CANADIAN LICENSE AGREEMENT 

        This  Agreement,  effective as of the date of execution by both parties,
is by and between THE PROCTER & GAMBLE  COMPANY,  an Ohio  Corporation  having a
principal  place of  business at One Procter & Gamble  Plaza,  Cincinnati,  Ohio
45202,  (hereinafter  referred to as "P&G") and PARAGON  TRADE  BRANDS,  INC., a
Delaware  Corporation  having a principal  place of  business at 180  Technology
Parkway, Norcross, Georgia 30092 and its wholly-owned subsidiary,  Paragon Trade
Brands  (Canada)  Inc.,  a  Canadian  corporation  having a  principal  place of
business at 1600 Clark Boulevard, Brampton, Ontario, Canada L6T 3V7 (hereinafter
collectively referred to as "Paragon"). P&G and Paragon will be jointly referred
to as the "parties".

        WHEREAS,  P&G is the owner of Canadian Patent 1,311,879 issued to Lawson
on December 29, 1992 relating to an absorbent article having dual cuffs;

        WHEREAS,  P&G owns patents  corresponding  to Canadian Patent  1,311,879
in a number of other countries;

        WHEREAS,  P&G is the owner of Canadian Patent 1,290,501 issued to Dragoo
on October  15, 1991  relating  to an  absorbent  article  having  dual  leakage
resistant cuffs;

        WHEREAS,  P&G owns patents  corresponding  to Canadian Patent  1,290,501
in a number of other countries;

                                       2
<PAGE>

        WHEREAS, P&G is the owner of Canadian Patent 1,175,602 issued to Aziz et
al. on  October  9, 1984  relating  to a  disposable  absorbent  article  having
elasticized flaps provided with leakage resistant portions;

        WHEREAS,  P&G owns patents  corresponding  to Canadian Patent  1,175,602
in a number of other countries;

        WHEREAS,  P&G is the owner of Canadian Patent  1,216,702 issued to Buell
on January 20, 1987 relating to a disposable absorbent article having breathable
leg cuffs;

        WHEREAS,  P&G owns patents  corresponding  to Canadian Patent  1,216,702
in a number of other countries;

        WHEREAS,  Paragon  makes,  uses,  offers  for  sale and  sells  integral
disposable infant diapers having barrier cuffs throughout Canada;

        WHEREAS,  P&G  believes  that the diapers  made and sold by Paragon fall
within  the  scope  of one or more  of the  extant  claims  of  Canadian  Patent
1,311,879  to Lawson,  Canadian  Patent  1,290,501  to Dragoo,  Canadian  Patent
1,175,602 to Aziz et al. and Canadian Patent 1,216,702 to Buell; and

        WHEREAS,  Paragon desires to obtain from P&G and P&G is willing to grant
to  Paragon a royalty  bearing,  non-exclusive  right to make,  to have made for
Paragon with the prior written


                                       3
<PAGE>

consent  of P&G,  to use,  to  offer  for sale  and to sell in  Canada  integral
disposable  absorbent  articles which are within the scope of one or more of the
extant claims of Canadian Patent 1,311,879 to Lawson,  Canadian Patent 1,290,501
to  Dragoo,  Canadian  Patent  1,175,602  to Aziz  et al.  and  Canadian  Patent
1,216,702 to Buell;

        NOW THEREFORE, in consideration of the promises,  mutual covenants,  and
agreements contained herein, the parties agree as follows:

DEFINITIONS

"Licensed Product" as used herein,  shall mean an integral disposable  absorbent
article comprising an infant diaper, an adult diaper, or a training pant falling
within the scope of one or more extant, valid and enforceable claims of Canadian
Patent 1,311,879 to Lawson, Canadian Patent 1,290,501 to Dragoo, Canadian Patent
1,175,602 to Aziz et al., or Canadian Patent  1,216,702 to Buell,  including any
continuations,  continuations-in-part,  divisionals, reexaminations, reissues or
extensions thereof.

"Training Pant", as used herein, shall mean a disposable absorbent pant marketed
for use in transitioning children from diapers to underwear.

"Net Sales Price",  as used herein,  shall mean the revenue  received by Paragon
from the sale of Licensed  Products to  independent  third parties in the Canada
less the following amounts: (i) discounts,  including cash discounts, or rebates
actually  allowed or granted,  (ii) credits or allowances  actually granted upon
claims or returns  regardless of the party requesting the return,  (iii) freight
charges paid for delivery,  (iv) revenue for defective articles sold exclusively
as scrap, 

                                       4
<PAGE>

and (v) taxes  or other  governmental  charges  levied  on or  measured  by  the
invoiced amount whether absorbed by the billing or the billed party.

"Settlement  Agreement",  as used herein,  shall mean the  Settlement  Agreement
entered into between Paragon and P&G concurrently with this License Agreement.

REPRESENTATIONS AND WARRANTIES

With the  exception  of  non-exclusive  license  rights  granted to others,  P&G
represents  and  warrants  that:  1) it is the  owner of all  right,  title  and
interest  in and  to  Canadian  Patent  1,311,879  to  Lawson,  Canadian  Patent
1,290,501  to Dragoo,  Canadian  Patent  1,175,602  to Aziz et al., and Canadian
Patent  1,216,702  to  Buell;  and 2) it has the right to enter  this  Agreement
without breaching any other agreement or obligation to a third party.

Paragon represents and warrants that it is an independent entity and that it has
the right to enter into this Agreement  without breaching any other agreement or
obligation to a third party.

LICENSE GRANT

1.  Upon  execution  of  this  License   Agreement  by  both  parties,   and  in
    consideration of Paragon's agreement to pay prospective running royalties on
    Licensed  Products in accordance  with Paragraph (2),  below,  P&G agrees to
    grant  and  hereby  does  grant  to  Paragon,  as  of  January  7,  1999,  a
    non-exclusive  license  to make,  to have  made for  Paragon  with the prior
    written  consent  of P&G,  to use,  to offer for sale and to sell in Canada,
    without the right to grant sublicenses, Licensed Products.

                                       5
<PAGE>

2.  As consideration  for the prospective  license rights herein granted by P&G,
    Paragon agrees that it will,  commencing upon January 7, 1999,  begin to pay
    to P&G a running royalty in accordance with each applicable provision of the
    following schedule:

        (A)    For a  restricted,  non-exclusive  license in Canada  under P&G's
               Canadian  Patent  1,311,879  to Lawson to make,  to have made for
               Paragon with the prior  written  consent of P&G, to use, to offer
               for sale and to sell,  without  the  right to grant  sublicenses,
               Licensed   Products   restricted   to   the   configuration   and
               characteristics  specifically  depicted in  attached  Drawing No.
               105674-2  identified as Appendix No. 1 -- One Percent  (1.00%) of
               the Net Sales Price of Licensed Products;

        (B)    For an  unrestricted, non-exclusive license in Canada under P&G's
               Canadian  Patent  1,311,879  to Lawson to make,  to have made for
               Paragon  with the prior written  consent of P&G, to use, to offer
               for sale and to sell,  without  the  right to grant  sublicenses,
               Licensed  Products which  fall  within  the  scope of one or more
               valid and  enforceable  claims of  Canadian  Patent  1,311,879 to
               Lawson,  other  than  those  exhibiting  the  configurations  and
               characteristics  specifically  depicted  in  attached Drawing No.
               105674-2  identified as Appendix  No.  1 -- One  and One  Quarter
               Percent  (1.25%)  of the Net  Sales  Price  of Licensed Products;

        (C)    For an  unrestricted,  non-exclusive  license  in Canada to make,
               have made for Paragon with the prior  written  consent of P&G, to
               use,  to offer for sale and to sell,  without  the right to grant
               sublicenses,  Licensed Products which are within the scope of the
               license granted in section (B) above,  but which also fall within
               the


                                       6
<PAGE>

               scope of one  or more  valid and  enforceable claims  of Canadian
               Patent  1,290,501  to Dragoo -- Two  percent  (2.00%)  of the Net
               Sales Price of Licensed Products;

        (D)    For an unrestricted,  non-exclusive license in Canada under P&G's
               Canadian  Patent  1,175,602 to Aziz et al. to make,  to have made
               for  Paragon  with the prior  written  consent of P&G, to use, to
               offer  for  sale  and  to  sell,   without  the  right  to  grant
               sublicenses, Licensed Products:

               (i)    No  additional  royalty for  Licensed  Products  for which
                      Paragon has paid a royalty to P&G pursuant to Section (A),
                      (B) or (C) above, for the period in question; or

               (ii)   Three  Eighths of One  Percent  (0.375%)  of the Net Sales
                      Price of Licensed  Products  which  Licensed  Products are
                      within  the  scope of one or more  valid  and  enforceable
                      claims of the  aforementioned  Aziz et al.  Patent and for
                      which  Paragon  has paid no royalty  to P&G under  Section
                      (A), (B) or (C) above, for the period in question.

        (E)    For an unrestricted,  non-exclusive license in Canada under P&G's
               Canadian  Patent  1,216,702 to Buell,  to make,  to have made for
               Paragon with the prior  written  consent of P&G, to use, to offer
               for sale and to sell,  without  the  right to grant  sublicenses,
               Licensed Products:

                                       7
<PAGE>

               (i)    No  additional  royalty for  Licensed  Products  for which
                      Paragon has paid a royalty to P&G pursuant to Section (A),
                      (B) or (C) above, for the period in question; or

               (ii)   Three  Eighths of One  Percent  (0.375%)  of the Net Sales
                      Price of Licensed Products for Licensed Products which are
                      within  the  scope of one or more  valid  and  enforceable
                      claims of the  aforementioned  Buell  Patent and for which
                      Paragon has paid no royalty to P&G under  Section (A), (B)
                      or (C), above, for the period in question.

    The  parties agree that non-limiting examples  of Licensed Products  falling
    within subsection  (C) are  Paragon's Ultra  products  sold prior to July 6,
    1998 (a sample of which is attached  hereto as  Appendix  2). In   addition,
    it is  Paragon's  intention  to  transition  from its current product design
    with a  unitary cuff  design,  which  it began  manufacturing for sale on or
    about July 6, 1998 (a sample of which is attached  hereto as Appendix 3), to
    the Ultra product design as described  above.  The parties, therefore, agree
    that Paragon will pay to P&G a royalty of two percent  (2%) of the Net Sales
    Price for sales of the  current  Paragon  product  line with a unitary  cuff
    design from January 7, 1999 until the transition to the Ultra product design
    is  complete and  Paragon no  longer sells such unitary cuff design product.
    Paragon agrees to notify P&G in  writing  within ten (10) days if it changes
    any of  its product  lines in such a  way that it no longer  intends to make
    running  royalty  payments   pursuant to subsections (A), (B) or (C) hereof.

                                       8
<PAGE>

3.  The license rights granted in Paragraph (1) under Canadian Patent  1,311,879
    to Lawson  shall automatically  expire  on the  date  of expiration  of said
    patent,  including any  continuations,  continuations-in-part,  divisionals,
    reexaminations, reissues or extensions thereof.  The license rights  granted
    in   Paragraph   (1)  under   Canadian  Patent  1,290,501  to  Dragoo  shall
    automatically  expire on the date of  expiration of said  patent,  including
    any  continuations,   continuations-in-part,   divisionals,  reexaminations,
    reissues or extensions thereof.  The license rights  granted  in   Paragraph
    (1)  under  Canadian Patent 1,175,602  to Aziz  et al.  shall  automatically
    expire  on  the   date   of  expiration   of  said   patent,  including  any
    continuations, continuations-in-part,  divisionals, reexaminations, reissues
    or  extensions  thereof.  The license  rights granted in Paragraph (1) under
    Canadian  Patent  1,216,702 to Buell shall  automatically expire on the date
    of expiration  of said patent,  including any continuations,  continuations-
    in-part,   divisionals,   reexaminations,  reissues  or extensions  thereof.
    Should any patent licensed  hereunder be held to have lapsed for the failure
    to pay maintenance  fees, royalties for said patent shall not be due for the
    period  of  any  such  lapse.   However,   should  any  such  lapsed  patent
    subsequently be  considered as not having  expired by the  acceptance by the
    relevant  Canadian Patent  Authority of  delayed  payment of the maintenance
    fee, the license rights granted under said patent shall automatically revive
    and royalties shall again accrue beginning on  the  date  that  the  term of
    the  patent  has  been  maintained  as a  result  of the   acceptance by the
    relevant Canadian Patent Authority of a payment of the maintenance fee.  P&G
    agrees to provide written notice to Paragon of the lapse of any such patent,
    and if applicable, the date that the patent has been  maintained as a result
    of the acceptance by the relevant  Canadian  Patent  Authority of a  delayed
    payment of the maintenance fee.

                                       9
<PAGE>

4.  Within  thirty (30) days of June 28, 1999,  Paragon  shall provide  P&G with
    an initial  statement  reporting  Paragon's  Net  Sales  Price  of  Licensed
    Products  covered by this   License  Agreement for the  period  beginning on
    January 7,  1999 and  ending  on June 27,  1999  and be  accompanied  by the
    appropriate  royalty payment.  On an ongoing basis, the Paragon fiscal  year
    ends on the last Sunday of  December.  Therefore, after  making said initial
    report,  Paragon shall,  within  30 days after the  end of  each  subsequent
    Paragon  fiscal year,  commencing  on December  26,  1999,  provide P&G with
    an annual statement reporting Paragon's Net Sales Price of Licensed Products
    covered by this   License  Agreement for the preceding one year period.  The
    parties  recognize that the  report and  payment  for the 1999  fiscal  year
    will cover only the six month period commencing  on June 28, 1999 and ending
    on December  26, 1999 in light of the previous initial report  and  payment.
    Each  report  shall  specify  the Net  Sales  Price of    Licensed  Products
    attributable on an individual basis to each of the categories (A), (B), (C),
    (D)(i)  and (ii) and (E)(i)  and (ii) set forth  in  Paragraph  (2) of  this
    License  Agreement.  Each such  report is due within thirty (30) days of the
    close of  the  fiscal  year  for which  the  report  is made,  and  shall be
    accompanied by the royalty payment owed to P&G by Paragon.

          Each  such report shall  be treated as  confidential  and  proprietary
    information  of Paragon  and shall  only be used  for the purposes set forth
    herein.  The report shall only be shared within P&G with such persons at P&G
    who need to know  such information for the purposes set  forth herein.  Each
    such  report may be shared with P&G's  outside  counsel or auditors who need
    to know such  information  for the  purpose of  verifying  such report.

                                       10
<PAGE>

5.  Once  each year,  at P&G's  election  and  expense,   Paragon's  independent
    public  accountant shall  certify to  P&G that the  annual  report  for  the
    previous  period or year is true, complete and that royalties have been paid
    for Licensed  Products sold  during the  previous year.  Paragon  shall keep
    correct  and  complete  records  containing  all  information  required  for
    computation  and  verification  of  the  amounts to be paid hereunder  for a
    period of at least  three (3) years after  making  each such  report.   Upon
    reasonable  notice,  during  regular business  hours,  independent "Big Six"
    public  accountants  selected  by P&G,  and paid for by P&G in the event the
    Paragon  payment being  verified  proves  accurate  to  within  two  percent
    (2.00%),  may  make  such  examinations  of   Paragon's  records,  not  more
    frequently than once a year, as P&G deems necessary  to verify  such reports
    and  payments   provided  for  hereunder.  Such  examination shall  occur at
    such  location  as  designated  by  Paragon,  and  such  verification  shall
    only state the amount of payments due in each of  categories  (A), (B), (C),
    (D)(i)  and  (ii)  and  (E)(i)  and (ii) of  Paragraph  (2) of this  License
    Agreement.  If the  Paragon  payment does not prove  accurate  to within two
    percent (2.00%),  royalties  being  underpaid,  then  Paragon  shall pay for
    such  independent public accountants.

6.  If Paragon shall be in default in making any payments hereunder at the times
    and in  the  manner  herein  provided  or in  complying  with  the financial
    obligations it assumed   pursuant to the  concurrently  executed  Settlement
    Agreement  with P&G, P&G may give written  notice to Paragon  specifying the
    particulars of such default,  and in the event Paragon does not fully remedy
    such  default  within  thirty  (30) days after such  notice,  P&G may at its
    option,  terminate  this  License  Agreement by  giving  ten (10) days prior
    written  notice to Paragon to that effect.  In addition,  P&G may proceed to
    enforce the defaulted obligation


                                       11
<PAGE>

    of Paragon by any legally available means.  No waiver on  the part of P&G in
    respect to a  default by  Paragon shall  be construed  as a  waiver of P&G's
    right to proceed  under this Paragraph with respect to  subsequent defaults.

7.  Neither  expiration  of  this  License  Agreement  in  accordance  with  its
    provisions nor  termination of this License  Agreement shall relieve Paragon
    of its  obligations  for  payment of  unpaid  royalties  under Paragraph (2)
    or for  enforcement of any other  obligation or liability accrued  hereunder
    prior to the  effective  date of such  expiration or termination.

8.  The failure of either party to strictly enforce this License  Agreement,  or
    to insist upon the strict compliance with its terms shall not at any time be
    considered a waiver or  condonation by such party of the default or  failure
    by the  other  party to  strictly  perform  the  covenants,   conditions and
    agreements on its part to be performed.

9.  Paragon agrees, when its existing supply of packaging has been exhausted, to
    mark the packages  of its Licensed  Products to be sold  within Canada  with
    the  following  statement:  "Licensed  under  one or  more of the  following
    Canadian Patents (with appropriate  patent  numbers  filled in per Paragraph
    (2))",  and if a  reexamination certificate  or a reissue of any such patent
    occurs,  to  place  on its  packages appropriate statements relating to that
    reexamination  certificate  and/or  that  reissue  patent. There shall be no
    reference to "The  Procter & Gamble  Company",  "Procter &  Gamble",  "P&G",
    any  variation or affiliate thereof,  or any trademark or tradename owned or
    controlled by P&G on the packaging.

                                       12
<PAGE>

10. No  patent  rights  outside  Canada  are  granted  by  P&G  in this  License
    Agreement.  However, P&G  agrees  that  it will, upon  request  by  Paragon,
    negotiate in good faith in an attempt to establish mutually acceptable terms
    and conditions for Paragon to obtain non-exclusive royalty  bearing  license
    rights under P&G's  foreign  patents corresponding  to the Canadian  Patents
    licensed  herein on  a case by  case basis.  The  parties recognize that the
    terms and conditions, including the royalty rates, for said foreign  license
    rights  may not be  the same  as those  herein set forth  nor  the same with
    respect to one another.

11. Should  Canadian  Patent No. 1,311,879 to Lawson expire or all extant claims
    covering Licensed Products be held  invalid or  unenforceable in a  decision
    by a court of  competent  jurisdiction  from which no appeal can or has been
    taken,  each provision  of  Paragraph (2) shall remain valid and enforceable
    with  a  royalty rate  reduction of One  Percent for  Licensed  Products  in
    category (A) and One and One  Quarter Percent (1.25%) for  Licensed Products
    in category (B) or (C).  Should Canadian  Patent 1,290,501 to Dragoo  expire
    or all claims covering Licensed Products be held invalid or unenforceable in
    a decision by a court of competent  jurisdiction from which no appeal can or
    has been taken,  each provision  of Paragraph  (2)  shall  remain  valid and
    enforceable  with a royalty rate reduction for Licensed Products in category
    (C) of  Three  Quarters  of  One  Percent  (.75%).  Should  Canadian  Patent
    1,175,602 to Aziz et al. expire or all claims covering  Licensed Products be
    held  invalid  or  unenforceable  in a  decision  by  a court  of  competent
    jurisdiction  from which no appeal can or has  been taken,  the royalty rate
    will be reduced Three  Eighths of One Percent (0.375%) for Licensed Products
    in category (D)(ii). Should Canadian Patent 1,216,702 to Buell expire or all
    claims  covering  Licensed  Products be held  invalid  or unenforceable in a
    decision  by a court of  competent  jurisdiction from which 


                                       13
<PAGE>

    no appeal can or as been  taken,  the royalty  rate will  be  reduced  Three
    Eighths of One Percent (0.375%) for Licensed  Products in category  (E)(ii).
    Should  all claims of  the patents  covering  Licensed Products expire or be
    held  invalid or  unenforceable  in a  decision  by  a  court  of  competent
    jurisdiction  from  which no  appeal can  or  has been  taken  this  License
    Agreement  will terminate.  Any  such  decision  shall have  no  impact upon
    Paragon's  liability to  pay any  running  royalties  accrued prior  thereto
    pursuant to Paragraph (2), nor shall Paragon  have any right to  recover any
    portion  of the  running  royalties  already  paid to  P&G.  Other  than  as
    expressly  set  forth  in  this  License  Agreement, P&G makes no warranties
    whatsoever  with respect  to  Paragon's  manufacture, use, offer for sale or
    sale of  Licensed  Products pursuant to this License Agreement.

12. P&G hereby waives any and all rights to sue  (including, but not limited to,
    actions to enjoin and/or  recover damages  from) Paragon for making,  having
    made for Paragon  with the prior  written  consent of P&G,  using,  offering
    for sale, and/or selling Licensed  Products  in Canada,  provided:  (1) this
    License  Agreement  has not been terminated by either party;  (2) Paragon is
    in full  compliance with  all material  terms of the  concurrently  executed
    Settlement  Agreement with P&G and is  current in meeting  its obligation to
    pay the running royalties  provided in Paragraph (2) hereof; and (3) Paragon
    is  otherwise in full compliance  with the  material  terms of this  License
    Agreement.

13. Notices   relating   to  this   Agreement  shall be in writing  and shall be
    considered  served when  deposited as  certified  or  registered  U.S. mail,
    return  receipt  requested,  in a sealed  envelope  with sufficient  postage
    affixed, addressed as follows:

                                       14
<PAGE>

        P&G:          Attention:  Vice President & General Counsel - Patents
                      The Procter & Gamble Company
                      Winton Hill Technical Center
                      6090 Center Hill Avenue
                      Cincinnati, Ohio 45224

        Paragon:      Attention:  Vice President & General Counsel
                      Paragon Trade Brands, Inc.
                      180 Technology Parkway
                      Norcross, GA   30092

14. The  parties  agree  that this  License  shall be  personal  to  Paragon and
    shall be  nontransferable and  nonassignable to  third parties  without  the
    prior  written consent  of P&G, which consent P&G agrees not to unreasonably
    withhold or unreasonably  delay. In this context,  the parties agree that it
    is not an  unreasonable  ground for P&G to withhold or delay its  consent if
    the  effect of  the proposed  transfer or  assignment would  be to  allow  a
    transferee or assignee to obtain the prospective right to make, import, use,
    offer for  sale and/or sell Licensed  Products in  Canada  without  entering
    into  a  mutually  agreeable  settlement  agreement for  any past infringing
    activity by the transferee or assignee with respect to the  patents included
    in the definition of "Licensed  Products".  In  addition,  the parties agree
    that this  License  shall not apply to the manufacture, import,  use or sale
    of Licensed Products  by any other business entity  acquired by  Paragon, by
    which Paragon is  acquired,  merged with Paragon, consolidated with Paragon,
    partnered  with Paragon, or in any  other business  arrangement with Paragon
    after the effective date of this Agreement without the prior written consent
    of  P&G,  which  consent  P&G   agrees  not  to  unreasonably   withhold  or
    unreasonably  delay. In  this context,  the  parties agree that it is not an
    unreasonable ground for P&G to withhold  or delay its  consent if the effect
    of  the  proposed  transaction would  be to allow  an acquiring,  merging or
    consolidating entity or  partner to obtain  the  prospective  right to make,
    import, use, offer for sale and/or sell 


                                       15
<PAGE>

    Licensed  Products in  Canada  without entering  into a  mutually  agreeable
    settlement  agreement  with P&G  for any  past  infringing  activity  by the
    acquiring, merging or consolidating  entity or partner  with  respect to the
    patents  included  in  the  definition of "Licensed Products".

15. In the event the Settlement Agreement executed concurrently  herewith is not
    approved by the Bankruptcy Court (as defined in the Settlement Agreement) or
    in the  event that the order  approving the  Settlement  Agreement  does not
    become  a  Final  Order by  July  31, 1999 (as  defined  in  the  Settlement
    Agreement),  this License  Agreement  shall be terminable  by P&G,  at P&G's
    option.  Termination in such  circumstance shall  not relieve Paragon of its
    obligation  to  pay  royalties  accrued  hereunder  for  the  period  before
    termination. P&G  agrees to provide  Paragon with a three  month  conversion
    period after the date of termination.  Royalties,  as set forth above, shall
    be  due on  the  Licensed  Products  manufactured  and/or  sold  during  the
    conversion period and such  royalties shall be payable within 30 days of the
    end of the conversion period.

16. P&G agrees  to give  Paragon  notice  of all  future  running  royalty based
    private label  or brand  manufacturer  licenses granted under any of the P&G
    Canadian patents herein, and, upon written  request, provide  Paragon copies
    of all such  subsequent  running royalty  based  agreements   within  thirty
    (30) days  of execution  of any  such agreements. Paragon shall be entitled,
    upon thirty (30) days written request to P&G, to have this License Agreement
    brought  into  conformity  with  any such  subsequent running  royalty based
    license to any private label or brand manufacturer other than Paragon in the
    event P&G  grants any


                                       16
<PAGE>

    license  under  any of the P&G  Canadian  patents  herein  under  terms more
    favorable than those set forth herein.

17. This  Agreement  and   the   Settlement  Agreement   set  forth  the  entire
    understanding  of the parties with respect to the subject  matter herein set
    forth.  There are no ancillary  understandings  or  agreements  with respect
    to the subject matter of this License Agreement.

18. This Agreement may be executed in  counterparts.  Each part shall constitute
    an original.

19. This  Agreement  shall become  effective as of the date of acceptance by the
    last party to sign.


FOR: PARAGON TRADE BRANDS, INC.            FOR: THE PROCTER & GAMBLE COMPANY



By  /S/ B.V. ABRAHAM                        By  /S/ MARK D. KETCHUM             
    --------------------------------            --------------------------------

Title  CHAIRMAN AND CEO                     Title  PRESIDENT - GLOBAL BABY CARE 
      ------------------------------              ------------------------------

Date  FEBRUARY 2, 1999                      Date  FEBRUARY 2, 1999              
      ------------------------------              ------------------------------



FOR: PARAGON TRADE BRANDS (CANADA), INC.


By  /S/ CHRIS OLIVER                
    --------------------------------

Title  PRESIDENT                    
      ------------------------------

Date  FEBRUARY 2, 1999              
      ------------------------------