PARAGON TRADE BRANDS, INC.

                                STOCK OPTION PLAN

                       (EFFECTIVE AS OF JANUARY 28, 2000)


1.       PURPOSE

                  The  purpose of the Plan is to provide a means  through  which
the Company and its  Affiliates  may attract able persons to enter and remain in
the  employ  of the  Company  and  Affiliates  and to  provide  a means  whereby
employees,  directors  and  consultants  of the Company and its  Affiliates  can
acquire  and  maintain  Common  Stock  ownership,  thereby  strengthening  their
commitment  to the  welfare of the  Company  and  Affiliates  and  promoting  an
identity of interest between stockholders and these employees.

                  The  Plan  provides for  granting Incentive  Stock Options and
Nonqualified Stock Options.

2.       DEFINITIONS

                  The following  definitions shall be applicable  throughout the
Plan.

                           (a)      "Affiliate"  means  (i)  any   entity   that
directly or  indirectly is  controlled  by, or is under common  control with the
Company  and (ii) any  entity  in which the  Company  has a  significant  equity
interest, in either case as determined by the Committee.

                           (b)      "Board"  means the Board of Directors of the
Company.

                           (c)       "Cause" means  the  Company or an Affiliate
having "cause" to terminate a Participant's employment or service, as defined in
any  existing  employment,   consulting  or  any  other  agreement  between  the
Participant  and the  Company  or an  Affiliate  or, in the  absence  of such an
employment,  consulting or other  agreement,  upon (i) the  determination by the
Committee that the  Participant has ceased to perform his duties to the Company,
an Affiliate (other than as a result of his incapacity due to physical or mental
illness or injury), which failure amounts to an intentional and extended neglect
of his  duties  to such  party,  (ii)  the  Committee's  determination  that the
Participant has engaged or is about to engage in conduct materially injurious to
the Company or and Affiliate, (iii) the Participant having been convicted of, or
pleaded guilty or no contest to, a felony or (iv) the failure of the Participant
to follow instructions of the Board or his direct superiors.

<PAGE>

                           (d)      "Code"  means  the  Internal Revenue Code of
1986,  as  amended.  Reference  in the Plan to any  section of the Code shall be
deemed to include any amendments or successor provisions to such section and any
regulations under such section.

                           (e)      "Committee"  means a  committee  of at least
two  people as the  Board  may  appoint  to  administer  the Plan or, if no such
committee has been appointed by the Board, the Board. Unless the Board is acting
as the Committee or the Board specifically determines otherwise,  each member of
the  Committee  shall,  at the time he takes any action with respect to a Option
under the Plan, be an Eligible Director,  however the mere fact that a Committee
member shall fail to qualify as an Eligible  Director  shall not  invalidate any
Option granted by the Committee which Option is otherwise validly made under the
Plan.

                           (f)      "Common Stock" means the common stock of the
Company.

                           (g)      "Company" means Paragon Trade Brands, Inc.

                           (h)      "Date of Grant" means the date  on which the
granting of an Option is  authorized,  or such other date as may be specified in
such  authorization  or, if there is no such  date,  the date  indicated  on the
applicable Stock Option Agreement.

                           (i)      "Disability" means,  unless in the case of a
particular Option, the applicable Option Agreement states otherwise, entitled to
receive  benefits  under the  long-term  disability  plan of the  Company  or an
Affiliate,  as may be  applicable  to the  Participant  in question,  or, in the
absence  of such a plan,  the  complete  and  permanent  inability  by reason of
illness  or  accident  to  perform  the  duties  of the  occupation  at  which a
Participant  was  employed  or served  when  such  disability  commenced  or, as
determined by the Committee based upon medical evidence acceptable to it.

                           (j)      "Effective Date" means January 28, 2000.

                           (k)      "Eligible Director"  means a  person  who is
(i) a  "non-employee  director"  within  the  meaning  of Rule  16b-3  under the
Exchange Act, or a person  meeting any similar  requirement  under any successor
rule or regulation and (ii) an "outside  director" within the meaning of Section
162(m)  of the  Code,  and  the  Treasury  Regulations  promulgated  thereunder;
PROVIDED,  HOWEVER,  that clause (ii) shall apply only with respect to grants of
Options with respect to which the Company's  tax  deduction  could be limited by
Section 162(m) of the Code if such clause did not apply.

                           (l)      "Eligible Person"  means any  (i) individual
regularly  employed  by the Company or an  Affiliate  who  satisfies  all of the
requirements of Section 6; PROVIDED, HOWEVER, that no such employee covered by a
collective  bargaining  agreement  shall be an Eligible Person unless and to the
extent  that  such  eligibility  is set  forth  in  such  collective  bargaining
agreement or in an agreement or instrument  relating  thereto;  (ii) director of
the Company,  or Affiliate or (iii) consultant or advisor to the Company,  or an
Affiliate who is


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<PAGE>

entitled to participate  in an "employee  benefit plan" within the meaning of 17
CFR ss. 230.405  (which,  as of the Effective  Date,  includes those who (A) are
natural  persons and (B) provide BONA FIDE services to the Company other than in
connection   with  the  offer  or  sale  of  securities  in  a   capital-raising
transaction,  and do not directly or indirectly promote or maintain a market for
the Company's securities).

                           (m)      "Exchange Act" means the Securities Exchange
Act of 1934.

                           (n)      "Fair Market Value",  on a  given date means
(i) if the Stock is listed on a national securities  exchange,  the mean between
the highest and lowest  sale prices  reported as having  occurred on the primary
exchange  with  which the Stock is listed  and  traded on the date prior to such
date, or, if there is no such sale on that date, then on the last preceding date
on which  such a sale was  reported;  (ii) if the  Stock  is not  listed  on any
national  securities exchange but is quoted in the National Market System of the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
on a last sale basis,  the average  between the high bid price and low ask price
reported  on the date prior to such  date,  or, if there is no such sale on that
date, then on the last preceding date on which a sale was reported;  or (iii) if
the Stock is not  listed on a  national  securities  exchange  nor quoted in the
NASDAQ on a last sale basis,  the amount  determined  by the Committee to be the
fair market value based upon a good faith attempt to value the Stock  accurately
and computed in accordance with applicable  regulations of the Internal  Revenue
Service.

                           (o)      "Incentive  Stock Option"  means  an  Option
granted by the Committee to a Participant  under the Plan which is designated by
the  Committee as an  incentive  stock option as described in Section 422 of the
Code.

                           (p)      "Nonqualified Stock Option"  means an Option
granted by the Committee to a Participant under the Plan which is not designated
by the Committee as an Incentive Stock Option.

                           (q)      "Normal Termination"  means  termination  of
employment or service with the Company and Affiliates:

                                    (i)     upon  retirement  as approved by the
         Committee;

                                    (ii)    on account of death or Disability;

                                    (iii)   by  the  Company,  or  an  Affiliate
         without Cause.

                           (r)      "Option"   means  an   award  granted  under
Section 5.

                           (s)      "Option Period" means  the  period described
in Section 7.


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<PAGE>

                           (t)      "Option Price"  means the exercise price for
an Option as described in Section 7.

                           (u)      "Participant"  means  an Eligible Person who
has been selected by the Committee  to participate in the Plan and to receive an
Option pursuant to Section 6.

                           (v)      "Plan" means this Paragon Trade Brands, Inc.
Stock Option Plan.

                           (w)      "Securities Act" means the Securities Act of
1933, as amended.

                           (aa)     "Stock" means the Common Stock or such other
authorized shares of stock of the Company as the Committee may from time to time
authorize for use under the Plan.

                           (bb)     "Stock Option Agreement" means the agreement
between the Company and a  Participant  who has been granted an Option  pursuant
to Section 7 which defines the rights and obligations of the parties as required
therein.

                           (cc)     "Subsidiary"  means  any  subsidiary  of the
Company as defined in Section 424(f) of the Code.

3.       EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL

                  The  Plan  is  effective  as  of  the  Effective   Date.   The
effectiveness  of the Plan and the  validity and  exercisability  of any and all
Options granted  pursuant to the Plan is contingent upon approval of the Plan by
the  shareholders  of the  Company  in a  manner  intended  to  comply  with the
shareholder approval requirements of Section 162(m) and 422(b)(i) of the Code.

                  The expiration date of the Plan, on and after which no Options
may be granted hereunder,  shall be the tenth anniversary of the Effective Date;
PROVIDED,  HOWEVER, that the administration of the Plan shall continue in effect
until all matters  relating to the payment of Options  previously  granted  have
been settled.

4.       ADMINISTRATION

                  The Committee  shall  administer the Plan. The majority of the
members of the Committee  shall  constitute a quorum.  The acts of a majority of
the members present at any meeting at which a quorum is present or acts approved
in  writing  by a  majority  of the  Committee  shall be deemed  the acts of the
Committee.

                  Subject to the provisions of the Plan and applicable  law, the
Committee  shall have the power,  and in  addition to other  express  powers and
authorizations  conferred  on  the  Committee  by the  Plan  to:  (i)  designate
Participants;  (ii)  determine  the type or types of  Options to be granted to a
Participant;  (iii)  determine  the number of Shares to be  covered  by,


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<PAGE>

or with respect to which payments, rights, or other matters are to be calculated
in connection  with,  Options;  (iv)  determine the terms and  conditions of any
Options;  (v) determine  whether,  to what extent,  and under what circumstances
Options may be settled or exercised in cash,  Shares,  other  securities,  other
Options, or other property, or canceled,  forfeited, or suspended and the method
or methods by which Options may be settled, exercised,  canceled,  forfeited, or
suspended;  (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either  automatically  or at
the  election  of the  holder  thereof  or of the  Committee;  (vii)  interpret,
administer  reconcile any  inconsistency,  correct any default and/or supply any
omission in the Plan and any  instrument  or  agreement  relating  to, or Option
granted under, the Plan; (viii) establish,  amend,  suspend, or waive such rules
and  regulations  and appoint such agents as it shall deem  appropriate  for the
proper administration of the Plan; (ix) impose conditions, such as entering into
a  shareholders'  agreement  (including  without  limitation  the  Shareholders'
Agreement,  dated as of January 28, 2000, among Paragon Trade Brands,  Inc., PTB
Acquisition Company, LLC, Co-Investment Partners, L.P., Ontario Teachers Pension
Plan Board, and certain Other  Shareholders  party thereto),  upon an optionee's
ability to exercise an Option; and (x) make any other determination and take any
other  action  that  the  Committee   deems   necessary  or  desirable  for  the
administration of the Plan.

                  (b)  Unless  otherwise  expressly  provided  in the Plan,  all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Option or any documents  evidencing  Options shall be
within the sole  discretion  of the  Committee,  may be made at any time granted
pursuant  to the Plan and  shall be  final,  conclusive,  and  binding  upon all
parties, including, without limitation, the Company, Affiliate, any Participant,
any holder or beneficiary of any Option, and any shareholder.

                  (c) No member of the Committee  shall be liable for any action
or  determination  made in good  faith  with  respect  to the Plan or any Option
hereunder.

5.       GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN

                  The Committee may, from time to time,  grant Options to one or
more Eligible Persons; PROVIDED, HOWEVER, that:

                           (a)      Subject  to Section 9,  the aggregate number
of shares of Stock in respect of  which Options may be granted under the Plan is
1,321,222 shares;

                           (b)      Such shares  shall be  deemed  to have  been
used in payment of Awards whether they are actually delivered.  In the event any
Option  shall be  surrendered, terminate,  expire, or be forfeited,  the  number
of shares  of Stock no  longer subject  thereto shall  thereupon be released and
shall  thereafter be available for new grants under the Plan;


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<PAGE>

                           (c)      Stock delivered by the Company in settlement
of Options granted under the Plan  may be authorized and unissued Stock or Stock
held in the treasury of the Company or may be purchased on the open market or by
private purchase; and

                           (d)      Subject  to  Section 9,  no  person  may  be
granted  Options  under the Plan during any  calendar  year with respect to more
than  750,000  shares of Stock;  provided  that such  number  shall be  adjusted
pursuant to Section 9, and shares otherwise counted against such number, only in
a manner  which  will not cause the  Options  granted  under the Plan to fail to
qualify as "performance-based compensation" Section 162(m) of the Code.

                           (e)      Without  limiting   the  generality  of  the
preceding  provisions of this Section 5, the Committee  may, but solely with the
Participants consent,  agree to cancel any Option under the Plan and issue a new
Option in substitution therefor upon such terms as the Committee may in its sole
discretion  determine,  provided  that  the  substituted  Option  satisfies  all
applicable Plan requirements as of the date such new Award is made.

6.       ELIGIBILITY

                  Participation  shall be limited to  Eligible  Persons who have
received written notification from the Committee, or from a person designated by
the Committee, that they have been selected to participate in the Plan.

7.       TERMS OF OPTIONS

                  The  Committee is  authorized  to grant one or more  Incentive
Stock Options or Nonqualified  Stock Options to any Eligible  Person;  PROVIDED,
HOWEVER, that no Incentive Stock Options shall be granted to any Eligible Person
who is not an employee of the Company.  Each Option so granted  shall be subject
to the following conditions,  or to such other conditions as may be reflected in
the applicable Stock Option Agreement.

                           (a)      OPTION PRICE.  The  exercise price  ("Option
Price") per share of Stock for each Option shall be set by the  Committee at the
time of grant but shall not be less than (i) in the case of an  Incentive  Stock
Option,  and subject to Section 7, the Fair Market  Value of a share of Stock at
the Date of Grant, and (ii) in the case of a Non-Qualified Stock Option, the par
value of a share of Stock;  PROVIDED,  HOWEVER,  that all  Options  intended  to
qualify as  "performance-based  compensation"  under Section  162(m) of the Code
shall have an Option Price per share of Stock no less than the Fair Market Value
of a share of Stock on the Date of Grant.

                           (b)      MANNER OF EXERCISE AND FORM OF PAYMENT.   No
shares of Stock shall be  delivered  pursuant to any exercise of an Option until
payment in full of the  aggregate  exercise  price  therefor  is received by the
Company.  Options which have become  exercisable may be exercised by delivery of
written notice of exercise to the Committee accompanied by payment of the Option
Price.  The Option Price shall be payable in cash and/or,  in the


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<PAGE>

discretion of the Committee,  in shares of Stock valued at the Fair Market Value
at the time the  Option  is  exercised  (including  by means of  attestation  of
ownership of a sufficient  number of shares of Stock in lieu of actual  delivery
of such  shares to the  Company);  PROVIDED,  HOWEVER,  that such shares are not
subject to any pledge or other  security  interest  and have either been held by
the  Participant for six months,  previously  acquired by the Participant on the
open  market or meet such other  requirements  as the  Committee  may  determine
necessary  in order to avoid an  accounting  earnings  charge in  respect of the
Option) or, in the  discretion of the  Committee,  either (i) in other  property
having a fair market  value on the date of exercise  equal to the Option  Price,
(ii) by  delivering  to the Committee a copy of  irrevocable  instructions  to a
stockbroker to deliver  promptly to the Company an amount of loan  proceeds,  or
proceeds of the sale of the Stock  subject to the Option,  sufficient to pay the
Option Price or (iii) by such other method as the Committee may allow.

                           (c)      VESTING.  Option may vest based on continued
employment  ("Time  Options")  or upon  the  attainment  of  stated  performance
criteria ("Performance  Options").  Unless otherwise set forth in the applicable
Stock Option Agreement,  Time Options shall vest ratably at 20% per year on each
of the first five anniversaries of the date of grant. Unless otherwise set forth
in the applicable Stock Option Agreement, Performance Options shall vest ratably
on at 20% per year cased on the attainment of performance  targets as set by the
Board. In the event the  performnace  targets for a given year are not attained,
the Board may, in its discretion allocate the Option shares that did not vest in
such year to  subsequent  years.  Notwithstanding  any  provision  herein to the
contrary all Options  shall become fully vested and  exercisable  on the seventh
anniversary of the date of grant.

                           (d)      OPTION   PERIOD  AND   EXPIRATION.    Unless
otherwise set forth in the applicable  Stock Option  Agreement,  an Option shall
expire ten years from the date of grant (the "Option  Period").  If an Option is
exercisable in installments,  such installments or portions thereof which become
exercisable shall remain exercisable until the Option expires.  Unless otherwise
stated in the applicable Stock Option Agreement, the Option shall expire earlier
than the end of the Option Period in the following circumstances:

                                    (i)     If  prior to the  end of the  Option
         Period, the Participant shall undergo a Normal Termination,  the Option
         shall expire on the earlier of the last day of the Option Period or the
         date that is three months after the date of such Normal Termination. In
         such event,  the Option shall  remain  exercisable  by the  Participant
         until its expiration,  only to the extent the Option was exercisable at
         the time of such Normal Termination.

                                    (ii)    If the  Participant dies or  becomes
         disabled  (as  determined  by the  Committee)  prior  to the end of the
         Option  Period and while still in the employ or service of the Company,
         or an Affiliate, the Option shall expire on the earlier of the last day
         of the Option  Period or the date that is twelve  months after the date
         of death of the  Participant.  In such event,  the Option  shall remain
         exercisable by the person or persons to whom the  Participant's  rights
         under the Option  pass by will or the  applicable


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<PAGE>

         laws of descent  and  distribution  until its  expiration,  only to the
         extent the  Option was exercisable  by the Participant  at the  time of
         death.

                                    (iii)   If the Participant ceases employment
         or service  with the Company  and  Affiliates  for  reasons  other than
         Normal  Termination or death, the Option shall expire  immediately upon
         such cessation of employment or service.

                           (e)      STOCK OPTION AGREEMENT  -  OTHER  TERMS  AND
CONDITIONS.  Each Option  granted  under the Plan shall be  evidenced by a Stock
Option  Agreement,  which shall contain such  provisions as may be determined by
the Committee and, except as may be specifically  stated otherwise in such Stock
Option Agreement, which shall be subject to the following terms and conditions:

                                    (i)     Each Option  or portion thereof that
         is exercisable shall be exercisable for the full amount or for any part
         thereof.

                                    (ii)    Each   share  of   Stock   purchased
         through the exercise of an Option shall be paid for in full at the time
         of the exercise.  Each Option shall cease to be exercisable,  as to any
         share of Stock,  when the  Participant  purchases the share or when the
         Option expires.

                                    (iii)   Subject  to  Section 8(h),   Options
         shall not be transferable by the Participant except by will or the laws
         of  descent  and  distribution  and  shall be  exercisable  during  the
         Participant's lifetime only by him.

                                    (iv)    Each  Option  shall  vest and become
         exercisable by the Participant in accordance with the vesting  schedule
         established  by  the  Committee  and  set  forth  in the  Stock  Option
         Agreement.

                                    (v)     Each   Stock  Option  Agreement  may
         contain a  provision  that,  upon  demand by the  Committee  for such a
         representation,  the Participant  shall deliver to the Committee at the
         time of any  exercise  of an Option a written  representation  that the
         shares  to be  acquired  upon  such  exercise  are to be  acquired  for
         investment  and not  for  resale  or  with a view  to the  distribution
         thereof. Upon such demand, delivery of such representation prior to the
         delivery  of any shares  issued upon  exercise of an Option  shall be a
         condition  precedent  to the  right of the  Participant  or such  other
         person to purchase any shares. In the event  certificates for Stock are
         delivered  under  the  Plan  with  respect  to  which  such  investment
         representation  has been obtained,  the Committee may cause a legend or
         legends to be placed on such certificates to make appropriate reference
         to such  representation  and to  restrict  transfer  in the  absence of
         compliance with applicable federal or state securities laws.

                                    (vi)     Each   Incentive    Stock    Option
         Agreement shall contain a provision requiring the Participant to notify
         the  Company  in  writing  immediately after


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<PAGE>

         the Participant makes a disqualifying disposition of any Stock acquired
         pursuant  to  the  exercise  of  such   Incentive   Stock   Option.   A
         disqualifying  disposition is any  disposition  (including any sale) of
         such Stock before the later of (a) two years after the Date of Grant of
         the  Incentive  Stock  Option  or (b)  one  year  after  the  date  the
         Participant  acquired  the  Stock by  exercising  the  Incentive  Stock
         Option.

                           (f)      INCENTIVE   STOCK   OPTION  GRANTS  TO   10%
STOCKHOLDERS.  Notwithstanding anything to the contrary in this Section 7, if an
Incentive Stock Option is granted to a Participant  who owns stock  representing
more than ten percent of the voting power of all classes of stock of the Company
or of a Subsidiary,  the Option Period shall not exceed five years from the Date
of Grant of such  Option and the Option  Price  shall be at least 110 percent of
the Fair Market Value (on the Date of Grant) of the Stock subject to the Option.

                           (g)      $100,000  PER YEAR  LIMITATION FOR INCENTIVE
STOCK OPTIONS.  To the extent the aggregate Fair Market Value  (determined as of
the Date of Grant) of Stock for which  Incentive  Stock Options are  exercisable
for the first time by any Participant  during any calendar year (under all plans
of the Company) exceeds  $100,000,  such excess Incentive Stock Options shall be
treated as Nonqualified Stock Options.

                           (h)      VOLUNTARY SURRENDER.   The   Committee   may
permit the voluntary  surrender of all or any portion of any Nonqualified  Stock
Option  granted  under  the  Plan to be  conditioned  upon the  granting  to the
Participant of a new option for the same or a different  number of shares as the
option surrendered or require such voluntary  surrender as a condition precedent
to a grant  of a new  Option  to such  Participant.  Such  new  Option  shall be
exercisable at an Option Price,  during an Option Period, and in accordance with
any other terms or  conditions  specified  by the  Committee at the time the new
Option is granted,  all determined in accordance with the provisions of the Plan
without  regard to the  Option  Price,  Option  Period,  or any other  terms and
conditions of the Nonqualified Stock Option surrendered.

8.       GENERAL

                           (a)      ADDITIONAL PROVISIONS OF AN OPTION.  Options
granted  to a  Participant  under the Plan  also may be  subject  to such  other
provisions  (whether  or not  applicable  to the  benefit  awarded  to any other
Participant)  as  the  Committee  determines  appropriate   including,   without
limitation,  provisions to assist the  Participant  in financing the purchase of
Stock  upon  the  exercise  of  options,  provisions  for the  forfeiture  of or
restrictions  on resale or other  disposition  of shares of Stock acquired under
any Option,  provisions  giving the Company  the right to  repurchase  shares of
Stock acquired under any Option in the event the  Participant  elects to dispose
of such  shares,  provisions  allowing  the  Participant  to elect to defer  the
receipt of shares of Stock upon the exercise of Options for a specified  time or
until a  specified  event,  and  provisions  to comply  with  Federal  and state
securities  laws and Federal and state tax  withholding  requirements.  Any such
provisions shall be reflected in the applicable Stock Option Agreement.

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<PAGE>

                           (b)      PRIVILEGES  OF STOCK OWNERSHIP.   Except  as
otherwise  specifically provided in the Plan, no person shall be entitled to the
privileges  of  ownership  in  respect of shares of Stock  which are  subject to
Options hereunder until such shares have been issued to that person.

                           (c)      GOVERNMENT  AND   OTHER  REGULATIONS.    The
obligation of the Company to make payment of Options in Stock or otherwise shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by  governmental  agencies  as may be  required.  Notwithstanding  any  terms or
conditions  of any  Option  to the  contrary,  the  Company  shall  be  under no
obligation to offer to sell or to sell and shall be prohibited  from offering to
sell or selling  any shares of Stock  pursuant  to an Option  unless such shares
have been properly  registered  for sale pursuant to the Securities Act with the
Securities and Exchange Commission or unless the Company has received an opinion
of counsel, satisfactory to the Company, that such shares may be offered or sold
without such registration  pursuant to an available  exemption therefrom and the
terms and  conditions  of such  exemption  have been fully  complied  with.  The
Company shall be under no  obligation to register for sale under the  Securities
Act any of the  shares of Stock to be  offered  or sold  under the Plan.  If the
shares of Stock  offered  for sale or sold  under the Plan are  offered  or sold
pursuant to an exemption from registration under the Securities Act, the Company
may restrict  the transfer of such shares and may legend the Stock  certificates
representing  such  shares in such  manner as it deems  advisable  to ensure the
availability of any such exemption.

                           (d)      TAX WITHHOLDING.

                                    (i) A  Participant may be required to pay to
the Company or any  Affiliate  and the Company or any  Affiliate  shall have the
right and is hereby  authorized  to withhold  from any Shares or other  property
deliverable  under any Option or from any compensation or other amounts owing to
a Participant the amount (in cash,  Stock or other property) of any required tax
withholding  and payroll  taxes in respect of an Option,  its  exercise,  or any
payment  or  transfer  under an Option or under the Plan and to take such  other
action  as may be  necessary  in the  opinion  of the  Company  to  satisfy  all
obligations for the payment of such taxes.

                                    (ii) Without  limiting  the  generality   of
clause (i) above, if so provided in a Stock Option Agreement,  a Participant may
satisfy, in whole or in part, the foregoing  withholding  liability (but no more
than the minimum required withholding  liability) by delivery of shares of Stock
owned by the Participant  (which are not subject to any pledge or other security
interest and which have been owned by the  Participant  for at least 6 months or
purchased on the open market) with a Fair Market Value equal to such withholding
liability or by having the Company  withhold  from the number of shares of Stock
otherwise  issuable  pursuant  to the  exercise of the Option a number of shares
with a Fair Market Value equal to such withholding liability.

                                       10
<PAGE>

                           (e)      CLAIM TO OPTIONS  AND EMPLOYMENT RIGHTS.  No
employee of the Company, or an Affiliate,  or other person, shall have any claim
or right to be granted an Option under the Plan or, having been selected for the
grant of an Option,  to be selected for a grant of any other Award.  Neither the
Plan nor any action taken hereunder shall be construed as giving any Participant
any  right  to be  retained  in the  employ  or  service  of the  Company  or an
Affiliate.

                           (f)      NO  LIABILITY  OF  COMMITTEE  MEMBERS.    No
member of the Committee shall be personally  liable by reason of any contract or
other  instrument  executed by such member or on his behalf in his capacity as a
member of the Committee nor for any mistake of judgment made in good faith,  and
the Company  shall  indemnify and hold harmless each member of the Committee and
each other  employee,  officer or  director  of the  Company to whom any duty or
power  relating  to the  administration  or  interpretation  of the  Plan may be
allocated or delegated,  against any cost or expense (including counsel fees) or
liability  (including  any sum paid in settlement of a claim) arising out of any
act or omission to act in  connection  with the Plan unless  arising out of such
person's own fraud or willful bad faith; PROVIDED, HOWEVER, that approval of the
Board shall be required for the payment of any amount in  settlement  of a claim
against any such person.  The foregoing  right of  indemnification  shall not be
exclusive  of any other rights of  indemnification  to which such persons may be
entitled under the Company's  Articles of Incorporation or By-Laws,  as a matter
of law, or otherwise,  or any power that the Company may have to indemnify  them
or hold them harmless.

                           (g)      GOVERNING LAW. The Plan shall be governed by
and  construed in  accordance  with the  internal  laws of the State of Delaware
without regard to the  principles of conflicts of law thereof,  or principals of
conflicts of laws of any other jurisdiction which could cause the application of
the laws of any jurisdiction other than the State of Delaware.

                           (h)      NONTRANSFERABILITY.

                                    (i)  Each  Option  shall be exercisable only
by the Participant during the Participant's  lifetime,  or, if permissible under
applicable law, by the Participant's legal guardian or representative. No Option
may be assigned,  alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or by the laws of descent and
distribution and any such purported assignment,  alienation, pledge, attachment,
sale,  transfer  or  encumbrance  shall be void and  unenforceable  against  the
Company or an Affiliate;  provided that the  designation of a beneficiary  shall
not constitute an assignment,  alienation, pledge, attachment, sale, transfer or
encumbrance.

                                    (ii)  Notwithstanding   the  foregoing,  the
Committee may in the applicable  Stock Option Agreement or at any time after the
Date of Grant in an amendment to a Stock Option  Agreement  provide that Options
which are not intended to qualify as Incentive  Stock Options may be transferred
by a Participant without  consideration,  subject to such rules as the Committee
may adopt  consistent  with any  applicable  Option  agreement  to preserve  the
purposes of the Plan, to:

                                       11
<PAGE>

                           (A)      any person  who is a "family  member" of the
                                    Participant,  as  such  term  is used in the
                                    instructions to Form S-8 (collectively,  the
                                    "Immediate Family Members");

                           (B)      a  trust  solely  for  the  benefit  of  the
                                    Participant and his or her Immediate  Family
                                    Members;

                           (C)      a partnership  or limited  liability company
                                    whose only partners or shareholders  are the
                                    Participant  and his or her Immediate Family
                                    Members; or

                           (D)      any  other  transferee  as may  be  approved
                                    either (a) by the Board or the  Committee in
                                    its sole  discretion,  or (b) as provided in
                                    the applicable Stock Option Agreement;

(each transferee described in clauses (A), (B), (C) and (D) above is hereinafter
referred to as a "Permitted  Transferee");  PROVIDED that the Participant  gives
the Committee  advance written notice describing the terms and conditions of the
proposed  transfer and the Committee  notifies the  Participant  in writing that
such a  transfer  would  comply  with  the  requirements  of the  Plan  and  any
applicable Stock Option Agreement.

                                    (iii)  The  terms of  any Option transferred
in  accordance  with  the  immediately  preceding  sentence  shall  apply to the
Permitted  Transferee  and  any  reference  in the  Plan  or in a  Stock  Option
Agreement to a Participant shall be deemed to refer to the Permitted Transferee,
except that (a)  Permitted  Transferees  shall not be  entitled to transfer  any
Options,  other  than by  will or the  laws of  descent  and  distribution;  (b)
Permitted  Transferees shall not be entitled to exercise any transferred Options
unless there shall be in effect a registration  statement on an appropriate form
covering  the shares to be acquired  pursuant to the  exercise of such Option if
the Committee determines, consistent with any applicable Stock Option Agreement,
that  such a  registration  statement  is  necessary  or  appropriate,  (c)  the
Committee  or the  Company  shall not be  required  to  provide  any notice to a
Permitted Transferee, whether or not such notice is or would otherwise have been
required to be given to the Participant under the Plan or otherwise, and (d) the
consequences of termination of the Participant's  employment by, or services to,
the Company or an Affiliate under the terms of the Plan and the applicable Stock
Option  Agreement shall continue to be applied with respect to the  Participant,
following  which the Options shall be  exercisable  by the Permitted  Transferee
only  to the  extent,  and  for  the  periods,  specified  in the  Plan  and the
applicable Stock Option Agreement.

                           (i)      RELIANCE ON REPORTS.  Each  member  of   the
Committee  and each  member of the Board  shall be fully  justified  in relying,
acting or failing to act, and shall not be liable for having so relied, acted or
failed to act in good  faith,  upon any report  made by the


                                       12
<PAGE>

         independent  public  accountant of the Company and  Affiliates and upon
         any other  information  furnished  in  connection  with the Plan by any
         person or persons other than himself.

                           (j)      RELATIONSHIP TO OTHER BENEFITS.  No  payment
under the Plan shall be taken into account in determining any benefits under any
pension,  retirement,  profit sharing,  group insurance or other benefit plan of
the Company or any Affiliate except as otherwise  specifically  provided in such
other plan.

                           (k)      EXPENSES.  The expenses of administering the
Plan shall be borne by the Company and Affiliates.

                           (l)      PRONOUNS.   Masculine  pronouns  and   other
words of masculine gender shall refer to both men and women.

                           (m)      TITLES  AND  HEADINGS.   The   titles    and
headings of the sections in the Plan are for  convenience of reference only, and
in the event of any conflict,  the text of the Plan,  rather than such titles or
headings shall control.

                           (n)      TERMINATION OF EMPLOYMENT.  For all purposes
herein,  a person who transfers  from  employment or service with the Company to
employment  or service  with an  Affiliate  or vice versa shall not be deemed to
have terminated employment or service with the Company or an Affiliate.

                           (o)      SEVERABILITY.  If  any provision of the Plan
or any Stock Option Agreement is or becomes or is deemed to be invalid, illegal,
or  unenforceable  in any  jurisdiction or as to any person or Option,  or would
disqualify  the  Plan or any  Option  under  any law  deemed  applicable  by the
Committee, such provision shall be construed or deemed amended to conform to the
applicable laws, or if it cannot be construed or deemed amended without,  in the
determination  of the Committee,  materially  altering the intent of the Plan or
the Option, such provision shall be stricken as to such jurisdiction,  person or
Option and the  remainder  of the Plan and any such Option  shall remain in full
force and effect.

9.       CHANGES IN CAPITAL STRUCTURE

                  Options   granted   under  the  Plan  and  any  Stock   Option
Agreements,  the maximum  number of shares of Stock subject to all Awards stated
in Section 5(a) and the maximum  number of shares of Stock with respect to which
any one person may be granted  Options  during any period stated in Section 5(d)
shall be subject to adjustment or  substitution,  as determined by the Committee
in its sole discretion,  as to the number,  price or kind of a share of Stock or
other  consideration  subject to such Options or as otherwise  determined by the
Committee to be equitable (i) in the event of changes in the  outstanding  Stock
or in the capital  structure of the Company by reason of stock or  extraordinary
cash   dividends,   stock  splits,   reverse  stock  splits,   recapitalization,
reorganizations,  mergers,  consolidations,  combinations,  exchanges,  or other
relevant changes in capitalization occurring after the Date of Grant of any


                                       13
<PAGE>

such Option or (ii) in the event of any change in applicable  laws or any change
in circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for,  Participants,  or which
otherwise warrants equitable  adjustment because it interferes with the intended
operation of the Plan.  Any  adjustment  in Incentive  Stock  Options under this
Section 9 shall be made only to the extent  not  constituting  a  "modification"
within the meaning of Section  424(h)(3) of the Code, and any adjustments  under
this  Section 9 shall be made in a manner  which does not  adversely  affect the
exemption provided pursuant to Rule 16b-3 under the Exchange Act. Further,  with
respect to Options intended to qualify as "performance-based compensation" under
Section 162(m) of the Code, such adjustments or substitutions shall be made only
to  the  extent  that  the  Committee   determines  that  such   adjustments  or
substitutions may be made without causing Options granted under the Plan to fail
to qualify as "performance-based compensation" for purposes of Section 162(m) of
the Code.  The  Company  shall  give each  Participant  notice of an  adjustment
hereunder and, upon notice,  such adjustment shall be conclusive and binding for
all purposes.

                  Notwithstanding  the  above,  in  the  event  of  any  of  the
following:

                  A.       The Company is  merged or  consolidated  with another
corporation or entity and, in connection therewith, consideration is received by
shareholders of the Company in a form other than stock or other equity interests
of the surviving entity;

                  B.       All or substantially all of the assets of the Company
are acquired by another person;

                  C.       The reorganization or liquidation of the Company; or

                  D.       The Company  shall enter  into a written agreement to
undergo an event described in clauses A, B or C above,

then the  Committee  may, in its  discretion  and upon at least 10 days  advance
notice to the affected  persons,  cancel any outstanding  Options and pay to the
holders thereof, in cash or stock, or any combination thereof, the value of such
Options  based upon the price per share of Stock  received  or to be received by
other  shareholders of the Company in the event. The terms of this Section 9 may
be varied by the Committee in any particular Stock Option Agreement.

10.      NONEXCLUSIVITY OF THE PLAN

                  Neither  the  adoption  of  this  Plan  by the  Board  nor the
submission of this Plan to the stockholders of the Company for approval shall be
construed  as creating any  limitations  on the power of the Board to adopt such
other  incentive  arrangements  as it may  deem  desirable,  including,  without
limitation,  the granting of stock options  otherwise  than under this Plan, and
such arrangements may be either applicable generally or only in specific cases.

                                       14
<PAGE>

11.      AMENDMENTS AND TERMINATION

                  (a)  AMENDMENT  AND  TERMINATION  OF THE  PLAN.  The Board may
amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof
at  any  time;  PROVIDED  that  no  such  amendment,   alteration,   suspension,
discontinuation  or termination  shall be made without  shareholder  approval if
such  approval is  necessary  to comply with any tax or  regulatory  requirement
applicable to the Plan  (including as necessary to prevent Options granted under
the Plan  from  failing  to  qualify  as  "performance-based  compensation"  for
purposes of Section  162(m) of the Code);  and  PROVIDED  FURTHER  that any such
amendment,  alteration,  suspension,  discontinuance  or termination  that would
impair the rights of any  Participant or any holder or beneficiary of any Option
theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.

                  (b) AMENDMENT OF STOCK OPTION  AGREEMENTS.  The Committee may,
to the  extent  consistent  with  the  terms  of  any  applicable  Stock  Option
Agreement,  waive any conditions or rights under,  amend any terms of, or alter,
suspend,  discontinue,  cancel or  terminate,  any Option  theretofore  granted,
prospectively  or  retroactively;  provided  that  any such  waiver,  amendment,
alteration, suspension,  discontinuance,  cancellation or termination that would
impair the  rights of any  Participant  in  respect  of any  Option  theretofore
granted  shall not to that  extent  be  effective  without  the  consent  of the
affected Participant.

                                      * * *

As adopted by the Plan Implementation Committee
of the Board of Directors of
Paragon Trade Brands, Inc. as of January 28, 2000