GOODYS FAMILY CLOTHING INC /TN, DEF 14A, 1998-05-15

GOODYS FAMILY CLOTHING INC /TN
DEF 14A, 1998-05-15
FAMILY CLOTHING STORES

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] 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
</TABLE>

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] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 Fellow Shareholder:

On behalf of the Board of Directors and management, I cordially invite you
to attend the annual meeting of shareholders to be held at 10:00 a.m. on
Wednesday, June 17, 1998 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 1997
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 1997, 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 vote.

I look forward to seeing you at the meeting.

Sincerely yours,

/S/ Robert M. Goodfriend

Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer

Knoxville, Tennessee
May 15, 1998
<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. on Wednesday,
June 17, 1998 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 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 27, 1998 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 15, 1998
<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 17, 1998 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 15,
1998 to the shareholders of record of the Company (individually, a "Shareholder"
and collectively, the "Shareholders") at the close of business on April 27, 1998
(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 FOR the election as directors of the Company of the two nominees
listed in this Proxy Statement. 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 16,486,090 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 27,
1998 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.

The terms "fiscal 1995," "fiscal 1996," "fiscal 1997," "fiscal 1998" and
"fiscal 1999" as used herein refer to the Company's fiscal years ended February
3, 1996, February 1, 1997 and January 31, 1998 and the Company's fiscal years
ending January 30, 1999 and January 29, 2000, respectively.

YOUR BOARD OF DIRECTORS URGES YOU TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
<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 Pilgrim Baxter & Associates, Ltd. and the other 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, 1997) for (i) each person known by the Company to beneficially own
more than five percent (5%) of the outstanding shares of Common Stock, (ii) each
of the executive officers of the Company named in the "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 sixty (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 one percent (1%) of the outstanding shares of Common
Stock.

<TABLE>
<CAPTION>
Number of Shares and Nature of Beneficial
Ownership at April 27, 1998(1)
----------------------------------------------------
Number of
Shares in
Voting or Investment Second Column
Power Percent Which May Be
--------------------- Of Acquired within
Name Sole Shared Class 60 Days(2)
- ---- ---------- ------- -------- ---------------
<S> <C> <C> <C> <C>
Robert M. Goodfriend(3)......................... 7,034,855(4) 11,250(5) 41.9% 320,000
Pilgrim Baxter & Associates, Ltd.(6)............ 1,624,600 -- 9.9% --
Harry M. Call................................... 107,705 -- * 103,000
Edward R. Carlin................................ 37,652 -- * 37,500
Thomas R. Kelly, Jr. ........................... 38,000 -- * 38,000
David R. Mullins................................ 71,000 -- * 65,750
Samuel J. Furrow................................ 2,572 -- * 2,572
Robert F. Koppel................................ 2,572 -- * 2,572
Irwin L. Lowenstein............................. 9,329 -- * 9,329
Cheryl L. Turnbull.............................. 20,921 -- * 20,921
All Directors and Executive Officers as a Group
(15 Persons).................................. 7,374,001(4) 11,950(7) 43.1% 643,344
</TABLE>

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

(1) As previously noted, the information regarding the beneficial ownership of
the outstanding shares of Common Stock held by Pilgrim Baxter & Associates,
Ltd. and the other entities referenced in footnote 6 is as of December 31,
1997.
(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 (2.5% 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, with whom Mr. Goodfriend
shares voting and investment power with respect to such shares.
(6) According to a Schedule 13G filed by Pilgrim Baxter & Associates, Ltd., a
registered investment advisor ("PBA"), as of December 31, 1997, (i) PBA was
the beneficial owner of 1,624,600 shares of the Common Stock (9.94% of the
outstanding shares of Common Stock) as a result of acting as investment
advisor to various client accounts, including 1,040,700 shares of the Common
Stock held by PBHG Growth Fund, a registered investment company managed in a
discretionary capacity by PBA. PBA has the sole discretionary power to vote
and dispose of all of the 1,624,600 shares. The address of PBA is 825
Duportail Road, Wayne, Pennsylvania 19087-5525.
(7) Voting and investment power with respect to these shares are shared with
certain family members of the respective director and/or executive officer.
See footnote 5 above.

2
<PAGE> 6

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 III
Directors, Messrs. Robert M. Goodfriend and Robert F. Koppel, will expire at the
Annual Meeting. Messrs. Goodfriend and Koppel are nominees for election at the
Annual Meeting as Class III Directors to serve until the 2001 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
Messrs. Goodfriend and Call, meet the requirements for being an Independent
Director.

Since the Board has only nominated two persons for election as Class III
Directors and has fixed the number of Class III 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 III
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 Class III Directors are elected by the affirmative
vote, in person or by proxy, of a plurality of the shares entitled to vote at
the Annual Meeting. The Company's principal shareholder, Mr. Robert M.
Goodfriend, owns approximately 42% of the outstanding shares of Common Stock and
has indicated his intention to vote his shares in favor of the election as Class
III Directors of the Company of the two nominees listed below.

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.

3
<PAGE> 7

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 III DIRECTORS -- NOMINEES FOR ELECTION AT THE ANNUAL MEETING FOR
TERM EXPIRING AT THE 2001 ANNUAL MEETING

<TABLE>
<CAPTION>
Executive
Position(s) With the Company, Principal Director Officer
Name Age Occupation and Business Experience Since Since
---- --- --------------------------------------- -------- ---------
<S> <C> <C> <C> <C>
Robert M. Goodfriend 48 Chairman of the Board of Directors and 1973 1977
Chief Executive Officer of the Company.
Robert F. Koppel 51 Director. President of East Tennessee 1995 --
Children's Hospital since August 1976.
</TABLE>

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

CLASS I DIRECTORS -- TERM EXPIRING AT THE 1999 ANNUAL MEETING

<TABLE>
<CAPTION>
Executive
Position(s) With the Company, Principal Director Officer
Name Age Occupation and Business Experience Since Since
---- --- --------------------------------------- -------- ---------
<S> <C> <C> <C> <C>
Irwin L. Lowenstein 62 Director. Executive Vice President of 1996 --
Rhodes/Heilig-Meyers Company (a pub-
licly-held specialty furniture
retailer) since February 1997.
Previously served as Chief Executive
Officer of Rhodes, Inc. (a pub-
licly-held specialty furniture
retailer) from May 1989 to January
1997, Chairman from July 1994 to
February 1997, Director from March 1977
to February 1997, President from March
1977 to July 1994 and Chief Operating
Officer from March 1977 to May 1989.
Director of L.A. T Sportswear, Inc. (a
publicly-held sportswear manufacturer
and distributor) since July 1994.
Cheryl L. Turnbull 37 Director. Director of Banc One Capital 1995 --
Corporation (a merchant bank) ("Banc
One") since January 1998. Previously
served as Vice President of Banc One
from July 1996 to December 1997. A
private investor from July 1995 to July
1996. Previously served as Managing
Director of Aston Limited Partners,
L.P. (a bank re-engineering firm) from
August 1992 to June 1995.
</TABLE>

4
<PAGE> 8

CLASS II DIRECTORS -- TERM EXPIRING AT THE 2000 ANNUAL MEETING

<TABLE>
<CAPTION>
Executive
Position(s) With the Company, Principal Director Officer
Name Age Occupation and Business Experience Since Since
---- --- --------------------------------------- -------- ---------
<S> <C> <C> <C> <C>
Harry M. Call 53 Director, President and Chief Operating 1995 1995
Officer of the Company since January
1995. Director of TREBOR of TN, Inc., a
wholly-owned subsidiary of the Company,
since October 1996. 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. Director, Chief Operating Officer
and Executive Vice President of the
Company from January 1988 to August
1993.
Samuel J. Furrow 56 Director. Chairman of Furrow Auction 1995 --
Company (a real estate and equipment
sales company) since April 1968.
Chairman of Furrow-Justice Machinery
Corporation (a six-branch industrial
and construction equipment dealer)
since September 1983. Owner of
Knoxville Motor Company - Mercedes Benz
since December 1980 and Land Rover of
Knoxville since July 1997. Director of
Southeastern Advertising Inc. (an
advertising agency) since April 1968.
Director of First American National
Bank since September 1993. Director of
Innovo Group Inc. (a publicly-held
manufacturer and supplier of sports
bags and apparel) since April 1998.
</TABLE>

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

5
<PAGE> 9

<TABLE>
<CAPTION>
Executive
Position(s) With the Company, Principal Officer
Name Age Occupation and Business Experience Since
---- --- ------------------------------------------------ ---------
<S> <C> <C> <C>
Thomas R. Kelly, Jr. 53 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.
David R. Mullins 46 Executive Vice President, Stores of the Company 1980
since December 1996. Previously served as Senior
Vice President, Store Operations from July 1994
to December 1996, Vice President, Store
Operations from August 1980 to July 1994 and a
Director of the Company from November 1991 to
October 1993.
Bruce E. Halverson 43 Senior Vice President, Planning and Allocation 1998
of the Company since January 1998. Previously
served as Vice President, Planning and
Allocation of the Company from November 1993 to
January 1998 and Vice President, Planning and
Allocation of Carter Hawley Hale, Inc. (a
publicly-held conglomerate of retail department
store chains) from November 1992 to August 1993.
Stanley B. Latacha 47 Senior Vice President, Marketing and Advertising 1997
of the Company since July 1997. Previously
served as Senior Vice President, Marketing and
Advertising of OfficeMax, Inc. (a publicly-held
office products superstore) from June 1996 to
July 1997 and Vice President, Marketing and
Sales Promotion of Richman Gordman 1/2 Price
Stores, Inc. (a regional off-price department
store) from October 1990 to June 1996.
John J. Okvath III 53 Senior Vice President, Product Development of 1998
the Company since January 1998. Previously
served as Vice President, Product Development of
the Company from August 1995 to January 1998, as
a consultant to the Company from June 1995 to
July 1995 and as Country Manager in various
capacities of Swire & Maclaine Ltd. Hong Kong (a
privately-held import/export buying agency) from
April 1988 to May 1995.
Jay D. Scussel 54 Senior Vice President, Management Information 1998
Systems of the Company since January 1998.
Previously served as Vice President, Management
Information Systems of the Company from January
1996 to January 1998, an independent consultant
from February 1995 to January 1996 and Vice
President of Systems Development of Kmart
Corporation (a publicly-held mass market
retailer) from January 1989 to February 1995.
</TABLE>

6
<PAGE> 10

MEETINGS AND COMMITTEES OF THE BOARD

During fiscal 1997, the Board met five times and 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, which consists of Messrs. Furrow and Koppel (Chair)
and Ms. Turnbull, 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 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 1997, the Audit Committee met three times.

The Compensation Committee, which consists of Messrs. Koppel and Lowenstein
and Ms. Turnbull (Chair), 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.
It is also responsible for the review and administration of the Company's stock
option plans, 401(k) plan, Employee Payroll Investment Plan and short-term
incentive compensation plan. In carrying out such responsibilities, the
Compensation Committee reviews the salaries, benefits, performance and other
incentive bonuses of key employees as well as the general terms and conditions
of the other benefit plans. During fiscal 1997, the Compensation Committee met
four times.

The Board also has a Nominating Committee, which consists of Messrs. Furrow
(Chair), Goodfriend and Lowenstein, and 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 met once during fiscal 1997.

7
<PAGE> 11

DIRECTORS' COMPENSATION

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

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 and provided further
that directors are not compensated for their participation in brief informative
telephonic 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. These 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.

Directors are also eligible to receive additional grants of stock options
under the Company's 1991 Stock Incentive Plan, 1993 Stock Option Plan and 1997
Stock Option Plan at the discretion of the Compensation Committee. The exercise
price, term and vesting of any such stock options would be determined by the
Compensation Committee at its discretion. There are 502,680 shares available for
future issuance under these plans as of May 2, 1998.

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, as well as the
monthly retainer, beginning on the first day of the third quarter of the then
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 each of the Board meetings
following the respective annual meetings of shareholders on June 21, 1995, June
19, 1996 and June 18, 1997, all non-employee directors elected to receive 100%
of their directors' fees for the 1995 Plan Year, the 1996 Plan Year and the 1997
Plan Year, respectively, in the form of discounted stock options. The
non-employee directors will be permitted to make such election for the 1998 Plan
Year at the Board meeting planned for June 17, 1998 following the Annual
Meeting.

8
<PAGE> 12

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and certain
written representations that no other reports were required, the Company
believes that all filing requirements applicable to Reporting Persons during and
with respect to fiscal 1997 were complied with on a timely basis, except that
each of Messrs. Call, Carlin and Goodfriend inadvertently failed to file one
report on a timely-basis with respect to one transaction, which transaction was
reported late by each such person on a Form 4.

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 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 promulgated under the Exchange Act
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.

9
<PAGE> 13

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 1997. 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............. 1997 600,000(2) 900,000 82,838(3) -- 35,581(4)
Chairman of the Board and 1996 550,000 825,000 82,550(3) 320,000 32,816(4)
Chief Executive Officer 1995 500,000 100,000 88,206(3) -- 29,913(4)
Harry M. Call.................... 1997 300,000 225,000 -- 115,000 12,178(5)
President and 1996 275,000 206,250 -- -- 10,876(5)
Chief Operating Officer 1995 275,000 100,000 -- 120,000 8,124(5)
Thomas R. Kelly, Jr.............. 1997 300,000 225,000 -- 150,000 3,158(6)
Executive Vice President, 1996 215,000 129,000 -- 10,000 2,216(6)
General Merchandise Manager 1995 215,000 14,000 -- 40,000 --
David R. Mullins................. 1997 235,000 141,000 -- 7,500 5,068(7)
Executive Vice President, 1996 215,000 129,000 -- 7,500 3,969(7)
Stores 1995 215,000 5,000 -- 19,500(8) 4,924(7)
Edward R. Carlin................. 1997 225,000 135,000 -- 7,500 11,254(9)
Executive Vice President, 1996 215,000 129,000 -- 7,500 5,775(9)
Chief Financial Officer and 1995 215,000 5,000 -- 45,000(8) --
Secretary
</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) Includes $417,227 of salary earned by Mr. Goodfriend but deferred and
payable in fiscal 1998 and 1999 pursuant to the terms of a Deferred
Compensation Agreement dated June 15, 1997 between Mr. Goodfriend and the
Company.
(3) Consists of (i) $66,267, $67,399 and $69,028 in fiscal 1997, 1996 and 1995,
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)
$14,982, $13,562 and $19,002 in fiscal 1997, 1996 and 1995, respectively,
for his personal use of the Company's automobiles, and (iii) $1,589 in each
of fiscal 1997 and 1996 and $176 in fiscal 1995 for the imputed value of
group life insurance benefits as to which Mr. Goodfriend's family is the
beneficiary in excess of specified amounts as determined by the Internal
Revenue Service.
(4) Consists of (i) non-cash benefits of $32,700, $30,600 and $27,042 in fiscal
1997, 1996 and 1995, 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) $2,881, $2,216 and
$2,871 in fiscal 1997, 1996 and 1995, respectively, attributable to the
Company's contributions and allocations on his behalf to the Company's
Profit Sharing Plan. This does not include interest payable amounting to
$12,824 for fiscal 1997 on Mr. Goodfriend's salary deferred and payable to
him in fiscal 1998 and 1999 (see footnote 2 above).
(5) Consists of (i) $3,308 for each of fiscal 1997, 1996 and 1995, respectively,
attributable to the Company's payment of term life insurance premiums as to
which Mr. Call's family is the beneficiary, (ii) $5,435, $5,352 and $4,816
for disability insurance premiums paid by the Company in fiscal 1997, 1996
and 1995, respectively, (iii) $2,881 and $2,216 attributable to the
Company's contributions and allocations on his behalf to the Company's
Profit Sharing Plan in fiscal 1997 and 1996, respectively, and (iv) $554
attributable to the Company's contributions on his behalf to the Company's
401(k) Plan in fiscal 1997.
(6) Consists of (i) $2,881 and $2,216 attributable to the Company's
contributions and allocations on his behalf to the Company's Profit Sharing
Plan in fiscal 1997 and 1996, respectively, and (ii) $277 attributable to
the Company's contributions on his behalf to the Company's 401(k) Plan in
fiscal 1997.

10
<PAGE> 14

(7) Consists of (i) $2,881, $2,216 and $2,871 in fiscal 1997, 1996 and 1995,
respectively, attributable to the Company's contributions and allocations on
his behalf to the Company's Profit Sharing Plan, (ii) $812 for each of
fiscal 1997, 1996 and 1995 attributable to the Company's payment of annuity
premiums, (iii) $941, $941 and $1,241 for fiscal 1997, 1996 and 1995,
respectively, for disability insurance premiums paid by the Company and (iv)
$434 attributable to the Company's contributions on his behalf to the
Company's 401(k) Plan in fiscal 1997.
(8) Includes stock options to purchase 7,500 and 35,000 shares of Common Stock
issued to Messrs. Mullins and Carlin, respectively, as a result of the
repricing of previously issued stock options.
(9) Consists of (i) $939 for each of fiscal 1997 and 1996, respectively,
attributable to the Company's payment of term life insurance premiums as to
which Mr. Carlin's family is the beneficiary, (ii) $6,419 and $2,620 for
disability insurance premiums paid by the Company in fiscal 1997 and 1996,
respectively, (iii) $2,881 and $2,216 attributable to the Company's
contributions and allocations on his behalf to the Company's Profit Sharing
Plan in fiscal 1997 and 1996, respectively, (iv) $415 attributable to the
Company's contributions on his behalf to the Company's 401(k) Plan in fiscal
1997 and (v) $600 received as a director's fee from two of the Company's
wholly-owned subsidiaries in fiscal 1997.

TABLE II -- OPTION GRANTS IN FISCAL 1997

The following table presents information regarding stock options to
purchase shares of Common Stock granted in fiscal 1997 to the named executive
officers. No Stock Appreciation Rights ("SARs") were granted in fiscal 1997.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants (1) for Option Term (2)
-------------------------------------------------------------- ---------------------
% of Total Exercise
Number of Securities Options or
Underlying Granted Base
Options Granted to Employees in Price Expiration 5% 10%
Name (#) Fiscal Year(3) ($/Sh) Date ($) ($)
---- -------------------- --------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Goodfriend............ -- -- -- -- -- --
Harry M. Call(4)................ 15,000 2.78% 20.00 3/18/07 188,605 477,929
Harry M. Call(5)................ 100,000 18.53% 22.38 5/29/07 1,406,991 3,565,350
Edward R. Carlin(4)............. 7,500 1.39% 20.00 3/18/07 94,302 238,964
Thomas R. Kelly, Jr.(4)......... 10,000 1.85% 20.00 3/18/07 125,736 318,619
Thomas R. Kelly, Jr.(5)......... 100,000 18.53% 22.38 5/29/07 1,406,991 3,565,350
Thomas R. Kelly, Jr.(6)......... 40,000 7.41% 22.38 5/29/07 562,796 1,426,140
David R. Mullins(4)............. 7,500 1.39% 20.00 3/18/07 94,302 238,964
</TABLE>

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

(1) All stock options granted to the named executive officers as shown in the
above table 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, (ii) thirty days after the
optionee ceases to be an employee of the Company for any reason other than
death or disability and (iii) the first anniversary of the optionee's death
or disability.
(2) The dollar amounts in 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.
(3) The percentage of stock options granted to each named executive officer is
based on a total number of stock options granted amounting to 539,765 during
fiscal 1997.
(4) These stock options were granted on March 19, 1997 and vest in equal annual
increments over five years from the date of grant.
(5) These stock options were granted on May 30, 1997 and vest at the end of five
years from the date of grant.
(6) These stock options were granted on May 30, 1997 and vest in equal annual
increments over five years from the date of grant.

11
<PAGE> 15

TABLE III -- AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND
FISCAL YEAR-END OPTION VALUES

The following table presents information regarding the value realized by
named executive officers upon exercise of stock options during fiscal 1997 and
the value of unexercised stock options held by them at January 31, 1998. There
were no SARs exercised in fiscal 1997 and there are no SARs outstanding.

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End at FY-End
Shares (#) ($)(1)
Acquired on Value ---------------------- --------------------
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
Robert M. Goodfriend... -- -- 320,000/0 5,380,000/0
Harry M. Call.......... 20,000 475,000 80,000/135,000 2,060,000/1,915,750
Edward R. Carlin....... 7,000 166,250 27,500/34,500 634,610/734,865
Thomas R. Kelly, Jr.... -- -- 18,000/182,000 461,240/2,619,260
David R. Mullins....... -- -- 61,250/18,000 1,541,478/357,510
</TABLE>

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

(1) Represents the value of unexercised, in-the-money stock options at January
30, 1998 (the last trading day of fiscal 1997), using the $34.25 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. However, the Compensation Committee and Mr. Goodfriend have
agreed to the material terms of an employment contract, and the Compensation
Committee has retained counsel to draft the employment contract and related
documentation. Such employment contract and related documentation are expected
to be finalized during fiscal 1998. See "Compensation Committee Report."

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 these 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 ($300,000
in the case of Mr. Call, which amount was increased to $325,000 effective
February 1998, and $250,000 in the case of Mr. Kelly, which amount was increased
to $300,000 effective February 1997, and to $325,000 effective February 1998)
and is eligible to receive target performance bonuses of up to a certain
percentage of his base salary (50% in the case of Mr. Call and 40% in the case
of Mr. Kelly, which percentage was increased to 50% effective for fiscal 1997
and thereafter) for each fiscal year he is employed if the Company achieves
certain goals for such fiscal year. Certain performance objectives for fiscal
1997 were achieved resulting in performance bonus payouts of 150% of target
performance bonuses, and, accordingly, Messrs. Call and Kelly each received
$225,000 as performance bonuses for fiscal 1997. 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 exercisable 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 vested 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
exercisable to purchase 40,000 shares of Common Stock at a cash exercise price
of $8.50 per share which vest over a five year period in equal annual increments
from the date of grant.

12
<PAGE> 16

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 contracts, 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 ($225,000 in the case of Mr. Carlin, which amount
was increased to $250,000 effective February 1998, and $235,000 in the case of
Mr. Mullins, which amount was increased to $250,000 effective February 1998),
and is eligible to receive target performance bonuses of up to a certain
percentage of his base salary (35% in the case of Mr. Carlin, which percentage
was increased to 40% effective for fiscal 1996 and thereafter, and 40% in the
case of Mr. Mullins) for each fiscal year he is employed if the Company achieves
certain goals for such fiscal year. Certain performance objectives for fiscal
1997 were achieved resulting in performance bonus payouts of 150% of target
performance bonuses, and, accordingly, Messrs. Carlin and Mullins received
$135,000 and $141,000, respectively, as performance bonuses for fiscal 1997. 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 of shareholders. 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 be immediately 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 Agreement 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.

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
13
<PAGE> 17

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, 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 was obligated to
fund its anticipated payments to such executive through the Goody's Family
Clothing, Inc. 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.

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.

New Compensatory Arrangements. The Company recently approved a form
employment contract for Mr. Call, its President and Chief Operating Officer, and
for each of its executive vice presidents, including Messrs. Carlin, Kelly and
Mullins. Upon execution of these contracts, which is anticipated to occur before
the Annual Meeting, any current employment contracts or other arrangements with
such employees will be terminated and replaced with the new contract. Pursuant
to such employment contract, the executive will be considered an at-will
employee, and his employment may be terminated at any time subject to the
obligations set forth in the contract. The contract will set the executive's
annual base salary ($325,000 in the case of Messrs. Call and Kelly, to be
increased to $350,000 effective January 31, 1999; and $250,000 in the case of
Messrs. Carlin and Mullins), which amount may be increased by the Company in its
discretion, and the executive will continue to participate in the Company's
short-term incentive plan whereby he will be eligible to receive target
performance bonuses of a certain percentage (as set forth in his contract, 50%
in the case of Messrs. Call and Kelly and 40% in the case of Messrs. Carlin and
Mullins) of his base salary for each fiscal year he is employed if the Company
achieves certain goals for such fiscal year. Each of Messrs. Call's and Kelly's
contract also will continue to provide him with a guaranteed annual bonus of
$100,000. The employment contract also will provide for a disability insurance
policy and an annuity contract or life insurance policy and contain
confidentiality and non-solicitation provisions.

Under the terms of the employment contract, if the executive's employment
is terminated by reason of his death, Disability (as defined in the contract) or
retirement on or after the attainment of age sixty-five (65) or is terminated
for Cause (as defined in the contract) or voluntarily terminated by the
executive (other than on account of Constructive Termination, as defined in the
contract), the Company will be 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, earned but unpaid 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 (collectively, the "Accrued Obligations"). If the executive's
employment is terminated by reason of his death or Disability, the Company will
have the additional obligation, subject to the terms of the short-term incentive
plan and further provided that the executive has been employed by the Company
for the first six (6) months of the then applicable fiscal year, to pay an
amount equal to a pro-rated portion of the performance bonus for such fiscal
year. Furthermore, if the executive's employment is terminated by reason of his
retirement on or after the attainment of age sixty-five (65) or Disability, the
Company will pay the premiums (to the same extent paid prior to termination) for
the continued participation
14
<PAGE> 18

of the executive for a period of twelve (12) months after termination in any
individual life insurance policy on the same terms as the executive and the
Company were participating prior to termination. Moreover, if the executive's
employment is terminated by reason of his death, retirement on or after the
attainment of age sixty-five (65) or Disability, the Company will, for a period
of twelve (12) months after termination, pay the entire COBRA premium under any
Company medical and dental program that the executive (and his spouse and
eligible dependents) was participating in prior to termination.

The employment contract further provides that if the Company terminates the
executive's employment other than for Cause or his Disability or death, or the
executive terminates his employment for Constructive Termination, the Company
will pay the executive a lump sum payment equal to (i) all Accrued Obligations,
(ii) twelve (12) months of the executive's base salary at the rate in effect as
of the date when the Notice of Termination (as defined in the contract) was
given and (iii) subject to the terms of the short-term incentive plan and
further provided that the executive has been employed by the Company for the
first six (6) months of the then applicable fiscal year, a pro-rated portion of
the performance bonus for such fiscal year. Further, in the case of a
Constructive Termination or termination by reason of death or Disability, all
unvested stock options held by the executive will become fully vested, effective
on the Date of Termination (as defined in the contract), and will be thereafter
exercisable in accordance with the provisions of the applicable plan and award
agreement.

In addition, the employment contract will provide that upon the occurrence
of a Change of Control of the Company (as defined in the contract), as
consideration for assisting the Company in bringing about a successful
transaction, the executive will be entitled to receive a lump sum payment equal
to eighteen (18) months of the executive's base salary at the rate in effect as
of the Change of Control Date (as defined in the contract).

The Board also recently amended each of the Company's 1991 Stock Incentive
Plan, 1993 Stock Option Plan and 1997 Stock Option Plan to provide that, upon
the occurrence of a Change of Control (as defined in such plan), all stock
options granted under such plan that are outstanding and not yet vested will
become immediately 100% vested effective on a Change of Control Date (as defined
in such plan) and shall be thereafter exercisable in accordance with the terms
of such plan and any applicable award agreement, subject to certain exceptions.

Goody's Family Clothing, Inc. Benefit Protection Trust Agreement. The
Company entered into such trust agreement on November 15, 1994. First Tennessee
Bank served as trustee (the "Trustee") under this trust agreement. 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 was obligated to contribute an amount equal
to all severance payments that were or could become due to covered executives as
a result of such Change of Control. Under the trust agreement, the Trustee held
and invested contributions by the Company as a single trust but maintained
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 would become entitled to a distribution
from the trust at any time such executive was 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. The trust terminated on April 6, 1998 in accordance with its terms, and
the trust's assets aggregating approximately $1.6 million were distributed to
the Company.

15
<PAGE> 19

COMPENSATION COMMITTEE REPORT

Background. The Company currently has eleven executive officers and six
directors. Three of the non-employee directors, Messrs. Koppel and Lowenstein
and Ms. Turnbull (Chair), comprise the Compensation Committee.

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. Currently, 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. Base salary levels for the Company's executives are designed
to be reflective of competitive conditions in the marketplace for executives of
comparable talent and experience and are based upon responsibility and
performance. Base salaries are generally recommended by management for the
review and approval of the Compensation Committee and the Board (subject to
applicable employment contracts). The employment contracts for certain of the
executives are described above under "Employment and Termination Arrangements
with Named Executive Officers." Mr. Goodfriend, the Company's principal
shareholder and Chief Executive Officer, does not currently have an employment
contract with the Company and his compensation is discussed in greater detail
below.

Short-Term Incentive Compensation. The short-term incentive compensation
component consists of target performance bonuses for eligible executives which
are calculated as a percent of their base salaries (ranging between 10% and
100%). Each year, the target earnings (which are based upon prebonus and pretax
earnings) of the Company are established by the Compensation Committee with the
assistance of management and approved by the Board. Each participating executive
is eligible to receive between 0% and 150% of their respective target
performance bonus depending upon the Company's performance. Upon management's
recommendation, the Compensation Committee, with the approval of the Board, has
the discretion to award additional bonuses outside of this plan if warranted by
an executive officer's exceptional service to the Company. Certain performance
objectives relating to increases in the Company's prebonus and pretax earnings
for fiscal 1997 were achieved resulting in performance bonus payouts of 150% of
target performance bonuses, and, accordingly, performance bonuses aggregating
$2,095,806 were awarded to the executive officers of 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 result of negotiations between
the Company and the recipient.

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<PAGE> 20

CEO Compensation. Mr. Goodfriend does not have an employment contract with
the Company and thus his compensation is determined annually by the full Board
(other than Mr. Goodfriend) based on his compensation in prior years and the
compensation of CEO's of similarly-sized companies in the retail industry. From
February 1993 until August 1996, Mr. Goodfriend's annual base salary was
$500,000, which was increased to $600,000 effective August 1996, and he also
received guaranteed bonuses of $100,000 for each of fiscal 1995, 1996 and 1997.
Moreover, since fiscal 1994, Mr. Goodfriend has been participating in the
short-term incentive compensation plan discussed above and was eligible to
receive a performance bonus of up to 150% of his base salary for fiscal 1997 if
the Company met the predetermined target levels of its earnings, as discussed
above, for such fiscal year. Because certain performance objectives for fiscal
1997 were achieved resulting in performance bonus payouts of 150% of target
performance bonuses, Mr. Goodfriend received $900,000 as a performance bonus,
which includes his $100,000 guaranteed bonus. Prior to fiscal 1996, Mr.
Goodfriend did not participate in any of the Company's stock option plans; as a
result, in December 1996, in connection with the review of his employment
arrangement discussed below, he was granted options immediately exercisable to
purchase 320,000 shares of Common Stock at a cash exercise price of $17.44 per
share (the closing sales price of the Common Stock on The Nasdaq Stock Market
for the day preceding the date of grant) which expire five years from the date
of grant. In March 1998 in connection with the annual review of option awards
for executives, Mr. Goodfriend was granted options exercisable to purchase
30,000 shares of Common Stock at a cash exercise price of $42.91 per share (the
closing sales price of the Common Stock on The Nasdaq Stock Market for the day
preceding the date of grant) which expire ten years from the date of grant and
vest in equal annual increments over five years from the date of grant.

The Compensation Committee has decided that the Company should formalize
its employment arrangements with Mr. Goodfriend, especially in light of Mr.
Goodfriend's devotion and dedication to the Company and his significant
contributions to the Company's improved financial results. Accordingly, the
Compensation Committee engaged an independent compensation consultant to review
Mr. Goodfriend's compensation and to propose fair and reasonable employment and
compensation arrangements reflecting an increased emphasis on the relationship
between compensation and the Company's performance. Ms. Turnbull, as chairperson
of the Compensation Committee, supervised the consultant's efforts. The
consultant met with the Compensation Committee on several occasions to discuss
its progress. As a result of these discussions the Compensation Committee has
approved the material terms of an employment contract with Mr. Goodfriend and
authorized the drafting of an employment contract and related documents
reflecting such terms. These material terms include, among other things, a
three-year "evergreen" employment term; an annual base salary of $600,000; an
annual guaranteed bonus of $100,000; and continued participation in the
short-term incentive compensation plan described above. The Compensation
Committee expects that the employment contract and related documentation will be
finalized during fiscal 1998.

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction for compensation over $1 million
paid to the Company's chief executive officer and certain other highly
compensated executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. The total cash
and non-cash compensation which was paid to Mr. Goodfriend in fiscal 1997 was in
excess of $1 million primarily as a result of the performance bonus he earned
due to the Company's unprecedented operating results for fiscal 1996. The
Company and Mr. Goodfriend entered into a deferred compensation agreement in
June 1997 whereby a portion of his salary was deferred and will be paid to him
in fiscal 1998 and 1999 thereby enabling the Company to deduct a majority of the
compensation paid to Mr. Goodfriend in fiscal 1997. The short-term incentive
compensation plan adopted by the Company and approved by the shareholders in
June 1997 complies with the requirements under Code Section 162(m) regarding
qualifying performance-based compensation to provide for the deductibility of
compensation payable thereunder. Accordingly, the Compensation Committee expects
that

17
<PAGE> 21

Mr. Goodfriend's compensation to be paid in fiscal 1998 will be deductible. It
is not currently expected that any other executive of the Company will receive
compensation in excess of $1 million for fiscal 1998.

COMPENSATION COMMITTEE

CHERYL L. TURNBULL (CHAIR)
ROBERT F. KOPPEL
IRWIN L. LOWENSTEIN

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, and shall not otherwise be deemed filed under such
Acts.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Decisions on executive compensation in fiscal 1997 were made by the
Compensation Committee (and approved by the Board) upon the recommendation of
the Company's Chairman of the Board and Chief Executive Officer and its
President and Chief Operating Officer (other than, in each case, with respect to
such executive's own compensation). The Compensation Committee currently
consists of Messrs. Koppel and Lowenstein and Ms. Turnbull (Chair), 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."

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<PAGE> 22

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 fiscal 1993 through fiscal 1997. 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 on January 30, 1993 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

<TABLE>
<CAPTION>
GOODY'S
MEASUREMENT PERIOD FAMILY S&P 500
(FISCAL YEAR COVERED) CLOTHING, INC. INDEX PEER GROUP
<S> <C> <C> <C>
1992 100 100 100
1993 56.90 112.88 89.65
1994 35.17 113.48 73.38
1995 32.11 157.35 73.03
1996 84.93 198.80 116.33
1997 141.89 252.30 210.53
</TABLE>

19
<PAGE> 23

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 1997,
the Company paid $350,000 of principal and interest on this note. As of April
27, 1998, the principal balance due on this note was $871,000. 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 of the Board 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 currently expires on December 31, 1999 and provides for annual
rental payments of $40,000. The aggregate rental payments to the bank for this
space in fiscal 1997 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. The
lease for the store expires in May 1998, however, the Company is currently
negotiating a new lease for this location with such trust which it expects to
finalize during fiscal 1998. 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 1997 were $441,874.

The Company maintains and pays the premiums on "split dollar" insurance
policies on the life of Mr. Robert M. Goodfriend. During fiscal 1997, 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 1997 included $1,930,000 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 and matches employee contributions to
the Hospital on a 100% basis. The Company also makes additional contributions
(in cash or in kind) to the Hospital. The total amount of contributions by the
Company (including employee contributions) to the Hospital in fiscal 1997 was
$336,870. Such contributions represented less than 1% of the Hospital's total
revenues for its last fiscal year ended June 30, 1997.

In connection with the sale of an aggregate 2,327,000 shares of Common
Stock by Messrs. Goodfriend, Call and Carlin pursuant to a public offering in
September 1997, the Company entered into agreements with each of such persons
whereby the Company agreed to indemnify each of them for certain liabilities in
connection with such offering, including liabilities under the Securities Act of
1933.
20
<PAGE> 24

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 1999 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 1999 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 January 30, 1999, 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. and
Bowne of Atlanta, Inc. to distribute and solicit proxies for the Annual Meeting
at an estimated 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 27, 1998 to the date of
the Annual Meeting. The list will also be available during the Annual Meeting
for inspection by Shareholders who are present.

ANNUAL REPORT

A copy of the Company's 1997 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 15, 1998

21
<PAGE> 25

(Goody's Family Clothing Logo)
<PAGE> 26
APPENDIX

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 15, 1998, and does hereby
appoint Robert M. Goodfriend and 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 17, 1998, 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: ROBERT M. GOODFRIEND and ROBERT F. KOPPEL as Class III Directors
(for a term expiring at the 2001 Annual Meeting of Shareholders)

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

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

2. 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.

(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