<PAGE>   1
                                                                     EXHIBIT 10F
                     SEVERANCE AGREEMENT AND GENERAL RELEASE

        This AGREEMENT is made between BASSETT FURNITURE INDUSTRIES, INC., and
its affiliates, subsidiaries and predecessors (referred to herein, collectively
and individually, as "Company") and DOUGLAS W. MILLER ("Miller").

A.      REASONS FOR AGREEMENT

        1.      Miller is being separated from his employment with the Company
effective January 31, 1999.

        2.      The Company has agreed to provide certain additional benefits to
Miller for the consideration from Miller specified below.

B.      AGREEMENT

        For and in consideration of the mutual promises and commitments
specified herein, the parties agree as follows:

1.      Special Severance Package. The Company agrees to provide Miller with the
following benefits, which are referred to as the "Special Severance Package."
The Special Severance Package includes, but also contains benefits over and
above, those benefits, if any, normally provided by Company policy.
Notwithstanding the Special Severance Package, Miller shall be deemed to have
become separated from his employment with and to have ceased to be an employee
of Company on January 31, 1999.

        (a)     Miller shall receive payment at his current salary for the full
twelve months of February, 1999 through and including January, 2000 (i.e.,
$9,750.00, less pre-tax deductions for health insurance coverage and deductions
or withholdings for state and federal taxes, social security, etc., on or about
the last day of February, 1999 and each month thereafter until and including the
last day of January, 2000). During the severance period, the Company shall
permit Miller to receive health insurance coverage at Miller's expense for
himself and any of Miller's dependents as are currently covered at the same
premium rates as are charged to employees. The Company also agrees that the
executive supplemental health insurance plan shall remain in effect for Miller
during the severance period (i.e., through January, 2000).

        (b)     The qualifying event concerning Miller's rights under the
Consolidated Omnibus Budget Reconciliation Act, 29 U.S.C. Section 1161, et seq.
("COBRA") shall be January 31, 1999.

        (c)     The Company shall accept Miller's resignation effective as of
January 31, 1999.

        (d)     Dividends for shares of restricted stock awarded by the Company
to Miller shall continue to be paid during the severance period, but such
restricted shares shall be forfeited at the end of the severance period. The
Company agrees that on or about the last day of January, 2000, provided that
there has been no default by Miller under this Agreement, the Company shall pay
to Miller an


                                       1
<PAGE>   2


additional severance payment of $79,145 (less withholdings or deductions for
state and federal taxes, social security, etc.). Options awarded by the Company
to Miller prior to 1998, which options have vested, shall continue to be
exercisable during the severance period and for a period of thirty (30) days
thereafter.

        (e)     In January, 1999, provided there is no breach of this Agreement
by Miller, the Company will pay to Miller such amount as Miller was scheduled to
receive for his 1998 fiscal year-end bonus. The payment will be a portion of the
$85,000 bonus potential, calculated in accordance with the prorated targets or
goals set for Miller for fiscal year 1998. Such portion shall be $43,860.

        (f)     The Company will provide six months of outplacement service for
Miller, with an outplacement service selected by the Company.

2.      General Release. In consideration for the Special Severance Package,
Miller agrees, for himself and his heirs, representatives, successors and
assigns, that he has been finally and permanently separated from employment with
the Company, and that he waives, releases and forever discharges the Company,
its current and former owners, shareholders, directors, officers, employees and
agents, from any and all claims, known or unknown, that he has or may have
against the Company, relating to or arising out of his employment with the
Company and his separation thereof, or otherwise, including but not limited to
any claims of wrongful discharge, breach of express or implied contract,
liability in tort, claims of any kind that may be brought in any court or
administrative agency, any claims under Title VII of the Civil Rights Act of
1964, as amended, the 1991 Civil Rights Act, the Americans With Disabilities
Act, the Age Discrimination in Employment Act, the Employee Retirement Income
Security Act, the Fair Labor Standards Act, or any other federal, state or local
law relating to, or arising out of Miller's employment with the Company and his
separation thereof.

3.      Special Release Notification. The General Release, paragraph B.2,
includes a release of all claims under the Age Discrimination in Employment Act
("ADEA") and, therefore, pursuant to the requirements of the ADEA, Miller
acknowledges that he has been advised: (i) that this release includes, but is
not limited to, all claims under the ADEA arising up to and including the date
of execution of this release; (ii) to consult with an attorney and/or other
advisor of his choosing concerning his rights and obligations under this
release; (iii) to fully consider this release before executing it and that he
has been offered ample time and opportunity, in excess of 21 days, to do so; and
(iv) that this release shall become effective and enforceable 7 days following
execution of this Agreement, during which 7-day period Miller may revoke his
acceptance of this Agreement by delivering written notice to Steven P.
Rindskopf, Vice President-Administration & Human Resources, Bassett Furniture
Industries, Inc., 3525 Fairy Stone Park Highway, P.O. Box 626, Bassett, Virginia
24055, with a copy to Jay R. Hervey, General Counsel, Bassett Furniture
Industries, Inc., 3525 Fairy Stone Park Highway, P.O. Box 626, Bassett, Virginia
24055.

4.      Non-Disclosure. Miller agrees that the terms of this Agreement and his
Special Severance Package are confidential, and agrees not to disclose the terms
or amount thereof to any person other than his attorney, income tax preparer or
similar professional. To the extent that he discloses this information, Miller
agrees to instruct such professional that this information is to be kept
confidential.

                                       2

<PAGE>   3

5.      Cooperation. Miller agrees that he will continue to cooperate with the
Company by projecting a positive attitude toward the Company, its customers and
employees, and its products. Miller represents that he has returned or
concurrently with his execution and delivery of this Agreement is returning to
the Company any and all computers (other than a laptop with docking station,
keyboard and monitor, with licenses to use software thereon, which Miller will
retain), equipment, records, documents and correspondence now or previously in
his possession which belong to the Company or that relate in any way to his
employment with the Company.

6.      No Admission. It is understood and agreed that the Company admits no
liability to Miller whatsoever, whether for the Special Severance Package
provided herein or otherwise, or for any other benefits other than those, if
any, provided by Company policy; provided that the foregoing statement shall not
be construed to relieve the Company of its obligations and undertakings
contained in this Agreement. The Company has entered into this Agreement solely
for the purpose of maintaining an amicable and cooperative relationship between
Miller and the Company.

7.      Successors and Assigns. This Agreement shall be binding upon Miller, his
heirs, representatives, successors, and assigns and the Company's successors and
assigns.

8.      Entire Agreement. The parties understand and agree that all terms of
this Agreement are contractual and are not a mere recital. Miller represents and
warrants that, in negotiating and executing this Agreement, he has had an
adequate opportunity to consult with competent counsel or other representatives
of his choosing concerning the meaning and effect of each term and provision
hereof, and that there are no representations, promises or agreements other than
those expressly set forth in writing herein. The parties have carefully read
this Agreement in its entirety, fully understand and agree to its terms and
provisions, and intend and agree that it is final and binding.

        IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed this Agreement as of the 31st day of January, 1999.

                                       /s/ Douglas W. Miller


                                       /s/ BASSETT FURNITURE INDUSTRIES, INC.



                                       3