U.S. 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 (hereinafter referred to as "Paragon"). P&G and
Paragon will be jointly referred to as the "parties".

        WHEREAS,  P&G is the owner of U.S. Patent 4,963,140  issued to Robertson
et al. on October 16, 1990 relating to an absorbent  article having a mechanical
fastening  system with disposal means;

        WHEREAS, P&G owns patents corresponding to U.S. 4,963,140 in a number of
other countries;

        WHEREAS, P&G is the owner of U.S. Patent 4,681,578 issued to Anderson et
al. on July 21, 1987 relating to an absorbent article having ventilation areas;

        WHEREAS, P&G owns patents corresponding  to U.S.  Patent  4,681,578 in a
number of other countries;

        WHEREAS,  Paragon makes,  uses, offers for sale and sells a Supreme line
of  disposable  infant  diapers  having  breathable  ear panels and a mechanical
fastening system with a nonwoven outer cover;

<PAGE>
                                       2


        WHEREAS, P&G believes  that the Supreme diapers made and sold by Paragon
fall within the scope of one or more of the claims of U.S.  Patent  4,963,140 to
Robertson et al. and U.S. Patent 4,681,578 to Anderson et al.; 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  consent of P&G, to use, to offer for sale and to
sell in the United States certain integral disposable  absorbent articles with a
mechanical  fastening  system having a disposal  means  consisting of a nonwoven
outer  cover  which are  within  the scope of one or more of the  claims of U.S.
Patent  4,963,140 to Robertson et al. and U.S.  Patent 4, 681,578 to Anderson et
al.;

        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 or an adult  diaper  having a  mechanical
fastening system  consisting of (i) a closure member of a hook fastening member;
(ii) a landing  member of a loop  fastening  member;  and (iii)  disposal  means
consisting of a nonwoven  outer cover having a limited  degree of  engageability
with the hook  fastening  member of less than 750 grams as  defined  by the Test
Method  designated  "Strength Of Attachment Of  Mechanical  Fastening  Member To
Diaper  Backsheet"  (attached hereto as Appendix 1) and falling within the scope
of one or more of the valid and enforceable claims 1, 2, 5, 6, 7, 8, 10, 11, 13,
14, 15, 16, 17, 19 and 20 of U.S.  Patent  4,963,140 

<PAGE>
                                       3


to  Robertson  et al.  and/or  any of the  claims of U.S.  Patent  4,681,578  to
Anderson et al., including any continuations, continuation-in-part, divisionals,
reissues, reexaminations, or extensions thereof.

"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 United
States 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, 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 U.S.  Patent  4,963,140 to  Robertson et al. and U.S.  Patent
4,681,578  to  Anderson  et al. 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.
<PAGE>
                                       4


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
        the United  States,  without  the right to grant  sublicenses,  Licensed
        Products.

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 the  United States
               under P&G's U.S. Patent  4,963,140 to  Robertson  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  which fall within the  scope of
               one or more  valid and  enforceable  claims 1, 2, 5, 6, 7, 8, 10,
               11, 13, 14, 15, 16, 17, 19  and  20 of  U.S. Patent  4,963,140 to
               Robertson  et  al.  having  an  engageability  between  the  hook
               fastening member and the  nonwoven outer cover, as defined by the
               Test Method  attached  hereto,  of  less than  500  grams - Three
               Eighths  of One  Percent  (0.375%)  of the  Net  Sales  Price  of
               Licensed Products;
<PAGE>
                                       5


        (B)    For a  restricted,  non-exclusive  license  in the  United States
               under P&G's U.S. Patent  4,963,140 to  Robertson  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  which fall within the  scope of
               one or more  valid and  enforceable  claims 1, 2, 5, 6, 7, 8, 10,
               11, 13, 14, 15, 16, 17, 19  and 20 of U.S.  Patent  4,963,140  to
               Robertson  et al.  having   an  engageability  between  the  hook
               fastening member and the nonwoven outer  cover, as defined by the
               Test Method attached  hereto,  of between 500 grams and 750 grams
               -- One  Half  of  One  Percent  (0.5%) of the Net Sales  Price of
               Licensed Products;

        (C)    For an unrestricted,  non-exclusive  license in the United States
               under P&G's U.S. Patent  4,681,578 to Anderson 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)
                      or (B) above, for the period in question; or

               (ii)   One Tenth of One Percent  (0.1%) 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  Anderson  et  al.  Patent  and  for  which
                      Paragon  has paid no royalty to P&G under  Section  (A) or
                      (B) above, for the period in question.

<PAGE>
                                       6


        Subject to Paragraph 6.5 of the Settlement Agreement,  the parties agree
        that  a  non-limiting   example  of  Licensed  Products  falling  within
        subsection (A) and (C) is Paragon's  Supreme  product (a sample of which
        is  attached  hereto as  Appendix  2).  Paragon  agrees to notify P&G in
        writing within ten (10) days if it changes any of its products in such a
        way that it no longer intends to make running royalty payments  pursuant
        to subsections (A), (B) or (C) hereof.

3.      The license rights granted in Paragraph (1) under U.S. Patent  4,963,140
        to Robertson 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 U.S. Patent 4,681,578 to Anderson
        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.  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 by the U.S.  Patent and Trademark  Office as
        not  having  expired  by  its  acceptance  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 U.S. Patent and Trademark  Office 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 U.S. Patent and
        Trademark  Office

<PAGE>
                                       7


        of a  delayed payment of the  maintenance fee.  P&G acknowledges that as
        of  the  date  hereof,   U.S.  Patent  4,963,140 to Robertson et al. has
        lapsed due  to failure to pay  maintenance  fees, and,  therefore,  that
        royalties  under  U.S. Patent  4,963,140  to  Robertson  et al.  are not
        presently due in accordance with this Paragraph.

 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) or (C) 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 

<PAGE>
                                       8


        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.

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) or (C) 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 

<PAGE>
                                       9


        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 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 the United States  with the following statement:  "Licensed under
        one or  more of the  following  U.S. 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


<PAGE>
                                       10


        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.

10.     No patent  rights  outside  the  United  States  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 U.S. 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.     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 the United
        States,  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.

12.     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:

        P&G:          Attention:  Vice President & General Counsel - Patents
                      The Procter & Gamble Company
<PAGE>
                                       11


                      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

13.     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 the United States 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  Licensed  Products in the United  States  without  entering
        into a  mutually  agreeable

<PAGE>
                                       12


        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".

14.     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.

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

<PAGE>
                                       13


16.     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.

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

18.     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              
      ------------------------------              ------------------------------