GOODYS FAMILY CLOTHING INC /TN, DEF 14A, 1996-05-17

GOODYS FAMILY CLOTHING INC /TN
DEF 14A, 1996-05-17
FAMILY CLOTHING STORES

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant / /

Filed by a Party other than the Registrant / /

Check the appropriate box:

/ / Preliminary Proxy Statement

/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

/X/ Definitive Proxy Statement

/ / Definitive Additional Materials

/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

GOODY'S FAMILY CLOTHING, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE> 2
[GOODY'S FAMILY CLOTHING LOGO]

Dear Shareholders:

You are cordially invited to attend the annual meeting of shareholders to
be held at 10:00 a.m. (EDT) on Wednesday, June 19, 1996, at the Company's
corporate headquarters located at 400 Goody's Lane, Knoxville, Tennessee.

The notice of the meeting and Proxy Statement accompanying this letter
describe the specific business to be acted upon. A copy of the Company's 1995
Annual Report is also enclosed for your review.

In addition to the specific matters to be acted upon at the meeting, as
described in detail in the accompanying Proxy Statement, during the meeting
there will be a review of fiscal 1995, a report on the progress of the Company
and an opportunity for shareholders to ask management questions of general
interest.

It is important that your shares be represented and voted at the meeting.
Whether or not you plan to attend the meeting in person, you are requested to
complete, sign, date and promptly return the enclosed proxy card in the envelope
provided. If you choose to attend the meeting, you may revoke your proxy and
personally cast your votes.

I look forward to seeing you at the meeting.

Sincerely yours,

/s/ Robert M. Goodfriend
--------------------------------
Robert M. Goodfriend
Chairman and
Chief Executive Officer

Knoxville, Tennessee
May 17, 1996
<PAGE> 3
GOODY'S FAMILY CLOTHING, INC.
400 GOODY'S LANE
KNOXVILLE, TENNESSEE 37922

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of Goody's Family Clothing, Inc.:

NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Goody's
Family Clothing, Inc. (the "Company") will be held at 10:00 a.m. (EDT) on
Wednesday, June 19, 1996, at the Company's corporate headquarters located at 400
Goody's Lane, Knoxville, Tennessee for the following purposes:

1. To elect two directors to serve for terms of three years;

2. To consider and approve an amendment to the Discounted Stock Option
Plan for Directors increasing the number of shares of Common Stock reserved
for issuance thereunder from an aggregate of 50,000 shares to an aggregate
of 150,000 shares of Common Stock; and

3. To transact such other business as may properly come before the
meeting or any adjournment(s) or postponement(s) thereof.

Only shareholders of record, as shown by the transfer books of the Company,
at the close of business on April 29, 1996, are entitled to notice of and to
vote at the meeting.

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU
CHOOSE TO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY
AND PERSONALLY CAST YOUR VOTE.

By Order of the Board of Directors,

/s/ Edward R. Carlin
------------------------------------
Edward R. Carlin
Secretary
Knoxville, Tennessee
May 17, 1996
<PAGE> 4

GOODY'S FAMILY CLOTHING, INC.
400 GOODY'S LANE
KNOXVILLE, TENNESSEE 37922

PROXY STATEMENT

This Proxy Statement is furnished by and on behalf of the Board of
Directors (the "Board") of Goody's Family Clothing, Inc. (the "Company") in
connection with the solicitation of proxies for use at the annual meeting of
shareholders of the Company to be held on Wednesday, June 19, 1996, and at any
and all adjournment(s) or postponement(s) thereof (the "Annual Meeting"). A copy
of the notice of the Annual Meeting accompanies this Proxy Statement. This Proxy
Statement and the enclosed proxy card will be first mailed on or about May 17,
1996, to the shareholders of record of the Company (individually, a
"Shareholder" and collectively, the "Shareholders") at the close of business on
April 29, 1996 (the "Record Date").

Proxies will be voted as specified by Shareholders. Unless contrary
instructions are specified, if the enclosed proxy card is executed and returned
(and not revoked) prior to the Annual Meeting, the shares of common stock, no
par value per share, of the Company (the "Common Stock") represented thereby
will be voted (i) FOR the election as directors of the Company of the two
nominees listed in this Proxy Statement, and (ii) FOR the approval of the
amendment to the Discounted Stock Option Plan for Directors (the "Directors
Plan") increasing the number of shares of Common Stock reserved for issuance
thereunder from an aggregate of 50,000 shares to an aggregate of 150,000 shares
of Common Stock (the "Directors Plan Amendment"). A signed proxy submitted by a
Shareholder will not affect his or her right to attend, and to vote in person
at, the Annual Meeting. Shareholders who execute a proxy may revoke it at any
time before it is voted by filing a written revocation with the Secretary of the
Company, by executing a proxy bearing a later date or by attending and voting in
person at the Annual Meeting.

There are 16,125,212 shares of Common Stock entitled to notice of and to
vote at the Annual Meeting, and each such share entitles its holder to one vote.
Pursuant to the provisions of the Tennessee Business Corporation Act, April 29,
1996, has been fixed as the Record Date for the determination of the
Shareholders entitled to notice of and to vote at the Annual Meeting and,
accordingly, only holders of Common Stock of record at the close of business on
that day will be entitled to notice of and to vote at the Annual Meeting. The
holders of a majority of all the shares of Common Stock entitled to vote must be
present in person, or represented by proxy, at the Annual Meeting to constitute
a quorum and to act upon the proposed business. Shares as to which authority to
vote is withheld, abstentions and broker non-votes are counted in determining
whether a quorum exists.

Under Tennessee law, directors are elected by the affirmative vote, in
person or by proxy, of a plurality of the shares entitled to vote in any
election at a meeting at which a quorum is present. Only votes actually cast
will be counted for the purpose of determining whether a particular nominee
received more votes than another person or persons, if any, nominated for the
same seat on the Board. Accordingly, votes withheld from director nominees,
abstentions and broker non-votes will not be included in vote totals and will
not be considered in determining the outcome of the vote.

Approval of the Directors Plan Amendment requires the affirmative vote, in
person or by proxy, of the holders of a majority of the shares of Common Stock
represented and entitled to vote thereon at the Annual Meeting. Abstentions will
have the same effect as votes cast against the approval of the Directors Plan
Amendment; however, broker non-votes will have no effect on the outcome of the
approval of the Directors Plan Amendment.

Approval of any other matter that may properly come before the Annual
Meeting requires that votes cast in favor of such matter exceed votes cast
opposing the matter. Abstentions will not be counted in determining the minimum
number of votes required for approval of any other matter and will, therefore,
not have the effect of affirmative or negative votes. Similarly, broker
non-votes will not be counted as votes for or against approval.

The terms "fiscal 1993," "fiscal 1994," "fiscal 1995," "fiscal 1996," and
"fiscal 1997," as used herein refer to the Company's fiscal years ended January
29, 1994, January 28, 1995 and February 3, 1996, and its fiscal years ending
February 1, 1997 and January 31, 1998, respectively.
<PAGE> 5

VOTING RIGHTS AND PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial
ownership of the outstanding shares of Common Stock as of the Record Date
(except in the case of FMR Corp. and the other persons and entities referenced
in footnote 6, the following table sets forth information regarding their
beneficial ownership of the outstanding shares of Common Stock as of December
31, 1995) for (i) each person known by the Company to beneficially own more than
5% of the outstanding shares of Common Stock, (ii) each of the executive
officers of the Company named in "Table I -- Summary Compensation Table," (iii)
each director and director nominee of the Company, and (iv) all directors and
executive officers of the Company as a group. According to rules adopted by the
Securities and Exchange Commission (the "Commission"), a person is a "beneficial
owner" of securities if that person has or shares the power to vote them or to
direct their investment, or has the right to acquire beneficial ownership of
such securities within 60 days from the Record Date through the exercise of an
option, warrant or right, conversion of a security or otherwise. As of the date
of this Proxy Statement, the Company only has shares of Common Stock
outstanding. An asterisk indicates beneficial ownership of less than 1% of the
outstanding shares of Common Stock.

<TABLE>
<CAPTION>
Number of Shares and Nature of Beneficial
Ownership at April 29, 1996(1)
-------------------------------------------------------
Number of
Shares in
Second Column
Voting or Investment Which May Be
Power Acquired
------------------------ Percent within 60
Name Sole Shared of Class Days(2)
- - --------------------------------------------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C>
Robert M. Goodfriend(3)...................... 9,738,355(4) 11,250(5) 60.5% --
FMR Corp.(6)................................. -- 1,611,800 10.0% --
Harry M. Call................................ 85,071 -- * 80,000
Edward R. Carlin............................. 26,035 -- * 26,000
Thomas R. Kelly, Jr.......................... 8,000 -- * 8,000
David R. Mullins............................. 56,000 -- * 50,750
James L. Clayton............................. 30,679 2,000(7) * 5,229
Samuel J. Furrow............................. 5,229 -- -- 5,229
Robert F. Koppel............................. 5,229 -- -- 5,229
Irwin L. Lowenstein.......................... -- -- -- --
Cheryl L. Turnbull........................... 5,229 -- -- 5,229
All Directors and Executive Officers as a
Group (11 Persons)......................... 10,010,827 13,550(8) 61.3% 236,666
</TABLE>

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

(1) As previously noted, the information regarding the beneficial ownership of
the outstanding shares of Common Stock held by FMR Corp. and the persons
and entities referenced in footnote 6 is as of December 31, 1995.
(2) This column lists the number of shares of Common Stock which the respective
director and/or executive officer has the right to acquire within 60 days
from the Record Date through the exercise of stock options awarded under
the Company's stock option plans.
(3) The business address of Mr. Goodfriend is 400 Goody's Lane, Knoxville,
Tennessee 37922.
(4) These shares do not include 417,270 shares (2.6% of the outstanding shares
of Common Stock) held in trust for Mr. Goodfriend's children, as to which
Mr. Goodfriend disclaims beneficial ownership. Mr. Goodfriend has no voting
or investment power with respect to these shares.
(5) These shares are owned by Mr. Goodfriend's wife, and Mr. Goodfriend shares
voting and investment power with her with respect to these shares.
(6) According to a Schedule 13G filed by FMR Corp. ("FMR"), Mr. Edward C.
Johnson 3d, Ms. Abigail P. Johnson, Fidelity Management & Research Company,
a registered investment advisor and a wholly-owned subsidiary of FMR
("Fidelity"), and Fidelity Contrafund, Mr. Johnson is the Chairman of FMR
and the owner of 12% of the aggregate outstanding voting stock of FMR and
Ms. Johnson is a director of FMR and the owner of 24.5% of the aggregate
outstanding voting stock of FMR and each may be

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<PAGE> 6

deemed to be members of a controlling group with respect to FMR. The
Schedule 13G states that, at December 31, 1995, (i) Fidelity was the
beneficial owner of 1,611,800 shares (10% of the outstanding shares of
Common Stock) as a result of acting as an investment advisor to various
registered investment companies (the "Funds"), (ii) Fidelity Contrafund,
one of the Funds, was the beneficial owner of 1,559,500 shares (9.67% of
the outstanding shares of Common Stock), (iii) each of Mr. Johnson 3d, FMR
(through its control of Fidelity) and the Funds has sole power to dispose
of the 1,611,800 shares, and (iv) the power to vote the 1,611,800 shares
resides with the Board of Trustees of the Funds. The address of FMR,
Fidelity and Fidelity Contrafund is 82 Devonshire Street, Boston,
Massachusetts 02109.
(7) Mr. Clayton shares voting and investment power with his wife with respect to
the these shares.
(8) Voting and investment power with respect to these shares are shared with
certain family members of the respective director or executive officer. See
footnotes 5 and 7 above.

PROPOSAL 1 -- ELECTION OF DIRECTORS

NOMINEES

The Board is divided into three classes of directors with each class
holding office for a staggered three-year term. The term of the Class I
directors, Mr. James L. Clayton and Ms. Cheryl L. Turnbull, will expire at the
Annual Meeting. Mr. Irwin L. Lowenstein and Ms. Turnbull are nominees for
election at the Annual Meeting as Class I directors to serve until the 1999
annual meeting of shareholders (or until the earlier election and qualification
of their successors). The Company's Bylaws (the "Bylaws") provide that any
vacancy in the Board created by the death, resignation or removal of a director
shall be filled by the affirmative vote of a majority of the remaining directors
then in office, though less than a quorum, for a term of office until the next
annual meeting of shareholders.

The Bylaws further provide that the Company shall have at least five and no
more than ten directors, with the Board to determine the exact number from time
to time, and that at least 51% of the Board shall be Independent Directors. For
purposes of the Bylaws, a person shall be deemed to be an "Independent Director"
if he or she (i) is not an executive officer or an employee of the Company or
any subsidiary or affiliate of the Company, (ii) has not served as an executive
officer of the Company at any time during the two years preceding his or her
election as a director of the Company and has not served in such capacity for a
period exceeding ten years, (iii) is not a family member (i.e., parent, sibling,
grandparent, mother-in-law, father-in-law, spouse, former spouse, child,
stepchild, grandchild or any other blood or legal relative) of any executive
officer or any other employee described in clause (i) or (ii) above, (iv) is not
a person, or is not a family member or Affiliate or Associate (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of any person, who beneficially owns 25% or more of the securities of the
Company then entitled to vote in the election of directors of the Company, and
(v) is free from any relationship that, in the good faith opinion of the other
Independent Directors, would interfere with the exercise of independent judgment
in carrying out the responsibilities of an Independent Director. The Board is
currently comprised of six members and all of the directors, other than Mr.
Robert M. Goodfriend and Mr. Harry M. Call, meet the requirements for being an
Independent Director. If elected, Mr. Lowenstein will be an Independent
Director.

Since the Board has only nominated two persons for election as Class I
directors and has fixed the number of Class I directors at two directors,
proxies granted by the Shareholders cannot be voted for a greater number of
persons than the number of nominees named herein. The election of the Class I
directors requires the presence, in person or by proxy, of the holders of a
majority of all the shares of Common Stock entitled to notice of and to vote at
the Annual Meeting and the affirmative vote of the holders of a plurality of the
shares entitled to vote at the Annual Meeting. The Company's principal
shareholder, Mr. Robert M. Goodfriend, beneficially owns approximately 60.5% of
the outstanding shares of Common Stock and has indicated his intention to vote
his shares in favor of the election as Class I directors of the Company of the
two nominees listed below. Accordingly, the affirmative vote of Mr. Goodfriend
will be sufficient to elect as Class I directors the two nominees listed below
regardless of the vote of the other Shareholders with respect to their election.

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<PAGE> 7

In the event any of the nominees listed below refuses or is unable to serve
as a director (which is not now anticipated), the persons named as proxies in
the enclosed proxy card reserve full discretion to vote for such other person or
persons as may be nominated.

DIRECTOR, DIRECTOR NOMINEE AND EXECUTIVE OFFICER INFORMATION

The following table sets forth biographical data for the last five years
for each director, for each nominee for director and for each executive officer
of the Company (based upon information supplied by him or her to the Company)
and such person's length of service as a director and/or executive officer of
the Company.

CLASS I DIRECTORS -- NOMINEES FOR ELECTION AT THE ANNUAL MEETING;
TERM EXPIRING AT THE 1999 ANNUAL MEETING

<TABLE>
<CAPTION>
Executive
Position(s) With Company, Principal Director Officer
Name Age Occupation and Business Experience Since Since
- - ----------------------- --- -------------------------------------- -------- ---------
<S> <C> <C> <C> <C>
Irwin L. Lowenstein 60 Director Nominee; Chairman since July -- --
1994, Chief Executive Officer since
May 1989 and a director since March
1977 of Rhodes, Inc. (a publicly-held
specialty furniture retailer)
("Rhodes"). Previously served as
President from March 1977 to July 1994
and Chief Operating Officer from March
1977 to May 1989 of Rhodes; and a
director of L.A.T. Sportswear, Inc. (a
sportswear manufacturer and
distributor) since July 1994.
Cheryl L. Turnbull 35 Director; currently, a private 1995 --
investor. Previously served as
Managing Director of Aston Limited
Partners, L.P. (a bank re- engineering
firm) from August 1992 to June 1995;
and Vice President of Merchant Banking
for Prudential Securities, Inc. (a
merchant bank) and in various other
capacities from August 1987 to
December 1991.
</TABLE>

YOUR BOARD RECOMMENDS A VOTE FOR THE ELECTION
OF THE ABOVE NOMINEES AS CLASS I DIRECTORS.

4
<PAGE> 8

CLASS II DIRECTORS -- TERM EXPIRING AT THE 1997 ANNUAL MEETING

<TABLE>
<CAPTION>
Executive
Position(s) With Company, Principal Director Officer
Name Age Occupation and Business Experience Since Since
- - ----------------------- --- -------------------------------------- -------- ---------
<S> <C> <C> <C> <C>
Harry M. Call 51 Director; President and Chief 1995 1995
Operating Officer of the Company since
January 1995; a director of Cush
Industries (a medical supply company)
since August 1994. Previously served
as the Director of Operations of
Processed Foods Corporation (a food
processing company) from October 1993
to January 1995; and Director, Chief
Operating Officer and Executive Vice
President of the Company from January
1988 to August 1993.
Samuel J. Furrow 54 Director; Chairman of Furrow Auction 1995 --
Company (a real estate and equipment
sales company) since April 1968;
Chairman of Furrow-Justice Machinery
Corporation (an importer and exporter
of heavy construction equipment) since
September 1983; Owner of Knoxville
Motor Company (a Mercedes- Benz
dealership) since December 1980; a
director of Southeastern Advertising
Inc. (an advertising agency) since
April 1968; and a director of First
American National Bank since September
1993.
</TABLE>

CLASS III DIRECTORS -- TERM EXPIRING AT THE 1998 ANNUAL MEETING

5
<PAGE> 9

EXECUTIVE OFFICERS (IN ADDITION TO MESSRS. GOODFRIEND AND CALL):

<TABLE>
<CAPTION>
Executive
Position(s) With Company, Principal Officer
Name Age Occupation and Business Experience Since
- - -------------------- --- --------------------------------------------------- ---------
<S> <C> <C> <C>
Edward R. Carlin 55 Executive Vice President, Chief Financial Officer 1994
of the Company since July 1994 and Secretary of the
Company since February 1995. Previously served as a
director, Executive Vice President, Chief Financial
Officer and Secretary of Oshman's Sporting Goods,
Inc. (a publicly-held retail sporting goods chain)
and in various other capacities from August 1982 to
July 1994.
Thomas R. Kelly, Jr. 51 Executive Vice President, General Merchandise 1995
Manager of the Company since January 1995.
Previously served as Senior Vice President and
General Merchandise Manager of Solo Serve
Corporation (an off-price retailer) from November
1993 to June 1994; Executive Vice President,
General Merchandise Manager of the Company from
October 1990 to June 1993; and General Merchandise
Manager of Ira A. Watson Company (an apparel and
housewares retailer) from December 1985 to October
1990.
Carmen Monaco 49 Senior Vice President, Marketing and Advertising of 1992
the Company since January 1995. Previously served
as Vice President, Marketing and Advertising of the
Company from August 1992 to January 1995; and Vice
President, Marketing/Sales Promotion of Miller's
Outpost (a retail clothing chain) from April 1987
to August 1992.
David R. Mullins 44 Senior Vice President, Store Operations of the 1980
Company since July 1994. Previously served as Vice
President, Store Operations of the Company from
August 1980 to July 1994; and as a Director from
November 1991 to October 1993.
Marcus H. Smith, Jr. 39 Senior Vice President, Real Estate of the Company 1995
since April 1995. Previously served as Vice
President of Development of Valparaiso Realty
Company (a real estate development company) from
May 1992 to April 1995; and Vice President of Real
Estate of Enstar Specialty Retail (an apparel and
shoe retailer) from August 1989 to May 1992.
</TABLE>

MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

During fiscal 1995, the Board met eight times. Each director attended 75%
or more of the aggregate number of meetings held by the Board and its committees
on which he or she served.

The Bylaws provide that the Board shall have and maintain Audit and
Compensation Committees. The Bylaws further provide that each of such committees
shall consist of not less than three directors and all members of such
committees shall be Independent Directors. The Audit Committee consists of
Messrs. Furrow and Koppel and Ms. Turnbull and is responsible for making
recommendations to the Board for the selection and remuneration of independent
auditors to audit the Company's annual financial statements. The Audit Committee
also reviews (i) the results and findings of audits performed by the

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<PAGE> 10

independent auditors and the Company's internal audit department and their
recommendations therewith, (ii) the Company's systems of internal accounting
controls and significant accounting policies, and (iii) the nature of non-audit
services performed by the independent auditors. During fiscal 1995, the Audit
Committee met four times.

The Compensation Committee consists of Messrs. Clayton and Koppel and Ms.
Turnbull and is responsible for reviewing the compensation, including fringe
benefits, of the Chief Executive Officer, other officers and key management of
the Company and making recommendations thereof to the Board and for
administering the Company's stock option plans. In carrying out such
responsibilities, the Compensation Committee reviews the salaries and benefits
of key employees and recommends performance targets under the Company's bonus
plan, incentive awards and the amount of contributions to the Company's Profit
Sharing Plan. During fiscal 1995, the Compensation Committee met five times.

The Board also has a Nominating Committee whose members are Messrs. Furrow,
Clayton and Goodfriend. The Nominating Committee is responsible for recommending
to the Board suitable persons for election as directors of the Company. The
Nominating Committee will consider nominees recommended by shareholders provided
that the names of such persons are submitted no later than the date established
for the submission of shareholder proposals for action at the Company's next
annual meeting of shareholders. The Nominating Committee has met once in fiscal
1996 to date and did not meet during fiscal 1995.

DIRECTORS' COMPENSATION

No compensation is paid to executive officers of the Company for services
rendered in their capacities as directors.

Each non-employee director is entitled to receive a monthly retainer of
$1,000 and a fee of $1,500 for attendance at each meeting of the Board or any of
its committees (provided, however, committee meetings that are held on the same
days as Board meetings are not counted as separate meetings). The Board has also
instituted a policy which provides that eight hours of committee work outside of
formal committee meetings by a non-employee director is equivalent to attendance
at one committee meeting, thereby entitling such director to a fee of $1,500. In
addition to receiving directors' fees, all non-employee directors are reimbursed
for expenses incurred in connection with their attendance at meetings of the
Board or any of its committees.

Non-employee directors are also entitled to receive, upon first becoming a
director of the Company, formula grants of stock options to acquire 7,500 shares
of Common Stock. At each subsequent annual meeting of shareholders, formula
grants of stock options to acquire 1,500 shares of Common Stock are also awarded
to each non-employee director. The above stock options are granted at an
exercise price equal to the fair market value of a share of Common Stock on the
date of grant and vest in 20% annual increments following the date of grant.

Non-employee directors are permitted to irrevocably elect to receive (in
lieu of cash for directors' fees otherwise earned by them) non-qualified stock
options exercisable to purchase shares of Common Stock at an exercise price
equal to 50% of the fair market value of a share of Common Stock on the date of
grant. This alternative allows the Company to eliminate the cash cost of annual
directors' fees otherwise payable to non-employee directors and to more closely
align the interests of non-employee directors with those of the shareholders.
These stock options are granted at the Board meeting following the annual
meeting of shareholders based on the number of anticipated meetings of the Board
and its committees to be held during the twelve-month period beginning on the
first day of the third quarter of the current fiscal year of the Company and
ending on the last day of the second quarter of the following fiscal year of the
Company (the "Plan Year"). These stock options vest on the twelve-month
anniversary of the date of grant and are subject to adjustment at the end of the
Plan Year (which corresponds with the end of the Company's second fiscal
quarter) to reflect each director's actual attendance at or participation in the
meetings. At the Board meeting on June 21, 1995, following the 1995 annual
meeting of shareholders, all non-employee directors elected to receive 100% of
their directors' fees for the 1995 Plan Year (the period including the last two
quarters of fiscal 1995 and the first two quarters of fiscal 1996) in the form
of discounted stock options. The non-employee directors will be permitted to
make such election for the 1996 Plan Year (the period including the last two
quarters of fiscal 1996 and the first two quarters of fiscal 1997) at the Board
meeting planned for June 19,

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<PAGE> 11

1996, following the Annual Meeting. See "Proposal 2 -- Approval of Amendment to
Discounted Stock Option Plan for Directors."

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who beneficially own more than 10% of a
registered class of the Company's equity securities ("Reporting Persons") to
file reports of ownership and changes in ownership with the Commission on a
timely basis. Reporting Persons are required to furnish the Company with copies
of all such forms they file. Based solely on its review of such forms, the
Company believes that all filing requirements applicable to Reporting Persons
during and with respect to fiscal 1995 were complied with on a timely basis.

OTHER MATTERS

On September 29, 1995, the Commission entered an Order Instituting Public
Proceedings Pursuant to Section 21C of the Exchange Act, Making Findings and
Imposing Relief, and Cease-and-Desist Order against the Company and Robert M.
Goodfriend, the Chairman and Chief Executive Officer of the Company, Release No.
36308, File No. 3-8852 (the "Order"). In anticipation of the Order, the Company
and Mr. Goodfriend each submitted an Offer of Settlement without admitting or
denying the findings set forth therein, and consented to the entry of the Order
by the Commission. Pursuant to the Order, the Commission found that during the
years of 1992 and 1993: (i) the Company violated Sections 13(a) and 13(b)(2)(A)
and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1
promulgated thereunder and (ii) Mr. Goodfriend violated Rule 13b2-1 and caused
the Company's violation of the above-referenced Sections. In addition, the
Commission entered an order that each of the Company and Mr. Goodfriend cease-
and-desist from committing or causing any violation, and from committing or
causing any future violation, of Sections 13(a) and 13(b)(2)(A) and (B) of the
Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 promulgated thereunder.

On August 28, 1995, the United States District Court for the Eastern
Division of Tennessee, Northern Division at Knoxville entered an Order and Final
Judgment approving the settlement agreement entered into by the Company in
connection with the lawsuit filed against it in such court on November 24, 1993,
styled Deborah Landes, on behalf of herself and all others similarly situated,
vs. Robert M. Goodfriend, Roger L. Jenkins, Donald A. VandenBerg, Harry M. Call
and Goody's Family Clothing, Inc. and dismissed such lawsuit with prejudice. The
class action complaint had alleged that the price of the Common Stock was
artificially inflated as a result of false and misleading statements concerning
the Company's liquidity and financial condition. These allegations related to
the transactions referred to above in connection with the Order. The proposed
settlement was preliminarily approved by the court in April 1995 and, under the
terms of such proposed settlement, the Company paid into escrow a sum of
$3,200,000 in full and final settlement of the plaintiff's claims for damages.
The Company's insurer reimbursed a sum of $1,300,000 to the Company under its
Directors' and Officers' Indemnification and Liability coverage. The Company had
expensed the net amount of $1,900,000 as an unusual item relating to this
lawsuit in fiscal 1994.

8
<PAGE> 12

EXECUTIVE COMPENSATION AND OTHER INFORMATION

EXECUTIVE COMPENSATION TABLES

The following tables set forth certain information required by the
Commission relating to various forms of compensation awarded to, earned by and
paid to the Company's chief executive officer and its next four most highly
compensated executive officers who were serving as the Company's executive
officers at the end of fiscal 1995. All of such executive officers are
hereinafter referred to as the "named executive officers."

TABLE I -- SUMMARY COMPENSATION TABLE

The following table presents the total compensation awarded to, earned by
and paid to the named executive officers during the last three fiscal years.

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------ ------------
Other Securities All
Annual Underlying Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Position Year ($) ($) ($)(1) (#) ($)
- - ------------------------ ------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Goodfriend.... 1995 500,000 100,000 88,206(2) -- 37,811(3)
Chairman and 1994 500,000 -- 152,461(2) -- 66,462(3)
Chief Executive 1993 509,620 250,000 96,213(2) -- 53,879(3)
Officer
Harry M. Call(4)........ 1995 275,000 100,000 -- 120,000 8,698(5)
President and 1994 15,432 -- -- -- 357(5)
Chief Operating 1993 155,192 -- -- -- 800(5)
Officer
Edward R. Carlin(4)..... 1995 215,000 5,000 -- 45,000(6) --
Executive Vice 1994 120,638 90,000 86,582(7) 9,000(8) --
President, Chief 1993 -- -- -- -- --
Financial Officer and
Secretary
Thomas R. Kelly, 1995 215,000 14,000 -- 40,000 --
Jr.(4)................ 1994 -- -- -- -- --
Executive Vice 1993 121,308 -- -- -- --
President, General
Merchandise Manager
David R. Mullins........ 1995 215,000 5,000 -- 19,500(6) 7,164(9)
Senior Vice President, 1994 156,923 58,077 -- 7,250 14,531(9)
Store Operations 1993 149,038 65,000 -- -- 11,975(9)
</TABLE>

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

(1) The amounts in this column include the aggregate value of certain personal
benefits to a named executive officer only where such value is greater than
the lesser of either $50,000 or 10% of such executive's salary and bonus
for the fiscal year.
(2) Consists of (i) $69,028, $82,650 and $81,907 in fiscal 1995, 1994 and 1993,
respectively, attributable to personal use of the Company's aircraft by Mr.
Goodfriend and his family, calculated using the applicable industry
standard fare level formula established by the Internal Revenue Service,
(ii) $19,002, $17,264 and $14,306 in fiscal 1995, 1994 and 1993,
respectively, for his personal use of the Company's automobiles, and (iii)
$52,445 in fiscal 1994 for a Company car given to him.
(3) Includes (i) non-cash benefits of $27,042, $34,201 and $31,833 in fiscal
1995, 1994 and 1993, respectively, calculated using the applicable Internal
Revenue Service formula, deemed to have been paid to Mr. Goodfriend as a
result of the Company's payment of premiums on certain split-dollar life
insurance policies (see "Certain Transactions"), and (ii) $10,769, $32,261
and $22,046 in fiscal 1995, 1994 and 1993, respectively, attributable to
the Company's contributions and allocations on his behalf to the Company's
Profit Sharing Plan.
(4) Messrs. Call and Kelly were employed by the Company from January 1988 to
August 1993, and from October 1990 to June 1993, respectively, and were
both rehired in January 1995. Mr. Carlin was hired by the Company in July
1994. Accordingly, the amounts included in this table reflect compensation
paid to

9
<PAGE> 13

each of these named executive officers for fiscal 1995 and for the
respective portions of fiscal 1994 and 1993.
(5) Consists of (i) $3,200, $357 and $800 in fiscal 1995, 1994 and 1993,
respectively, attributable to the Company's payment of term life insurance
premiums as to which Mr. Call's family is the beneficiary, (ii) $4,816 for
disability insurance premiums paid by the Company in fiscal 1995, and (iii)
$573 attributable to the Company's contributions and allocations on his
behalf to the Company's Profit Sharing Plan in fiscal 1995.
(6) Includes stock options to purchase 35,000 and 7,500 shares of Common Stock
issued to Messrs. Carlin and Mullins, respectively, as a result of the
repricing of previously issued stock options. See "Table IV -- Ten Year
Option Repricings."
(7) Consists of (i) $82,767 for the reimbursement of Mr. Carlin's relocation
costs by the Company, and (ii) $3,527 attributable to his personal use of
the Company's automobile.
(8) Excludes 35,000 stock options granted in fiscal 1994 which were terminated
in connection with a stock option repricing. See "Table IV -- Ten Year
Option Repricings."
(9) Consists of (i) $5,111, $12,478 and $9,934 in fiscal 1995, 1994 and 1993,
respectively, attributable to the Company's contributions and allocations
on Mr. Mullins' behalf to the Company's Profit Sharing Plan, (ii) $800 for
each of fiscal 1995, 1994 and 1993 attributable to the Company's payment of
term life insurance premiums as to which his family is the beneficiary, and
(iii) $1,241 for each of fiscal 1995, 1994 and 1993 for disability
insurance premiums paid by the Company.

TABLE II -- OPTION GRANTS IN FISCAL 1995

The following table presents information regarding stock options to
purchase shares of Common Stock granted in fiscal 1995 to the named executive
officers. No stock appreciation rights ("SARs") were granted in fiscal 1995.

<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------------------- Annual Rates of Stock
% of Total Price Appreciation
Number of Securities Options Exercise for Option Term(1)
Underlying Granted or Base ---------------------
Options Granted to Employees in Price Expiration 5% 10%
Name (#) Fiscal Year(2) ($/Sh) Date ($) ($)
- - --------------------------- -------------------- --------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Goodfriend....... -- -- -- -- -- --
Harry M. Call(3)(4)........ 120,000 15.36% 8.50 2/06/05 641,473 1,625,617
Edward R. Carlin(3)(5)..... 10,000 1.28% 8.50 2/06/05 53,456 135,468
Edward R. Carlin(3)(6)..... 35,000 4.48% 11.38 6/20/05 250,489 634,788
Thomas R. Kelly,
Jr.(3)(7)................ 40,000 5.12% 8.50 2/06/05 213,824 541,872
David R. Mullins(3)(5)..... 12,000 1.54% 8.50 2/06/05 64,147 162,562
David R. Mullins(3)(6)..... 7,500 0.96% 11.38 6/20/05 53,676 136,026
</TABLE>

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

(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Commission and therefore are not intended to
forecast possible future appreciation, if any, of the Common Stock price.
(2) The percent of stock options granted to each named executive officer is
based on the total number of stock options granted amounting to 781,466
during fiscal 1995.
(3) All stock options granted to named executive officers have exercise prices
equal to the fair market value of the Common Stock on the date of grant and
may be exercised until the earlier of (i) the tenth anniversary of the date
of grant, or (ii) thirty days after the optionee ceases to be an employee
or director of the Company for any reason other than death or disability,
or (iii) the first anniversary of the optionee's death or disability.

10
<PAGE> 14
(4) These stock options were granted on February 7, 1995. Stock options to
purchase 60,000 shares of Common Stock vested on the date of grant and the
remaining stock options to purchase 60,000 shares of Common Stock vest in
equal annual increments over three years from the date of grant.
(5) These stock options were granted on February 7, 1995, and vested immediately
on the date of grant.
(6) These stock options were granted on June 21, 1995, as a result of the
repricing of previously issued stock options and vest in equal annual
increments over five years from the date of repricing. See "Table IV -- Ten
Year Option Repricings."
(7) These stock options were granted on February 7, 1995, and vest in equal
annual increments over five years from the date of grant.

TABLE III -- AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND
FISCAL YEAR-END OPTION VALUES

The following table presents information regarding the value of unexercised
stock options held by the named executive officers at February 3, 1996. During
fiscal 1995, none of the named executive officers exercised any stock options to
purchase Common Stock. There were no SARs exercised in fiscal 1995 and there are
no SARs outstanding at February 3, 1996.

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End at FY-End
(#) ($)(1)
---------------------- --------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- - --------------------- ---------------------- --------------------
<S> <C> <C> <C>
Robert M. Goodfriend.................................... -- --
Harry M. Call........................................... 60,000/60,000 0/0
Edward R. Carlin........................................ 19,000/35,000 0/0
Thomas R. Kelly, Jr..................................... 0/40,000 0/0
David R. Mullins........................................ 49,250/15,000 0/0
</TABLE>

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

(1) Represents the value of unexercised, in-the-money stock options at February
2, 1996 (the last trading day of fiscal 1995), using the $7.25 closing
price of the Common Stock on that date.

EMPLOYMENT AND TERMINATION ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS

Robert M. Goodfriend. The Company does not have an employment contract
with Mr. Goodfriend.

Harry M. Call and Thomas R. Kelly, Jr. The terms of the Company's
employment contracts with Messrs. Call (dated January 16, 1995) and Kelly (dated
January 30, 1995) are substantially identical. Pursuant to the employment
contracts, each of such executives is considered an at-will employee and his
employment may be terminated at any time subject to the obligations set forth in
the contract. Under the contracts, each is paid an annual base salary ($275,000
in the case of Mr. Call and $215,000 in the case of Mr. Kelly) and is eligible
to receive performance bonuses of up to a certain percentage (50% in the case of
Mr. Call and 40% in the case of Mr. Kelly) of his base salary for each fiscal
year he is employed if the Company achieves certain goals for such fiscal year.
In addition, Mr. Call was eligible to receive a $100,000 signing bonus payable
on January 16, 1995 (in lieu of which, he received stock options immediately
exercisable to purchase 20,000 shares of Common Stock at a cash exercise price
of $8.50 per share, pursuant to an Executive Incentive Agreement dated February
7, 1995, between Mr. Call and the Company), and a $100,000 guaranteed bonus for
fiscal 1995 which was paid in March 1996. Furthermore, under the terms of Mr.
Call's contract, on February 7, 1995, Mr. Call received stock options to
purchase an aggregate of 100,000 shares of Common Stock at a cash exercise price
of $8.50 per share (stock options to purchase 40,000 shares of Common Stock
vested immediately and the remaining stock options vest over a three year period
in equal annual increments from the date of grant) and, under the terms of Mr.
Kelly's contract, on February 7, 1995, Mr. Kelly received stock options to
purchase 40,000 shares of Common Stock at a cash

11
<PAGE> 15

exercise price of $8.50 per share which vest over a five year period in equal
annual increments from the date of grant.

The employment contracts also provide that if the Company terminates the
employment of either executive other than for Cause or Disability or if either
executive terminates his employment as a result of Constructive Termination (in
each case as defined in the contracts), the Company is obligated to pay such
executive a lump sum payment equal to (i) his base salary through the date of
such termination, (ii) his annual base salary, and (iii) any compensation
previously deferred by him, accrued vacation pay for the then current year and
amounts or benefits he or his beneficiaries are owed under any employee benefit
plans or policies or for reimbursement of expenses. In addition, upon such
termination, the Company is obligated to provide for his continued participation
for a period of twelve months in certain fringe benefit programs.

If the Company terminates either executive's employment for Cause or
Disability or if either executive voluntarily terminates his employment (other
than as a result of Constructive Termination), pursuant to the terms of the
employment contracts, the Company is obligated to pay such executive a lump sum
payment equal to (i) his base salary through the date of such termination, and
(ii) any compensation previously deferred by him, accrued vacation pay for the
then current year and amounts or benefits he or his beneficiaries are owed under
any employee benefit plans or policies or for reimbursement of expenses.

Edward R. Carlin and David R. Mullins. The terms of the Company's
employment contracts with Messrs. Carlin and Mullins are substantially
identical. Pursuant to the employment agreements, each dated October 14, 1994,
between the Company and each of Mr. Carlin and Mr. Mullins, each is considered
an at-will employee and his employment may be terminated at any time subject to
the obligations set forth in the contract. Under the contracts, each executive
is paid an annual base salary ($215,000 in the case of Mr. Carlin and $157,500
in the case of Mr. Mullins (which amount was increased to $215,000 in February
1995)), and is eligible to receive performance bonuses of up to a certain
percentage (35% in the case of Mr. Carlin and 40% in the case of Mr. Mullins) of
his base salary for each fiscal year he is employed if the Company achieves
certain goals for such fiscal year. In addition, Mr. Carlin received a $30,000
guaranteed bonus on March 1, 1995, and was eligible to receive a retention bonus
of $75,000 of which $25,000 was payable on October 14, 1995, and the remaining
$50,000 was payable on the day immediately preceding the 1996 annual meeting.
Mr. Mullins was awarded a retention bonus of $60,000 by the Board (as
recommended by the Compensation Committee) on February 7, 1995. In the event of
a Change of Control (as defined in the contracts), the performance bonus for the
period in which such Change of Control occurs will be considered to be fully
earned without regard to the performance criteria established for such period
and the Deferred Portion (as defined in the contracts) of any performance
bonuses previously earned by such executive prior to such Change of Control will
immediately be due and payable.

A Change of Control (as defined in the foregoing employment contracts)
occurred upon the resignation of all of the directors, other than Mr.
Goodfriend, on January 5, 1995. As a result of such Change of Control and
pursuant to the Executive Incentive Agreements dated February 7, 1995, executed
between the Company and Mr. Carlin, Mr. Carlin received (i) a cash payment of
$25,000 in March 1995, and (ii) stock options immediately exercisable to
purchase 10,000 shares of Common Stock at a cash exercise price of $8.50 per
share in lieu of his entitlement to receive a retention bonus of $50,000. Mr.
Mullins received stock options immediately exercisable to purchase 12,000 shares
of Common Stock at a cash exercise price of $8.50 in lieu of a $60,000 bonus
pursuant to the Executive Incentive Agreement dated February 7, 1995, between
the Company and Mr. Mullins. See "Executive Compensation Tables."

The employment contracts also provide that if the Company terminates the
employment of either executive other than for Cause or Disability and not within
a three year period commencing on a Change Of Control Date (in each case as
defined in the contracts), the Company is obligated to continue to pay him his
annual base salary for a period of twelve months following the date of such
termination (such amount to be offset by any compensation payable to such
executive through subsequent employment). In addition, upon such termination,
the Company is obligated to pay such executive the unpaid Deferred Portion of
all performance bonuses he had previously earned prior to the date of such
termination and any unpaid retention

12
<PAGE> 16

bonuses (in each case provided such termination was not for Poor Performance, as
defined in the contracts), and to provide for his continued participation for a
period of eighteen months in certain fringe benefit programs.

The employment contracts further provide that if, within a three year
period commencing on a Change of Control (as defined in the contracts), the
Company terminates such executive's employment other than for Cause or
Disability, or such executive terminates his employment as a result of
Constructive Termination (as defined in the contracts), the Company is obligated
to pay him a lump sum payment equal to (i) such executive's base salary through
the date of such termination, (ii) such executive's annual base salary, and
(iii) any compensation previously deferred by such executive, accrued vacation
pay for the then current year and amounts or benefits he or his beneficiaries
are owed under any employee benefit plans or policies or for reimbursement of
expenses. In addition, upon such termination, the Company is obligated to
provide for such executive's continued participation for a period of eighteen
months in certain fringe benefit programs. Pursuant to the employment contracts,
upon a Change of Control, the Company is obligated to fund its anticipated
payments to such executive through the Goody's Family Clothing Benefit
Protection Trust Agreement (see below for a description of this trust
agreement), whether or not such executive's employment with the Company has been
terminated as set forth above.

In the event of the termination of the employment by the Company of Mr.
Carlin or Mr. Mullins, prior to January 5, 1998, the severance payments
receivable by such executive would reflect the Change of Control that occurred
on January 5, 1995, assuming satisfaction of the other conditions contained in
such executive's employment contract.

If the Company terminates the executive's employment for Cause or
Disability, pursuant to the terms of the employment contracts, the Company is
obligated to pay such executive a lump sum payment equal to (i) such executive's
base salary through the date of such termination, and (ii) any compensation
previously deferred by such executive, accrued vacation pay for the then current
year and amounts or benefits he or his beneficiaries are owed under any employee
benefit plans or policies or for reimbursement of expenses.

Goody's Family Clothing, Inc. Benefit Protection Trust Agreement. The
Company entered into such trust agreement with Bank South, N.A., as trustee (the
"Trustee"), on November 15, 1994. Pursuant to this trust agreement, the Company
established an irrevocable grantor trust to, among other things, assist it in
meeting its obligation to pay certain severance payments to certain executives
of the Company upon a Change of Control (as defined in the trust agreement) in
accordance with employment contracts between the Company and each such
executive. Upon establishment of the trust in November 1994, the Company made an
initial contribution to the trust of $10,000 and provided an irrevocable letter
of credit in the amount of $500,000. On or prior to a Change of Control, the
Company is obligated to contribute an amount equal to all severance payments
that are or may become due to covered executives as a result of such Change of
Control. Under the trust agreement, the Trustee shall hold and invest any
contributions by the Company as a single trust but shall maintain separate
accounts for each covered executive. Subject to certain notice requirements and
other conditions (in each case as more fully described in the trust agreement),
a covered executive shall become entitled to a distribution from the trust at
any time such executive is entitled to receive certain severance payments from
the Company as a result of a Change of Control in accordance with the employment
contract between such executive and the Company. As a result of the Change of
Control that occurred on January 5, 1995, the Company contributed an additional
$1,272,800 in investment securities to the trust.

COMPENSATION COMMITTEE REPORT

Background. With the reinstatement of Mr. Robert M. Goodfriend as the
Chairman and Chief Executive Officer of the Company in January 1995, the Company
rehired two executives, Messrs. Call and Kelly, and elected four non-employee
directors. Including Mr. Goodfriend, the Company currently has seven executive
officers and six directors. Three of the non-employee directors, Ms. Turnbull
(Chair), and Messrs. Clayton and Koppel, were appointed as members of the
Compensation Committee in January 1995.

13
<PAGE> 17

Objective and Philosophy. The Compensation Committee works closely with
management to design an executive compensation program to assist the Company in
attracting and retaining outstanding executives and senior management personnel
in the retail industry who the Company believes will be (or who are) valuable
employees. The design and implementation of such program continually evolves as
the Company grows but is primarily based on providing compensation opportunities
that are competitive with retail companies of similar size and linking
executives' compensation with the Company's annual and long-term financial
performance by rewarding the achievement of short-term and long-term objectives
of the Company.

Compensation Program Components. The three principal components of the
Company's executive compensation program are annual base salary, short-term
incentive compensation in the form of performance bonuses payable in cash each
year and long-term incentive compensation in the form of stock options. These
programs are structured in accordance with the Compensation Committee's
objectives and philosophy.

Base Salary. With the exception of Mr. Goodfriend, the Company's principal
shareholder and Chief Executive Officer (which is discussed in greater detail
below), executives' base salaries in fiscal 1995 were determined through direct
negotiations between the Company and the executives based upon responsibility
and performance and are believed to be generally reflective of competitive
conditions in the marketplace for executives of comparable talent and
experience.

Short-Term Incentive Compensation. The short-term incentive compensation
component consists of performance bonuses paid to eligible executives which are
calculated as a percent of their base salaries. Based on predetermined target
levels of the Company's earnings set annually by the Compensation Committee
(with the assistance of management) and approved by the Board, each eligible
executive could receive between 50% and 150% for fiscal 1995 (between 10% and
150% for fiscal 1996) of their respective stated performance bonuses. With the
approval of the Board, the Compensation Committee, upon management's
recommendation, has the discretion to award additional bonuses if warranted by
an executive officer's exceptional service to the Company. With respect to
fiscal 1995, because the target level of earnings was not achieved, no bonuses
were awarded to executive officers except for (i) a guaranteed bonus of $100,000
paid to Mr. Goodfriend which is discussed below, (ii) certain guaranteed bonuses
amounting to $130,000 to two executive officers payable under their employment
contracts with the Company, and (iii) certain discretionary bonuses amounting to
$24,000 to three executive officers based on their exceptional services to the
Company.

Long-Term Incentive Compensation. The long-term incentive compensation
component currently consists of stock option plans under which executives may be
granted stock options exercisable to purchase shares of Common Stock. Generally,
the exercise price of stock options represents the fair market value of the
Common Stock on the date of grant, and the stock options become exercisable in
20% increments over five years and expire ten years from the date of grant. The
deferred vesting provisions of the stock options are designed to reward
long-term contributions and create an incentive for executives to remain with
the Company. The Compensation Committee believes that granting stock options
promotes greater interest on the part of executives in the welfare of the
Company by allowing them to share in the Company's success as measured by an
appreciation in the value of the Common Stock and is beneficial in aligning the
interests of the executives with the Company's shareholders. Stock options are
granted by the Compensation Committee (and approved by the Board) to key
employees based on management's recommendation, and levels of participation in
the plan generally vary based on the employee's position with the Company. Stock
options granted on the date of hire reflect the results of negotiations between
the Company and the recipient. See "Report of Compensation Committee on Option
Repricings."

CEO Compensation. Mr. Goodfriend does not have an employment contract with
the Company and thus his compensation is determined annually. The full Board
(other than Mr. Goodfriend) determined his compensation for fiscal 1995 based on
his compensation in prior years and the compensation of CEO's of similarly-sized
companies in the retail industry. Since February 1993, Mr. Goodfriend's annual
base salary has been $500,000, and he has also received guaranteed bonuses in
fiscal 1993 and fiscal 1995 of $250,000 and $100,000, respectively. Such
guaranteed bonuses were granted to Mr. Goodfriend so as to provide him with cash
compensation generally equivalent to that paid him in prior years. Since fiscal
1994, Mr. Goodfriend has

14
<PAGE> 18

been participating in the incentive bonus plan discussed above, and the
Compensation Committee intends to increase the proportion of Mr. Goodfriend's
compensation tied to the Company's profitability. Mr. Goodfriend is eligible to
receive a performance bonus of up to 150% of his base salary for fiscal 1996 if
the Company achieves certain goals for such fiscal year. Mr. Goodfriend did not
participate in any of the Company's stock option plans for fiscal 1995; however,
he may participate in future years.

The total cash and non-cash compensation which Mr. Goodfriend may receive
in fiscal 1996 may exceed $1 million. Under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), the excess over $1 million, if
any, will not be deductible by the Company for tax purposes. The Compensation
Committee expects that the amount of any non-deductible compensation paid to Mr.
Goodfriend will be immaterial. No other executive of the Company will receive
compensation in excess of $1 million for fiscal 1996.

COMPENSATION COMMITTEE

CHERYL L. TURNBULL (CHAIR)
JAMES L. CLAYTON
ROBERT F. KOPPEL

The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that the Company specifically
incorporated this information by reference, and shall not otherwise be deemed
filed under such Acts.

TABLE IV -- TEN YEAR OPTION REPRICINGS

The following table presents information regarding certain stock options
granted to executive officers of the Company which were terminated and replaced
with new stock options since the Company's initial public offering in October
1991. Since such date, the only time the Company has repriced stock options was
in June 1995. The Company has never granted any SARs.

TEN YEAR OPTION REPRICINGS

<TABLE>
<CAPTION>
Number of Length of
Securities Market Price Exercise Original
Underlying of Stock at Price at Option Term
Options Time of Time of Remaining at
Repriced Repricing or Repricing or New Date of
or Amendment Amendment Exercise Repricing or
Name Date Amended(#) ($) ($) Price($) Amendment
- - ------------------------------- ------- ---------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward R. Carlin............... 6/21/95 35,000 11.38 17.25 11.38 108 months
(Executive Vice President,
Chief Financial Officer and
Secretary)
Carmen Monaco.................. 6/21/95 30,000 11.38 16.67 11.38 86 months
(Senior Vice President,
Marketing and Advertising)
David R. Mullins............... 6/21/95 7,500 11.38 22.83 11.38 90 months
(Senior Vice President, Store
Operations)
</TABLE>

REPORT OF COMPENSATION COMMITTEE ON OPTION REPRICINGS

The Compensation Committee believes that granting stock options promotes
greater interest on the part of employees in the welfare of the Company by
allowing them to share in the Company's success as measured by an appreciation
in the value of the Common Stock. The Compensation Committee also believes that
grants of stock options align the interests of the employees with the Company's
shareholders. Accordingly, stock

15
<PAGE> 19

options are the form of long-term incentives utilized by the Company. Based in
part upon the recommendation of members of senior management who would not
receive repriced stock options, the Compensation Committee (with the Board's
approval) offered to replace out-of-the-money stock options exercisable at
$13.00 per share or more with new non-vested stock options exercisable at the
current market price of the Common Stock which vest in equal increments over
five years from the date of repricing. The Compensation Committee's
determination was made in order to restore the utility of stock options as a
meaningful incentive. The Compensation Committee believed that this measure was
appropriate by virtue of the fact that the composition of the Board and senior
management underwent significant changes in fiscal 1994 and 1995. As a result,
stock options to purchase an aggregate of 118,250 shares of Common Stock held by
twenty-four employees of the Company (with per share exercise prices ranging
from $13.00 to $22.83 and expiration dates ranging from February 2002 to July
2004) were replaced with new stock options exercisable at $11.38 per share, the
fair market value of the Common Stock on the date of grant. The replacement
stock options vest in 20% increments over five years and expire ten years from
the date of grant (i.e., June 20, 2005), and, therefore, in accepting the
exchange for lower-priced stock options, optionees agreed to forfeit the vesting
rights they had accrued with respect to the replaced stock options.

COMPENSATION COMMITTEE

CHERYL L. TURNBULL (CHAIR)
JAMES L. CLAYTON
ROBERT F. KOPPEL

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Decisions on executive compensation in fiscal 1995 were made by the
Compensation Committee (and approved by the Board) upon the recommendation of
the Company's Chairman and Chief Executive Officer and its President and Chief
Operating Officer. The Compensation Committee currently consists of Messrs.
Clayton and Koppel and Ms. Turnbull, none of whom is or was an officer or other
employee of the Company or had any other relationship with the Company required
to be disclosed as a Compensation Committee interlock, except that Mr. Koppel is
the President of the East Tennessee Children's Hospital (the "Hospital") and Mr.
Goodfriend is a director of the Hospital and as such participates in
deliberations regarding incentive payments to officers of the Hospital,
including, without limitation, Mr. Koppel. See "Certain Transactions."

16
<PAGE> 20
PERFORMANCE GRAPH

The following is a line graph comparing the Company's total shareholder
returns to those of the Standard & Poors 500 Index and a Comparable Company
Index for the period beginning in October 1991, the month of completion of the
Company's initial public offering and ending on February 3, 1996. The Comparable
Company Index is based on information from Burlington Coat Factory Warehouse,
Catherines Stores Corporation, Cato Corporation, Clothestime Inc., Consolidated
Stores Corporation, Deb Shops, Inc., Designs, Inc., Dollar General Corp., Dress
Barn Inc., Edison Brothers Stores, Family Dollar Stores, Filene's Basement
Corporation, Fred's Inc., Gantos, Inc., Gottschalks, Inc., Jacobson Stores,
Jamesway Corp., Kohls Corporation, MacFrugals Bargains, Merry-Go-Round
Enterprises, Inc., Ross Stores, Inc., Stein Mart, Inc. and Value City Department
Stores, Inc. Total return values were calculated based on cumulative total
return, assuming the value of the investment in shares of Common Stock and in
each index was $100 and, in the case of the Comparable Company Index, that all
dividends paid by any of those companies were reinvested.

GOODY'S FAMILY CLOTHING, INC.
COMPARISON OF CUMULATIVE TOTAL RETURN
TO S&P 500 AND PEER GROUP INDICES

[GRAPH]

<TABLE>
<CAPTION>
GOODY'S
FAMILY
MEASUREMENT PERIOD CLOTHING, S&P 500 IN-
(FISCAL YEAR COVERED) INC. DEX PEER GROUP
<S> <C> <C> <C>
OCTOBER 91 100.00 100.00 100.00
JANUARY 92 186.67 104.96 110.62
JANUARY 93 241.67 116.06 131.24
JANUARY 94 137.50 131.01 117.66
JANUARY 95 85.00 131.70 96.32
JANUARY 96 77.59 182.63 95.89
</TABLE>

17
<PAGE> 21

PROPOSAL 2 -- APPROVAL OF AMENDMENT TO
DISCOUNTED STOCK OPTION PLAN FOR DIRECTORS

INTRODUCTION

On March 20, 1996, the Board adopted, subject to shareholders' approval,
the Directors Plan Amendment whereby the maximum number of shares of Common
Stock available for issuance under the Directors Plan would be increased by
100,000 shares.

DISCOUNTED STOCK OPTION PLAN FOR DIRECTORS

The following is a brief description of the material terms of the Directors
Plan; such description is qualified in its entirety by reference to the full
text of the Directors Plan itself which is attached hereto as Appendix A.

Purpose. The purpose of the Directors Plan is to permit the granting of
stock options to non-employee directors at an exercise price equal to 50% of the
fair market value of a share of Common Stock on the date of grant. This
alternative allows the Company to eliminate the cash cost of annual director
fees otherwise payable to non-employee directors and to more closely align the
interests of non-employee directors with those of the shareholders as well as to
provide a means to attract and retain well-qualified non-employee directors.

Term. The Directors Plan will terminate on July 7, 2003 (unless terminated
by the Board at an earlier date).

Stock subject to Directors Plan. Currently, the Company has authorized and
reserved for issuance upon the exercise of stock options granted under the
Directors Plan an aggregate of 50,000 shares of Common Stock. As of April 29,
1996, stock options exercisable to purchase an aggregate of 35,687 shares of
Common Stock (with per share exercise prices ranging from $5.69 to $9.50 and
expiration dates ranging from July 2013 to June 2015) were outstanding under the
Directors Plan and held by an aggregate of 10 former and present non-employee
directors. On April 29, 1996, the closing price of the Common Stock was $8.25.

Administration. The Directors Plan is administered by the Compensation
Committee.

Eligibility. All non-employee directors are eligible to participate in the
Directors Plan.

Grant of Options. Stock options are granted on the date of the annual
organizational meeting of the Board following the annual meeting of shareholders
to any non-employee director who, no later than the date of such annual
organizational meeting, has irrevocably elected to receive a stock option in
lieu of all or a specified portion of the cash director fees (the fees which
such non-employee director will be entitled to receive during a plan year for
serving as a director or as a member of any committee of the Board, including
retainers paid periodically and fees paid for attendance at or participation in
meetings of the Board or its committees (provided, however, committee meetings
that are held on the same days as Board meetings are not counted as separate
meetings) but not including expenses the Company reimburses for attendance at or
participation in meetings or fees for any other services to be provided to the
Company) expected to be earned by such director for the coming plan year (the
twelve-month period beginning on the first day of the third fiscal quarter of
the Company and ending on the last day of the second fiscal quarter of the
Company).

Option Shares. The number of shares of Common Stock subject to each stock
option granted to any participant for a plan year is determined by a formula
which provides that each participant will receive a stock option exercisable to
purchase that number of shares of Common Stock equal to the nearest number of
whole shares of Common Stock (with cash payment for fractional shares)
equivalent to the cash directors fees a director has elected to receive in stock
options in lieu of cash divided by the fair market value of a share of Common
Stock on the date of grant minus the option exercise price per share of Common
Stock (which is 50% of the market value of the Common Stock on the date of
grant). The number of shares of Common Stock subject to stock options is
adjusted at the end of each plan year to reflect each director's actual
attendance or participation in meetings of the Board and its committees.

18
<PAGE> 22

Transfer of Options. Stock options are not transferable other than by will
or the laws of intestate succession and may only be exercised by a participant
or (in the event of his/her disability) his/her guardian or (in the event of
death) his/her legal representative or beneficiary.

Vesting; Termination. No stock option may be exercised before the
twelve-month anniversary of the date of grant; provided, however, that stock
options become immediately exercisable upon a holder's retirement as a director
because of age, death or disability. Stock options expire twenty years from the
date of grant. Except as hereinafter provided, stock options do not terminate
upon a holder's termination as a director for any reason (including retirement
because of age, death or disability). That portion of a stock option
attributable to any portion of fees which are not earned by the holder due to
termination as a director or because of lack of attendance or participation in
meetings of the Board and its committees will automatically be canceled. Upon
the death of a participant, his/her stock options will expire on the earlier of
the first anniversary of his/her death or the specified expiration of the stock
option; provided, however, that a stock option which is not exercised prior to
the first anniversary of a holder's death shall be deemed exercised on such
first anniversary to the extent the then aggregate fair market value of the
shares subject to the stock option exceeds the aggregate exercise price thereof
and payment of such exercise price shall be effected by withholding a number of
shares of Common Stock otherwise issuable pursuant to the stock option, the fair
market value of which on such anniversary is equal to the exercise price.

Federal Income Tax Matters. The following is a summary of the current
federal income tax laws and regulations governing the issuance of stock options
under the Directors Plan and does not purport to be a complete description of
the federal income tax aspects of the Directors Plan. The summary does not
include any discussion of state, local or foreign income tax consequences or the
effect of gift, estate or inheritance taxes, any of which may be significant to
a particular participant in the Directors Plan. Each participant in the
Directors Plan should consult a tax advisor for advice pertaining to his or her
particular circumstances.

The holder of a stock option awarded under the Directors Plan will
recognize no income as a result of the grant of such option. Upon the exercise
of a stock option, a holder generally will recognize compensation income equal
to the difference between the exercise price of the stock option and the market
value of the Common Stock on the exercise date. The tax basis of the Common
Stock acquired upon the exercise of a stock option will be equal to the sum of
(i) the exercise price, and (ii) the amount included in the holder's income as a
result of the exercise of such option. Any additional gain or any loss
recognized upon the subsequent disposition of the acquired Common Stock will be
a capital gain or loss, provided that the holder holds the shares of Common
Stock as a capital asset (i.e., generally for investment purposes), and such
capital gain or loss will be a long-term capital gain or loss if the Common
Stock is held for more than one year.

The Company will, subject to the usual rule of reasonableness of
compensation and the Company satisfying its reporting requirements, be entitled
to a deduction in connection with the exercise of a stock option at such time
and to the extent that the holder recognizes ordinary income.

If a holder surrenders shares of Common Stock in payment of the exercise
price of a stock option under the Directors Plan, he will not recognize gain or
loss on his surrender of such shares, but will recognize ordinary income on the
exercise of the stock option as described above. Of the shares received in such
an exchange, that number of shares equal to the number of shares surrendered
will have the same tax basis and capital gains holding period as the shares
surrendered. The balance of the shares received will have a tax basis equal to
their fair market value on the date of exercise, and the capital gains holding
period will begin on the date of exercise.

The Directors Plan is not qualified under Section 401(a) of the Code.

Section 162(m) of the Code generally disallows publicly-held corporations a
tax deduction for compensation over $1 million paid to its chief executive
officer and certain other highly compensated employees ("Covered Employees").
Because only non-employee directors will be granted stock options under the
Directors Plan and such non-employee directors are not considered Covered
Employees under Section 162(m) of the Code, it is not expected that the
compensation element of stock options granted under the Directors Plan will be
subject to the deduction limitations of Section 162(m) of the Code.

19
<PAGE> 23

NEW PLAN BENEFITS TABLE

The following table presents information regarding stock options
anticipated to be granted under the Directors Plan to non-employee directors as
a group in the coming plan year assuming approval of the Directors Plan
Amendment and assuming that all non-employee directors elect to receive 100% of
their cash directors fees for the coming plan year in the form of discounted
stock options. The following calculations are based on an April 30, 1996 grant
date and are subject to adjustment at the end of the 1996 plan year to reflect
each director's actual attendance or participation in meetings of the Board and
its committees.

NEW PLAN BENEFITS
DISCOUNTED STOCK OPTION PLAN FOR DIRECTORS (AS AMENDED)

<TABLE>
<CAPTION>
NUMBER OF
SHARES SUBJECT
NAME AND POSITION DOLLAR VALUE TO OPTIONS(1)
- - ------------------------------------------------------------------ ------------ --------------
<S> <C> <C>
Non-employee Director Group (4 individuals)....................... $ 84,000 20,364
Nominee for election as director (1 individual)................... $ 21,000 5,091
</TABLE>

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

(1) Based on the difference between the exercise price of the stock options and
the $8.25 closing price of the Common Stock on April 29, 1996.

REASON FOR DIRECTORS PLAN AMENDMENT

Currently, the maximum number of shares of Common Stock which may be issued
pursuant to the Directors Plan is 50,000 shares of Common Stock. The Directors
Plan Amendment would increase the maximum number of shares of Common Stock
available for issuance under the Directors Plan by 100,000 shares of Common
Stock, bringing the total number of shares of Common Stock issuable under the
Directors Plan to 150,000 shares of Common Stock. The adoption of the Directors
Plan Amendment will enable the Company to continue to pay directors fees with
stock options rather than cash and to continue to attract, retain and motivate
non-employee directors. It is estimated that the current number of shares of
Common Stock authorized for issuance under the Directors Plan will be exhausted
at the Board meeting planned for June 19, 1996, following the Annual Meeting.

VOTE REQUIRED

Approval of the Directors Plan Amendment requires the presence, in person
or by proxy, of the holders of a majority of all the shares of Common Stock
entitled to notice of and to vote at the Annual Meeting and the affirmative
vote, in person or by proxy, of the holders of a majority of the shares of
Common Stock represented and entitled to vote thereon at the Annual Meeting. The
Company's principal shareholder, Mr. Robert M. Goodfriend, beneficially owns
approximately 60.5% of the outstanding shares of Common Stock and has indicated
his intention to vote his shares in favor of the approval of the Directors Plan
Amendment. Accordingly, the affirmative vote of Mr. Goodfriend will be
sufficient to approve the Directors Plan Amendment.

YOUR BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF
THE DIRECTORS PLAN AMENDMENT.

20
<PAGE> 24

CERTAIN TRANSACTIONS

On January 26, 1991, the Company redeemed all 2,651 shares of its then
outstanding preferred stock, all of which were owned by the Company's founder,
Mr. M. D. Goodfriend, and his wife, for their stated redemption value of
$2,651,000. Of such amount, $500,000 was paid in cash at closing and the balance
was funded by a promissory note from the Company which bears interest at 10% per
annum and is amortized over the ten-year term of the note. During fiscal 1995,
the Company paid $350,000 of principal and interest on this note. As of April
29, 1996, the principal balance due on this note was $1,327,000. Mr. M. D.
Goodfriend was the retiring Chairman of the Board at the time of this
transaction and is the father of Mr. Robert M. Goodfriend, the Company's current
Chairman and Chief Executive Officer.

In January 1995, the Company sold its distribution center located in
Athens, Tennessee to Citizens National Bank of Athens, Tennessee, a local bank
of which Mr. Robert M. Goodfriend is a director and less than 5% shareholder,
for $520,000, its fair market value as determined based upon an appraisal of the
property by an arms-length third party, and realized a gain of $20,000. The
Company subsequently entered into a lease with the bank in connection with this
property which expires on January 1, 1998 (subject to renewal at the option of
the Company for an additional two years), and provides for annual rental
payments of $40,000. The aggregate rental payments to the bank for this space in
fiscal 1995 were $40,000. The Company primarily uses this space for storage.

Since 1987 the Company has leased a store in Athens, Tennessee from an
irrevocable trust established for the benefit of the children of Mr. Robert M.
Goodfriend. The Athens store was originally developed as a prototype for future
store expansion and accordingly construction and development costs for this
store were higher than the Company would normally have experienced. Prior to
February 1995, the lease for this arrangement provided for annual rental
payments of $416,500 based on the amortization of the costs to construct the
store during the initial term of the lease and the real property taxes. In
February 1995, the lease for this arrangement was amended to encompass certain
retail space adjacent to the store which the Company has used as a shoe
department since October 25, 1993. The amendment increased the monthly rent by
$1,000 ($34,708 to $35,708) which reflected a calculated Company-wide cost per
square foot of retail space per square foot of sales. This calculation was
performed to determine a rate reflecting an arm's length transaction. The lease
for the store expires in May 1998 and the lease for the shoe department space
expired on July 31, 1995. Although management believes that the current annual
rental amount is reasonable (based on construction costs for the prototype
store), an Internal Revenue Service audit conducted in fiscal 1990 disallowed
$49,000 of the Company's deduction of $416,500, the then annual store rental
amount, on the basis that the rent did not reflect fair market value for the
property. The aggregate rental payments to the trust, including real property
taxes, for this space in fiscal 1995 were $443,340.

The Company maintains and pays the premiums on "split dollar" insurance
policies on the life of Mr. Robert M. Goodfriend. During fiscal 1995, the
Company paid premiums of $54,000 for one of such policies. The beneficiary under
these policies is a trust established by Mr. Goodfriend for the benefit of his
children and controlled by him. Upon the death of Mr. Goodfriend, the $35
million in benefits payable under these policies will be split between the
Company and the trust, such that the Company is first reimbursed for all premium
payments previously made by it and the remaining proceeds are paid to the trust.
The purpose of these life insurance policies is to assist the beneficiaries of
the estate of Mr. Goodfriend in paying estate taxes and thereby avoid the impact
upon the Company of a forced sale of a large number of shares of Common Stock.
The trust has assigned to the Company an interest in the cash value of the life
insurance policies to the extent of cumulative premiums paid. The Company's
balance sheet for fiscal 1995 included $1,987,000 related to these policies in
"Other assets."

As previously noted, Mr. Koppel, a director of the Company, is the
President of the East Tennessee Children's Hospital of which Mr. Goodfriend is
also a director. The Company facilitates contributions by its employees to the
Hospital through a payroll deduction plan, matches employee contributions to the
Hospital on a 100% basis, and makes direct contributions to the Hospital. The
total amount of contributions by the Company (including employee contributions)
to the Hospital in fiscal 1995 was $314,499. Such contributions represented less
than 1% of the Hospital's total revenues for its last fiscal year ended June 30,
1995.

During fiscal 1994, the employment relationship of Mr. John R. Thompson,
who had previously served as Executive Vice President -- Business Systems and
Logistics and Chief Information Officer of the Company,

21
<PAGE> 25

was terminated. The Company agreed to pay Mr. Thompson an aggregate of $100,000
in severance payments upon the termination of his employment with the Company,
such amount payable in thirteen bi-weekly payments commencing on or about
February 10, 1995. The Company also transferred title of the automobile (valued
at $28,650) to him, which the Company provided to him during his employment.
Furthermore, the Company agreed to provide for Mr. Thompson's continued
participation for a period of six months in certain fringe benefit programs.
These additional payments aggregated $7,486.

Mr. Arthur H. Griffiths, who had previously served as Senior Vice
President -- Real Estate of the Company, resigned from the Company effective
March 31, 1995, and, pursuant to a Separation Agreement and General Release
between him and the Company, the Company continued to pay him based on his
annual salary of $175,000 through October 6, 1995, and provided for his
continued participation through such date in certain fringe benefit programs.
These additional payments aggregated $8,429.

Ms. Sally R. Weaver, who had previously served as Vice President, Secretary
and General Counsel of the Company, resigned from the Company effective April
21, 1995, and pursuant to a Separation Agreement and General Release between her
and the Company, the Company continued to pay her based on her annual salary of
$155,000 through September 8, 1995, and provided for her continued participation
through such date in certain fringe benefit programs. These additional payments
aggregated $5,942. In addition, the Company transferred title of the automobile
(valued at $23,200) to her, which the Company provided to her during her
employment.

As a result of the resignation of all of the directors, other than Mr.
Goodfriend, on January 5, 1995, a Change of Control occurred under the terms of
the employment contracts with the Company and certain executive officers, and
such executive officers became entitled to receive certain performance and
retention bonuses. Certain of the executive officers agreed to accept stock
options to purchase shares of Common Stock in lieu of cash payments. In
connection therewith, during fiscal 1995, Mr. Carmen Monaco received stock
options immediately exercisable to purchase 30,000 shares of Common Stock at a
cash exercise price of $8.50 per share and Mr. John R. Thompson received
$151,667 in cash. As previously discussed, Mr. David R. Mullins received stock
options immediately exercisable to purchase 12,000 shares of Common Stock at a
cash exercise price of $8.50 per share and Mr. Edward R. Carlin received $55,000
in cash and stock options immediately exercisable to purchase 10,000 shares of
Common Stock at a cash exercise price of $8.50 per share. See "Executive
Compensation and Other Information -- Employment and Termination Arrangements
with Named Executive Officers."

From January 1990 until February 1995, the Company used as a retention
basin for the Company's corporate headquarters and distribution center certain
property owned by Mr. Goodfriend which is contiguous to the corporate
headquarters and distribution center. There was no formal or informal agreement
between the Company and Mr. Goodfriend as to reimbursement by the Company for
its use of such property until February 1995. At such time, the Board, upon the
recommendation of the Audit Committee, authorized the payment of $176,418 to Mr.
Goodfriend with respect to the Company's use of such property from January 1,
1990, through January 27, 1995, and authorized the purchase of such property for
a purchase price of $518,691. Such purchase occurred on March 30, 1995.
Management believed that the purchase of such property was necessary for the
Company since the retention basin was required to obtain a building permit for
the buildings and no other property could be used by the Company as a retention
basin without considerable extra expense. Both payments were determined based
upon appraisals of such property by arm's-length third parties. In connection
with such purchase, on March 30, 1995, the Company received a right of first
refusal from Mr. Goodfriend concerning certain land he owns that abuts the
entrance to the corporate headquarters complex. The aggregate rental payments to
Mr. Goodfriend for this space in fiscal 1995 were $5,784.

Since the commencement of construction in July 1993 with respect to an
addition to the Company's distribution center in Knoxville, the Company has used
certain property owned by Mr. Robert M. Goodfriend which is located across the
street from such distribution center as a staging area for the contractor
involved in such construction. Among other things, the contractor has used such
property for the placement of a temporary office, a holding area for
construction supplies and the parking of construction vehicles. There was no
formal or informal agreement between the Company and Mr. Goodfriend as to
reimbursement by the Company for its use of such property until February 1995.
At such time, the Board, upon the recommendation of the Audit Committee,
authorized the execution of a lease for such property with Mr. Goodfriend
providing

22
<PAGE> 26
for monthly rental payments of $1,917. These payments were determined based upon
appraisals of comparable properties by arm's-length third parties. Management
had considered using other property the Company owned as a staging area but
determined that it was not feasible since it would be too disruptive,
destructive and unsightly and the Company would have to relandscape the property
after such use. The term of the lease was from July 12, 1993 to September 30,
1995. Upon execution of the lease, the Company paid $38,333 to Mr. Goodfriend
with respect to rental payments calculated from July 12, 1993, until the date of
such execution. The aggregate rental payments to the Mr. Goodfriend for this
space in fiscal 1995 were $15,334.

AUDITORS

Deloitte & Touche LLP serves as the principal accounting firm designated to
audit the Company's financial statements. The engagement of Deloitte & Touche
LLP is not being presented for approval by the Shareholders at the Annual
Meeting; however, a representative from Deloitte & Touche LLP is expected to be
available to answer questions, if any, addressed to him or her at the Annual
Meeting and will be given the opportunity to make a statement if such
representative desires to do so.

SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING

Any shareholder of the Company wishing to submit a proposal for action at
the Company's annual meeting of shareholders to be held in 1997 and desiring the
proposal to be considered for inclusion in the Company's proxy materials
relating thereto must provide a written copy of the proposal to the management
of the Company at its principal executive offices no later than the close of
business on February 1, 1997, and must otherwise comply with the rules of the
Commission relating to shareholder proposals.

GENERAL

Management does not know of any other matters to be presented at the Annual
Meeting for action by the Shareholders. However, if any other matter requiring a
vote of the Shareholders is properly presented at the Annual Meeting or any
adjournment(s) or postponement(s) thereof, it is intended that votes will be
cast pursuant to the proxies with respect to such matters in accordance with the
best judgment of the persons acting under the proxies.

The Company will pay the cost of the Annual Meeting and the cost of
soliciting proxies in the accompanying form (including the cost of mailing the
proxy material). The Company has engaged Corporate Communications, Inc. to
distribute and solicit proxies for the Annual Meeting at an expected cost of
$15,000 (which amount includes mailing and shipping costs), plus reasonable
expenses. The Company has requested that brokerage houses and other custodians,
nominees and fiduciaries forward proxy and other soliciting materials to their
principals, the beneficial owners of Common Stock, and will reimburse them for
their reasonable out-of-pocket expenses.

A list of the Shareholders will be available at the Company's corporate
offices located at 400 Goody's Lane, Knoxville, Tennessee, for inspection by
Shareholders during regular business hours from April 29, 1996, to the date of
the Annual Meeting. The list also will be available during the Annual Meeting
for inspection by Shareholders who are present.

ANNUAL REPORT

A copy of the Company's 1995 Annual Report to Shareholders is enclosed
herewith. The Annual Report is not part of the proxy solicitation material.

/s/ Edward R. Carlin
-------------------------
Edward R. Carlin
Secretary
May 17, 1996

23
<PAGE> 27

APPENDIX A

GOODY'S FAMILY CLOTHING, INC.
DISCOUNTED STOCK OPTION PLAN FOR DIRECTORS

1. Purpose. The purpose of this Discounted Stock Option Plan for Directors
(the "Plan") of Goody's Family Clothing, Inc. (the "Company"), a Tennessee
corporation, is to permit the granting of stock options to Directors of the
Company who are not employees of the Company ("Directors" or a "Director") at an
exercise price less than market value at the date of grant as an alternative to
the payment of Directors' fees in cash, thereby advancing the interests of the
Company by encouraging and enabling the acquisition of its common stock by
Directors whose judgment and ability are relied upon by the Company for the
attainment of its long-term growth and development. Accordingly, the Plan is
intended to promote a close identity of interests among the Company, the
Directors, and its shareholders, as well as to provide a means to attract and
retain well-qualified Directors.

2. Effective Date and Term of Plan. The Plan shall become effective upon
such date as it may be approved by the shareholders of the Company and shall
remain in effect for ten years from the date on which it is so approved or until
termination by the Board of Directors of the Company (the "Board"), whichever
occurs first.

3. Stock Subject to the Plan. There are authorized for issuance or
delivery upon the exercise of options to be granted from time to time under the
Plan an aggregate of 50,000 shares of the Company's common stock, no par value
("Common Stock"), subject to adjustment as provided hereinafter in Section 6.
Such shares may be, as a whole or in part, authorized but unissued shares,
whether now or hereafter authorized, or issued shares which have been reacquired
by the Company. If any option issued under this Plan shall expire, terminate or
be canceled for any reason without having been exercised in full, the shares of
Common Stock which have not been purchased thereunder shall again become
available for the purposes of this Plan.

4. Plan Administration:

(a) The Plan shall be administered by the Compensation Committee (the
"Committee"), which shall consist of not less than two Directors appointed
by the Board.

(b) The Committee shall have full and final authority to interpret the
Plan, adopt, amend and rescind rules and regulations relating to the Plan,
and make all other determinations and take all other actions necessary and
advisable for the administration of the Plan.

(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be
conclusive. No member of the Committee shall be liable for any action taken
or decision made in good faith relating to this Plan or any grant
hereunder.

(d) An Administrator of the Plan may from time to time be appointed by
the Committee. If appointed, such Administrator shall be responsible for
the general administration of the Plan under the policy guidance of the
Committee. The Administrator shall be in the employ of the Company, and
shall be compensated for services and expenses by the Company according to
its normal employment policies without special or additional compensation,
other than reimbursement of expenses, if any, for his or her services as
the Administrator.

5. Terms and Conditions: Stock Option Awards. Each option granted under
the Plan shall be evidenced by a written award document in such form, not
inconsistent with this Plan, as the Committee shall approve from time to time,
which document shall comply with and be subject to the following terms and
conditions:

(a) Option Grant Dates. Options shall be granted as of the date of
the annual organizational meeting of the Board which is held following the
Company's annual meeting of shareholders, to any Director who, no later
than the date of such annual organizational meeting of the Board (and
subject to such other rules as the Committee may adopt from time to time),
has filed with the Company an

A-1
<PAGE> 28
irrevocable election to receive a stock option in lieu of all or a
specified portion (expressed in terms of a percentage of Annual Director
Compensation) of the Annual Director Compensation (as defined in Subsection
5(b)) expected to be earned by such Director for a twelve-month period
beginning on the first day of the third fiscal quarter of the Company and
ending on the last day of the second fiscal quarter of the Company ("the
Plan Year"). A separate election must be made for each Plan Year, although
a Director may specify that a particular election shall apply to future
Plan Years unless amended or revoked: provided, however, that no amendment
or revocation may be made during a Plan Year with respect to such Plan
Year. The Director shall not be entitled to receive in cash any portion of
Annual Director Compensation for which an election has been made to receive
an option.

(b) Option Formula. The number of shares of Common Stock subject to
each option granted to any Director for a Plan Year shall be equal to the
nearest number of whole shares of Common Stock with cash payment for
fractional shares, determined in accordance with the following formula:

<TABLE>
<S> <C> <C>
Annual Director Compensation
-------------------------------- = Number of Shares
Fair Market Value minus Option
Exercise Price
</TABLE>

"Option Exercise Price" and "Fair Market Value" shall be defined as set forth in
Subsection 5(c). "Annual Director Compensation" shall mean the amount of fees
which the Director will be entitled to receive during a Plan Year for serving as
a Director or as a member of any committee of the Board pursuant to the policy
in effect for each Plan Year, including retainers paid periodically and fees
paid for attendance at or participation in meetings of the Board of any
committee thereof; provided, however, that if a Director elects to receive a
stock option in lieu of only a portion of the Annual Director Compensation, the
Annual Director Compensation for purposes of the foregoing formula shall equal
the portion of the Annual Director Compensation so elected. To the extent that a
portion of Annual Director Compensation includes fees for attending or
participating in meetings of the Board or any committee thereof, for purposes of
the election to be made pursuant to Subsection 5(b), the Committee shall advise
each director, in advance of the next Plan Year, of the number of such meetings
anticipated to be held during such Plan Year and the election may take the fees
related thereto into account. To the extent fewer or greater such meetings are
actually held during the Plan Year, an appropriate adjustment shall be made in
the number of shares of Common Stock subject to any option awarded. For purposes
of this Plan, "Annual Director Compensation" shall not include expenses
reimbursed by the Company for attendance at or participation in meetings of the
Board or any committee of the Board or fees for any other services to be
provided to the Company.

(c) Option Exercise Price. The Option Exercise Price refers to the
per share purchase price for Common Stock subject to each option granted
under the Plan and that per share purchase price shall be fifty (50%) of
the Fair Market Value of the Common Stock on the date the option is
granted. "Fair Market Value" with regard to a date means the closing price
at which a share of Common Stock shall have been sold on the last trading
date prior to that date as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") (or, if
applicable, as reported by a national securities exchange selected by the
Committee on which the shares of Common Stock are then actively traded) and
published in The Wall Street Journal.

(d) Term and Exercise of Option. Options may be exercised only by
written notice to the Company. Payment for all shares of Common Stock
purchased pursuant to exercise of an option shall be made (a) in cash; (b)
by delivery to the Company of a number of shares of Common Stock which have
been beneficially owned by the Director for at least (6) months prior to
the date of exercise having an aggregate Fair Market Value of not less than
the product of the exercise price multiplied by the number of shares the
participant intends to purchase upon exercise of the option on the date of
delivery; or (c) in a cashless exercise through a broker. Payment shall be
made at the time that the option or any part thereof is exercised, and no
shares shall be issued or delivered upon exercise of an option until full
payment has been made by the participant. No option granted under the Plan
may be exercised before the twelve-month anniversary of the date upon which
it was granted; provided, however, that any option granted under the Plan
shall become immediately exercisable upon the retirement of the Director

A-2
<PAGE> 29

because of age, death or disability. No option granted under the Plan shall
be exercisable after the expiration of twenty years from the date upon
which it is granted. Each option shall be subject to termination before its
date of expiration as hereinafter provided in subsections 5(e) and 5(f).

(e) Termination of Directorship. Except as herein provided, the
rights of a Director in an option granted under the Plan shall not
terminate upon such Director's termination as a Director for any reason
(including retirement because of age, death or disability). That portion of
an option granted under the Plan which is attributable to any portion of
the Annual Director Compensation which is not earned due to termination as
a Director or as a member of a committee of the Board (for any reason) or
because of lack of attendance or participation in any meeting of the Board
or any committee thereof shall automatically abate and be canceled.

(f) Death of Director. Any option granted to a Director and
outstanding on the date of his or her death may be exercised by the
administrator of such Director's estate, the executor under his or her
will, or the person or persons to whom the option shall have been validly
transferred by such executor of administrator pursuant to the will or laws
of intestate succession, but not beyond the first to occur of (i) the first
anniversary of the Director's death, or (ii) the specified expiration date
of the option; provided, however, that an option that is not exercised
prior to the first anniversary of the Director's death shall be deemed
exercised on the first anniversary of the date of death to the extent the
then aggregate Fair Market Value of the shares subject to the option
exceeds the aggregate Option Exercise Price and payment of such exercise
price shall be effected by withholding a number of shares of Common Stock
otherwise issuable pursuant to the option the Fair Market Value of which on
such anniversary is equal to the exercise price. If the Fair Market Value
of the Stock on the first anniversary of the Director's death equals or is
less than the option exercise price, then the option shall be deemed to
have expired unexercised.

6. Changes in Capitalization. If the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities, or if additional shares of other property (other than
ordinary cash dividends) are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, dividend, stock split, reverse stock split,
spin-off, split-off or other distribution with respect to such shares of common
stock, or other securities, an appropriate and proportionate adjustment may be
made in (i) the maximum number and kind of shares reserved for issuance under
the Plan, (ii) the number and kind of shares or other securities subject to then
outstanding options under the Plan, and (iii) the price for each share subject
to any then outstanding options under the Plan. No fractional shares will be
issued under the Plan on account of any such adjustments.

7. Limitation of Rights:

(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option, nor any other action taken pursuant to the Plan,
shall constitute evidence of any agreement or understanding, express or
implied, that the Company will retain a participant as a Director for any
period of time, or at any particular rate of compensation.

(b) No Shareholders' Rights for Options. The holder of an option
granted under the Plan shall have no rights as a shareholder with respect
to the shares covered by his or her options until the date of the issuance
to such holder of a stock certificate therefor, and no adjustment will be
made for dividends or other rights for which the record date is prior to
the date such certificate is issued.

(c) No Right to Participate as an Employee Director. A Director's
right to participate in the Plan shall automatically terminate if and when
a Director becomes an employee of the Company. That portion of an option
granted under the Plan which is attributable to any Unearned Annual
Director Compensation shall automatically abate and be canceled. "Unearned
Annual Director Compensation" shall mean any portion of Annual Director
Compensation which relates to attendance or participation in any meeting of
the Board or any committee thereof occurring after the date the Director's
employment by the Company commences, or which consists of a retainer earned
after such date.

A-3
<PAGE> 30

8. Transferability:

(a) Options are not transferable other than by will or the laws of
intestate succession. No transfer by will or by the laws of intestate
succession shall be effective to bind the Company unless the Committee
shall have been furnished with a copy of the deceased participant's will or
such other evidence as the Committee may deem necessary to establish the
validity of the transfer.

(b) Only the participant, or in the event of disability, his or her
guardian, or in the event of death, his or her other legal representative
or beneficiary, may exercise options and receive deliveries of shares.

9. Amendment, Modification and Termination. The Board at any time may
terminate and in any respect amend or modify the Plan; provided, however, that
no such action by the Board, without approval of the Company's shareholders, may
(i) increase the total number of shares of Common Stock available under the Plan
in the aggregate (except as otherwise provided in Section 6), (ii) extend the
period during which any option may be exercised, (iii) extend the term of the
Plan, (iv) change the option price or (v) alter the class of persons eligible to
receive options. No amendment, modification or termination of the Plan shall in
any manner adversely affect the rights of any participant with respect to an
option previously granted.

10. Notice. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Corporate Secretary of the
Company and shall become effective when it is received.

11. Restrictions on Delivery and Sale of Shares: Legends. Each option is
subject to the condition that if at any time the Committee, in its discretion,
shall determine that the listing, registration or qualification of the shares
covered by such option upon any securities exchange or under any state or
federal law is necessary or desirable as a condition of or in connection with
the granting of such option or the purchase or delivery of shares thereunder,
the delivery of any or all shares pursuant to such option may be withheld unless
and until such listing, registration or qualification shall have been effected.
If a registration statement is not in effect under the Securities Act of 1933 or
any applicable state securities laws with respect to the shares of Common Stock
purchasable or otherwise deliverable under options then outstanding, the
Committee may require, as a condition of exercise of any option or as a
condition to any other delivery of Common Stock pursuant to an option, that the
Director represent, in writing, that the shares received pursuant to the option
are being acquired for investment and not with a view to distribution and agree
that the shares will not be disposed of except pursuant to an effective
registration statement, unless the Company shall have received an opinion of
counsel that such disposition is exempt from such requirement under the
Securities Act of 1933 and any applicable state securities laws. The Company may
include on certificates representing shares issued pursuant to an option such
legends referring to the foregoing representations or restrictions or any other
applicable restrictions on resale as the Company, in its discretion, shall deem
appropriate.

GOODY'S FAMILY CLOTHING, INC.

By:

------------------------------------
Chairman of the Board

ATTEST:

- - --------------------------------------
Secretary

[CORPORATE SEAL]

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[GOODY'S FAMILY CLOTHING LOGO]
<PAGE> 32
APPENDIX A

PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GOODY'S FAMILY
CLOTHING, INC.

The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders and Proxy Statement, each dated May 17, 1996, and does hereby
appoint Mr. Robert M. Goodfriend and Mr. Harry M. Call, or either of them, with
full power of substitution, as proxy or proxies of the undersigned to represent
the undersigned and to vote all shares of Common Stock of Goody's Family
Clothing, Inc. (the "Company") which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Shareholders of the Company to be
held at 10:00 a.m. (EDT) on Wednesday, June 19, 1996, at the Company's corporate
headquarters located at 400 Goody's Lane, Knoxville, Tennessee, and at any
adjournment(s) or postponement(s) thereof, hereby revoking all proxies
heretofore given with respect to such stock:

1. ELECTION OF DIRECTORS

<TABLE>
<S> <C>
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>

NOMINEES: IRWIN L. LOWENSTEIN and CHERYL L. TURNBULL as Class I Directors
(for a term expiring at the 1999 Annual Meeting of Shareholders)

(INSTRUCTION: to withhold authority to vote for any individual nominee, write
that nominee's name in the space provided.)

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

2. APPROVAL OF AMENDMENT TO DISCOUNTED STOCK OPTION PLAN FOR DIRECTORS

/ / FOR / / AGAINST / / ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) OR
POSTPONEMENT(S) THEREOF.

TO BE SIGNED ON OTHER SIDE

(Continued from front)
This Proxy, when properly executed, will be voted in accordance with the
directions given by the undersigned shareholder. If no direction is made, it
will be voted in favor of the election of the nominees for director named
herein and approval of an amendment to the Discounted Stock Option Plan for
Directors.

(Signature(s))

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

Dated:
----------------------

Please sign exactly as
name(s) appears hereon, and
when signing as attorney,
executor, administrator,
trustee or guardian, give
your full title as such. If
the signatory is a
corporation, sign the full
corporate name by a duly
authorized officer. When
shares are held by joint
tenants, both should sign.

PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY