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                                                                   EXHIBIT 10.73




                              EMPLOYMENT AGREEMENT

                                    BETWEEN

                         GOODY'S FAMILY CLOTHING, INC.

                                      AND

                               LANA CAIN KRAUTER





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                               TABLE OF CONTENTS


<TABLE>
<CAPTION>

<S>      <C>                                                                                                     <C>
1.       Definitions..............................................................................................1

2.       Employment...............................................................................................3

3.       Term.....................................................................................................3

4.       Position and Duties; Business Time.......................................................................3

5.       Compensation.............................................................................................4

6.       Termination of Employment................................................................................7

7.       Obligations of the Company Upon Termination..............................................................7

8.       Change of Control........................................................................................9

9.       Non-exclusivity of Rights...............................................................................10

10.      Full Settlement.........................................................................................10

11.      Arbitration of Disputes.................................................................................10

12.      Confidential Information, Non-Solicitation and Non-Compete..............................................10

13.      Successors..............................................................................................12

14.      Miscellaneous...........................................................................................12
</TABLE>


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                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT, by and between GOODY'S FAMILY CLOTHING,
INC., a Tennessee corporation (the "Company"), and LANA CAIN KRAUTER (the
"Executive"), shall be effective as of the 10 day of January, 2000.

                                   RECITALS:

         WHEREAS, the Company desires to hire the Executive as the President -
Merchandising of the Company and Executive desires to accept such employment,
upon the terms and subject to the conditions set forth in this Agreement.

         NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the Company and
the Executive do hereby agree as follows:

         1.       Definitions.

                  (a)      "Accrued Obligations" shall mean (i) the Base Salary
through the Date of Termination and (except in the event the Company terminates
the Executive's employment for Cause) the pro-rated portion of the guaranteed
bonus based upon the number of days the Executive was employed during the
applicable fiscal year, (ii) any amounts deferred by the Executive and not yet
paid by the Company pursuant to a valid election to defer the receipt of all or
a portion of such payments made in accordance with any plan of deferred
compensation sponsored by the Company, (iii) any earned but unpaid vacation pay
for the current year, (iv) any amounts or benefits owing to the Executive or to
the Executive's beneficiaries under the then applicable employee benefit plans
or policies of the Company and (v) any amounts owing to the Executive for
reimbursement of expenses properly incurred by the Executive through the Date
of Termination and which are reimbursable in accordance with the reimbursement
policy of the Company described in Section 5(e).

                  (b)      "Base Salary" shall have the meaning set forth in
                           Section 5(a).

                  (c)      "Board" shall mean the Board of Directors of the
                           Company.

                  (d)      "Cause" shall mean that the Executive has, in the
judgment of a majority of the Board (i) committed a felony, or committed an act
of fraud, embezzlement or theft in connection with her duties with the Company
or in the course of her employment with the Company; (ii) willfully caused
damage to property of the Company; (iii) been convicted of a criminal offense
(either a misdemeanor involving acts of dishonesty, theft or moral turpitude,
or a felony); or (iv) engaged in a willful and deliberate material breach of
her obligations under Section 4 of this Agreement which breach (under this
clause iv) has been communicated to the Executive with specificity by written
notice, and which has not been cured to the reasonable satisfaction of the


<PAGE>   4

Board within a reasonable period of time, which shall not be less than ten (10)
days, nor more than thirty (30) days, following receipt of such written notice
by the Executive. The Board shall provide the Executive with an opportunity to
meet with the Board in order to provide the Executive an opportunity to refute
or explain acts or omissions referred to in such written notice. For the
purpose of this Section, no act or omission shall be considered willful unless
done or omitted to be done in bad faith and without reasonable belief that such
act or omission was done in the best interest of the Company.

                  (e)      A "Change of Control" of the Company shall mean and
shall be deemed to have occurred if (i) any person or group (within the meaning
of Rule 13d-3 of the rules and regulations promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act Rules")), other than Robert M.
Goodfriend, members of his immediate family, his affiliates, trusts or private
foundations established by or on his behalf, and the heirs, executors or
administrators of Robert M. Goodfriend, shall acquire in one or a series of
transactions, whether through sale of stock or merger, more than 50% of the
outstanding voting securities of the Company or any successor entity of the
Company, (ii) all or substantially all of the Company's assets are sold, or
(iii) the shareholders of the Company shall approve a complete liquidation or
dissolution of the Company.

                  (f)      "Change of Control Date" shall mean (i) the closing
date on which a Change of Control shall have occurred, (ii) in the case of a
sale of all or substantially all of the Company's assets, the closing date on
which a Change of Control shall have occurred after shareholder approval is
obtained, or (iii) in the case of a complete liquidation or dissolution of the
Company, the date on which shareholder approval is obtained.

                  (g)      "Constructive Termination" shall mean a material
breach by the Company of its obligations under Section 4(a) or another material
obligation of the Company under this Agreement, which failure has been
communicated to the Company with specificity by written notice and which has
not been cured within a reasonable period of time, which shall not be less than
ten (10) days, nor more than thirty (30) days, following receipt of such
written notice by the Company.

                  (h)      "Date of Termination" shall have the meaning set
forth in Section 6(e).

                  (i)      "Disability" shall mean disability whereby the
Executive is unable to render the services provided for by this Agreement by
reason of illness, injury or incapacity (whether physical, mental, emotional or
psychological) for a period of either (i) ninety (90) consecutive days or (ii)
one hundred eighty (180) days in any consecutive three hundred sixty-five (365)
day period.

                  (j)      "Incentive Bonus" shall have the meaning as set
forth in Section 5(b).

                  (k)      "Incentive Plan" shall have the meaning as set forth
in Section 5(b).

                  (l)      "Notice of Termination" shall have the meaning as
set forth in Section 6(d).


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                  (m)      "Qualified Plan" shall mean any retirement plan
maintained by the Company which is intended to meet the requirements of the
Internal Revenue Code of 1986, as amended.

                  (n)      "Subsidiary" shall mean any majority-owned
subsidiary of the Company.

         2.       Employment. The Company hereby employs the Executive as the
President -- Merchandising of the Company, and Executive hereby accepts such
employment.

         3.       Term. The initial term (the "Initial Term") of this Agreement
shall commence on the date hereof and shall continue until the third
anniversary of the date hereof (the "Initial Expiration Date"); provided,
however, that this Agreement shall at all times be subject to earlier
termination in accordance with the provisions hereof. On the Initial Expiration
Date and each anniversary of the Initial Expiration Date, the term of this
Agreement automatically shall be extended for an additional one (1) year term
(the "Extended Term") unless either party gives written notice to the other not
less than ninety (90) days prior to the end of the then current term that it
does not desire to extend the Term. For purposes of this Agreement, "Term"
means the Initial Term and, as so extended, the Extended Term.

         4.       Position and Duties; Business Time.

                  (a)      Position and Duties. The Executive shall serve as
the President -- Merchandising of the Company or another position which shall
be either of comparable rank or a promotion and shall have such
responsibilities and duties as assigned to her by the Chief Executive Officer
of the Company or the Board from time to time, provided: (i) such assignment of
such responsibilities and duties are those which are customarily associated
with the responsibilities of a president -- merchandising; (ii) the position in
which the Executive shall serve, if different from the position specified in
this subsection (a), shall not have materially diminished responsibilities or
authority as compared with those of the position expressly set forth in this
subsection (a); provided, that the expansion into other store concepts, whether
acquired or developed, and the staffing of such concepts by other employees
shall not be deemed a breach of this provision; and (iii) the Executive shall
not be required to relocate by reason of a change in the location of the
Company's principal executive offices of more than fifty (50) miles from its
then current location. The Company's Executive Vice President - Stores, Senior
Vice President - Marketing and Executive Vice President - Merchandising shall
report directly to the Executive.

                  (b)      Business Time. The Executive agrees to devote her
full business time to the business and affairs of the Company and to use her
best efforts to perform faithfully and efficiently the responsibilities
assigned to her hereunder, to the extent necessary to discharge such
responsibilities, except for:

                           (i)      time spent in managing her personal,
                           financial and legal affairs and serving on
                           corporate, civic or charitable boards or committees,
                           in each case only if and to the extent not
                           substantially interfering with the performance of


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                           such responsibilities and, in the case of service on
                           boards and committees, subject to the prior approval
                           of the Board, and

                           (ii)     periods of vacation to which she is
                           entitled, periods of illness and other absences
                           beyond her control.

The Executive shall provide prior written notice (the "Service Notice") to the
Board of her intention to serve on any corporate, civic or charitable board or
committee (including her continued service on any boards and committees on
which she is serving or with which she is otherwise associated immediately
preceding the date hereof), and the Board shall thereafter reasonably approve
or reject, as applicable, such service. The Board shall have a twenty (20) day
period following its receipt of the Service Notice in order to consider any
such service. If the Board does not notify the Executive of its rejection of
any such service within such twenty (20) day period, then Board approval of
such service shall be deemed given.

         5.       Compensation. The Executive shall be entitled to the
following compensation and benefits for as long as the Executive remains an
employee of the Company:

                  (a)      Base Salary. The Executive shall receive a base
salary (the "Base Salary") payable in equal bi-weekly installments (or such
other installments as are provided by the Company for employees generally) at
an annual rate of $500,000. The Company shall review the Base Salary
periodically and in light of such review may, in its sole discretion, increase
(but not decrease) the Base Salary taking into account any change in the
Executive's responsibilities, increases in compensation of other executives
with comparable responsibilities, performance of the Executive and other
pertinent factors, and such adjusted Base Salary shall then constitute the
"Base Salary" for purposes of this Agreement. For each fiscal year of the
Company during the term of this Agreement, commencing with fiscal 1999, the
Executive shall also be entitled to a guaranteed annual bonus of $100,000
payable in full on the last Friday in March for the most recently completed
fiscal year. The Incentive Bonus hereinafter described shall be reduced by the
amount of any guaranteed bonus paid by the Company to the Executive in respect
of the applicable fiscal year.

                  (b)      Short Term Incentive Plan Bonus. The Company has
established a "Short Term Incentive Plan" (the "Incentive Plan") under which
the Executive shall be eligible to participate for each fiscal year she holds
the position stated in Section 2 and shall be eligible to receive an annual
incentive target bonus of not less than 100% of Base Salary based on
performance and other specific objectives adopted by the Compensation Committee
of the Board (the "Incentive Bonus").

                  (c)      Incentive and Savings Plans; Retirement and Death
Benefit Programs. The Executive shall be entitled to participate in all
incentive and savings plans and programs, including stock option plans and
other equity-based compensation plans, and in all employee retirement,
executive retirement and executive death benefit plans on a basis no less
favorable than that basis generally available to executives of the Company
holding comparable positions or having comparable responsibilities.


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                  (d)      Other Benefit Plans. The Executive, her spouse and
their eligible dependents (as defined in, and to the extent permitted by, the
applicable plan), as the case may be, shall be entitled to participate in or be
covered under all medical, dental, group disability, group life, severance,
accidental death and travel accident insurance plans and programs of the
Company to the extent such plans and programs are generally available to
executives of the Company holding comparable positions or having comparable
responsibilities. In addition, the Company shall pay for and provide to the
Executive the following additional benefits:

                           (i)      An individual life insurance policy on the
                           life of the Executive in the amount of $500,000, the
                           beneficiary or beneficiaries of which are designated
                           by the Executive, without cost to the Executive; and

                           (ii)     An individual disability insurance policy
                           or policies providing a monthly benefit of no less
                           than $12,200 per month, the annual premium for such
                           policy or policies to be shared between the Company
                           and the Executive in such proportion as is
                           consistent with executives of the Company holding
                           comparable positions or having comparable
                           responsibilities.

                  If required, the Company shall replace any such policy in
effect from time to time with a policy or policies containing terms and
conditions (including amounts of coverage) which are not materially less
favorable to the Executive and/or her designated beneficiaries provided such
replacement policy or policies may be obtained at reasonable rates consistent
with past practice.

         (e)      Other Perquisites.  The Executive shall also be entitled to:

                           (i)      prompt reimbursement for all reasonable
                           expenses incurred by the Executive in accordance
                           with the policies and procedures of the Company;

                           (ii)     four (4) weeks paid vacation, such paid
                           vacation time to be increased (but not decreased) in
                           accordance with Company policy;

                           (iii)    an automobile at least comparable to the
                           model currently furnished by the Company to other
                           executives of the Company holding comparable
                           positions or having comparable responsibilities
                           shall be provided by the Company with expenses to be
                           paid in accordance with the Company's policies and
                           procedures with respect thereto; and

                           (iv)     an office or offices suitable for an
                           executive officer with secretarial and other
                           assistance as shall reasonably be required by the
                           Executive.

                  (f)      Relocation Expenses. The Company will reimburse the
Executive (upon presentation of appropriate vouchers or receipts in accordance
with the Company's expense


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reimbursement policies) for, or pay directly, the following costs and expenses
relating to her relocation (the "Relocation Allowance"):

                           (i)      all reasonable expenses of moving the
                           Executive's possessions from Chicago to the
                           Executive's new temporary or permanent residence in
                           the Knoxville metropolitan area;

                           (ii)     all reasonable lease or rental payments
                           incurred by the Executive for temporary housing of
                           the Executive for a period of ninety (90) days
                           during the first six (6) months of the Initial Term
                           of this Agreement;

                           (iii)    up to twelve (12) airline tickets for
                           business class travel between Chicago, Illinois and
                           Knoxville, Tennessee for use of the Executive and
                           her immediate family while she is relocating from
                           Chicago, Illinois to Knoxville, Tennessee;

                           (iv)     all reasonable standard closing costs and
                           brokerage fees associated with the sale of the
                           Executive's residence in Chicago (including
                           reasonable attorney's fees); and

                           (v)      all reasonable standard closing costs
                           associated with the purchase of the Executive's new
                           residence in the Knoxville metropolitan area
                           (including reasonable attorney's fees).

         The maximum amounts to be reimbursed by the Company under this clause
(f) shall be in accordance with its relocation policy (except where otherwise
expressly provided herein). Upon termination of the Executive's employment
during the Term either by the Executive voluntarily or by the Company for
Cause, the Executive shall promptly repay to the Company the Relocation
Allowance. On each anniversary of the date hereof, the amount of the Relocation
Allowance required to be so repaid shall be reduced by one-third (_).

                  (g)      Equity Opportunity. The Executive shall be granted a
non-qualified stock option under the Company's 1997 Stock Option Plan on the
date of commencement of her employment with the Company to purchase an
aggregate of three hundred thousand (300,000) shares of common stock of the
Company at an exercise price equal to the closing sales price of the common
stock on the date of grant, which option shall vest as follows: fifty thousand
(50,000) shares on the date of grant and the remaining two hundred fifty
thousand (250,000) shares annually in one-third (_) increments from the date of
grant and expire ten (10) years from the date of grant, and shall be upon such
other terms and conditions as contained in the Company's standard form of
option agreement annexed hereto.


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                  (h)      Sign-on Bonus. As additional compensation, the
Company shall pay the Executive a sign-on bonus of $365,000, payable on the
later of (i) the date her employment with the Company commences and (ii)
February 1, 2000.

         6.       Termination of Employment.

                  (a)      Disability; Death. The Company may terminate the
Executive's employment after having established the Executive's Disability, by
giving to the Executive written notice of its intention to terminate her
employment, and her employment with the Company shall terminate effective on
the thirtieth (30th) day after receipt of such notice if the Executive shall
fail to return to full-time performance of her duties within thirty (30) days
after such receipt. If the Executive dies during the term of this Agreement,
her employment hereunder shall be deemed to cease as of the date of her death.

                  (b)      Termination by the Company. The Company at any time
may terminate the Executive's employment for Cause or without Cause.

                  (c)      Constructive Termination. The Executive may
terminate her employment for Constructive Termination.

                  (d)      Notice of Termination. Any termination by the
Company for Cause or by the Executive for Constructive Termination shall be
communicated by a written Notice of Termination to the other party hereto given
in accordance with Section 14(c). For purposes of this Agreement, a "Notice of
Termination" means a written notice given in the case of a termination for
Cause and in the case of Constructive Termination which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(iii) if the termination date is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty (30)
days after the receipt of such notice).

                  (e)      Date of Termination. For the purpose of this
Agreement, the term "Date of Termination" means (i) in the case of a
termination for which a Notice of Termination is required, the date of receipt
of such Notice of Termination or, if later, the date specified therein, as the
case may be, and (ii) in all other cases, the actual date on which the
Executive's employment terminates.

         7.       Obligations of the Company Upon Termination. Upon termination
of the Executive's employment with the Company, the Company shall have the
following obligations:

                  (a)      Death or Disability. If the Executive's employment
is terminated by reason of the Executive's death or Disability, the Company
shall have no further obligations to the Executive's legal representatives
under this Agreement other than payment of the Accrued Obligations. If the
Executive's employment is terminated by reason of the Executive's death or
Disability, the Company shall have the additional obligation, subject to the
terms of the Incentive


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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 a cash
amount equal to a portion of the Incentive Bonus, the product of a fraction,
the numerator of which is the number of days elapsed since the date the
Incentive Plan began for the applicable fiscal year through the date of the
Disability or the date of death of the Executive, and the denominator of which
is the total number of days of the applicable fiscal year for such Incentive
Plan. Unless otherwise directed by the Executive (or, in the case of the
Incentive Plan or a Qualified Plan, as may be required by such Incentive Plan
or Qualified Plan) all Accrued Obligations shall be paid to the Executive, her
beneficiaries or her estate, as applicable, in a lump sum in cash within thirty
(30) days of the Date of Termination. In the event of the termination of the
Executive by reason of death or Disability, she and/or her named beneficiaries,
as the case may be, shall be entitled to the benefits available through the
Company sponsored plans and programs designated for such category of
termination on Schedule A. With regard to the termination of the Executive's
employment by reason of Disability, the Company shall pay the premiums (to the
same extent paid prior to the termination of employment) for the continued
participation of the Executive for a period of twelve (12) months after the
Date of Termination in any individual life insurance policy on the same terms
as the Executive and the Company were participating prior to the Date of
Termination. Further, with regard to the termination of the Executive's
employment by reason of the Executive's death or Disability, the Company shall,
for a period of twelve (12) months after the Executive's Date of Termination,
pay the entire COBRA premium under any Company medical and dental program that
the Executive (and her spouse and eligible dependents) was participating in
prior to the termination of employment. The Company's premium obligations in
the preceding two sentences shall exclude normal employee contributions paid by
the Executive prior to the Date of Termination. In addition to the foregoing,
in the event of termination of the Executive's employment by reason of the
death or Disability of the Executive, all unvested stock options held by the
Executive shall become fully vested, effective on the Date of Termination, and
shall thereafter be exercisable in accordance with the provisions of the
applicable Option Plan (including, without limitation, Sections 5 and 6
thereof) and Option Agreement.

                  (b)      Termination by the Company for Cause. If the
Executive's employment shall be terminated for Cause, the Company shall pay the
Executive the Accrued Obligations. The Executive shall be paid all such Accrued
Obligations in a lump sum in cash within thirty (30) days of the Date of
Termination and the Company shall have no further obligations to the Executive
under this Agreement, unless otherwise required by a Qualified Plan or
specified pursuant to a valid election to defer the receipt of all or a portion
of such payments made in accordance with any plan of deferred compensation
sponsored by the Company.

                  (c)      Other Termination of Employment. If the Company
terminates the Executive's employment other than for Cause, death or
Disability, or the Executive terminates her employment for Constructive
Termination, the Company shall pay and provide to the Executive the following:

                           (i)      Severance and Non-Competition Payments. The
                           Company shall pay to the Executive in a lump sum in
                           cash or certified check within fifteen (15)


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                           days after the Date of Termination all Accrued
                           Obligations. In addition, subject to the terms of
                           the 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, the Executive shall be entitled to receive a
                           cash amount equal to a portion of the Incentive
                           Bonus, the product of a fraction, the numerator of
                           which is the number of days elapsed since the date
                           the Incentive Plan began for the applicable fiscal
                           year through the date of such Constructive
                           Termination or termination without Cause, and the
                           denominator of which is the total number of days of
                           the applicable fiscal year for such Incentive Plan.
                           Such amount also shall be paid in a lump sum in cash
                           or certified check within fifteen (15) days after
                           the Date of Termination or as may be otherwise
                           required by the terms of the Incentive Plan.
                           Furthermore, the Executive shall continue to receive
                           her monthly Base Salary, at the rate in effect as of
                           the date when the Notice of Termination was given,
                           for a twelve (12) month period from the Date of
                           Termination.

                           (ii)     Acceleration of Option Vesting. In the case
                           of a Constructive Termination, all unvested stock
                           options held by the Executive shall become fully
                           vested, effective on the Date of Termination, and
                           shall be thereafter exercisable in accordance with
                           the provisions of the applicable Option Plan
                           (including, without limitation, Sections 5 and 6
                           thereof) and Option Agreement.

                  (d)      Release. As a condition precedent to the receipt of
any termination benefits payable to the Executive under this Section 7, the
Executive agrees to execute a general release among other things releasing the
Company from any obligation or liability (other than those contained in
Sections 7, 8, 9, 10, 11, 13 and 14 hereof, to the extent an obligation under
any such section arose at or prior to the Date of Termination and remains
unfulfilled). Such release shall exclude the Executive's rights under any
Qualified Plan.

                  (e)      Discharge of Company's Obligations. Subject to the
performance of its obligations under Sections 7, 8, 9, 10, 11, 13 and 14 (and
then, only to the extent an obligation under any such section arose at or prior
to the Date of Termination and remains unfulfilled), the Company shall have no
further obligations to the Executive under this Agreement in respect of any
termination of employment.

         8.       Change of Control. Upon the occurrence of a Change of
Control, the Company shall pay the Executive, as consideration for assisting
the Company in bringing about a successful transaction, an amount equal to
eighteen (18) months of the Executive's Base Salary at the rate in effect as of
the Change of Control Date. Such amount shall be payable in a lump sum in cash
or certified check within five (5) days after the Change of Control Date.


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         9.       Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company and
for which the Executive may qualify, nor shall anything herein limit or
otherwise prejudice such rights as the Executive may have under any other
agreements with the Company, including, but not limited to stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.

         10.      Full Settlement. The Executive shall not be obligated to seek
other employment by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement. In the event that the Executive
shall in good faith give a Notice of Termination for Constructive Termination
and it shall thereafter be determined that Constructive Termination did not
take place, the employment of the Executive shall, unless the Company and the
Executive otherwise mutually agree, be deemed to have terminated, at the date
of giving such purported Notice of Termination, by mutual consent of the
Company and the Executive and the Executive shall be entitled to receive only
those payments and benefits which she would have been entitled to receive at
such date had she terminated her employment voluntarily at such date under this
Agreement.

         11.      Arbitration of Disputes. In the event that a claim for
payment or benefits under this Agreement is disputed, the Company and the
Executive agree to submit such dispute to final and binding arbitration with
United States Arbitration and Mediation, Inc. ("USAM") in Knoxville, Tennessee
or such other arbitration firm as the Company and the Executive shall mutually
agree. Either party wishing to arbitrate any claim hereunder shall notify the
other party and USAM in writing whereupon USAM shall select a neutral
arbitrator and shall schedule an arbitration hearing within thirty (30) days of
receipt of such notice of arbitration. The arbitration shall be conducted in
accordance with the rules and procedures of USAM. The parties agree that any
arbitrator's award may be presented to a court of competent jurisdiction and
judgment entered thereon.

         12.      Confidential Information, Non-Solicitation and Non-Compete.

                  (a)      The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data, including without limitation all trade secrets, relating to the Company
and its business (i) obtained by the Executive during her employment by the
Company, and (ii) which is not otherwise publicly known (other than by reason
of an unauthorized act by the Executive) and is subject to efforts that are
reasonable under the circumstances to maintain its secrecy. After termination
of the Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company, unless compelled pursuant to
an order of a court or other body having jurisdiction over such matter,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.


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<PAGE>   13

                  (b)      Upon termination of the Executive's employment for
any reason, the Executive, for the twelve (12) month period following the
Notice of Termination (or the Date of Termination if no such notice is given),
shall not, on her own behalf or on behalf of any person or entity, directly or
indirectly solicit or aid in the solicitation of any employees of the Company
to leave their employment.

                  (c)      The Executive agrees that she shall not, so long as
she shall be employed by the Company in any capacity (whether pursuant to this
Agreement or otherwise), own, manage, operate, control or participate in the
ownership, management, operation or control, or be employed by or connected in
any manner with, any business, firm or corporation which is or may be in
competition with the business of the Company without the express written
consent of the Company. The Executive further agrees that for a period
commencing on the Date of Termination (for any reason whatsoever) and
concluding twelve (12) months after such Date of Termination, (i) the Executive
shall not own, manage, operate, control or participate in the ownership,
management, operation or control, or be employed or retained by, or otherwise
become associated with or interested in (as a partner, member, shareholder,
creditor, director, officer, principal, agent, employee, joint venturer,
trustee, consultant or advisor), any business, firm or corporation which is
engaged in or competes (directly or indirectly) with the business of the
Company including, for these purposes, any business in which, at the
termination of her employment, there was a bona fide intention on the part of
the Company to engage in the future; and (ii) the Executive shall not, on
behalf of any such competing entity, directly or indirectly, have any dealings
or contact with any suppliers or vendors of the Company. Anything to the
contrary herein notwithstanding, the provisions of this Section 12(c) shall not
be deemed violated by the purchase and/or ownership by the Executive of shares
of any class of equity securities (or options, warrants or rights to acquire
such securities, or any securities convertible into or exchangeable or
exercisable for such securities) (A) of the Company (or any successor thereto)
or (B) representing (together with any securities which would be acquired upon
the exercise of any such options, warrants or rights or upon the conversion of
any other security convertible into or exchangeable or exercisable for such
securities) two percent (2%) or less of the outstanding shares of any such
class of equity securities of any issuer whose securities are traded on a
national securities exchange or listed by The Nasdaq Stock Market, the National
Quotation Bureau Incorporated or any similar organization; provided, however,
that Executive shall not be otherwise connected with or active in the business
of any issuers described in this Section 12(c).

                  (d)      The Executive agrees that the covenants of
confidentiality, non-solicitation and non-competition contained in this Section
12 are reasonable covenants under the circumstances and necessary to protect
the business interests and properties of the Company. The Executive agrees that
irreparable loss and damage will be suffered by the Company should the
Executive breach any of the covenants contained in this Section 12.
Accordingly, the Executive agrees that the Company, in addition to all remedies
provided at law or in equity, shall be entitled to a temporary restraining
order and temporary and permanent injunctions to prevent a breach or
contemplated breach of any of the covenants contained in this Section 12. In
addition, in the event that this Section 12 is determined to be unenforceable
in part, it shall be construed to be enforceable to the maximum


                                      11
<PAGE>   14

extent permitted by law. In the event the Executive violates the terms of this
Section 12, the Executive shall forfeit the right to all salary, bonus
compensation and/or benefit continuations which she and/or her family members
are then receiving or otherwise entitled to pursuant to the terms of this
Agreement. Notwithstanding anything contained herein to the contrary, the
forfeiture of such payments and benefits shall be the sole remedy available to
the Company in connection with the Executive's violation of the terms of
Section 12(c) during the twelve (12) month period following the Date of
Termination (for any reason whatsoever).

                  (e)      As used in this Section 12, "Company" shall include
all subsidiaries, affiliates and divisions of the Company.

         13.      Successors.

                  (a)      This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.

                  (b)      This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent as the Company would
be required to perform if no such succession had taken place.

         14.      Miscellaneous.

                  (a)      Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Tennessee, applied
without reference to principles of conflict of laws.

                  (b)      Amendments. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto
or their respective successors and legal representatives.

                  (c)      Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party, by overnight delivery or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:

                  If to the Executive:  at the address listed on the last page
                                        hereof

                  If to the Company:    Goody's Family Clothing, Inc.
                                        400 Goody's Lane


                                      12
<PAGE>   15

                                        P.O. Box 22000
                                        Knoxville, Tennessee 37933-2000
                                        Attention: General Counsel

(with a copy to the attention of the Secretary or to such other address as
either party shall have furnished to the other in writing in accordance
herewith). Communications delivered by hand or by overnight delivery shall be
deemed received on the date of delivery and communications sent by registered
or certified mail shall be deemed received three (3) business days after the
sending thereof.

                  (d)      Tax Withholding. The Company may withhold from any
amounts payable under this Agreement such federal, state or local taxes as
shall be required to be withheld pursuant to any applicable law or regulation.

                  (e)      Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.

                  (f)      Captions. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.

                  (g)      Entire Agreement. This Agreement expresses the
entire understanding and agreement of the parties regarding the terms and
conditions governing the Executive's employment with the Company; provided,
however, that except as specifically provided herein, the terms of this
Agreement do not supersede the terms of any grant or award to the Executive
under any stock option or profit sharing program of the Company except as
specifically set forth in Sections 7(a) and 7(c)(ii) with respect to the
vesting and exercisability of stock options.


                                      13
<PAGE>   16

         IN WITNESS WHEREOF, the Executive has hereunto set her hand and the
Company has caused this Agreement to be executed in its name on its behalf, and
its corporate seal to be hereunto affixed and attested by its Secretary, all
effective as of the day and year first above written.

                                   GOODY'S FAMILY CLOTHING, INC.


                                   By:    [Robert M. Goodfriend]
                                      ------------------------------------------
                                           Name:  Robert M. Goodfriend
                                           Title:   Chairman and Chief Executive
                                                    Officer
ATTEST:

   [Regis J. Hebbeler]
----------------------------
Name:  Regis J. Hebbeler
Title:  Assistant Secretary

(CORPORATE SEAL)

                                   EXECUTIVE:


                                              [Lana Cain Krauter]
                                   -------------------------------------------
                                               Lana Cain Krauter
                                               President and Special Assistant
                                               to the Chairman

                                   Address: P. O. Box 22000
                                            Knoxville, TN 37933-2000


                                      14
<PAGE>   17

                        SCHEDULE A -- LANA CAIN KRAUTER

         The following is a summary list of benefits available to the Executive
upon termination of the Executive's employment by reason of death or Disability
through Company sponsored plans and programs as of the date of this Agreement.
Nothing herein shall preclude the Company from amending, altering, suspending,
discontinuing or terminating any of such plans and programs in compliance with
applicable law and regulation.

COVERAGE TYPE                                                    BENEFIT AMOUNT

Group Life Insurance                --      Basic
                                            High Option


Group Disability Insurance          --      Basic 2 year
                                            High Option
                                            (benefit for 5 years)


Coverage by group life and disability insurance policies terminates upon
termination of the Executive's employment for any reason, except death (in the
case of life insurance) and disability (in the case of disability insurance).
The Executive's beneficiaries are entitled to benefits under the group life
insurance policy if the Executive dies during the period she is receiving
disability payments as a result of such disability.

In addition, the Company has a 401(k) plan in which the Executive may
participate on a voluntary basis. Company contributions therein on her behalf
vest in accordance with the terms of the 401(k) plan, which provides that such
contributions become immediately vested in the event of death during the term
of employment. Upon termination for any reason, the Executive must withdraw her
vested funds by the end of the following fiscal quarter.