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                                                                    EXHIBIT 10.1

                                 GENERAL RELEASE
                             AND COVENANT NOT TO SUE

      THIS GENERAL RELEASE AND COVENANT NOT TO SUE (hereinafter referred to as
the "Agreement"), made as of this 5th day of May, 2004, by and between Thomas C.
Shull ("Mr. Shull"), residing at 28 Leeward Lane, Riverside, Connecticut 06878,
and Hanover Direct, Inc., with a principal place of business at The Hudson River
Pier, 115 River Road, Edgewater, New Jersey 07020 (the "Company").

      WHEREAS, the Company and Mr. Shull are parties to an Employment Agreement
dated as of September 1, 2002, as amended (the "Employment Agreement");

      WHEREAS, notwithstanding the terms of the Employment Agreement, Mr.
Shull's employment with the Company shall terminate effective May 5, 2004 and
Mr. Shull has conditionally resigned from the Board of Directors of the Company
effective such date (the "Termination Date"); and

      WHEREAS, the Company and Mr. Shull (the "parties") seek to dispose fully
and finally of all issues which now exist or may arise between the parties from
the commencement of Mr. Shull's relationship with the Company to the date of
execution of this Agreement.

      NOW, THEREFORE, in consideration of the above recitals and in further
consideration of the mutual promises and covenants set forth below, the parties
hereto, intending to be legally bound, hereby agree as follows:

      1.    Termination and Termination Benefits. Mr. Shull's employment with
the Company shall terminate effective the Termination Date and Mr. Shull shall
unconditionally resign from the Board of Directors of the Company effective such
date. The Company and Mr. Shull acknowledge, confirm and agree that (i) the
termination of Mr. Shull's employment with the Company is by resignation
following mutual discussion and agreement; and (ii) the termination of Mr.
Shull's employment with the Company is not "For Cause" or "For Good Reason" as
such terms are defined in the Employment Agreement. As consideration for Mr.
Shull's agreement to be bound by the terms of this Agreement and in full and
final settlement of all potential claims by Mr. Shull against the Company,
including but not limited to claims arising under the Hanover Direct, Inc. Key
Executive Eighteen Month Compensation Continuation Plan and the Employment
Agreement, dated as of September 1, 2002, as amended, the Company agrees:

            (a) to pay to Mr. Shull the sum of $900,000 ("Severance"), as
provided in clause (c) below;

            (b) for a period of eighteen (18) months from and after the
Effective Date, to pay the cost of continuing Mr. Shull's group health and
dental benefits under COBRA and Exec-U-Care plan coverage ("Benefits
Continuation" and together with Severance, "Termination Benefits");

            (c) The Severance shall be paid in multiple installments, the first
installment in the amount of $300,000 to be paid on the Effective Date of this
Agreement and the remaining

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amount of $600,000 to be payable in 16 installments of $35,625 payable every two
weeks commencing May 21, 2004 with a final payment in the amount of $30,000 to
be payable on or about December 31, 2004. The Benefits Continuation shall
commence in the month following the Effective Date of this Agreement. The
Termination Benefits shall be subject to all applicable federal, state and local
withholding taxes and deductions and the Company has no express or implied
obligation or duty to "gross-up" Mr. Shull for any of such tax or other payments
that are the obligation of Mr. Shull; and

            (d) If any Severance pay described in paragraph 1(c) is not made on
or before the date due, Mr. Shull shall provide written notice by facsimile to
the President of the Company (facsimile no. 201-272-3465). If the failure to pay
is not cured within five (5) business days of receipt by the Company of such
notice, the entire unpaid balance of the $900,000 shall become due and owing
immediately.

      2.    No Other Monies or Benefits Due or Payable. The parties agree that,
except for the Termination Benefits and the reimbursement of previously
submitted out of pocket expenses, no other monies or benefits will be due,
become due or be paid to Mr. Shull by the Company, including without limitation,
under any plan, policy, program or agreement with the Company, including without
limitation the Employment Agreement, including without limitation, change in
control benefits, transaction bonus, severance pay, salary continuation,
incentive or bonus pay, profit sharing, commissions, notice pay, vacation pay,
attorneys' fees or costs.

      3.    General Release. In consideration for the promises herein, Mr. Shull
agrees to release, remise and forever discharge, and by these presents does, for
himself, his heirs, executors, administrators and assigns (collectively referred
to hereafter as "Releasors"), release, remise and forever discharge each of the
Company, its past and present and future parent and affiliate corporations,
partnerships and other entities, and their past and present and future
divisions, subsidiaries and related companies, partnerships and other entities,
and their successors and assigns, and the directors, officers, employees,
shareholders, agents, partners, advisors and representatives of each of them,
personally and as directors, officers, employees, shareholders, agents,
partners, advisors and representatives and all benefit plans of the Company and
the administrators of same (collectively referred to hereafter as the
"Releasees"), of and from all manner of action and actions, causes and causes of
action, sums of money, covenants, contracts, controversies, agreements,
promises, damages, claims and demands whatsoever, in law or in equity, which
Releasors ever had, may have had, now have or which they hereinafter can, shall
or may have, whether known or unknown, asserted or unasserted, suspected or
unsuspected, as a result of any act or omission which has occurred at any time
up to and including the date of Mr. Shull's execution of this Agreement,
including without limitation, claims, demands and causes of action under
federal, state or local law or regulation, including without limitation, any
rights to bring any demands, complaints, causes of action, claims and charges in
any forum, judicial, administrative or quasi-judicial, arising out of, involving
or related to any employment agreement, or other contract, side-letter,
resolution, promise, policy or understanding of any kind, whether written or
oral or express or implied, the right to bring any demands, complaints, causes
of actions, claims and charges arising under any federal, state or local human
or civil rights, wage, labor or employment law and/or regulation, including
without limitation, the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C.
Sec. 626, the Older Workers' Benefit

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Protection Act ("OWBPA"), 29 U.S.C. Sec. 626(f)(1), Title VII of the Civil
Rights Act of 1964, as amended, 42 U.S.C. Sec. 1983, Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. Sec. 1001, et seq., the
Rehabilitation Act of 1973, the Americans with Disabilities Act ("ADA"), 42
U.S.C. Sec. 12011, et. seq., the Family and Medical Leave Act ("FMLA"), and the
right to bring demands, complaints, causes of action, grievances, claims and
charges under any other federal, state or local law, statute, regulation or
decision, including laws that prohibit discrimination on the basis of sex or age
or disability or any claims for invasion of privacy, infliction of emotional
distress, assault, misrepresentation, battery or other common law claims, and
any claims, demands or causes of action for injunctive and declaratory relief,
breach of contract, wrongful discharge, compensation for lost wages and
benefits, emotional distress, compensatory and punitive damages and costs
including attorneys' fees, expenses and costs of litigation, and such other and
additional relief as may be appropriate.

      4.    Limited Release. In consideration for the promises herein, the
Releasees agree to release, remise and forever discharge, and by these presents
do, for themselves, their successors and assigns, release, remise and forever
discharge Releasors of and from all manner of action and actions, causes and
causes of action, sums of money, covenants, contracts, controversies,
agreements, promises, damages, claims and demands, in law or in equity, solely
related to (1) those matters brought before the Corporate Governance Committee
of the Board of Directors of the Company in December 2003, (2) actions of Mr.
Shull in his capacity as the CEO of the Company related or connected to asset
sales or prospective asset sales and financing and refinancing matters and the
process employed in connection therewith, including prospective redemptions, (3)
actions of Mr. Shull in his capacity as the CEO of the Company related to
existing litigation and administrative proceedings to which the Company is a
party, (4) actions of Mr. Shull in his capacity as the CEO of the Company in
supervision of operational matters, including treasury and accounting functions,
labor and employee relations and vendor and customer issues, and (5) actions of
Mr. Shull in his capacity as the CEO of the Company in connection with
transactions and relationships with the Company's majority stockholder and its
affiliates, including all communications connected or related thereto (excluding
any securities law filings), including without limitation, claims, demands and
causes of action under federal, state or local law or regulation, including
without limitation, any rights to bring any demands, complaints, causes of
action, claims and charges in any forum, judicial, administrative or
quasi-judicial.

      5.    Covenant Not to Sue. Releasors further covenant and agree that they
will forever forbear from pursuing any legal proceedings, administrative,
judicial or quasi-judicial, and they will not in any other way make or continue
to make any demands or claims against any of the Releasees based on actions or
omissions that occurred at any time up to and including the date of Mr. Shull's
execution of this Agreement. Releasees further covenant and agree that they will
forever forbear from pursuing any legal proceedings, administrative, judicial or
quasi-judicial, and they will not in any other way make or continue to make any
demands or claims against Releasors solely related to the matters and actions
described in clauses (1) through (5) of paragraph 4 above that occurred at any
time up to and including the date of the Company's execution of this Agreement.

      6.    Presently Unknown Claims. Mr. Shull acknowledges that (a) he may
subsequently discover facts in addition to or different from those that he now
believes to be true with respect to

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the claims or potential claims described above, and (b) that he may have
sustained or may yet sustain costs or expenses that are presently unknown and
that relate to those claims. Mr. Shull acknowledges, however, that he had
negotiated, agreed upon and entered into this Agreement in light of that
situation.

      7.    Mutual Nondisparagement. Mr. Shull agrees that he will not initiate
action to harm the Company's name and reputation or that of its officers,
directors, shareholders or agents and shall make no disparaging statements
orally or in writing concerning the Company based on Mr. Shull's association as
an employee or otherwise that occurred at any time up to and including the date
of Mr. Shull's execution of this Agreement except as required by law or legal
process. The Company agrees for itself and on behalf of its officers, directors,
shareholders and agents that they will not initiate action to harm Mr. Shull's
name and reputation and shall make no disparaging statements orally or in
writing concerning Mr. Shull based on the Company's association as an employer
or otherwise that occurred at any time up to and including the date of the
Company's execution of this Agreement except as required by law or legal
process.

      8.    No Assistance. Mr. Shull agrees that he shall not solicit,
encourage, assist or participate in claims or litigation against the Releasees
in any forum by any individual or entity, including any governmental or
administrative agency or authority, except by subpoena or other court order or
as required by law.

      9.    Survival. Notwithstanding anything contained in this Agreement to
the contrary, this Agreement is in no way intended to and in no way shall effect
the validity or enforceability of the Indemnity or Confidentiality provisions of
the Employment Agreement or any provision of the General Release dated November
30, 2003 from Chelsey Direct, LLC to the Company and its officers and others
benefiting Mr. Shull, which shall both specifically survive the termination of
Mr. Shull's employment with the Company and shall not be superceded or modified
or deemed to be superceded or modified in any respect by this Agreement;
provided that, other than the Indemnity and Confidentiality provisions of the
Employment Agreement and those provisions of the Employment Agreement relating
to stock options, the balance of the Employment Agreement shall be terminated as
of the Termination Date.

      10.   Cooperation. Following the Termination Date, Mr. Shull agrees:

            (a) To make himself available for a maximum of five business days
per year for eighteen months from the date of this Agreement to respond to all
reasonable inquiries by the Company, its management, employees, agents,
attorneys, representatives and advisors regarding all matters associated with
his employment at the Company including, without limitation, his prior
responsibilities, and all the processes and procedures of which he acquired
knowledge while employed by the Company. In this regard, the parties acknowledge
and agree that in providing such responses Mr. Shull shall not be required to be
present at the Company's offices on a regular basis, but Mr. Shull agrees to
make himself available at reasonable times to meet by phone with the Company or
its employees, agents, representatives and advisors. The Company shall reimburse
Mr. Shull for any reasonable and necessary expenses he incurs in fulfilling this
obligation. For purposes of this section, any phone discussion or appearance by
Mr. Shull for any period of time in excess of one hour on any business day shall
count as participation for a full business day.

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            (b) To make himself available for a maximum of five additional
business days per year for eighteen months from the date of this Agreement
without the requirement of being subpoenaed to confer with counsel by phone upon
reasonable notice concerning any knowledge he had or may have with respect to
actual and/or potential disputes arising out of the activities of the Company
during his period of employment by the Company. The Company shall reimburse Mr.
Shull for any reasonable and necessary expenses he incurs in fulfilling this
obligation. For purposes of this section, any phone discussion or appearance by
Mr. Shull for any period of time on any business day in excess of one hour shall
count as participation for a full business day.

            (c) To submit to deposition and/or testimony and/or participate in
an investigation by any government agency in accordance with the laws of the
forum involved concerning any knowledge he has or may have with respect to
actual and/or potential disputes or issues arising out of the activities of the
Company during his period of employment by the Company. The Company shall
reimburse Mr. Shull for any reasonable and necessary expenses he incurs in
fulfilling this obligation.

      11.   Confidentiality. Mr. Shull agrees and covenants that the contents of
this Agreement shall remain confidential and shall not be discussed with or
divulged to any entity or entities, person or persons, including but not limited
to employees or former employees of the Company; provided, however, that Mr.
Shull may disclose the content of this Agreement: (a) to members of his
immediate family and his legal, financial and personal advisors (provided such
individuals agree not to divulge it) and (b) to the extent he is required or
compelled by law to disclose this Agreement or its contents. Mr. Shull
acknowledges, confirms and agrees that the Company may be required by disclose
the content of this Agreement and to file a copy of this Agreement with the
Securities and Exchange Commission pursuant to applicable securities laws.

      12.   Acknowledgement of Full and Final Release. Mr. Shull further
represents that except for the obligations expressly provided herein, he
understands and agrees that by his execution of this Agreement, he has fully and
finally released all of his claims of every nature and kind against the
Releasees whether known or unknown, asserted or unasserted, suspected or
unsuspected, including punitive damages, claims for attorneys' fees, expenses
and costs of litigation.

      13.   Attorneys' Fees. In the event either party proves that the other
party has breached this Agreement, the breaching party will be responsible to
pay all reasonable attorneys' fees and costs incurred by the non-breaching party
in connection with its enforcement of this Agreement or related to the breach
thereof.

      14.   Breach. Mr. Shull agrees that in the event he breaches (or threatens
to breach) or otherwise violates any material term or condition of paragraphs 7,
9 (to the extent it incorporates by reference the Confidentiality provisions of
the Employment Agreement) or 11 of this Agreement, the Company shall be entitled
to obtain in a court of competent jurisdiction a temporary or permanent
injunction enjoining and restraining him from committing, continuing to commit
or threatening to commit any such violation or breach.

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      15.   Review Period. Mr. Shull shall have up to twenty-one (21) days
within which to review and consider this Agreement. In the event Mr. Shull fails
to execute this Agreement and deliver same to the Company prior to the
expiration of such twenty-one (21) day period, this Agreement and the terms
offered herein shall automatically terminate and be deemed revoked for all
purposes.

      16.   Revocation Period. Mr. Shull shall have up to seven (7) days
following his execution of this Agreement within which to revoke it. If he
chooses to revoke this Agreement, he must notify Lisa Green, Company Counsel,
Hanover Direct, Inc., 1500 Harbor Boulevard, Weehawken, New Jersey 07087, in
writing on or before the seventh day following the execution of this Agreement
and state "I hereby revoke my acceptance of the Agreement." In the event this
Agreement is revoked pursuant to this Paragraph, Mr. Shull shall not be eligible
to nor shall he receive any of the Termination Benefits described in Paragraph 1
hereof and all of the terms and provisions of this Agreement shall be null and
void and each of the parties to this Agreement shall have all of the rights and
remedies available to it under the Employment Agreement or otherwise. In the
event this Agreement is not revoked in the manner set forth herein, it shall
become final and binding on the 8th day following Mr. Shull's execution of this
Agreement (the "Effective Date").

      17.   Severability. Mr. Shull specifically acknowledges that he has
considered carefully all of the covenants outlined above and intends that each
covenant shall be enforced fully in accordance with its terms. However, if, in
any judicial proceeding, a court shall determine that such covenants are
unenforceable for any reason, then the parties intend that such covenants shall
be deemed to be limited in such manner as the court may determine to permit
enforceability by such court and the remainder of this Agreement shall remain
enforceable as executed.

      18.   Governing Law and Jurisdiction. This Agreement shall be governed by
and construed under the laws of the State of New York. The parties agree to
submit to the jurisdiction of state and federal courts in New York for the
purposes of enforcing and/or resolving any disputes arising under this
Agreement.

      19.   Entire Agreement. This Agreement constitutes the full and complete
understanding between the parties. There are no other agreements or
understandings, either oral or in writing, which are not reflected in this
Agreement. Mr. Shull warrants and agrees that the Company has not made any other
agreement, promise or assurance, except those expressed in this document, to
induce or persuade Mr. Shull to enter into this Agreement.

      20.   No Modification. This Agreement shall not be modified or discharged,
in whole or in part, except by agreement in writing signed by the parties
hereto.

      21.   No Liability. It is understood and agreed that this Agreement is not
to be construed as an admission of liability by the Company.

      22.   Counterparts. This Agreement may be signed in counterparts.

      23.   Notice Under the OWBPA. Mr. Shull represents that he has executed
this Agreement knowingly and voluntarily. In particular, he represents that:

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            a.    He is able to read the language, and understand the meaning
                  and effect, of this Agreement;

            b.    He has been advised in writing to consult with an attorney
                  prior to signing this Agreement;

            c.    He understands that he is waiving any right he may have to
                  bring a claim against the Company under the Age Discrimination
                  in Employment Act;

            d.    He has had or could have had up to twenty-one (21) days to
                  review and consider this Agreement and that, if he has
                  executed it prior to the expiration of the 21-day period, he
                  has done so of his own free will and without any duress or
                  compulsion; and

            e.    He understands that he has seven (7) days following execution
                  of this Agreement within which to revoke it.

                       [SIGNATURES ON THE FOLLOWING PAGE]

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Agreed:

                                            Hanover Direct, Inc.

/s/ Thomas C. Shull                         By: /s/ Wayne P. Garten
-------------------                             --------------------------------
Thomas C. Shull                                 Name:  Wayne P. Garten
                                                Title: President and Chief
                                                       Executive Officer

Date: May 11, 2004                               Date: May 11, 2004

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