SIGNAL APPAREL COMPANY, INC.
200-A MANUFACTURERS ROAD
CHATTANOOGA, TENNESSEE 37405

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 2, 1997

------------------------

Notice is hereby given that the Annual Meeting of Shareholders of Signal
Apparel Company, Inc. (the "Company") will be held at 200-A Manufacturers Road,
Chattanooga, Tennessee, on December 2, 1997, at 10:00 a.m. for the following
purposes:

1. To elect seven directors;

2. To approve the amendment, described in the accompanying proxy statement,
to the Company's 1985 Stock Option Plan to increase the number of shares of the
Company's Common Stock issuable thereunder from 1,910,000 to 4,000,000;

3. To approve the issuance of warrants to purchase up to 3,500,000 shares
of the Company's Common Stock to WGI, LLC in connection with certain waivers and
additional funding under the Credit Agreement between the Company and WGI, LLC
as described in the accompanying proxy statement;

4. To approve the issuance of an additional 15,473,220 shares of the
Company's Common Stock in connection with the Company's plan to restructure its
presently outstanding debt and preferred stock;

5. To approve the amendment, described in the accompanying proxy statement,
to the Company's Restated Articles of Incorporation increasing the number of
authorized shares of Common Stock from 40,000,000 to 80,000,000;

6. To approve the issuance of warrants to purchase 250,000 shares of the
Company's Common Stock to a director/consultant of the Company, as described in
the accompanying proxy statement;

7. To approve the issuance of warrants to purchase 10,000 shares of the
Company's Common Stock to another director of the Company, as described in the
accompanying proxy statement;

8. To transact such other business as may properly come before the meeting
or any adjournments thereof.

The Board of Directors has fixed October 14, 1997, as the record date for
the determination of shareholders entitled to vote at the Annual Meeting and to
receive notice thereof.

Shareholders are cordially invited to attend the meeting in person. IF YOU
CANNOT ATTEND, PLEASE RECORD YOUR VOTE AND SIGN AND DATE THE ACCOMPANYING PROXY
WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND RETURN IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.

BY ORDER OF THE BOARD OF DIRECTORS

Robert J. Powell
SECRETARY

Chattanooga, Tennessee
October 27, 1997

SIGNAL APPAREL COMPANY, INC.
CHATTANOOGA, TENNESSEE 37405
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PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 2, 1997
---------------------

This Proxy Statement, which is to be mailed on or about October 27, 1997, is
furnished to shareholders on behalf of the Board of Directors for solicitation
of proxies for use at the Annual Meeting of Shareholders of Signal Apparel
Company, Inc. (the "Company") to be held on December 2, 1997, at 10:00 a.m., and
at all adjournments thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before it is
exercised by giving written notice to the Secretary of the Company.

The cost of this solicitation will be paid by the Company. In addition to
solicitation by mail, certain officers, directors and other employees of the
Company, who will receive no additional compensation for their services, may
solicit proxies by telephone, telegraph or personal call. The Company has
engaged Corporate Communications, Inc. to distribute soliciting material to
shareholders of record and to solicit brokers and other persons holding shares
beneficially owned by others to procure from such beneficial owners consents to
the execution of proxies. In addition to a fee of approximately $4,000 to be
paid to Corporate Communications, Inc., the Company will reimburse brokers and
others for their expense in sending proxy material to beneficial owners.

On October 14, 1997, the outstanding securities of the Company consisted of
11,578,046 shares of Common Stock, par value $.01 per share; 327.087 shares of
Series A Preferred Stock, stated value $100,000 per share; and 317.678 shares of
Series C Preferred Stock, stated value $100,000 per share. Each outstanding
share of the Common Stock is entitled to one vote per share on each matter to be
brought before the Annual Meeting. Neither the Series A Preferred Stock nor the
Series C Preferred Stock is entitled to vote on any matter scheduled to be
brought before the Annual Meeting.

Shares represented at the Annual Meeting by properly executed proxies will
be voted in accordance with the instructions indicated in the proxies unless
such proxies have previously been revoked. If no instructions are indicated,
such shares will be voted (i) FOR electing the Board of Directors' seven
nominees for director; (ii) FOR amending the Company's 1985 Stock Option Plan to
increase the number of issuable shares thereunder from 1,910,000 to 4,000,000;
(iii) FOR approving the issuance of warrants to purchase up to 3,500,000 shares
of the Company's Common Stock to WGI, LLC in connection with certain waivers and
additional funding under the Credit Agreement between the Company and WGI LLC;
(iv) FOR approving the issuance of an additional 15,473,220 shares of the
Company's Common Stock in connection with the Company's plan to restructure its
presently outstanding debt and preferred stock; (v) FOR amending the Company's
Restated Articles of Incorporation increasing the number of authorized shares of
Common Stock from 40,000,000 to 80,000,000; (vi) FOR approving the issuance of
250,000 warrants to purchase the Company's Common Stock to a certain
director/consultant; and (vii) FOR approving the issuance of warrants to
purchase 10,000 shares of the Company's Common Stock to another director of the
Company.

Any proxy given pursuant to this solicitation may be revoked at any time by
the shareholder giving it, insofar as it has not been exercised, by delivering
to the Secretary of the Company a written notice of revocation bearing a later
date than the proxy or by submission of a later-dated, properly executed proxy.
Attendance at the Annual Meeting will not, in and of itself, constitute a
revocation of a proxy. Any written notice revoking a proxy should be sent to
Signal Apparel Company, Inc., 200-A Manufacturers Road, Chattanooga, Tennessee
37405, Attention: Robert J. Powell, Secretary.

The Board of Directors expects all nominees named below to be available for
election. In case any nominee is not available, the proxy holders may vote for a
substitute. The Company knows of no specific matter to be brought before the
meeting that is not referred to in the Notice of Meeting or this proxy
statement. Regulations of the Securities and Exchange Commission permit the
proxies solicited pursuant to this Proxy Statement to confer discretionary
authority with respect to matters of which the Company did not know a reasonable
time before the meeting. Accordingly, the proxy holders may use their
discretionary authority to vote with respect to any such matter pursuant to the
proxy solicited hereby.

The persons designated by the Board of Directors as proxy holders in the
accompanying form of proxy are Robert J. Powell and David E. Houseman, officers
of the Company. The cost of solicitation of proxies will be borne by the
Company.

The presence, in person or by proxy, of the holders of a majority of the
votes eligible to be cast by the holders of the outstanding shares of Common
Stock entitled to vote is necessary to constitute a quorum at the Annual
Meeting. Directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at which a quorum is present. Approval of all
other Proposals requires the affirmative vote of the majority of the votes cast
by the shares entitled to vote in the election at which a quorum is present.
Abstentions and broker non-votes are counted as present for determination of a
quorum, but are not counted as affirmative or negative votes on any item to be
voted upon and are not counted in determining the number of shares voted on any
item.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership of the Company's equity securities as of September 15, 1997, by each
shareholder that the Company knows to own beneficially more than 5% of the
issued and outstanding shares of the Company's Common Stock, director of the
Company, nominee for director, Named Executive (as defined herein) and by the
directors and Named Executives of the Company as a group.

AMOUNT AND NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP(1) PERCENT OF CLASS
- -------------------------------------- -------------------------------------- ---------------------- -----------------

FS Signal Associates, L.P.; Common Stock $.01 par value 8,514,282 53.5%
FS Signal Associates II, L.P.;
FS Signal, Inc.; and Kevin S. Penn, as Series A Preferred Stock $100,000 327.087 100.0%
a group stated value
65 E. 55th St., 18th Floor 139.709 44.0%
New York, New York 10022(2) Series C Preferred Stock $100,000
stated value

Kevin S. Penn Common Stock $.01 par value 8,514,282 53.5%
65 E. 55th St., 18th Floor
New York, New York 10022 (2) Series A Preferred Stock $100,000 327.087 100.0%
stated value

Series C Preferred Stock $100,000 139.709 44.0%
stated value

FS Signal, Inc. 65 E. 55th St., 18th Common Stock $.01 par value 8,214,282 52.6%
Floor
New York, New York 10022(2)(3) Series A Preferred Stock $100,000 327.087 100.0%
stated value

Series C Preferred Stock $100,000 139.709 44.0%
stated value

FS Signal Associates, L.P. Common Stock $.01 par value 3,715,983 30.2%
c/o Kenneth Musen
157 Church Street, Box 426 Series C Preferred Stock $100,000 130.334 41.0%
New Haven, Connecticut 06502(2)(4) stated value

FS Signal Associates II, L.P. Common Stock $.01 par value 4,498,299 30.2%
c/o Kenneth Musen
157 Church Street, Box 426 Series A Preferred Stock $100,000 327.087 100.0%
New Haven, Connecticut 06502(2)(5) stated value
Series C Preferred Stock $100,000 9.375 3.0%
stated value

WGI, LLC Common Stock $.01 par value 8,952,349 54.1%
One East Putnam Avenue
Greenwich, Connecticut 06830(6) Series C Preferred Stock $100,000 177,969 56.0%
stated value

Kidd, Kamm Equity Partners, L.P. Common Stock $.01 par value 1,284,220 11.1%
Three Pickwick Plaza
Greenwich, Connecticut 06830

Marvin J. Winkler Common Stock $.01 par value [1,000,000] 8.6%
25502 Rodeo Circle
Laguna Hills, CA 92653

Barton J. Bresky Common Stock $.01 par value -- --

Jacob I. Feigenbaum Common Stock $.01 par value -- --

Paul R. Greenwood(6) Common Stock $.01 par value 8,952,349 54.1%

Series C Preferred Stock $100,000 177.969 56.0%
stated value

Leon Ruchlamer(7) Common Stock $.01 par value 100,000 1%

Stephen Walsh (6) Common Stock $.01 par value 8,952,349 54.1%

Series C Preferred Stock $100,000 177.969 56.0%
stated value

William H. Watts Common Stock $.01 par value -- --

David E. Houseman(8) Common Stock $.01 par value 55,000 *

Bruce E. Krebs Common Stock $.01 par value -- --

Leslie W. Levy(9) Common Stock $.01 par value 32,778 *

Tom McFall Common Stock $.01 par value -- --

Robert J. Powell(7) Common Stock $.01 par value 125,000 1.1%

John Prutch Common Stock $.01 par value -- --

All directors and executive Common Stock $.01 par value 9,210,127 54.8%
officers as a group(10)

- ------------------------

* Less than 1%

NOTES TO TABLE OF BENEFICIAL OWNERSHIP

(1) As of September 15, 1997, the Company had issued and outstanding 11,578,046
shares of Common Stock, 327.087 shares of Series A Preferred Stock and
317.678 shares of Series C Preferred Stock. In general, a person is deemed
to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or direct the voting of
such security, or "investment power," which includes the power to dispose
of or to direct the disposition of such security, or if a person has the
right to acquire either voting power or investment power over such security
through the exercise of an option or the conversion of another security
within 60 days. More than one person may be a beneficial owner of the same
security, and a person may be deemed to be a beneficial owner of securities
as to which he has no personal economic interest or which he may not vote.
In the case of persons who hold options or warrants to purchase shares of
Common Stock that are exercisable either immediately or within 60 days of
September 15, 1997, the shares of Common Stock represented thereby have
been treated as outstanding for purposes of calculating the ownership
totals and percentages (and the percentage of voting power) for only the
persons holding such options and warrants, and have not otherwise been
treated as outstanding shares.

(2) FS Signal Associates, L.P. ("FS Signal"); FS Signal Associates II, L.P.
("FS Signal II"); FS Signal, Inc. ("FSSI"); and Kevin S. Penn ("Penn") have
filed a report, as a group, on Schedule 13D disclosing their various
relationships. Such persons may be deemed to be a group for purposes of the
beneficial ownership of the securities disclosed in the table, although
they disclaim membership in a group. The 8,514,282 shares of Common Stock
include (i) 2,980,983 shares of Common Stock held directly by FS Signal;
(ii) 1,185,799 shares of Common Stock held directly by FS Signal II; (iii)
warrants held directly by FS Signal to acquire 735,000 shares of Common
Stock; (iv) warrants held directly by FS Signal II to acquire 3,312,500
shares of Common Stock; and (v) warrants held directly by Penn to acquire
300,000 shares of Common Stock. The 327.087 shares of Series A Preferred
Stock are held directly by FS Signal II. The 139.709 shares of Series C
Preferred Stock include (i) 130.334 shares of Series C Preferred Stock held
directly by FS Signal and (ii) 9.375 shares of Series C Preferred Stock
held directly by FS Signal II. The reporting persons may be deemed to be
members of a group and, accordingly, could each be deemed to have
beneficial ownership (by virtue of Rule 13(d)-5) of all shares of Common
Stock, Series A Preferred Stock and Series C Preferred Stock held directly
by the various members of the group. Except as disclosed herein, no other
entity or person that may be deemed to be a member of the group holds
direct beneficial ownership of any Common Stock, Series A Preferred Stock
or Series C Preferred Stock. Penn is the President of FSSI, which is the
general partner of both FS Signal and FS Signal II. Both FS Signal and FS
Signal II are limited partnerships. Pursuant to both the bylaws of FSSI and
an understanding among the limited partners of FS Signal and FS Signal II,
Penn, as President of FSSI, has the sole voting and investment power over
the securities held by both limited partnerships.

(3) As the general partner of both FS Signal Associates, L.P. ("FS Signal") and
FS Signal Associates II, L.P. ("FS Signal II"), FS Signal, Inc. ("FSSI")
may be deemed to be the beneficial owner of (i) 2,980,983 shares of Common
Stock held directly by FS Signal; (ii) 1,185,799 shares of Common Stock
held directly by FS Signal II; (iii) warrants held directly by FS Signal to
acquire 735,000 shares of Common Stock; (iv) warrants held directly by FS
Signal II to acquire 3,312,500 shares of Common Stock; (v) 327.087 shares
of Series A Preferred Stock held directly by FS Signal II; (vi) 130.334
shares of Series C Preferred Stock held directly by FS Signal; and (vii)
9.375 shares of Series C Preferred Stock held directly by FS Signal II.
Kevin S. Penn ("Penn") is the President of FSSI. Pursuant to both the
bylaws of FSSI and an understanding among the limited partners of FS Signal
and FS Signal II, Penn, as President of FSSI, has the sole voting and
investment power over the securities held by both limited partnerships.

(4) FS Signal Associates, L.P. ("FS Signal"), a Connecticut limited
partnership, owns directly (i) 2,980,983 shares of Common Stock; (ii)
warrants to acquire 735,000 shares of Common Stock; and (iii) 130.334
shares of Series C Preferred Stock. Kevin S. Penn, in his capacity as
President of FS Signal, Inc., the general partner of FS Signal, may be
deemed to own beneficially all shares of Common Stock and Series C
Preferred Stock held by FS Signal.

(5) FS Signal Associates II, L.P. ("FS Signal II"), a Connecticut limited
partnership, owns directly (i) 1,185,799 shares of Common Stock; (ii)
warrants to acquire 3,312,500 shares of Common Stock; (iii) 327.087 shares
of Series A Preferred Stock; and (iv) 9.375 shares of Series C Preferred
Stock. Kevin S. Penn, in his capacity as the President of FS Signal, Inc.,
the general partner of FS Signal II, may be deemed to own beneficially all
shares of Common Stock, Series A Preferred Stock and Series C Preferred
Stock held by FS Signal II.

(6) WGI, LLC ("WGI"), a New York limited partnership, owns directly (i)
3,977,349 shares of Common Stock; (ii) warrants to acquire a total of
4,975,000 shares of Common Stock; and (iii) 177.969 shares of Series C
Preferred Stock. WGI's sole general partners, Stephen Walsh and Paul R.
Greenwood, may be deemed to share the power to vote and direct the
disposition of the shares of Common Stock, the warrants to purchase Common
Stock and Series C Preferred Stock beneficially owned by WGI.

(7) The beneficial ownership reported for Messrs. Ruchlamer and Powell
represents options that are immediately exercisable to acquire shares of
Common Stock, which were issued pursuant to the Company's 1985 Stock Option
Plan.

(8) This figure includes presently exercisable options to acquire 50,000 shares
of Common Stock which were issued under the Company's 1985 Stock Option
Plan pursuant to Mr. Houseman's Employment Agreement.

(9) This figure includes presently exercisable options to acquire 22,500 shares
of Common Stock which were issued under the Company's 1985 Stock Option
Plan.

(10) This figure includes shares for which indirect beneficial ownership may be
attributed to certain directors of the Company, as discussed in Note (6)
above. The figure includes warrants to acquire 4,975,000 shares of Common
Stock and options to acquire 247,500 shares of Common Stock. All such
warrants and options are immediately exercisable and, consequently, have
been treated as outstanding shares of Common Stock for calculations of
share ownership and voting power for the group of directors and executive
officers. See Note (1) above.

PROPOSAL NUMBER 1

ELECTION OF DIRECTORS

The Company's Restated Articles of Incorporation provide for a board of
directors consisting of not less than five nor more than ten persons, with the
exact number to be set by the Board of Directors. The Board of Directors has set
the number of directors at seven. All directors are elected to serve a one year
term, or until their respective successors are elected and qualified. The
persons named in the enclosed form of proxy will vote for the election of the
seven nominees named below, unless such authority is withheld on the enclosed
form of proxy. In the event any of the nominees should become unavailable to
serve as a director, the proxy will be voted by the persons named therein in
accordance with their best judgment.

The following is a list of the names, ages, positions held with the Company
and business experience during the past five years of all nominees for director:

YEAR FIRST
BECAME A
NAME AND ADDRESS AGE BUSINESS EXPERIENCE AND DIRECTORSHIPS DIRECTOR
- --------------------------------------------- --- --------------------------------------------- ----------

Jacob I. Feigenbaum.......................... 49 President of Miracle Suit by Swim Shaper 1994
c/o Miracle Suit since February 1996; President and owner of
1411 Broadway, 30th Floor Sea Q. America, August 1994 to 1996;
New York, NY 10018 President of Robby Len Swimwear division of
Apparel America, 1980 to 1994.

Paul R. Greenwood............................ 50 Managing General Partner of Walsh, Greenwood 1990
One East Putnam Avenue & Co., a broker-dealer engaged in effecting
Greenwich, CT 06830 transactions in securities for others and for
its own account.

David E. Houseman............................ 56 Chief Executive Officer and Treasurer since Nominee
200-A Manufacturers Rd. September 1997; President since August 1997;
Chattanooga, TN 37405 Chief Operating Officer and Chief Financial
Officer since June 1997; Senior Vice
President Finance and Chief Financial Officer
of Bayer Clothing Group,Inc., April 1993 to
June 1997; Vice President Finance and Chief
Financial Officer of Chalk Line, Inc.,
October 1992 to March 1993.

Tom McFall................................... 43 Chairman, Weatherly Financial Companies, Nominee
950 Lakeview Parkway since 1984.
Vernon Hills, IL 60061

John Prutch.................................. 45 President, GIDI Holdings, Inc., imprinted Nominee
1088 National Parkway activewear manufacturer, since July 1994;
Schaumburg, IL 60173 President, Merchant Capital Group, Ltd., 1984
to January 1993.

YEAR FIRST
BECAME A
NAME AND ADDRESS AGE BUSINESS EXPERIENCE AND DIRECTORSHIPS DIRECTOR
- --------------------------------------------- --- --------------------------------------------- ----------

Leon Ruchlamer............................... 68 Vice Chairman of the Board of Directors since 1995
200-A Manufacturers Road August 1995; President, February 1995 to
Chattanooga, TN 37405 August 1995; Consultant within apparel and
textile industry, 1992 to January 1995.

Stephen Walsh................................ 52 General Partner of Walsh, Greenwood & Co., 1990
3333 New Hyde Park Road broker-dealer engaged in effecting
North Hills, NY 11040 transactions in securities fo others and for
its own account.

The information set forth above with respect to the principal occupation or
employment of each nominee during the past five years has been furnished to the
Company by the respective nominee.

Pursuant to an agreement among the Company and certain shareholders (WGI,
LLC, FS Signal Associates, L.P. and FS Signal Associates II, L.P.), FS Signal
Associates, L.P. and FS Signal Associates II, L.P., together, have the right
until 2001 to nominate two directors to be included in the slate of nominees.

The Board of Directors held six meetings in 1996.

COMMITTEES OF THE BOARD

AUDIT COMMITTEE. This committee recommends, for appointment by the Board of
Directors, a firm of independent certified public accountants to serve as
auditors for the Company; makes recommendations to the Board of Directors with
respect to the scope of the annual audit; approves the services which the
auditors may render to the Company without impairing the auditors' independence;
approves the auditors' fees; and may undertake investigations of any financial
matter and make recommendations to the Board of Directors with respect thereto.
This committee meets on an as needed basis with the auditors to review the
results of the audit and to review all recommendations made by the auditors with
respect to the accounting methods used and the system of internal control
followed by the Company and advises the Board of Directors with respect thereto.
The independent auditors have direct access to the members of this committee on
any matter at any time. This committee did not meet formally in 1996; however,
the committee was presented periodically with relevant information for its
review and comments, if any. The only current member of this committee is Mr.
Feigenbaum. The Board of Directors plans to add additional members to this
committee.

COMPENSATION COMMITTEE. This committee recommends to the Board of Directors
the amount of compensation and the terms and conditions of employment of each
officer of the Company, and also approves all employment contracts and
agreements for executive officers. This committee administers the 1985 Stock
Option Plan and makes recommendations to the Board of Directors with respect to
employee benefit plans. The Committee did not meet formally in 1996; however,
the committee met informally several times to discuss and review relevant
compensation information and to prepare the Compensation Committee report below.
Current members of this committee are Messrs. Feigenbaum, Greenwood and
Houseman. As President of the Company, Mr. Houseman is a member ex-officio of
the Committee.

EXECUTIVE COMMITTEE. This committee has and may exercise, except as
otherwise provided by statute or by the Restated Articles of Incorporation, all
the powers and authority of the Board of Directors. The Committee did not meet
in 1996. Current members of this committee are Messrs. Greenwood and Walsh.

THE BOARD HAS NO STANDING NOMINATING COMMITTEE. Individual directors and
management recommend to the full Board qualified candidates for election as
directors and officers of the Company. The Board will consider nominees for
director recommended by shareholders. Such recommendations may be submitted in
writing to the Secretary of the Company.

EXECUTIVE OFFICERS

The following is a list of the names, ages, positions with the Company and
business experience during the past five years of the executive officers of the
Company:

NAME AGE OFFICE AND BUSINESS EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------

David E. Houseman.................................... 56 Chief Executive Officer and Treasurer since September
1997; President since August 1997; Chief Operating
Officer and Chief Financial Officer since June 1997;
Senior Vice President Finance and Chief Financial
Officer of Bayer Clothing Group, Inc., April 1993 to
June 1997; Vice President Finance and Chief Financial
Officer of Chalk Line, Inc., October 1992 to March
1993.

Leslie W. Levy....................................... 59 Vice President of the Company and President of the
Heritage Sportswear business unit of the Company
since 1977.

Robert J. Powell..................................... 48 Vice President of Licensing and General Counsel since
September 1992; Secretary since January 1993; Vice
President of International and Domestic Licensing of
Champion Products, Inc., May 1990 to September 1992;
General Counsel and Secretary of Champion Products,
Inc., June 1987 to September 1992.

Officers are elected annually and serve at the pleasure of the Board of
Directors. There is no family relationship between any of the above executive
officers, directors and nominees for director.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 and regulations of the
Securities and Exchange Commission thereunder require the Company's executive
officers and directors and persons who own more than ten percent of the
Company's Common Stock, as well as certain affiliates of such persons, to file
initial reports of ownership and monthly transaction reports covering any
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Executive officers, directors and persons owning more than
ten percent of the Company's Common Stock are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all such
reports they file. Based solely on its review of the copies of such reports
received by it and written representations that no other reports were required
for those persons, the Company believes that during 1996 all filing requirements
applicable to its executive officers, directors and owners of more then ten
percent of the Company's Common Stock were complied with except for one late
filing by Barton Bresky, former President, Chief Executive Officer and a
Director.

REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

The Board of Directors of the Company has a Compensation Committee
consisting of three members. Two non-employee directors are chosen to serve
one-year terms at the first Board meeting following the Annual Meeting, and the
third member is, pursuant to the Company's Bylaws, the President of the Company.
The Committee meets on an as needed basis during the year. The Committee's
responsibilities include recommending to the Board of Directors the amount of
compensation and terms of employment

of each executive officer of the Company. The Committee approves all employment
contracts and agreements for each executive officer of the Company.
Additionally, the Committee administers the Company's 1985 Stock Option Plan and
makes recommendations to the Board of Directors with respect to the Company's
other benefits and all employee benefit plans applicable to the Company's
executive officers. The following is the report of the Committee:

COMPENSATION POLICY

The Company makes an effort to offer competitive compensation packages that
allow the Company to attract and retain highly qualified individuals. The
Committee believes the long-term strategic goals of the Company can be
accomplished only if the Company employs management with experience and skills
relevant to the changing nature of the Company's products, sales and marketing
efforts. A substantial portion of each executive officer's total compensation is
incentive-based in order to motivate the Company's executive officers in the
performance of their duties and to encourage a continued focus on Company
profitability. For those executive officers responsible for particular business
units, the financial and non-financial results of their business units are also
considered. The Committee believes that by emphasizing performance based
compensation, it will encourage the Company's management to act in concert with
the interests of the Company's shareholders.

Compensation packages offered to the Company's senior management are thought
to be competitive within the domestic apparel industry and have not been tied
directly to short-term results of operations. The Committee believes the
compensation packages for its senior management are competitive with
compensation packages for executives of other public domestic apparel companies.
The Committee meets with the President to evaluate the performance of the other
executive officers and meets in the absence of the President to evaluate his
performance. The Committee reports its executive evaluations to the other
outside members of the Board.

The overall compensation of each of the Company's executive officers
consists of three principal elements:

- Base Salary

Executive officers' base salaries are reviewed annually by the Compensation
Committee. In the case of all executive officers, their base salary is their
principal element of compensation. In an effort to ensure that the Company can
obtain the talent it needs to effectuate its long-term strategies, the base
salary of all executive officers has been set at a level that is thought to be
competitive within the group of public businesses identified as similar to the
Company. Among the businesses with which the Company compares itself are those
included within the companies that comprise the Value Line Apparel Industry
Group. Based on information available to the Company, the Committee believes
that the overall compensation of its executive officers, taken in the aggregate,
places them in the median range of the compensation scale of similarly situated
executive officers in the industry. Factors considered in establishing base
salaries include the requisite skill and experience required in a particular
position, the range of duties and responsibilities attributable to that
position, the individual's prior experience and compensation, the compensation
of similarly situated individuals in the apparel industry and the overall past
and expected future contributions of the individual. Generally, in establishing
such salaries, the greatest weight is given to ensuring that a competitive
salary level is established. Overall, the process is subjective, with no
precise, mathematical weight given to the enumerated factors.

- Annual Bonus

The Company operates an annual discretionary bonus plan, the terms of which
vary in accordance with the participant's position with the Company. The amount
of the annual bonus is determined, if earned, at the conclusion of the Company's
fiscal year following a review of Company, business unit and

individual performance, and is generally based on certain performance
objectives, cash flows and pre-tax earnings.

The Committee's discretion includes both whether and the extent to which any
bonus is awarded. The bonus element of each executive officer's compensation is
set at a level that the Committee believes is necessary to compensate executive
officers for the achievement of short-term goals forming part of the Company's
overall strategic objectives. Short-term sales, profit and performance goals for
each business unit and for the Company as a whole are developed annually and in
advance by the Company's management and then reviewed by the Company's Board of
Directors. Performance is monitored against established goals throughout the
year.

No bonuses were awarded to executive officers for 1996.

- Stock Options

To establish a link between compensation and management's performance in
creating value for shareholders, evidenced by increases in the Company's stock
price, the Company has implemented a stock option plan (the "1985 Stock Option
Plan"). The Committee is responsible for administering the 1985 Stock Option
Plan, which provides for options to purchase the Company's Common Stock
generally issued at or above market value on the date of grant. Accordingly, the
value of such options to the Company's participating executive officers will
depend directly on increases in the price of the Company's securities. Because
the Committee believes such compensation should result from long-term increases
in value, such options do not vest at a minimum until one year from the date of
grant; and, to serve as an incentive for such executives to continue in the
Company's service through the implementation of its plans, such options are
typically divested upon termination of employment or within a minimal period
thereafter. .

The Compensation Committee has exclusive discretion to (i) select the
persons to whom options will be granted and to determine the type, amount and
terms of each option; (ii) modify, within certain limits, the terms of any
option which has been granted, including replacement or exchange of options
without the consent of the option holder under certain circumstances; (iii)
determine the time when options will be granted; and (iv) make all other
determinations that it deems necessary or desirable in the interpretation and
administration of the 1985 Stock Option Plan. The Compensation Committee has the
authority to administer, construe and interpret the 1985 Stock Option Plan, and
its decisions are final, binding and conclusive.

In determining the size and vesting of option awards, the Committee
considers the amount of options currently held by an officer, the results
achieved by each officer relative to that officer's assigned responsibilities
and the overall performance of the Company.

No Stock Options were awarded to executive officers in 1996.

- Chief Executive Officer/Chief Operating Officer.

The compensation of the Chief Executive Officer and/or Chief Operating
Officer consists of the same components as for other executive officers, namely
base salary, annual bonus and stock options. In an effort to ensure that the
Company can obtain the talent it needs to effectuate its long-term strategies,
the base salary of all executive officers has been set at a level that is
thought to be competitive within the group of public businesses identified as
similar to the Company. As with other executive officers, the factors considered
by the Committee in establishing the base salary of the chief executive officer
include the requisite skill and experience required in a particular position,
the range of duties and responsibilities attributable to that position, the
individual's prior experience and compensation, the compensation of similarly
situated individuals in the apparel industry and the overall past and expected
future contributions of the individual. The process is likewise subjective, with
no precise, mathematical weight given to the enumerated factors.

In December 1996, the Company named Barton Bresky President and Chief
Executive Officer. In determining Mr. Bresky's salary, the Committee put a major
emphasis on Mr. Bresky's prior experience with the Company--- he had served as
President of the Signal Artwear division before being named President--and his
vast experience and success as a consultant in the apparel industry. Mr. Bresky
resigned his positions with the Company effective August 20, 1997. David E.
Houseman was named Chief Executive Officer of the Company in September 1997.

Although Mr. Bresky served as a member of the Committee while he was
President, he did not participate in any of the Committee's decisions related to
the determination of his compensation.

David E. Houseman, ex-officio
Jacob I. Feigenbaum
Paul R. Greenwood

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

David E. Houseman, Jacob I. Feigenbaum, and Paul R. Greenwood are the
current members of the Board's Compensation Committee. Mr. Houseman is Chief
Executive Officer, Chief Financial Officer, and Chief Operating Officer of the
Company.

Effective March 31, 1995, the Company entered into a credit agreement (the
"WGI CREDIT AGREEMENT") with Walsh Greenwood & Co. ("WALSH GREENWOOD"), and
entity in which Paul R Greenwood is a general partner. Under the WGI Credit
Agreement, Walsh Greenwood lent the Company $15,000,000 for a three-year term.
The terms of the WGI Credit Agreement initially included: (i) a maximum
borrowing of $15,000,000; (ii) the issuance to Walsh Greenwood of warrants to
purchase 1,500,000 shares of the Company's Common Stock at $2.25 per share,
which warrants vested on the basis of 100,000 warrants for each $1,000,000 drawn
and which are exercisable for three years from vesting (the "Fixed Rate
Warrants"); (iii) the issuance to Walsh Greenwood of warrants to purchase
1,500,000 shares of the Company's Common Stock at a 25% discount to the 20 day
average trade price in December 1996, which warrants vested upon the commitment
by Walsh Greenwood of the full amount of the credit and which are exercisable
for three years beginning January 1, 1997 at a price (pursuant to such terms) of
approximately $2.42 per share (the "Discount Rate Warrants"); (iv) all warrants
issued have antidilution provisions and registration rights no more favorable
than the equivalent provisions in other outstanding warrants issued to principal
shareholders of the Company, except that the registration rights shall include
three demand registrations; (v) stated interest upon the outstanding balance of
the credit at the rate of 25% per annum; (vi) all borrowings are secured by a
security interest in all assets of the Company currently pledged to two other
lenders, subordinate to the security interests of such lenders; and (vii) all
borrowings could be used only for working capital and could not be used to repay
any principal of any bank debt.

As additional conditions to the foregoing extension of credit, Walsh
Greenwood required that the Company obtain agreement from the holders of its
preferred stock (i) that they forgo accrual of all future dividends from January
1, 1995, until the principal and interest of all the borrowing under the WGI
Credit Agreement has been paid in full and (ii) that they grant the Company the
right, after repayment of a $6,500,000 NationsBank loan and the borrowing under
the WGI Credit Agreement to redeem the outstanding shares of preferred stock
with shares of its Common Stock valued for such purpose at $7.00 per share,
which right of redemption will extend until June 30, 1998.

Effective August 10, 1995, Walsh Greenwood and the Company agreed to
increase the principal amount available under the WGI Credit Agreement to $20
million. In consideration of this additional extension of credit, the Company
issued to Walsh Greenwood an additional 500,000 Fixed Rate Warrants and an
additional 500,000 Discount Rate Warrants. As of the date hereof, all Fixed Rate
Warrants and all Discount Rate Warrants have vested, and all such warrants are
presently exercisable. Effective September , 1997, the WGI Credit Agreement
and all warrants issued pursuant thereto were assigned to WGI, an affiliate of
Walsh Greenwood.

From June 1996 through August 22, 1997, the Company has incurred additional
indebtedness to WGI for funds advanced (plus accrued interest thereon) in an
aggregate amount of $25,594,552. These funds were advanced to the Company by WGI
on an "as needed" basis with the understanding that the additional indebtedness
would be documented on the same terms as the existing WGI Credit Agreement.
Additionally, as of December 31, 1996, the Company had not met certain
conditions contained in the WGI Credit Agreement. In March 1997, WGI agreed to
waive said conditions. As an inducement to WGI to provide additional funding to
the Company (including such additional funds), and in connection with such
waiver, the Company has agreed to issue warrants to WGI to purchase up to
3,500,000 additional shares of the Company's Common Stock at an exercise price
of $1.50 per share. These warrants are subject to shareholder approval, as
described in Proposal 3 herein. All such warrants will have antidilution
provisions and registration rights no more favorable than the equivalent
provisions in other outstanding warrants issued to principal shareholders of the
Company, except that the registration rights shall include three demand
registrations.

Stephen Walsh, a director of the Company, and Paul R. Greenwood, a director
of the Company and a member of the Compensation Committee, are the general
partners of WGI.

CERTAIN ADDITIONAL TRANSACTIONS

Effective May 9, 1997, the Company entered into an agreement with Weatherly
Financial, an affiliate of Weatherly Hospitality Group ("Weatherly"), pursuant
to which Weatherly was engaged to act as financial advisor to the Company on an
exclusive basis with respect to evaluating, pricing, negotiating and closing
mergers and acquisitions and other investments and arranging the financing on
the Company's behalf (the "Agreement"). The Agreement has a term of two years,
subject to the Company's right to terminate the Agreement upon ninety days'
prior written notice at any time after May 9, 1998. The Agreement provides that,
subject to its fiduciary duties, the Company will use its best efforts to cause
two (2) persons selected by Weatherly (which persons shall be reasonably
acceptable to the Company) to be nominated by the Company's Board of Directors
for election as directors of the Company at the Company's 1997 Annual Meeting
and at subsequent Annual Meetings throughout the term of the Agreement. Messrs.
McFall and Prutch have been nominated for election to the Company's Board of
Directors pursuant to the terms of this Agreement.

EXECUTIVE COMPENSATION INFORMATION

Set forth below is a summary of the annual and long-term compensation paid
by the Company for each of the last three fiscal years to: (i) Bruce E. Krebs,
the Company's President and Chief Operating Officer until December 6, 1996; (ii)
Barton J. Bresky, the Company's Chief Executive Officer from December 6, 1996
until August 20, 1997, and (iii) the Company's other three most highly
compensated executive officers serving as of December 31, 1996 and Mr. Leon
Ruchlamer, who served as a consultant to the Company in 1996 (the "Named
Executives"). Mr. Krebs, who, as the Company's highest ranking executive office
and as President and Chief Operating Officer was considered the Company's chief
executive officer during his tenure.

SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION
------------------------
AWARDS
----------- PAYOUTS
ANNUAL COMPENSATION SECURITIES -----------
------------------------------------------ UNDERLYING LTIP
NAME AND OTHER ANNUAL OPTIONS/ PAYOUTS
PRINCIPAL POSITION YEAR SALARY ($) BONUS($) COMPENSATION($) SARS(#) ($)
- ------------------------------------- --------- ----------- ----------- ---------------- ----------- -----------

Bruce E. Krebs,...................... 1996 280,769 -- 28,332(1)
President & Chief Operating Officer 1995 126,154 -- 64,379 100,000 --
(until December 1996)
Barton J. Bresky,.................... 1996 108,608 -- 40,092(2) -- --
President & Chief Executive Officer
(from December 1996 until August
1997)
Robert J.Powell,..................... 1996 185,000 -- -- -- --
Vice President and Secretary 1995 191,125 -- -- 50,000 --
1994 125,375 -- -- 75,000 --
William Watts,....................... 1996 175,000 -- 33,630(3) -- --
Executive Vice President & Chief 1995 168,370 -- 55,543 100,000 --
Financial Officer(5)
Leon Ruchlamer,...................... 1996 155,200 -- -- -- --
Consultant 1995 203,400 -- -- 100,000 --
Leslie W. Levy,...................... 1996 145,000 -- -- -- --
Vice President and President 1995 145,000 -- -- -- --
Heritage Sportswear 1994 128,690 30,000 -- -- --

ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)(4)
- ------------------------------------- ---------------

Bruce E. Krebs,...................... 1,813
President & Chief Operating Officer 370
(until December 1996)
Barton J. Bresky,.................... 7,273
President & Chief Executive Officer
(from December 1996 until August
1997)
Robert J.Powell,..................... 5,645
Vice President and Secretary 5,595
3,700
William Watts,....................... 6,978
Executive Vice President & Chief 1,610
Financial Officer(5)
Leon Ruchlamer,...................... 2,671
Consultant 6,220
Leslie W. Levy,...................... 9,062
Vice President and President 8,872
Heritage Sportswear 8,204

NOTES TO TABLE OF SUMMARY COMPENSATION TABLE

(1) This amount consisted entirely of moving and temporary living expenses and
related reimbursements.

(2) $30,492 of this amount consisted of moving and temporary living expenses and
related reimbursements.

(3) $29,784 of this amount consisted of moving and temporary living expenses and
related reimbursements.

(4) These amounts include the portion of life insurance premiums paid by the
Company that represents term life insurance on Messrs. Krebs, Bresky,
Powell, Watts, Ruchlamer and Levy. In 1996, these amounts were $813, $4,284,
$1,760, $2,750, $2,671 and $6,086, respectively. All other amounts represent
Company matching contributions to a 401(k) plan maintained by the Company
for the accounts of Messrs. Krebs, Bresky, Powell, Watts and Levy. In 1996,
these amounts were $1,000, $2,989, $3,855, $4,228 and $2,976, respectively.

(5) Mr. Watts' employment was terminated on June 27, 1997.

The following table provides information about options held by the Named
Executives. The 1985 Stock Option Plan does not provide for the granting of
stock appreciation rights.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END($)(1)
--------------- ---------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------- --------------- ----------- --------------- ---------------

Bruce E. Krebs................................... -- -- 0 exer./ --
0 unexer. --
Barton J. Bresky................................. -- -- 0 exer./ --
0 unexer. --
Robert J. Powell................................. -- -- 125,000 exer./ --
0 unexer. --
Leon Ruchlamer................................... -- -- 100,000 exer./ --
0 unexer. --
William H. Watts................................. 50,000 150,000 50,000 exer./ --
0 unexer. --
Leslie W. Levy................................... -- -- 22,500 exer./ --
7,500 unexer. --

- ------------------------

(1) Value of unexercised in-the-money options based on a fair market value of a
share of the Company's Common Stock of $3.00 as of December 31, 1996. Based
on such value, none of the options held by any of the Named Executives were
"in-the-money" at December 31, 1996.

SHAREHOLDER RETURN PERFORMANCE PRESENTATION

Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock against
the total return of the S & P composite 500 Stock Index and the Value Line
Apparel Industry Group for the five year period ending December 31, 1996.

[TO BE INSERTED]

EMPLOYMENT AGREEMENTS

David E. Houseman is employed as the Company's Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer. Pursuant to the terms of
his employment agreement, which commenced June 2, 1997. Mr. Houseman's base
salary is $175,000 during the first year of the agreement (June 2, 1997 to June
1, 1998), $200,000 during the second year of the agreement and $225,000 during
the third year of the agreement, with the right to participate in the Company's
bonus plan and receive an annual bonus of up to 50% of his base salary (with a
minimum bonus payment of $75,000 guaranteed after the first year of employment).
As a further inducement to employment, the Company agreed to reimburse the
expenses of Mr. Houseman's relocation to the Company's corporate offices in
Chattanooga and to reimburses Mr. Houseman for the private school tuition costs
for his children. The Company also granted Mr. Houseman options to purchase
350,000 shares of the Company's Common Stock at an exercise price of $2.50 per
share ($1.125 above the market price on the date of grant), with such options
vesting at the rate of 50,000 shares on the date of grant, 200,000 shares two
years from the date of grant, and 100,000 shares three years from the date of
grant. All such options expire five years from the date of grant. The options
granted to Mr. Houseman represent approximately three percent of the Company's
outstanding shares of Common Stock on the date of grant, and the Company has
agreed that upon the issuance of additional shares of Common Stock by the
Company (other than to Mr. Houseman), the Company shall issue to Mr. Houseman
options to purchase additional shares of Common Stock such that the total number
of options held by Mr. Houseman shall always equal a minimum of three percent of
the outstanding shares of the Company's Common Stock. Any such additional
options shall expire five years from the date of grant, shall have a vesting
schedule similar to his initial options and shall have an exercise price equal
to the market price on the date of grant. Additionally, Mr. Houseman is entitled
to participate in all other incentive bonus, stock option, savings and
retirement programs and benefit programs maintained for the Company's executive
officers from time to time. In the event that Mr. Houseman's employment is
terminated for cause or, under certain circumstances, Mr. Houseman voluntarily
terminates his employment, the Company shall pay Mr. Houseman (or his legal
representative) only those amounts of compensation attributable to periods prior
to the termination. If the termination is for cause, all outstanding stock
options held by Mr. Houseman shall expire. If Mr. Houseman voluntarily
terminates his employment, all options vested as of the date of termination
shall expire ninety days after the date of termination. In the event that Mr.
Houseman's employment is terminated without cause (as defined in his employment
agreement), and if such termination of employment occurs before June 1, 1999,
then Mr. Houseman shall be entitled to payments equal to either one year's base
salary or his base salary through June 1, 1999, whichever is greater.
Furthermore, all unvested options shall become proportionately exercisable based
upon the number of months Mr. Houseman has been employed by the Company relative
to the vesting schedule of such options. Any vested Incentive Stock Options will
expire three months from the date of termination, and any vested Non-Incentive
Stock Options will expire one year from the date of termination. In addition,
Mr. Houseman will be paid a pro-rata share of any annual bonus otherwise payable
based upon the number of complete months he has been employed during that fiscal
year. In the event that Mr. Houseman's employment is terminated without cause
(as defined in his employment agreement), and if such termination of employment
occurs after June 1, 1999 but prior to June 2, 2000, then Mr. Houseman will be
entitled to one year's base salary. Any vested Incentive Stock Options will
expire three months from the date of termination, and any vested Non-Incentive
Stock Options will expire one year from the date of termination. In addition,
Mr. Houseman will be paid a pro-rata share of any annual bonus otherwise payable
based upon the number of complete months he has been employed during that fiscal
year. Mr. Houseman's employment agreement expires on June 1, 2000.

Barton J. Bresky was employed as President and Chief Executive Officer of
the Company from December 6, 1996, until his resignation on August 20, 1997.
Pursuant to the terms of his employment agreement, Mr. Bresky was paid and
annual base salary of $250,000. Pursuant to the terms of the Amendment to
Employment Agreement dated August 21, 1997, by and between the Company and

Mr. Bresky, Mr. Bresky will receive severance payments equal to one year's
salary, and his health benefits will be continued until August 19, 1998.

Bruce E. Krebs was employed by the Company from August 1995 until December
6, 1996, when he was replaced by Barton J. Bresky. Pursuant to the terms of his
employment agreement, Mr. Krebs was paid and annual base salary of $300,000, and
he was eligible to receive an annual bonus equal to 10% of the Company's pre-tax
earnings up to $5 million and 5% of the Company's pre-tax earnings in excess of
$5 million. As an inducement to employment, the Company granted Mr. Krebs
options to purchase 100,000 shares of Common Stock with an exercise price per
share of $5.56 (the market price on the date of grant), exercisable one year
from the date of grant and governed by the Company's 1985 Stock Option Plan.
Pursuant to the terms of the Company's 1985 Stock Option Plan, said options
terminated upon the termination of Mr. Krebs' employment with the Company. Mr.
Krebs is bound by a covenant not to compete that survives termination of his
employment agreement for one year. Pursuant to a settlement agreement dated
March 31, 1997, the Company paid Mr. Krebs $165,000 to settle any potential
claims between Mr. Krebs and the Company, including any claims for severance
pay.

William H. Watts was employed February 1995 as Chief Financial Officer and
Executive Vice President pursuant to an employment agreement with a three year
term. His employment with the Company was terminated on June 27, 1997. Pursuant
to the terms of his employment agreement, Mr. Watts' annual base salary was
$175,000. He was eligible to receive an annual bonus based upon his personal
performance and the Company's performance. As an inducement to employment, the
Company gave Mr. Watts an allowance of approximately $80,000 to cover the
expenses of his relocation to the Company's corporate offices and granted him
options to purchase 100,000 shares of Common Stock effective February 24, 1995,
with an exercise price per share of $4.00 ($3.75 below the market price on the
date of grant), exercisable one year from the date of grant and governed by the
Company's 1985 Stock Option Plan. Pursuant to the terms of the Separation
Agreement dated June 26, 1997, by and between the Company and Mr. Watts, the
Company is paying severance pay to Mr. Watts at his then existing salary until
December 31, 1997. The Company will also maintain Mr. Watt's Company-provided
health and dental insurance policies until December 31, 1997. The remaining
50,000 options to purchase the Company's Common Stock were also terminated
pursuant to the terms of the separation agreement.

DIRECTORS' COMPENSATION

Directors who are not employees of the Company are paid (i) $4,000 for each
Board meeting attended in person up to a maximum of $20,000 per year and (ii)
$500 for each Board committee meeting attended in person or telephonically.

PROPOSAL 2

AMENDMENT TO THE COMPANY'S 1985
STOCK OPTION PLAN INCREASING THE NUMBER
OF SHARES ISSUABLE THEREUNDER FROM 1,910,000 TO 4,000,000

The Company's 1985 Stock Option Plan, as amended (the "Plan"), reserves for
issuance a total of 1,910,000 shares of Common Stock pursuant to options granted
under the Plan. In order to ensure that all employee's compensation is tied
directly to the performance of the Company, the Company's Board of Directors and
the Compensation Committee thereof has recommended creating a pool of stock
options to grant to all full-time employees of the Company. The Company's Board
of Directors and the Compensation Committee thereof have determined that a
portion of compensation of all full-time employees should have a direct link to
the success of the Company, thus aligning the interests of the Company's
employees with those of the Company's shareholders. To ensure that there is an
adequate number of shares of the Company's Common Stock that can be issued under
such a pool, the Board of Directors has approved and

recommended to shareholders for their approval, a resolution to increase the
number of shares subject to the Plan by 2,090,000 shares to a total of 4,000,000
shares.

The Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has exclusive discretion: (i) to select
the persons to whom options will be granted and to determine the type, amount
and terms of each option; (ii) to modify, within certain limits, the terms of
any option which has been granted, including replacement or exchange of options
and relinquishment of one option for another option without the consent of
option holders under certain circumstances; (iii) to determine the time when
options will be granted; and (iv) to make all other determinations which it
deems necessary or desirable in the interpretation and administration of the
Plan. The Compensation Committee has the authority to administer, construe and
interpret the Plan, and its decisions are final, binding and conclusive.

The number of shares subject to options granted under the Plan is subject to
adjustment by the Compensation Committee in the event of a stock split, stock
dividend, combination, subdivision or exchange of shares, recapitalization,
merger, consolidation, reorganization or other extraordinary or unusual event.
If any Common Stock issued under the Plan and subject to repurchase or
forfeiture rights is reacquired by the Company pursuant to such rights, or if
any option is canceled, terminates, or expires unexercised, the Common Stock
which would otherwise have been issuable pursuant thereto will be available for
issuance pursuant to new options.

Options may be granted having an exercise price less than, equal to, or
greater than the fair market value of the underlying Common Stock on the date of
grant; provided, however, that the exercise price must be at least one-third of
the market price of such stock as of the date of grant. In the case of Incentive
Stock Options, however, the option price may not be less than 100% of the fair
market value on the date of grant.

Options granted pursuant to the Plan are not transferable during the
lifetime of the optionee and will generally expire not later than five or ten
years after the date on which they are granted, depending on the terms of the
option. Options become exercisable at such times and in such installments as the
Compensation Committee shall determine. Payment of the option price must be made
in full at the time of exercise in cash, by tendering shares of Common Stock
having a fair market value equal to the option price, by a combination of cash
and shares or by any other means that the Compensation Committee deems
appropriate (including the relinquishment of rights in one or more outstanding
options).

Generally, no option may be exercised unless the holder has been, at all
times during the period from the date of grant through the date of exercise,
employed by or performing services for the Company; however, the Compensation
Committee may provide for certain limited exceptions to the foregoing
requirement.

The Board of Directors may amend the Plan at any time and from time to time
for any purpose consistent with the goals of the Plan, but no such amendment
shall be effective unless and until the same is approved by the shareholders if
such amendment would materially modify the eligibility requirements for
receiving stock options; increase the total number of shares subject to the
Plan; reduce the minimum option price per share; extend the period of granting
options; or materially increase in any other way the benefits accruing to the
optionees.

As discussed above, the primary purpose of the new pool of stock options is
to enhance the Company's ability to achieve better financial performance by
offering all employees of the Company incentives to bring about such results. In
order to create a pool that has adequate shares in it for issuance under the
Plan, more shares of Common Stock must be available for issuance pursuant to the
Plan. Accordingly, the Board has approved and recommends adding 2,090,000 shares
to the number of shares of Common Stock available under the Plan, thereby
increasing the total number of shares issuable under the Plan from 1,910,000 to
4,000,000.

PROPOSAL 3

APPROVAL OF THE ISSUANCE OF
WARRANTS TO PURCHASE UP TO
3,500,000 ADDITIONAL SHARES OF
COMMON STOCK TO WGI, LLC

The Board of Directors has approved, and recommends to the Shareholders for
their approval, the issuance of warrants to purchase up to an additional
3,500,000 shares of the Company's Common Stock to WGI, in connection with (i)
the waiver by WGI of certain conditions contained in the WGI Credit Agreement
and (ii) additional extensions of credit to the Company pursuant to the WGI
Credit Agreement.

As an inducement to WGI to provide additional funding to the Company
(including such additional funds), and in connection with such waiver, the
Company has agreed, subject to obtaining required approval from its
shareholders, to issue warrants to WGI to purchase up to 3,500,000 additional
shares of the Company's Common Stock at an exercise price of $1.50 per share.
These warrants would vest as follows: (1) warrants to purchase 100,000 shares
would vest immediately in consideration for the waiver of conditions under the
WGI Credit Agreement and (2) additional warrants would vest on the basis of
200,000 shares for each $1,000,000 of additional funding. All of these warrants
will expire three years from their respective dates of vesting and will have
antidilution provisions and registration rights no more favorable than the
equivalent provisions in other outstanding warrants issued to principal
shareholders of the Company, except that the registration rights shall include
three demand registrations.

The Board of Directors believes this transaction is necessary and in the
best interest of the Company.

The New York Stock Exchange rules (pursuant to Paragraph 312.03(c) of the
Listed Company Manual) require shareholder approval when a listed company plans
to issue additional shares of Common Stock, or securities exercisable into
Common Stock (e.g., warrants), if the number of shares to be issued is greater
than or equal to 20% of the number of shares of Common Stock outstanding before
the issuance of the stock. As of September 15, 1997, there were 11,578,046
shares of Common Stock outstanding. Accordingly, shareholder approval is
required for the proposed issuance to WGI of the warrants to purchase 3,500,000
shares of Common Stock.

As described above, all of these additional warrants will be issued with an
exercise price that is below the current market price for the Company's Common
Stock. This will cause the Company to take a charge against earnings per share
(the charge being the difference between the market price of the Company's
Common Stock and the exercise price of the warrants) and will result in a
dilutive effect on the Company's reported earning per share for Common Stock
shareholders on a fully diluted basis, the effect of which will be reflected in
the Company's Financial Statements. Furthermore, the warrants, if exercised,
will result in each Common shareholder (except WGI) having a lower percentage of
voting power.

Mr. Walsh and Mr. Greenwood, both directors of the Company, are the general
partners of WGI. Both Messrs. Walsh and Greenwood abstained when the Board voted
upon this matter.

PROPOSAL 4

APPROVAL OF THE ISSUANCE OF 15,473,220 ADDITIONAL SHARES OF
COMMON STOCK IN CONNECTION WITH THE RESTRUCTURING
OF THE COMPANY'S OUTSTANDING
DEBT AND PREFERRED STOCK

The Board of Directors has approved, and recommends to the Shareholders for
their approval, a plan for the restructuring of all of the Company's presently
outstanding debt and preferred stock, other than indebtedness owed to the
Company's Senior Lender (the "Restructuring Plan"). The Restructuring Plan has
two major components. The first is an agreement dated October , 1997,
between the Company and WGI, pursuant to which the following actions will be
taken:

(1) repayment of $20 million of outstanding debt under the WGI Credit
Agreement, plus all additional funds advanced to Signal by WGI after August 22,
1997, with a portion of the funds from the new factoring agreement with BNY;

(2) the amendment of all outstanding warrants held by WGI (other than the
new warrants to be issued as described in Proposal 3 above) to set their
exercise price at $1.50 per share (approximately 129% of the $1.16 average
closing price on the NYSE for the Common Stock during September 1997);

(3) the issuance to WGI of 8,000,000 shares of Common Stock valued at
approximately $1.62 per share (a premium of approximately 40% over the assumed
market price) in payment for $14,209,942 of the remaining outstanding debt owed
by the Company to WGI (representing a net discount on the debt repayment of
$4,929,942, which precisely equals the present net economic benefit of the
repricing of the Warrants in Step (2)); and

(4) the conversion of both the remaining $28,580,014.36 outstanding balance
of such debt and the $20,513,958.31 in stated value (plus accumulated dividends)
of Series C Preferred Stock held by WGI into a total of approximately 490.940
shares of a new Series F Preferred Stock, stated value $100,000 per share.

The second component of the Restructuring Plan is the exercise by the
Company of its right under an Agreement dated March 31, 1995 among the Company,
Walsh Greenwood and FS Signal (the "Preferred Stock Agreement"), to redeem all
of the remaining outstanding shares (including accumulated dividends) of the
Company's Series A Preferred Stock and Series C Preferred Stock with shares of
Common Stock valued for such purpose at $7 per share. Following the completion
of the first phase of the Restructuring Plan, FS Signal will be the only
remaining holder of shares of the Company's Series A Preferred Stock and Series
C Preferred Stock. Thus, the redemption of such stock will result in the
issuance of an additional 7,473,220 shares of the Company's Common Stock to FS
Signal and its affiliates.

HISTORICAL BACKGROUND

Since fiscal 1990, the Company has been unable to fund its cash requirements
through cash generated by operations, due to significant operating losses which
have been sustained as a result of adverse economic conditions in the apparel
industry and declining demand for the Company's products. The Company has funded
these continuing losses through several series of transactions with the
Company's principle shareholders and with the Company's senior lender, The Bank
of New York (the "Senior Lender").

Effective August 13, 1993, the Company entered into a Restructuring
Agreement (the "1993 Restructuring") with FS Signal and Walsh Greenwood,
pursuant to which the Company issued preferred stock with a stated value of
$100,000 per share in exchange for all then outstanding debt, related accrued
interest, and unpaid fees owed to Walsh Greenwood and FS Signal. The 1993
Restructuring resulted in the issuance of a total of 176.587 shares of Series A
Preferred Stock and 139.709 shares of Series B Preferred Stock (later

converted to Series C Preferred Stock) to FS Signal, and the issuance of 107.969
shares of Series B Preferred Stock (later converted to Series C Preferred Stock)
to Walsh Greenwood.

As an inducement to Walsh Greenwood and FS Signal to enter into the 1993
Restructuring, the Company issued warrants to acquire 675,000 shares of Common
Stock at an exercise price of $7.06 per share to Walsh Greenwood and issued
warrants to acquire an aggregate 2,047,500 shares of Common Stock at an exercise
price of $7.06 per share to FS Signal. The Company also agreed to make
available, by private placement, up to 200 additional shares of Series A
Preferred Stock at a price of $100,000 per share. As an inducement to purchase
such preferred stock, the Company granted FS Signal a warrant to acquire up to
2,000,000 additional shares of Common Stock at an exercise price of $7.06 per
share, vesting at the rate of warrants to acquire 100,000 shares for each
$1,000,000 invested in additional Series A Preferred Stock. During the balance
of fiscal 1993, the Company obtained additional funding from FS Signal in return
for the issuance of an additional 150.5 shares of Series A Preferred Stock with
a stated value of $100,000 per share.

During the first quarter of fiscal of 1994, the Company agreed to issue 70
additional shares of Series B Preferred Stock (later converted to Series C
Preferred Stock) to Walsh Greenwood in consideration for $7,000,000 of
collateral which Walsh Greenwood had previously pledged to the Company's Senior
Lender. The proceeds from this exchange were used to reduce the outstanding
revolving advance account balance with the Senior Lender. The Company also
borrowed an additional $3,000,000 from FS Signal during the first quarter of
1994, which debt was represented by a Promissory Note subordinated to the
Company's obligations to its Senior Lender, due April 30, 1997 and bearing
interest at the rate of 3% per annum over the prime lending rate charged by the
Senior Lender. In consideration of this additional funding, the Company issued
Warrants to FS Signal to purchase 300,000 shares of Common Stock at an exercise
price of $7.06 per share, expiring on April 30, 1999.

In January 1995, Walsh Greenwood invested an additional $30,000,000 in the
Company through the purchase of 30 additional shares of the Company's Series C
Preferred Stock. Effective March 31, 1995, the Company entered into a secured
credit agreement (subordinated to all of the Company's obligations to its Senior
Lender) with Walsh Greenwood (the WGI Credit Agreement), pursuant to which the
Company borrowed $15,000,000.00. Effective August 10, 1995, the Company amended
the WGI Credit Agreement to increase the principle amount of borrowings
thereunder to $20,000,000.00.

In conjunction with the initial execution and subsequent amemdment of the
WGI Credit Agreement, the Company issued warrants to purchase an aggregate of
2,000,000 additional shares of Common Stock at an exercise price of $2.25 per
share expiring on March 31, 1998. Additionally, Walsh Greenwood received a
second warrant to purchase 2,000,000 shares of Common Stock with an exercise
price set at a 25% discount to the 20-day average trading price for the Common
Stock on the New York Stock Exchange in December 1996. These warrants vested
upon issuance and are exercisable for a period of three years commencing on
January 1, 1997. The issuance of these warrants in conjunction with the WGI
Credit Agreement was subject to shareholder approval, which was obtained at the
Company's Annual Meeting of Shareholders on May 11, 1995. Effective September
, 1997, the WGI Credit Agreement and all warrants issued pursuant thereto were
assigned to WGI, an affiliate of Walsh Greenwood.

the Company's Common Stock at an exercise price of $1.50 per share. These
warrants are subject to shareholder approval, as described in Proposal 3 above.

APPROVAL OF AND REASONS FOR THE RESTRUCTURING PLAN

The Restructuring will result in each Common shareholder (except WGI) having
a lower percentage of voting power and will result in a dilutive effect on the
Company's reported earning per share for Common Stock shareholders on a fully
diluted basis, the effect of which will be reflected in the Company's Financial
Statements. Currently, WGI own 34.35% of the issued and outstanding shares
Common Stock (not including exercisable warrants); after the Restructuring, WGI
will own 50.87% of the issued and outstanding shares of Common Stock (not
including exercisable warrants).

The New York Stock Exchange rules (pursuant to Paragraph 312.03(c) of the
Listed Company Manual) require shareholder approval when a listed company plans
to issue additional shares of Common Stock, or securities convertible into or
exercisable for Common Stock (e.g., warrants), if the Common Stock to be issued
has (or will have upon issuance) voting power greater than or equal to 20% of
the total voting power of the shares of the Company's Common Stock outstanding
before the issuance of such stock or other securities. As of September 15, 1997,
there were 11,578,046 shares of Common Stock outstanding. Accordingly,
shareholder approval is required for the proposed issuances of shares of Common
Stock in exchange for cancellation of debt and in redemption of outstanding
shares of Preferred Stock in connection with the Restructuring.

Messrs. Walsh and Greenwood, both directors of the Company, are the general
partners of WGI. Both Messrs. Walsh and Greenwood abstained when the Board voted
upon this matter. The Board of Directors believes the Restructuring is necessary
and in the best interest of the Company.

The Company has continued to experience liquidity problems during 1997, due
to the fact that its sales and profit margins have not met projected levels.
These difficulties have resulted in a critical need for the Company to seek
additional capital in order to maintain its operations and continue as a going
concern while implementing management's business plan to return the Company to
profitability. Implementation of the Restructuring Plan, coupled with the
funding under the new Factoring Agreement with the Company's Senior Lender, will
(i) eliminate all indebtedness from its balance sheet other than indebtedness
owed to the Senior Lender under the new Factoring Agreement and approximately
$5.8 million owed to FS Signal and (ii) return the Company to a positive
shareholders equity position by eliminating the current net deficit. The Company
believes that these actions will significantly increase its ability to fund both
capital and other expenditures needed to return its operations to profitability
through the issuance of additional debt or equity securities. Accordingly, the
Board of Directors believes that implementation of the proposed Restructuring
Plan is essential to the Company's ability to continue to operate as a going
concern while implementing management's turnaround strategy for the Company's
business.

PROPOSAL 5

INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

The Board of Directors of the Company has adopted a resolution recommending
to the shareholders the adoption of an amendment to the Restated Articles of
Incorporation of the Company to increase the authorized number of shares of
Common Stock, $0.01 par value, from 40,000,000 to 80,000,000.

The Company's Restated Articles of Incorporation provide that the authorized
capital of the Company is 41,600,000 shares consisting of 40,000,000 shares of
Common Stock, $0.01 par value and 41,600,000 shares of Preferred Stock, no par
value. In order to effectuate the restructuring discussed in Proposal 4 above,
involving the issuance of an additional 15,473,220 shares of Common Stock, the
Company will be required to amend its Restated Articles of Incorporation to
increase the number of shares of Common

Stock available for issuance. The Board has determined that it is in the best
interests of the Company to have additional shares of Common Stock authorized
and available for issuance so that it may effectuate said restructuring. The
authorization of the amendment to the Restated Articles of Incorporation, of and
by itself will have no effect upon the rights of the existing shareholders.

If approved by the shareholders, the initial paragraph of Article Fourth of
the Company's Restated Articles of Incorporation will be amended to read as
follows:

FOURTH: The total number of shares of capital stock of all
classifications which the Corporation shall have authority to issue is
Eighty-One Million Six Hundred Thousand (81,600,000) shares, divided into
two classes, as follows: Eighty Million (80,000,000) shares of Common Stock
having a par value of $.01 per share, One Million Six Hundred Thousand
(1,600,000) shares of Preferred Stock having no par value.

PROPOSAL 6

APPROVAL OF THE ISSUANCE OF 250,000
WARRANTS TO BE ISSUED TO LEON RUCHLAMER

The Board of Directors has approved, and recommends to the Shareholders for
their approval, the issuance of a warrant certificate to purchase 250,000 shares
of the Company's Common Stock to Leon Ruchlamer, Vice-Chairman of the Board of
Directors and a consultant to the Company, effective , 1997. The warrants
to be issued (1) would allow Mr. Ruchlamer to purchase up to 250,000 shares of
the Company's Common Stock at $2.375 per share, (2) would vest on the following
schedule: 1/3 on the first anniversary of the date of issuance, 1/3 on the
second anniversary of the date of issuance, and the remaining third on the third
anniversary of the date of issuance; and (3) would expire five years from the
date of issuance. The Board of Directors believes this transaction is necessary
and in the best interests of the Company.

The Company is awarding the 250,000 warrants to Mr. Ruchlamer as
compensation for his present and future consulting services to the Company.

The New York Stock Exchange rules require shareholder approval when a listed
company plans to issue additional shares of Common Stock, or securities
exercisable into Common Stock (e.g., warrants) to officers or directors pursuant
to a plan or an arrangement, except for warrants or rights issued pursuant to a
broadly-based plan or arrangement (e.g., and employee stock option plan). The
warrants to be issued to Mr. Ruchlamer are not being issued pursuant to a
broadly-based plan or arrangement. Accordingly, shareholder approval is required
for the proposed issuance to Mr. Ruchlamer of the warrants to purchase 250,000
shares of Common Stock.

The issuance of the warrants, if exercised, will result in each Common
shareholder (except Mr. Ruchlamer) having a lower percentage of voting power and
will result in a dilutive effect on the Company's reported earning per share for
Common Stock shareholders on a fully diluted basis, the effect of which will be
reflected in the Company's Financial Statements.

As stated above, Mr. Ruchlamer is a director of the Company. Mr. Ruchlamer
abstained when the Board voted upon this matter.

PROPOSAL 7

APPROVAL OF THE ISSUANCE OF 10,000
WARRANTS TO BE ISSUED TO JACOB I. FEIGENBAUM

The Board of Directors has approved, and recommends to the Shareholders for
their approval, the issuance of a warrant certificate to purchase 10,000 shares
of the Company's Common Stock to Jacob I. Feigenbaum, a director the Company,
effective , 1997. The warrants to be issued (1) would allow Mr. Feigenbaum
to purchase up to 10,000 shares of the Company's Common Stock at $2.375 per
share, (2) would vest on the first anniversary of the date of issuance; and (3)
would expire five years from the date of issuance.

The Company is awarding the 10,000 warrants to Mr. Feigenbaum as additional
compensation for his services as a director of the Company. The Board of
Directors believes this transaction is necessary and in the best interests of
the Company.

The New York Stock Exchange rules require shareholder approval when a listed
company plans to issue additional shares of Common Stock, or securities
exercisable into Common Stock (e.g., warrants) to officers or directors pursuant
to a plan or an arrangement, except for warrants or rights issued pursuant to a
broadly-based plan or arrangement (e.g., and employee stock option plan). The
warrants to be issued to Mr. Feigenbaum are not being issued pursuant to a
broadly-based plan or arrangement. Accordingly, shareholder approval is required
for the proposed issuance to Mr. Feigenbaum of the warrants to purchase 10,000
shares of Common Stock.

The issuance of the warrants, if exercised, will result in each Common
shareholder (except Mr. Feigenbaum) having a lower percentage of voting power
and will result in a dilutive effect on the Company's reported earning per share
for Common Stock shareholders on a fully diluted basis, the effect of which will
be reflected in the Company's Financial Statements.

As stated above, Mr. Feigenbaum is a director of the Company. Mr. Feigenbaum
abstained when the Board voted upon this matter.

OTHER MATTERS

The Company does not intend to bring before the meeting any matters other
than those hereinbefore set forth, and has no present knowledge that any other
matters will be or may be brought before the meeting by others. However, if any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the proxy in accordance with
their judgment.

Representatives of the firm of Arthur Andersen LLP are expected to be
present at the 1997 Annual Meeting. The representatives will have the
opportunity to make a statement at the meeting if they desire to do so and are
expected to be available to respond to appropriate questions from shareholders.

SHAREHOLDERS' PROPOSALS

In order for shareholder proposals for the 1998 Annual Meeting of
Shareholders to be eligible for inclusion in the Company's Proxy Statement,
proposals must be received by the Company at its principal office in
Chattanooga, Tennessee, prior to January 8, 1998.

BY ORDER OF THE BOARD OF DIRECTORS

ROBERT J. POWELL
Secretary

PROXY SIGNAL APPAREL COMPANY, INC.
200-A MANUFACTURERS ROAD
P.O. BOX 4296
CHATTANOOGA, TENNESSEE 37405

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS, DECEMBER 2, 1997

The undersigned hereby appoints Robert J. Powell and David E. Houseman, and
each of them, Proxies, with full power of substitution, to act and to vote the
shares of common stock which the undersigned is entitled to vote at the Annual
Meeting of Shareholders to be held at 200-A Manufacturers Road, Chattanooga,
Tennessee 37405, at 10 A.M., E.S.T., on December 2, 1997, and any adjournment or
adjournments thereof as follows:

1. ELECTION OF DIRECTORS: / / FOR all nominees / / WITHHOLD ALL AUTHORITY
(EXCEPT AS INDICATED TO THE CONTRARY TO VOTE FOR ALL NOMINEES LISTED
BELOW) BELOW
Jacob I. Feigenbaum; Paul R. Greenwood; David E. Houseman; Tom McFall; John Prutch; Leon Ruchlammer; Stephen
Walsh.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW)
2. APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1985 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF
THE COMPANY'S COMMON STOCK ISSUABLE THEREUNDER FROM 1,190,000 TO 4,000,000.
/ / FOR / / AGAINST / / ABSTAIN
3. TO APPROVE THE ISSUANCE OF WARRANTS TO PURCHASE UP TO 3,500,000 SHARES OF THE COMPANY'S COMMON STOCK
TO WGI, LLC IN CONNECTION WITH THE CERTAIN WAIVERS AND ADDITIONAL FUNDING UNDER THE CREDIT AGREEMENT
BETWEEN THE COMPANY AND WGI, LLC AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
/ / FOR / / AGAINST / / ABSTAIN
4. APPROVAL OF THE ISSUANCE OF 15,473,220 ADDITIONAL SHARES OF COMMON STOCK IN CONNECTION WITH THE
RESTRUCTURING OF THE COMPANY'S OUTSTANDING DEBT AND PREFERED STOCK.
/ / FOR / / AGAINST / / ABSTAIN

5. APPROVAL OF AN AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 40,000,000 TO 80,000,000.
/ / FOR / / AGAINST / / ABSTAIN
6. APPROVAL OF THE ISSUANCE OF WARRANTS TO PURCHASE UP TO 250,000 SHARES OF THE COMPANY'S COMMON STOCK TO
A DIRECTOR/CONSULTANT OF THE COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
7. APPROVAL OF THE ISSUANCE OF WARRANTS TO PURCHASE UP TO 10,000 SHARES OF THE COMPANY'S COMMON STOCK TO
ANOTHER DIRECTOR OF THE COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
8. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN
FAVOR OF PROPOSAL 1. THE BOARD IS NOT AWARE OF ANY OTHER MATTER TO BE BROUGHT
BEFORE THE ANNUAL MEETING FOR A VOTE OF SHAREHOLDERS. IF, HOWEVER, OTHER MATTERS
ARE PROPERLY PRESENTED , THE PROXIES WILL VOTE IN ACCORDANCE WITH THEIR BEST
JUDGMENT.

The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders, dated October 27, 1997, and the Proxy Statement furnished
therewith.

Dated this ____ day of _____________,
1997.

----------------------------------------- (Seal)

Note: Signature should agree with name on
stock certificate as printed thereon.
Executors, administrators, trustees and
other fiduciaries and persons signing on
behalf of corporations or partnerships,
should so indicate when signing.

PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING PREPAID
SELF-ADDRESSED ENVELOPE. THANK YOU.
Chattanooga, Tennessee
October 27, 1997