EMPLOYMENT AGREEMENT

                    This Agreement (Agreement) is made and entered into as of the 1st day of May, 2004 between Richard Leto, residing at [employee address] (Employee), and Galyans Trading Company, Inc., an Indiana corporation (Company). 

          1.       TERM OF EMPLOYMENT:  Subject to the terms of this Agreement, Company hereby agrees to employ Employee, and Employee hereby agrees to accept such employment, for the period beginning June 14, 2004 (the Commencement Date), and ending at the close of business on the third anniversary of the Commencement Date or on such earlier date upon which this Agreement is terminated in accordance with the provisions set forth herein (the Initial Term). Commencing on the first anniversary of the Commencement Date, the term of this Agreement shall automatically be extended each day by one day, until a date (the Termination Date) which is one (1) year following the first date on which either party delivers written notice of termination to the other.  The Term of this Agreement shall include any automatic extensions pursuant to the preceding sentence.

          2.        POSITION AND DUTIES:

                    (a) General Duties; Performance:  At all times during the Term, Employee shall serve as President and Chief Merchandising Officer responsible for marketing, merchandising and merchandise planning and, in such capacity, shall perform such duties and have such responsibilities not materially inconsistent with the foregoing as may from time to time be assigned or delegated to him by the Chief Executive Officer of the Company (the CEO).  During this period, Employee shall diligently and conscientiously devote his full and exclusive business time, energy and ability to his duties and the business of Company.  At all times during the Term (i) Employee shall perform his duties faithfully and efficiently, subject to the direction of the CEO; and (ii) Employee shall observe and comply with all directions, policies and regulations given or promulgated by the CEO.

                    (b) Non-Contravention:  Employee represents and warrants that (i) he has the full right and authority to enter into this Agreement and to render the services as required under this Agreement, (ii) as of the date of this Agreement he is not in breach of any obligation owed by him to Kohls, Inc. (Kohls), including any obligations set forth in his employment agreement with Kohls (the Kohls Agreement), (iii) that he has provided Company with a true and correct copy of the Kohls Agreement and that he has no obligations to Kohls other than those set out in the Kohls Agreement, (iv) by signing this Agreement he is not breaching any contract or other legal obligation he owes to any third party and (v) he is not party to any other agreement with Company or any other party providing for the performance by him of  services or, in the case of Company and its subsidiaries, for any compensation to be paid to him.

          3.       COMPENSATION, BENEFITS AND EXPENSES:  During the Term, Company shall compensate Employee for his services as follows:

                    (a) Salary and Expenses:  Company shall pay Employee a base salary at an annual rate of $600,000 for the period from the Commencement Date through and including March 31, 2005, $650,000 for the twelve month period commencing April 1, 2005, through March 31, 2006, and $700,000 for the twelve month period commencing April 1, 2006, through March 31, 2007, and thereafter salary increases will be adjusted from time to time under the Companys annual salary review procedures, in each case less standard income and payroll tax withholding and other authorized deductions.  Such salary shall be earned and shall be payable in regular installments in accordance with Companys normal payroll practices.  Employee shall also be entitled to reimbursement for reasonable business expenses in accordance with Company policy.

                    (b) Health Insurance:  Employee and his dependents shall be eligible to participate in Companys group health plan as in effect from time to time for employees of Company.

                    (c) Bonus:  Employee shall be eligible to receive an annual bonus in accordance with the Companys existing bonus program, with such bonus to be determined based on Company achieving its targeted operating income for the applicable fiscal year (the Target Income) as set forth in Companys annual budget for such fiscal year prepared by management and approved by the Board.  The Target Bonus shall be equal to 75% of his base salary in each fiscal year beginning in fiscal year 2004, and may be increased by an uncapped, additional amount of Target Bonus pursuant to the schedule for incremental Target Bonus increases approved by the Board from time to time, subject to proration in the first year (2004), based on a fraction, the numerator of which is the number of days from the date Employee commences his duties as President and Chief Merchandising Officer (the Start Date) until the last day of Companys 2004 fiscal year, and the denominator is 365. 

                    (d) Vacation:  Employee shall be entitled to annual paid vacation in accordance with Companys policies as in effect from time to time for similarly situated executive employees of Company, but not less than four weeks of paid vacation per year.

                    (e) Retirement Plan:  Employee shall be eligible to participate in Companys retirement plans applicable to Employee, in accordance with the terms of such plans.  Employee understands that the Board monitors such plans or arrangements and may, from time to time, add benefits to or delete benefits from the plans or arrangements, or modify or terminate existing plans or arrangements, provided that no such modification or termination shall decrease the retirement benefits accrued by the Employee prior to the modification or termination without the written consent of the Employee.

                    (f) Company Stock/Options.  Provided that Employee has entered into this Agreement and commenced employment with Company by June 14, 2004, Company shall grant to Employee 250,000 options (the Options) pursuant to Companys 1999 Stock Option Plan, as amended (the Option Plan), with a per share exercise price equal to the closing price of Companys Common Stock on the date on which both parties have fully executed this Agreement.  The Options shall become vested in one-third increments on Employees first anniversary, second anniversary, and third anniversary with Company, provided Employee is employed by Company on such anniversary date.  The Options issued pursuant to the Option Plan shall be governed by and subject to the terms and conditions of such Plan and Employees Stock Option Agreement in substantially the form attached hereto as Exhibit A. 

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                    (g) Moving Expenses:  Company shall reimburse Employee for (i) reasonable expenses incurred in connection with Employees relocation to Indiana (including the relocation of Employees family and pets), (ii) the reasonable airfare and other commuting expenses every other week from the Commencement Date through June 30, 2006 (the Transition Period) between Milwaukee, Wisconsin and Indianapolis, Indiana, and (iii) fifty percent (50%) of Employees apartment rental expenses during the Transition Period.  In addition, Company shall provide Employee with third party assistance (including a guaranteed buy-out offer, if needed) in connection with the sale of Employees current home in Fox Point, Wisconsin, in accordance with Companys home buy-out relocation policy as in effect on the date of this Agreement. 

                    (h) Financial Planning Services:  Company shall pay for financial planning services for Employee from the firm of Brownson, Rehmus Foxworth, and Company and shall indemnify Employee against any incremental income tax liability incurred as a result of Companys payment for such services.

          4.       TERMINATION:  Employees employment with Company during the Term may be terminated by Company under the circumstances described in this Section 4, and subject to the provisions of Section 5:

                    (a) Termination by Company for Cause:  Company may immediately terminate Employees employment for Cause by giving written notice to Employee identifying in reasonable detail the act or acts said to constitute Cause.  For purposes of this Agreement, Cause means Employees (i) intentional act of fraud, embezzlement, theft, or other material violation of the law in connection with or in the course of his employment, (ii) intentional illegal act that is likely to materially injure the reputation, business, or a business relationship of Company; (iii) intentional wrongful damage to material assets of Company; (iv) intentional wrongful disclosure of material confidential information of Company; (v) intentional wrongful competitive activity in material breach of Employees duty of loyalty; or (vi) breach of any material term of any stated material employment policy of Company; provided Company has given Employee written notice of such breach, and Employee has failed to cure such breach within ten (10) days after receipt of such notice.  For purposes of the preceding sentence, no act, or failure to act, on the part of Employee shall be deemed intentional if it was due primarily to an error in judgment or negligence, but shall be deemed intentional only if done, or omitted to be done, by Employee not in good faith and without reasonable belief that his act or omission was in or not opposed to the best interest of Company.

                    (b) Termination by Company for Other than Cause, Death, or Disability:  Company may immediately terminate Employees employment for any reason other than Cause, death, or Disability by giving ten (10) days written notice to Employee.

                    (c) Death:  Employees employment shall automatically terminate upon his death.

                    (d) Disability:  Employee shall not be considered in breach of this Agreement if he fails to perform the material duties of his employment because of a physical or mental condition that renders him unable to perform such services (hereafter referred to as Disability).  If for a continuous period of twelve (12) months during the Term, Employee fails to perform the material duties of his employment because of Disability, his employment shall terminate on the first anniversary of the beginning of his Disability.  If there is any dispute as to whether Employee has a Disability, this issue shall be settled by the opinion of an impartial reputable physician qualified to make the determination agreed upon for the purpose by Employee and Company, or failing such agreement within fourteen (14) days of a written request therefor by either party to the other, by an impartial reputable physician qualified to make the determination who is selected by agreement of a reputable physician selected by Company and a reputable physician selected by Employee.

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