Paragon Trade Brands Inc · 8-K · For 1/13/0 · EX-99.1

Filed On 1/20/0   ·   SEC File 1-11368   ·   Accession Number 889429-0-2

Current Report   ·   Form 8-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                         5     24K 
 2: EX-99.1     Modified Second Amended Plan of Reorganization        60    345K 

EX-99.1   ·   Modified Second Amended Plan of Reorganization
Exhibit Table of Contents

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

------------------------------------------------x                               
IN RE)                                         )     Case No. 98-60390          
               )
PARAGON TRADE BRANDS, INC.,                    )     Chapter 11                 
               )
Debtor.                         )     Judge Murphy
               )
Federal Tax I.D. No. 91-1554663                )                                
               )
------------------------------------------------x                               

MODIFIED SECOND AMENDED PLAN OF REORGANIZATION

ALSTON & BIRD LLP                             O'MELVENY & MYERS LLP             
Attorneys for Debtor and Debtor in            Attorneys for the Official        
   Possession                                   Committee of Unsecured Creditors
1201 West Peachtree Street                    153 East 53rd Street              
Atlanta, Georgia 30309-3424                   New York, New York 10022          
(404) 881-7000                               (212) 326-2000                     

and                                            and                              

WILLKIE FARR & GALLAGHER                      PARKER HUDSON RAINER & DOBBS LLP  
Special Reorganization Counsel for Debtor     Attorneys for the Official        
   and Debtor in Possession                     Committee of Unsecured Creditors
787 Seventh Avenue                            Suite 1500                        
New York, New York  10019-6099                285 Peachtree Center Avenue       
(212) 728-8000                                Atlanta, Georgia  30303           
                          (404) 523-5300

Dated as of: January 13, 2000                                                   

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                               TABLE OF CONTENTS                                                                   
                                                                                                               Page
                                                                                                                   
I.  DEFINITIONS..................................................................................................1 

         1.1.   ADMINISTRATIVE CLAIM.............................................................................1 
         1.2.   AFFILIATE........................................................................................1 
         1.3.   ALLOWED CLAIM....................................................................................1 
         1.4.   ALLOWED INTEREST.................................................................................2 
         1.5.   APPLICABLEBAR DATE...............................................................................2 
         1.6.   BALLOT...........................................................................................2 
         1.7.   BANKRUPTCY CODE..................................................................................2 
         1.8.   BANKRUPTCY COURT.................................................................................2 
         1.9.   BANKRUPTCY RULES.................................................................................2 
         1.10.  BOARD OF DIRECTORS...............................................................................2 
         1.11.  BUSINESS DAY.....................................................................................2 
         1.12.  BYLAWS...........................................................................................3 
         1.13.  CASH.............................................................................................3 
         1.14.  CASH EQUIVALENTS.................................................................................3 
         1.15.  CERTIFICATE OF INCORPORATION.....................................................................3 
         1.16.  CHAPTER 11 CASE..................................................................................3 
         1.17.  CLAIM............................................................................................3 
         1.18.  CLAIMS OBJECTION DEADLINE........................................................................3 
         1.19.  CLASS............................................................................................3 
         1.20.  COMMISSION.......................................................................................3 
         1.21.  COMMITTEES.......................................................................................3 
         1.22.  CONFIRMATION.....................................................................................3 
         1.23.  CONFIRMATION DATE................................................................................3 
         1.24.  CONFIRMATION HEARING.............................................................................3 
         1.25.  CONFIRMATION ORDER...............................................................................3 
         1.26.  CONVENIENCE CLAIM................................................................................4 
         1.27.  CREDITORS' COMMITTEE.............................................................................4 
         1.28.  CURE STATEMENT...................................................................................4 
         1.29.  DEBTOR...........................................................................................4 
         1.30.  DEBTOR IN POSSESSION.............................................................................4 
         1.31.  DEBTOR'S PROFESSIONALS...........................................................................4 
         1.32.  DELAWARE ACTION..................................................................................4 
         1.33.  DIP BANK AGENT...................................................................................4 
         1.34.  DIP CLAIM........................................................................................4 
         1.35.  DIP CREDIT AGREEMENT.............................................................................4 
         1.36.  DISALLOWED.......................................................................................4 
         1.37.  DISBURSEMENT ACCOUNT(S)..........................................................................4 
         1.38.  DISCLOSURE STATEMENT.............................................................................5 
         1.39.  DISCLOSURE STATEMENT HEARING.....................................................................5 

                                     (i)                                                                           

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         1.40.  DISPUTED.........................................................................................5 
         1.41.  DISPUTED CLAIMS RESERVE..........................................................................5 
         1.42.  DISTRIBUTION.....................................................................................5 
         1.43.  DISTRIBUTION DATE................................................................................5 
         1.44.  DISTRIBUTION RECORD DATE.........................................................................5 
         1.45.  EFFECTIVE DATE...................................................................................5 
         1.46.  EQUITY COMMITTEE.................................................................................5 
         1.47.  ESTATE...........................................................................................5 
         1.48.  ESTIMATED........................................................................................5 
         1.49.  ESTIMATED CLAIMS SCHEDULE........................................................................5 
         1.50.  ESTIMATION ORDER.................................................................................5 
         1.51.  EXCHANGE ACT.....................................................................................6 
         1.52.  FEE CLAIM........................................................................................6 
         1.53.  FEE CLAIMS BAR DATE..............................................................................6 
         1.54.  FILED, FILEORFILING..............................................................................6 
         1.55.  FINAL DISTRIBUTION...............................................................................6 
         1.56.  FINAL DISTRIBUTION DATE..........................................................................6 
         1.57.  FINAL ORDER......................................................................................6 
         1.58.  IMPAIRED.........................................................................................6 
         1.59.  INITIAL DISTRIBUTION DATE........................................................................6 
         1.60.  INTEREST.........................................................................................6 
         1.61.  INTEREST HOLDERS' NEW COMMON STOCK AMOUNT........................................................6 
         1.62.  K-C..............................................................................................6 
         1.63.  K-C SETTLEMENT...................................................................................7 
         1.64.  K-C SETTLEMENT AGREEMENT.........................................................................7 
         1.65.  K-C SETTLEMENT ORDER.............................................................................7 
         1.66.  LITIGATION CLAIMS................................................................................7 
         1.67.  LITIGATION TRUSTEE...............................................................................7 
         1.68.  LITIGATION PROCEEDS..............................................................................7 
         1.69.  NEW BOARD........................................................................................7 
         1.70.  NEW COMMON STOCK.................................................................................7 
         1.71.  NEW COMMON STOCK AMOUNT..........................................................................7 
         1.72.  NEW NOTES........................................................................................7 
         1.73.  NEW NOTES AMOUNT.................................................................................8 
         1.74.  NEW CREDIT AGREEMENT.............................................................................8 
         1.75.  NEW ORGANIZATIONAL DOCUMENTS.....................................................................8 
         1.76.  NEW SECURITIES...................................................................................8 
         1.77.  NON-TEEP RETENTION PLAN..........................................................................8 
         1.78.  OLD COMMON STOCK.................................................................................8 
         1.79.  OLD COMMON STOCK INTERESTS.......................................................................8 
         1.80.  OLD STOCK OPTIONS................................................................................8 
         1.81.  OLD STOCK OPTION INTERESTS.......................................................................8 
         1.82.  P&G..............................................................................................8 
         1.83.  P&G SETTLEMENT...................................................................................8 
         1.84.  P&G SETTLEMENT AGREEMENT.........................................................................9 

                                     (ii)                                                                          

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         1.85.  P&G SETTLEMENT ORDER.............................................................................9 
         1.86.  PERIODIC DISTRIBUTION DATE.......................................................................9 
         1.87.  PERSON...........................................................................................9 
         1.88.  PETITION DATE....................................................................................9 
         1.89.  PLAN.............................................................................................9 
         1.90.  PLAN VOTING DEADLINE.............................................................................9 
         1.91.  POPE & TALBOT....................................................................................9 
         1.92.  PREPETITION......................................................................................9 
         1.93.  PREPETITION BANK CLAIM...........................................................................9 
         1.94.  PREPETITION CLAIMS BAR DATE......................................................................9 
         1.95.  PREPETITION LINE OF CREDIT.......................................................................9 
         1.96.  PREPETITION PARAGON CANADA GUARANTY..............................................................9 
         1.97.  PREPETITION REVOLVING CREDIT AGREEMENT...........................................................9 
         1.98.  PRIORITY NON-TAX CLAIM..........................................................................10 
         1.99.  PRIORITY TAX CLAIM..............................................................................10 
         1.100. PROFESSIONAL....................................................................................10 
         1.101. PROFESSIONAL FEE RESERVE........................................................................10 
         1.102. PROPONENTS......................................................................................10 
         1.103. PRO RATA SHARE..................................................................................10 
         1.104. RECORD DATE.....................................................................................10 
         1.105. REGISTRATION RIGHTS AGREEMENT...................................................................10 
         1.106. REORGANIZED PARAGON.............................................................................10 
         1.107. RESTATED BYLAWS.................................................................................11 
         1.108. RESTATED CERTIFICATE OF INCORPORATION...........................................................11 
         1.109. RIGHTS..........................................................................................11 
         1.110. SCHEDULES.......................................................................................11 
         1.111. SECURED CLAIM...................................................................................11 
         1.112. SECURITIES ACT..................................................................................11 
         1.113. TEEP RETENTION PLAN.............................................................................11 
         1.114. TEXAS ACTION....................................................................................11 
         1.115. UNCLAIMED PROPERTY..............................................................................11 
         1.116. UNSECURED CLAIM.................................................................................11 
         1.117. UNSECURED CLAIMS DISTRIBUTION POOL..............................................................11 
         1.118. UNSECURED CREDITOR NEW COMMON STOCK AMOUNT......................................................11 
         1.119. VOTING PROCEDURES...............................................................................12 
         1.120. VOTING RECORD DATE..............................................................................12 
         1.121. WARRANTS........................................................................................12 
         1.122. WELLSPRING......................................................................................12 
         1.123. WELLSPRING COMMITMENT...........................................................................12 
         1.124. WELLSPRING CONSIDERATION........................................................................12 
         1.125. WELLSPRING INVESTMENT AMOUNT....................................................................12 
         1.126. WELLSPRING NEW NOTES INDENTURE..................................................................12 
         1.127. WELLSPRING NEW NOTES INDENTURE TRUSTEE..........................................................12 
         1.128. WELLSPRING NEW NOTES INTEREST RATE..............................................................13 
         1.129. WELLSPRING RIGHTS OFFERING......................................................................13 

                                    (iii)                                                                          

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         1.130. WELLSPRING RIGHTS OFFERING PROCEDURES...........................................................13 
         1.131. WELLSPRING STOCK PURCHASE AGREEMENT.............................................................13 
         1.132. WEYERHAEUSER....................................................................................13 

II.  METHOD OF CLASSIFICATION OF CLAIMS AND  INTERESTS AND GENERAL PROVISIONS...................................13 

         2.1. General Rules of Classification...................................................................13 
         2.2. Administrative Claims, Fee Claims and Priority Tax Claims.........................................13 
         2.3. Satisfaction of Claims and Interests..............................................................13 
         2.4. Bar Date for Fee Claims...........................................................................13 

III. IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND NOT                                            
     IMPAIRED BY THE PLAN.......................................................................................14 

         3.1. Unimpaired Classes Conclusively Presumed to Accept the Plan.......................................14 
         3.2. Classes of Claims and Interests Impaired by the Plan and Entitled to Vote.........................14 
         3.3. Classes Receiving No Distribution and Deemed to Reject the Plan...................................14 
         3.4. Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code...................................14 

IV.  CLASSIFICATION OF CLAIMS AND INTERESTS.....................................................................14 

         4.1. Classification....................................................................................14 

V.   PROVISIONS FOR ALLOWANCE, TREATMENT AND PAYMENT OF ADMINISTRATIVE                                             
     CLAIMS AND PRIORITY TAX CLAIMS.............................................................................15 

         5.1. Treatment of Allowed Priority Tax Claims..........................................................15 
         5.2. Treatment of Allowed Administrative Claims........................................................15 
         5.3. Treatment of Allowed DIP Claims...................................................................15 
         5.4. Treatment of FeeClaims............................................................................16 

VI.  TREATMENT OF CLASSES OF ALLOWED CLAIMS AND ALLOWED INTERESTS...............................................16 

         6.1. Treatment of Allowed Secured Claims (Class 1).....................................................16 
         6.2. Treatment of Allowed Priority Non-Tax Claims (Class 2)............................................17 
         6.3. Treatment of Allowed Unsecured Claims (Class 3A)..................................................17 
         6.4. Treatment of Allowed Convenience Claims (Class 3B)................................................18 
         6.5. Treatment of Allowed Old Common Stock Interests (Class 4A)........................................18 
         6.6. Treatment of Old Stock Option Interests (Class 4B)................................................18 
         6.7. No Distribution in Excess of Allowed Amount of Claim..............................................18 

                                     (iv)                                                                          

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VII.  COMPROMISE AND SETTLEMENT OF CERTAIN CLAIMS;  THE WELLSPRING STOCK PURCHASE AGREEMENT.....................18 

         7.1. Compromise and Settlement of Claims Held by P&G...................................................19 
         7.2. Compromise and Settlement of Claims Held by K-C...................................................19 
         7.3. Allowance of the Prepetition Bank Claims..........................................................19 
         7.4. Allowance and Payment of Postpetition Interest....................................................19 
         7.5. The Wellspring Stock Purchase Agreement...........................................................19 
         7.7. Withdrawal of Pending Litigation..................................................................20 

VIII.  TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES....................................................20 

         8.1. Assumption or Rejection...........................................................................20 
         8.2. Cure of Defaults upon Assumption..................................................................21 
         8.3. Rejection Damage Claims...........................................................................21 
         8.4. Objections........................................................................................21 
         8.5. Bar Date for Rejection Damage Claims..............................................................21 
         8.6. Deemed Consents...................................................................................21 

IX.  MEANS OF IMPLEMENTATION OF THE PLAN........................................................................21 

         9.1. Funding and Distribution of Cash..................................................................22 
         9.2. Working Capital Facility..........................................................................22 
         9.3. Intentionally omitted.............................................................................22 
         9.4. Cancellation of Instruments.......................................................................22 
         9.5. Restated Certificate of Incorporation; Restated Bylaws............................................22 
         9.6. Issuance of New Common Stock, New Notes and Warrants..............................................22 
         9.7. Certain Provisions Regarding New Common Stock.....................................................23 
         9.8. Estimation of Disputed Claims.....................................................................23 
         9.9. Continuation of Business..........................................................................23 
         9.10. Provisions for Management........................................................................23 
         9.11. Consummation of P&G Settlement...................................................................24 
         9.12. Consummation of K-C Settlement...................................................................24 
         9.13. Revesting of Property in Reorganized Paragon.....................................................24 
         9.14. Surrender of Instruments/Cancellation of Stock...................................................24 
         9.15. Release of Liens and Perfection of Liens.........................................................25 
         9.16. Registration of Securities.......................................................................26 
         9.17. Avoidance Actions................................................................................27 
         9.18. Exemption from Certain Transfer Taxes............................................................27 
         9.19. Compromise of Controversies......................................................................27 
         9.20. Continuation of Paragon's 401(k) and Profit Sharing Plan.........................................27 
         9.21. Investigation, Prosecution and/or Settlement of the Litigation Claims............................27 
         9.22. Wellspring Rights Offering.......................................................................33 

                                     (v)                                                                           

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X.  ADMINISTRATION OF THE PLAN..................................................................................33 

         10.1. Implementation of Plan...........................................................................33 
         10.2. Responsibilities of Reorganized Paragon..........................................................33 
         10.3. Other............................................................................................34 
         10.4. Powers of Reorganized Paragon as Administrator of the Plan.......................................34 
         10.5. Exculpation and Limitation of Liability..........................................................34 
         10.6. Distribution by Reorganized Paragon..............................................................34 
         10.7. Establishment and Maintenance of Disbursement Accounts...........................................34 

XI.  DISTRIBUTIONS..............................................................................................35 

         11.1.  Timing of Distributions.........................................................................35 
         11.2.  Manner of Payment...............................................................................35 
         11.3.  Persons Deemed Holders of Registered Securities.................................................35 
         11.4.  Compliance with Tax Requirements................................................................35 
         11.6.  De Minimis Distributions........................................................................35 
         11.7.  Periodic Distributions to Holders of Allowed Unsecured Claims and Allowed Old Common Stock         
                 Interests......................................................................................36 
         11.8.  Initial Distributions to the Holders of Subsequently Allowed Unsecured Claims and Allowed          
                 Interests......................................................................................36 
         11.9.  Subsequent Periodic Distributions to Holders of Previously Allowed Claims and Previously           
                 Allowed Interests..............................................................................36 
         11.10. Final Distribution..............................................................................36 
         11.11. Distributions on Disputed Claims................................................................37 
         11.12. Disbursement of Funds and Delivery of New Securities............................................37 
         11.13. Fractional Cents................................................................................37 
         11.14. Fractional Securities...........................................................................37 
         11.15. Disputed Payments...............................................................................37 
         11.16. Unclaimed Property..............................................................................38 

XII.  DISPUTED CLAIMS, DISPUTED INTERESTS, ESTIMATION, RESERVES AND MISCELLANEOUS DISTRIBUTION PROVISIONS.......38 

         12.1. Objections to Claims; Prosecution of Disputed Claims.............................................38 
         12.2. Estimated Claims Schedule........................................................................38 
         12.3. Estimation Order.................................................................................38 
         12.4. No Recourse to Reorganized Paragon...............................................................38 
         12.5. Disputed Claims Reserves.........................................................................39 
         12.6. Fluctuation in Value of New Securities...........................................................39 
         12.7. Voting of Certain New Common Stock...............................................................39 
         12.8. Returned Distributions...........................................................................39 
         12.9. Estimation of Claims.............................................................................40 
         12.10. Amendments of Claims............................................................................40 

                                     (vi)                                                                          

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XIII.  WAIVERS, DISCHARGE, RELEASE, INDEMNIFICATION, ABANDONMENT, AND SETTLEMENT OF CLAIMS......................40 

         13.1.  Discharge of Debtor.............................................................................40 
         13.2.  Complete Satisfaction...........................................................................40 
         13.3.  Release of Debtor...............................................................................41 
         13.4.  Exoneration.....................................................................................41 
         13.5.  Indemnification.................................................................................41 
         13.6.  Release of Committee Members....................................................................42 
         13.7.  Enforceability of Releases......................................................................42 
         13.8.  Additional Releases.............................................................................42 
         13.9.  Injunction......................................................................................42 
         13.10. Terms of Injunctions or Stays...................................................................42 

XIV.  CONDITIONS TO CONFIRMATION/EFFECTIVE DATE.................................................................42 

         14.1. Conditions Precedent to Confirmation.............................................................42 
         14.2. Conditions Precedent to Effective Date...........................................................43 
         14.3. Additional Conditions Precedent to Effective Date................................................43 
         14.4. Waiver of Conditions Precedent to Confirmation and Consummation..................................44 
         14.5. Mootness.........................................................................................44 

XV.  MISCELLANEOUS PROVISIONS...................................................................................44 

         15.1. Administration Pending Effective Date............................................................44 
         15.2. Carrying Out of Terms............................................................................44 
         15.3. Withdrawal of the Plan...........................................................................44 
         15.4. Amendments and Modifications to Plan.............................................................44 
         15.5. Severability.....................................................................................45 
         15.6. Confirmation Order...............................................................................45 
         15.7. Compliance with Securities Laws and Tax Requirements.............................................45 
         15.8. Interpretation, Rules of Construction, Computation of Time, and Choice of Law....................45 
         15.9. Binding Effect of the Plan.......................................................................46 
         15.10. Payment of Statutory Fees.......................................................................46 
         15.11. Dissolution of Committees.......................................................................46 
         15.12. Governing Law...................................................................................47 
         15.13. Method of Notice................................................................................47 
         15.14. Authorization of Corporate Action...............................................................48 
         15.15. Continued Confidentiality Obligations...........................................................48 

XVI.  RETENTION OF JURISDICTION.................................................................................49 

         16.1. Retention of Jurisdiction........................................................................49 

(vii) 

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INTRODUCTION

                  This Modified Second Amended Plan of Reorganization,  dated as
of  January  13,  2000,  is  jointly  proposed  by Paragon  Trade  Brands,  Inc.
("Paragon"  or  the  "Debtor"),   the  above-captioned   debtor  and  debtor  in
possession,  and  Paragon's  Official  Committee  of  Unsecured  Creditors  (the
"Creditors'  Committee").  Reference  is made to the  Disclosure  Statement  (as
defined below),  including  exhibits  thereto,  for a discussion of the Debtor's
history, business, results of operations,  historical financial information, and
for a summary and analysis of this Plan. No solicitation  materials,  other than
the Disclosure Statement and related materials transmitted herewith and approved
by the Bankruptcy Court, have been authorized by the Bankruptcy Court for use in
soliciting acceptances or rejections of this Plan.                              

                  Under the Plan, Paragon will be reorganized either (a) through
the consummation of a stock purchase  agreement (the "Wellspring  Stock Purchase
Agreement")  with PTB  Acquisition  Company LLC, a  wholly-owned  subsidiary  of
Wellspring  Capital Management LLC  ("Wellspring"),  and the distribution of the
proceeds  thereof  to  fund  certain   distributions  under  the  Plan,  or  (b)
alternatively,  on a stand-alone plan of reorganization basis. In the event that
the  Wellspring  Stock  Purchase  Agreement is  consummated,  holders of Allowed
Unsecured  Claims will receive  distributions in amounts equal to their Pro Rata
Share of Cash, New Notes, and the right to participate in the Wellspring  Rights
Offering,  and holders of Allowed Old Common Stock  Interests will receive their
Pro Rata Share of the Interest  Holders' New Common Stock  Amount,  the right to
participate in the Wellspring Rights Offering (to the extent all such rights are
not exercised by holders of Allowed  Unsecured  Claims in the Wellspring  Rights
Offering),  and the Warrants.  If the Wellspring Stock Purchase Agreement is not
consummated and Paragon is reorganized on a stand-alone basis hereunder, holders
of Allowed Unsecured Claims will receive distributions in amounts equal to their
Pro Rata Share of the Unsecured  Creditor New Common Stock Amount and holders of
Allowed Old Common  Stock  Interests  will  receive  their Pro Rata Share of the
Interest  Holders' New Common Stock Amount and the Warrants.  Whether or not the
Wellspring Stock Purchase Agreement is consummated, holders of Allowed Unsecured
Claims and Allowed Old Common Stock  Interests also will receive such portion of
the Litigation Proceeds, if any, as is allocable to such Claims and Interests in
accordance with the provisions of this Plan.  Section 7.5 of the Plan sets forth
the  circumstances  in which the different plan  alternatives  set forth in this
paragraph will be pursued.                                                      

I.

 DEFINITIONS

                  In  addition  to such  other  terms  as are  defined  in other
Sections  of the  Plan,  the  following  terms  (which  appear  in the  Plan  as
capitalized terms) have the following meanings as used in the Plan:             

          1.1.  "ADMINISTRATIVE  CLAIM" means any Claim, other than a Fee Claim,
for a cost or expense of  administration  of the  Chapter  11 Case  asserted  or
arising under sections  503(b) and 507(a)(1) of the Bankruptcy  Code, or a Claim
given  such  status  by Final  Order of the  Bankruptcy  Court,  and any fees or
charges  assessed against the Estate under section 1930, title 28, United States
Code.                                                                           

   1.2.  "AFFILIATE" means an affiliate as such term is defined in
section 101(2) of the Bankruptcy Code.                                          

          1.3.  "ALLOWED  CLAIM" or "Allowed  [Class ____] Claim"  means a Claim
against  the  Debtor (in the  relevant  Class,  if  a Class is specified) to the
extent such Claim is either:                                                    

                  (a) listed by the Debtor in the Schedules in an amount greater
than zero and as not being contingent,  unliquidated,  disputed or undetermined,
to the extent  that it is not  objected  to on or before  the  Claims  Objection
Deadline and is not otherwise Disallowed;                                       

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                  (b) a Claim or any portion of such  Claim,  proof of which has
been timely  Filed by any  Applicable  Bar Date,  or deemed  timely  Filed under
applicable  law or by  Final  Order of the  Bankruptcy  Court,  pursuant  to the
Bankruptcy  Code,  Bankruptcy  Rules or  applicable  law,  or Filed  late,  with
Bankruptcy  Court leave  pursuant to a Final Order,  after notice and a hearing,
and either (i) is not objected to on or before the Claims Objection Deadline and
is not otherwise Disallowed, or (ii) is otherwise allowed by a Final Order;     

                  (c) a Claim or any portion of such Claim that: (i) is allowed:
(A) in any contract,  instrument,  indenture or other agreement  entered into in
connection with the Plan; (B) in a Final Order or, in the case of Claims held by
P&G  and  K-C,  the  P&G  Settlement   Order  and  the  K-C  Settlement   Order,
respectively; or (C) pursuant to the terms of the Plan; or (ii) is settled prior
to the Effective Date pursuant to any stipulation among the Debtor and the Claim
holder that has been approved by the Bankruptcy Court pursuant to a Final Order;
or                                                                              

                  (d) with  respect to an  Administrative  Claim  only,  (i) was
incurred by the Debtor in the ordinary  course of business during the Chapter 11
Case (including  under any license  agreement with P&G or K-C) to the extent due
and owing without defense,  offset,  recoupment or counterclaim of any kind, and
(ii) is not otherwise Disputed.                                                 

                  Unless  otherwise  specified  herein or by Final  Order of the
Bankruptcy  Court,  "Allowed  Claim" shall not, for purposes of  computation  of
Distributions  under the Plan, include interest or similar charges accrued after
the Petition Date. For purposes of determining the amount of an "Allowed Claim,"
there shall be  deducted  therefrom  an amount  equal to the amount of any claim
which the Debtor may hold against the holder  thereof,  to the extent the Debtor
is entitled to exercise a right of set off pursuant to applicable law.          

          1.4. "ALLOWED INTEREST" means an Interest  (exclusive of any shares of
stock  representing  such  Interest  held in  treasury)  in the  Debtor  that is
registered as of the Record Date in such stock  register as may be maintained by
or on behalf of the Debtor,  and to which no objection  has been made before any
applicable deadline or which has been allowed by Final Order.                   

          1.5. "APPLICABLE  BAR DATE" means, as the case may be, the Prepetition
Claims Bar Date,  the Fee Claims Bar Date or such other bar date as may be fixed
by the Plan or any order of the Bankruptcy Court.                               

          1.6. "BALLOT" means the form of ballot distributed,  together with the
Disclosure Statement,  to holders of Claims and  Interests  entitled to vote for
the purpose of acceptance or rejection of the Plan.                             

          1.7. "BANKRUPTCY  CODE" means title 11 of the United  States Code,  as
amended from time to time, as applicable to the Chapter 11 Case.                

          1.8. "BANKRUPTCY  COURT" means the United States  Bankruptcy Court for
the  District of Georgia,  Atlanta  Division,  or, to the extent that such court
ceases to exercise  jurisdiction  over the Chapter 11 Case,  such other court or
adjunct thereof that exercises jurisdiction over the Chapter 11 Case.           

          1.9. "BANKRUPTCY  RULES"  means  the   Federal   Rules  of  Bankruptcy
Procedure,  as amended, promulgated under section 2075 of title 28 of the United
States Code, as applicable to the Chapter 11 Case.                              

          1.10. "BOARD OF DIRECTORS" means the  board of directors of the Debtor
as it exists  immediately  prior to the Effective Date.                         

          1.11. "BUSINESS  DAY" means any day other than a  Saturday,  Sunday or
"legal  holiday" as defined in  Bankruptcy  Rule 9006(a).                       

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          1.12. "BYLAWS" means  the  Bylaws of the Debtor, as in effect on   the
Petition Date, as amended, through the Effective Date.                          

    1.13. "CASH" means legal tender of the United States of America.

         1.14. "CASH   EQUIVALENTS"   means  (a)  readily   marketable  direct
obligations of, or obligations  guaranteed by, the United States of America, (b)
commercial  paper of domestic  corporations  carrying a Moody's Rating of "A" or
better, or equivalent rating of any other nationally  recognized rating service,
and (c)  interest-bearing  certificates of deposit or other similar obligations,
having  maturities  of not more than one (1) year,  of  domestic  banks or other
financial  institutions  having a shareholders'  equity or equivalent capital of
not less than Five Hundred Million Dollars ($500,000,000).                      

          1.15. "CERTIFICATE   OF   INCORPORATION"   means  the  Certificate  of
Incorporation  of  the   Debtor, as in  effect on the Petition Date, as amended,
through the Effective Date.                                                     

         1.16. "CHAPTER  11 CASE"  means  the  case  under  chapter  11 of the
Bankruptcy Code concerning  Paragon which was commenced on the Petition Date and
is being  administered in the Bankruptcy Court under case number 98-60390 (Judge
Murphy).                                                                        

          1.17. "CLAIM" means a claim, as such term is defined in section 101(5)
of the Bankruptcy Code, against the Debtor.                                     

          1.18. "CLAIMS OBJECTION  DEADLINE" means (a) for all Claims other than
Fee Claims,  the date that is the later of (i) the  Effective  Date,  (ii) sixty
(60)  calendar  days  after the Filing of a proof of claim for such  Claim,  and
(iii) such other deadline for objecting to a Claim as may be specifically  fixed
by the Plan, the  Confirmation  Order,  the Bankruptcy  Rules or an order of the
Bankruptcy  Court,  which  order may be entered on notice only to the Debtor and
counsel to the Committees (and, if the Wellspring  Stock Purchase  Agreement has
been  executed  and  has  not  been  terminated,  Wellspring)  and at  any  time
regardless of whether before or after the date specified in clauses (i) and (ii)
hereof; and (b) for Fee Claims, the date established as such in the Confirmation
Order.                                                                          

          1.19. "CLASS" means any class of Claims or Interests established under
Article IV of the Plan  pursuant to section 1122 of the Bankruptcy Code.        

    1.20. "COMMISSION" means the Securities and Exchange Commission.

          1.21. "COMMITTEES"  means  the  official  committees  appointed in the
Chapter  11  Case pursuant to section 1102(a) of the Bankruptcy Code, consisting
of the Creditors' Committee and the Equity Committee.                           

          1.22. "CONFIRMATION"  means  the signing of the Confirmation  Order by
the  Bankruptcy  Court  confirming the  Plan  pursuant to  section 1129  of  the
Bankruptcy Code.                                                                

          1.23. "CONFIRMATION  DATE"  means  the date on which the  Confirmation
Order is entered on the docket  maintained by the Clerk of the Bankruptcy Court.

          1.24. "CONFIRMATION HEARING" means the hearing held by the  Bankruptcy
Court on Confirmation of the Plan, as such hearing may be adjourned or continued
from time to time.                                                              

          1.25.  "CONFIRMATION ORDER"  means the order of the  Bankruptcy  Court
confirming  the Plan  pursuant to section 1129 of the  Bankruptcy  Code.  In the
event that the Wellspring Stock Purchase Agreement has been executed and has not
been  terminated,  the  form  of  the  Confirmation  Order  must  be  reasonably
satisfactory to Wellspring. The form of                                         

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the Confirmation  Order also must be reasonably  satisfactory to each of P&G and
K-C,  provided  each of P&G and K-C, as the case may be, has voted to accept the
Plan.                                                                           

          1.26.  "CONVENIENCE  CLAIM" means any Allowed  Unsecured Claim against
the Debtor in the amount of five thousand dollars ($5,000.00) or less; PROVIDED,
HOWEVER,  that if the holder of an Allowed  Unsecured Claim in an amount greater
than five thousand dollars ($5,000.00) but not greater than ten thousand dollars
($10,000.00)  elects on such holder's Ballot (a) Convenience Claim treatment and
(b) to reduce such Claim to five thousand dollars ($5,000.00) in accordance with
Section  6.4(b) hereof,  such Claim shall be treated as a Convenience  Claim for
all  purposes.  No holder of an Allowed  Unsecured  Claim  against the Debtor in
excess  of  ten  thousand  dollars  ($10,000.00)  shall  be  entitled  to  elect
Convenience Class treatment with respect to such Allowed Unsecured Claim.       

          1.27. "CREDITORS' COMMITTEE" means the Official Committee of Unsecured
Creditors appointed in the Chapter 11 Case by the United States Trustee pursuant
to section  1102 of the  Bankruptcy  Code,  on or about  January  16,  1998,  as
reconstituted from time to time.                                                

          1.28. "CURE STATEMENT" shall have the meaning ascribed to such term in
Section 8.1 hereof.                                                             

          1.29. "DEBTOR"   means   Paragon   Trade   Brands,  Inc.,  a  Delaware
corporation.                                                                    

          1.30. "DEBTOR  IN  POSSESSION"  means   the   Debtor   as   debtor  in
possession  pursuant  to  sections  1107 and 1108 of the Bankruptcy Code.       

          1.31. "DEBTOR'S  PROFESSIONALS"   means  any  Persons retained  by the
Debtor  pursuant to section 327 of the  Bankruptcy Code.                        

          1.32. "DELAWARE ACTION" means the action commenced on or about January
20, 1994  in  the  United  States  District  Court for the District of Delaware,
entitled  THE  PROCTER  & GAMBLE COMPANY V. PARAGON TRADE BRANDS, INC., Case No.
94-CV-16 (LON) (D. Del.).                                                       

          1.33. "DIP BANK AGENT" means The Chase Manhattan Bank as agent for the
syndicate  of  lending  institutions  under  the DIP  Credit  Agreement,  or any
successor thereto or replacement  thereof appointed in accordance with the terms
of the DIP Credit Agreement.                                                    

          1.34. "DIP CLAIM"  means  any  Claim  arising  under  the  DIP  Credit
Agreement.                                                                      

          1.35. "DIP CREDIT  AGREEMENT"  means that certain Debtor in Possession
credit facility  approved by the Bankruptcy Court by interim order dated January
21, 1998 and Final Order dated January 30, 1998, as provided under the Revolving
Credit and Guaranty  Agreement dated as of January 7, 1998, among the Debtor, as
borrower,  certain  subsidiaries of the Debtor, as guarantors,  and the DIP Bank
Agent, as agent for the lenders  thereunder,  as amended by the First Amendment,
dated January 30, 1998,  the Second  Amendment,  dated March 23, 1998, the Third
Amendment, dated April 15, 1998, the Fourth Amendment, dated September 28, 1998,
and the Fifth Amendment, dated as of June 14, 1999, and as thereafter amended in
accordance  with its  terms  up to and  including  the  Effective  Date,  or the
agreements  or  other   documents   evidencing   any  successor  or  replacement
postpetition financing facility, and all documents related thereto.             

          1.36. "DISALLOWED" means with reference to any Claim or Interest, such
Claim or Interest or any  portion  thereof  which  has been disallowed or deemed
disallowed by Final Order or by operation of the Plan.                          

          1.37. "DISBURSEMENT ACCOUNT(S)" means the account(s) to be established
by the Debtor on the Effective Date in accordance with Section 10.7 of the Plan,
together with any interest earned thereon.                                      

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          1.38. "DISCLOSURE STATEMENT" means the disclosure statement, including
all  exhibits,  appendices  and  attachments  thereto,  approved by order of the
Bankruptcy Court in accordance with section 1125 of the Bankruptcy Code, as such
statement may be amended or supplemented from time to time.                     

          1.39. "DISCLOSURE  STATEMENT  HEARING"  means the hearing  held by the
Bankruptcy  Court to  consider  approval of the Disclosure  Statement,  as  such
hearing may be adjourned or continued from time to time.                        

          1.40. "DISPUTED"  means with respect to a Claim or Interest, any Claim
or Interest that is not yet an  Allowed Claim or Interest  or a Disallowed Claim
or Interest.                                                                    

         1.41. "DISPUTED  CLAIMS  RESERVE"  means,  in respect of any Class of
Claims or Interests, the amount of Cash, New Securities and/or Warrants reserved
in accordance with Section 12.5 hereof for such Class of Claims or Interests.   

          1.42. "DISTRIBUTION"  means the  distribution in  accordance  with the
Plan of: (a) Cash; (b) New Notes;  (c) New Common Stock; and/or (d) Warrants, as
the case may be.                                                                

          1.43. "DISTRIBUTION  DATE"  means,  as the  case  may  be, the Initial
Distribution  Date, each Periodic  Distribution Date  and the Final Distribution
Date.                                                                           

          1.44. "DISTRIBUTION  RECORD DATE"  means 5:00 p.m.  (Atlanta,  Georgia
time) on the Confirmation Date or such other date  and time as designated in the
Confirmation Order.                                                             

         1.45. "EFFECTIVE  DATE" means the first (1st)  Business Day following
satisfaction  of the  conditions  precedent to the Effective  Date  specified in
Section 14.2 of the Plan,  unless  otherwise waived as provided in Sections 14.3
and 14.4 of the Plan,  or such  other  date  fixed by the  Proponents,  with the
consent  of P&G,  K-C and,  in the  event  that the  Wellspring  Stock  Purchase
Agreement has been executed and has not been  terminated in accordance  with its
terms, Wellspring (such consent in each case not to be unreasonably withheld).  

         1.46. "EQUITY  COMMITTEE"  means the  Official  Committee of Interest
Holders  appointed in the Chapter 11 Case by the United States Trustee  pursuant
to section  1102 of the  Bankruptcy  Code,  on or about  November  2,  1998,  as
constituted from time to time.                                                  

          1.47. "ESTATE" means the Debtor's estate,  created pursuant to section
541 of the  Bankruptcy  Code, in and upon  commencement  of the Chapter 11 Case.
Pursuant to Sections 9.13 and 9.21 hereof,  the  Litigation  Claims shall remain
vested in and  property of the Estate  following  the  Effective  Date,  and the
Estate shall remain in existence for the purpose of allowing the  investigation,
prosecution  and/or settlement of the Litigation Claims pursuant to Section 9.21
hereof.                                                                         

          1.48. "ESTIMATED"  means with  reference to any Claim or Interest, any
Claim or Interest  estimated by an  Estimation Order.                           

          1.49. "ESTIMATED CLAIMS SCHEDULE" shall have  the meaning ascribed  to
such term in Section 12.2 hereof.                                               

         1.50. "ESTIMATION  ORDER" means an order or orders of the  Bankruptcy
Court  estimating  or otherwise  determining  Disputed  Claims  and/or  Disputed
Interests for Distribution  and/or reserve purposes.  The "Estimation Order" may
be part of the  Confirmation  Order if the  Confirmation  Order  grants the same
relief with respect to any Disputed  Claim or Disputed  Interest that would have
been granted in a separate Estimation Order.                                    

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          1.51. "EXCHANGE ACT"  means  the  Securities Exchange  Act of 1934, as
amended.                                                                        

          1.52. "FEE CLAIM" means a Claim for  compensation or  reimbursement of
expenses  pursuant to sections  327,  328,  330,  331,  503(b)(2),  503(b)(3) or
503(b)(4) of the Bankruptcy Code in connection  with an application  made to the
Bankruptcy  Court in the  Chapter 11 Case.  "Fee  Claims"  shall not include any
claims for  professional  fees or  expenses  of the DIP Bank Agent under the DIP
Credit Agreement.                                                               

         1.53. "FEE  CLAIMS BAR DATE"  means the date fixed by the  Bankruptcy
Court in the  Confirmation  Order by which all  holders of Fee Claims  must have
filed  requests  for  payment  of such Fee  Claims  or be  forever  barred  from
asserting such Claims against the Debtor, the Estate, Reorganized Paragon or its
property.                                                                       

          1.54. "FILED," "FILE" OR "FILING" means,  filed,  file or  filing with
the Clerk of the Bankruptcy  Court in the Chapter 11 Case.                      

         1.55. "FINAL   DISTRIBUTION"  means  the  last  Distribution  of  the
remaining Cash, New Securities  and/or Warrants to holders of Allowed  Unsecured
Claims and/or Allowed  Interests,  as the case may be, in the relevant Class, as
contemplated under the Plan.                                                    

         1.56. "FINAL  DISTRIBUTION  DATE"  means  the  date on  which a Final
Distribution  is made to holders  of Allowed  Unsecured  Claims  and/or  Allowed
Interests  pursuant to the Plan, which date shall,  unless otherwise  ordered by
the Bankruptcy  Court,  occur after all Disputed  Unsecured  Claims and Disputed
Interests in the relevant Class, and all Litigation  Claims,  have been resolved
by Final Order or otherwise.                                                    

          1.57. "FINAL ORDER" means an order or judgment of the Bankruptcy Court
that has not been reversed, stayed, modified or amended and as to which the time
to appeal or seek review, rehearing, reargument or certiorari has expired and as
to which no  appeal or  petition  for  review,  rehearing,  reargument,  stay or
certiorari is pending, or as to which any right to appeal or to seek certiorari,
review, or rehearing has been waived, or, if an appeal, reargument, petition for
review,  certiorari or rehearing  has been sought,  the order or judgment of the
Bankruptcy  Court has been  affirmed by the highest court to which the order was
appealed  or from which the  reargument,  review or  rehearing  was  sought,  or
certiorari has been denied,  and as to which the time to take any further appeal
or seek further reargument, review or rehearing has expired.                    

          1.58. "IMPAIRED"  means any Claim or Interest that is impaired  within
the meaning of section  1124 of the  Bankruptcy Code.                           

         1.59. "INITIAL  DISTRIBUTION  DATE" means the date for making initial
Distributions  under the Plan to holders of Allowed  Unsecured Claims or Allowed
Interests in the relevant Class, which date shall be on or as soon as reasonably
practicable after the Effective Date.                                           

          1.60. "INTEREST" means any "equity  security," as such term is defined
in  section  101(16) of  the  Bankruptcy  Code, of  the  Debtor.   Specifically,
"Interests" include Old Common Stock Interests and Old Stock Option Interests.  

         1.61. "INTEREST  HOLDERS' NEW COMMON STOCK  AMOUNT"  means (i) if the
Wellspring Stock Purchase Agreement is consummated, 178,359 shares of New Common
Stock (I.E.,  one and one-half percent (1 1/2%) of the New Common Stock Amount),
subject to dilution resulting from those items set forth in Section  1.118(i)(1)
through  (4),  and  (ii)  if the  Wellspring  Stock  Purchase  Agreement  is not
consummated,  the  Interest  Holders' New Common Stock Amount shall mean 118,149
shares of New Common Stock (I.E., .87% of the New Common Stock Amount),  subject
to dilution for those items set forth in Section 1.118(i)(1) through (3).       

         1.62. "K-C" means Kimberly-Clark Corporation, a Delaware corporation.

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          1.63. "K-C  SETTLEMENT"  means the  compromise  and  settlement by and
between the  Debtor and K-C pursuant and  subject to the terms and conditions of
the K-C Settlement Agreement.                                                   

          1.64. "K-C SETTLEMENT  AGREEMENT" means the settlement agreement dated
March 19, 1999,  as amended  through the date hereof,  by and between the Debtor
and K-C (including all exhibits  thereto and any related  agreements,  including
any licenses provided for therein).                                             

          1.65. "K-C SETTLEMENT ORDER"  means the order of the Bankruptcy Court,
dated August 6, 1999,  authorizing and approving the K-C Settlement Agreement.  

          1.66. "LITIGATION CLAIMS" means, collectively,  any pre-Effective Date
claims of the Debtor  against (a)  Weyerhaeuser  arising from or relating to (i)
that certain Asset Transfer Agreement, dated January 26, 1993, (ii) that certain
related Intellectual Property Agreement, dated February 3, 1993 and/or (iii) any
other  agreements  with  Weyerhaeuser  relating  to  Weyerhaeuser's  spin-off of
Paragon  in 1993,  (b) Pope &  Talbot  arising  from or  relating  to the  Asset
Purchase  Agreement,  dated February 8, 1996, between Paragon and Pope & Talbot,
and/or any other  agreements  with Pope & Talbot relating to such Asset Purchase
Agreement,  and (c) Oracle  Corporation  and/or Anderson  Consulting LLP arising
from or relating  to any  agreements  between  and/or  among  Paragon and Oracle
Corporation,  Paragon  and  Anderson  Consulting  LLP,  and/or  Paragon,  Oracle
Corporation and Andersen  Consulting LLP in connection  with Paragon's  purchase
and/or implementation of Oracle's CPG ERP software.                             

          1.67. "LITIGATION CLAIMS  REPRESENTATIVE"  means any Person designated
as the representative of the Estate to prosecute the  Litigation Claims pursuant
to Section 9.21 hereof.                                                         

         1.68. "LITIGATION  PROCEEDS" means the proceeds, if any, recovered by
the Litigation Claims Representative on account of the Litigation Claims, net of
any costs, fees and expenses incurred by the Litigation Claims Representative in
connection with the Litigation Claims; PROVIDED,  HOWEVER, that the defined term
"Litigation  Proceeds"  shall not be deemed to include the first  $500,000.00 in
proceeds received on account of the Litigation  Claims,  which amount or portion
thereof  shall  be  delivered  by  the  Litigation   Claims   Representative  to
Reorganized  Paragon as and when received for  allocation  and  Distribution  to
holders  of  Allowed  Unsecured  Claims  in  accordance  with  the  Distribution
provisions of the Plan. With regard to any Litigation Claim against Weyerhaeuser
or any other  Litigation  Claims  defendant,  the Litigation  Proceeds from such
Litigation  Claim shall also be net of any  asserted  indemnification  rights or
other similar claims, if any,  Weyerhaeuser or any such other defendant recovers
against Paragon arising from or relating to the assertion and/or  prosecution of
such  Litigation  Claim  (which shall be  reimbursed  by the  Litigation  Claims
Representative  to Reorganized  Paragon out of any Litigation  Proceeds received
unless already netted out of such proceeds).                                    

          1.69. "NEW BOARD" means the Board of Directors of Reorganized  Paragon
immediately  following  the  Effective  Date, as set  forth in  Section  9.10(a)
hereof.                                                                         

          1.70. "NEW  COMMON  STOCK"  means  the   shares  of  common  stock  of
Reorganized  Paragon  authorized  and/or to be issued  pursuant to the  terms of
the Plan  and  having  the rights  as  set  forth in the Restated Certificate of
Incorporation.                                                                  

          1.71. "NEW COMMON STOCK AMOUNT" means 11,891,000  shares of New Common
Stock;  provided,  that,  if the  Wellspring  Stock  Purchase  Agreement  is not
consummated,  the New Common Stock Amount  shall mean  13,566,574  shares of New
Common Stock.                                                                   

         1.72. "NEW  NOTES"  means,  in the event  that the  Wellspring  Stock
Purchase Agreement is consummated,  the notes to be issued on the Effective Date
by Reorganized  Paragon  pursuant to the  Wellspring  New Notes  Indenture in an
aggregate principal amount equal to the New Notes Amount.                       

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         1.73. "NEW  NOTES  AMOUNT"  means a  principal  amount  equal to $160
million  (bearing  interest at the  non-default  rate of eleven and  one-quarter
percent (11.25%) per annum), provided that such amount shall be adjusted (upward
or  downward,  as  applicable)  as follows:  (a) the New Notes  Amount  shall be
reduced by the amount that the Cash Deficit (as defined in the Wellspring  Stock
Purchase Agreement) exceeds $10 million; (b) if the Cash Deficit is less than $4
million,  then the New Notes  Amount shall be increased by an amount equal to $4
million minus the Cash Deficit; (c) if the Cash Deficit is greater than or equal
to $4 million but less than or equal to $10  million,  then the New Notes Amount
shall not be  adjusted;  and (d) the New Notes  Amount shall be increased by the
amount of the Cash Excess (as  defined in the  Wellspring  Commitment),  plus $4
million.  The Cash Deficit and Cash Excess shall be adjusted upward or downward,
as the  case may be,  by (1) the  amount  by which  the  liabilities  listed  on
Schedule 5.10 to the Wellspring Stock Purchase  Agreement are greater or less on
the  Effective  Date than the  amounts set forth on such  schedule,  and (2) any
change in  Paragon's  Net Working  Capital (as defined in the  Wellspring  Stock
Purchase Agreement) from June 27, 1999.                                         

          1.74. "NEW CREDIT AGREEMENT" shall have the  meaning ascribed  to such
term in Section 9.2 hereof.                                                     

          1.75. "NEW ORGANIZATIONAL DOCUMENTS" means the Restated Certificate of
Incorporation  and Restated By-Laws of Reorganized  Paragon,  the forms of which
shall be (a) Filed by the  Proponents  at least ten (10)  calendar days prior to
the date of the Confirmation  Hearing,  and (b) reasonably  satisfactory to P&G,
K-C and the Equity  Committee.  In the event that the Wellspring  Stock Purchase
Agreement  has been executed and has not been  terminated,  the forms of the New
Organizational Documents must be satisfactory to Wellspring.                    

         1.76. "NEW  SECURITIES"  means  the  New  Common  Stock  and,  if the
Wellspring Stock Purchase Agreement is consummated,  the New Notes. In the event
that the Wellspring Stock Purchase  Agreement has been executed and has not been
terminated,  the forms of the New  Securities  must (a) be  satisfactory  to the
Proponents and  Wellspring,  (b) be reasonably  satisfactory to P&G and K-C, and
(c)  contain  substantially  the same  terms as set forth in  Appendix  1 to the
Wellspring Stock Purchase Agreement.                                            

          1.77. "NON-TEEP RETENTION PLAN" means those certain employee retention
and incentive programs,  approved by the Bankruptcy Court by order dated July 2,
1998, or such other similar employee  retention and incentive programs in effect
as of the Effective Date of the Plan.                                           

          1.78. "OLD COMMON STOCK"  means all  authorized $.01 par  value common
shares  of the  Debtor issued  and outstanding  prior  to the Effective Date and
non-transferable as of the Distribution Record Date.                            

          1.79. "OLD COMMON STOCK INTERESTS" means Interests based on Old Common
Stock.                                                                          

          1.80. "OLD STOCK OPTIONS" means all unexercised  rights of any kind to
acquire any Old Common  Stock of, or other  Interest  in, the Debtor that is not
evidenced  by an  issued  and  outstanding  share of Old  Common  Stock or other
instrument  evidencing a present  ownership  interest in the Debtor.  "Old Stock
Options"  shall include all options,  warrants,  calls,  subscriptions  or other
similar rights or other agreements, commitments, or obligations of the Debtor to
issue, transfer, or sell any shares of capital stock, including Old Common Stock
and preferred stock, of the Debtor.                                             

          1.81. "OLD STOCK OPTION INTERESTS" means Interests based  on Old Stock
Options.                                                                        

        1.82. "P&G" means The Procter & Gamble Company, an Ohio corporation.

          1.83. "P&G  SETTLEMENT"  means the  compromise  and  settlement by and
between  the  Debtor and P&G pursuant and subject to the terms and conditions of
the P&G Settlement Agreement.                                                   

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          1.84. "P&G SETTLEMENT  AGREEMENT" means the settlement agreement dated
February 2, 1999, as amended through the date hereof,  by and between the Debtor
and P&G (including all exhibits  thereto and any related  agreements,  including
any licenses provided for therein).                                             

          1.85. "P&G SETTLEMENT ORDER"  means the order of the Bankruptcy Court,
dated August 6, 1999,  authorizing and approving the P&G Settlement Agreement.  

          1.86. "PERIODIC DISTRIBUTION DATE" means, with respect to the relevant
Classes: (a) initially,  the first Business Day that is four (4) calendar months
after the Initial  Distribution  Date; (b) subsequently,  the first Business Day
that is four (4)  calendar  months  after the  immediately  preceding  scheduled
Periodic  Distribution Date; and (c) such other dates as Reorganized Paragon may
determine from time to time in its reasonable discretion.                       

         1.87. "PERSON"  means,   without  limitation,   (a)  any  individual,
corporation,  partnership,  joint  venture,  association,  joint stock  company,
estate, trust,  trustee,  United States trustee,  unincorporated  association or
organization,  government, governmental unit, agency or any subdivision thereof,
and (b) any other  "entity"  or  "person"  as such terms are defined in sections
101(15) and 101(41) of the Bankruptcy Code.                                     

1.88. "PETITION DATE" means January 6, 1998.                

          1.89. "PLAN" means this Second Amended Plan of Reorganization  for the
Debtor,  and all exhibits and supplements  hereto, as amended or modified by the
Proponents in accordance with the Bankruptcy Code, the Bankruptcy Rules and this
Plan.                                                                           

          1.90. "PLAN  VOTING  DEADLINE"  means  the date set by the  Bankruptcy
Court by which all  Ballots  for  acceptance  or rejection of the Plan must have
been received.                                                                  

          1.91. "POPE & TALBOT"" means, collectively, (a) Pope & Talbot Company,
a  Delaware  corporation,  and  (b)  Pope  &  Talbot  Wis.,  Inc.,  a   Delaware
Corporation.                                                                    

          1.92. "PREPETITION"  means  arising or accruing  prior to the Petition
Date.                                                                           

          1.93. "PREPETITION  BANK CLAIM"  means any  Claim  against  the Debtor
arising  under or governed by: (a) the  Prepetition  Revolving Credit Agreement;
(b) the  Prepetition  Line  of  Credit; or (c) the  Prepetition  Paragon  Canada
Guaranty.                                                                       

          1.94. "PREPETITION CLAIMS BAR DATE" means June 5, 1998, the date fixed
by the  Bankruptcy  Court by Final Order,  dated March 24, 1998, as the deadline
for  filing  proofs of Claim  arising or  accruing  prior to the  Petition  Date
against the Debtor or the Estate.                                               

         1.95. "PREPETITION  LINE OF CREDIT"  means that  certain  Prepetition
unsecured short-term line of credit, dated February 6, 1996, as amended, between
Paragon and Wachovia Bank of Georgia, N.A., on an uncommitted basis.            

        1.96. "PREPETITION  PARAGON  CANADA  GUARANTY"  means  that  certain
Prepetition  guaranty by Paragon of a $5 million unsecured line of credit, dated
November 5, 1993, as amended, from The Bank of Nova Scotia which is available to
Paragon Canada, a subsidiary of the Debtor.                                     

          1.97. "PREPETITION REVOLVING CREDIT AGREEMENT" means that certain $150
million revolving credit facility dated as of February 16, 1996 and December 28,
1997,  as  amended,  between  Paragon  and a group  of  financial  institutions,
pursuant to which The Chase Manhattan Bank serves as agent.                     

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          1.98. "PRIORITY NON-TAX CLAIM" means that portion of any Claim that is
entitled to priority in payment under  section  507(a) of the  Bankruptcy  Code,
exclusive of Priority Tax Claims, Administrative Claims and Fee Claims.         

          1.99. "PRIORITY  TAX CLAIM"  means  that  portion of any Claim that is
entitled to  priority in payment under section 507(a)(8) of the Bankruptcy Code.

         1.100. "PROFESSIONAL"  means any Person:  (a) employed pursuant to an
order of the Bankruptcy  Court in accordance  with sections 327, 1102 or 1103 of
the Bankruptcy Code and to be compensated  for services  rendered and reimbursed
for related expenses incurred prior to the Effective Date,  pursuant to sections
327, 328, 329, 330, and/or 331; or (b) for which  compensation and reimbursement
has been allowed by the Bankruptcy  Court pursuant to sections  503(b)(2) or (4)
of the Bankruptcy Code.                                                         

         1.101. "PROFESSIONAL  FEE RESERVE" means the reserve of Cash or other
security  (in  form  and  substance  reasonably  acceptable  to  counsel  to the
Proponents)  to be  established  by the  Debtor or  Reorganized  Paragon  on the
Effective  Date in an amount  fixed by the  Bankruptcy  Court on or  before  the
Confirmation  Date (based on estimates Filed by  Professionals at least ten (10)
calendar  Days prior to the first date  scheduled  for the  commencement  of the
Confirmation  Hearing) to provide  for the payment of Fee Claims  allowed by the
Bankruptcy Court.                                                               

      1.102. "PROPONENTS" means the Debtor and the Creditors' Committee.

          1.103. "PRO RATA SHARE" means,  as of the date of calculation and with
respect to an Allowed Claim or Allowed Interest in any Class, a proportion equal
to the ratio of:                                                                

               (a)    the Allowed Claim (or Allowed Interest); divided by:

(b)    the sum of:                          

                           (i) the  aggregate of all Allowed  Claims (or Allowed
         Interests) of that particular Class that are Allowed Claims (or Allowed
Interests) as of such date; plus                              

                           (ii)  the  aggregate  of  all  Estimated  Claims  (or
         Estimated  Interests)  of that  particular  Class  as set  forth in the
         relevant  Estimation  Order (except to the extent that Estimated Claims
         or Estimated Interests have been expunged or otherwise Disallowed) that
are not described in clause (i) above, on such date; plus:    

                           (iii)  the  aggregate  of  all  Disputed  Claims  (or
         Disputed  Interests) of that particular Class that are not set forth in
         the  Estimation  Order  (except to the extent such  Disputed  Claims or
         Disputed Interests have been expunged or otherwise Disallowed), on that
date.                                                         

          1.104. "RECORD DATE"  means the applicable  Voting  Record Date or the
Distribution Record Date, as the context requires.                              

          1.105. "REGISTRATION RIGHTS AGREEMENT" shall have the meaning ascribed
to such term in Section  9.16 of the Plan.  The  Registration  Rights  Agreement
shall (i) be filed by the  Proponents and Wellspring at least three (3) calendar
Days prior to the date of the Confirmation  Hearing, and (ii) be satisfactory to
Wellspring in form and substance; PROVIDED, HOWEVER, that no Registration Rights
Agreement will be filed unless,  as a result of the Wellspring  Rights Offering,
such Registration  Rights Agreement is required for a holder of New Common Stock
(other  than  Wellspring)  to  transfer  its New Common  Stock to a third  party
without restriction.                                                            

          1.106. "REORGANIZED PARAGON"  means  the  Debtor from  and  after  the
Effective Date, as reorganized pursuant to the Plan.                            

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          1.107. "RESTATED BYLAWS"  means  the bylaws of Reorganized Paragon, as
amended and restated in connection with the Plan.                               

          1.108. "RESTATED CERTIFICATE OF INCORPORATION"  means the  certificate
of  incorporation of Reorganized  Paragon, as amended and restated in connection
with the Plan.                                                                  

          1.109. "RIGHTS"  means  the  rights to  acquire  shares of New  Common
Stock for a purchase  price of $10.00 per share in  accordance with Section 9.22
of the Plan.                                                                    

         1.110. "SCHEDULES"  means the schedules of assets and liabilities and
the statements of financial affairs for the Debtor as required by section 521 of
the Bankruptcy  Code,  Filed on or about March 3, 1998, as the same have been or
may hereafter be amended from time to time.                                     

         1.111. "SECURED  CLAIM"  means that  portion of a Claim  against  the
Debtor  that is (a)  secured  by a valid,  perfected  and  enforceable  security
interest, lien, mortgage or other encumbrance,  that is not subject to avoidance
under applicable  bankruptcy or non-bankruptcy  law, in or upon any right, title
or interest of the Debtor in and to property of the Estate, to the extent of the
value of the holder's interest in such property as of the Confirmation  Date, or
(b) subject to setoff under section 553 of the Bankruptcy Code, to the extent of
the amount subject to setoff,  each as determined by sections 506(a) and 1111(b)
of the Bankruptcy Code and Bankruptcy Rule 3012.                                

          1.112. "SECURITIES  ACT" means the Securities Act of 1933, as amended,
and the rules and  regulations  promulgated therewith.                          

          1.113. "TEEP  RETENTION PLAN" means that certain top eight  executives
incentive plan  authorized and  approved by Final  Order of the Bankruptcy Court
dated August 7, 1998.                                                           

          1.114. "TEXAS  ACTION" means the action  commenced on or about October
25, 1995 in the United States  District Court for the Northern District of Texas
entitled  KIMBERLY-CLARK  CORPORATION  V.  PARAGON TRADE  BRANDS, INC., Case No.
3:95-CV-2574 (N.D. Tex.).                                                       

         1.115. "UNCLAIMED  PROPERTY"  means  any  Distribution  of Cash,  New
Securities  and/or  Warrants  unclaimed  on or after the  twelfth  (12th)  month
following the applicable date of Distribution. Unclaimed Property shall include:
(a) Cash, New Notes (if any), shares of New Common Stock,  Litigation  Proceeds,
Warrants and checks (and the funds represented  thereby) mailed to the holder of
any Allowed Claim and/or Allowed Interest and returned as undeliverable  without
a proper  forwarding  address;  (b) uncashed  checks (and the funds  represented
thereby);  or (c)  Cash,  New  Notes  (if  any),  shares  of New  Common  Stock,
Litigation Proceeds, Warrants and checks (and the funds represented thereby) not
mailed or delivered to the holder of any Allowed Claim and/or  Allowed  Interest
because no address was available to which to mail or deliver such  property,  in
each case  after  reasonable  inquiry  by  Reorganized  Paragon  or other  party
attempting to make such Distribution.                                           

          1.116. "UNSECURED  CLAIM" means any Claim other than a  Secured Claim,
a Convenience  Claim, an  Administrative  Claim, a Fee Claim, a Priority Non-Tax
Claim, or a Priority Tax Claim.                                                 

          1.117. "UNSECURED CLAIMS DISTRIBUTION POOL" means the aggregate amount
of (a) that portion of the Litigation  Proceeds  allocable to holders of Allowed
Unsecured Claims pursuant to the Plan, and (b) the Unsecured Creditor New Common
Stock Amount,  to be distributed to holders of Allowed Unsecured Claims pursuant
to the Plan.                                                                    

         1.118. "UNSECURED  CREDITOR NEW COMMON STOCK AMOUNT" means (i) if the
Wellspring Stock Purchase  Agreement is consummated,  such percentage of the New
Common  Stock  Amount that is acquired  by holders of Allowed                   

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Unsecured  Claims  participating in the Wellspring  Rights Offering  pursuant to
Section  9.22  of  the  Plan,   subject  to  dilution  resulting  from  (1)  the
distribution of New Common Stock,  options or warrants  pursuant to any employee
retention  plan adopted by Reorganized  Paragon on or after the Effective  Date,
(2) the issuance of Warrants to holders of Allowed  Interests in accordance with
the terms of this Plan,  (3) the  issuance  of New Common  Stock by  Reorganized
Paragon, as determined by the New Board, after the Effective Date and subject to
the exercise of preemptive rights in accordance with the Restated Certificate of
Incorporation and Restated Bylaws,  and (4) Wellspring's  exercise of the Mabesa
Option (as defined and set forth in the Wellspring  Commitment),  subject to the
exercise  of  preemptive  rights,  and  (ii) if the  Wellspring  Stock  Purchase
Agreement is not  consummated,  the  Unsecured  Creditor New Common Stock Amount
shall  11,712,241  shares of New Common  Stock  (I.E.,  99.13% of the New Common
Stock  Amount)  minus the amount of New Common Stock to be issued under the TEEP
Retention  Plan,  subject to dilution  for those items set forth in  subsections
i(1) through (3) above in this definition.                                      

          1.119. "VOTING  PROCEDURES"  means the voting and balloting  rules and
procedures  approved by order of the  Bankruptcy  Court in  connection with  the
acceptance or rejection of the Plan.                                            

          1.120. "VOTING RECORD DATE"  means 5:00 p.m.  (Atlanta,  Georgia time)
on  November 1, 1999  or  such other  date and time as  designated  in the order
approving the Disclosure Statement.                                             

         1.121. "WARRANTS"  means  warrants  to purchase  New Common  Stock of
Reorganized  Paragon. If the Wellspring Stock Purchase Agreement is consummated,
the Warrants shall contain terms  substantially  similar to the summary of terms
contained on Exhibit "A" annexed hereto or otherwise reasonably  satisfactory to
the Proponents,  Wellspring and the Equity  Committee.  If the Wellspring  Stock
Purchase  Agreement  is  not  consummated,  the  Warrants  shall  contain  terms
substantially  similar to the summary of terms  contained on Exhibit "B" annexed
hereto or  otherwise  reasonably  satisfactory  to the  Proponents,  the  Equity
Committee, P&G and K-C.                                                         

1.122. "WELLSPRING" means Wellspring Capital Management LLC.

         1.123. "WELLSPRING  COMMITMENT" means that certain  commitment letter
dated  October 14,  1999,  between  Paragon and  Wellspring,  a copy of which is
annexed  hereto as Exhibit "C," as superseded by the parties'  agreements  under
the Wellspring Stock Purchase Agreement.                                        

          1.124. "WELLSPRING  CONSIDERATION"  means  the  Wellspring  Investment
Amount, less the amount of Cash necessary to provide Distributions to holders of
Allowed Convenience Claims pursuant to Section 6.4 of the Plan.                 

         1.125. "WELLSPRING  INVESTMENT AMOUNT" means  $117,116,500.00 in Cash
consideration less the value of the New Common Stock issued pursuant to the TEEP
Retention  Plan at $10.00 per share,  subject  to  reduction  as a result of the
Wellspring  Rights Offering,  to be paid by Wellspring or its designee(s)  under
the Wellspring Stock Purchase Agreement.                                        

          1.126. "WELLSPRING NEW NOTES INDENTURE" means the indenture,  dated as
of the Effective  Date,  executed by Reorganized  Paragon and the Wellspring New
Notes Indenture  Trustee,  pursuant to which,  if the Wellspring  Stock Purchase
Agreement is consummated,  the New Notes will be issued, the form of which shall
(a) be filed by the Proponents at least ten (10) calendar days prior to the date
of the Confirmation Hearing and be in form and substance reasonably satisfactory
to P&G and K-C, and (b) contain  terms  substantially  similar to the summary of
terms attached as Appendix 1 to the Wellspring  Stock  Purchase  Agreement.  The
Wellspring New Notes  Indenture must be in a form and substance  satisfactory to
the Proponents, Wellspring, P&G and K-C.                                        

          1.127. "WELLSPRING  NEW NOTES  INDENTURE  TRUSTEE"  means  any  Person
denominated  as the trustee in the  Wellspring New Notes Indenture.             

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          1.128. "WELLSPRING  NEW  NOTES  INTEREST  RATE" means  eleven and one-
quarter percent (11.25%) per annum.                                             

         1.129. "WELLSPRING  RIGHTS OFFERING" means the equity rights offering
under  Section  9.22 of the Plan  pursuant to which (a) the holder of an Allowed
Unsecured  Claim may,  on or prior to the Plan  Voting  Deadline,  exercise  its
rights to receive shares of New Common Stock  pursuant to the Wellspring  Rights
Offering  Procedures  (i) in lieu of a  portion  of the Cash  Distribution  such
holder  otherwise would have been entitled to receive under the Plan, or (ii) by
making a Cash  payment,  and (b) the  holder  of an  Allowed  Old  Common  Stock
Interest may exercise  rights to purchase shares of New Common Stock pursuant to
the Wellspring Rights Offering Procedures.                                      

         1.130. "WELLSPRING  RIGHTS OFFERING  PROCEDURES"  means the terms and
procedures of the  Wellspring  Rights  Offering  that, if the  Wellspring  Stock
Purchase  Agreement has been executed and has not been  terminated,  will govern
the terms of the Wellspring  Rights Offering and shall be in  substantially  the
same form as the Wellspring Rights Offering Procedures annexed hereto as Exhibit
"D." The Wellspring Rights Offering  Procedures must be reasonably  satisfactory
to P&G and K-C.                                                                 

         1.131. "WELLSPRING STOCK PURCHASE AGREEMENT" means that certain stock
purchase  agreement between Paragon and Wellspring or its designee(s),  pursuant
to  which  Wellspring  or its  designee(s),  if the  Wellspring  Stock  Purchase
Agreement is consummated, will acquire 98.5% of the New Common Stock Amount less
shares of New Common Stock issued  pursuant to the TEEP Retention Plan at $10.00
per share,  subject to reduction as a result of the Wellspring  Rights Offering.
The Wellspring  Stock Purchase  Agreement shall be  substantially in the form of
the stock purchase agreement annexed hereto as Exhibit E.                       

          1.132. "WEYERHAEUSER"  means  the  Weyerhaeuser  Company, a Washington
corporation.                                                                    

 II.

METHOD OF CLASSIFICATION OF CLAIMS AND
INTERESTS AND GENERAL PROVISIONS

          2.1.  GENERAL  RULES OF  CLASSIFICATION.  Generally,  for  voting  and
Distribution  purposes,  a Claim or Interest is classified in a particular Class
only to the extent that the Claim or Interest  qualifies  within the description
of that Class,  and is classified in a different  Class or Classes to the extent
the Claim or Interest  qualifies  within the description of such different Class
or Classes.  Unless  otherwise  provided,  to the extent a Claim  qualifies  for
inclusion in a more  specifically  defined  Class and a more  generally  defined
Class, it shall be included in the more  specifically  defined Class. A Claim or
Interest is  classified  in a  particular  Class only to the extent the Claim or
Interest is an Allowed Claim or Allowed  Interest in that Class and has not been
paid, released or otherwise satisfied before the Effective Date.                

          2.2.  ADMINISTRATIVE  CLAIMS,  FEE CLAIMS  AND  PRIORITY  TAX  CLAIMS.
Administrative  Claims,  Fee  Claims  and  Priority  Tax  Claims  have  not been
classified and are excluded from the Classes set forth in Article IV hereof,  in
accordance with section 1123(a)(1) of the Bankruptcy Code.                      

          2.3.  SATISFACTION  OF  CLAIMS  AND  INTERESTS.  The  treatment  to be
provided for Allowed Claims and Allowed Interests  pursuant to the Plan shall be
in full satisfaction,  settlement,  release and discharge of such Allowed Claims
and Allowed Interests.                                                          

          2.4.  BAR DATE FOR FEE CLAIMS. The Confirmation  Order shall establish
the Fee Claims Bar Date and the date for filing any objections to any Fee Claim.
Notice of entry of the Confirmation  Order shall be served on all Professionals.
Any Person  that fails to File an  application  for payment of a Fee Claim on or
before the time and date established in the Confirmation  Order shall be forever
barred from  asserting  such Fee Claim  against  any of the Debtor,             

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the Estate,  Reorganized Paragon or its property and the holder thereof shall be
enjoined from commencing or continuing any action, employment of process or acts
to collect, offset or recover such Fee Claim.                                   

III.

 IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS
 IMPAIRED AND NOT IMPAIRED BY THE PLAN

         3.1. UNIMPAIRED  CLASSES  CONCLUSIVELY  PRESUMED  TO ACCEPT THE PLAN.
Classes 1 (Secured  Claims) and 2  (Priority  Non-Tax  Claims) are not  Impaired
under the Plan.  Under section  1126(f) of the  Bankruptcy  Code, the holders of
Claims in such  Classes  are  conclusively  presumed  to accept the Plan and the
votes of such holders do not need to be and will not be solicited.              

          3.2. CLASSES OF CLAIMS AND INTERESTS IMPAIRED BY THE PLAN AND ENTITLED
TO VOTE.  Classes 3A (Unsecured  Claims),  3B  (Convenience  Claims) and 4A (Old
Common Stock  Interests)  are Impaired  under the Plan and the holders of Claims
and  Interests in such Classes are entitled to vote to accept or reject the Plan
in accordance with the Voting  Procedures.  The Proponents  reserve the right to
seek an order of the Bankruptcy Court determining that a particular Class is not
Impaired and therefore is deemed to have accepted the Plan.                     

          3.3. CLASSES  RECEIVING NO DISTRIBUTION AND DEEMED TO REJECT THE PLAN.
Old Stock Option  Interests in Class 4B (Old Stock  Option  Interests)  will not
receive or retain any  property  under the Plan.  Under  section  1126(g) of the
Bankruptcy Code, the holders of such Interests are deemed to reject the Plan and
the votes of such holders will not be solicited.                                

          3.4.  CONFIRMATION PURSUANT TO SECTION 1129(B) OF THE BANKRUPTCY CODE.
The Proponents  intend to request that the Bankruptcy  Court confirm the Plan in
accordance  with section 1129(b) of the Bankruptcy Code with respect to Class 4B
because Class 4B is deemed to have rejected the Plan.  The  Proponents  also may
seek  confirmation  of the Plan under section  1129(b) of the Bankruptcy Code to
the extent any other Class rejects or is deemed to have rejected the Plan.      

 IV.

CLASSIFICATION OF CLAIMS AND INTERESTS

          4.1.  CLASSIFICATION. Pursuant to section 1122 of the Bankruptcy Code,
the  following is a  designation of  Classes of Claims  and  Interests under the
Plan:                                                                           

                  "Class  1"  shall  consist  of  all  Secured  Claims.   Unless
                  otherwise  ordered  by  the  Bankruptcy  Court,  each  Allowed
                  Secured  Claim in Class 1 shall be considered to be a separate
                  subclass  within  Class  1, and each  such  subclass  shall be
           deemed to be a separate Class for purposes of the Plan.

           "Class 2" shall consist of all Priority Non-Tax Claims.

     "Class 3A" shall consist of all Unsecured Claims.

       "Class 3B" shall consist of all Convenience Claims.

               "Class 4A" shall consist of all Old Common Stock Interests.

               "Class 4B" shall consist of all Old Stock Option Interests.

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V.

 PROVISIONS FOR ALLOWANCE, TREATMENT AND PAYMENT
OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS

5.1.    TREATMENT OF ALLOWED PRIORITY TAX CLAIMS.           

                  (a)  PAYMENT.  Each  holder of an Allowed  Priority  Tax Claim
shall  receive,  at  the  option  of  the  Debtor  or  Reorganized  Paragon,  as
applicable,  either (i) Cash equal to 100% of the unpaid  amount of such Allowed
Claim  on or as  soon as  reasonably  practicable  after  the  later  of (A) the
Effective Date, or (B) the first Business Day after the date that is thirty (30)
calendar days after the date such  Priority Tax Claim becomes an Allowed  Claim,
or (ii) annual Cash payments commencing on or as soon as reasonably  practicable
after  the  later  to  occur of the  Effective  Date and the date on which  such
Priority Tax Claim becomes an Allowed Claim, over a period not exceeding six (6)
years after the date of assessment of such Allowed Priority Tax Claim,  together
with  interest  (payable  quarterly  in arrears)  on the unpaid  balance of such
Allowed  Priority  Tax Claim at a per annum rate equal to the  federal  judgment
statutory  rate as of the  Effective  Date.  Allowed  Priority Tax Claims may be
prepaid,  at any  time,  without  penalty.  Any  Claim or  demand  for a penalty
relating to an Allowed  Priority Tax Claim shall be  Disallowed  pursuant to the
Plan,  and the  holder of an  Allowed  Priority  Tax Claim  shall not  assess or
attempt to collect such penalty from the Debtor, the Estate, Reorganized Paragon
or its property.  Holders of Allowed Priority Tax Claims shall be limited to the
consideration  provided under the Plan and shall have no recourse to Reorganized
Paragon for any  pre-Confirmation  Date Priority Tax Claims  against the Debtor.
Notwithstanding  the foregoing,  the holder of an Allowed Priority Tax Claim may
receive  such  other,  less  favorable  treatment  as may be agreed  upon by the
claimant and the Debtor or Reorganized Paragon, as applicable.                  

                  (b)  RELEASE  OF  SECURITY  INTERESTS.   All  liens,  security
interests and like  encumbrances of a holder of an Allowed Priority Tax Claim on
property  of the Debtor or the  Estate  respecting  such  Claim  shall be deemed
released pursuant to Sections 9.13 and 9.15 hereof as of the Effective Date, and
shall not attach to Reorganized Paragon's property.                             

          5.2.  TREATMENT OF ALLOWED  ADMINISTRATIVE  CLAIMS.  Unless  otherwise
provided  for  herein,  each  holder of an Allowed  Administrative  Claim  shall
receive Cash equal to 100% of the unpaid  amount of such Allowed  Administrative
Claim on or as soon as  reasonably  practicable  after  the  later  of:  (a) the
Effective  Date;  (b) the first  Business Day after the date that is thirty (30)
calendar days after the date such Administrative Claim becomes an Allowed Claim;
or (c) such other date  established  pursuant to the terms of any Final Order of
the  Bankruptcy  Court,  which may include the  Confirmation  Order.  Holders of
Allowed  Administrative  Claims shall be limited to the  consideration  provided
under  the Plan and  shall  have no  recourse  to  Reorganized  Paragon  for any
pre-Confirmation Date Administrative Claims against the Debtor.  Notwithstanding
the two immediately preceding sentences, Allowed Administrative Claims for goods
sold or services rendered representing liabilities incurred by the Debtor in the
ordinary  course  of  business  during  the  Chapter  11 Case  shall  be paid by
Reorganized  Paragon in the ordinary  course of business in accordance  with the
terms and conditions of any agreements,  understandings, or trade terms relating
thereto,  or  pursuant to the terms of a Final  Order of the  Bankruptcy  Court,
which may include the Confirmation  Order.  Notwithstanding  the foregoing,  the
holder of an Allowed Administrative Claim may receive such other, less favorable
treatment  as may be agreed  upon by such  holder and the Debtor or  Reorganized
Paragon, as applicable.                                                         

          5.3.  TREATMENT OF ALLOWED DIP CLAIMS.  On the Effective Date, the DIP
Bank  Agent  shall be paid  100% of the  unpaid  non-contingent  amounts  of the
Allowed DIP Claims and such Claims  otherwise  shall be treated  pursuant to the
terms of the DIP Credit  Agreement.  Upon payment or satisfaction in full of the
Allowed DIP Claims,  the DIP Credit Agreement shall be deemed terminated and the
obligations  or rights  issued or granted  pursuant  thereto  shall be canceled,
subject in all respects to any carve-out  provided in the Bankruptcy Court order
approving the DIP Credit Agreement on a final basis. On or as soon as reasonably
practicable  after the Effective  Date, all interest,  fees,  expenses and other
charges                                                                         

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that have  accrued and are required to be paid  pursuant to the terms of        
the DIP Credit  Agreement but have not been paid as of the Effective  Date shall
be paid (subject to proration) to the DIP Bank Agent for  distribution  to those
parties  entitled to receive such  interest,  fees,  expenses and other  charges
pursuant to the DIP Credit Agreement.                                           

          5.4. TREATMENT OF FEE CLAIMS. Each holder of a Fee Claim shall receive
Cash from the  Professional  Fee Reserve  equal to 100% of the unpaid  amount of
such Fee Claim in such amounts as are allowed by the Bankruptcy Court (a) on the
later of (i) the Effective Date, and (ii) a date which is no later than five (5)
Business Days after the entry of an order of the Bankruptcy  Court allowing such
Fee Claim, or (b) upon such other less favorable terms as may be mutually agreed
upon between such holder of a Fee Claim and the Debtor or  Reorganized  Paragon,
as applicable.  In the event that the aggregate amount of all Fee Claims allowed
by the Bankruptcy Court is less than the  Professional  Fee Reserve,  the excess
shall be allocated  and made  available for  Distribution  to holders of Allowed
Unsecured Claims in accordance with the Distribution  provisions of the Plan. In
the event that the aggregate  amount of all Fee Claims allowed by the Bankruptcy
Court  is more  than the  Professional  Fee  Reserve,  the  deficiency  shall be
withdrawn  from the Class 3A Disputed  Claims Reserve for payment to the holders
of Allowed Fee Claims.                                                          

 VI.

TREATMENT OF CLASSES OF ALLOWED CLAIMS
 AND ALLOWED INTERESTS

6.1.    TREATMENT OF ALLOWED SECURED CLAIMS (CLASS 1).      

                  (a)  PAYMENT.  Claims  in Class 1 are not  Impaired  under the
Plan.  On or as  soon as  reasonably  practicable  after  the  later  of (i) the
Effective  Date,  or (ii) the first  Business  Day after the date that is thirty
(30) calendar  days after the date such Secured Claim becomes an Allowed  Claim,
each holder of an Allowed  Secured Claim shall  receive,  at the election of the
Debtor  or   Reorganized   Paragon,   as   applicable,   one  of  the  following
distributions:  (1) Cash  equal to 100% of the  unpaid  amount  of such  Allowed
Secured  Claim;  (2) the  proceeds of the sale or  disposition  of the  property
securing such Allowed  Secured Claim to the extent of the value of such holder's
interest  in such  property;  (3) the  surrender  to the holder of such  Allowed
Secured  Claim of the property  securing  such Claim;  (4) such  treatment  that
leaves  unaltered the legal,  equitable or  contractual  rights of the holder of
such Allowed Secured Claim; or (5) such other distribution as shall be necessary
to leave  the  holder  of such  Secured  Claim  Unimpaired  and to  satisfy  the
requirements  of chapter 11 of the Bankruptcy  Code. The manner and treatment of
each Allowed Secured Claim shall be determined by the Debtor, in its discretion,
on or before the Effective Date, or by Reorganized Paragon,  after the Effective
Date, and upon notice to the holder of such Secured Claim. To the extent a Claim
is partially an Allowed  Secured Claim based on an offset right and partially an
Allowed Claim of another  type,  (x) the portion of such Claim that is a Secured
Claim  shall be equal to the  amount of the  allowed,  liquidated,  nondisputed,
noncontingent claim owing to the Debtor as to which a valid setoff right exists,
and (y) the  remainder  of such Claim shall be  classified  in another  relevant
Class to the extent of the excess.  If a Claim is a fully Secured Claim based on
an offset right, the allowance of such Claim shall not affect any obligations or
liabilities due and payable (at such time) to the Debtor that is in an amount in
excess of the amount offset and the payment, in full and in Cash, of all amounts
due and owing as of the  Effective  Date to the Debtor and the  turnover  of any
property  of the Debtor held by such  claimant  on account of any  unliquidated,
disputed or contingent  right of setoff shall be a precondition to the allowance
of such Secured Claim.  Notwithstanding the foregoing,  the holder of an Allowed
Secured Claim may receive such other less  favorable  treatment as may be agreed
to by such holder and the Debtor or Reorganized Paragon, as applicable.         

                  (b) RELEASE OF SECURITY  INTERESTS.  Unless an Allowed Secured
Claim is  treated  pursuant  to Section  6.1(a)(4)  above,  all liens,  security
interests  and like  encumbrances  of a holder of an  Allowed  Secured  Claim on
property  of the Debtor or the  Estate  respecting  such  Claim  shall be deemed
released pursuant to Sections 9.13 and 9.15 hereof as of the Effective Date, and
shall not attach to Reorganized Paragon's property.                             

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          6.2. TREATMENT OF ALLOWED PRIORITY NON-TAX CLAIMS (CLASS 2). Claims in
Class 2 are not Impaired under the Plan. On or as soon as reasonably practicable
after the later of (a) the Effective  Date, and (b) the first Business Day after
the date that is thirty (30) calendar days after the date such Priority  Non-Tax
Claim becomes an Allowed Claim, each holder of an Allowed Priority Non-Tax Claim
shall be entitled to receive payment, in Cash, in an amount equal to 100% of the
unpaid  amount  of its  Allowed  Priority  Non-Tax  Claim.  Notwithstanding  the
foregoing,  the holder of an Allowed  Priority  Non-Tax  Claim may receive  such
other less favorable treatment as may be agreed to by such holder and the Debtor
or Reorganized Paragon, as applicable.                                          

          6.3.    TREATMENT  OF  ALLOWED UNSECURED CLAIMS (CLASS 3A).  Claims in
Class 3A are Impaired under the Plan.                                           

                  (a) TREATMENT IF THE WELLSPRING  STOCK  PURCHASE  AGREEMENT IS
CONSUMMATED.  If the Wellspring Stock Purchase  Agreement has been  consummated,
then, on or as soon as  reasonably  practicable  after the Initial  Distribution
Date,  each Periodic  Distribution  Date  thereafter and the Final  Distribution
Date,  each holder of an Allowed  Unsecured  Claim in Class 3A shall  receive on
account of such Allowed  Unsecured  Claim, in accordance with Article XI hereof,
(i) such holder's Pro Rata Share of (1) the Wellspring  Investment Amount (minus
the  sum of  $1,094,500.00  in  Cash  plus  the  amount  of  Cash  used  to make
Distributions to Class 3B (Convenience Claims), and subject to dollar for dollar
reduction in accordance with the Wellspring  Rights  Offering  Procedures in the
case of certain holders as a result of such holder's exercise of rights pursuant
to the Wellspring Rights  Offering),  (2) the New Notes, and (3) that portion of
Litigation  Proceeds  allocable to holders of Allowed Unsecured Claims under the
Plan, and (ii) any New Common Stock properly subscribed for by such holder under
the  Wellspring  Rights  Offering  pursuant  to  Section  9.22 of the Plan.  For
purposes of determining  the Litigation  Proceeds which are allocable to holders
of Allowed  Unsecured  Claims:  (a) with respect to  Litigation  Claims  against
Weyerhaeuser  and  Pope &  Talbot,  25%  of the  Litigation  Proceeds  shall  be
allocable  to holders of Allowed  Unsecured  Claims as and when such  Litigation
Proceeds are  received,  with the  remainder of the  Litigation  Proceeds  being
available for  Distributions  to holders of Allowed Old Common Stock  Interests;
and (b) with respect to Litigation  Claims  against  Oracle  Corporation  and/or
Andersen  Consulting  LLP, 50% of the Litigation  Proceeds shall be allocable to
holders of Allowed  Unsecured  Claims as and when such  Litigation  Proceeds are
received and 50% of such  Litigation  Proceeds  shall be allocable to holders of
Allowed Old Common  Stock  Interests.  Notwithstanding  anything to the contrary
herein,  once the holders of Allowed  Unsecured  Claims receive  payment in full
(including  postpetition  interest  to the extent  provided  under  Section  7.4
hereof),  any Litigation  Proceeds  which would  otherwise be distributed to the
holders of such Claims shall be  distributed  pro rata to the holders of Allowed
Old Common Stock Interests pursuant to Section 6.5 hereof.                      

                  (b) TREATMENT IF THE WELLSPRING  STOCK  PURCHASE  AGREEMENT IS
NOT CONSUMMATED.  If the Wellspring Stock Purchase Agreement is not executed, or
is  executed  and is  terminated  or not  consummated,  then,  on or as  soon as
reasonably  practicable  after the  Initial  Distribution  Date,  each  Periodic
Distribution Date thereafter and the Final  Distribution Date, each holder of an
Allowed  Unsecured  Claim in Class 3A shall  receive on account of such  Allowed
Unsecured  Claim, in accordance  with Article XI hereof,  such holder's Pro Rata
Share of the Unsecured Claims Distribution Pool then available for Distribution.
For  purposes  of  determining  the  Litigation  Proceeds  which are part of the
Unsecured  Claims  Distribution  Pool:  (a) with  respect to  Litigation  Claims
against  Weyerhaeuser and Pope & Talbot, 25% of the Litigation Proceeds shall be
deposited in the Unsecured Claims  Distribution Pool as and when such Litigation
Proceeds are  received,  with the  remainder of the  Litigation  Proceeds  being
available for  Distributions  to holders of Allowed Old Common Stock  Interests;
and (b) with respect to Litigation  Claims  against  Oracle  Corporation  and/or
Andersen  Consulting  LLP, 50% of the Litigation  Proceeds shall be allocable to
holders of Allowed  Unsecured  Claims as and when such  Litigation  Proceeds are
received and 50% of such  Litigation  Proceeds  shall be allocable to holders of
Allowed Old Common  Stock  Interests.  Notwithstanding  anything to the contrary
herein,  once the holders of Allowed  Unsecured  Claims receive  payment in full
(including  postpetition  interest  to the extent  provided  under  Section  7.4
hereof),  any Litigation  Proceeds  which would  otherwise be distributed to the
holders of such Claims or deposited in the Unsecured  Claims  Distribution  Pool
shall be  distributed  pro rata to the  holders  of  Allowed  Old  Common  Stock
Interests pursuant to Section 6.5 hereof.                                       

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6.4.    TREATMENT OF ALLOWED CONVENIENCE CLAIMS (CLASS 3B). 

                  (a) TREATMENT. Claims in Class 3B are Impaired under the Plan.
On or as soon as  reasonably  practicable  after the later of (i) the  Effective
Date,  and (ii) the first  Business  Day  after  the date  that is  thirty  (30)
calendar days after such Convenience Claim becomes an Allowed Claim, each holder
of an Allowed  Convenience Claim shall receive Cash equal to fifty percent (50%)
of the unpaid amount of such Allowed Claim.                                     

                  (b) ELECTION OF TREATMENT.  Any holder of an Allowed Unsecured
Claim  whose  Allowed  Unsecured  Claim is equal to or less than  five  thousand
dollars  ($5,000.00)  shall receive treatment of its Allowed Claim under Section
6.4(a) hereof in full  settlement,  satisfaction,  release and discharge of such
Allowed Claim. Any holder of an Allowed  Unsecured Claim whose Allowed Unsecured
Claim is more  than  five  thousand  dollars  ($5,000.00)  but not more than ten
thousand  dollars  ($10,000.00),  and who timely  elects to reduce the amount of
such Allowed Claim to five thousand  dollars  ($5,000.00) in accordance with the
terms of this Section 6.4 (b) also shall receive treatment of its Allowed Claim,
as so reduced,  under Section  6.4(a) hereof in full  settlement,  satisfaction,
release and discharge of such Allowed Claim.  No holder of an Allowed  Unsecured
Claim in excess of ten thousand dollars  ($10,000.00) shall be entitled to elect
treatment  under  Section 6.4 (a) hereof with respect to such Allowed  Unsecured
Claim.  Election of treatment in Class 3B must be made on such  holder's  Ballot
and be  received  by the  Debtor on or prior to the Plan  Voting  Deadline.  Any
election of  Convenience  Claim  treatment  made after the Plan Voting  Deadline
shall not be binding  upon the  Debtor or  Reorganized  Paragon  unless the Plan
Voting Deadline is expressly waived, in writing, by the Proponents. The exercise
of such an election shall in no way preclude the Debtor,  Reorganized Paragon or
other parties in interest from objecting to the Claim.                          

          6.5.  TREATMENT  OF ALLOWED  OLD COMMON  STOCK  INTERESTS  (CLASS 4A).
Interests in Class 4A are Impaired  under the Plan.  On or as soon as reasonably
practicable after the Initial Distribution Date, each Periodic Distribution Date
thereafter and the Final Distribution Date, each holder of an Allowed Old Common
Stock  Interest  shall be entitled to receive,  in  accordance  with  Article XI
hereof, (a) such holder's Pro Rata Share of (i) the Interest Holders' New Common
Stock  Amount,  (ii) the  Warrants  and (iii)  that  portion  of the  Litigation
Proceeds  allocable to holders of Allowed Old Common Stock  Interests  under the
Plan,  and (b) any New Common Stock  properly  subscribed for by any such holder
under the Wellspring  Rights Offering  pursuant to Section 9.22 of the Plan. For
purposes of determining  the Litigation  Proceeds which are allocable to holders
of Allowed Old Common Stock  Interests:  (a) with respect to  Litigation  Claims
against  Weyerhaeuser and Pope & Talbot, 25% of the Litigation Proceeds shall be
deposited in the Unsecured Claims  Distribution Pool as and when such Litigation
Proceeds are  received,  with the  remainder of the  Litigation  Proceeds  being
available for  Distributions  to holders of Allowed Old Common Stock  Interests;
and (b) with respect to Litigation  Claims  against  Oracle  Corporation  and/or
Andersen  Consulting  LLP, 50% of the Litigation  Proceeds shall be allocable to
holders of Allowed  Unsecured  Claims as and when such  Litigation  Proceeds are
received and 50% of such  Litigation  Proceeds  shall be allocable to holders of
Allowed Old Common Stock Interests.  On the Effective Date, all Old Common Stock
Interests shall be deemed treated as set forth in Section 9.14(b) hereof.       

          6.6.  TREATMENT OF OLD STOCK OPTION INTERESTS (CLASS 4B). Interests in
Class 4B are Impaired  under the Plan. All Old Stock Option  Interests  shall be
deemed  canceled and the holders of such Interests shall receive no Distribution
of any kind under the Plan. On the Effective  Date, all such Interests  shall be
deemed  extinguished and the certificates  representing  such Interests shall be
canceled and of no force and effect.                                            

          6.7.  NO   DISTRIBUTION   IN  EXCESS  OF  ALLOWED   AMOUNT  OF  CLAIM.
Notwithstanding  anything to the contrary herein,  no holder of an Allowed Claim
shall receive in respect of such Claim any  Distribution  having a value,  as of
the Effective Date, in excess of the allowed amount of such Claim.              

VII.

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COMPROMISE AND SETTLEMENT OF CERTAIN CLAIMS; THE WELLSPRING STOCK PURCHASE
 AGREEMENT

          7.1.  COMPROMISE  AND  SETTLEMENT  OF  CLAIMS  HELD BY P&G.  The  Plan
incorporates  the compromise and settlement of certain claims and issues between
the Debtor  and P&G that were  resolved  by the P&G  Settlement  Agreement.  The
negotiations  resulting in the P&G  Settlement  Agreement were conducted in good
faith and at arms' length, and the P&G Settlement Agreement is of benefit to the
Estate and represents a fair, necessary and reasonable  compromise of the Claims
held by P&G and related  issues.  As of the Effective Date, to the extent it has
not already been approved by a Final Order,  the P&G Settlement  Agreement shall
be deemed  approved  in all  respects as if by a Final Order and the P&G Allowed
Claims (as defined in the P&G Settlement Agreement) shall be treated and allowed
in the amounts and  classifications  set forth therein. If not already effective
by its  terms,  the P&G  Settlement  Agreement  shall  become  effective  on the
Effective Date.                                                                 

          7.2.  COMPROMISE  AND  SETTLEMENT  OF  CLAIMS  HELD BY K-C.  The  Plan
incorporates  the compromise and settlement of certain claims and issues between
the Debtor  and K-C that were  resolved  by the K-C  Settlement  Agreement.  The
negotiations  resulting in the K-C  Settlement  Agreement were conducted in good
faith and at arms' length, and the K-C Settlement Agreement is of benefit to the
Estate and represents a fair, necessary and reasonable  compromise of the Claims
held by K-C and related  issues.  As of the Effective Date, to the extent it has
not already been approved by a Final Order,  the K-C Settlement  Agreement shall
be deemed  approved  in all  respects as if by a Final Order and the K-C Allowed
Claims (as defined in the K-C Settlement Agreement) shall be treated and allowed
in the amounts and  classifications  set forth therein. If not already effective
by its  terms,  the K-C  Settlement  Agreement  shall  become  effective  on the
Effective Date.                                                                 

          7.3.  ALLOWANCE OF THE PREPETITION  BANK CLAIMS.  The Prepetition Bank
Claims shall be deemed Allowed  Unsecured  Claims as of the Petition Date in the
respective  principal  amounts of (a) $70,563,189 (on account of the Prepetition
Revolving Credit Agreement),  and (b) $11,420,417 (on account of the Prepetition
Line of Credit),  plus postpetition  interest thereon to the extent provided for
pursuant to Section 7.4 hereof, and otherwise shall be disallowed.              

          7.4.  ALLOWANCE  AND  PAYMENT  OF  POSTPETITION  INTEREST.  Holders of
Allowed  Unsecured  Claims  shall  be  entitled  to  receive   Distributions  in
accordance  with the Plan until the  holders of such Claims  receive  payment in
full  (including  simple  interest,  calculated  (a) in the case of the  Allowed
Unsecured  Claims held by P&G and the Allowed  Unsecured  Claims held by K-C, at
the  per  annum  rate  provided  in the  P&G  Settlement  Agreement  and the K-C
Settlement Agreement,  respectively, on the unpaid principal amount thereof from
April 15, 1999  through  the  Effective  Date,  and (b) in the case of all other
Allowed  Unsecured  Claims,  at a per annum rate equal to the  federal  judgment
statutory rate as of the Effective Date, on the unpaid  principal amount thereof
from the Petition Date through the Effective Date).                             

          7.5. THE WELLSPRING STOCK PURCHASE  AGREEMENT.  Paragon and Wellspring
have agreed to implement the parties' agreements and understandings  embodied in
the  Wellspring  Commitment  through  the terms of this Plan and the  Wellspring
Stock Purchase Agreement.  If, however,  (a) Paragon and Wellspring are not able
to agree upon the terms of the Wellspring Stock Purchase Agreement and therefore
do not execute such agreement,  (b) the Wellspring  Stock Purchase  Agreement is
executed but  terminated by either  Paragon or Wellspring  pursuant to the terms
thereof,  or (c) the Wellspring Stock Purchase  Agreement is not consummated for
any reason by February 15, 2000, or such later date agreed to by the  Proponents
and  Wellspring  (with the consent of P&G, K-C, and the Equity  Committee,  such
consent not to be  unreasonably  withheld),  then  Paragon  will  implement  the
provisions of this Plan that do not  contemplate or require  consummation of the
Wellspring  Stock  Purchase  Agreement,  subject to the terms of the  Wellspring
Commitment and the Wellspring Stock Purchase Agreement.                         

7.6.        INTENTIONALLY OMITTED.                          

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          7.7.  COMPROMISE  OF  EQUITY  COMMITTEE'S  OBJECTIONS;  WITHDRAWAL  OF
PENDING  LITIGATION.  The Plan  incorporates  and  embodies the  compromise  and
settlement  of  the  Equity  Committee's  objections  to,  and  appeals  of  the
Bankruptcy  Court's approval of, (a) the K-C Settlement  Agreement,  (b) the P&G
Settlement Agreement,  and (c) the bidding procedures and protections concerning
the Wellspring Stock Purchase  Agreement and related  transactions.  Within five
(5) Business  Days after the  Effective  Date,  the Equity  Committee  shall (x)
dismiss with prejudice (i) the Equity  Committee's  appeal of the K-C Settlement
Order (No. 99-13877-B), (ii) the Equity Committee's appeal of the P&G Settlement
Order, and (iii) the Equity Committee's appeals of the Bankruptcy Court's orders
dated July 13, 1999 and August 20, 1999 (Case No. 1-99-CV-2590-JEC),  concerning
the  establishment of certain bidding  procedures and protections in the Chapter
11  Case  (collectively,  the  "Appeals"),  and  (y) if not  already  withdrawn,
withdraw  with  prejudice  the Equity  Committee's  objections  to the  Debtor's
settlement agreement dated August 9, 1999, with Rhonda Tracy.                   

 VIII.

 TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

          8.1.  ASSUMPTION  OR  REJECTION.  Any  unexpired  lease  or  executory
contract that has not been expressly  assumed or rejected by the Debtor with the
Bankruptcy  Court's approval on or prior to the  Confirmation  Date shall, as of
the  Confirmation  Date but subject to the occurrence of the Effective  Date, be
deemed to have been assumed by the Debtor (notwithstanding any provision thereof
limiting or conditioning such assumption) unless (a) there is pending before the
Bankruptcy  Court on the  Confirmation  Date a motion to reject  such  unexpired
lease or executory  contract,  (b) such executory contract or unexpired lease is
otherwise  designated  for  rejection on a "Schedule of Executory  Contracts and
Unexpired  Leases  to be  Rejected"  Filed  and  served  by  the  Debtor  on the
Committees,  P&G,  K-C,  Wellspring  and all  non-Debtor  parties to each of the
executory  contracts  and unexpired  leases listed  thereon at least twenty (20)
calendar  days  before  the first date  scheduled  for the  commencement  of the
Confirmation  Hearing,  provided that such executory contract or unexpired lease
is  ultimately  rejected  by  operation  of the Plan or order of the  Bankruptcy
Court,  (c)  such  executory  contract  or  unexpired  lease is  designated  for
rejection by the Debtor or Reorganized  Paragon based on the existence of a cure
amount  dispute,  as  described  in Section  8.2 hereof,  or (d) such  executory
contract or unexpired  lease is an  agreement,  obligation,  security  interest,
transaction or similar  undertaking that the Debtor believes is not an executory
contract or unexpired lease and is later  determined by the Bankruptcy  Court to
be an executory  contract or unexpired  lease that is subject to  assumption  or
rejection  under section 365 of the  Bankruptcy  Code. Any party to an executory
contract or unexpired lease to be assumed by the Debtor by operation of the Plan
must assert all amounts  that such party  believes  must be paid or cured by the
Debtor  pursuant  to section  365 of the  Bankruptcy  Code in a writing (a "Cure
Statement")  Filed and served on the  Debtor's  counsel  on or before  4:45 p.m.
(Atlanta,  Georgia  time) on January  6, 2000.  Failure to File and serve a Cure
Statement strictly in accordance with the foregoing shall,  unless the Debtor or
Reorganized  Paragon  otherwise  agrees in  writing,  result in the  waiver  and
release of any and all Claims and amounts  that  otherwise  may have been due to
such party upon the Debtor's assumption of the respective  executory contract or
unexpired  lease in  excess  of the  respective  cure  amount  reflected  in the
Debtor's books and records. Any order entered after the Confirmation Date by the
Bankruptcy  Court,  after notice and hearing,  authorizing  the  rejection of an
executory  contract or unexpired lease, even if such rejection takes place after
the  Effective  Date as  provided  above,  shall  cause such  rejection  to be a
prepetition  breach under sections 365(g) and 502(g) of the Bankruptcy  Code, as
if  such  relief  were  granted  and  such  order  were  entered  prior  to  the
Confirmation  Date.  Listing an  executory  contract or  unexpired  lease on the
Schedule of Executory  Contracts and Unexpired  Leases to be Rejected  shall not
constitute an admission by the Debtor or Reorganized  Paragon that such contract
or lease,  including related  agreements,  is an executory contract or unexpired
lease or that the Debtor or  Reorganized  Paragon has any liability  thereunder.
The Debtor may amend the Schedule of Executory Contracts and Unexpired Leases to
be  Rejected  to add or delete  any  contract  or lease at any time prior to the
Confirmation Hearing.                                                           

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          8.2. CURE OF DEFAULTS UPON  ASSUMPTION.  All payments to cure defaults
("Cure  Amounts")  that may be required by section  365(b)(1) of the  Bankruptcy
Code and Section  8.1 hereof  shall be made by the Debtor and treated as Allowed
Administrative  Claims pursuant to Section 5.2 hereof. Any disputes with respect
to Cure Amounts shall be resolved by the Bankruptcy  Court.  In the event of any
such dispute as to a Cure Amount, the Debtor or Reorganized  Paragon shall place
in a segregated account the full Cure Amount timely asserted in a Cure Statement
in accordance  with Section 8.1 hereof,  or such lesser  amount  approved by the
Bankruptcy Court or agreed to by the Debtor and the asserting party, in order to
provide  adequate  assurance  of  prompt  cure upon the  resolution  of any such
dispute.  Any  executory  contract or unexpired  lease that is subject to a cure
amount  dispute  may be  added  by the  Debtor  or  Reorganized  Paragon  to the
"Schedule of Executory  Contracts  and  Unexpired  Leases to be Rejected" at any
time, including,  without limitation,  after the resolution by the Court of such
cure amount dispute,  regardless of the occurrence of the  Confirmation  Date or
the Effective Date, based on the existence of such dispute.                     

          8.3.  REJECTION  DAMAGE  CLAIMS.  If the  rejection  of any  executory
contract  or  unexpired  lease under the Plan gives rise to a Claim by the other
party or parties to such contract or lease, such Claim, to the extent that it is
timely Filed and is an Allowed Claim,  shall be an Allowed  Unsecured  Claim and
classified in Class 3A; PROVIDED, HOWEVER, that the Unsecured Claim arising from
such rejection shall be forever barred and shall not be enforceable  against the
Debtor, the Estate, Reorganized Paragon, its successors or properties,  unless a
proof of Claim is timely Filed and served in accordance with Section 8.5 hereof.

          8.4. OBJECTIONS. Any party to an executory contract or unexpired lease
objecting to assumption or rejection under this Article VIII must File and serve
upon the  Debtor's  counsel  an  objection  in  writing  on or before  4:45 p.m.
(Atlanta,  Georgia  time) on  January  6,  2000.  If any  party to an  executory
contract or unexpired lease that is deemed assumed pursuant to this Article VIII
objects to such  assumption,  the Bankruptcy Court may conduct a hearing on such
objection at the Confirmation  Hearing or such other hearing date as selected by
the  Debtor on notice  (which  notice  may be given  orally on the record of the
Confirmation  Hearing)  to the  objecting  party.  In  the  event  of a  dispute
regarding  the amount of any cure payment or the ability of the Debtor to assume
or assign,  including  providing adequate assurance of future  performance,  the
Debtor may  determine to reject such  contract or lease  pursuant to Section 8.2
above, and otherwise will make any payments required by section 365(b)(1) of the
Bankruptcy Code only after the entry of a Final Order resolving such dispute.   

          8.5. BAR DATE FOR REJECTION  DAMAGE  CLAIMS.  All proofs of Claim with
respect to Claims arising from the rejection of executory contracts or unexpired
leases,  to the  extent  not  subject  to an  earlier  date  set by order of the
Bankruptcy  Court,  must be filed with the  Bankruptcy  Court within thirty (30)
calendar  days after the date of  service of notice of entry of an order  (which
order may be the  Confirmation  Order) of the  Bankruptcy  Court  approving such
rejection or such Claims shall be forever barred.                               

          8.6.  DEEMED  CONSENTS.  Unless a  non-Debtor  party  to an  executory
contract,  unexpired lease, license or permit objects to the Debtor's assumption
or retention thereof in writing on or before 4:45 p.m.  (Atlanta,  Georgia time)
on January 6, 2000,  then,  unless such  executory  contract,  unexpired  lease,
license  or  permit  has been  rejected  by the  Debtor or will be  rejected  by
operation  of the Plan,  Reorganized  Paragon  shall enjoy all of the rights and
benefits under each such executory contract, unexpired lease, license and permit
without the necessity of obtaining such non-Debtor's  party's written consent to
Reorganized Paragon's assumption or retention of such rights and benefits.      

 IX.

 MEANS OF IMPLEMENTATION OF THE PLAN

                  In addition to the provisions set forth elsewhere in the Plan,
the following shall constitute the means of implementation of the Plan.         

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          9.1.  FUNDING AND  DISTRIBUTION  OF CASH.  On or before the  Effective
Date,  the Debtor  shall  obtain all Cash  necessary  to make the Cash  payments
required  to be made  under the Plan.  Such Cash may be  obtained  in any lawful
manner,  including,  without  limitation,  from results of operations,  sales of
assets,  through  loans  or  dividends  from  Affiliates,  from  debt or  equity
financing to be arranged by the Debtor,  or from  consummation of the Wellspring
Stock Purchase Agreement.                                                       

          9.2.    WORKING CAPITAL  FACILITY.  On or  before  the Effective Date,
the Debtor shall obtain a working capital line of credit for post-Effective Date
operations (the "New Credit Agreement").                                        

9.3.    INTENTIONALLY OMITTED.                              

          9.4.  CANCELLATION  OF  INSTRUMENTS.  Unless  otherwise  provided  for
herein, on the Effective Date, all notes, shares, instruments or other evidences
of Claims or Interests  automatically shall be canceled and deemed null and void
as of the  Effective  Date and must be  surrendered  to the Debtor  pursuant  to
Section 9.14 below.                                                             

   9.5.    RESTATED CERTIFICATE OF INCORPORATION; RESTATED BYLAWS.

                  (a) IF THE WELLSPRING STOCK PURCHASE AGREEMENT IS CONSUMMATED:
On or prior to the date that is ten (10)  calendar days prior to the date of the
Confirmation  Hearing,  the  Debtor  shall  file  its  Restated  Certificate  of
Incorporation  and  Restated  Bylaws,  which (i) shall be in form and  substance
acceptable  to  Wellspring,  (ii)  shall  be in form  and  substance  reasonably
satisfactory  to the Creditors'  Committee,  P&G, K-C and the Equity  Committee,
(iii) shall preserve  customary  preemptive  rights of all holders of New Common
Stock with respect to future  issuances of New Common  Stock,  and (iv) shall be
deemed adopted such that they become the certificate of incorporation and bylaws
of Reorganized  Paragon as of the Effective  Date.  The Restated  Certificate of
Incorporation shall authorize the issuance of not more than 20 million shares of
New Common Stock.  Except as provided herein, no additional shares of New Common
Stock may be issued other than as directed by the New Board after the  Effective
Date. The Restated Certificate of Incorporation and Restated Bylaws shall, INTER
ALIA,  prohibit the issuance of non-voting  stock to the extent  required  under
section 1123(a)(6) of the Bankruptcy Code.                                      

                  (b)  IF  THE  WELLSPRING  STOCK  PURCHASE   AGREEMENT  IS  NOT
CONSUMMATED: On or prior to the date that is ten (10) calendar days prior to the
date of the  Confirmation  Hearing,  the  Proponents  shall  file  the  Restated
Certificate of  Incorporation  and Restated  Bylaws,  which shall be in form and
substance  reasonably  satisfactory  to P&G and K-C and shall be deemed  adopted
such that they become the certificate of incorporation and bylaws of Reorganized
Paragon as of the Effective  Date.  The Restated  Certificate  of  Incorporation
shall  authorize  the issuance of not more than 20 million  shares of New Common
Stock.  Except as provided herein,  no additional shares of New Common Stock may
be issued other than as directed by the New Board after the Effective  Date. The
Restated  Certificate of  Incorporation  and Restated Bylaws shall,  INTER ALIA,
prohibit the issuance of non-voting  stock to the extent  required under section
1123(a)(6) of the Bankruptcy Code.                                              

          9.6.  ISSUANCE OF NEW COMMON  STOCK,  NEW NOTES AND  WARRANTS.  On the
Effective Date,  Reorganized  Paragon shall issue: (a) 13,566,574  shares of New
Common  Stock  (provided,  that  11,891,000  shares of New Common Stock shall be
issued if the Wellspring Stock Purchase  Agreement is  consummated);  (b) if the
Wellspring  Stock Purchase  Agreement is consummated,  a principal amount of New
Notes equal to the New Notes Amount; and (c) the Warrants. Holders of New Common
Stock shall have such rights with respect to dividends,  liquidation, voting and
other  matters as are set forth in the Restated  Certificate  of  Incorporation.
After  the  Effective  Date,   Reorganized  Paragon  may  amend  or  modify  its
certificate  of  incorporation  and bylaws in any manner not  inconsistent  with
applicable law, the Plan and/or such certificate of incorporation and bylaws.   

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          9.7.  CERTAIN PROVISIONS  REGARDING NEW COMMON STOCK.  All  authorized
and issued shares of New Common Stock not  distributed  in accordance  with  the
Plan shall be retained by Reorganized  Paragon in its treasury and may be issued
as authorized  by the New Board,  including,  without  limitation,  to employees
of Reorganized Paragon pursuant to an employee stock option plan.               

          9.8.  ESTIMATION OF DISPUTED CLAIMS.  On or before the Effective Date,
the Court shall enter one or more Estimation Orders estimating the dollar amount
of Disputed  Claims that may become  Allowed  Claims,  inclusive  of  contingent
and/or unliquidated  Claims and Claims resulting from the rejection,  if any, of
executory contracts and unexpired leases in accordance with Article VIII hereof.
This estimate shall be used for purposes of  establishing  the reserves for, and
calculating, the Initial and Periodic Distributions to holders of Allowed Claims
in Class 3A.                                                                    

          9.9.  CONTINUATION  OF  BUSINESS.  After the  Effective  Date, Paragon
shall  continue to exist and engage in business as Reorganized Paragon, with all
the powers of a corporation under applicable law.                               

9.10. PROVISIONS FOR MANAGEMENT.                            

(a)    DIRECTORS.                           

                           (i)      DIRECTORS IF THE  WELLSPRING  STOCK PURCHASE
AGREEMENT  IS  CONSUMMATED:  If the  Wellspring   Stock  Purchase  Agreement  is
consummated,  as  of  the  Effective  Date,  the  members of  the  New  Board of
Reorganized  Paragon  shall  consist of not less than seven (7) and no more than
ten (10) directors  designated by Wellspring,  (x) at least two  (2) but no more
than four (4) of whom  shall be  independent  directors  (the selection of  whom
shall   be   made  with   the   consent  of   the  Creditors'  Committee,  after
consultation  with P&G, K-C and the Equity  Committee),  (y) at least one (1) of
whom shall be a member of Paragon's  senior  management,  and (z) at least three
(3) of whom shall be affiliated with Wellspring.                                

                           (ii)     DIRECTORS IF  THE  WELLSPRING STOCK PURCHASE
AGREEMENT IS NOT  CONSUMMATED: If the Wellspring Stock Purchase Agreement is not
consummated,  as  of  the Effective  Date,  the  members  of  the  New  Board of
Reorganized Paragon shall consist of seven (7) directors, five (5) of whom shall
be  independent directors  and  shall be  designated by the Creditors' Committee
and two (2) of whom  shall be designated  by the Debtor.  The members of the New
Board  designated  pursuant  to  this  Section 9.10(a)(ii)  must  be  reasonably
satisfactory to P&G, K-C and the Equity Committee.                              

                  (b) OFFICERS. The officers of the Debtor on the Effective Date
shall continue to serve as officers of Reorganized  Paragon, as the case may be,
after the Effective  Date and until such time as they may resign,  be removed or
be replaced or their employment contracts, if any, may expire. If the Wellspring
Stock  Purchase  Agreement is  consummated,  Reorganized  Paragon  shall adopt a
management equity incentive plan in substantially the form set forth on Appendix
2 to the Wellspring Stock Purchase Agreement.                                   

                  (c) EMPLOYMENT  CONTRACTS.  Subject to the following sentence,
all employment  contracts entered into by the Debtor following the Petition Date
and not terminated or expired prior to the Effective Date shall remain in effect
and be  binding on  Reorganized  Paragon  after the  Effective  Date.  After the
Effective  Date,  Reorganized  Paragon  may  enter  into (i)  amendments  to any
existing employment contracts,  or (ii) new employment  contracts,  with such of
its officers, agents or employees as may be mutually acceptable to the New Board
and such officers, agents or employees.                                         

                  (d)  TEEP  RETENTION  PLAN  ESCROW.  On  the  Effective  Date,
Reorganized  Paragon shall pay to the employees eligible to receive such payment
the $2 million Cash  component of the Earned  Confirmation  Bonus (as defined in
the TEEP Retention  Plan) under the TEEP Retention  Plan. In accordance with the
TEEP  Retention  Plan,  shares  of New  Common  Stock  having  a value as of the
Effective  Date equal to $164,925 shall be issued and held in                   

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escrow  to fund the  payment  of the  Earned  Confirmation  Bonus  exceeding  $2
million,  which New Common Stock shall be distributed  within three (3) Business
Days of the  Effective  Date,  unless  the New  Board  determines,  in its  sole
discretion and in accordance  with the TEEP Retention  Plan, that it is fair and
prudent  to pay such  excess in Cash and elects to pay such  excess in Cash,  in
which event Cash in the amount of $164,925 shall be paid by Reorganized  Paragon
to the employees eligible to receive such payment to fund any such excess.  Upon
and after the  occurrence of the Effective  Date,  Reorganized  Paragon shall be
authorized  and directed to otherwise  carry out and  implement the terms of the
TEEP Retention Plan in accordance with its terms.                               

                  (e)  NON-TEEP  RETENTION  PLAN.  From and after the  Effective
Date, the Non-TEEP Retention Plan shall continue in accordance with its terms.  

          9.11.  CONSUMMATION  OF P&G  SETTLEMENT.  To the  extent  not  already
implemented  as of the  Effective  Date,  Paragon  and P&G shall  take all steps
necessary  to  effectuate  the P&G  Settlement  Agreement  pursuant to the terms
thereof. As of the Effective Date, to the extent not already binding,  valid and
enforceable  in  accordance  with  its  terms,  the  P&G  Settlement  Agreement,
including  the  licenses  and  releases  contemplated  therein,  shall be deemed
binding, valid and enforceable.                                                 

          9.12.  CONSUMMATION  OF K-C  SETTLEMENT.  To the  extent  not  already
implemented  as of the  Effective  Date,  Paragon  and K-C shall  take all steps
necessary  to  effectuate  the K-C  Settlement  Agreement  pursuant to the terms
thereof. As of the Effective Date, to the extent not already binding,  valid and
enforceable  in  accordance  with  its  terms,  the  K-C  Settlement  Agreement,
including  the  licenses  and  releases  contemplated  therein,  shall be deemed
binding, valid and enforceable.                                                 

          9.13.  REVESTING OF PROPERTY IN  REORGANIZED  PARAGON.  Except for the
Litigation  Claims  which will remain  vested in the Estate in  accordance  with
Section 9.21 hereof or as otherwise  expressly provided herein, on the Effective
Date, title to all property and assets of the Estate shall revest in Reorganized
Paragon free and clear of all Claims, liens, encumbrances and/or other interests
of any Person,  and Reorganized  Paragon may thereafter operate its business and
use, acquire and dispose of property and compromise or settle any Claims arising
on or after the Effective Date without supervision or approval of the Bankruptcy
Court, free of any restrictions of the Bankruptcy Code, the Bankruptcy Rules, or
the  Local  Bankruptcy  Rules  of  the  Bankruptcy   Court,   other  than  those
restrictions  expressly  imposed  by the  Plan,  the  Confirmation  Order or any
document  executed and delivered by  Reorganized  Paragon  pursuant to the Plan.
Without limiting the foregoing, Reorganized Paragon may pay the fees and charges
that it  incurs  on or after  the  Effective  Date  for  fees of  professionals,
disbursements  and expenses or related support services  relating to the Chapter
11 Case or otherwise without application to the Bankruptcy Court.               

9.14.     SURRENDER OF INSTRUMENTS/STOCK.                   

         (a)  SURRENDER OF  INSTRUMENTS  REGARDING  CLAIMS:  Except as otherwise
provided  in the Plan,  each  holder  (except  for P&G,  K-C and the  holders of
Allowed Prepetition Bank Claims of an instrument  evidencing or securing a Claim
shall  surrender such instrument to the Debtor.  No Distribution  under the Plan
shall be made to or on behalf of any  holder of a Claim  unless  and until  such
instrument is received or the non-availability of such instrument is established
to the  reasonable  satisfaction  of  Reorganized  Paragon.  In accordance  with
section  1143 of the  Bankruptcy  Code,  other  than with  respect to an Allowed
Secured Claim treated  pursuant to Section  6.1(a)(4)  above, any such holder of
such a Claim  that  fails  to (a)  surrender  or cause  to be  surrendered  such
instrument,  including,  without limitation,  any promissory note, instrument or
certificate,  or, in the case of lost  instruments,  to execute  and  deliver an
affidavit of loss and indemnity  reasonably  satisfactory to Reorganized Paragon
and  (b) in  the  event  Reorganized  Paragon  requests,  in the  case  of  lost
instruments,  furnish  a bond  or  indemnity  agreement  in form  and  substance
reasonably  satisfactory  to  Reorganized  Paragon,  on or prior to the later to
occur of (i) 180 calendar  days from and after the  Effective  Date and (ii) the
first                                                                           

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Distribution  Date on which a  Distribution  is to be made to the holder of such
Allowed Claim, shall be deemed to have forfeited all rights and Claims and shall
not participate in any Distribution hereunder.                                  

         (b)  SURRENDER  OF OLD COMMON  STOCK,  ISSUANCE OF NEW COMMON STOCK AND
DISTRIBUTION  OF  LITIGATION  PROCEEDS  TO  HOLDERS  OF ALLOWED OLD COMMON STOCK
INTERESTS.  At  the  Distribution  Record  Date,  all Allowed  Old  Common Stock
Interests shall be deemed  non-transferable and shall exist only for purposes of
entitling  holders  thereof  to  receive  Rights  under the Plan as well as such
holder's Pro Rata Share of: (i) the Interest  Holders' New Common Stock  Amount;
(ii) the Warrants;  and (iii) that portion of the Litigation  Proceeds allocable
to Allowed Old Common Stock Interest under the Plan. At the Distribution  Record
Date (x) Chase Mellon as transfer agent with respect to the Old Common Stock and
transfer  agent,  registrar  and  exchange  agent with respect to the New Common
Stock and the Warrants (the  "Transfer  Agent") shall cease all transfers of Old
Common Stock Interests, (y) the Depository Trust Company ("DTC") shall close the
stock  register  maintained  by it on the  Debtor's  behalf and (z) the National
Association of Securities  Dealers,  Inc. ("NASD") shall discontinue all trading
in the Old Common Stock  Interests,  whether on the OTC Bulletin Board System or
otherwise.  On the first  Business Day  immediately  following the  Distribution
Record Date, the Transfer Agent shall issue a transmittal letter (the "New Stock
Transmittal Letter") to all record holders of Allowed Old Common Stock Interests
as of the Distribution  Record Date (the "Final Record Holders")  notifying them
that they may receive  their Pro Rata Share of the Interest  Holders' New Common
Stock Amount, the Warrants and that portion of Litigation  Proceeds allocable to
holders of Allowed Old Common  Stock  Interests  under the Plan by  surrendering
their  Old  Common  Stock to the  Transfer  Agent.  On or as soon as  reasonably
practicable  after the Effective  Date,  Reorganized  Paragon shall transfer the
Interest  Holders'  New Common  Stock  Amount and the  Warrants to the  Transfer
Agent.  The Transfer  Agent shall then transfer  certificates  representing  the
number of shares of New Common Stock and Warrants to which Final Record  Holders
surrendering their Old Common Stock are entitled (the "Exchange  Securities") to
the DTC. The DTC will then  electronically  transfer the  appropriate  number of
Exchange  Securities to the appropriate Final Record Holders in book-entry form.
Such Final Record Holders shall hold such Exchange Securities for the account of
the beneficial owners of the Old Common Stock Interests from which such Exchange
Securities  were  converted.  Upon each recovery of  Litigation  Proceeds by the
Litigation Claims  Representative,  the Litigation Claims  Representative  shall
remit that portion of the  Litigation  Proceeds  allocable to Allowed Old Common
Stock  Interests under the Plan to Reorganized  Paragon for  distribution to the
Transfer  Agent.  The Transfer Agent shall then  distribute to each Final Record
Holder who timely surrendered  Allowed Old Common Stock Interests in response to
the New Stock  Transmittal  Letter such Final Record  Holder's Pro Rata Share of
such Litigation  Proceeds  Distribution and issue a transmittal  letter (each, a
"Litigation Proceeds Transmittal Letter") notifying all Final Record Holders who
failed to surrender  their Allowed Old Common Stock Interests in response to the
New Stock  Transmittal  Letter that they may receive their Pro Rata Share of (a)
the New Common Stock and Warrants (as such "Exchange Securities"),  and (b) such
Litigation Proceeds  Distribution by surrendering their Allowed Old Common Stock
Interests to the Transfer  Agent.  Final Record  Holders who receive  Litigation
Proceeds  Distributions  shall promptly  allocate such  Distributions in Cash or
Cash  Equivalents  among the  beneficial  owners of the  underlying  Allowed Old
Common Stock  Interests.  The Transfer  Agent shall maintain lists setting forth
the names, addresses and taxpayer identification numbers of (c) the Final Record
Holders,  (d) the Final Record  Holders who  surrender  their Allowed Old Common
Stock Interest in response to the Stock  Transmittal  Letter,  and (e) the Final
Record  Holders who  surrendered  their  Allowed Old Common  Stock  Interests in
response to each Litigation Proceeds  Transmittal Letter.  Copies of these lists
shall be transmitted by the Transfer Agent to the Equity Committee,  Reorganized
Paragon and the Litigation Claims Representative.  The Transfer Agent shall have
no obligation to send a Litigation  Proceeds  Transmittal  Letter after one year
after the  Effective  Date to Final Record  Holders who have failed to surrender
their Allowed  Common Stock  Interests,  and any such  non-surrendering  holders
shall forfeit their rights to receive Distributions pursuant to section 11.16 of
the Plan.                                                                       

9.15.     RELEASE OF LIENS AND PERFECTION OF LIENS.         

                  (a)  PROCEDURES  FOR  RELEASING OF LIENS.  Except as otherwise
specifically  provided in the Plan, the Confirmation  Order, or in any contract,
instrument or other  agreement or document  created in connection with the Plan:

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(i) each holder of: (1) a Secured  Claim  (other than an Allowed  Secured  Claim
treated pursuant to Section  6.1(a)(4)  above);  (2) a Claim that purportedly is
secured; and/or (3) a judgment,  personal property or ad valorem tax, mechanics'
or similar  lien  Claim,  in each case  regardless  of whether  such Claim is an
Allowed Claim, shall, on the Effective Date and regardless of whether such Claim
has been listed in the Schedules or proof of such Claim has been Filed: (y) turn
over and release to the Debtor or Reorganized  Paragon,  as applicable,  any and
all property that secures or purportedly secures such Claim, or such lien and/or
the Claim shall  automatically,  and without  further action by the Debtor,  the
Estate  or  Reorganized  Paragon,  be  deemed  released;  and (z)  execute  such
documents and instruments as Reorganized Paragon requires to evidence such Claim
holder's release of such property or lien, and if such holder refuses to execute
appropriate  documents or  instruments,  the Debtor or  Reorganized  Paragon (as
applicable) may, in its discretion,  file a copy of the  Confirmation  Order, or
any other document required, in appropriate recording offices, which shall serve
to release any Claim holder's rights in such property; and (ii) on the Effective
Date,  all  right,  title  and  interest  in such  property  shall  revert or be
transferred to  Reorganized  Paragon free and clear of all Claims and Interests,
including,  without limitation,  liens, escrows, charges, pledges,  encumbrances
and/or security interests of any kind.                                          

                  (b)  ENTITLEMENT TO  DISTRIBUTIONS  PENDING  RELEASE.  Without
limiting the automatic  release  provisions of Section  9.15(a)  hereof:  (i) no
Distribution  hereunder  shall  be made in  respect  of any  Claim  of the  type
described in Section 9.15(a) hereof unless and until the holder thereof executes
and delivers to the Debtor or Reorganized  Paragon (as applicable)  such release
of liens or  otherwise  turns  over and  releases  such  Cash,  pledge  or other
possessory  liens;  and (ii) any such  holder  that fails to execute and deliver
such release of liens within 180 calendar  days of the  Effective  Date shall be
deemed to have no Claim against the Debtor,  the Estate, or Reorganized  Paragon
or its assets or property in respect of such Claim and shall not  participate in
any Distribution hereunder.                                                     

          9.16.  REGISTRATION  OF  SECURITIES.  Reorganized  Paragon  shall make
commercially  reasonable  efforts  to have  the New  Common  Stock  listed  on a
nationally  recognized  market or exchange.  All New Common Stock,  Warrants and
Rights  distributed  pursuant to the Plan shall be entitled to the  benefits and
exceptions provided by Section 1145 of the Bankruptcy Code to the maximum extent
provided by law.                                                                

                  (a) REGISTRATION RIGHTS IN THE EVENT THAT THE WELLSPRING STOCK
PURCHASE  AGREEMENT  IS  CONSUMMATED:  In the event  that the  Wellspring  Stock
Purchase Agreement is consummated,  the holders of New Common Stock whose resale
of such New Common Stock would be limited or  restricted  by federal  securities
law shall have the right, pursuant to a registration rights agreement,  the form
of which  will be filed with the  Bankruptcy  Court  (the  "Registration  Rights
Agreement") at least three (3) calendar days before the date of the Confirmation
Hearing,  to cause  Reorganized  Paragon to (i)  include  the New  Common  Stock
issuable  to them  under the Plan  (including  any New  Common  Stock  issued or
issuable  in  respect of the  Warrants),  on  customary  terms,  in  "piggyback"
underwritings  and  registrations and (ii) effect on customary terms, one demand
registration  under the Securities  Act for the public  offering and sale of the
New Common Stock to them distributed under the Plan; PROVIDED,  HOWEVER, that no
Registration  Rights  Agreement  shall  be  filed  unless,  as a  result  of the
Wellspring Rights Offering, such Registration Rights Agreement is required for a
holder of New Common  Stock (other than  Wellspring)  to transfer its New Common
Stock to a third party without  restriction.  If P&G and K-C  participate in the
Wellspring Rights Offering, the Registration Rights Agreement must be reasonably
satisfactory to P&G and K-C.                                                    

                  (b) REGISTRATION RIGHTS IN THE EVENT THAT THE WELLSPRING STOCK
PURCHASE  AGREEMENT  IS  NOT  CONSUMMATED:  If  the  Wellspring  Stock  Purchase
Agreement  is not  consummated,  as soon as  reasonably  practicable  after  the
Effective Date,  Reorganized Paragon shall file a "shelf" registration statement
pursuant to Rule 415 under the  Securities Act (the "Shelf  Registration")  with
respect to all of the New Common  Stock  Distributed  to the  holders of Allowed
Unsecured Claims hereunder (the "Registrable  Securities").  Reorganized Paragon
shall,  subject to customary  provisions for postponement of registration rights
by the issuer,  use its reasonable  efforts to cause the Shelf  Registration  to
become  effective as soon as possible after the filing thereof and shall use its
reasonable  efforts to keep the Shelf Registration  continuously  effective from
the date such Shelf  Registration is effective  until the second  anniversary of
the                                                                             

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Effective Date, in order to permit the prospectus  forming a part thereof to    
be usable by the holders of the Registrable  Securities during such period.  The
Shelf  Registration  shall provide for the offering and sale of the  Registrable
Securities to or through  brokers or dealers,  acting as principal or agent,  in
transactions (which may involve block transactions) on the nationally recognized
market  or  exchange  on which  the New  Common  Stock is  listed,  in  ordinary
brokerage  transactions,  in negotiated  transactions  or  otherwise,  at market
prices  prevailing  at the time of sale,  at prices  related to such  prevailing
market prices,  at negotiated  prices,  or otherwise,  or directly or indirectly
through  brokers or agents in private  sales at  negotiated  prices or through a
combination  of any such  methods of sale,  including  but not limited to a bulk
sale to a brokerage  firm, but not pursuant to an  underwritten  public offering
(whether on a firm commitment or best efforts basis or otherwise).              

          9.17.  AVOIDANCE  ACTIONS.  Subject to the occurrence of the Effective
Date, neither the Debtor, the Creditors' Committee, the Equity Committee nor any
other party in interest shall assert any right,  claim or cause of action (other
than a Litigation  Claim) not asserted by the Debtor prior to the Effective Date
and belonging to the Debtor or its Estate against any Person to avoid a transfer
under  section  544,  547,  548,  or 553(b) of the  Bankruptcy  Code,  PROVIDED,
HOWEVER; that nothing herein shall prohibit the Debtor, the Creditors' Committee
or the Equity Committee from challenging the validity,  priority,  perfection or
extent of any lien,  mortgage or security  agreement or, subject to Section 12.1
hereof,  objecting to any Claim.  All such  rights,  claims and causes of action
shall be released  and waived by the Debtor and its Estate under the Plan on the
Effective  Date.  Notwithstanding  anything to the  contrary  contained  herein,
nothing contained in this Plan shall prejudice any rights or defenses the Debtor
may have under section 502(d) of the Bankruptcy Code.                           

          9.18.  EXEMPTION  FROM  CERTAIN  TRANSFER  TAXES.  Pursuant to section
1146(c) of the  Bankruptcy  Code (a) the  issuance,  transfer or exchange of any
securities,  instruments  or  documents  and (b) the creation of any other lien,
mortgage,  deed of trust or other security  interest under the Plan shall not be
subject to any stamp tax,  transfer  tax,  intangible  tax,  recording  fee,  or
similar tax,  charge or expense to the fullest extent provided for under section
1146(c) of the Bankruptcy Code.                                                 

          9.19.  COMPROMISE OF CONTROVERSIES.  Pursuant to Bankruptcy Rule 9019,
and in  consideration  for the  classification,  distribution and other benefits
provided  under the Plan,  the  provisions  of the Plan shall  constitute a good
faith  compromise  and  settlement of all Claims,  Interests  and  controversies
resolved pursuant to the Plan,  including the claims and  controversies  settled
and resolved  pursuant to the K-C  Settlement  Agreement and the P&G  Settlement
Agreement and the compromise of the claims of PMI under Section 7.6 of the Plan.
To the extent not previously accomplished by the K-C Settlement Order or the P&G
Settlement  Order,  the entry of the  Confirmation  Order shall  constitute  the
Bankruptcy   Court's   approval  of  each  of  the  foregoing   compromises  and
settlements, and all other compromises and settlements provided for in the Plan,
and such order shall constitute the Bankruptcy  Court's  determination that such
compromises and settlements are in the best interests of the Debtor, Reorganized
Paragon,  the Estate, and any Person holding Claims and/or Interests against the
Debtor, and are fair, equitable and within the range of reasonableness  required
by the Bankruptcy Code and/or Bankruptcy Rules.                                 

          9.20.  CONTINUATION  OF PARAGON'S  401(K) AND PROFIT SHARING PLAN. The
Debtor's   existing  401(k)  and  profit  sharing  plan  entitled  the  "Paragon
Retirement  Investment Savings Management (PRISM) Plan" shall continue after the
Effective  Date as the 401(k) and profit  sharing plan of  Reorganized  Paragon,
unaffected by the Plan or the  provisions  hereof (except to the extent that Old
Common Stock Interests are being  extinguished and canceled  pursuant to Section
6.5 hereof).                                                                    

          9.21.  INVESTIGATION,  PROSECUTION AND/OR SETTLEMENT OF THE LITIGATION
CLAIMS.  As of the Effective Date, the Litigation  Claims shall remain vested in
the Estate  and the Estate  shall  retain  the right to  investigate,  prosecute
and/or  settle  such  claims in  accordance  with the  provisions  of this Plan.
Pursuant to section  1123(b)(3)(B) of the Bankruptcy Code, the Litigation Claims
Representative  shall be the sole  representative  of the Estate for the limited
purpose of                                                                      

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investigating,   prosecuting   and/or  settling  the  Litigations   Claims,  and
delivering any Litigation  Proceeds to Reorganized Paragon pursuant to the terms
of this  Plan.  All  Litigation  Proceeds,  if any,  shall be  delivered  by the
Litigation  Claims  Representative  to Reorganized  Paragon for  distribution in
accordance with Sections 6.3 and 6.5 hereof, and subject to the other applicable
distribution  provisions of the Plan, including Sections 9.21(q) and 9.21(s), to
the holders of Allowed  Unsecured Claims and Allowed Old Common Stock Interests.
The Litigation Claims Representative shall be appointed by the Equity Committee.
Such  appointment  shall be announced on or before the date of the  Confirmation
Hearing  and  included  in the  Confirmation  Order.  In  order  to  permit  the
Litigation Claims  Representative to perform all its duties and responsibilities
under  the  Plan,  Reorganized  Paragon  shall  transfer  Cash in the  amount of
$1,094,500.00  (the  "Litigation  Fund")  into  an  interest-bearing  segregated
account for use by the  Litigation  Claims  Representative  in carrying  out its
rights and obligations  hereunder;  PROVIDED,  HOWEVER,  that, if the Wellspring
Stock Purchase Agreement is not consummated,  Reorganized  Paragon shall only be
required to transfer Cash in the amount of $500,000.00 into the Litigation Fund;
provided, however, that the Equity Committee shall have the right to designate a
portion of the Interest  Holders'  New Common Stock Amount to be deposited  into
the Litigation Fund. Neither  Reorganized  Paragon nor Wellspring shall have any
further  obligation to fund any amounts into the Litigation  Fund and shall bear
no further  financial  responsibility  for the resolution of Litigation  Claims;
provided,  however, that, pursuant to Section 9.21(r) below, Reorganized Paragon
shall provide reasonable assistance to the Litigation Claims Representative with
respect to the assertion  and  prosecution  of Litigation  Claims (to the extent
such assistance does not require the expenditure of funds).                     

                  (a)  USE  OF  THE  LITIGATION  FUND.  The  Litigation   Claims
Representative may use the Litigation Fund to (i) satisfy the costs and expenses
(including,   but  not  limited  to,   counsel  and  expert   witness  fees)  of
investigating, prosecuting and/or settling the Litigation Claims, (ii) preserve,
protect and  prosecute the  Litigation  Claims,  and (iii)  satisfy  liabilities
incurred or related to the Litigation  Claims;  PROVIDED,  HOWEVER,  that if the
funds  constituting  the  Litigation  Fund have been used for such  purposes and
exhausted,  the  Litigation  Claims  Representative  may,  consistent  with  its
fiduciary  duties as a  representative  of the Estate,  and  provided  the first
$500,000.00 in proceeds,  if any,  received on account of the Litigation  Claims
are delivered by the Litigation Claims  Representative to Reorganized Paragon in
accordance  with the  proviso  contained  in Section  1.68 of the Plan,  use any
Litigation Proceeds for such purposes;  PROVIDED, FURTHER, HOWEVER, that the use
of Litigation  Proceeds for such purposes shall not exceed 50% of the recoveries
received on account of any single  Litigation Claim, and provided that the total
amount  of  Litigation  Proceeds  used for such  purposes  shall  not  exceed $1
million.                                                                        

                  (b) APPOINTMENT OF THE LITIGATION CLAIMS  REPRESENTATIVE.  The
Equity Committee shall appoint the Litigation  Claims  Representative  as of the
Effective Date to investigate, prosecute and/or settle the Litigation Claims. On
and after the Effective  Date, the Debtor and Reorganized  Paragon,  as the case
may be, shall  execute and deliver or cause to be executed and  delivered to the
Litigation Claims  Representative  all such documents,  in recordable form where
necessary or appropriate, to confirm to the Litigation Claims Representative the
right to hold,  investigate,  prosecute  and/or  settle  each of the  Litigation
Claims.                                                                         

                  (c) ACCEPTANCE OF DUTIES. The Litigation Claims Representative
shall be required to confirm in writing its  appointment  and its  acceptance of
its rights and obligations hereunder. The Litigation Claims Representative shall
agree to receive,  hold,  investigate,  prosecute  and/or settle the  Litigation
Claims and to  administer  and transfer the  Litigation  Proceeds and the income
derived therefrom pursuant to the terms of the Plan and the Confirmation  Order;
provided,  however,  that if the  Litigation  Claims do not or will not,  in the
judgment  of  the  Litigation  Claims   Representative,   result  in  sufficient
Litigation  Proceeds to warrant the further  investigation,  prosecution  and/or
settlement of the Litigation Claims, the Litigation Claims  Representative shall
be empowered to determine not to so  investigate,  prosecute  and/or settle such
claims,  but instead to return any remaining  amount of the  Litigation  Fund to
Reorganized   Paragon  for  distribution  in  accordance  with  this  Plan.  The
Litigation Claims Representative shall not be required to post any bond or other
security for performance.                                                       

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                  (d) ONE LITIGATION  CLAIMS  REPRESENTATIVE.  There shall be no
more than one Litigation Claims Representative at any time.                     

                  (e) TERM. The  Litigation  Claims  Representative  shall serve
until (a) the final resolution or abandonment of the Litigation  Claims,  or (b)
the Litigation Claims Representative's death, resignation, or removal.          

                  (f) ACTIVITIES.  The Litigation Claims Representative shall be
entitled to engage in such activities as it deems  appropriate  which are not in
conflict with the Plan. The Litigation Claims  Representative  shall devote such
time  as is  necessary  to  fulfill  all  of its  duties  as  Litigation  Claims
Representative.                                                                 

                  (g) RESIGNATION OF THE LITIGATION CLAIMS  REPRESENTATIVE.  The
Litigation  Claims  Representative  may resign at any time upon 30 days' written
notice,  in accordance with the notice provisions of the Plan, to the Bankruptcy
Court,  and  counsel  for the  Equity  Committee.  Such  resignation  may become
effective  prior  to the  expiration  of  such 30 day  notice  period  upon  the
appointment   of  a   permanent   or   interim   successor   Litigation   Claims
Representative.                                                                 

                 (h) REMOVAL  OF THE  LITIGATION  CLAIMS  REPRESENTATIVE.  The
Litigation  Claims  Representative  may be removed by an order of the Bankruptcy
Court  only  for bad  faith,  gross  negligence,  willful  misconduct,  material
violation  of the  provisions  of this Plan or a gross  disregard  of its duties
hereunder  ("For  Cause") and upon  notice and a hearing.  Any holder or Allowed
Unsecured  Claim or Allowed Old Common Stock Interest or other party in interest
has standing to request the  Bankruptcy  Court to remove the  Litigation  Claims
Representative For Cause.                                                       

                  (i) SUCCESSOR LITIGATION CLAIMS  REPRESENTATIVE.  In the event
of the  resignation,  removal,  death or  incapacity  of the  Litigation  Claims
Representative (or if for any other reason there is a vacancy in the position of
Litigation  Claims  Representative),  the  Bankruptcy  Court  may  appoint a new
Litigation Claims Representative,  upon motion of any party in interest,  from a
list of candidates submitted in connection with any such motion,  subject to the
consent of the Equity  Committee  or a  majority  vote of former  members of the
Equity Committee.  Every successor  Litigation Claims  Representative  appointed
pursuant hereto shall execute,  acknowledge and deliver to the Bankruptcy  Court
an instrument in writing  accepting such  appointment  hereunder,  and thereupon
such successor Litigation Claims Representative,  without any further act, shall
become fully vested with all of the rights,  powers,  duties and  obligations of
its  predecessor  without any further act.  Any  predecessor  Litigation  Claims
Representative  shall  execute and deliver to the  successor  Litigation  Claims
Representative any instruments  reasonably requested by the successor Litigation
Claims   Representative   to  effectuate  the  termination  of  the  predecessor
Litigation Claims  Representative and to aid in the  investigation,  prosecution
and/or  settlement  of  the  Litigation  Claims.  All  fees  and  expenses  of a
Litigation Claims  Representative prior to the death,  resignation or removal of
such Litigation Trustee shall be paid out of the Litigation Fund unless disputed
by the successor  Litigation Claims  Representative,  in which case such dispute
shall be subject to resolution by the Bankruptcy Court.                         

                  (j) REIMBURSEMENT.  The Litigation Claims Representative shall
be entitled to receive  compensation,  from the Litigation Fund, in an amount to
be negotiated by the Equity Committee,  disclosed to the Bankruptcy Court at the
Confirmation Hearing and contained in the Confirmation Order, plus reimbursement
of reasonable  out-of-pocket  expenses (all such  reasonable and necessary costs
and expenses incurred by the Litigation Claims Representative in connection with
the  performance  of its duties  hereunder to be  reimbursed  to the  Litigation
Claims  Representative  from  the  Litigation  Fund);  provided,  however,  that
compensation  and/or  expenses  payable  pursuant  to  an  incentive  contingent
compensation  arrangement  between  the  Litigation  Claims  Representative  and
himself or herself,  or between  him/her and an attorney or other  professionals
retained to  prosecute  a  Litigation  Claim must be approved by the  Bankruptcy
Court  and  shall be paid only from the  Litigation  Proceeds,  if any,  of such
Litigation Claim.                                                               

                 (k) RETENTION  OF   PROFESSIONALS.   The  Litigation   Claims
Representative  may,  but shall not be  required  to,  consult  with  attorneys,
accountants,  appraisers  or  other  parties  deemed  by the  Litigation  Claims
Representative  to                                                              

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have  qualifications  necessary  to assist  it in the  proper                   
performance  of its duties,  including the  employment of attorneys on a full or
partial  contingent  fee basis to prosecute  Litigation  Claims.  The Litigation
Claims  Representative  may pay the salaries,  fees and expenses of such persons
out of the Litigation Fund; provided, however, that compensation and/or expenses
payable pursuant to a contingent compensation arrangement between the Litigation
Claims  Representative  and an  attorney  or  other  professionals  retained  to
prosecute a Litigation  Claim must be approved by the Bankruptcy Court and shall
be paid only from the Litigation Proceeds, if any, of such Litigation Claim. The
Litigation Claims  Representative shall not be liable for any loss to the Estate
caused  by  any  action  of  any  person  employed  by  the  Litigation   Claims
Representative  by  reason  of any  mistake  or  default  of such  person if the
selection,  engagement  and/or  supervision  of such person was made or taken in
good faith and without willful misconduct or gross negligence.                  

                  (l) POWERS OF LITIGATION CLAIMS REPRESENTATIVE. The Litigation
Claims  Representative  shall  have all of the  rights,  powers  and  privileges
specified in the Plan unless  specifically  limited by other  provisions of this
Plan or the Confirmation Order. The Litigation Claims  Representative shall have
the  power  to take  all such  actions  as in its  judgment  are  necessary  and
appropriate  to effectuate  the purposes of this Section of the Plan,  including
but not limited to each power expressly granted in the subsections below and any
power reasonably  incidental thereto. The Litigation Claims Representative shall
have the power to:                                                              

                           (i)  Investigate,  prosecute,  settle and/or  abandon
         Litigation  Claims  and  exercise,   participate  in  or  initiate  any
         proceeding   before  the  Bankruptcy   Court  or  any  other  court  of
         appropriate  jurisdiction in connection with any proceeding relating to
         the Litigation  Claims,  including any  administrative,  arbitrative or
         other nonjudicial  proceeding;  provided,  however, that the Litigation
         Claims  Representative  shall seek  Bankruptcy  Court  approval  before
      entering on a final basis into any settlement of a Litigation Claim.

                           (ii) Invest the  Litigation  Fund in accordance  with
         section 345 of the Bankruptcy Code or as otherwise permitted by a Final
         Order  of  the  Bankruptcy  Court  and  as  deemed  appropriate  by the
         Litigation Claims Representative;  PROVIDED, that the Litigation Claims
Representative may invest such funds in Cash Equivalents;     

                          (iii) Enter  into  any   agreement  or  execute  any
         document  required by or consistent  with the Plan,  perform all of the
         Litigation Claims Representative's obligations hereunder and thereunder
         and take all other actions necessary to effectuate the foregoing to the
extent such actions are not inconsistent with the Plan;       

                           (iv) Select and employ such professionals  (which may
         include  the  Equity  Committee's  current  professionals),  agents  or
         employees as it deems necessary to assist in the  administration of the
         Litigation  Claims and compensate such persons from the Litigation Fund
without application to the Bankruptcy Court;                  

                           (v) Voluntarily  engage  in  arbitration or mediation
with regard to any Litigation Claim;                          

                           (vi)  Consult  with former  members of and counsel to
         the Equity Creditor and the Creditors'  Committee,  as well as with any
         creditor or counsel to such creditor in connection with the prosecution
of Litigation Claims; and                                     

                           (vii)  Exercise  such other  powers and duties as are
         necessary or  appropriate  in its discretion to accomplish the purposes
of this Section 9.21 of the Plan.                             

                  (m)  LIMITATION  OF RIGHTS.  Notwithstanding  anything in this
Agreement to the contrary contained herein, the Litigation Claims Representative
shall not do or undertake any of the following:                                 

                           (i)     Take any action in contravention of the Plan;

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                           (ii) Grant liens on any of the  Litigation  Claims or
         the Litigation Proceeds, if any; PROVIDED, HOWEVER, that contingent fee
         arrangements  shall  not be  considered  a lien  for  purposes  of this
section;                                                      

                (iii) Attempt to modify or amend the Plan;

(iv)  Guarantee any debt; 

                          (v) Loan  any  portion  of the  Litigation  Fund  or
         Litigation Proceeds, if any, to the Litigation Claims Representative or
any other Person; or                                          

         (vi) Transfer any Litigation Claim.

                  (n)  LIMITATION  ON  LIABILITY.  Except in the case of willful
misconduct or gross  negligence,  the Litigation Claims  Representative  and any
professionals it employs shall not be liable for any loss or damage by reason of
any action  taken or omitted by the  Litigation  Claims  Representative  and any
professionals  it  employs  pursuant  to the  discretion,  power  and  authority
conferred on the  Litigation  Claims  Representative  by this Plan. No successor
Litigation  Claims  Representative  shall be in any way  liable  for the acts or
omissions of any predecessor Litigation Claims Representative unless a successor
Litigation  Claims  Representative  expressly assumes such  responsibility.  The
Litigation Claims Representative may rely, and shall be protected from liability
for acting, upon any resolution,  certificate,  statement,  instrument, opinion,
report,  notice,  request,  consent, order or other paper or document reasonably
believed by the Litigation Claims  Representative to be genuine and to have been
presented by an authorized  party.  Also, the Litigation  Claims  Representative
shall not be liable if it acts in good faith  based on a mistake of fact  before
having actual knowledge of an event. The Litigation Claims  Representative shall
not be  liable  for any  action  taken  or  suffered  by the  Litigation  Claims
Representative  in  reasonably  relying  upon the  advice  of  counsel  or other
professionals engaged by the Litigation Claims Representative in accordance with
this Plan. Persons dealing with the Litigation Claims  Representative in matters
relating  to  the  Litigation  Claims  shall  have  recourse  only  against  the
Litigation Claims and the Litigation Proceeds,  if any, subject to the rights of
holders of Allowed  Unsecured  Claims and Allowed Old Common Stock  Interests to
receive  such assets in  accordance  with the terms of the Plan,  to satisfy any
liability  incurred by the Litigation  Claims  Representative  to such person in
carrying out the terms of this Section, and the Litigation Claims Representative
shall have no personal or individual  obligation to satisfy such liability.  The
Litigation  Claims  Representative  and its  employees  and agents  shall not be
liable  because  of any action  taken by the  Litigation  Claims  Representative
pursuant to  discretionary  powers and authority  conferred  upon the Litigation
Claims  Representative  or its  employees  except  for its or  their  own  gross
negligence or willful misconduct.                                               

                  (o) FINAL  ACCOUNTING.  The Litigation  Claims  Representative
shall,  within  ninety  (90) days  after  the  completion  of its  duties or its
resignation,   removal  or  death  (in  which  case,   the   Litigation   Claims
Representative's  estate shall),  render a final accounting  containing at least
the following information:                                                      

                   (i)   A description of the Litigation Claims;

                           (ii)  A summarized accounting in sufficient detail of
         all gains,  losses,  receipts,  disbursements and other transactions in
         connection  with the Litigation  Fund and the Litigation  Claims during
         the Litigation Claims Representative's term of service, including their
source and nature;                                            

                           (iii) All  receipts of  principal  and income must be
shown separately;                                             

                           (iv)  The ending  balance of the Litigation  Fund and
         all  Litigation  Proceeds  as of  the  date  of the  Litigation  Claims
         Representative's accounting, including the cash balance on hand and the
name and location of the depository where it is kept; and     

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                           (v)   All  known liabilities  owed by the  Litigation
Claims Representative.                                        

                 (p) DISTRIBUTION  OF PROCEEDS.  Subject to the  provisions of
Section  9.21(a)  above,  all  Litigation  Proceeds,  if  any,  received  by the
Litigation  Claims  Representative on behalf of the Estate shall be delivered by
the Litigation Claims  Representative to Reorganized Paragon for Distribution in
accordance with the applicable provisions of the Plan.                          

                 (q) WITHHOLDING  TAXES.   Any   federal,   state   or   local
withholding  taxes or other  amounts  required to be withheld  under  applicable
law  shall  be  deducted,   as   required,  by   Reorganized   Paragon  or   the
Litigation Claims Representative,  as applicable,  from the Litigation Proceeds,
if any, delivered to Reorganized  Paragon for distribution under the Plan.   All
Persons  entitled to  receive  distributions  under the Plan  of any  Litigation
proceeds received  shall be  required to provide  any  information  necessary to
effect the  withholding of such taxes.                                          

                  (r) FURTHER ASSURANCES: Reorganized Paragon shall not take any
action to release, impair or settle the Litigation Claims, and shall not, except
as may be required by law, take any position  contrary to the Litigation  Claims
Representative  in any  documents,  agreements  or public  filings.  Reorganized
Paragon shall reasonably  cooperate with the Litigation  Claims  Representative,
and shall provide the Litigation Claims Representative with reasonable access to
Reorganized  Paragon's  books and  records  (including,  after  execution  of an
acceptable  common-interest  agreement,  privileged  documents  related  to  the
Litigation  Claims) and personnel with knowledge of the Litigation Claims to the
extent  necessary  to allow the  Litigation  Claims  Representative  to properly
perform its duties hereunder.  Upon the request of the Creditors' Committee, P&G
or K-C, the Litigation Claims  Representative  shall provide  reasonable reports
regarding the status of the Litigation  Claims and the Litigation  Proceeds,  if
any.                                                                            

                  (s) FEDERAL TAX TREATMENT. For federal income tax purposes, it
is intended that the Estate will be treated as a liquidating  trust,  as defined
in Treasury  Regulation ss.  301.7701-4(d),  that comes into existence as of the
Effective  Date.  The  primary  purpose  of the  liquidating  trust  will  be to
prosecute  the  Litigation  Claims,  and it will not  continue  or engage in the
conduct of a trade or business except to the extent reasonably necessary to, and
consistent with, the liquidating purpose of the trust. The trust may not receive
or retain Cash or Cash Equivalents in excess of a reasonable amount to prosecute
the  Litigation   Claims.   The  investment  powers  of  the  Litigation  Claims
Representative are limited to powers to invest in Cash and Cash Equivalents. The
trust is required to distribute at least annually to the  Beneficiaries  the net
income of the trust in excess of amounts  reasonably  necessary to prosecute the
Litigation  Claims.  In the  event  Estate  receives  Litigation  Proceeds,  the
Litigation Claims Representative shall, in lieu of immediately  distributing all
such amounts,  retain as a reserve an amount sufficient to pay the tax liability
that would result from the receipt of such amounts if they were deemed  received
by Reorganized Paragon or the Estate did not qualify as a liquidating trust. The
Litigation  Claims  Representative  thereafter shall promptly apply for a ruling
from the Internal  Revenue Service that the Estate will qualify as a liquidating
trust and that the receipt of Litigation  Proceeds by the Estate will not result
in the  recognition of taxable income by Reorganized  Paragon or the Estate.  If
such ruling is secured, the reserved amounts shall be promptly  distributed.  If
such ruling is not secured,  the Litigation Claims  Representative shall use its
reasonable  best efforts to secure from counsel  experienced  in such matters an
opinion reasonably satisfactory to Reorganized Paragon and the Litigation Claims
Representative  that (i) the Estate will qualify as a liquidating  trust or (ii)
the  receipt of  Litigation  Proceeds by the Estate  will not  generate  taxable
income for  Reorganized  Paragon or the  Estate.  If neither  the ruling nor the
opinion can be secured,  Reorganized Paragon shall be entitled to receive or, if
applicable,  the Estate shall  retain,  such amounts as are necessary to pay the
tax liability  associated  with the  Litigation  Claims;  and any excess amounts
shall be distributed to the Beneficiaries as promptly as is reasonable under the
circumstances.  It is intended that Reorganized  Paragon will be treated for tax
purposes as transferring the Litigation  Claims to holders of Allowed  Unsecured
Claims and Old Common Stock  Interests  ("Beneficiaries"),  followed by a deemed
transfer by the Beneficiaries to the liquidating  trust. The Beneficiaries  will
be treated as the grantors and deemed  owners of the Estate after the  Effective
Date and will be taxed on their allocable shares of the Estate's income and gain
in each  taxable  year,  whether or not they receive any  distributions  in such
year. After the Effective Date, the Litigation Claims  Representative           

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must file tax  returns  for the Estate as a grantor  trust  pursuant to Treasury
Regulation ss. 1.671-4(a). The Litigation Claims must be valued consistently for
all  federal  income  tax  purposes  by  the  Debtor,   the  Litigation   Claims
Representative, and the Beneficiaries. The Estate will terminate no later than 5
years after the Effective Date, PROVIDED,  HOWEVER, that subject to the approval
of the  Bankruptcy  Court,  the term of the Estate may be extended  for a finite
term if such  extension is necessary to the  liquidating  purpose of the Estate.
Each such extension must be approved by the Bankruptcy  Court within 6 months of
the beginning of the term being extended.                                       

9.22.     WELLSPRING RIGHTS OFFERING                        

         (a) HOLDERS OF UNSECURED CLAIMS. In accordance with the terms contained
in the Wellspring  Rights Offering  Procedures,  the Wellspring  Rights Offering
will permit  each holder of a Class 3A Claim  entitled to vote in respect of the
Plan to elect to subscribe for Rights. Collectively,  the Rights, which will not
be evidenced by  certificates,  shall consist of the right to purchase up to 35%
of the issued and outstanding  shares of New Common Stock (prior to dilution) as
of the  Effective  Date.  Each Right shall  represent  the right to purchase one
share of New Common Stock for a purchase  price of $10.00 per share.  Subject to
any  requirement of the  securities  laws,  the Rights will be  transferable  in
accordance  with the  provisions  set forth in the  Wellspring  Rights  Offering
Procedures;  PROVIDED,  however,  that no Person  may  acquire  Rights by way of
transfer such that as of the Effective Date (after giving effect to the exercise
of all Rights properly subscribed to and acquired by transfer) such Person would
hold an amount of New Common  Stock  greater  than ten percent  (10%) of the New
Common Stock Amount.                                                            

                  (a)(b)  HOLDERS OF OLD COMMON STOCK  INTERESTS.  In accordance
with the terms  contained in the  Wellspring  Rights  Offering  Procedures,  the
Wellspring Rights Offering also will permit each holder of an Allowed Old Common
Stock  Interest  as of the  Voting  Record  Date to  subscribe  for  Rights  not
purchased by holders of Class 3A Claims pursuant to Section 9.22(a) hereof.     

X.

ADMINISTRATION OF THE PLAN

          10.1.  IMPLEMENTATION OF PLAN. On the Effective Date,  compliance with
the  provisions  of  the  Plan  shall  become  the  general   responsibility  of
Reorganized Paragon (subject to the supervision of the New Board pursuant to and
in accordance with the provisions of the Plan).  Reorganized Paragon may, in its
discretion,   hire  a  disbursing   agent  to  perform   Reorganized   Paragon's
distribution  and  other  functions  with  respect  to the Plan.  In such  case,
references to Reorganized  Paragon herein shall include such  disbursing  agent.
Notwithstanding the foregoing,  Reorganized Paragon shall remain responsible for
all  distribution  functions  with respect to the Plan,  and for the actions and
conduct of any disbursing agent retained by Reorganized Paragon and acting in an
authorized capacity as disbursing agent hereunder.                              

          10.2.  RESPONSIBILITIES OF  REORGANIZED PARAGON.  The responsibilities
of  Reorganized  Paragon  under the Plan  shall include:                        

                  (a)  calculating   and   implementing   all  Distributions  in
accordance with the Plan;                                                       

                  (b)  taking  all  steps  and  executing  all  instruments  and
documents necessary to effectuate the Plan;                                     

               (c)  complying with the Plan and the obligations hereunder;

                  (d)  employing  professionals,  if  necessary, to represent it
with respect to its responsibilities;                                           

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                  (e)  exercising   such  other  powers  as  may  be  vested  in
Reorganized  Paragon pursuant to the Plan, the Confirmation  Order, other orders
of the Bankruptcy Court, or as deemed by Reorganized Paragon to be necessary and
proper to implement the provisions of the Plan;                                 

                  (f)  periodic reporting to counsel to the Creditors' Committee
and to the Bankruptcy Court of the status of the Claims  resolution  process and
Distributions on Allowed Claims and Allowed Interests;                          

                  (g)  such   other   responsibilities   as  may  be  vested  in
Reorganized  Paragon  pursuant to the Plan,  the  Confirmation  Order,  or other
Bankruptcy  Court  order or as may be  necessary  and  proper  to carry  out the
provisions of the Plan; and                                                     

                  (h)  obtaining the entry of a final decree closing the Chapter
11 Case.                                                                        

          10.3.  OTHER.  Unless  otherwise  ordered  by  the  Bankruptcy  Court,
Reorganized  Paragon  shall  not  be  required to  post  any  bond  or surety of
performance of its duties.                                                      

          10.4.  POWERS OF REORGANIZED PARAGON AS ADMINISTRATOR OF THE PLAN. The
powers of Reorganized  Paragon as the  administrator of the Plan shall,  without
any further Bankruptcy Court approval, include: (a) the power to invest funds in
Cash  Equivalents or otherwise in accordance  with section 345 of the Bankruptcy
Code, and withdraw,  make Distributions and pay taxes and other obligations from
funds held in accordance with the Plan; (b) the power to dispose of, and deliver
title to others  of,  Estate  assets on behalf of the  Debtor;  (c) the power to
compromise and settle Claims and causes of action (other than Litigation Claims)
on behalf of or against the Debtor;  and (d) such other  powers as may be vested
in or  assumed  by  Reorganized  Paragon  pursuant  to  this  Plan  or as may be
necessary and proper to carry out the provisions of this Plan.                  

          10.5.  EXCULPATION  AND LIMITATION OF LIABILITY.  Reorganized  Paragon
shall be  exculpated  from and shall have no  liability  for any and all Claims,
causes of action and other assertions of liability  arising out of the discharge
of the powers and duties  conferred upon  Reorganized  Paragon by this Plan, the
Confirmation  Order or any other order of the Bankruptcy  Court entered pursuant
to or in  furtherance  of this  Plan,  or  applicable  law,  or for any error of
judgment  made or action  undertaken  in good  faith,  other than as a result of
fraud, gross negligence or willful misconduct.  Reorganized Paragon shall not be
liable for any action taken or omitted in good faith and reasonably  believed by
it to be authorized  within the discretion or rights or powers conferred upon it
by the Plan, the Confirmation  Order or any other order of the Bankruptcy Court.
In performing its duties hereunder,  Reorganized Paragon shall have no liability
for any  action  taken by it in good  faith in  accordance  with the  advice  of
counsel, accountants, appraisers and other professionals retained by it. Without
limiting the generality of the foregoing, Reorganized Paragon may rely on copies
of orders of the Bankruptcy Court reasonably  believed by it to be genuine,  and
shall have no  liability  for actions  taken in good faith in reliance  thereon.
Reorganized  Paragon may rely  without  inquiry  upon  writings  delivered to it
hereunder  which it reasonably  believes in good faith to be genuine and to have
been given by a proper  Person.  No holder of a Claim or Interest or other party
in  interest  shall  have or  pursue  any  Claim  or  cause  of  action  against
Reorganized  Paragon for making  payments  in  accordance  with or as  otherwise
permitted  by this  Plan or for  implementing  the  provisions  of this  Plan in
accordance with its terms.                                                      

          10.6.  DISTRIBUTION BY REORGANIZED PARAGON.   All  Distributions under
the Plan shall be made by Reorganized Paragon.                                  

          10.7.  ESTABLISHMENT AND MAINTENANCE OF DISBURSEMENT  ACCOUNTS.  On or
before the Effective Date, the Debtor or Reorganized Paragon shall establish one
or more  segregated  interest-bearing  bank accounts in the name of  Reorganized
Paragon, which accounts shall be trust accounts for the benefit of each Class of
Claims  pursuant  to the  Plan  and  utilized  solely  for  the  investment  and
distribution  of Cash  consistent with the terms and conditions of the Plan. The

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Disbursement  Account(s)  shall be maintained  at one or more domestic  banks or
financial  institutions,  having a shareholders' equity or equivalent capital of
not less  than Five  Hundred  Million  Dollars  ($500,000,000),  of  Reorganized
Paragon's choice, but in no event at any institution which is a party to the New
Credit Agreement. Reorganized Paragon may invest Cash in Disbursement Account(s)
in Cash  Equivalents;  PROVIDED,  HOWEVER,  that  sufficient  liquidity shall be
maintained  in such  account  or  accounts  to (a)  make  promptly  when due all
payments upon Disputed  Claims if and when they become Allowed  Claims,  and (b)
make promptly when due the other payments provided for in the Plan.             

 XI.

 DISTRIBUTIONS

          11.1.  TIMING OF DISTRIBUTIONS.  Notwithstanding  any provision of the
Plan obligating  Reorganized Paragon to make Distributions on a particular date,
any  Distributions  and  deliveries to be made hereunder to holders of Claims or
Interests that are Allowed Claims or Allowed  Interests as of such date shall be
made  on  that  date  or as  soon  as  reasonably  practicable  thereafter.  Any
Distributions  and  deliveries  to be made to any holder of a Claim or  Interest
whose Claim or Interest is not an Allowed Claim or Allowed Interest at least ten
(10) Business Days prior to a particular  Distribution Date shall be made on the
first  Distribution  Date  thereafter  or upon such other  terms as agreed to by
Reorganized Paragon and the holder of such Claim or Interest.                   

          11.2.  MANNER OF PAYMENT.  Except with  respect to Allowed DIP Claims,
the Allowed Claims of P&G and K-C, and Allowed Prepetition Bank Claims,  payment
of which shall be made by wire transfer of same day funds to the extent required
to be made in Cash,  Cash  Distributions  to be made hereunder  may,  subject to
Sections 11.12 and 11.13 below,  be made, at the option of Reorganized  Paragon,
in Cash, by wire transfer or by check drawn on any domestic bank.               

          11.3.  PERSONS  DEEMED  HOLDERS OF  REGISTERED  SECURITIES.  Except as
otherwise  provided  herein,  Reorganized  Paragon  (or its  designee)  shall be
entitled,  but not required, to treat the record holder of a registered security
as the holder of the Claim or Interest respectively for purposes of all notices,
payments or other Distributions under this Plan unless Reorganized Paragon shall
have received from such record holder written notice by certified  mail,  return
receipt  requested,  specifying  the name and address of any new holder  thereof
(and the nature and amount of the Claim or Interest of such new holder) at least
ten  (10)  Business  Days  prior to the date of such  notice,  payment  or other
Distribution.  In the event of any dispute  regarding  the identity of any party
entitled  to any  payment or  Distribution  in respect of any Claim or  Interest
under the Plan,  no payments or  Distributions  shall be made in respect of such
Claim or Interest until the Bankruptcy Court resolves such dispute pursuant to a
Final Order.                                                                    

          11.4.  COMPLIANCE  WITH TAX  REQUIREMENTS.  To the extent  applicable,
Reorganized  Paragon  shall  comply  with  all  tax  withholding  and  reporting
requirements  imposed  on it by any  governmental  unit,  and all  Distributions
pursuant  to the  Plan  shall  be  subject  to such  withholding  and  reporting
requirements. Reorganized Paragon shall be entitled to deduct any federal, state
or local withholding taxes from any payments made with respect to Allowed Claims
or Allowed Interests, as appropriate.                                           

11.5.  INTENTIONALLY OMITTED.                               

          11.6.  DE MINIMIS DISTRIBUTIONS.  Notwithstanding  anything  herein to
the contrary,  the following provisions shall apply to Class 3A Claims and Class
4A  Interests:  Reorganized  Paragon  shall  not have any  obligation  to make a
Distribution of Cash to a holder of an Allowed Claim or Allowed Interest if such
Distribution  would be less  than  $10 (or  such  other  amount  ordered  by the
Bankruptcy Court) (the "Threshold Amount") except as provided herein. If, on any
Distribution  Date,  the Pro Rata Share of Cash that  otherwise  would have been
distributed to a holder of an Allowed Claim or Allowed Interest is less than the
Threshold Amount, Reorganized Paragon shall reserve such holder's Pro Rata      

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Share of Cash  until  the  first  Distribution  Date on which  the  amount to be
distributed to such holder is equal to or greater than the Threshold Amount. If,
at the time of the Final Distribution, the Pro Rata Share of Cash then allocable
to an Allowed Claim or Allowed  Interest but not  distributed as a result of the
foregoing sentence, is less than the Threshold Amount (taking into account prior
amounts  reserved  under this  section for such Claim or Interest but not paid),
Reorganized  Paragon shall not be required to make a Final  Distribution of Cash
on account of such Allowed Claim or Allowed  Interest.  If, at the time of Final
Distribution,  the Pro Rata  Share of Cash then  allocable  to the holder of any
Allowed  Claim or  Allowed  Interest  would be less than the  Threshold  Amount,
Reorganized  Paragon  shall  not be  required  to make a Final  Distribution  on
account of such Allowed Claim or Allowed  Interest but, in the case of Cash, may
donate  the  Cash  in the  name  of  Reorganized  Paragon  to a not  for  profit
charitable organization to be chosen by Reorganized Paragon.                    

          11.7.  PERIODIC  DISTRIBUTIONS TO HOLDERS OF ALLOWED  UNSECURED CLAIMS
AND ALLOWED OLD COMMON STOCK  INTERESTS.  On the Initial  Distribution  Date and
each Periodic  Distribution  Date thereafter,  Reorganized  Paragon shall make a
Distribution  of Cash,  New  Securities  and/or  Warrants  to each  holder of an
Allowed  Unsecured Claim or Allowed Old Common Stock  Interest,  as the case may
be, in an amount equal to its Pro Rata Share  (calculated  as of the  applicable
Distribution Date) of the Cash, New Securities and/or Warrants,  as the case may
be, allocated to the relevant Class.                                            

          11.8.  INITIAL  DISTRIBUTIONS  TO THE HOLDERS OF SUBSEQUENTLY  ALLOWED
UNSECURED CLAIMS AND ALLOWED INTERESTS.  Reorganized Paragon shall distribute to
the holders of Disputed Claims and Disputed Interests, as the case may be, as of
the Initial  Distribution  Date, that become Allowed Claims or Allowed Interests
after the Initial  Distribution  Date, Cash, New Securities and/or Warrants,  as
the  case may be,  in an  amount  equal to the  aggregate  amount  of Cash,  New
Securities and/or Warrants, as the case may be, that would have been distributed
as of the Initial  Distribution  Date and each prior Periodic  Distribution Date
(if any) to such holder in respect of such Allowed Claim or Allowed Interest had
it been an Allowed Claim or Allowed  Interest on the Initial  Distribution  Date
and any subsequent Periodic Distribution Date. Any holder of a Claim or Interest
whose Claim or Interest is so allowed after the tenth (10th)  Business Day prior
to the next Periodic Distribution Date shall receive its initial Distribution on
the next succeeding Periodic  Distribution Date. For purposes of determining the
accrual of interest or rights in respect of any other payment from and after the
Effective  Date,  the New  Securities  and Warrants to be issued shall be deemed
issued  as of the  Effective  Date  regardless  of the  date on  which  they are
actually  dated,  authenticated  or received by the holders of Allowed Claims or
Allowed Interests;  PROVIDED,  HOWEVER,  that Reorganized Paragon shall withhold
any payment until such Distribution actually is made.                           

          11.9.  SUBSEQUENT  PERIODIC  DISTRIBUTIONS  TO HOLDERS  OF  PREVIOUSLY
ALLOWED CLAIMS AND PREVIOUSLY ALLOWED INTERESTS.  Subject to the second sentence
of Section 11.8 hereof, on each Periodic Distribution Date,  Reorganized Paragon
shall distribute to each holder of an Allowed Claim or Allowed Interest,  as the
case may be, on  account  of such  Claim or  Interest,  an  amount of Cash,  New
Securities  and/or Warrants,  as the case may be, equal to: (a) the Distribution
from the relevant  Disputed  Claims Reserve that such holder of an Allowed Claim
or Allowed Interest, as applicable,  would have received had it not received any
prior Distributions in respect of its Allowed Claims or Allowed Interests,  less
(b) the total amount of any Distributions  previously received in respect of its
Allowed  Claim or  Allowed  Interest.  Subject  to Section  11.16  hereof,  such
Distributions  shall  continue  until the relevant  Disputed  Claims  Reserve is
depleted of Cash, New Securities  and/or  Warrants held in such Disputed  Claims
Reserve, other than as set forth below.                                         

          11.10. FINAL DISTRIBUTION. On the first (1st) Business Day that is ten
(10)  Business  Days  after the date on which all  Claims  or  Interests  in the
relevant  Class have been  allowed by  Reorganized  Paragon or by Final  Orders,
Disallowed or estimated for Allowance purposes by Final Orders or withdrawn with
prejudice (and in the case of Classes 3A and 4A, all Litigation Claims have been
resolved) and the Chapter 11 Case can be closed under  applicable law and rules,
property  remaining in the relevant Disputed Claims Reserve shall be distributed
to holders of Allowed  Claims and Allowed  Interests or released to  Reorganized
Paragon,  as the case may be, in  accordance  with the procedure set forth      

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above for Periodic  Distributions  and subject to the provisions of Section 12.5
below, PROVIDED, HOWEVER, that such Distribution will be a final Distribution on
account of all Claims and Interests.                                            

          11.11.  DISTRIBUTIONS ON DISPUTED CLAIMS.  Notwithstanding anything to
the contrary  contained herein, no Distribution  shall be made on account of any
Claim or Interest  that is  partially an Allowed  Claim or Allowed  Interest and
partially a Disputed Claim or Disputed  Interest until such Claim or Interest is
no longer Disputed in any respect.                                              

         11.12.  DISBURSEMENT   OF  FUNDS  AND  DELIVERY  OF  NEW  SECURITIES.
Reorganized Paragon shall make Cash payments to the holders of Allowed Claims to
the extent  provided  for in the Plan by check sent by  first-class  mail (or by
other  equivalent or superior means as determined by Reorganized  Paragon in its
sole and  absolute  discretion);  PROVIDED,  HOWEVER,  that if any  holder of an
Allowed Claim is entitled to receive a Cash  Distribution  under the Plan, as of
the Effective  Date, in an amount in excess of $500,000,  such holder shall have
the option,  exercisable by written notice executed by such holder and providing
appropriate  instructions delivered to the Debtor or Reorganized Paragon or such
person  designated  by one of the  foregoing,  within  thirty (30) calendar days
prior  to  the  applicable   Distribution  Date,  to  receive  payment  of  Cash
Distributions by wire transfer.  On the Effective Date, the Debtor shall deposit
Cash in the  Professional  Fee Reserve or provide  other  security  (in form and
substance reasonably acceptable to counsel to the Proponents)  sufficient to pay
Fee  Claim  holdbacks  and  estimated  final   allowances  of  compensation  and
reimbursement  of  expenses  to   Professionals.   Distributions  of  Cash,  New
Securities and/or Warrants,  as the case may be, pursuant to the Plan (including
shares  of New  Common  Stock  subscribed  to as part of the  Wellspring  Rights
Offering)   shall  be  effectuated   on  the  Effective   Date,  the  applicable
Distribution  Date,  such other date consistent with the provisions of the Plan,
or, with respect to each holder of an Allowed Claim or Allowed Interest, as soon
thereafter  as  Reorganized  Paragon has  received  all  documentation  required
pursuant to the Plan.                                                           

          11.13.  FRACTIONAL CENTS. Whenever any payment of a fraction of a cent
would  otherwise be called for, the actual payment shall reflect a rounding down
of  such  fraction  to the  nearest  whole  cent.  To the  extent  Cash  remains
undistributed  as a result of the rounding of such fraction to the nearest whole
cent, such Cash shall revert to Reorganized Paragon.                            

          11.14.  FRACTIONAL SECURITIES.  No  fractional  shares  of New  Common
Stock shall be issued  in connection with the Plan.                             

                  (a) NEW COMMON  STOCK.  Whenever  the issuance of a fractional
interest of New Common Stock shall otherwise be called for, fractional shares of
New  Common  Stock  will be rounded  to the next  greater  or lower  number,  as
follows:  (i)  fractions  of 1/2 or greater  will be rounded to the next  higher
whole  number,  and (ii)  fractions of less than 1/2 will be rounded to the next
lower whole number, including zero.                                             

                  (b) NEW NOTES. New Notes will be issued only if the Wellspring
Stock Purchase  Agreement is consummated  and only in  denominations  of $1,000.
Whenever the issuance of a  fractional  New Note shall  otherwise be called for,
the  actual  issuance  on account of New Notes will be rounded up or down to the
nearest  multiple  of $1,000 or $0, as the case may be,  and the  difference  in
value will be accounted for by Paragon by a distribution of Cash.               

                  (c) NEW WARRANTS. No fractional Warrants shall be issued under
the Plan.                                                                       

          11.15. DISPUTED PAYMENTS. In the event of any dispute between or among
claimants  as to the right of any Person to  receive  or retain  any  payment or
Distribution to be made to such Person under the Plan,  Reorganized Paragon may,
in lieu of making such payment or Distribution to such Person, instead hold such
payment or  Distribution  until the  disposition  thereof is determined by Final
Order of the Bankruptcy Court.                                                  

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          11.16. UNCLAIMED PROPERTY. If any Distribution remains unclaimed for a
period of twelve (12) months  after it has been  delivered  (or  attempted to be
delivered)  in accordance  with the Plan to the holder  entitled  thereto,  such
Unclaimed  Property shall be forfeited by such holder whereupon all right, title
and interest in and to the Unclaimed  Property shall immediately and irrevocably
(a) in the case of all Classes other than Classes 3A and 4A, become the property
of Reorganized  Paragon,  and (b) in the case of Classes 3A and 4A, be available
for future  Distributions  to remaining  holders of Allowed  Unsecured Claims in
Class 3A or Allowed Interests in Class 4A, as applicable,  and the holder of the
Allowed Claim or Allowed Interest previously entitled to such Unclaimed Property
shall cease to be entitled thereto.                                             

XII.

DISPUTED CLAIMS, DISPUTED INTERESTS, ESTIMATION,
RESERVES AND MISCELLANEOUS DISTRIBUTION PROVISIONS

          12.1.  OBJECTIONS TO CLAIMS;  PROSECUTION OF DISPUTED  CLAIMS.  Unless
otherwise  ordered  by the  Bankruptcy  Court,  only the  Debtor or  Reorganized
Paragon  shall be  empowered  to object to the  allowance of Claims or Interests
filed or  deemed  filed  with the  Bankruptcy  Court  with  respect  to which it
disputes liability in whole or in part; provided,  however,  that the Litigation
Claims  Representative  may object to the allowance of any claim arising from or
relating to the assertion or prosecution of any Litigation Claim. All objections
shall be litigated to Final Order;  PROVIDED,  HOWEVER, that Reorganized Paragon
shall have the authority to file, settle,  compromise or withdraw any objections
to  Claims  without  approval  of  the  Bankruptcy  Court  as  permitted  by the
Bankruptcy Code and/or Bankruptcy Rules; and PROVIDED,  FURTHER,  HOWEVER,  that
the  consent  of the  Creditors'  Committee  (unless  otherwise  ordered  by the
Bankruptcy  Court) shall be required for allowance by settlement of any Claim in
excess  of  $250,000.00.  Unless  otherwise  ordered  by the  Bankruptcy  Court,
Reorganized  Paragon  shall file and serve all  objections  to Claims as soon as
practicable,  but in no event later than, the Claims Objection Deadline, or such
later date as may be approved by the Bankruptcy Court.                          

          12.2.  ESTIMATED CLAIMS SCHEDULE.  At or prior to the  commencement of
the Confirmation  Hearing,  the Debtor shall submit a  schedule, as of such date
(the "Estimated Claims Schedule"), reflecting:                                  

                  (a)  the  estimated  aggregate  amount,  as of such  date,  of
Allowed Claims or Allowed Interests in each Class under the Plan;               

                  (b)  the estimated  aggregate  amount,  as  of  such  date, of
Disputed Claims or Disputed Interests in each Class under the Plan; and         

                  (c)  the  estimated  aggregate  amount,  as of such  date,  of
Disputed  Claims and  Disputed  Interests  in each Class under the Plan that the
Debtor believes ultimately may become Allowed Claims and Allowed Interests.     

          12.3.  ESTIMATION  ORDER.  On or before the Effective Date, the Debtor
shall seek an Estimation  Order  establishing the aggregate amount of all Claims
and  Interests  that would be allowable  in each Class based upon the  Estimated
Claims Schedule. Such Estimation Order shall set the maximum allowable aggregate
amount of Claims and  Interests  in each  Class for  purposes  of  Distributions
hereunder.  Notwithstanding  anything to the  contrary  contained  herein,  such
Estimation  Order shall NOT: (a) fix the amount of ultimately  Allowed Claims or
Interests  for  purposes  of Final  Distributions  hereunder;  (b) result in the
allowance of any individual  Claim or Interest;  (c) impose any obligation  upon
Reorganized  Paragon for  Distributions  in excess of those  expressly set forth
herein;  or (d) prejudice  any  creditor's  rights under  section  502(j) of the
Bankruptcy Code.                                                                

          12.4.  NO RECOURSE TO REORGANIZED PARAGON.  If  the allowed  amount of
any  particular  Disputed Claim or Disputed  Interest is or may be  reconsidered
under section  502(j) of the Bankruptcy  Code and  Bankruptcy  Rule 3008, or    

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any other  applicable law,  and/or is or may be ultimately  allowed in an amount
that is greater  than the  estimated  amount of such Claim or  Interest,  or the
ultimately  allowed  amount of all  Disputed  Claims or Disputed  Interests in a
particular  Class is or may be greater than the  estimated  aggregate  amount of
such Claims or Interests, no Claim holder or Interest holder shall have recourse
to Reorganized  Paragon (or any property thereof) or any Cash, New Securities or
Warrants  previously  distributed  on  account of any  Allowed  Claim or Allowed
Interest,  except that such Claim or Interest holder shall have recourse only to
undistributed  Cash, New  Securities  and Warrants,  as applicable to its Class,
and, if the Wellspring Stock Purchase Agreement is not consummated,  Reorganized
Paragon may issue such  additional  New Common Stock,  up to the total number of
shares authorized to be issued as of the Effective Date.                        

          12.5.  DISPUTED CLAIMS RESERVES.  In accordance with this Section 12.5
and any Estimation  Order entered by the  Bankruptcy  Court before such date, on
the Effective  Date,  Reorganized  Paragon shall  establish a separate  Disputed
Claims Reserve for each Class of Claims and Interests.  Property  reserved under
this Section shall be set aside, segregated and, in the case of Cash, held in an
interest bearing account to be established and maintained by Reorganized Paragon
pending resolution of such Disputed Claims and Disputed Interests. As and to the
extent that the amount of any Disputed  Claim  (other than a Disputed  Unsecured
Claim) or Disputed  Interest  (other than a Disputed Old Common Stock  Interest)
exceeds the amount of such Claim or such Interest  which  ultimately is allowed,
any excess Cash,  New  Securities  and/or  Warrants in the  applicable  Disputed
Claims  Reserve  previously  reserved for on account of such  Disputed  Claim or
Disputed  Interest  shall be released to  Reorganized  Paragon.  With respect to
Disputed Unsecured Claims in Class 3A and Disputed Interests in Class 4A, as and
to the  extent  that the  amount of any  Disputed  Unsecured  Claim or  Disputed
Interest  exceeds  the  amount  of such  Claim or  Interest  that is  ultimately
allowed,  any excess Cash, New Securities and/or Warrants in the Disputed Claims
Reserve for Class 3A or Class 4A, as  applicable,  shall be made  available  for
distribution  to holders of Allowed  Claims in Class 3A or Allowed  Interests in
Class 4A, as applicable.  Each Disputed  Claims Reserve shall be terminated once
all  Distributions  and other  dispositions  of all Cash, New Securities  and/or
Warrants required  hereunder  relevant to such Disputed Claims Reserve have been
made in accordance with the terms of the Plan. If a Disputed Interest Reserve is
established hereunder,  all references to Disputed Claims Reserve shall apply to
the Disputed  Interest Reserve and all references to Claims,  Allowed Claims and
Disputed  Claims  shall apply to  Interests,  Allowed  Interests,  and  Disputed
Interests as the context requires.                                              

          12.6.  FLUCTUATION  IN  VALUE  OF NEW  SECURITIES.  The  value  of New
Securities and Warrants held in reserve under Section 12.5 of the Plan is likely
to  fluctuate.  Reorganized  Paragon  does  not,  and  shall be  deemed  not to,
represent or warrant that the value of the New  Securities and Warrants will not
decline after the Effective Date.  Reorganized  Paragon also shall not otherwise
assume any  liability  or risk of loss  which the holder of a Disputed  Claim or
Disputed  Interest  which  becomes an  Allowed  Claim or  Allowed  Interest,  as
applicable,  after the  Effective  Date may  suffer by reason of any  decline in
value  of a  reserved  security  pending  determination  of the  amount  of such
Disputed Claim or Disputed Interest.  The risk or benefit of any appreciation or
depreciation in the value of any reserved securities shall be borne by the party
to whom such security is ultimately distributed.                                

          12.7.  VOTING OF CERTAIN NEW COMMON  STOCK.  New Common  Stock that is
Unclaimed  Property or held in Disputed  Claims  Reserves  shall be voted at any
meeting of the  stockholders of Reorganized  Paragon in proportion to the actual
vote of the shares of New Common Stock that is not held as Unclaimed Property or
in Disputed Claims Reserves.                                                    

          12.8.  RETURNED  DISTRIBUTIONS.  In the event that any Distribution of
property is returned to  Reorganized  Paragon due to an incorrect or  incomplete
address  for  the  holder  entitled  thereto,   Reorganized  Paragon  shall  use
reasonable  efforts to obtain an accurate address for such holder. If reasonable
efforts have not yielded an accurate address for such holder within 180 calendar
days after the date the Distribution of the returned property was made, then the
property  to be  distributed  to such  holder  shall be deemed  to be  Unclaimed
Property in respect of such Claim or  Interest  and shall be treated as provided
in Section 11.16 of the Plan.                                                   

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          12.9.  ESTIMATION OF CLAIMS.  The Debtor or  Reorganized  Paragon,  as
applicable,  may at any time  request  that the  Bankruptcy  Court  estimate any
contingent,  unliquidated  or Disputed  Claim  pursuant to section 502(c) of the
Bankruptcy  Code  regardless  of  whether  the  Debtor  or  Reorganized  Paragon
previously has objected to such Claim or whether the Bankruptcy  Court has ruled
on any such  objection,  and the Bankruptcy  Court will retain  jurisdiction  to
estimate any Claim at any time during litigation concerning any objection to any
Claim, including, without limitation, during the pendency of any appeal relating
to any such  objection.  In the event that the  Bankruptcy  Court  estimates any
contingent,  unliquidated  or  Disputed  Claim,  the amount so  estimated  shall
constitute  either an estimated  allowed  amount for  purposes of  Distributions
under the Plan or an estimation  for purposes of allowance,  but shall not fix a
maximum  limitation on such Claim as an ultimately  Allowed Claim, as determined
by the Bankruptcy  Court. All of the  aforementioned  objection,  estimation and
resolution  procedures  are  intended  to  be  cumulative  and  not  necessarily
exclusive of one another. Claims may be estimated and subsequently  compromised,
settled,  withdrawn  or resolved  by any  mechanism  approved by the  Bankruptcy
Court.                                                                          

          12.10. AMENDMENTS OF CLAIMS. Except as otherwise provided in the Plan,
a  Claim  may be  amended:  (a)  no  later  than  ten  (10)  days  prior  to the
Confirmation  Hearing,  only as agreed upon by the Debtor and the holder of such
Claim or as otherwise  permitted by the Bankruptcy  Court,  the Bankruptcy Code,
the Bankruptcy  Rules,  or applicable  law; or (b) after such time, to decrease,
but not  increase,  the face amount of such Claim.  Any Claim (other than Claims
timely  filed based upon the  rejection of any  executory  contract or unexpired
lease) filed after the Confirmation Date shall be deemed Disallowed and expunged
without further action by the Debtor or the Bankruptcy Court unless the claimant
obtained prior Bankruptcy Court approval to file such claim.                    

 XIII.

 WAIVERS, DISCHARGE, RELEASE, INDEMNIFICATION,
 ABANDONMENT, AND SETTLEMENT OF CLAIMS

          13.1. DISCHARGE OF DEBTOR.  Except as otherwise  specifically provided
by the Plan or the Confirmation  Order, the Confirmation of the Plan (subject to
the occurrence of the Effective Date) shall operate as a discharge,  pursuant to
section 1141(d)(1) of the Bankruptcy Code, of the Debtor and Reorganized Paragon
from any debt,  Claim or  Interest  that  arose  before the  Confirmation  Date,
including,  but not limited to, all  principal  and  interest,  whether  accrued
before,  on, or after the Petition Date, and any debt,  Claim or Interest of the
kind  specified in sections  502(g),  502(h) or 502(i) of the  Bankruptcy  Code,
whether or not a proof of Claim or Interest is Filed or is deemed Filed, whether
or not such Claim or Interest is Allowed,  and whether or not the holder of such
Claim or Interest  has voted on the Plan.  On the  Effective  Date,  as to every
discharged debt, Claim and Interest,  the holder of such debt, Claim or Interest
shall be precluded from  asserting  against the Debtor,  the Debtor's  assets or
properties,  and  against  Reorganized  Paragon,  any other or further  Claim or
Interest based upon any document,  instrument or act,  omission,  transaction or
other  activity of any kind or nature that  occurred  prior to the  Confirmation
Date.                                                                           

          13.2. COMPLETE SATISFACTION. Except as otherwise specifically provided
by the Plan,  the treatment of Claims and Interests and rights that are provided
in the Plan shall be in complete satisfaction,  discharge and release, effective
as of the  Confirmation  Date (but subject to the  occurrence  of the  Effective
Date) of (a) all Claims against,  liabilities  of, liens on,  obligations of and
Interests in the Debtor or Reorganized  Paragon or the direct or indirect assets
and properties of the Debtor or Reorganized  Paragon,  whether known or unknown,
and (b) all causes of action  (whether  known or  unknown,  either  directly  or
derivatively through the Debtor or Reorganized Paragon) against, Claims against,
liabilities  (as guarantor of a Claim or  otherwise)  of, liens on the direct or
indirect  assets and properties of, and  obligations of the Debtor,  Reorganized
Paragon and their  successors  and  assigns,  and present and former  directors,
officers,  and  employees of the Debtor based on the same subject  matter as any
Claim or  Interest,  in each  case  regardless  of  whether  a proof of Claim or
Interest was filed,  whether or not allowed and whether or not the holder of the
Claim or  Interest  has  voted  on the  Plan,  or based on any act or  omission,
transaction or other activity or security,  instrument or other agreement of any

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kind or nature  occurring,  arising or existing prior to the Effective Date that
was or could  have  been the  subject  of any  Claim or  Interest,  in each case
regardless  of whether a proof of Claim or  Interest  was filed,  whether or not
allowed and whether or not the holder of the Claim or Interest  has voted on the
Plan.                                                                           

          13.3. RELEASE OF DEBTOR. Except as otherwise  specifically provided by
the  Plan or the  Confirmation  Order  (and  subject  to the  occurrence  of the
Effective Date), any holder of a Claim or Interest accepting any Distribution or
other  treatment  pursuant  to the Plan shall be presumed  conclusively  to have
released the Debtor and Reorganized  Paragon,  their successors and assigns, and
their respective  present and former directors,  officers,  and employees of the
Debtor,  and any Person  claimed to be liable  derivatively  through  and of the
foregoing, from any Claim or cause of action based on the same subject matter as
the  respective  Claim or  Interest.  The  release  described  in the  preceding
sentence shall be  enforceable  as a matter of contract  against any holder of a
Claim or Interest timely notified of the provisions of the Plan.                

        13.4. EXONERATION.   The  entry  of  the  Confirmation  Order  shall
constitute  the   determination   by  the  Bankruptcy  Court  that  the  Debtor,
Reorganized Paragon and its officers, directors, partners, employees, members or
agents, and each Professional,  attorney,  financial  advisors,  accountant,  or
other  professional  employed by any of them and the  members of the  Creditors'
Committee  and the Equity  Committee (in their  capacity as such),  P&G, K-C and
Wellspring, and any Professionals,  attorneys, financial advisor, accountants or
other professionals employed by the Creditors' Committee,  the Equity Committee,
P&G,  K-C or  Wellspring,  shall have acted in good faith  within the meaning of
section 1125(e) and 1129(a)(3) of the Bankruptcy  Code, and shall be entitled to
the benefits of section  1125(e) of the  Bankruptcy  Code.  Notwithstanding  the
provisions of this Section 13.4,  Wellspring shall not be exonerated or relieved
of its  obligations  under the  Wellspring  Commitment or the  Wellspring  Stock
Purchase Agreement or any breach of its obligations thereunder.                 

         13.5. INDEMNIFICATION.  In order to facilitate Paragon's  expeditious
and  effective   reorganization,   the  Debtor  and  Reorganized  Paragon  shall
indemnify,  hold harmless and reimburse each of the Debtor's  respective present
and former  officers,  directors  and  employees  from and  against  any and all
losses, Claims, damages,  liabilities and actions asserted or filed against such
present and former officers,  directors and employees for, by reason of, arising
from, in connection with,  involving or relating to services rendered or acts or
omissions to act in those capacities relating to or arising out of the Plan, the
P&G  Settlement  or the K-C  Settlement,  or any  efforts  to defend or  protect
against, resolve or settle the Texas Action, the Delaware Action or the facts or
Claims alleged or asserted, or which could have been alleged or asserted, in the
Delaware  Action,  the  Texas  Action or the Plan.  All  rights of the  Debtor's
present  and  former   officers,   directors  and  employees   with  respect  to
indemnification  and  limitation  of liability  under any  provision of law, the
Certificate of  Incorporation  or Bylaws of the Debtor,  or otherwise,  from and
against any and all  losses,  claims,  damages,  liabilities  and actions  shall
survive confirmation of the Plan and shall not be discharged pursuant to section
1141 of the Bankruptcy  Code. The Debtor and  Reorganized  Paragon shall pay any
legal or other expenses  reasonably incurred by such present or former officers,
directors,   or  employees  in  connection  with  this  indemnification  or  the
enforcement  thereof, or in connection with any claim against which such present
or former officer,  director,  or employee is indemnified or for which liability
is  limited.   Notwithstanding  the  foregoing,  the  Debtor's  and  Reorganized
Paragon's  obligations  under this Section 13.5 for any  Prepetition  Claims for
indemnity  shall be  limited  to the  extent of  available  insurance  coverage.
Reorganized  Paragon shall be responsible for paying any deductibles  associated
with any such insurance, and the Debtor or Reorganized Paragon shall obtain tail
insurance  coverage for a period of six years after the Effective Date under the
Debtor's  existing or a comparable  directors and officers  insurance policy. On
the  Effective  Date,  the Debtor  will be  conclusively  deemed to release  all
directors and officers of the Debtor holding such offices at any time during the
period  from  and   including  the  Petition  Date  through  and  including  the
Confirmation  Date from all liability based upon any act or omission  related to
past service with, for or behalf of the Debtor except for:                      

                           (i)  any  indebtedness  of  any  such  Person  to the
Debtor for money borrowed by such Person;                     

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                           (ii) any  setoff  or  counterclaim  the   Debtor  has
against such Person for money borrowed by such Person;        

                           (iii) the uncollected amount of any claim made by the
         Debtor (whether in a filed pleading, by letter or otherwise asserted in
         writing)  prior to the  Effective  Date against such Person which claim
     has not been adjudicated to Final Order, settled or compromised; or

                           (iv)   claims   arising   from  the  fraud,   willful
         misconduct,  gross  negligence or willful  breach of fiduciary  duty of
such Person.                                                  

          13.6.  RELEASE OF COMMITTEE MEMBERS. On the Confirmation Date, subject
to the  occurrence  of the  Effective  Date,  the Debtor shall be deemed to have
released all causes of action  against the members of the  Committees,  in their
respective  capacities as such (but not in their capacities as holders of Claims
against or Interests in the Debtor and not with respect to Litigation Claims).  

          13.7.  ENFORCEABILITY OF RELEASES.  Notwithstanding anything contained
herein to the contrary,  the foregoing  release  provisions of this Article XIII
above with respect to the release of non-Debtor  third parties shall be enforced
only to the extent permitted by applicable bankruptcy and non-bankruptcy law.   

          13.8.  ADDITIONAL  RELEASES.  The releases embodied in the Plan are in
addition  to,  and  not  in  lieu  of,  any  other  release   separately  given,
conditionally  or  unconditionally,  to the Debtor by any other Person or by the
Debtor to any other Person,  including,  for example, the releases  contemplated
and  provided  for in the  P&G  Settlement  Agreement  and  the  K-C  Settlement
Agreement.                                                                      

          13.9.  INJUNCTION. The satisfaction, release and discharge pursuant to
this Article XIII also shall act as an injunction  against any Person commencing
or continuing to prosecute or commence any act,  action,  employment of process,
or act to  collect,  offset or recover  any Claim,  Interest  or cause of action
satisfied,  released  or  discharged  under  the  Plan  to  the  fullest  extent
authorized or provided by the Bankruptcy Code, including, without limitation, to
the extent provided for or authorized by sections 524 and 1141 thereof.         

          13.10. TERMS OF INJUNCTIONS OR STAYS. Unless otherwise  provided,  all
injunctions  or stays  provided for in the Chapter 11 Case under sections 105 or
362 of the Bankruptcy  Code or otherwise,  and in existence on the  Confirmation
Date, shall remain in full force and effect until the Effective Date.           

          13.11.  PRESERVATION OF LITIGATION  CLAIMS:  Notwithstanding  anything
contained  herein to the  contrary,  including  but not  limited to any  release
provided  under  Section  13.6 hereof,  nothing  contained in this Plan shall be
interpreted as or result in the release of Weyerhaeuser,  Pope & Talbot,  Oracle
Corporation or Andersen Consulting LLP from any Litigation Claim.               

XIV.

 CONDITIONS TO CONFIRMATION/EFFECTIVE DATE

          14.1.   CONDITIONS  PRECEDENT  TO  CONFIRMATION.   At   or   prior  to
Confirmation,  the following  conditions must occur and be satisfied:           

                  (a)    DISCLOSURE  STATEMENT  ORDER. An order finding that the
Disclosure  Statement  contains  adequate  information pursuant to section  1125
of the Bankruptcy Code shall have been entered;                                 

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                  (b) THE P&G SETTLEMENT  AGREEMENT.  The P&G  Settlement  Order
shall not have been  reversed,  stayed,  modified  or  amended in any manner not
acceptable to the  Proponents  and P&G, and the P&G  Settlement  Agreement  (and
licenses  annexed  thereto)  shall  not have  been  terminated  by P&G or deemed
terminated in accordance with their respective terms;                           

                  (c) THE K-C SETTLEMENT  AGREEMENT.  The K-C  Settlement  Order
shall not have been  reversed,  stayed,  modified  or  amended in any manner not
acceptable to the  Proponents  and K-C, and the K-C  Settlement  Agreement  (and
licenses  annexed  thereto)  shall  not have  been  terminated  by K-C or deemed
terminated in accordance with their respective terms;                           

                  (d) ESTIMATION  ORDER.  All Disputed  Claims or Interests that
are  contingent or  unliquidated  shall have been  estimated or otherwise  fixed
(either individually or in the aggregate) by one or more Estimation Orders; and 

                  (e) EXIT FACILITY COMMITMENT. The Debtor shall have received a
commitment  for  the  New  Credit   Agreement  from  a  creditworthy   financial
institution.                                                                    

          14.2.   CONDITIONS  PRECEDENT TO EFFECTIVE  DATE. Before the Effective
Date occurs,  the following  conditions  must occur and be satisfied:           

                  (a) ENTRY OF  CONFIRMATION  ORDER;  NO STAY. The  Confirmation
Order shall have been entered, and no order of any court shall have been entered
and shall  remain in effect  (i)  reversing,  staying,  remanding  or  otherwise
hindering the effectiveness of the Confirmation  Order, the P&G Settlement Order
or the K-C Settlement  Order or (ii)  enjoining or  restraining  the Debtor from
consummating  the Plan,  the P&G  Settlement  Agreement,  or the K-C  Settlement
Agreement;                                                                      

                  (b) EXIT  FINANCING.  All conditions  precedent to closing the
New Credit  Agreement  (other than the  occurrence of the Effective  Date) shall
have been  satisfied  or waived  and the New  Credit  Agreement  shall have been
consummated;                                                                    

                  (c) DOCUMENTS  EXECUTED.  All other  documents  required to be
delivered  under the Plan shall have been  executed and delivered by the parties
thereto,  unless  such  execution  or  delivery  has been  waived by the parties
benefited by such documents; and                                                

                 (d) CASH  FOR  CLOSING.   Reorganized   Paragon   shall  have
sufficient Cash on hand or availability  under the New Credit  Agreement to make
timely Distributions of Cash required hereunder.                                

          14.3.   ADDITIONAL  CONDITIONAL  PRECEDENTS TO EFFECTIVE  DATE. In the
event that the Wellspring Stock Purchase Agreement has been executed and has not
been  terminated,  before the  Effective Date occurs,  the following  additional
conditions must occur and be satisfied:                                         

                 (a) CONFIRMATION  DATE.  The  Confirmation  Date  shall  have
occurred no later than January 15, 2000 or such later date as may be  determined
by the Proponents and Wellspring,  with the consent of P&G and K-C, such consent
not to be unreasonably withheld;                                                

                  (b) CONSUMMATION OF THE WELLSPRING  STOCK PURCHASE  AGREEMENT.
All  conditions  precedent to  consummation  of the  Wellspring  Stock  Purchase
Agreement  other  than the  occurrence  of the  Effective  Date  shall have been
satisfied or waived as set forth therein;                                       

                  (c) TRUST INDENTURE ACT. The New Notes shall qualify under the
Trust Indenture Act of 1939, as amended; and                                    

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                  (d) EFFECTIVE  DATE. The Effective Date shall have occurred on
or before February 15, 2000.                                                    

          14.4.   WAIVER   OF   CONDITIONS   PRECEDENT   TO   CONFIRMATION   AND
CONSUMMATION.  Notwithstanding  anything to the contrary  contained in the Plan,
the Proponents may  waive,  with  the  consent  of P&G  and K-C  (which  consent
shall  not  be  unreasonably  withheld)  any of the conditions  precedent to (a)
Confirmation set  forth in  Sections  14.1(b) through 14.1(e) above, and (b) the
Effective  Date  set  forth  in  Sections  14.2(d)  and,  with  the  consent  of
Wellspring,  Section 14.3 above.                                                

          14.5.   MOOTNESS.  The  Proponents  shall  enjoy  the  benefit  of the
mootness  doctrine with respect to any conditions  waived by the Proponents.    

 XV.

MISCELLANEOUS PROVISIONS

          15.1.   ADMINISTRATION  PENDING EFFECTIVE DATE. Prior to the Effective
Date,  the  Debtor  shall  continue  to  operate  its  business  as a Debtor  in
Possession,  subject to all applicable  requirements  of the Bankruptcy Code and
the Bankruptcy Rules. After the Effective Date,  Reorganized Paragon may operate
its  businesses,  and may use,  acquire,  and  dispose of  property  free of any
restrictions of the Bankruptcy Code or the Bankruptcy Rules.                    

          15.2.   CARRYING OUT OF  TERMS.  All terms of the Plan may be put into
effect and carried out,  without further action by the directors or shareholders
of  Paragon  or  Reorganized  Paragon,  who shall be deemed to have  unanimously
approved  the  Plan  and  all  agreements  and  transactions   provided  for  or
contemplated  herein. All costs associated with the carrying out of the terms of
the Plan,  including,  but not  limited  to,  costs for  mailing,  printing  and
balloting shall be paid for and borne by the Debtor and its Estate.             

          15.3.   WITHDRAWAL OF THE PLAN.  The  Proponents,  acting  jointly and
unanimously,  reserve the right, at any time prior to the Confirmation  Date, to
revoke or withdraw the Plan.  Withdrawal of one Proponent as a proponent of this
Plan shall not constitute a withdrawal of the Plan, and the remaining  Proponent
may  seek  confirmation  of this  Plan  and,  upon  such  occurrence,  the  term
"Proponents" as used in this Plan shall refer solely to the remaining  Proponent
for all  purposes.  If the  Proponents  revoke  or  withdraw  the Plan or if the
Confirmation  Date does not occur,  then the Plan shall be deemed  null and void
and of no force and effect.                                                     

          15.4.   AMENDMENTS AND MODIFICATIONS TO PLAN. The Plan may be altered,
amended or modified by the Proponents, acting jointly and unanimously, before or
after the Confirmation Date, as provided in section 1127 of the Bankruptcy Code.
The Proponents reserve the right, in accordance with the Bankruptcy Code and the
Bankruptcy  Rules, to amend or modify the Plan at any time prior to the entry of
the  Confirmation  Order.  After  the  entry  of  the  Confirmation  Order,  the
Proponents may, upon order of the Bankruptcy Court,  amend or modify the Plan in
accordance with section 1127(b) of the Bankruptcy  Code, or remedy any defect or
omission or  reconcile  any  inconsistency  in the Plan in such manner as may be
necessary  to carry out the purpose and intent of the Plan.  A holder of a Claim
or Interest that has accepted the Plan shall be deemed to have accepted the Plan
as it may be modified  if the  proposed  modification  does not  materially  and
adversely  change  the  treatment  of the  Claim  or  Interest  of such  holder.
Notwithstanding  anything to the contrary  contained in this Section 15.4 or any
other  provision  of the  Plan:  (a)  provided  the  Wellspring  Stock  Purchase
Agreement  has been  executed and has not been  terminated,  Sections  7.5, 7.6,
9.11,  9.12,  9.19(a),  9.21,  13.3,  13.4, 13.5, 13.9 hereof and any provisions
(including  any  definition)  which (1)  provide  that  Wellspring's  consent or
approval is required or that a document  must be  satisfactory  to Wellspring or
(2)  relate to the New Notes,  New Notes  Amount,  the New  Common  Stock or the
Warrants to be issued if the Wellspring Stock Purchase Agreement is executed and
has not been  terminated,  may not be altered,  amended or modified  without the
express written  consent of Wellspring  (which consent shall not be unreasonably
withheld);  and (b) each of the Proponents  hereby  irrevocably  agrees that the
provisions of Section 13.5 hereof shall not be altered,  amended, or modified in
any material respect.                                                           

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          15.5.   SEVERABILITY. If any provision of the Plan is determined to be
unenforceable,  such determination  shall not limit or affect the enforceability
and operative  effect of any other  provisions of the Plan.  Subject to the last
sentence of Section 15.4 hereof,  to the extent any provision of the Plan would,
by its  inclusion  in the Plan,  prevent or preclude the  Bankruptcy  Court from
entering the  Confirmation  Order,  the Bankruptcy  Court, on the request of the
Proponents,  may  modify  or amend  such  provision,  in  whole  or in part,  as
necessary to cure any defect or remove any impediment to the confirmation of the
Plan existing by reason of such provision.  A holder of a Claim or Interest that
has  accepted  the Plan shall be deemed to have  accepted  the Plan as it may be
modified in accordance with this Section if the proposed  modification  does not
materially  and adversely  change the treatment of the Claim or Interest of such
holder.                                                                         

          15.6.   CONFIRMATION ORDER.  The Confirmation  Order shall  ratify all
transactions effected by the Debtor during the period commencing on the Petition
Date and ending on the Confirmation Date.                                       

 15.7.   COMPLIANCE WITH SECURITIES LAWS AND TAX REQUIREMENTS.

                  (a) SECTION 1145  EXEMPTION.  Pursuant to, in accordance  with
and solely to the extent provided under section 1145 of the Bankruptcy Code, the
original  issuance of the New Common Stock,  the issuance of the New Notes,  the
Rights,  the New Common  Stock to be issued upon  exercise of any stock  options
approved as part of the Plan and the issuance of the  Warrants,  are exempt from
the  registration  requirements of section 5 of the Securities Act and any state
or local law requiring or licensing of an issuer, underwriter,  broker or dealer
in, such New Notes or New Common Stock.                                         

                  (b) SECTION 1146 EXEMPTION. To the extent permitted by section
1146(c) of the  Bankruptcy  Code,  the  issuance,  transfer  or  exchange of any
security  under  the  Plan,  or  the  execution,  delivery  or  recording  of an
instrument of transfer  pursuant to, in  implementation of or as contemplated by
the Plan, or the revesting,  transfer or sale of any real property of the Debtor
pursuant to, in  implementation  of or as  contemplated by the Plan shall not be
taxed under any state or local law imposing a stamp tax, transfer tax or similar
tax or fee.  Consistent  with the  foregoing,  each recorder of deeds or similar
official  for any  county,  city or  governmental  unit in which any  instrument
hereunder  is to be recorded  shall,  pursuant  to the  Confirmation  Order,  be
ordered and directed to accept such instrument, without requiring the payment of
any documentary stamp tax, deed stamps,  stamp tax, transfer tax, intangible tax
or similar tax.                                                                 

          15.8.   INTERPRETATION,  RULES  OF CONSTRUCTION,  COMPUTATION OF TIME,
AND CHOICE OF LAW.                                                              

                 (a) The  provisions  of  the  Plan  shall  control  over  any
descriptions thereof contained in the Disclosure Statement.                     

                  (b) Any term used in the Plan that is not defined in the Plan,
either  in  Article  I  (Definitions)  or  elsewhere,  but  that  is used in the
Bankruptcy Code or the Bankruptcy  Rules shall have the meaning assigned to that
term in (and shall be construed  in  accordance  with the rules of  construction
under)  the  Bankruptcy  Code or the  Bankruptcy  Rules.  Without  limiting  the
foregoing,  the rules of construction set forth in section 102 of the Bankruptcy
Code shall apply to the Plan,  unless  superseded  herein.  The  definitions and
rules of construction  contained herein do not apply to the Disclosure Statement
or to the  Exhibits to the Plan except to the extent  expressly so stated in the
Disclosure Statement or in each Exhibit to the Plan.                            

                  (c) The words "herein,"  "hereof,"  "hereto,"  "hereunder" and
others of similar  import refer to the Plan as a whole and not to any particular
Article, Section, subsection or clause contained in the Plan, unless the context
requires otherwise.                                                             

                  (d) Unless specified otherwise in a particular reference,  all
references  in the Plan to Articles,  Sections and  Exhibits are  references  to
Articles, Sections and Exhibits of or to the Plan.                              

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                 (e) Any  reference  in  the  Plan  to a  contract,  document,
instrument, release, bylaw, certificate, indenture or other agreement being in a
particular form or on particular  terms and conditions  means that such document
shall  be  substantially  in  such  form or  substantially  on  such  terms  and
conditions.                                                                     

                  (f) Any  reference  in the  Plan to an  existing  document  or
exhibit means such  document or exhibit as it may have been  amended,  restated,
modified or supplemented as of the Effective Date.                              

                  (g) Captions and headings to Articles and Sections in the Plan
are inserted for  convenience of reference  only and shall neither  constitute a
part of the Plan nor in any way  affect  the  interpretation  of any  provisions
hereof.                                                                         

                 (h) Whenever  from the context it is  appropriate,  each term
stated in either the singular or the plural shall  include both the singular and
the  plural,  and each  pronoun  stated  in the  masculine,  feminine  or neuter
includes the masculine, feminine and neuter.                                    

                  (i) In computing any period  of time  prescribed or allowed by
the Plan, the provisions of Bankruptcy  Rule 9006(a) shall apply.               

                  (j) All Exhibits to the Plan are  incorporated  into the Plan,
and shall be deemed to be included in the Plan, regardless of when Filed.       

                  (k) Subject to the  provisions of any  contract,  certificate,
bylaws,  instrument,  release,  indenture or other agreement or document entered
into in connection with the Plan, the rights and  obligations  arising under the
Plan shall be  governed  by, and  construed  and  enforced in  accordance  with,
federal law, including the Bankruptcy Code and Bankruptcy Rules.                

          15.9.   BINDING EFFECT OF THE PLAN.  The provisions  of the Plan shall
be binding upon and  inure to the  benefit of the Debtor,  Reorganized  Paragon,
any holder of a Claim or Interest,  their respective  predecessors,  successors,
assigns,  agents,  officers and directors  and any other Person  affected by the
Plan.                                                                           

          15.10.  PAYMENT OF STATUTORY FEES.   All  fees  payable  pursuant   to
section 1930 of  title  28 of the  United  States  Code  shall  be paid on or as
soon as reasonably practicable  after the  Effective  Date or the date such fees
become due, as applicable.                                                      

         15.11.  DISSOLUTION  OF  COMMITTEES.   On  the  Effective  Date,  the
Creditors' Committee and Equity Committee shall cease to exist and their members
and employees or agents (including,  without limitation,  attorneys,  investment
bankers,  financial  advisors,  accountants  and other  professionals)  shall be
released and discharged from all further authority, duties, responsibilities and
obligations relating to, arising from or in connection with the Chapter 11 Case;
provided,  however, that (a) members and/or professionals of such Committees may
pursue applicable Fee Claims;  (b) counsel to the Creditors'  Committee shall be
entitled to (i) monitor the Claims review, objection and reconciliation process,
bring the status of such process to the attention of the Bankruptcy  Court,  and
be heard with respect to any proposed resolution of a Claim for which Bankruptcy
Court approval is sought, and (ii) receive from Reorganized Paragon compensation
for services rendered and reimbursement for expenses incurred in connection with
such monitoring, in an amount not to exceed, without Reorganized Paragon's prior
written consent or further  Bankruptcy Court order obtained on reasonable notice
to Reorganized Paragon,  $7,500 per month and $75,000 in the aggregate;  and (c)
the Equity Committee may appoint a subcommittee (not to exceed three members) to
continue in existence after the Effective Date and such subcommittee  shall have
the  right to  consult,  and shall  exist  solely  for the  limited  purpose  of
consulting,  with the Litigation Claims  Representative  regarding the status of
the  Litigation  Claims   (reasonable   expenses                                

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incurred by members of the  subcommittee  may be  reimbursed  by the  Litigation
Claims Representative from the Litigation Fund).                                

          15.12.  GOVERNING  LAW.  Except to the extent the  Bankruptcy  Code or
other  federal  law is  applicable,  or to the  extent  that an  Exhibit  hereto
provides  otherwise,  the rights,  duties and obligations arising under the Plan
shall be governed  by, and  construed  and  enforced  in  accordance  with,  the
Bankruptcy Code and, to the extent not inconsistent  therewith,  the laws of the
State of Georgia, without giving effect to principles of conflicts of laws.     

          15.13.  METHOD OF NOTICE.  All notices  required to be given under the
Plan, if any, shall be in writing and shall be sent by first class mail, postage
prepaid, or by overnight courier:                                               

If to the Debtor or Reorganized Paragon, to:                  

Paragon Trade Brands, Inc.                  
180 Technology Parkway                      
Atlanta, GA  30092                          
Attn:  General Counsel                      
(678) 969-5000                              

with copies to:                             

Willkie Farr & Gallagher                    
787 Seventh Avenue                          
New York, New York  10019-6099              
Attn:    Myron Trepper, Esq.                
Marc Abrams, Esq.         
(212) 728-8000                              

and                                         

Alston & Bird LLP                           
1201 West Peachtree                         
Atlanta, Georgia  30309-3424                
Attn:    Dennis Connolly, Esq.              
(404) 881-7000                              

If to the Creditors' Committee, to:                           

O'Melveny & Myers, LLP                      
One Citicorp Center                         
153 East 53rd Street                        
New York, New York 10022                    
Attn:    Adam Harris, Esq.                  
Joel Zweibel, Esq.        
(212) 326-2000                              

If to the Equity Committee, to:                               

Andrews & Kurth LLP                         
600 Travis, Suite 4200                      

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Houston, Texas 77002                        
Attn:  John Lee, Esq.                       
(713) 220-4260                              

If to P&G, to:                                                

Jones, Day, Reavis & Pogue                  
North Point                                 
901 Lakeside Avenue                         
Cleveland, OH  44114-1190                   
Attn:  David Heiman, Esq.                   
(216) 586-7715                              

If to K-C, to:                                                

Sidley & Austin                             
Bank One Plaza                              
Ten South Dearborn                          
Chicago, IL  60603                          
Attn:  Shalom Kohn, Esq.                    
(312) 853-7756                              

         If to Wellspring,  provided the Wellspring Stock Purchase Agreement has
been consummated, to:                                                           

Paul, Weiss, Rifkind, Wharton & Garrison    
1285 Avenue of the Americas                 
New York, New York 10019                    
Attn:  Robert Drain, Esq.                   
(212) 373-3236                              

Any of the above may, from time to time,  change its address for future  notices
and other  communications  hereunder by filing a notice of the change of address
with the Bankruptcy  Court.  Any and all notices given to such parties under the
Plan shall be effective when received.                                          

         15.14.  AUTHORIZATION   OF  CORPORATE   ACTION.   The  entry  of  the
Confirmation Order shall constitute authorization for the Debtor and Reorganized
Paragon  to  take or  cause  to be  taken  any  corporate  action  necessary  or
appropriate  to consummate  the  provisions of the Plan prior to and through the
Effective  Date  (including,  without  limitation,  the filing of or amending or
restating of the Restated  Certificate of  Incorporation),  and all such actions
taken or caused to be taken shall be deemed to have been authorized and approved
by the Bankruptcy  Court.  All matters provided for under the Plan involving the
corporate  structure of the Debtor and/or Reorganized Paragon in connection with
the Plan,  and any corporate  action  required by the Debtor and/or  Reorganized
Paragon in connection with the Plan,  shall be deemed to have occurred and shall
be in effect  pursuant  to any  applicable  state law and the  Bankruptcy  Code,
without any  requirement of further action by the  stockholders  or directors of
the Debtor and/or  Reorganized  Paragon.  On the Effective Date, the appropriate
officers of Reorganized  Paragon and members of the New Board are authorized and
directed  to  execute  and  deliver  the  relevant  agreements,   documents  and
instruments contemplated by the Plan and the Disclosure Statement in the name of
and on behalf of Reorganized Paragon.                                           

          15.15.  CONTINUED   CONFIDENTIALITY   OBLIGATIONS.     Notwithstanding
anything  to the  contrary  contained  herein,  pursuant  to  the terms thereof,
members of  and  advisors  to  any  Committee,  any  other  holder  of  a  Claim
or Interest  and                                                                

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their                                                                           
respective  predecessors and successors shall continue to be obligated and bound
by terms of any  confidentiality  agreement  executed by them in connection with
the Chapter 11 Case or the Debtor,  to the extent  that such  agreement,  by its
terms, may continue in effect after the Confirmation Date.                      

XVI.

 RETENTION OF JURISDICTION

          16.1.   RETENTION OF JURISDICTION.  The Bankruptcy  Court shall retain
and have exclusive  jurisdiction  over the Chapter 11 Case  for, INTER ALIA, the
following purposes:                                                             

                (a) CLAIMS.   To   determine   the   amount,   allowability,
classification,  or priority of Claims against or Interests in the Debtor and to
allow, disallow,  estimate,  liquidate or determine any Claim or Interest and to
enter or enforce any order  requiring the filing of any Claim or Interest before
a particular date;                                                              

                 (b) INJUNCTION  ETC. To issue  injunctions or take such other
actions or make such other orders as may be necessary or appropriate to restrain
interference  with the Plan or its execution or implementation by any Person, to
construe  and to take any other  action to enforce  and  execute  the Plan,  the
Confirmation  Order,  or any other order of the Bankruptcy  Court, to issue such
orders as may be necessary for the  implementation,  execution,  performance and
consummation  of the Plan and all matters  referred to herein,  and to determine
all matters that may be pending  before the  Bankruptcy  Court in the Chapter 11
Case on or before the Effective Date with respect to any Person;                

                  (c) VESTING.  To protect the property of the Estate  revesting
in Reorganized Paragon from claims against, or interference, with such property,
including  actions  to quiet or  otherwise  clear  title  to such  property,  to
determine ownership of claims and causes of action retained under the Plan or to
resolve any dispute  concerning liens,  security interest or encumbrances on any
property of Reorganized Paragon;                                                

                  (d) PRIORITY  CLAIMS.  To  determine  any Priority Tax Claims,
Priority Non-Tax Claims,  Administrative  Claims, Fee Claims, DIP Claims, or any
other request for payment of Claims or fees or expenses;                        

                 (e) DISPUTE  RESOLUTION.  To  resolve  any and  all  disputes
concerning,  arising under or related to the Plan, the P&G Settlement  Agreement
and P&G Settlement Order, the K-C Settlement Agreement and K-C Settlement Order,
and the making of  distributions  hereunder and thereunder  (PROVIDED,  HOWEVER,
that the Bankruptcy Court shall not retain jurisdiction with respect to disputes
arising  under or related to the  licenses  granted in  connection  with the P&G
Settlement Agreement and the K-C Settlement Agreement);                         

                  (f) LEASES AND EXECUTORY  CONTRACTS.  To determine any and all
matters  relating to the  rejection,  assumption,  or  assignment  of  executory
contracts  or  unexpired  leases of the Debtor,  or to  determine  any motion to
reject an  executory  contract or unexpired  lease of the Debtor,  where (a) the
parties cannot resolve the cure amount  therefor,  or (b) the Debtor  mistakenly
had  determined  that  any  such  agreement  was not an  executory  contract  or
unexpired lease, and to determine the allowance of any Claims resulting from the
rejection of executory contracts and unexpired leases;                          

                  (g) WELLSPRING STOCK PURCHASE AGREEMENT. To hear and determine
any and all  matters,  claims  or  disputes  arising  from  or  relating  to the
Wellspring Stock Purchase Agreement or any other document between the Debtor and
Wellspring that was executed in connection with this Plan;                      

                  (h) ACTIONS. To determine all applications, motions, adversary
proceedings,  contested  matters,  actions,  and  any  other  litigated  matters
instituted prior to the closing of the Chapter 11 Case, including any remands;  

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                  (i) GENERAL MATTERS. To determine such other matters,  and for
such other purposes,  as may be provided in the Confirmation  Order or as may be
authorized under provisions of the Bankruptcy Code;                             

                  (j) PLAN  MODIFICATION.  To modify the Plan under section 1127
of the  Bankruptcy  Code,  and/or  remedy  any  defect,  cure any  omission,  or
reconcile any inconsistency in the Plan or the Confirmation Order so as to carry
out its intent and purposes;                                                    

                 (k) AID  CONSUMMATION.   To  issue  such  orders  in  aid  of
consummation  of  the  Plan  and  the  Confirmation  Order  notwithstanding  any
otherwise applicable non-bankruptcy law, with respect to any Person, to the full
extent authorized by the Bankruptcy Code;                                       

                  (l) LITIGATION. To enable the Litigation Claims Representative
to prosecute  any  Litigation  Claims to Final Order and to enable the Debtor to
prosecute any and all proceedings  which have been brought to set aside liens or
encumbrances  and, if  commenced  prior to the  Effective  Date,  to recover any
transfers,  assets,  properties  or damages to which the Debtor may be  entitled
under applicable  provisions of the Bankruptcy Code or any other federal,  state
or local laws except as may be waived pursuant to the Plan;                     

                 (m) IMPLEMENTATION  OF  CONFIRMATION   ORDER.  To  enter  and
implement such orders as may be appropriate in the event the Confirmation  Order
is for any reason stayed, revoked, modified or vacated;                         

                 (n) RESOLVE  DISPUTES.  To resolve  any  disputes  concerning
whether a Person had sufficient notice of the Chapter 11 Case, an Applicable Bar
Date,  the  hearing  to  consider  approval  of the  Disclosure  Statement,  the
Confirmation  Hearing,  and for the  purpose of  determining  whether a Claim or
Interest is discharged hereunder or for any other purpose;                      

                 (o) ORDERS.  To enter  such  orders  as may be  necessary  or
appropriate  to  implement  or  consummate  the  provisions  of the Plan and all
contracts,  instruments,  releases,  or other agreements or documents created in
connection  with the  Chapter 11 Case or the Plan and to resolve  any dispute or
matter  arising under or in connection  with any order of the  Bankruptcy  Court
entered in the Chapter 11 Case;                                                 

                 (p) CONTROVERSIES.  To  resolve  controversies  and  disputes
regarding  interpretation,  implementation,  enforcement and consummation of the
Plan, the K-C Settlement Agreement,  the P&G Settlement Agreement,  or any other
exhibit to the Plan or related document (PROVIDED,  HOWEVER, that the Bankruptcy
Court shall not retain  jurisdiction  with respect to disputes  arising under or
related to the licenses granted in connection with the P&G Settlement  Agreement
and the K-C Settlement Agreement);                                              

                  (q) DETERMINE TAX LIABILITY.  To determine  any tax  liability
pursuant to sections 346, 505 and/or 1146 of the Bankruptcy Code;               

                  (r) RESERVES. To resolve disputes concerning any reserves with
respect to Disputed Claims or the  administration thereof;                      

                  (s) VALIDITY.  To   hear   and   resolve   claims  or  actions
challenging the validity or enforceability of any provision of the Plan; and    

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                  (t) FINAL DECREE.  To enter a final decree closing the Chapter
11 Case.                                                                        

                           Respectfully submitted,

Dated:     Norcross, Georgia                                                    
January 13, 2000                                          

                              PARAGON TRADE BRANDS, INC.

                         By: /s/ Alan J. Cyron
                                 ---------------------
                         Alan J. Cyron
                                   Chief Financial Officer

Dated:     Atlanta, Georgia                                                     
January 13, 2000                                          

                                     THE OFFICIAL COMMITTEE OF
                                  UNSECURED CREDITORS OF
                                      PARAGON TRADE BRANDS, INC.

                                 By: /s/ John T. Seeds
                                         ---------------------
                                 John T. Seeds
                                                  Wachovia Bank of Georgia, N.A.
                                                 As Chairman of the Creditors'
                                 Committee

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LIST OF EXHIBITS

              Exhibit A              Summary of Wellspring Plan Warrants

              Exhibit B              Summary of Standalone Plan Warrants

Exhibit C              Wellspring Commitment

                Exhibit D              Wellspring Rights Offering Procedures

              Exhibit E              Wellspring Stock Purchase Agreement

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 8-K Filing		Date		First		Last			Other Filings
		1/26/93		15
		2/3/93		15
		11/5/93		17
		1/20/94		12
		10/25/95		19
		2/6/96		17
		2/8/96		15
		2/16/96		17
		12/28/97		17					10-K
		1/6/98		17					8-K
		1/7/98		12
		1/16/98		12
		1/21/98		12
		1/30/98		12
		3/3/98		19
		3/23/98		12
		3/24/98		17
		4/15/98		12
		6/5/98		17
		7/2/98		16
		8/7/98		19
		9/28/98		12
		11/2/98		13
		2/2/99		17					8-K
		3/19/99		15
		4/15/99		27
		6/14/99		12
		6/27/99		16					10-Q
		7/13/99		28
		8/6/99		15		17
		8/9/99		28					SC 13G
		8/20/99		28
		10/14/99		20
		11/1/99		20
		1/6/0		28		29
For The Period Ended		1/13/0		1		59			8-K/A
		1/15/0		51
Filed On / Filed As Of		1/20/0							8-K/A
		2/15/0		27		52
Top									List All Filings