EXHIBIT 10.35









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                              SEPARATION AGREEMENT

     In consideration  for the agreement by Signal Apparel  Company,  Inc. ("the
Company") to provide David E. Houseman  ("Employee")  with the severance package
and benefits outlined below, the sufficiency of which the Employee acknowledges,
Employee,  on behalf of Employee,  Employee's heirs,  Employee's  successors and
assigns,   releases  and  forever  discharges  the  Company  and  its  officers,
directors,  employees,  shareholders (specifically including, but not limited to
WG Trading  Company  Limited  Partnership,  including its respective  "Guaranty"
dated May 9, 1997, and WGI LLC and all  individual  and other  affiliates of the
foregoing, all hereinafter referred to as "WG"), representatives,  subsidiaries,
parent and affiliated  companies and their  respective  assigns from any and all
claims,  damages,  liabilities  and causes of action,  whether  known or unknown
which the Employee may  presently  have or claim to have  relating to or arising
out  of  Employee's  employment  by  the  company  or the  termination  of  that
employment including,  but not limited to, claims under federal, state, or local
constitutions,  statutes, regulations,  ordinances or common law, including, but
not limited to the Employee Retirement Income Security Act, and the Civil Rights
Act, as amended and  specifically  including,  but not limited to the  agreement
between  the  Company  and  Employee  dated  October  1, 1997  (the  "Employment
Agreement")  including  any  written or oral  amendments  thereto as well as any
other oral or written agreements between the Company and Employee. The foregoing
release  shall  specifically  exclude  claims for  indemnification  by  Employee
pursuant to Article Eighth of the Company's  Restated Articles of Incorporation,
as amended or claims  against  Employee  covered by the Company's  officers' and
directors'  liability  insurance,  in each case  resulting  from claims by third
parties arising from Employee's actions as an employee,  officer and/or director
of the Company.

     The Company and Employee agree that:

     1.   Employee's  employment  with the Company  ceased as of  September  18,
          1998,  and Employee has resigned as an employee,  officer and director
          of the Company and all affiliated companies as of that date.

     2.   The Company  shall pay  Employee the sum of  $100,000,  less  required
          withholdings in accordance with the following schedule:

          (a)  $60,000 on the eighth day following  execution of this  Agreement
               (subject to the terms of Section I); and

          (b)  Four  monthly  payments  of  $10,000  each  payable  on or before
               November 2, 1998,  December 1, 1998, January 4, 1999 and February
               1, 1999, respectively.


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     3.   The Company  shall  permit  Employee to maintain  Employee's  existing
          health  and dental  insurance  benefits  through  September  30,  1999
          provided Employee  continues the payment of Employee's  portion of the
          premiums with respect to such insurance.

     4.   The  Company  shall  extend  all  medical  and dental  benefits  after
          September 30, 1999 for the period of eighteen  months at the option of
          the  Employee  in  accordance  with the  Consolidated  Omnibus  Budget
          Reconciliation Act (COBRA) of 1986.

     5.   The Company shall compensate  Employee at Employee's  existing rate of
          pay  for  ten  unused  days  of  accrued  vacation  in the  amount  of
          $5,769.24, less required withholdings.

     6.   Upon submission of documentation  acceptable to the Company,  Employee
          will be reimbursed  for Employee's  legal expenses in connection  with
          the finalization of this Agreement up to the sum of $2,500.

     7.   The Company hereby confirms its grant to Employee dated May 8, 1998 of
          options to purchase  275,000  shares of the Company's  Common Stock in
          accordance with the Company's 1985 Stock Option Plan. The Options will
          be subject to the following terms:

          (a)  The exercise price will be $1.75 per share;

          (b)  The  options  will  expire  on  September  17,  2001  and will be
               classified as non-incentive options;

          (c)  The options  will be fully  vested and  eligible for exercise one
               year from the date of grant; and

          (d)  Within 10 days of the date hereof,  the Company agrees to execute
               a stock option agreement with Employee containing the above terms
               and the other relevant  provisions of the Company's  stock option
               plan.

          (e)  The  Company  confirms  that its  1985  Stock  Option  Plan is in
               accordance  with Rule  16b-3 of the  Securities  Exchange  Act of
               1934.

     8.   Within 10 days of the date  hereof,  the Company  agrees to  reimburse
          Employee the sum of $18,831 as a school tuition allowance.


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     9.   The Company and WG hereby  release  Employee  from any and all claims,
          damages,  liabilities  and causes of action,  whether known or unknown
          which  the  Company  or WG may  have  relating  to or  arising  out of
          Employee's employment by the Company or relationship with WG.

     10.  The Company agrees to use reasonable efforts to cause its employees to
          avoid making disparaging  comments  concerning  Employee.  The Company
          agrees to provide neutral references  concerning Employee in the event
          of inquiries from potential employers.

     11.  The Company shall not be obligated to provide any other benefits other
          than  those  discussed  in  this  Agreement  and no  benefits  will be
          provided until the Company receives a signed copy of this Agreement.

THE EMPLOYEE AGREES THAT:

     (a)  The severance  benefits to be paid by the Company under this Agreement
          and  Release  are  intended  to  resolve  any  potential  claim by the
          Employee  concerning  Employee's  employment  by the  Company  and his
          termination from the employment relationship.  The parties acknowledge
          that  this is a  compromise  settlement  of  disputed  matters.  These
          severance  benefits  may  exceed  the  benefits  Employee  would  have
          received had Employee not executed this Agreement.

     (b)  The Employee has been  advised to discuss this  Agreement  and Release
          with an attorney of Employee's choice before signing it, and is freely
          and voluntarily signing this document in exchange for the promises and
          consideration provided by the Company under this Agreement.

     (c)  This Agreement and Release constitute the entire agreement between the
          Employee and the Company  concerning the Employee's  employment by the
          Company  and  Employee's  separation  therefrom.  This  Agreement  and
          Release  will  supersede  all  prior  written  or oral  agreements  or
          understandings  between the Company and the  Employee  relating to his
          employment by the Company and his separation  therefrom,  specifically
          including but not limited to the Employment Agreement. Notwithstanding
          the foregoing,  Employee hereby  reconfirms  Employee's  obligation to
          comply with Sections 4, 8 and 9 of the Employment Agreement.

     (d)  Any  material  violation  or  material  breach  of the  terms  of this
          Agreement  during the period during which the above outlined  benefits
          are to be paid will render


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          the  obligation of the Company a nullity and extinguish its obligation
          to continue  performance  under the terms  contained  therein.  If the
          Company believes Employee has violated or breached this Agreement,  it
          will send  written  notice  thereof to  Employee,  and  provided  such
          violation  or breach is curable,  allow  Employee 10 days to cure such
          violation or breach and upon such cure, the Agreement  shall remain in
          effect.

     (e)  Employee will immediately  return to the Company all documents,  files
          (including copies thereof) and other Company property.

     (f)  Employee agrees to cooperate fully with the Company in connection with
          the  transition  of Employee's  responsibilities  from Employee and to
          refrain from making disparaging comments concerning the Company to any
          account or any other third party.

     (g)  Employee  agrees to maintain the  confidentiality  of all  proprietary
          information  concerning  the  Company,  as well as the  terms  of this
          Agreement,  and will not disclose  the terms of this  Agreement to any
          person  other  than  members  of  Employee's   immediate   family  and
          Employee's legal and financial advisors.

     (h)  Employee  further  acknowledges  that  he  has  been  given  at  least
          Twenty-Five  (25) days to review and  consider  this  Agreement.  This
          offer will expire at the close of  business on the 25th day  following
          its presentment to Employee unless a signed copy of this Agreement has
          been returned to the Company by that date.

     (i)  In further  consideration  for the Agreement by the Company to provide
          Employee with the severance  package and benefits  outlined above, the
          sufficiency of which the Employee acknowledges, Employee, on behalf of
          himself,  Employee's  successors,  and  assigns,  releases and forever
          discharges  the Company and its  subsidiaries,  parent and  affiliated
          companies  and their  respective  assigns  from any and all  claims or
          causes of action  relating to or arising out of Employee's  employment
          by the Company or the  termination  of that  employment  which  arises
          under the Age  Discrimination  in  Employment  Act,  as  amended.  The
          Employee  further  acknowledges  that he may revoke  acceptance to the
          waiver of claims under the Age  Discrimination  in Employment  Act, by
          notifying the Company of such revocation  within seven (7) days of the
          execution of this  Agreement.  The Company will not provide  severance
          payments until the expiration of this seven day period.

This Agreement  will be interpreted in accordance  with the laws of the State of
Tennessee.


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The foregoing is agreed to between  Employee and the Company as of the last date
set forth below.


/s/ DAVID E. HOUSEMAN                   9/30/98
-------------------------------------   --------------
DAVID E. HOUSEMAN                       DATE

/s/ ROBERT J. POWELL, VP                9/30/98
-------------------------------------   --------------
COMPANY REPRESENTATIVE                  DATE

WG Trading Company Limited  Partnership and WGI LLC each agree to the release of
claims by it herein.

WG TRADING COMPANY
LIMITED PARTNERSHIP                     WGI LLC


BY: /s/ PAUL R. GREENWOOD               BY: /s/ PAUL R. GREENWOOD
    ---------------------------------       ---------------------------------

TITLE: Managing Partner                 TITLE: Manager
       ------------------------------          ------------------------------

DATE: 10/1/98                           DATE: 10/1/98
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