<PAGE>
Exhibit 10.1


                               SERVICES AGREEMENT


        This Services Agreement (this "Agreement") is made as of the first day
of August, 2001 by and among: (i) Meridian Ventures, LLC, a Nevada limited
liability company controlled by Thomas C. Shull ("Meridian"), and Thomas C.
Shull ("Shull"), jointly and severally; and (ii) Hanover Direct, Inc. (the
"Company"), a Delaware corporation.

                1.      Provision of Services. Meridian shall provide for the
        benefit of the Company the services of Shull and the services of up to
        two additional consultants (the "Consultants") who shall provide
        services equivalent to those which would be provided by up to two
        full-time consultants. In connection therewith, Shull shall serve as the
        President and Chief Executive Officer (the "President/CEO") and as a
        member of the Company's Board of Directors (the "Board of Directors"),
        its Executive Committee (the "Executive Committee") and its Nominating
        Committee (the "Nominating Committee").

                2.      Responsibilities. The President/CEO shall act and serve
        during the term of this Agreement as the President and Chief Executive
        Officer of the Company and shall report to the Board of Directors. The
        employment responsibilities of the President/CEO will include those
        normally held by the president and chief executive officer of a
        corporation of a similar size and nature to the Company. The
        President/CEO shall devote his full-time efforts (which shall mean an
        average of 50 hours per work week, excluding reasonable vacation,
        personal, sick time or de minimus non-conflicting time for Meridian) in
        connection with his role as President, Chief Executive Officer and
        member of the Executive and Nominating Committees. All employees and
        officers shall report directly or indirectly to the President/CEO.

                3.      Term. Subject to paragraph 6, the term of this Agreement
        (the "Agreement Term") and the term for services of Shull and the
        Consultants shall commence as of August 1, 2001 and shall terminate on
        June 30, 2002; provided, however, that, on or prior to May 1, 2002, the
        Company may extend the Agreement Term on a day to day basis upon written
        notice to Shull provided that thereafter either party may terminate the
        Agreement and the Agreement Term with 60 days notice to the other party.

                4.      Compensation. The following compensation shall be
        payable pursuant to this Agreement:

                (a)     In consideration for providing the services of Shull as
                        President/CEO and the services of the Consultants,
                        during the Agreement Term, Meridian shall receive, in
                        addition to the other consideration provided in this
                        Agreement, compensation at the rate of $75,000 per month
                        for the services of Shull and up to an additional
                        $60,000 per month for the aggregate services of the
                        Consultants payable in advance during the first week of
                        each month (the "Base Fee").

                (b)     The compensation payable to Meridian under this
                        Agreement is in consideration for the services of Shull
                        and services of the Consultants. To



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                        the extent permitted by applicable law, and except as
                        otherwise provided herein, the Company shall not be
                        obligated to provide Shull or any Consultant (and
                        Meridian, Shull and Meridian on behalf of each other
                        Meridian employee serving hereunder as a Consultant
                        specifically decline) any employee benefits (for
                        example, health, 401K, pension, or other benefits
                        provided by the Company to its employees, etc.) under
                        this Agreement; provided, however, that the Company has
                        extended the benefits of its Key Executive Eighteen
                        Month Compensation Continuation Plan effective as of
                        April 25, 2001, as amended (the "Change of Control
                        Plan"), and its transaction bonus program (each as
                        referred to in Exhibit 1) to Shull. Notwithstanding the
                        foregoing, the Company will allow Shull during the
                        Agreement Term to avail himself of any Company employee
                        discount offered to other employees generally. In
                        addition, the Company has guaranteed to Shull a target
                        bonus for fiscal 2001 pursuant to the Company's 2001
                        Management Incentive Plan equal to $300,000 which shall
                        be payable in one lump sum on or about April 1, 2002 (or
                        on the date of closing of any transaction which
                        constitutes a Change of Control (as hereinafter
                        defined), if earlier) so long as Shull is providing
                        services to the Company hereunder on December 29, 2001
                        (or on the date of closing of such a transaction, if
                        earlier). Shull shall be eligible to receive a maximum
                        bonus for fiscal 2001 pursuant to the Company's 2001
                        Management Incentive Plan equal to up to $600,000
                        (including the target bonus described in the previous
                        sentence) which shall be payable as set forth in the
                        previous sentence if he achieves the maximum goals set
                        for him by the Board of Directors (as set forth on
                        Exhibit 2 hereto).

                (c)     In addition to the payments required by paragraph 4(a),
                        during the Agreement Term the Company shall pay Meridian
                        a flat fee of up to $21,000 per month, which shall
                        represent 20% of the comparable compensation in
                        paragraph 4(a) for Shull and 10% of the comparable
                        compensation in paragraph (4)(a) for the Consultants and
                        is deemed to cover Meridian over-head (including legal
                        and accounting), health care costs, payroll costs, and
                        other expenses (the "Flat Fee"). If, notwithstanding
                        paragraph 4(b), applicable law requires the Company to
                        provide Shull or any Consultants with any employee
                        benefits (other than the Company employee discount given
                        Shull), the value of such benefits shall be offset
                        against the Flat Fee.

                (d)     The Company shall reimburse Meridian for the reasonable
                        out-of-pocket expenses of the President/CEO and any
                        Consultants (such as travel, meals, communications and
                        lodging) which are incurred during the Agreement Term on
                        behalf of the Company on appropriate business. Meridian
                        shall submit invoices and documentation for such
                        reimbursable expenses on a monthly basis, and the
                        Company shall process payment of the same upon receipt
                        in accordance with its customary procedures.

                (e)     The Company shall provide a personal secretary to be
                        interviewed and selected by Shull to assist Shull in the
                        performance of his duties as



                                       2
<PAGE>

                        President/CEO during the Agreement Term. The secretary
                        shall be employed by the Company at its cost.

                (f)     The Company shall promptly reimburse Meridian and Shull
                        for their reasonable legal fees in the event that either
                        of them shall consult with their counsel during the
                        Agreement Term in connection with their fiduciary
                        responsibilities to the Company under the Agreement,
                        provided that such fees shall not without the prior
                        written approval of the Executive Committee (which shall
                        not be unreasonably withheld) exceed $20,000 (except
                        that such $20,000 cap shall not limit the fees payable
                        pursuant to paragraph 8 hereof).

                (g)     The Consultants shall have the right to accept another
                        engagement during the Agreement Term, provided such
                        engagement does not lessen the ability of Meridian and
                        Shull to perform their services hereunder or conflict
                        with the obligations of Meridian and Shull hereunder or
                        present a conflict of interest with respect to the
                        Company. Neither paragraph 2 nor any of the preceding
                        subparagraphs of this paragraph 4 will be affected by
                        this right given to the Consultants.

                (h)     Upon the closing of any transaction which constitutes a
                        "Change of Control" (as defined in paragraph 5),
                        provided that Shull is then employed by the Company, the
                        Company shall make a lump sum cash payment to Meridian
                        on the date of such closing of $900,000 pursuant to the
                        Change of Control Plan, $300,000 pursuant to the
                        transaction bonus program and at least $300,000 in
                        target bonus (plus any amount of maximum bonus) payable
                        pursuant to the Company's 2001 Management Incentive Plan
                        as described in paragraph 4(b) . The lump sum cash
                        payment referred to in this paragraph 4(h) shall be in
                        lieu of any cash payment pursuant to paragraph 6(b)(iii)
                        as a result of a termination of this Agreement pursuant
                        to paragraph 6(a)(v) and in lieu of the aggregate amount
                        of Base Fees and Flat Fees to which Meridian would have
                        otherwise been entitled through the end of the Agreement
                        Term.

                5.      Stock Options. Pursuant to paragraph 5 of the Services
        Agreement made as of December 5, 2000 by and among Meridian, Shull and
        the Company (the "Prior Services Agreement"), the Company granted Shull
        and the Consultants stock options (the "Options") for an aggregate four
        million (4,000,000) shares of the common stock of the Company (the
        "Shares"). All Shares underlying the Options shall be registered by the
        Company utilizing a Registration Statement on Form S-8 (or other similar
        form) prior to December 4, 2001. All Options shall terminate upon any
        termination of the Agreement pursuant to paragraph 6(a)(i) or 6(a)(iv).
        All outstanding Options shall vest and become exercisable upon any
        termination of the Agreement pursuant to paragraph 6(a)(ii), 6(a)(v) or
        6(a)(vi). Further, and notwithstanding anything to the contrary
        contained herein, provided that this Agreement shall then be in effect,
        one-half (1/2) of Shull's Options and all of the Consultants' Options
        shall vest and become exercisable on December 4, 2001, and Shull's
        remaining Options shall vest and become exercisable, provided that this
        Agreement shall then be in effect, on June 30, 2002. In addition, and
        notwithstanding



                                       3
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        anything to the contrary contained herein, all of the Options shall vest
        and become exercisable upon the earliest to occur of (i) Shull's
        resignation "For Good Reason" (as defined below), (ii) the Company's
        termination of Shull's services hereunder without being "For Cause" (as
        defined below), (iii) a "Change of Control" (as defined below), or (iv)
        the expiration of the Agreement Term. Options which vest and become
        exercisable pursuant to this paragraph 5 shall remain exercisable for a
        3-year period (or the date of their earlier exercise). In the event of a
        vesting resulting from a termination of the Agreement pursuant to
        paragraph 6(a)(v), such vesting shall take place sufficiently in advance
        of such termination (but subject to its occurrence) to permit each
        optionee to take all steps reasonably necessary to exercise his Options
        and to deal with the Shares purchased under the Options so that those
        Shares may be treated in the same manner in connection with the
        transaction described in paragraph 6(a)(v) as the Shares of other
        shareholders.

               For purposes of this Agreement, the following terms shall have
        the following meanings:

               "For Good Reason" shall mean the voluntary termination by Shull
        of his employment with the Company on account of any of the following
        actions: (i) a substantial and material diminution of Shull's duties or
        responsibilities for the Company, (ii) a material and substantial
        diminution of Shull's base salary or any long-term incentive opportunity
        (each as in effect as of the first day of the Agreement Term), (iii) the
        Company's requiring Shull to regularly report to work at a facility that
        is more than 30 miles from the facility at which Shull regularly
        reported as of the first day of the Agreement Term, (iv) decisions or
        actions by the Board of Directors, committees or individual members of
        the Board that materially impede Shull's ability to take actions to
        increase value for all shareholders of the Company, (v) the failure of
        the Company to provide Shull with the number of paid vacation days to
        which he would otherwise be entitled in accordance with the vacation
        policy of the Company, or (vi) any action by the Company that adversely
        affects in a material way Shull's participation in or materially reduces
        Shull's benefits under any of such of the Company's employee benefit or
        compensation plans; provided, however, that in all cases, in order to
        terminate his employment with the Company For Good Reason, Shull must
        notify the Company in writing that Good Reason exists within 60 days of
        his knowledge of the event or events constituting Good Reason. The
        Company shall thereafter have 30 days within which to cure Shull's
        otherwise Good Reason (the "Cure Period"). Unless Shull's Good Reason is
        cured during the Cure Period, his termination For Good Reason shall
        become effective on the first business day following the conclusion of
        the Cure Period.

               "For Cause" shall mean the involuntary termination of Shull's
        employment with the Company on account of his (i) willful and continued
        failure to perform his regular duties for the Company, (ii) commission
        of an act of fraud relating to and adversely affecting the Company, or
        (iii) conviction of a felony in connection with his employment with the
        Company.

               "Change of Control" shall mean the first to occur of any of the
        events described in clauses (i) through (iii) below, following the first
        day of the Agreement Term:



                                       4
<PAGE>

                (i)     When any Person becomes, through an acquisition, the
        beneficial owner of shares of the Company having at least 50% of the
        total number of votes that may be cast for the election of directors of
        the Company (the "Voting Shares"); provided, however, that the following
        acquisitions shall not constitute a Change of Control:

                        (A)     if a Person owns less than 50% of the voting
        power of the Company and that Person's ownership increases above 50%
        solely by virtue of an acquisition of stock by the Company, then no
        Change of Control shall have occurred, unless and until that Person
        subsequently acquires one or more additional shares representing voting
        power of the Company; or

                        (B)     any acquisition by a Person who as of the first
        day of the Agreement Term owned at least 33% of the Voting Shares.

                (ii)(A) Notwithstanding the foregoing, a Change of Control will
        occur when the shareholders of the Company approve any of the following
        (each, a "Transaction"):

                        (I)     any reorganization, merger, consolidation or
        other business combination of the Company;

                        (II)    any sale of 50% or more of the market value of
        the Company's assets (for this purpose, said 50% amount shall be deemed
        to be $107.6 million); or

                        (III)   a complete liquidation or dissolution of the
        Company.

                (B) Notwithstanding clause (ii)(A) above, shareholder approval
        of either of the following types of Transactions will not give rise to a
        Change of Control:

                        (I)     a Transaction involving only the Company and one
        or more of its subsidiaries; or

                        (II)    a Transaction immediately following which the
        shareholders of the Company immediately prior to the Transaction
        continue to have a majority of the voting power in the resulting entity.

                (iii)   When, within any 24 month period, persons who were
        directors of the Company (each, a "Director") immediately before the
        beginning of such period (the "Incumbent Directors") shall cease (for
        any reason other than death or disability) to constitute at least a
        majority of the Board of Directors or the board of directors of any
        successor to the Company. For purposes of this clause (iii), any
        Director who was not a Director as of the first day of the Agreement
        Term shall be deemed to be an Incumbent Director if such Director was
        elected to the Board of Directors by, or on the recommendation of, or
        with the approval of, at least a majority of the members of the Board of
        Directors or the Nominating Committee who, at the time of the vote,
        qualified as Incumbent Directors either actually or by prior operation
        of this clause (iii), and any persons (and their successors from time to
        time) who are designated by a holder of 33%



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        or more of the Voting Shares to stand for election and serve as
        Directors in lieu of other such designees serving as Directors on the
        first day of the Agreement Term shall be considered Incumbent Directors.
        Notwithstanding the foregoing, any director elected to the Board of
        Directors to avoid or settle a threatened or actual proxy contest shall
        not, under any circumstances, be deemed to be an Incumbent Director.

                6.      Termination. The following provisions shall relate to
        the termination of this Agreement:

                (a)     The Agreement, the Agreement Term, the term for services
                        of Shull and the engagement of Meridian and Shull
                        hereunder will terminate upon the first to occur of the
                        following: (i) the tenth day after written notice by the
                        Company to Meridian and Shull with respect to any
                        material breach by Meridian or Shull of the terms of
                        this Agreement or Willful Misconduct (as defined below)
                        committed by Meridian or Shull; (ii) the tenth day after
                        written notice by Meridian and Shull to the Company that
                        the Company is in material breach of this Agreement;
                        (iii) the expiration of the Agreement Term; (iv) the
                        death or permanent disability of Shull; (v) the first
                        day after the acquisition of the Company (whether by
                        merger or the acquisition of all of its outstanding
                        capital stock) or the tenth day after the sale of 50% or
                        more of the market value of the Company's assets (for
                        this purpose, said 50% amount shall be deemed to be
                        $107.6 million); or (vi) the day the Company terminates
                        the engagement of Meridian and Shull when there has been
                        no Willful Misconduct or material breach of the
                        Agreement by either Meridian or Shull.

                (b)     The parties agree that Meridian and Shull will have been
                        unable to pursue alternative, profitable opportunities
                        in order to take on this engagement, that Meridian and
                        Shull would suffer substantial financial damage if
                        either party were to exercise its rights of termination
                        hereunder, and that the amount of damages to Meridian
                        and Shull would be difficult, if not impossible, to
                        calculate accurately. Accordingly, the parties agree
                        that if pursuant to this paragraph 6, Meridian, Shull or
                        the Company shall at any time cause this Agreement to
                        terminate or the Agreement shall otherwise terminate,
                        then the Company shall pay Meridian an amount as set
                        forth below. In the event of the termination of this
                        Agreement as provided in paragraph 6(a), Meridian shall
                        receive hereunder the Base Fee and the Flat Fee through
                        the end of the month in which the date of termination
                        has occurred, plus a termination payment as follows:

                                (i)     If the termination is pursuant to
                                        paragraph 6(a)(i) or 6(a)(iv) above, no
                                        amount shall be due and owing to
                                        Meridian;

                                (ii)    If the termination is pursuant to
                                        paragraph 6(a)(iii) above, Meridian
                                        shall be entitled to receive a lump sum
                                        payment equal to $600,000 in severance
                                        pay and at least $300,000 in target or
                                        maximum bonus pursuant to the Company's
                                        2001



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<PAGE>

                                        Management Incentive Plan as described
                                        in paragraph 4(b); or

                                (iii)   If the termination is pursuant to
                                        paragraph 6(a)(ii) or 6(a)(vi), Meridian
                                        shall be entitled to receive a lump sum
                                        payment equal to (A) the aggregate
                                        amount of Base Fees and Flat Fees to
                                        which it would have otherwise been
                                        entitled through the end of the
                                        Agreement Term plus (B) $600,000 in
                                        severance pay and at least $300,000 in
                                        target or maximum bonus pursuant to the
                                        Company's 2001 Management Incentive Plan
                                        as described in paragraph 4(b). If the
                                        termination is pursuant to paragraph
                                        6(a)(v) and the amount realized in the
                                        transaction described therein is less
                                        than $0.50 per Share (or the equivalent
                                        of $0.50 per Share), and if and only if
                                        the Change of Control Plan shall not
                                        then be in effect, Meridian shall be
                                        entitled to receive a lump sum payment
                                        equal to the aggregate amount of Base
                                        Fees and Flat Fees to which it would
                                        have otherwise been entitled through the
                                        end of the Agreement Term. If the
                                        termination is pursuant to paragraph
                                        6(a)(v) and the amount realized in the
                                        transaction described therein equals or
                                        exceeds $0.50 per Share (or the
                                        equivalent of $0.50 per Share), and if
                                        and only if the Change of Control Plan
                                        shall not then be in effect, Meridian
                                        shall be entitled to receive a lump sum
                                        payment equal to the greater of the
                                        aggregate amount of Base Fees and Flat
                                        Fees to which it would have otherwise
                                        been entitled through the end of the
                                        Agreement Term or the sum of $1,000,000.
                                        If the termination is pursuant to
                                        paragraph 6(a)(v) and the Change of
                                        Control Plan is then in effect, no
                                        amount shall be payable hereunder
                                        pursuant to either of the immediately
                                        preceding two sentences, and Shull shall
                                        be entitled to receive his benefit under
                                        the Change of Control Plan plus the
                                        other amounts described in paragraph
                                        4(h).

                (c)     The parties agree that the amounts established hereunder
                        are liquidated damages reasonable under the terms and
                        circumstances of this Agreement (but excluding amounts
                        due under paragraph 8 which shall continue to survive
                        the termination of this Agreement), the payment of which
                        shall fully satisfy and discharge any obligation of the
                        Company to pay (i) any further compensation under
                        paragraph 4 and (ii) any compensation for lost
                        opportunity costs incurred by Meridian or Shull as a
                        result of either party entering into this Agreement.

                (d)     In addition, upon termination of this Agreement for any
                        reason, the Company shall reimburse Meridian in
                        accordance with paragraph 4(d) for all reasonable
                        reimbursable expenses incurred by Meridian prior to the
                        time of termination.



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                (e)     Any amounts payable to Meridian pursuant to this
                        paragraph 6 shall be paid in a lump sum within five
                        business days after the termination date of this
                        Agreement; provided, however, that, if the party
                        receiving a notice pursuant to paragraph 6(a)(i) or
                        6(a)(ii) notifies the other party that a dispute exists
                        concerning the termination, then, for purposes of
                        paragraphs 5 and 6, the deemed date of termination of
                        this Agreement shall be the date on which the dispute is
                        finally resolved, either by mutual written agreement of
                        the parties or by a final judgment, order or decree of
                        an arbitrator or court of competent jurisdiction (which,
                        in either case, is not appealable or with respect to
                        which the time for appeal therefrom has expired and no
                        appeal has been perfected); provided further that the
                        date of termination of this Agreement shall be extended
                        by a notice of dispute only if such notice is given in
                        good faith and the party giving such notice pursues the
                        resolution of such dispute with reasonable diligence. To
                        the extent permitted by applicable law, any such dispute
                        and any other controversy arising under or in connection
                        with this Agreement, except (at the Company's election)
                        a dispute or controversy under paragraph 9, shall be
                        settled exclusively by binding arbitration in New York,
                        New York, in accordance with the Employment Dispute
                        Resolution Rules then in effect with the American
                        Arbitration Association. Judgment may be entered on the
                        arbitrator's award in any court having jurisdiction.

                7.      Insurance. The Company shall maintain in force during
        the term of this Agreement, directors' and officers' liability insurance
        ("D&O Insurance") with limits not less than five million dollars
        ($5,000,000) on terms and conditions currently provided for under the
        Company's existing insurance policy, and shall use reasonable efforts to
        name Shull as an insured thereunder. A copy of the policy shall be
        furnished to Shull for his information annually.

                8.      Indemnity. If Meridian, Shull or any member, officer or
        employee of, or consultant, contractor or subcontractor to, Meridian who
        serves as Consultant to the Company (including, without limitation, John
        F. Shull, Paul Jen, Peter Schweinfurth, Edward Lambert or Evan M. Dudik)
        ("Indemnitee") is threatened with or made a party to, or called as a
        witness or deposed or subpoenaed in, any action, suit or other legal,
        administrative or governmental proceeding or other legal process by
        reason that Indemnitee is or was deemed a consultant, officer, employee
        or other agent of the Company or any of its affiliates, the Company
        shall defend, indemnify and hold Indemnitee harmless to the maximum
        extent allowed by applicable law and the Company's Certificate of
        Incorporation and By-Laws against all liabilities, obligations, losses,
        damages, penalties, actions, judgments, suits, claims, disbursements and
        expenses, including counsel fees reasonably incurred by Indemnitee in
        connection therewith, to the extent the same are not paid under the D&O
        Insurance ("Indemnified Liability" or "Indemnified Liabilities");
        provided however, that Indemnitee shall not be entitled to
        indemnification hereunder to the extent any such liability, obligation,
        loss, damage, penalty, action, judgment, suit, claim, disbursement or
        expense results from the gross negligence, willful misconduct or
        criminal conviction ("Willful Misconduct") of Indemnitee as determined
        by a court of competent jurisdiction. Indemnitee represents



                                       8
<PAGE>

        and warrants that it or he has not received notice of any claim which
        might constitute an Indemnified Liability hereunder. The Company
        represents that it has not received any notice of any claim against
        Indemnitee that would constitute an Indemnified Liability hereunder.
        Payments under this indemnity in respect of indemnified settlements or
        judgments shall be paid at the time of final settlement or final
        judgment (from which no appeal may be taken), or, in respect of counsel
        fees or costs of defense, which shall be limited to one counsel for all
        Indemnitees, shall be paid at the time such fees or costs are incurred.

                With the prior written consent of the Company, which shall not
        be unreasonably withheld, Indemnitee shall have the right to pay or
        compromise and adjust all Indemnified Liabilities not manifestly without
        merit. The Company shall have the right to pay or compromise without
        Indemnitee's consent Indemnified Liabilities other than those which
        arise from or are related to any criminal action, suit or proceeding.
        Notwithstanding anything to the contrary contained in the preceding
        sentence, Indemnitee's consent shall be required for any settlement
        which contains a stipulation to, or admission or acknowledgement of, any
        liability or wrongdoing on the part of Indemnitee.

                This paragraph 8 shall survive the termination of this
        Agreement.

                9.      Confidentiality. Meridian and Shull shall at all times
        both during its and his engagement hereunder and after termination
        thereof regard and preserve as confidential all trade secrets and other
        confidential information pertaining to the business of the Company that
        have been or may be obtained by Meridian or Shull by reason of the
        performance of the terms of this Agreement. Meridian and Shull agree
        that all documents, reports, manuals, drawings, designs, tools,
        equipment, plans, proposals, marketing and sales plans, customer lists,
        or materials made by the Company or coming into Meridian's or Shull's
        possession by reason of its or his performance under this Agreement, are
        the property of the Company and shall not be used by Meridian or Shull
        in any way prohibited by this Agreement. Except as expressly provided
        herein, during the Agreement Term and after termination thereof,
        Meridian and/or Shull shall not deliver, reproduce, publish or in any
        way allow, after due care, information describing any trade secrets or
        other confidential documents or things to be delivered or used by any
        third party without specific direction or written consent of the Company
        or in response to lawful process. Immediately upon termination of this
        Agreement, Meridian and Shull shall promptly deliver to the Company all
        documents, tools, equipment, drawings, blueprints, manuals, material and
        significant or confidential letters and notes, reports, price lists,
        customer lists and copies thereof, and all other materials relating to
        the Company's business and which are in the possession of or under the
        control of Meridian or Shull. Confidential information as defined above
        shall exclude information or materials that become generally available
        to the public other than through disclosure by Meridian, Shull or any
        employee of Meridian in violation of this Agreement.

                This paragraph 9 shall survive the termination of the Agreement.

                10.     Miscellaneous. This Agreement shall be governed by and
        construed in accordance with the internal laws of the state of New
        Jersey.



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<PAGE>

                11.     Modification. This Agreement may only be modified by
        mutual agreement.

                12.     Assignment. This Agreement is a personal service
        contract and may not be assigned by either party.

                13.     Notices. All notices required or permitted by this
        Agreement shall be in writing and shall be personally delivered or faxed
        to the parties at their addresses set forth below or to such different
        addresses as such parties shall direct by notice sent in accordance with
        this paragraph.

        If to Thomas C. Shull or Meridian Ventures, LLC:

                28 Leeward Lane
                Riverside, CT 06878
                Tel.:  203-637-7659
                Fax:  203-637-5576

        with copies to:

                Morton M. Rosenfeld, Esq.
                Rosenfeld, Wolff, Aronson & Klein
                2049 Century Park East, Suite 3090
                Los Angeles, California  90067
                Tel.:  310-556-1221
                Fax:  310-556-0401

        If to the Company:

                Corporate Counsel
                Hanover Direct, Inc.
                1500 Harbor Boulevard
                Weehawken, New Jersey  07087
                Tel.:  201-863-7300
                Fax:  201-272-3468

        with copies to:

                Sarah Hewitt, Esq.
                Brown Raysman Millstein Felder & Steiner LLP
                900 Third Avenue
                New York, New York 10022
                Tel.:  212-895-2000
                Fax.:  212-895-2900

                14.     Counterparts. This Agreement may be signed in two or
        more counterparts, each of which shall be deemed an original, but all of
        which together shall constitute one and the same instrument.



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<PAGE>

                15.     Attorneys' Fees. Shull shall be entitled to
        reimbursement for reasonable attorneys' fees and disbursements incurred
        in connection with the review of, and advice with respect to the
        execution or extension of, or administration of, this Agreement;
        provided, however, that the aggregate amount of such reimbursement shall
        not exceed $8,000. If any legal action or proceeding or arbitration
        proceeding is brought either for the enforcement of this Agreement or
        because of an alleged dispute, breach, default, or material
        misrepresentation in connection with any of the provisions of the
        Agreement, the successful or prevailing party shall be entitled, in
        addition to any other relief to which it may be entitled, to recover
        reasonable attorneys' fees and other costs incurred in that action or
        proceeding including fees and costs incurred on appeal and in collecting
        any judgment, and the arbitrator or court shall so provide in its
        judgment.

                16.     Consent to Jurisdiction. Subject to their agreement to
        binding arbitration in paragraph 6(e), the Company, Meridian and Shull
        each hereby irrevocably consent to the jurisdiction of the courts of the
        State of New Jersey for all purposes in connection with any legal action
        or proceeding which arises out of or relates to this Agreement and agree
        that any legal action or proceeding instituted under this Agreement
        shall be brought only in such courts and that such courts shall have
        jurisdiction as provided above, except that the Company shall be
        entitled to enforce its rights under paragraph 9 in any court of
        competent jurisdiction.

                17.     Successors and/or Assigns. Whenever in this Agreement
        any of the parties hereto is referred to, such reference shall be deemed
        to include the successors and/or assigns and/or personal representatives
        of such party, and this Agreement shall inure to the benefit of and
        shall be binding on the parties hereto and the successors and/or assigns
        and/or personal representatives of each such party.

                18.     Entire Agreement. This Agreement (together with those
        agreements listed on Exhibit 1 hereto) sets forth the entire agreement
        of the parties hereto in respect of the subject matter contained herein
        and supersedes all prior agreements (including but not limited to the
        Prior Services Agreement), promises, covenants, arrangements,
        communications, representations or warranties, whether oral or written,
        by any officer, employee or representative of any party hereto, other
        than the indemnification obligations in paragraph 8 of the Prior
        Services Agreement and the obligations contained in the agreements
        listed on Exhibit 1 hereto.




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<PAGE>



                IN WITNESS WHEREOF, the parties have executed this Agreement as
        of the date first above written.

                             HANOVER DIRECT, INC.



                             By:    /s/ Brian C. Harriss
                                    ----------------------------------
                                    Name:  Brian C. Harriss
                                    Title: Executive Vice President

                             MERIDIAN VENTURES, LLC


                             By:    /s/ Thomas C. Shull
                                    ----------------------------------
                                    Thomas C. Shull, President

                             By:    /s/ Thomas C. Shull
                                    ----------------------------------
                                    Thomas C. Shull, as an individual




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<PAGE>


                                                                       EXHIBIT 1

                WRITTEN AGREEMENTS BETWEEN THE COMPANY AND SHULL
                          RE: COMPENSATION AND BENEFITS


Hanover Direct, Inc. Key Executive Eighteen Month Compensation Continuation Plan
effective as of April 25, 2001, as amended

Transaction Bonus in the event of a Change of Control as set forth in a letter
agreement between the Company and Shull dated May 14, 2001

2001 Management Incentive Plan





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<PAGE>

                                                                       EXHIBIT 2

                2001 MANAGEMENT INCENTIVE PLAN MAXIMUM BONUS GOAL


15% per dollar of 2001 EBITDA in excess of $12.4 million (before deducting
extraordinary legal and advisory fees related to one-time transactions during
the period) limited to a maximum bonus of $300,000.





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