Stock Option Agreement Under Stock Incentive Plan

Exhibit 10.1

THE DIXIE GROUP, INC.

Stock Option Agreement

Under

Stock Incentive Plan

Page (i)

            Stock Option Agreement made this 20th day of December , 20 05 by and between The Dixie Group, Inc., a Tennessee corporation (hereinafter referred to as the "Company" ), and _______________ , an employee or Director of the Company (hereinafter referred to as the "Optionee" );

            W I T N E S S E T H:

            WHEREAS , the shareholders of the Company approved the Stock Incentive Plan effective May 4, 2000, (the Stock Incentive Plan is hereinafter referred to as the "Plan" ), for the purpose of providing long-term incentive compensation to directors and selected key management employees performing services for the Company and to develop and maintain a significant long-term ownership position in the common stock of the Company on the part of such individuals; and

            WHEREAS , the Company desires to grant to the Optionee the option(s) to purchase the Company's common stock described herein; and

            WHEREAS , the Optionee desires to accept such grant.

            NOW, THEREFORE , in consideration of the mutual covenants herein set forth, for other good and valuable consideration, and subject to the terms and conditions of the Plan (a copy of which is attached hereto) which are hereby incorporated by reference, the parties hereto hereby agree as follows:

            1.          Administration . In accordance with Section 3 of the Plan, the Compensation Committee (the "Committee" ) of the Board of Directors of the Company (the "Board" ) (including any successor committee designated by the Board in accordance with the Plan) shall administer the Plan, grant stock options and other awards under the Plan, construe and interpret the Plan, establish rules and regulations and perform all other acts as it believes reasonable and proper. In accordance with the conditions and limitations prescribed in the Plan, the Committee may also delegate the administration of the Plan in whole or in part, on such terms and conditions, and to such person or persons as it may determine in its discretion. Whenever the context in this Agreement so permits, any reference to the "Committee" shall include any successor or delegate of the Committee, as applicable. Options granted hereunder may be canceled if an Optionee violates the terms of either this Stock Option Agreement or the Plan or acts in a manner which the Committee determines to be inimical to the best interest of the Company. Any decision made, or action taken, by the Committee shall be final, conclusive and binding on all parties to this Agreement.

            2.          Grant of Incentive Stock Option . Effective N/A , and subject to the terms and conditions set forth in Section 6 of the Plan, the Committee hereby grants to the Optionee, not in lieu of salary or any other compensation for services, the right and option (hereinafter referred to as the "ISO Option" ) to purchase from the Company N/A shares of the Company's Common Stock, three dollars ($3.00) par value per share, as an incentive stock option (as defined in Section 422 of the Internal Revenue Code) (hereinafter referred to as the "ISO Optioned Stock" ), subject to the terms and conditions hereinafter set forth.

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            3.          Grant of NSO Stock Option . Effective December 20, 2005 , and subject to the terms and conditions set forth in Section 7 of the Plan, the Committee hereby grants to the Optionee, not in lieu of salary or any other compensation for services, the right and option (hereinafter referred to as the "NSO Option" ) to purchase from the Company _______ shares of the Company's Common Stock, three dollars ($3.00) par value per share, as a non-statutory stock option (hereinafter referred to as the "NSO Optioned Stock" ), subject to the terms and conditions hereinafter set forth.

            4.          Purchase Price . The purchase price of the ISO Optioned Stock shall be $N/A per share (hereinafter referred to as the "ISO Option Price" ). The purchase price of the NSO Optioned Stock shall be $13.51 per share (hereinafter referred to as the "NSO Option Price" ).

            5.          Time and Manner of Exercise .

1. 1. Vesting Schedule. Subject to the other provisions of this Agreement, the ISO Option and/or the NSO Option (as applicable) shall become exercisable as to the percentage of the aggregate number of shares initially covered by each such option (as adjusted in accordance with Section 8 hereof, if applicable) on and after each of the following dates:

100% on December 20, 2005.

To the extent not previously exercised in accordance with the terms of this Agreement, both the ISO Option and the NSO Option shall expire as of 11:59 p.m., Eastern Time, on the tenth (10 ^th ) anniversary of the date of this Agreement.

1. 2. Minimum Exercise. A minimum of 100 shares, or such lesser number as is exercisable if fewer than 100 shares are exercisable, may be purchased by the Optionee from the Company at any one time under either the ISO Option or the NSO Option.

(c) Method of Exercise and Payment. Subject to the other provisions of this Agreement, both the ISO Option and the NSO Option may be exercised, in whole or in part, by giving written notice of such exercise, in the form annexed to this Agreement, to the Secretary of the Company at the Company's corporate headquarters office, P.O. Box 25107, Chattanooga, Tennessee, 37422-5107. In order to be effective, such notice must be accompanied by payment, in the form of a check made payable to "The Dixie Group, Inc.," in the full amount of the aggregate ISO Option Price and/or NSO Option Price for the ISO Optioned Stock and/or the NSO Optioned Stock then being purchased. Alternatively, payment of the exercise price for either such option may be made (in accordance with such procedures and limitations as the Committee may deem appropriate): (A) by means of surrender to the Company of whole shares of the Company's Common Stock owned by the Optionee having a Fair Market Value (as defined in the Plan) on the date of exercise at least equal to the aggregate ISO Option Price or NSO Option Price of the stock then being purchased (provided, if the shares to

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be tendered were previously acquired upon the exercise of another ISO Option, such tendered shares must have been owned by the Optionee for at least as long as the ISO Holding Period (as defined in Section 9 hereof) applicable to such other ISO Option) or (B) by means of a combination of the surrender of such Common Stock and payment of any remaining balance of the aggregate exercise price with such a certified or bank cashier's check.

            (d) Certain Additional Restrictions. Except as provided in Section 7 hereof (and except for Optionees who are Directors of the Company), neither the ISO Option nor the NSO Option may be exercised unless the Optionee is an employee of the Company, as provided in Section 10 hereof, at the time of exercise. Neither the Optionee nor his heirs, legatees, distributees, or legal representatives of his estate shall have any rights of a stockholder with respect to the ISO Optioned Stock or the NSO Optioned Stock (as applicable) unless and until certificates for such shares have been issued upon the exercise of the ISO Option or the NSO Option. Unless otherwise provided herein, no adjustments shall be made for dividends or other rights for which the record date is prior to the date of exercise of the applicable option. Additionally, none of the shares which are acquired upon exercise of the NSO Option granted in Section 3 hereof may be sold for a period of three (3) years from the date of this Agreement.

            6.          Anti-Assignment Provision . This Agreement shall be binding upon and inure to the benefit of the parties heret