Exhibit 10.1

Execution Copy

POLYMER GROUP, INC.

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT is entered into on October 31, 2006, between Polymer Group, Inc., a Delaware corporation (the “Company”), and James L. Schaeffer (“Executive”).

WHEREAS, the Company and Executive are parties to a certain employment agreement dated as of March 24, 2006 (the “Employment Agreement”);

WHEREAS, the Company and Executive are parties to a certain change in control severance compensation agreement dated as of March 24, 2006 (the “Change in Control Agreement”);

WHEREAS, the Company and Executive wish to end the employment relationship.

In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.             End of Employment .

(a)           The Company and Executive hereby agree that the employment of Executive with the Company and its Subsidiaries shall end on October 31, 2006 (the “Termination Date”).  Executive also agrees that his service as a member of the Board of Directors and as an officer of the Company and its Subsidiaries shall end on October 31, 2006.  Executive shall take such actions reasonably requested by the Company in furtherance of the foregoing to evidence the end of such employment and such service as a director and/or officer.

(b)           For purposes of this Agreement, “ Subsidiaries ” shall mean any corporation or other entity of which the securities or other ownership interests having the voting power to elect a majority of the board of directors or other governing body are, at the time of determination, owned by the Company, directly or through one of more Subsidiaries, including without limitation those entities set forth on Annex I attached hereto.

2.             Compensation and Benefits .

(a)           Salary .  Executive shall be entitled to receive his base salary through the Termination Date.  As payment of severance under this Agreement, Executive shall be entitled to receive an amount equal to his base salary until December 20, 2006 (the “Payment End Date”).  Executive shall not be entitled to receive any amounts of base salary for any period after the Payment End Date.  Such severance payments shall be made bi-weekly in accordance with the Company’s current payroll practices.  Executive shall not be entitled to any additional payment for unused vacation days or paid time off days.

(b)           Expenses .  The Company shall reimburse Executive for all reasonable business expenses incurred by him prior to the Termination Date which were incurred in the course of performing his duties and responsibilities which are consistent with the Company’s policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company’s requirements with respect to reporting and documentation of such expenses.

(c)           Bonus .  Executive shall not be entitled to receive any amounts that may have been due to him under the Employment Agreement or pursuant to any Company bonus plan in respect of a bonus for the current fiscal year.

(d)           Vested Restricted Stock and Vested Stock Options .  As additional payment of severance payments under this Agreement, Executive shall be entitled to the vested portion of his restricted stock grants, totaling 46,618 shares (prior to the reduction for the shares withheld by the Company in payment of taxes on behalf of Executive totaling 15,836 shares, for a current total holding of 30,782 shares), subject to the terms and conditions of the 2005 Restricted Stock Plan, and to the vested portion of the stock options grants totaling 48,750 stock options, subject to the terms and conditions of the 2003 Stock Option Plan; provided that the provisions of Section 2(c)(ii) of the Restricted Stock Grant concerning service and performance vested shares and Section 2(b) of the Restricted Stock Grant concerning immediately vested shares, and the provisions of Section 6(d)(iii) of the 2003 Stock Option Plan, in each case covering forfeitures on certain terminations, shall not apply to the shares and options referred to in this sentence; provided further, that Executive shall be free to sell his shares of restricted stock commencing on December 21, 2006.  All other grants of restricted stock and stock options are hereby forfeited and cancelled.  All shares of restricted stock previously withheld by the Company in satisfaction of amounts due for taxes resulting from the grant of shares of restricted stock shall remain with the Company.

(e)           Withholding .  All amounts payable to Executive as compensation hereunder shall be subject to all required and customary withholding by the Company.

(f)            Insurance .  Until September 21, 2007, the Company shall, at its expense, pay both the employer and employee portion of the premiums for group medical, dental and vision insurance at the level and with the coverage in effect for Executive and his dependants and beneficiaries immediately prior to the Termination Date.  Executive shall only be responsible for the deductible or co-pay obligations under such insurance programs.  The Company shall pay the conversion premium under the group life insurance plan to convert the existing group life insurance coverage of Executive into an individual policy with the same level of coverage as in effect immediately prior to the Termination Date, with an initial term through September 21, 2007.  The Company shall also pay to Executive for each month during the period beginning on the Termination Date and ending on September 21, 2007, an amount equal to the amount the Company was paying on behalf of Executive to provide coverage under the Company’s long-term disability plan.  Executive shall also be entitled to receive the continuation of his group medical, dental and vision insurance coverage as provided under the provisions of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) beginning on March 21, 2007, and continuing until September 21, 2008.  For the period between March 21, 2007 and

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September 21, 2007, the Company shall pay the employer and employee portions of the coverage under COBRA, other than any co-pay or deductible payments required under such insurance.  The Company’s obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder so long as the aggregate coverage and benefits of the combined benefit plans is no less favorable to the Executive than the coverages and benefits required to be provided hereunder.  This subsection (f) shall not be interpreted so as to limit any benefits to which the Executive, his dependants or beneficiaries may otherwise be entitled under any of the Company’s employee benefit plans, programs or practices following the termination of employment of the Executive, including without limitation, any applicable retiree medical and life insurance benefits.  The Company may offset any amounts Executive owes it or its Subsidiaries against any amounts it or its Subsidiaries owes Executive hereunder.

(g)           Return of Car .  Executive has returned his company car to the Company, together with all keys, owner’s manuals and other documents relating to ownership or maintenance.

3.             Confidential Information .

(a)           Obligation to Maintain Confidentiality .  Executive acknowledges that the continued success of the Company and its Subsidiaries, depends upon the use and protection of a large body of confidential and proprietary information.  All of such confidential and proprietary information existing prior hereto, now existing or to be developed in the future will be referred to in this Agreement as “ Confidential Information .”  Confidential Information will be interpreted as broadly as possible to include all information of any sort (whether merely remembered or embodied in a tangible or intangible form) that is (i) related to the Company’s or its Subsidiaries’ current or potential business and (ii) is not generally or publicly known.  Confidential Information includes, without specific limitation, the information, observations and data obtained by him during the course of his employment by the Company and its Subsidiaries concerning the business and affairs of the Company and its Subsidiaries, information concerning acquisition opportunities in or reasonably related to the Company’s or its Subsidiaries’ business or industry of which Executive becomes aware during such employment, the persons or entities that are current, former or prospective suppliers or customers of any one or more of them during Executive’s employment, as well as development, transition and transformation plans, methodologies and methods of doing business, strategic, marketing and expansion plans, including plans regarding planned and potential sales, financial and business plans, employee lists and telephone numbers, locations of sales representatives, new and existing programs and services, prices and terms, customer service, integration processes, requirements and costs of providing service, support and equipment.  Therefore, Executive agrees that he shall not disclose to any unauthorized person or use for his own account any of such Confidential Information, unless and to the extent that any Confidential Information (i) becomes generally known to and available for use by the public other than as a result of Executive’s acts or omissions to act or (ii) is required to be disclosed pursuant to any applicable law or court order.  Executive agrees to deliver to the Company all memoranda, notes, plans, records, reports and other documents (and copies thereof) relating to

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the business of the Company or its Subsidiaries (including, without limitation, all Confidential Information) that he may then possess or have under his control.

(b)           Ownership of Intellectual Property .  Executive agrees to make prompt and full disclosure to the Company or its Subsidiaries, as the case may be, of all ideas, discoveries, trade secrets, inventions, innovations, improvements, developments, methods of doing business, processes, programs, designs, analyses, drawings, reports, data, software, firmware, logos and all similar or related information  (whether or not patentable and whether or not reduced to practice) that relate to the Company’s or its Subsidiaries’ actual or anticipated business, research and development, or existing or future products or services and that are conceived, developed, acquired, contributed to, made, or reduced to practice by Executive (either solely or jointly with others) while employed by the Company or its Subsidiaries and for a period thereafter ending on September 21, 2007 (collectively, “ Work Product ”).  Any copyrightable work falling within the definition of Work Product shall be deemed a “work made for hire” under the copyright laws of the United States, and ownership of all rights therein shall vest in the Company or its Subsidiary.  To the extent that any Work Product is not deemed to be a “work made for hire,” Executive hereby assigns and agrees to assign to the Company or such Subsidiary all right, title and interest, including without limitation, the intellectual property rights that Executive may have in and to such Work Product.  Executive shall promptly perform all actions reasonably requested by the Board to establish and confirm the Company’s or such Subsidiary’s ownership (including, without limitation, providing testimony and executing assignments, consents, powers of attorney, and other instruments).

(c)           Third Party Information . Executive understands that the Company and its Subsidiaries have received from third parties confidential or proprietary information (“ Third Party Information ”) subject to a duty on the Company’s and its Subsidiaries’ part to maintain the confidentiality of such information and to use it only for certain limited purposes.  Without in any way limiting the provisions of Section 3(a) above, Executive will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than personnel of the Company or its Subsidiaries who need to know such information in connection with their work for the Company or such Subsidiaries) or use, such Third Party Information unless expressly authorized by a member of the Board in writing.

4.             Non-Compete, Non-Solicitation .

(a)           In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that during the course of his employment with the Company and its Subsidiaries he became familiar with the Company’s trade secrets and with other Confidential Information concerning the Company and its predecessors and its Subsidiaries and that his services shall be of special, unique and extraordinary value to the Company and its Subsidiaries, and therefore, Executive agrees that, from the date of this Agreement until September 21, 2007 (the “ Noncompete Period ”), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company or its Subsidiaries, as such businesses exist or were in process during his employment by the Company and its Subsidiaries, within any geographical area in which the Company or its Subsidiaries engage or

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plan to engage in such businesses.  Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation.  In the event Executive is approached by a third party that is not a competitor of the Company and asked to advise such third party with respect to a potential acquisition of the Company, Executive may request the consent of the Company to act in such capacity and the Company will consider such request in good faith.

(b)           During the Noncompete Period, Executive shall not directly or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any Subsidiary at any time during his employment by the Company and its Subsidiaries or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary (including, without limitation, making any negative or disparaging statements or communications regarding the Company or its Subsidiaries).

(c)           If, at the time of enforcement of this paragraph 4, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law.  Executive acknowledges that the restrictions contained in this paragraph 4 are reasonable and that he has reviewed the provisions of this Agreement with his legal counsel.

(d)           In the event of the breach or a threatened breach by Executive of any of the provisions of this paragraph 4, the Company would suffer irreparable harm, and in addition and supplementary to other rights and remedies existing in its favor, the Company shall be entitled to specific performance and/or injunctive or other equitable relief from a court of competent jurisdiction in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security).  In addition, in the event of an alleged breach or violation by Executive of this paragraph 4, the Noncompete Period shall be tolled until such breach or violation has been duly cured.  Executive acknowledges that the restrictions contained in paragraph 4 are reasonable and that he has reviewed the provisions of this Agreement with his legal counsel.

5.             Release .  Executive shall execute the general release dated as of the date hereof (the “Release”) attached as Exhibit A hereto.  Without otherwise limiting the Company’s rights and subject to and in further consideration of Executive’s obligations under the terms of this Agreement, the Company agrees that it will not, except to the extent required by law, require Executive to repay or otherwise seek recovery from Executive of any salary or bonus amounts paid to, or vested restricted stock or vested stock options granted to, Executive by the Company during Executive’s employment with the Company.

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6.             Executive’s Representations .  Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms.  Executive hereby acknowledges and represents that he has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein.

7.             Notices .  Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, sent by reputable overnight courier service or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:

Notices to Executive:

James L. Schaeffer
2331 Mount Isle Harbor Drive
Charlotte, N.C.  28214

With a copy to:

William H. Sturges
Partner
Shumaker, Loop & Kendrick, LLP
128 South Tryon Street
Suite 1800
Charlotte, NC  28202

Notices to the Company:

Polymer Group, Inc.
9335 Harris Corners Parkway, Suite 300
Charlotte, NC  28269
Attn:  General Counsel

With a copy to:

H. Kurt von Moltke, P.C.
Kirkland & Ellis LLP
200 East Randolph Drive
Chicago, IL  60601

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or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party.  Any notice under this Agreement shall be deemed to have been given when so delivered, sent or mailed.

8.             Severability .  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any action in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

9.             Complete Agreement .  This Agreement, those documents expressly referred to herein and other documents of even date herewith, including the Release referred to in Section 5, embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

10.           Termination of Employment Agreement; Termination of Change in Control Agreement.   The Compa