Document:

REIMBURSEMENT AGREEMENT

     This Reimbursement Agreement dated as of this 30th day of June, 1999 is by
and between: Signal Apparel Company, Inc. ("Signal"), an Indiana Corporation
having a place of business in Chattanooga, Tennessee; and WGI, LLC, a New York
limited liability company with its principal place of business in Greenwich,
Connecticut ("WGI").

                               W I T N E S S E T H

     WHEREAS, WGI has posted certain Treasury bills in the aggregate amount of
Thirty-one Million One Hundred Twenty-six Thousand and No/100 Dollars
($31,126,000.00) as collateral (the "Collateral") to secure the obligations of
Signal and its subsidiaries to Signal's senior lender, BNY Financial Corporation
("BNY");

     WHEREAS, WGI has issued certain firm guarantees in the aggregate amount of
Seventeen Million Five Hundred Thousand and No/100 Dollars ($17,500,000) and
certain additional contingent guarantees of up to Two Million Five Hundred
Thousand and No/100 Dollars ($2,500,000.00) with respect to the obligations of
Signal and its subsidiaries to BNY (collectively, the "guarantees");

     WHEREAS, WGI has made certain cash payments totaling Two Million One
Hundred Thousand and No/100 Dollars ($2,100,000.00) on Signal's behalf to
certain third party licensors (the "Licensor Payments");

     WHEREAS, in consideration of the benefit to Signal of the making of the
Licensor Payments, the posting of the Collateral and the issuance of the
guarantees, Signal has agreed to reimburse WGI for the amount of the Licensor
Payments as well as for any loss that WGI might suffer as a result of a decision
by BNY to proceed against the Collateral and/or the guarantees to satisfy the
obligations of Signal and its subsidiaries to BNY; and

<PAGE>

     WHEREAS, Signal acknowledges that the full amount of the Licensor Payments,
as well as the amount of any future loss that WGI might suffer as a result of a
decision by BNY to proceed against the Collateral and/or the guarantees to
satisfy the obligations of Signal and its subsidiaries to BNY shall be deemed an
advance of funds to Signal under a certain Promissory Note ("Promissory Note")
of even date herewith, in the form attached hereto as Exhibit A, having a total
principal amount not to exceed Fifty-three Million Two Hundred Twenty-six
Thousand and No/100 Dollars ($53,226,000.00) by Signal to WGI.

     NOW THEREFORE, in consideration of One Dollar and the mutual covenants and
agreements herein contained, Signal and WGI agree as follows:

     1. Signal agrees and understands that the full amount of the Licensor
Payments made on Signal's behalf by WGI, as well as any loss that WGI might
suffer as a result of a decision by BNY to proceed against the Collateral and/or
the guarantees, shall be deemed an advance of funds to Signal by WGI under and
pursuant to the Promissory Note and shall be repaid to WGI in accordance with
the terms and conditions set forth therein.

     2. The obligations of Signal under this Agreement shall be absolute and
unconditional and shall remain in full force and effect until the later of: (a)
the expiration of the guarantees and/or the withdrawal of the Collateral, or (b)
payment in full of all amounts due under the Promissory Note; provided, however,
that all of the obligations of Signal under this Agreement and under the
Promissory Note shall be subordinated in priority of payment to full payment of
all of the obligations of Signal and its subsidiaries under all agreements with
BNY and its participating banks, and further provided, that the obligations of
Signal under this Agreement shall be equal in priority of payment (i) to all of
the obligations of Signal to WGI pursuant to that certain Credit Agreement dated
as of May 8, 1998 (together with all amendments

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<PAGE>

thereto) between Signal, The Shirt Shed, Inc., GIDI Holdings, Inc., Big Ball
Sports, Inc., and WGI and (ii) to all of the obligations of Signal to FS Signal
Associates Limited Partnership and FS Signal Associates II Limited Partnership
pursuant to that certain Reimbursement Agreement and related promissory note
dated as of January 30, 1997.

     3. Signal covenants and agrees that a default under any one or more of any
outstanding obligations of Signal to BNY or WGI, including, without limitation,
under the Promissory Note or this Reimbursement Agreement, all whether now
existing or hereafter arising shall, at WGI's option, constitute a default
hereunder and under the Promissory Note.

     4. No amendment or waiver of any provision of this Reimbursement Agreement
nor consent to any departure by WGI therefrom shall be effective unless the same
shall be in writing and signed by the parties hereto, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.

     5. The rights and remedies of WGI under this Reimbursement Agreement shall
be cumulative and not exclusive of any rights or remedies which it would
otherwise have, and no failure or delay by WGI in exercising any right shall
operate as a waiver of it, nor shall any single or partial exercise of any power
or right preclude its other or further exercise or the exercise of any other
power or right.

     6. This Reimbursement Agreement is a continuing obligation and shall be
binding upon Signal, WGI and their successors and assigns; provided, that Signal
may not assign all or any part of this Reimbursement Agreement without the prior
written consent of WGI.

     7. Signal assumes all risks of the acts or omissions of BNY in proceeding
against the Collateral and/or guarantees.

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<PAGE>

     8. To the extent that Signal makes a payment or payments to WGI, which
payment or payments, or any part thereof, is subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to any
person or party under any bankruptcy or insolvency law, state or federal law,
common law or equitable cause, then to the extent such payment or repayment, the
liability or part thereof which has been paid, reduced or satisfied by the
amount so repaid shall be reinstated and included with the obligations as of the
date that such initial payment reduction or satisfaction occurred.

     9. Signal agrees to pay all costs and expenses, if any, in connection with
the administration or enforcement of this Reimbursement Agreement, the
Promissory Note and such other documents which may be delivered in connection
with this Reimbursement Agreement.

     10. Any provision of this Reimbursement Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction and the remaining portion of such provision
and all other remaining provisions will be construed to render them enforceable
to the fullest extent.

     11. This Reimbursement Agreement shall be governed by and construed in
accordance with the law of the State of New York. Any judicial proceeding
brought against Signal with respect to this Reimbursement Agreement or
Promissory Note may be brought in any court of competent jurisdiction in the
State of New York and, by execution and delivery of this Reimbursement
Agreement, Signal (a) accepts, generally and unconditionally, the nonexclusive
jurisdiction of such courts and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Reimbursement Agreement or the

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<PAGE>

Promissory Note and (b) irrevocably waives any objection it may now or hereafter
have as to the venue of any such suit, action or proceeding brought in such a
court or that such court is an inconvenient forum. Signal hereby waives personal
service of process and consent that service of process upon it, and service so
made shall be deemed completed on the third business day after such service is
deposited in the mail. Nothing herein shall affect the right to serve process in
any other manner permitted by law or shall limit the right of WGI to bring
proceedings against Signal in the courts of any other jurisdiction. Any judicial
proceeding brought by Signal against WGI involving, directly or indirectly, any
matter in any way arising out of, related to, or connected with this
Reimbursement Agreement or the Promissory Note shall be brought only in a court
located in the State of New York.

     12. This Reimbursement Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and constitute one
and the same instrument, and shall be binding upon the parties, their successors
and assigns.

                      [This space intentionally left blank]

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<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Avenel, New Jersey by their proper and duly
authorized officers as of the day and year first above written.

WGI, LLC                                            SIGNAL APPAREL COMPANY, INC.

By  /s/ Paul R. Greenwood                           By  /s/ Robert J. Powell
   ---------------------------------                   ---------------------
Title  Manager                                      Title  Vice President

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<PAGE>

                                 PROMISSORY NOTE

$53,226,000.00                                                Avenel, New Jersey
                                                              June 30, 1999

     FOR VALUE RECEIVED, the undersigned promises to pay to the order of WGI,
LLC ("WGI"), within fifteen (15) days after demand, a principal sum of up to
FIFTY-THREE MILLION TWO HUNDRED TWENTY-SIX THOUSAND AND NO/100 DOLLARS
($53,226,000.00) with principal in the amount of TWO MILLION ONE HUNDRED
THOUSAND AND NO/100 DOLLARS ($2,100,000.00) initially outstanding. Additional
principal will automatically become outstanding, in an amount equal to any
payments made by WGI pursuant to any of the guarantees issued by WGI to BNY
Financial Corporation ("BNY") guarantying the obligations of the undersigned and
its subsidiaries plus the value of any collateral posted by WGI which is offset
by BNY against the obligations of the undersigned and its subsidiaries, as such
payments or offsets occur. Any outstanding principal shall bear interest at the
rate of Eight Percent (8.0%) per annum, payable in annual installments
commencing June 30, 2000 either in cash or, at the option of the undersigned,
through issuance and delivery to WGI of shares of the undersigned's Common Stock
valued at the then-current market price. For purposes of the preceding sentence,
"then-current market price" shall be deemed to be the closing price per share
for the Common Stock on the New York Stock Exchange (or on any other national
securities exchange or national securities market on which the Common Stock may
then be traded if it is not listed for trading on the New York Stock Exchange)
on the last trading day prior to the date on which any such installment of
interest is due and payable.

     The maker and all other parties liable herefor, whether principal,
guarantor, endorser or otherwise, hereby severally waive presentment, notice and
protest, and waive all recourse to suretyship and guarantorship defenses
generally, including, but not limited to, any extensions of time for payment or
performance which may be granted to the makers or to any other liable party, any
modifications or amendments to this promissory note or any documents securing
payment and performance hereof, any act or omission to act by or on behalf of
the holder hereof, any invalidity or unenforceability of any security given
herefor, any release of security, any release of any liable party or parties,
whether any such release is intentional, unintentional or by operation of law,
and all other indulgences of any type which may be granted by the holder hereof
to the maker or any other liable party herefor, and does also agree to pay all
costs of collection of the indebtedness evidenced hereby, including reasonable
attorneys' fees which may be incurred in connection therewith.

     All payments due hereunder shall be made to WGI at its principal office at
One East Putnam Avenue, Greenwich, CT 06830, or to such other parties or
addresses as the holder hereof may from time to time designate in writing to the
maker or other parties liable herefor. This note evidences a loan for business
and commercial purposes, and not for personal, family or household purposes.

     No invalidity or unenforceability of any provision of this promissory note
shall affect in any way the validity or enforceability of the remaining
obligations or portions hereof. This promissory note shall be construed in
accordance with the laws of the State of New York.

<PAGE>

     This Promissory Note is executed and delivered in accordance with a certain
Reimbursement Agreement of near or even date herewith between the undersigned,
and WGI, and is subject to the terms, conditions and limitations contained in
said Reimbursement Agreement.

WITNESS:                                    SIGNAL APPAREL COMPANY, INC.

_____________________                       By:  /s/ Robert J. Powell
                                                ---------------------

                                            Its: Vice President, duly authorized

                                       2SIGNAL APPAREL COMPANY, INC.
                              STOCK INCENTIVE PLAN
                            EFFECTIVE JANUARY 1, 1999

SECTION 1.  PURPOSE

     The purpose of this 1999 Stock Incentive Plan (the "Plan") is to advance
the interests of Signal Apparel Company, Inc. by enhancing its ability to
attract and retain key employees, directors, consultants and others who are in a
position to contribute to the Company's future growth and success.

SECTION 2.  DEFINITIONS

Award                         Any Option, Stock Appreciation Right, Performance
                              Share, Restricted Stock or Unrestricted Stock
                              awarded under the Plan.

Board                         The Board of Directors of the Company.

Code                          The Internal Revenue Code of 1986, as amended
                              from time to time.

Committee                     A committee of not less than two members of the
                              Board appointed by the Board to administer the
                              Plan, provided that if and when the Common Stock
                              is registered under Section 12 of the Securities
                              Exchange Act of 1934, each member of the Committee
                              shall be a "non-employee director" within the
                              meaning of Rule 16b-3 under the Securities
                              Exchange Act of 1934 ("Rule 16b-3").

Common Stock or Stock         The Common Stock, $.01 par value per share, of
                              Signal Apparel Company, Inc.

Company                       Signal Apparel Company, Inc. and, except where the
                              context otherwise requires, all present and future
                              subsidiaries of the Company as defined in Sections
                              424(f) of the Code.

Designated Beneficiary        The beneficiary designated by a Participant, in a
                              manner determined by the Committee, to receive
                              amounts due or exercise rights of the Participant
                              in the event of the Participant's death. In the
                              absence of an effective designation by a
                              Participant, Designated Beneficiary shall mean the
                              Participant's estate.

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<PAGE>

Fair Market Value             With respect to Common Stock or any other
                              property, the fair market value of such property
                              as determined by the Board in good faith or in
                              the manner established by the Board from time to
                              time.

Incentive Stock Option        An option to purchase shares of Common Stock
                              awarded to a Participant under Section 6 which is
                              intended to meet the requirements of Section 422
                              of the Code or any successor provision.

Nonstatutory Stock Option     An option to purchase shares of Common Stock
                              awarded to a Participant under Section 6 which is
                              not intended to be an Incentive Stock Option.

Option                        An Incentive Stock Option or a Nonstatutory Stock
                              Option.

Participant                   A person selected by the Committee to receive an
                              Award under the Plan.

Performance Shares            Shares of Common Stock which may be earned by the
                              achievement of performance goals awarded to a
                              Participant under Section 8.

Plan Administrator            The Board or, to the extent that the Board elects
                              to delegate such administrative functions to the
                              Committee, the Committee.

Reporting Person              A person subject to Section 16 of the Securities
                              Exchange Act of 1934 or any successor provision.

Restricted Period             The period of time selected by the Committee
                              during which shares subject to a Restricted Stock
                              Award may be repurchased by or forfeited to the
                              Company.

Restricted Stock              Shares of Common Stock awarded to a Participant
                              under Section 9.

Stock Appreciation Right      A right to receive any excess in Fair Market Value
or "SAR"                      of shares of Common Stock over the exercise price
                              awarded to a Participant under Section 7.

Unrestricted Stock            Shares of Common Stock awarded to a Participant
                              under Section 9(c).

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<PAGE>

SECTION 3.  ADMINISTRATION

     The Plan will be administered by the Plan Administrator. The Plan
Administrator shall have authority to make Awards and (subject to any
restrictions contained herein or in the terms of an individual Award) to amend
any outstanding Award, and to adopt, amend and repeal such administrative rules,
guidelines and practices relating to the Plan as it shall deem advisable from
time to time, and to interpret the provisions of the Plan. The Plan
Administrator's decisions shall be final and binding. No member of the Board or
the Committee shall be liable for any action or determination relating to the
Plan made in good faith in the capacity of such body as Plan Administrator. All
decisions of the Plan Administrator pursuant to the Plan shall be final and
binding on all persons having or claiming any interest in the Plan or in any
Award.

SECTION 4.  ELIGIBILITY

     All of the Company's employees, officers, directors, consultants and
advisors who are expected to contribute to the Company's future growth and
success, other than persons who have irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. For this purpose, the grant of new
Awards in substitution for outstanding Awards shall be deemed to constitute a
new grant of additional Awards separate from the original grant of Awards that
are to be canceled. Incentive Stock Options may be awarded only to persons
eligible to receive Incentive Stock Options under the Code.

SECTION 5.  STOCK AVAILABLE FOR AWARDS

     (a) Subject to adjustment under subsection (b) below, Awards may be made
under the Plan for up to 5,000,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the Plan;
subject, however, in the case of Incentive Stock Options, to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.

     (b) In the event that the Plan Administrator, in its sole discretion,
determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or other similar transaction affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Plan Administrator,
subject, in the case of Incentive Stock Options, to any limitation required
under the Code, shall equitably adjust any or all of (i) the number and kind of
shares in respect of which Awards may be made under the Plan, (ii) the number
and kind of shares subject to outstanding Awards, and (iii) the award, exercise
or conversion price with respect to any of the foregoing, and if considered
appropriate, the Plan Administrator may make provision for a cash payment with
respect to an outstanding Award, provided that the number of shares subject to
any Award shall always be a whole number.

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<PAGE>

     (c) The Plan Administrator may grant Awards under the Plan in substitution
for stock and stock based awards held by employees of another corporation who
concurrently become employees of the Company as a result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a subsidiary of property or stock of the
employing corporation. The substitute Awards shall be granted on such terms and
conditions as the Plan Administrator considers appropriate in the circumstances.

SECTION 6.  STOCK OPTIONS

(a)  General.

     (i) Subject to the provisions of the Plan, the Plan Administrator may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares to be covered by each option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.

     (ii) The Plan Administrator shall establish the exercise price of each
Option at the time such Option is awarded. In the case of Incentive Stock
Options, such price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of award.

     (iii) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Plan Administrator may specify in the applicable
Award or thereafter. The Plan Administrator may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.

     (iv) Options granted under the Plan may provide for the payment of the
exercise price by delivery of cash or check in an amount equal to the exercise
price of such Options or, to the extent permitted by the Plan Administrator at
or after the award of the Option, by (A) delivery of shares of Common Stock
owned by the optionee, valued at their Fair Market Value on the date of such
option exercise, (B) delivery of a promissory note of the optionee to the
Company on terms determined by the Plan Administrator, (C) delivery of an
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, (D) payment of such other lawful
consideration as the Plan Administrator may determine, or (E) any combination of
the foregoing.

     (v) In the event an optionee pays some or all of the exercise price of an
Option by delivery of shares of Common Stock pursuant to clause 6(a)(iv)(A)
above, the Plan Administrator may provide for the automatic award of an option
for up to the number of shares so delivered.

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<PAGE>

     (vi) Each Option granted under the Plan by its terms shall not be
transferable by the optionee otherwise than by will, or by the laws of descent
and distribution, and shall be exercised during the lifetime of the optionee
only by him. No Option or interest therein may be transferred, assigned, pledged
or hypothecated by the optionee during his lifetime, whether by operation of law
or otherwise, or be made subject to execution, attachment or similar process.

     (vii) The Plan Administrator may at any time accelerate the time at which
all or any part of an Option may be exercised.

(b)  Incentive Stock Options.

     Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:

     (i) All Incentive Stock Options granted under the Plan shall, at the time
of grant, be specifically designated as such in the option agreement covering
such Incentive Stock Options. The Option exercise period shall not exceed ten
years from the date of grant.

     (ii) If any employee to whom an Incentive Stock Option is to be granted
under the Plan is, at the time of the grant of such option, the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (after taking into account the attribution of stock
ownership rule of Section 424(d) of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:

          (x)  The purchase price per share of the Common Stock subject to such
               Incentive Stock Option shall not be less than 110% of the Fair
               Market Value of one share of Common Stock at the time of grant;
               and

          (y)  The Option exercise period shall not exceed five years from the
               date of grant.

     (iii) For so long as the Code shall so provide, options granted to any
employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.

     (iv) No Incentive Stock Option may be exercised unless, at the time of such
exercise, the Participant is, and has been continuously since the date of grant
of his or her Option, employed by the Company, except that:

          (x) an Incentive Stock Option may be exercised (to the extent
          exercisable on the date the Participant ceased to be an employee of
          the Company) within the period of three months after the date the
          Participant ceases to be

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<PAGE>

          an employee of the Company (or within such lesser period as may be
          specified in the applicable option agreement), provided, that the
          agreement with respect to such Option may designate a longer exercise
          period and that any exercise after such three-month period shall be
          treated as the exercise of a Nonstatutory Stock Option under the Plan;

          (y) if the Participant dies while in the employ of the Company, or
          within three months after the Participant ceases to be such an
          employee, the Incentive Stock Option (to the extent otherwise
          exercisable on the date of death) may be exercised by the
          Participant's Designated Beneficiary within the period of one year
          after the date of death (or within such lesser period as may be
          specified in the applicable Option agreement); and

          (z) if the Participant becomes disabled (within the meaning of Section
          22(e)(3) of the Code or any successor provision thereto) while in the
          employ of the Company, the Incentive Stock Option may be exercised (to
          the extent otherwise exercisable on the date of death) within the
          period of one year after the date of such disability (or within such
          lesser period as may be specified in the Option agreement). In the
          event of the Participant's death during this one-year period, the
          Incentive Stock Option may be exercised by the Participant's
          Designated Beneficiary within the period of one year from the date the
          Participant became disabled or within such lesser period as may be
          specified in the applicable Option agreement.

For all purposes of the Plan and any Option granted hereunder, (i) "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations) and (ii) any option may
provide that if such Option shall be assumed or a new Option substituted
therefor in a transaction to which Section 424(a) of the Code applies,
employment by such assuming or substituting corporation (hereinafter called the
"Successor Corporation") shall be considered for all purposes of such Option to
be employment by the Company. Notwithstanding the foregoing provisions, no
Incentive Stock Option may be exercised after its expiration date.

SECTION 7.  STOCK APPRECIATION RIGHTS

     (a) The Plan Administrator may grant Stock Appreciation Rights entitling
recipients on exercise of the SAR to receive an amount, in cash or Stock or a
combination thereof (such form to be determined by the Plan Administrator),
determined in whole or in part by reference to appreciation in the Fair Market
Value of the Stock between the date of the Award and the exercise of the Award.
A Stock Appreciation Right shall entitle the Participant to receive, with
respect to each share of Stock as to which the SAR is exercised, the excess of
the share's Fair Market Value on the date of exercise over its Fair Market Value
on the date the SAR was granted. The Plan Administrator also may grant Stock
Appreciation Rights that provide that, following a change in control of the
Company (as defined by the Board or the Plan Administrator at the time of the
Award), the holder of such SAR will be entitled to receive, with respect to each

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<PAGE>

share of Stock subject to the SAR, an amount equal to the excess of a specified
value (which may include an average of values) for a share of Stock during a
period preceding such change in control over the Fair Market Value of a share of
Stock on the date the SAR was granted.

     (b) Stock Appreciation Rights may be granted in tandem with, or
independently of, Options granted under the Plan. A Stock Appreciation Right
granted in tandem with an option which is not an Incentive Stock Option may be
granted either at or after the time the Option is granted. A Stock Appreciation
Right granted in tandem with an Incentive Stock Option may be granted only at
the time the Option is granted.

     (c) When Stock Appreciation Rights are granted in tandem with Options, the
following provisions will apply:

          (i) The Stock Appreciation Right will be exercisable only at such time
          or times, and to the extent, that the related Option is exercisable
          and will be exercisable in accordance with the procedure required for
          exercise of the related Option.

          (ii) The Stock Appreciation Right will terminate and no longer be
          exercisable upon the termination or exercise of the related Option,
          except that a Stock Appreciation Right granted with respect to less
          than the full number of shares covered by an Option will not be
          reduced until the number of shares as to which the related Option has
          been exercised or has terminated exceeds the number of shares not
          covered by the Stock Appreciation Right.

          (iii)The Option will terminate and no longer be exercisable upon the
          exercise of the related Stock Appreciation Right.

          (iv) A Stock Appreciation Right granted in tandem with an Incentive
          Stock Option may be exercised only when the market price of the Stock
          subject to the Option exceeds the exercise price of such Option.

     (d) A Stock Appreciation Right not granted in tandem with an Option will
become exercisable at such time or times, and on such conditions, as the Plan
Administrator may specify.

     (e) The Plan Administrator may at any time accelerate the time at which all
or any part of the SAR may be exercised.

SECTION 8.  PERFORMANCE SHARES

     (a) The Plan Administrator may make Performance Share Awards entitling
recipients to acquire shares of Stock upon the attainment of specified
performance goals. The Plan Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Plan Administrator in its sole discretion shall

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<PAGE>

determine the performance goals applicable under each such Award, the periods
during which performance is to be measured, and all other limitations and
conditions applicable to the awarded Performance Shares; provided, however, that
the Plan Administrator may rely on the performance goals and other standards
applicable to any other performance plans of the Company in setting the
standards for Performance Share Awards under the Plan.

     (b) Performance Share Awards and all rights with respect to such Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered.

     (c) A Participant receiving a Performance Share Award shall have the rights
of a stockholder only as to shares actually received by the Participant under
the Plan and not with respect to shares subject to an Award but not actually
received by the Participant. A Participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Share Award only upon satisfaction of all conditions specified in the agreement
evidencing the Performance Share Award.

     (d) The Plan Administrator may at any time accelerate or waive any or all
of the goals, restrictions or conditions imposed under any Performance Share
Award.

SECTION 9.  RESTRICTED AND UNRESTRICTED STOCK

     (a) The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Stock, subject to the right of the Company to repurchase all
or part of such shares at their purchase price (or to require forfeiture of such
shares if purchased at no cost) from the recipient in the event that conditions
specified by the Plan Administrator in the applicable Award are not satisfied
prior to the end of the applicable Restricted Period or Restricted Periods
established by the Plan Administrator for such Award. Conditions for repurchase
(or forfeiture) may be based on continuing employment or service or achievement
of pre-established performance or other goals and objectives.

     (b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Plan Administrator,
during the applicable Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Board may determine. Any certificates issued in
respect of shares of Restricted Stock shall be registered in the name of the
Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the Restricted Period, the Company (or such
designee) shall deliver certificates representing such shares to the Participant
or if the Participant has died, to the Participant's Designated Beneficiary.

     (c) The Plan Administrator may, in its sole discretion, grant (or sell at a
purchase price determined by the Board, which shall not be lower than 75% of
Fair Market Value on the date of sale) to Participants shares of Stock free of
any restrictions under the Plan ("Unrestricted Stock").

                                       8
<PAGE>

     (d) The purchase price for each share of Restricted Stock and Unrestricted
Stock shall be determined by the Plan Administrator and may not be less than the
par value of the Common Stock. Such purchase price may be paid in the form of
past services or such other lawful consideration as is determined by the Board.

     (e) The Plan Administrator may at any time accelerate the expiration of the
Restricted Period applicable to all, or any particular, outstanding shares of
Restricted Stock.

SECTION 10.  GENERAL PROVISIONS APPLICABLE TO AWARDS

     (a)  Applicability of Rule 16b-3.

     Those provisions of the Plan which make an express reference to Rule 16b-3
shall apply to the Company only at such time as the Company's Common Stock is
registered under the Securities Exchange Act of 1934, or any successor
provision, and then only to Reporting Persons.

     (b) Documentation.

     Each Award under the Plan shall be evidenced by an instrument delivered to
the Participant specifying the terms and conditions thereof and containing such
other terms and conditions not inconsistent with the provisions of the Plan as
the Plan Administrator considers necessary or advisable. Such instruments may be
in the form of agreements to be executed by both the Company and the
Participant, or certificates, letters or similar documents, acceptance of which
will evidence agreement to the terms thereof and of this Plan.

     (c) Plan Administrator's Discretion.

     Each type of Award may be made alone, in addition to or in relation to any
other type of Award. The terms of each type of Award need not be identical, and
the Plan Administrator need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Plan Administrator at the time of award
or at any time thereafter.

     (d) Termination of Status.

     Subject to the provisions of Section 6(b)(iv), the Plan Administrator shall
determine the effect on an Award of the disability, death, retirement,
authorized leave of absence or other termination of employment or other status
of a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
exercise rights under such Award.

     (e) Mergers, Etc.

                                       9
<PAGE>

     In the event of a consolidation or merger or sale of all or substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (an "Acquisition"), or in the event of a liquidation of the
Company, the Board or the board of directors of any corporation assuming the
obligations of the Company, may, in its discretion, take any one or more of the
following actions as to outstanding Awards: (i) provide that such Awards shall
be assumed, or substantially equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof) on such terms as
the Board determines to be appropriate, (ii) upon written notice to
Participants, provide that all unexercised options or SARs will terminate
immediately prior to the consummation of such transaction unless exercised by
the Participant within a specified period following the date of such notice,
(iii) in the event of an Acquisition under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the Acquisition (the "Acquisition Price"),
make or provide for a cash payment to Participants equal to the difference
between (A) the Acquisition Price times the number of shares of Common Stock
subject to outstanding Options or SARs (to the extent then exercisable at prices
not in excess of the Acquisition Price) and (B) the aggregate exercise price of
all such outstanding Options or SARs in exchange for the termination of such
Options and SARS, and (iv) provide that all or any outstanding Awards shall
become exercisable or realizable in full prior to the effective date of such
Acquisition. Notwithstanding the foregoing, in the event of an Acquisition, then
all of the outstanding Options granted hereunder shall become exercisable
immediately prior to such Acquisition.

     (f) Withholding.

     The Participant shall pay to the Company, or make provision satisfactory to
the Plan Administrator for payment of, any taxes required by law to be withheld
in respect of Awards under the Plan no later than the date of the event creating
the tax liability. In the Plan Administrator's discretion, and subject to such
conditions as the Plan Administrator may establish, such tax obligations may be
paid in whole or in part in shares of Common Stock, including shares retained
from the Award creating the tax obligation, valued at their Fair Market Value.
The Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Participant.

     (g) Deferral of Compensation.

     The Plan Administrator shall determine whether an Award shall be made in
conjunction with deferral of the Participant's salary, bonus or other
compensation, or any combination thereof, and whether such deferred amounts may
be:

          (i)   forfeited to the Company or to other Participants, or any
                combination thereof, under certain circumstances (which may
                include, but need not be limited to, certain types of
                termination of employment or performance of services for the
                Company and its Affiliates);

                                       10
<PAGE>

          (ii)  subject to increase or decrease in value based upon the
                attainment of or failure to attain, respectively, certain
                performance measures; and/or

          (iii) credited with income equivalents (which may include, but need
                not be limited to, interest, dividends or other rates of return)
                until the date or dates of payment of the Award, if any.

     (h) Foreign Nationals.

     Awards may be made to Participants who are foreign nationals or employed
outside the United States on such terms and conditions different from those
specified in the Plan as the Plan Administrator considers necessary or advisable
to achieve the purposes of the Plan or comply with applicable laws.

     (i) Amendment of Award.

     Either the Board or the Plan Administrator may amend, modify or terminate
any outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization and converting
an Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.

     (j) Cancellation and New Grant of Options.

     Both the Board and the Plan Administrator shall have the authority to
effect, at any time and from time to time, with the consent of the affected
optionees, (i) the cancellation of any or all outstanding options under the Plan
and the grant in substitution therefor of new Options under the Plan covering
the same or different numbers of shares of Common Stock and having an option
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled Options or (ii) the amendment of the terms of any and
all outstanding Options under the Plan to provide an option exercise price per
share which is higher or lower than the then current exercise price per share of
such outstanding Options.

     (k) Conditions on Delivery of Common Stock.

     The Company will not be obligated to deliver any shares of Common Stock
pursuant to the Plan or to remove restrictions from shares previously delivered
under the Plan (i) until all conditions of the Award have been satisfied or
removed, (ii) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, (iii) if the
outstanding Common Stock is at the time listed on any stock exchange, until the
shares to be delivered have been listed or authorized to be listed on such
exchange upon official notice of notice of issuance, and (iv) until all other
legal matters in connection with the issuance and delivery of such shares have
been approved by the Company's counsel. If the sale of Common Stock has not been
registered under the Securities Act of 1933, as amended, the

                                       11
<PAGE>

Company may require, as a condition to exercise of the Award, such
representations or agreements as the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Common Stock bear an appropriate legend restricting transfer.

SECTION 11.  MISCELLANEOUS

     (a) No Right To Employment or Other Status.

     No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to
continued employment or service for the Company. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.

     (b) No Rights As Stockholder.

     Subject to the provisions of the applicable Award, no Participant or
Designated Beneficiary shall have any rights as a stockholder with respect to
any shares of Common Stock to be distributed under the Plan until he or she
becomes the record holder thereof.

     (c) Exclusion from Benefit Computations.

     No amounts payable upon exercise of Awards granted under the Plan shall be
considered salary, wages or compensation to Participants for purposes of
determining the amount or nature of benefits that Participants are entitled to
under any insurance, retirement or other benefit plans or programs of the
Company.

     (d) Effective Date and Term.

          (i) Effective Date. The Plan shall become effective when adopted by
          the Board of Directors, but no Incentive Stock Option granted under
          the Plan shall become exercisable unless and until the Plan shall have
          been approved by the Company's stockholders. If such stockholder
          approval is not obtained within twelve months after the dtoe of the
          Board's adoption of the Plan, no Options previously granted under the
          Plan shall be deemed to be Incentive Stock Options and no Incentive
          Stock Options shall be granted thereafter. Amendments to the Plan not
          requiring stockholder approval shall become effective when adopted by
          the Board of Directors; amendments requiring stockholder approval
          shall become effective when adopted by the Board of Directors, but no
          Incentive Stock Option granted after the date of such amendment shall
          become exercisable (to the extent that such amendment to the Plan was
          required to enable the Company to grant such Incentive Stock Option to
          a particular optionee) unless and until such amendment shall have been
          approved by the Company's stockholders.

                                       12
<PAGE>

          If such stockholder approval is not obtained within twelve months of
          the Board's adoption of such amendment, any Incentive Stock Options
          granted on or after the date of such amendment shall terminate to the
          extent that such amendment to the Plan was required to enable the
          Company to grant such Option to a particular optionee. Subject to the
          limitations set forth in this Section 11(d), Awards may be made under
          the Plan at any time after the effective date and before the date
          fixed for termination of the Plan.

          (ii) Termination. The Plan shall terminate upon the earlier of (i) the
          close of business on the day next preceding the tenth anniversary of
          the date of its adoption by the Board of Directors, or (ii) the date
          on which all shares available for issuance under the Plan shall have
          been issued pursuant to Awards under the Plan. Awards outstanding on
          such date shall continue to have force and effect in accordance with
          the provisions of the instruments evidencing such Awards.

     (e) Amendment of Plan.

     The Board may amend, suspend or terminate the Plan or any portion thereof
at any time, provided that no amendment shall be made without stockholder
approval if such approval is necessary to comply with any applicable tax, stock
exchange or other regulatory requirement. Prior to any such approval, Awards may
be made under the Plan expressly subject to such approval.

     (f) Governing Law.

     The provisions of the Plan shall be governed by and interpreted in
accordance with the laws of the State of Indiana.

Adopted by the Board of Directors
of Signal Apparel Company, Inc.
effective January 1, 1999

                                       13

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