SIGNAL APPAREL COMPANY, INC.
P. O. Box 4296
200-A Manufacturers Road
Chattanooga, Tennessee 37405
(615) 756-8146

CORPORATE OFFICE

                                             March 15, 1995





Mr. William H. Watts
Signal Apparel Company, Inc.

Dear Bill:

This letter is to confirm the agreement between Signal Apparel
Company, Inc. and you relative to your appointment as an executive
officer of Signal.  The terms of our agreement are as follows:

1.   An annual base salary of $175,000.00;

2.   You will be eligible to receive an annual bonus, payable in a
     lump sum following fiscal year end, based upon your personal
     performance as well as the performance of Signal Apparel.  For
     1995, this bonus will be discretionary and will be determined
     by the Company at the conclusion of the 1995 fiscal year based
     upon the Company's overall performance and your contribution
     to that performance.  For years subsequent to 1995, your level
     of eligible bonus participation and the criteria for earning
     that level of bonus will be determined by the Company at the
     commencement of each fiscal year.

3.   You will receive a $50,000 allocation to cover all expenses
     relative to your relocation to the Company's corporate offices
     in Chattanooga, Tennessee.  Any relocation expenses in excess
     of this amount will be borne by you, and any amount of this
     allocation exceeding your relocation expenses may be retained
     by you.

4.   You will be granted a stock option to purchase 100,000 shares
     of Signal's common stock at an option price of $4.00 per share
     in accordance with the terms and conditions of Signal's
     Employee Stock Option Plan.  All of these options will be
     eligible for exercise one year from the date of grant
     conditional upon you remaining an employee of Signal through
     this period.  

     At the present time, there are insufficient shares remaining
     under the Stock Option Plan to cover this grant, and
     therefore, this grant is conditional upon additional shares
     being authorized for the Plan by the Company's shareholders at
     the upcoming annual meeting;

5.   This Agreement will be for a period of three years commencing
     January 1, 1995 and ending December 31, 1997.  Should your
     employment with the Company be terminated during this period
     for reasons other than good cause, you will be entitled to
     severance pay at your then current level of pay for the lesser
     of one year or the remaining term of this Agreement.  For
     purposes of this Agreement, "good cause" shall include:

     1.   A court conviction involving an act or acts of personal
          dishonesty taken by you and intended to result in your
          personal enrichment at the expense of the Company;

     2.   Repeated material failures by you to perform the duties
          which are assigned to you, which failures are not
          remedied in a reasonable amount of time after receipt of
          written notice from the Company.

     3.   The conviction of a felony involving moral turpitude. 

     Any severance payment due pursuant to this provision will be
     made in a lump sum within thirty days of your termination by
     the Company.

6.   During your employment by the Company, you will hold the
     position of Executive Vice President with overall
     responsibility for the Financial and MIS departments of Signal
     and with such other duties that may be assigned to you from
     time to time by your superior;

7.   During your employment by the Company, you will be assigned to
     the corporate offices of the Company;

8.   This Agreement shall be governed by and construed in
     accordance with the laws of the State of Tennessee, without
     reference to the principals of conflict of laws;

9.   This Agreement may not be amended or modified in any manner
     other than by a written agreement executed by the parties
     hereto.

If the above is an accurate statement of our agreement, please sign
where indicated below and return a copy of this Agreement to the
Company.

Sincerely,


\s\ Marvin Winkler
Marvin Winkler
Chairman of the Board &
Chief Executive Officer

MW/ps

AGREED:


/s/ William H. Watts
- -------------------------
Bill Watts

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