payment of
Lender to receive the prior indefeasible payment in full of all Obligations in
accordance with the Subordination Agreement, dated as of the date hereof,
between Lender and Richemont (the "Richemont $10,000,000 Subordination
Agreement").

                 (d)  All payments by Richemont hereunder shall be made
directly by Richemont to the Payment Account on behalf of Borrowers for the
benefit of Lender and shall be applied by Lender to the Obligations in
accordance with the Loan Agreement and the other Financing Agreements.  All
payments by Richemont hereunder shall be reimbursement obligations of Borrowers
to Richemont under the Richemont $10,000,000 Credit Agreements subject to the
terms and conditions

                                      -2-
<PAGE>   3
of the Richemont $10,000,000 Subordination Agreement. The obligations of
Richemont hereunder to make payments are absolute and shall be made to Lender in
accordance with the terms hereof from time to time, including, without
limitation, at any time any Borrower is a debtor or debtor-in-possession in any
case under the U.S. Bankruptcy Code or any similar proceeding under any state
insolvency law.

                 (e) Notwithstanding anything to  the contrary contained in the
Richemont $10,000,000 Credit Agreements, the obligations of Richemont to make
the payments hereunder to Lender shall be continuing from the date hereof
through and including the earlier of (i) the indefeasible payment in full of
all Obligations owed to Lender or termination of the Financing Agreements in
accordance with the terms thereof and (ii) the reduction of the maximum credit
in respect of the Richemont $10,000,000 Credit Agreements to zero ($-0-) solely
by reason of the reductions in such maximum credit availability in connection
with cash equity contributions or with conversions by Richemont to the extent
permitted by the Richemont $10,000,000 Subordination Agreement.

         2.      Subordination; Permitted Payments; Reductions in Credit Limit.

                 (a) The Indebtedness of Borrowers arising in connection with
the subordinated loans by Richemont to Borrowers pursuant to the terms hereof,
and the Richemont $10,000,000 Credit Agreements shall be subject to, and
subordinate in right of payment to, the final payment and satisfaction in full
of all of the Obligations as set forth in the Richemont $10,000,000
Subordination Agreement.  Borrowers may make payments in respect of such
Indebtedness to the extent provided in the Richemont $10,000,000 Subordination
Agreement.

                 (b) The maximum credit availability under the Richemont
$10,000,000 Credit Agreements may be permanently reduced in the amount equal to
the net cash proceeds solely by reason of cash equity contributions or
purchases and the amount of conversions by Richemont to the extent provided in
the Richemont $10,000,000 Subordination Agreement.

                 (c) In the event that principal amounts outstanding under the
Richemont $10,000,000 Credit Agreements are repaid by Borrowers to Richemont as
permitted by Section 2.2(a) of the Richemont $10,000,000 Subordination
Agreement, then the amount of the loans available for request by Lender
hereunder shall be reinstated and be available to be paid to Lender in
accordance with terms and conditions hereof, but subject to the then credit
availability under the Richemont $10,000,000 Credit Agreements.

                 (d) In addition to all payments required to be made pursuant
hereto, Borrowers hereby irrevocably authorize and direct that all amounts
otherwise made available under the Richemont $10,000,000 Credit Agreements be
remitted by Richemont directly to the Payment Account for application to the
Obligations by Lender arising in connection with the Loan Agreement and the
other Financing Agreements.

                                     - 3 -
<PAGE>   4
         3.      Subrogation.  Richemont hereby irrevocably and unconditionally
waives all statutory, contractual, common law, equitable and other claims
against Borrowers, or any of the Collateral for subrogation, reimbursement,
exoneration, contribution, indemnification or other recourse in respect of sums
paid or payable to Lender by Richemont hereunder until all of the Obligations
are paid and satisfied in full.  When all Obligations shall have been
indefeasibly paid in full and discharged and all the Financing Agreements have
been terminated, Richemont shall, to the extent permitted by law, be subrogated
to the rights of Lender to receive payments in respect of the obligations under
the Richemont $10,000,000 Credit Agreements.

         4.      Waivers and Consents.  Notice of acceptance hereof, the making
of Loans and providing Letter of Credit Accommodations to, and the incurring of
any expenses by or in respect of, Borrowers and Richemont by Lender, and all
other notices to which Richemont and Borrowers are or may be entitled are hereby
waived (other than notices to be provided to Richemont by Lender under Sections
1 and 11 hereof).  Richemont waives notice of, and hereby consents to (a)
subject to the provision of the Richemont $10,000,000 Subordination Agreement,
any amendment, modification, supplement, renewal, restatement or extensions of
time of payment of or increase or decrease in the amount of any of the
Obligations or to the Loan Agreement or any of the other Financing Agreements or
any Collateral, (b) the taking, exchange, surrender and releasing of Collateral
or guarantees now or at any time held by or available to Lender for the
Obligations or any other person at any time liable for or in respect of the
Obligations, (c) the exercise of, or refraining from the exercise of any rights
against Borrowers, Richemont or any other obligor or any Collateral, (d) the
settlement, compromise or release of, or the waiver of any default with respect
to, any of the Lender, and/or (e) any Obligations incurred, or grant of a
security interest to secure Obligations, under Section 364 of the U.S.
Bankruptcy Code to Borrowers, as debtor-in-possession.  Any of the foregoing
shall not, in any manner, affect the terms hereof or impair the obligations of
Richemont hereunder.  All of the Obligations shall be deemed to have been made
or incurred in reliance upon this letter agreement.

         5.      Insolvency.  This letter agreement shall be applicable both
before and after the filing of any petition by or against any Borrower under the
U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof,
and all references herein to any Borrower shall be deemed to apply to a trustee
for any Borrower and any Borrower as a debtor-in-possession.  The rights of
Lender and the obligations of Richemont hereunder shall continue after any
filing in respect of any such proceeding on the same basis as before the date of
the petition of such proceeding.

         6.      Account Stated.  The books and records of Lender showing the
account between Lender and Borrowers shall be admissible in evidence in any
action or proceeding against or involving Richemont as prima facie proof of the
items therein set forth, and the monthly statements of Lender rendered to
Borrowers, to the extent to which no written objection is made within thirty
(30) days from the date of sending thereof to Borrowers, shall be deemed
conclusively correct, absent manifest error, and constitute an account stated
between Lender and Borrowers and be binding on Richemont.

                                     - 4 -
<PAGE>   5
         7.      Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.

                 (a)      The validity, interpretation and enforcement of this
letter agreement and any dispute arising out of the relationship between
Richemont and Lender, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of New York (without giving effect to
principles of conflicts of laws).

                 (b)      The parties hereto hereby irrevocably consent and
submit to the non-exclusive jurisdiction of the Supreme Court of the State of
New York for New York County and the United States District Court for the
Southern District of New York and waive any objection based on venue or forum
non conveniens with respect to any action instituted therein arising under this
letter agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of Richemont, Borrowers
and Lender in respect of this letter agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising and whether in contract, tort, equity or
otherwise, and agrees that any dispute arising out of the relationship between
Richemont or Borrowers and Lender or the conduct of any such persons in
connection with this letter agreement, the other Financing Agreements or
otherwise shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Richemont or its
property in the courts of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on any collateral at any time granted by
Borrowers or Richemont to Lender or to otherwise enforce its rights against
Richemont or its property).

                 (c)      Richemont  hereby waives personal service of any and
all process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Richemont in any other manner provided under
the rules of any such courts.  Within thirty (30) days after such service,
Richemont shall appear in answer to such process, failing which Richemont shall
be deemed in default and judgment may be entered by Lender against Richemont for
the amount of the claim and other relief requested.

                 (d)      EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
LETTER AGREEMENT  OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF RICHEMONT, BORROWERS
AND LENDER IN RESPECT OF THIS LETTER AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE.  EACH OF THE PARTIES HERETO HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY AND THAT RICHEMONT

                                     - 5 -
<PAGE>   6
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.

                 (e)      Lender shall not have any liability to Richemont
(whether in tort, contract, equity or otherwise) for losses suffered by
Richemont in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this letter agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by a
final and non-appealable judgment or court order binding on Lender that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct.  In any such litigation, Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of the Loan
Agreement and the other Financing Agreements.

         8.      Notices.  All notices, requests and demands hereunder shall be
in writing and (a) made to Lender and to Richemont at their respective addresses
set forth on Schedule A hereto as either party may designate by written notice
to the other in accordance with this provision, and (b) deemed to have been
given or made: if delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, two (2) Banking Days after
sending; and if by certified mail, return receipt requested, seven (7) Banking
Days after mailing.

         9.      Partial Invalidity.  If any provision of this letter agreement
is held to be invalid or unenforceable, such invalidity or unenforceability
shall not invalidate this letter agreement as a whole, but this letter agreement
shall be construed as though it did not contain the particular provision held to
be invalid or unenforceable and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be permitted by
applicable law.

         10.     Entire Agreement.  This letter agreement  represents the entire
agreement and understanding of this parties concerning the subject matter
hereof, and supersedes all other prior agreements, understandings, negotiations
and discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.

         11.     Successors and Assigns.  This letter agreement may not be
assigned by Richemont without the prior written consent of Lender, which consent
Lender shall not unreasonably withhold in its good faith judgment, and shall be
binding upon Richemont and its successors and assigns and shall inure to the
benefit of Lender and its successors, endorsees, transferees and assigns.
Lender may only transfer and assign its rights hereunder in connection with an
assignment of its interests under, and in accordance with, the Loan Agreement so
long as in the event of the transfer or assignment of such interests to more
than one person, all of such transferees and assignees shall have appointed a
single agent to be responsible for the administration of the arrangement of such
transferees or assignees with Richemont hereunder. Nothing contained herein
shall be construed to limit or affect the right of Lender to sell any
participations in the financing arrangements of Lender with Borrowers.  In the
event of any such assignment, the Lender shall provide to Richemont a copy of
the assignment agreement, together

                                     - 6 -
<PAGE>   7
with evidence of the duly authorized signatories of such assignee who are
authorized to provide the notices to be given to Richemont under Section 1
hereof.  The liquidation, dissolution or termination of Richemont shall not
terminate this letter agreement as to such entity or as to Richemont.

         12.     Construction.  All references to the term "Richemont" wherever
used herein shall mean Richemont and its successors and assigns (including,
without limitation, any receiver, trustee or custodian for Richemont or any of
its assets or Richemont  in its capacity as debtor or debtor-in-possession under
the United States Bankruptcy Code).  All references to the term "Lender"
wherever used herein shall mean Lender and its successors and assigns and all
references to the term "Borrowers" wherever used herein shall mean Borrowers and
their respective successors and assigns (including, without limitation, any
receiver, trustee or custodian for any Borrower or any of its assets or any
Borrower in its capacity as debtor or debtor-in-possession under the United
States Bankruptcy Code).  All references to the term "Person" or "person"
wherever used herein shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.  All references to the plural shall also mean the singular
and to the singular shall also mean the plural.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 7 -
<PAGE>   8
         13.     Counterparts.  This letter agreement may be executed in any
number of counterparts, but all of such counterparts shall together constitute
but one and the same agreement.  Making proof of this agreement shall not be
necessary to produce or to account for more than one counterpart thereof signed
by each of the parties hereto.

                                            Very truly yours,

                                            RICHEMONT FINANCE, S.A.

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

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

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

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

AGREED:

CONGRESS FINANCIAL CORPORATION

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

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

ACKNOWLEDGED AND AGREED

HANOVER DIRECT PENNSYLVANIA, INC.

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

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

BRAWN OF CALIFORNIA, INC.

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

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

GUMP'S BY MAIL, INC.

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

Title: PRES
       -----------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]

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

GUMP'S CORP.

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

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

LWI HOLDINGS, INC.

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

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

HANOVER DIRECT VIRGINIA INC.

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

Title: PRES
       -----------------------

TWEEDS, LLC

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

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

SILHOUETTES, LLC

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

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

HANOVER COMPANY STORE, LLC

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

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

DOMESTICATIONS, LLC

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

Title: PRES
       -----------------------

                       [SIGNATURES CONTINUE ON NEXT PAGE]

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

HANOVER REALTY, INC.

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

Title: PRES
       -----------------------

THE COMPANY STORE FACTORY, INC.

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

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

THE COMPANY OFFICE, INC.

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

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

KEYSTONE INTERNET SERVICES, INC.

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

Title: PRES
       -----------------------

                                     - 10 -
<PAGE>   11
                                   SCHEDULE A
                                       TO
                      RICHEMONT $10,000,000 CALL AGREEMENT

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

To Richemont:                    Richemont Finance S.A.
                                 35 Boulevard Prince Henri
                                 L 1724 Luxembourg
                                 Attention:  General Manager
                                 Telecopier: 011-352-22-4219
                                 Telephone: 011-352-22-4210

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

                                          and

                                 Robert P. Wessely, Esq.
                                 Dorsey & Whitney
                                 250 Park Avenue
                                 New York, New York 10036
                                 Telecopier: 212-953-7201
                                 Telephone: 212-415-9200

                                     - 11 -

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