Document:

EXHIBIT 4.2

                 INTERNATIONAL TRUST AND FINANCIAL SYSTEMS, INC.
       NON-EMPLOYEE DIRECTORS AND CONSULTANTS RETAINER STOCK PLAN FOR THE
                                    YEAR 2004

     1.     Introduction.  This  Plan shall be known as the "International Trust
            ------------
and  Financial  Systems,  Inc.  Non-Employee  Directors and Consultants Retainer
Stock  Plan  for  the  Year  2004  No. 2," and is hereinafter referred to as the
"Plan."  The  purposes  of  this  Plan  are  to  enable  International Trust and
Financial  Systems,  Inc., a Florida corporation (the "Company"), to promote the
interests  of  the  Company  and  its  stockholders  by attracting and retaining
non-employee  Directors and Consultants capable of furthering the future success
of  the Company and by aligning their economic interests more closely with those
of  the  Company's stockholders, by paying their retainer or fees in the form of
shares  of  the  Company's common stock, par value $0.001 per share (the "Common
Stock").

     2.     Definitions.  The  following terms shall have the meanings set forth
            -----------
below:

     "Board" means the Board of Directors of the Company.

     "Change of Control" has the meaning set forth in Paragraph 12(d) hereof.

     "Code"  means  the Internal Revenue Code of 1986, as amended, and the rules
and  regulations  thereunder. References to any provision of the Code or rule or
regulation  thereunder  shall  be  deemed  to  include  any amended or successor
provision,  rule  or  regulation.

     "Committee"  means  the committee that administers this Plan, as more fully
defined  in  Paragraph  13  hereof.

     "Common Stock" has the meaning set forth in Paragraph 1 hereof.

     "Company" has the meaning set forth in Paragraph 1 hereof.

     "Consultants"  means  the  Company's  consultants and advisors only if: (i)
they  are  natural persons; (ii) they provide bona fide services to the Company;
and  (iii)  the  services  are  not  in  connection  with  the  offer or sale of
securities  in  a capital-raising transaction, and do not directly or indirectly
promote  or  maintain  a  market  for  the  Company's  securities.

     "Deferral Election" has the meaning set forth in Paragraph 6 hereof.

     "Deferred  Stock  Account"  means  a  bookkeeping account maintained by the
Company  for a Participant representing the Participant's interest in the shares
credited  to  such  Deferred  Stock  Account  pursuant  to  Paragraph  7 hereof.

     "Delivery Date" has the meaning set forth in Paragraph 6 hereof.

     "Director" means an individual who is a member of the Board of Directors of
the  Company.

     "Dividend  Equivalent"  for  a given dividend or other distribution means a
number  of  shares  of  the  Common  Stock having a Fair Market Value, as of the
record date for such dividend or distribution, equal to the amount of cash, plus
the  Fair  Market  Value  on  the  date of distribution of any property, that is
distributed  with  respect  to  one  share  of the Common Stock pursuant to such
dividend  or  distribution;  such  Fair  Market  Value  to  be determined by the
Committee  in  good  faith.

     "Effective Date" has the meaning set forth in Paragraph 3 hereof.

     "Exchange Act" has the meaning set forth in Paragraph 12(d) hereof.

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     "Fair  Market Value" means the mean between the highest and lowest reported
sales  prices  of the Common Stock on the New York Stock Exchange Composite Tape
or, if not listed on such exchange, on any other national securities exchange on
which  the  Common  Stock is listed or on The Nasdaq Stock Market, or, if not so
listed  on  any  other  national securities exchange or The Nasdaq Stock Market,
then  the  average  of  the  bid  price of the Common Stock during the last five
trading  days  on  the OTC Bulletin Board immediately preceding the last trading
day  prior  to  the  date  with  respect to which the Fair Market Value is to be
determined.  If  the  Common  Stock  is  not then publicly traded, then the Fair
Market  Value  of  the  Common  Stock shall be the book value of the Company per
share  as  determined  on the last day of March, June, September, or December in
any  year  closest  to  the  date when the determination is to be made.  For the
purpose  of  determining book value hereunder, book value shall be determined by
adding  as  of  the  applicable date called for herein the capital, surplus, and
undivided  profits  of  the  Company,  and  after  having  deducted any reserves
theretofore  established;  the sum of these items shall be divided by the number
of shares of the Common Stock outstanding as of said date, and the quotient thus
obtained shall represent the book value of each share of the Common Stock of the
Company.

     "Participant" has the meaning set forth in Paragraph 4 hereof.

     "Payment  Time"  means  the  time  when  a  Stock  Retainer is payable to a
Participant  pursuant to Paragraph 5 hereof (without regard to the effect of any
Deferral  Election).

     "Stock Retainer" has the meaning set forth in Paragraph 5 hereof.

     "Third Anniversary" has the meaning set forth in Paragraph 6 hereof.

     3.     Effective  Date  of  the  Plan.  This  Plan was adopted by the Board
            ------------------------------
effective June 2, 2004 (the "Effective Date").

     4.     Eligibility.  Each individual who is a Director or Consultant on the
            -----------
Effective  Date  and  each  individual  who  becomes  a  Director  or Consultant
thereafter  during  the  term  of  this  Plan,  shall  be  a  participant  (the
"Participant")  in this Plan, in each case during such period as such individual
remains a Director or Consultant and is not an employee of the Company or any of
its  subsidiaries.  Each  credit  of shares of the Common Stock pursuant to this
Plan shall be evidenced by a written agreement duly executed and delivered by or
on  behalf of the Company and a Participant, if such an agreement is required by
the Company to assure compliance with all applicable laws and regulations.

     5.     Grants  of  Shares.  Commencing on the Effective Date, the amount of
            ------------------
compensation  for service to directors or consultants shall be payable in shares
of  the  Common Stock (the "Stock Retainer") pursuant to this Plan at the deemed
issuance  price  of  $0.02  per  Share.

     6.     Deferral  Option.  From  and after the Effective Date, a Participant
            ----------------
may  make  an  election  (a  "Deferral  Election")  on  an annual basis to defer
delivery  of  the  Stock Retainer specifying which one of the following ways the
Stock Retainer is to be delivered (a) on the date which is three years after the
Effective  Date  for  which it was originally payable (the "Third Anniversary"),
(b) on the date upon which the Participant ceases to be a Director or Consultant
for  any  reason (the "Departure Date") or (c) in five equal annual installments
commencing  on  the Departure Date (the "Third Anniversary" and "Departure Date"
each  being  referred  to  herein as a "Delivery Date").  Such Deferral Election
shall  remain  in effect for each Subsequent Year unless changed, provided that,
any  Deferral Election with respect to a particular Year may not be changed less
than six months prior to the beginning of such Year, and provided, further, that
no  more  than  one Deferral Election or change thereof may be made in any Year.

     Any Deferral Election and any change or revocation thereof shall be made by
delivering  written  notice  thereof  to  the Committee no later than six months
prior to the beginning of the Year in which it is to be effected; provided that,
with  respect to the Year beginning on the Effective Date, any Deferral Election
or  revocation  thereof must be delivered no later than the close of business on
the  30th  day  after  the  Effective  Date.

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     7.     Deferred  Stock  Accounts.  The  Company  shall  maintain a Deferred
            -------------------------
Stock  Account for each Participant who makes a Deferral Election to which shall
be  credited,  as  of  the  applicable Payment Time, the number of shares of the
Common  Stock  payable  pursuant  to  the  Stock  Retainer to which the Deferral
Election  relates.  So  long  as any amounts in such Deferred Stock Account have
not  been  delivered  to the Participant under Paragraph 8 hereof, each Deferred
Stock  Account shall be credited as of the payment date for any dividend paid or
other  distribution  made  with  respect  to  the Common Stock, with a number of
shares of the Common Stock equal to (a) the number of shares of the Common Stock
shown  in  such  Deferred  Stock Account on the record date for such dividend or
distribution  multiplied  by  (b)  the  Dividend Equivalent for such dividend or
distribution.

     8.     Delivery  of  Shares.
            --------------------

     (a)     The  shares  of  the Common Stock in a Participant's Deferred Stock
Account  with  respect  to  any Stock Retainer for which a Deferral Election has
been  made (together with dividends attributable to such shares credited to such
Deferred  Stock  Account) shall be delivered in accordance with this Paragraph 8
as  soon as practicable after the applicable Delivery Date.  Except with respect
to  a  Deferral  Election  pursuant  to  Paragraph  6 hereof, or other agreement
between  the parties, such shares shall be delivered at one time; provided that,
if  the  number  of shares so delivered includes a fractional share, such number
shall  be rounded to the nearest whole number of shares.  If the Participant has
in  effect  a Deferral Election pursuant to Paragraph 6 hereof, then such shares
shall  be  delivered  in five equal annual installments (together with dividends
attributable  to  such shares credited to such Deferred Stock Account), with the
first  such installment being delivered on the first anniversary of the Delivery
Date;  provided  that,  if  in  order  to equalize such installments, fractional
shares  would  have  to  be  delivered,  such  installments shall be adjusted by
rounding  to  the  nearest  whole share.  If any such shares are to be delivered
after  the  Participant  has  died  or become legally incompetent, they shall be
delivered  to the Participant's estate or legal guardian, as the case may be, in
accordance  with  the  foregoing;  provided that, if the Participant dies with a
Deferral  Election pursuant to Paragraph 6 hereof in effect, the Committee shall
deliver  all  remaining  undelivered  shares  to  the  Participant's  estate
immediately.  References  to a Participant in this Plan shall be deemed to refer
to the Participant's estate or legal guardian, where appropriate.

     (b)     The  Company  may,  but  shall not be required to, create a grantor
trust  or  utilize an existing grantor trust (in either case, "Trust") to assist
it  in  accumulating  the  shares  of  the  Common  Stock  needed to fulfill its
obligations  under  this  Paragraph  8.  However,  Participants  shall  have  no
beneficial  or  other  interest  in  the Trust and the assets thereof, and their
rights  under this Plan shall be as general creditors of the Company, unaffected
by  the  existence or nonexistence of the Trust, except that deliveries of Stock
Retainers  to  Participants  from  the  Trust  shall,  to the extent thereof, be
treated as satisfying the Company's obligations under this Paragraph 8.

     9.     Share  Certificates;  Voting and Other Rights.  The certificates for
            ---------------------------------------------
shares  delivered to a Participant pursuant to Paragraph 8 above shall be issued
in the name of the Participant, and from and after the date of such issuance the
Participant shall be entitled to all rights of a stockholder with respect to the
Common Stock for all such shares issued in his name, including the right to vote
the  shares,  and  the  Participant  shall  receive  all  dividends  and  other
distributions  paid  or  made  with  respect  thereto.

     10.     General  Restrictions.
             ---------------------

          (a)     Notwithstanding any other provision of this Plan or agreements
made pursuant thereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of the Common Stock under this Plan prior
to  fulfillment  of  all  of  the  following  conditions:

               (i)     Listing  or  approval for listing upon official notice of
issuance  of  such  shares  on  the New York Stock Exchange, Inc., or such other
securities exchange as may at the time be a market for the Common Stock;

               (ii)     Any  registration  or other qualification of such shares
under  any  state  or federal law or regulation, or the maintaining in effect of
any such registration or other qualification which the Committee shall, upon the
advice  of  counsel,  deem  necessary  or  advisable;  and

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               (iii)     Obtaining  any  other consent, approval, or permit from
any  state  or  federal  governmental  agency  which  the Committee shall, after
receiving the advice of counsel, determine to be necessary or advisable.

          (b)     Nothing  contained in this Plan shall prevent the Company from
adopting other or additional compensation arrangements for the Participants.

     11.     Shares  Available.  Subject  to  Paragraph  12  below,  the maximum
             -----------------
number of shares of the Common Stock which may in the aggregate be paid as Stock
Retainers  pursuant  to  this  Plan  is  2,000,000.  Shares  of the Common Stock
issuable  under  this  Plan  may be taken from treasury shares of the Company or
purchased  on the open market.  In the event that any outstanding Stock Retainer
under  this  Plan  for any reason expires or is terminated, the shares of Common
Stock  allocable  to  the  unexercised  portion  of  the Stock Retainer shall be
available for issuance under the International Trust and Financial Systems, Inc.
Employee Stock Incentive Plan for the Year 2004 No. 2.

     12.     Adjustments;  Change  of  Control.
             ---------------------------------

          (a)     In the event that there is, at any time after the Board adopts
this  Plan,  any  change  in  corporate  capitalization,  such as a stock split,
combination  of  shares,  exchange  of  shares,  warrants  or rights offering to
purchase  the  Common  Stock  at  a  price  below  its  Fair  Market  Value,
reclassification,  or  recapitalization, or a corporate transaction, such as any
merger,  consolidation,  separation,  including  a  spin-off, stock dividend, or
other  extraordinary  distribution  of  stock  or  property  of the Company, any
reorganization  (whether  or not such reorganization comes within the definition
of  such term in Section 368 of the Code) or any partial or complete liquidation
of  the Company (each of the foregoing a "Transaction"), in each case other than
any  such  Transaction which constitutes a Change of Control (as defined below),
(i)  the  Deferred Stock Accounts shall not be credited with the amount and kind
of  shares  or  other property which would have been received by a holder of the
number  of  shares  of  the Common Stock held in such Deferred Stock Account had
such  shares of the Common Stock been outstanding as of the effectiveness of any
such  Transaction,  (ii) the number and kind of shares or other property subject
to  this  Plan  shall  also  not  be  appropriately  adjusted  to  reflect  the
effectiveness  of  any such Transaction, and (iii) the Committee will not adjust
any other relevant provisions of this Plan to reflect any such transaction.

          (b)     If  the  shares  of  the Common Stock credited to the Deferred
Stock  Accounts  are  converted pursuant to Paragraph 12(a) into another form of
property,  references  in  this  Plan to the Common Stock shall be deemed, where
appropriate,  to  refer  to  such  other  form  of  property,  with  such  other
modifications as may be required for this Plan to operate in accordance with its
purposes.  Without  limiting  the  generality  of  the  foregoing, references to
delivery of certificates for shares of the Common Stock shall be deemed to refer
to delivery of cash and the incidents of ownership of any other property held in
the  Deferred  Stock  Accounts.

          (c)     In the event of a Change of Control, the following shall occur
on the date of the Change of Control: (i) the shares of the Common Stock held in
each  Participant's  Deferred  Stock  Account  shall  be deemed to be issued and
outstanding  as  of  the  Change  of  Control;  (ii) the Company shall forthwith
deliver  to  each Participant who has a Deferred Stock Account all of the shares
of  the  Common  Stock or any other property held in such Participant's Deferred
Stock  Account;  and  (iii)  this  Plan  shall  be  terminated.

          (d)     For purposes of this Plan, Change of Control shall mean any of
the  following  events:

               (i)     The  acquisition  by  any  individual,  entity  or  group
(within  the  meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act  of  1934,  as  amended  (the  "Exchange  Act"))  (a "Person") of beneficial
ownership  (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of  40  percent  or more of either (1) the then outstanding shares of the Common
Stock  of  the  Company  (the  "Outstanding  Company  Common Stock"), or (2) the
combined  voting  power  of  then  outstanding  voting securities of the Company
entitled  to  vote  generally  in  the  election  of directors (the "Outstanding
Company  Voting Securities"); provided, however, that the following acquisitions
shall  not  constitute a Change of Control (A) any acquisition directly from the
Company  (excluding  an  acquisition  by  virtue of the exercise of a conversion
privilege  unless  the  security being so converted was itself acquired directly
from  the  Company),  (B) any acquisition by the Company, (C) any acquisition by
any  employee  benefit  plan  (or  related trust) sponsored or maintained by the
Company  or  any

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corporation  controlled by the Company or (D) any acquisition by any corporation
pursuant  to  a  reorganization,  merger  or  consolidation,  if, following such
reorganization,  merger  or  consolidation,  the conditions described in clauses
(A), (B) and (C) of paragraph (iii) of this Paragraph 12(d) are satisfied; or

               (ii)     Individuals  who,  as of the date hereof, constitute the
Board  of  the  Company (as of the date hereof, "Incumbent Board") cease for any
reason  to  constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's stockholders, was approved by a vote
of  at  least  a  majority  of the directors then comprising the Incumbent Board
shall  be  considered  as  though such individual were a member of the Incumbent
Board,  but  excluding,  for  this  purpose,  any  such individual whose initial
assumption  of  office  occurs  as  a  result  of either an actual or threatened
election  contest  (as  such  terms  are  used  in Rule 14a-11 of Regulation 14A
promulgated  under  the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or

               (iii)     Approval  by  the  stockholders  of  the  Company  of a
reorganization,  merger,  binding  share  exchange  or  consolidation,  unless,
following  such  reorganization, merger, binding share exchange or consolidation
(A)  more  than  60  percent of, respectively, then outstanding shares of common
stock  of  the  corporation  resulting from such reorganization, merger, binding
share  exchange  or  consolidation  and  the  combined  voting  power  of  then
outstanding  voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners,  respectively,  of  the Outstanding Company Common Stock and Outstanding
Company  Voting  Securities  immediately  prior  to such reorganization, merger,
binding share exchange or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger, binding share
exchange  or  consolidation,  of  the  Outstanding  Company  Common  Stock  and
Outstanding  Company  Voting  Securities,  as  the  case  may  be, (B) no Person
(excluding  the  Company,  any  employee  benefit plan (or related trust) of the
Company  or such corporation resulting from such reorganization, merger, binding
share  exchange or consolidation and any Person beneficially owning, immediately
prior  to  such reorganization, merger, binding share exchange or consolidation,
directly  or  indirectly,  20  percent or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case may be) beneficially
owns,  directly  or  indirectly,  20  percent  or  more  of,  respectively, then
outstanding  shares  of  common  stock  of  the  corporation resulting from such
reorganization,  merger, binding share exchange or consolidation or the combined
voting  power of then outstanding voting securities of such corporation entitled
to  vote  generally in the election of directors, and (C) at least a majority of
the  members  of  the  board of directors of the corporation resulting from such
reorganization,  merger, binding share exchange or consolidation were members of
the  Incumbent  Board  at  the  time  of  the execution of the initial agreement
providing  for  such  reorganization,  merger,  binding  share  exchange  or
consolidation;  or

               (iv)     Approval  by  the  stockholders  of the Company of (1) a
complete  liquidation  or  dissolution  of the Company, or (2) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to  a  corporation,  with  respect  to  which  following  such  sale  or  other
disposition,  (A) more than 60 percent of, respectively, then outstanding shares
of  common  stock  of  such  corporation  and  the combined voting power of then
outstanding  voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners,  respectively,  of  the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially  the same proportion as their ownership, immediately prior to such
sale  or  other  disposition,  of  the  Outstanding  Company  Common  Stock  and
Outstanding  Company  Voting  Securities,  as  the  case  may  be, (B) no Person
(excluding  the  Company and any employee benefit plan (or related trust) of the
Company  or  such  corporation  and  any Person beneficially owning, immediately
prior  to  such sale or other disposition, directly or indirectly, 20 percent or
more  of  the  Outstanding  Company  Common  Stock or Outstanding Company Voting
Securities,  as  the  case may be) beneficially owns, directly or indirectly, 20
percent  or  more  of,  respectively, then outstanding shares of common stock of
such  corporation  and  the  combined  voting  power  of then outstanding voting
securities  of  such  corporation  entitled to vote generally in the election of
directors,  and (C) at least a majority of the members of the board of directors
of  such  corporation  were  members  of  the Incumbent Board at the time of the
execution  of  the  initial  agreement or action of the Board providing for such
sale  or  other  disposition  of  assets  of  the  Company.

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     13.     Administration;  Amendment  and  Termination.
             --------------------------------------------

          (a)     This  Plan  shall be administered by a committee consisting of
two  members  who  shall  be  the  current  directors  of  the Company or senior
executive  officers  or  other  directors  who  are  not  Participants as may be
designated  by  the  Chief Executive Officer (the "Committee"), which shall have
full  authority  to  construe  and  interpret this Plan, to establish, amend and
rescind  rules  and  regulations  relating  to  this  Plan, and to take all such
actions  and make all such determinations in connection with this Plan as it may
deem  necessary  or  desirable.

          (b)     The  Board  may from time to time make such amendments to this
Plan,  including  to  preserve or come within any exemption from liability under
Section  16(b)  of  the  Exchange  Act,  as  it  may deem proper and in the best
interest  of the Company without further approval of the Company's stockholders,
provided  that,  to  the  extent  required  under  Florida  law  or  to  qualify
transactions  under  this  Plan for exemption under Rule 16b-3 promulgated under
the  Exchange  Act,  no  amendment to this Plan shall be adopted without further
approval  of  the  Company's stockholders and, provided, further, that if and to
the  extent  required  for this Plan to comply with Rule 16b-3 promulgated under
the  Exchange Act, no amendment to this Plan shall be made more than once in any
six  month period that would change the amount, price or timing of the grants of
the  Common  Stock hereunder other than to comport with changes in the Code, the
Employee  Retirement Income Security Act of 1974, as amended, or the regulations
thereunder.  The  Board  may  terminate  this  Plan  at  any time by a vote of a
majority  of  the  members  thereof.

     14.     Restrictions  on  Transfer.  Each  Stock  Option granted under this
             --------------------------
Plan shall be transferable only by will or the laws of descent and distribution.
No  interest  of  any  Employee  under this Plan shall be subject to attachment,
execution, garnishment, sequestration, the laws of bankruptcy or any other legal
or  equitable  process.  Each  Stock  Option  granted  under  this Plan shall be
exercisable  during  an  Employee's  lifetime  only  by  the  Employee or by the
Employee's  legal  representative.

     15.     Term  of  Plan.  No  shares  of  the  Common Stock shall be issued,
             --------------
unless  and  until  the Directors of the Company have approved this Plan and all
other  legal  requirements  have  been  met.  This Plan was adopted by the Board
effective  June  2,  2004,  and  shall  expire  on  June  2,  2014.

     16.     Governing Law.  This Plan and all actions taken thereunder shall be
             -------------
governed by, and construed in accordance with, the laws of the State of Florida.

     17.     Information  to Shareholders.  The Company shall furnish to each of
             ----------------------------
its stockholders financial statements of the Company at least annually.

     18.     Miscellaneous.
             -------------

          (a)     Nothing  in this Plan shall be deemed to create any obligation
on  the  part  of  the  Board  to  nominate  any  Director for reelection by the
Company's  stockholders or to limit the rights of the stockholders to remove any
Director.

          (b)     The  Company  shall  have  the  right to require, prior to the
issuance  or  delivery  of any shares of the Common Stock pursuant to this Plan,
that  a  Participant  make  arrangements  satisfactory  to the Committee for the
withholding  of  any  taxes  required  by law to be withheld with respect to the
issuance  or  delivery  of  such  shares,  including, without limitation, by the
withholding  of  shares  that  would  otherwise  be  so  issued or delivered, by
withholding  from any other payment due to the Participant, or by a cash payment
to  the  Company  by  the  Participant.

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<PAGE>
     IN WITNESS WHEREOF, this Plan has been executed effective as of June 2,
2004.

                                   INTERNATIONAL TRUST AND FINANCIAL
                                   SYSTEMS, INC.

                                   By  /s/  Wilbert H. Marmion
                                     ----------------------------------
                                     Wilbert H. Marmion, President

                                        7
<PAGE>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 Galyan’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 2004 fiscal year, and the denominator is 365.  

                    (d) Vacation:  Employee shall be entitled to annual paid vacation in accordance with Company’s 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 Company’s 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 Company’s 1999 Stock Option Plan, as amended (the “Option Plan”), with a per share exercise price equal to the closing price of Company’s Common Stock on the date on which both parties have fully executed this Agreement.  The Options shall become vested in one-third increments on Employee’s 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
Employee’s 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 Employee’s relocation to Indiana (including the relocation of Employee’s 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 Employee’s 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 Employee’s current home in Fox Point, Wisconsin, in accordance with Company’s 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 Company’s payment for such services.

          4.       TERMINATION:  Employee’s 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 Employee’s 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 Employee’s (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 Employee’s 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 Employee’s employment for any reason other than Cause, death, or Disability by giving ten (10) days written notice to Employee.

                    (c) Death:  Employee’s 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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                    (e) Termination by Employee for Good Reason.  Employee may terminate employment during the Term for “Good Reason” by delivering to Company (i) a Preliminary Notice of Good Reason (as defined below), and (ii) not earlier than thirty (30) days and not later than three (3) months from the delivery of such Preliminary Notice of Good Reason, a Notice of Termination.  For purposes of this Agreement, “Good Reason” means (i) the assignment (without the express written consent of Employee) to Employee of a materially lower position in the organization in terms of his responsibility, authority and status, any material reduction in Employee’s authority or status, or requiring Employee to perform services not commensurate with Employee’s ability, experience and qualifications; (ii) requiring Employee (without
his consent) to relocate his primary work location more than fifty (50) miles away from the current principal office of Company in Plainfield, Indiana; (iii) any reduction in Employee’s base salary or bonus opportunity; (iv) any material breach by Company of the terms of this Agreement; or (v) failure of any successor of the Company to assume this Agreement; provided that “Good Reason” shall not include (A) acts not taken in bad faith which are cured by Company in all respects not later than twenty (20) days from the receipt by Company of a written notice from Employee identifying in reasonable detail the act or acts constituting “Good Reason” (a “Preliminary Notice of Good Reason”) or (B) acts taken by Company as a result of grounds for termination of employment for Cause pursuant to Section 4(a).  A Preliminary Notice of Good Reason shall not, by itself, constitute a Notice of Termination.

          5.       OBLIGATIONS UPON TERMINATION:

                    (a) Termination by Company for Cause:  If Company terminates Employee for Cause at any time during the Term, Employee will receive his base salary and other compensation and benefits earned under this Agreement but not yet paid or delivered to Employee as of the date of termination, including retirement benefits accrued through the date of such termination and payable under the terms of such plans, but excluding any bonus.

                    (b) Termination by Company for Other Than Cause, Disability, Death, or by Employee for Good Reason:  If Company terminates Employee’s employment for any reason other than Cause, Disability, or death at any time during the Term, or if Employee terminates employment for Good Reason pursuant to Section 4(e) during the Term, Employee shall receive, subject to the limitations set forth below, (i) his base salary and other compensation and benefits earned under this Agreement but not yet paid or delivered to Employee as of the date of his termination, including any bonus owed for the immediately preceding fiscal year and retirement benefits accrued through the date of such termination and payable under the terms of such plans, (ii) a lump sum payment equal to Employee’s Target Bonus for the fiscal year of termination, (iii) a lump
sum equal to then-current base salary, less standard income and payroll tax withholding and other authorized deductions, from the date of termination until the later of the date that is (A) the first anniversary of the date of his termination or (B) the third anniversary of the Commencement Date (such period hereafter referred to as the “Severance Period); (iv) continued health coverage for the Severance Period, and (vi) a lump sum equal to the benefits that absent termination of employment would have accrued under Company’s tax-qualified and non-qualified retirement plans (which benefits shall be deemed fully vested) until the end of the Severance Period.

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                    (c) Death or Disability: If Employee’s employment terminates pursuant to Section 4(c) or (d) as a result of his death or Disability, Employee shall be entitled to the same compensation as provided under Section 5(a).  In addition, Employee (or his estate) shall receive a payment (at such time as is consistent with the administration of Company’s bonus program) equal to a pro-rata share of the annual bonus he would have earned (as determined in a manner consistent with Section 3(c)) based on Company’s actual results for the fiscal year.  For purposes of the preceding sentence, Employee’s pro-rata share shall be a fraction of the number of days in the fiscal year, the numerator of which shall be the number of days in the fiscal year prior to Employee’s death or termination of employment pursuant to Section
4(d) and the denominator of which shall be 365.

                    (d) Exclusive Remedy:  Employee acknowledges that, other than the payments described in this Section 5 and Employee’s rights under any benefit plan of Company in which Employee participates, he shall have no other claims against, and be entitled to no other payments from, Company or its direct or indirect parents, subsidiaries, affiliates or related companies upon any termination or breach by Company of this Agreement.

          6.       LOYALTY, NON-COMPETITION AND CONFIDENTIALITY:  In consideration of the employment provided by Company, Employee agrees with Company as follows:

                    (a) Non-Competition:  Employee acknowledges that his position will give him access to confidential and highly sensitive non-public information of substantial importance to Company, including but not limited to financial information, identities of distributors, contractors and vendors utilized in Company’s business, non-public forms, contracts and other documents used in Company’s business, trade secrets used, developed or acquired by Company, information concerning the manner and details of Company’s operation, organization and management, Company’s business plans and strategies, price information, customer lists and research and development data, and that the services he will provide to Company are unique.  During the “Non-Competition Period” as defined in Section 6(f) hereof, Employee agrees that
in addition to any other limitation, he will not directly or indirectly engage in, as an employee, consultant or otherwise, any business in the United States primarily engaged in the retail sporting goods or retail sports apparel business, nor will he accept employment, consult for, or participate, directly or indirectly, in the ownership or management of any enterprise in the United States engaged in such a business, such competing businesses currently include Academy Sports, Bass Pro, REI, Gander Mountain, Cabelas, Sports Authority, Dick’s Sporting Goods, Gart Sports, Modell’s, Copeland, Sports Chalet, Hibbett’s and Christie Sports, and any subsidiaries of any of them.  Notwithstanding the foregoing, Employee may invest as the holder of not more than four percent (4%) of the outstanding shares of any corporation whose stock is listed on any national or regional securities exchange or reported by the National Association of Securities Dealers Automated Quotation System or any
successor thereto.

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                    (b) Other Employees, Customers:  Employee agrees that during the Non-Competition Period, neither he nor any entity with which he is at the time affiliated (and which is not affiliated with Company) shall, directly or indirectly, hire or offer to hire or entice away or in any other manner persuade or attempt to persuade any officer, employee, agent or customer of Company or any of its affiliates, or any person who supplies goods or services or licenses intangible or tangible property to Company or any of its affiliates to discontinue his, her or its relationship with such entity.

                    (c) Confidentiality:  Except in the normal and proper course of his duties hereunder, Employee will not use for his own account or disclose to anyone else, during or after the Term of this Agreement, any confidential or proprietary information or material relating in the reasonable opinion of Company to Company’s operations or businesses, including Company’s subsidiaries, which he may obtain from Company, its subsidiaries or their officers, directors or employees, or otherwise during or by virtue of Employee’s employment by Company.  Confidential or proprietary information or material includes, without limitation, the following types of information or material, both existing and contemplated, regarding Company, its direct or indirect parents, subsidiaries, affiliates or related companies: proprietary data
processing systems and software; corporate information, including contractual arrangements, plans, strategies, tactics, policies, resolutions, patent, copyright, trademark, and tradename applications, and any litigation or negotiations; marketing information, including sales or product plans, strategies, methods, customers, prospects, or market research data; financial information, including cost and performance data, debt arrangements, equity structure, investors, and holdings; operational and scientific information, including trade secrets, technical information, and personnel information, including personnel lists, resumes, personnel data, organizational structure, and performance evaluations; provided, however, that confidential or proprietary information shall not include any information that is generally available to the public without breach of this Agreement.

                    (d) Intangible Property:  All right, title and interest of every kind and nature whatsoever, whether now known or unknown, in and to any intangible property, including all trade names, unregistered trademarks and service marks, brand names, patents, copyrights, registered trademarks and service marks and all trade secrets and confidential know-how (collectively, the “Intangible Property”), invented, created, written, developed, furnished, produced or disclosed by Employee in the course of rendering his services to Company hereunder shall, as between the parties hereto, be and remain the sole and exclusive property of Company for any and all purposes and uses whatsoever, and Employee shall have no right, title or interest of any kind or nature in such Intangible Property, or in or to any results or proceeds
therefrom.  Employee will, at the request of Company, execute such assignments, certificates and other instruments as Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, title and interest in and to, any of the foregoing.

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                    (e) Return of Documents:  Employee agrees that all documents of any nature pertaining to activities of Company, its direct or indirect parents, subsidiaries, affiliates and related companies, used, prepared, or made available to Employee in the course of rendering his services to Company hereunder, including the information or materials covered by Sections 6(c) and 6(d) hereof, are and shall be the property of Company or, as the case may be, its direct or indirect parents, subsidiaries, affiliates or related companies, and that all copies of such documents shall be surrendered to Company whenever requested by the Company.

                    (f) Non-Competition Period:  “Non-Competition Period” means the period beginning on the date hereof and ending on the date that is the first anniversary of the date of termination of Employee’s employment with Company .

                    (g) Enforcement:  Employee acknowledges that irreparable damage would result to Company or its direct or indirect parents, subsidiaries, affiliates or related companies if the provisions of this Section 6 are not specifically enforced, and agrees that Company shall be entitled to any appropriate legal, equitable, or other remedy, including injunctive relief, in respect of any failure to comply with the provisions of this Section 6.

          7.       CHANGE IN CONTROL:  

                    (a)     For purposes of this Section 7, the following terms shall have the meanings set out below: 

                              (i)     “Board” means the Board of directors of the Company or successor entity described in clause (a)(ii)(C) or (D) below:

                              (ii)    “Change in Control” means the occurrence during the Term of any of the following events: (A) any acquisition by any Person or group (as defined in the Securities and Exchange Act of 1934 (“Exchange Act”)) other than a Permitted Shareholder of beneficial ownership of more than the greater of (I) thirty percent (30%) of Company’s then outstanding shares of Common Stock and (II) the Common Stock held by Permitted Holders, and Incumbent Directors cease to constitute more than fifty percent (50%) of the members of the Board; (B) consummation of a merger, reorganization, consolidation, or similar transaction (any of the foregoing a “Merger”), unless the Persons who were the beneficial owners of the Common Stock immediately
before such Merger are the beneficial owners, immediately after such Merger, directly or indirectly, in the aggregate, of more than sixty percent (60%) of the common stock and other voting securities of the entity resulting from such Merger in substantially the same relative proportions as their ownership of the Common Stock immediately before the Merger; (C) consummation of a sale of all or substantially all of the assets of the Company (a “Sale”), unless the Persons who were the beneficial owners of the Common Stock, immediately before such Sale, are the beneficial owners, directly or indirectly, in the aggregate, of more than sixty percent (60%) of the common stock and other voting securities of the entity or entities that own such assets immediately after the Sale; or (D) approval by the Board or the Company shareholders of a plan of liquidation of the Company. 

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                              (iii)   “Incumbent Director” means an individual who is a member of the Board and who (i) is a member of the Board immediately before (i) the change in ownership described in Section 7(a)(ii)(A) or, (ii) if a change in the composition of the Board is made before the change in ownership described in clause (i) pursuant to an agreement with the purchasing Person or group described in Section 7(a)(ii)(A), the change pursuant to such agreement. 

                              (iv)    “Permitted Holder” means Freeman, Spogli & Co., Inc. or Limited Brands, Inc., and “Permitted Holders” means Freeman, Spogli & Co., Inc. and Limited Brands, Inc.  The term “Permitted Holder” also includes any affiliate of an entity described in the preceding sentence. 

                              (v)     “Person” means an individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, or unincorporated organization, or a governmental agency, officer, department, commission, board, bureau, or instrumentality thereof.

                    (b)     If a Change in Control shall occur on or prior to the Termination Date or such earlier date upon which this Agreement is terminated in accordance with the provisions set forth herein, Options granted to Employee pursuant to Section 3(d) shall become fully vested on the date of such Change in Control to the extent not already vested.  In addition, if a Change in Control occurs as provided in the preceding sentence, and Company or its successor terminates Employee’s employment for a reason other than Cause, Disability, or death within one year following such Change in Control, or Employee resigns for Good Reason within one year following such Change in Control, Employee shall be entitled to benefits pursuant to this Section instead of the benefits due to him pursuant to the applicable provisions of Section
5.  Upon termination of Employee’s employment, Company or its successor shall pay Employee a lump sum payment equal to the sum of (i) Employee’s base salary annual salary at the rate in effect on the date of termination and (ii) Employee’s Target Bonus for the fiscal year in which the termination occurs, multiplied by 2.5.    

          8.       ENTIRE AGREEMENT:  This Agreement contains the entire understanding between Company and Employee concerning Employee’s employment with Company, and supersedes all prior negotiations, term sheets, and agreements between them.

          9.       MODIFICATION:  No provision of this Agreement may be amended, modified, or waived except by written agreement signed by both Company and Employee.

          10.     GOVERNING LAW:  The provisions of this Agreement shall be construed in accordance with, and governed by, the laws of the State of Indiana without regard to principles of conflict of laws.

          11.     SAVINGS CLAUSE:  If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable.

          12.     SUCCESSORS; NO ASSIGNMENT OF AGREEMENT:  Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns.  Employee acknowledges that his services are unique and personal.  Accordingly, Employee may not assign his rights or delegate his duties or obligations under this Agreement to any person or entity.

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          13.     ADDITIONAL REPRESENTATIONS:  Employee represents and warrants to Company that he is knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, that he has read this Agreement and that he understands its terms.  Employee acknowledges that, prior to assenting to the terms of this Agreement, he had been given a reasonable time to review it, to consult with counsel of his choice, and to negotiate at arm’s-length with Company as to its contents.  Company and Employee agree that the language used in this Agreement is the language chosen by the parties to express their mutual intent, and that Employee has entered into this Agreement freely and voluntarily and without pressure or coercion from anyone.  Employee represents and warrants to Company that he is not bound by any agreement or
subject to any restriction which would interfere with or prevent his entering into or carrying out this Agreement.

          14.    RIGHTS AND WAIVERS:  All rights and remedies of the parties hereto are separate and cumulative, and no one of them, whether exercised or not, shall be deemed to be to the exclusion of any other rights or remedies or shall be deemed to limit or prejudice any other legal or equitable rights or remedies which either of the parties hereto may have.  No party to this Agreement shall be deemed to waive any rights or remedies under this Agreement unless such waiver is in writing and signed by such party.  No delay or omission on the part of either party in exercising any right or remedy shall operate as a waiver of such right or remedy or any other rights or remedies.  A waiver on any one occasion shall not be construed as a bar to or a waiver of any right or remedy on any future occasion.

          15.    SURVIVABILITY:  The expiration or termination of this Agreement shall not operate to affect such of the provisions hereof as are expressed to remain in full force and effect notwithstanding such termination.

          16.    CAPTIONS:  The captions of this Agreement are for descriptive purposes only and are not part of the provisions hereof and shall have no force or effect.

          17.    NOTICES:  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows (or to such other party or address as Company or Employee may designate in notice duly delivered to the other pursuant to this section):

                    If to Employee, to him at his address set forth in the preamble hereto.

                    If to Company, to it at:

                    Galyan’s Trading Company, Inc.
                     One Galyans Parkway
                     Plainfield, Indiana  46168
                     Attn: Chief Executive Officer

                    With copies to:

                    Norman S. Matthews
                     650 Madison Avenue-23rd Floor
                     New York, NY  10022

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          18.    NO DUTY TO MITIGATE:  Payments due to Employee following his termination of employment are not conditioned upon Employee’s attempting to mitigate his losses by seeking other employment or taking other action, and Employee shall be under no obligation to do so.    

                    IN WITNESS WHEREOF, Company and Employee, intending to be legally bound, have executed this Agreement on the day and year first above written.

	
  
EMPLOYEE:
  	
  
 
  	
  
COMPANY:
  	
  
 
  
	
  
 
  	
  
 
  	
  
GALYAN’S TRADING COMPANY,   INC.
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
/s/ RICHARD LETO
  	
  
 
  	
  
By:
  	
  
/s/ EDWIN J. HOLMAN
  	
  
 
  
	
  

  	
   
  	
  
 
  	
  

  	
  
 
  
	
  
Richard Leto
  	
   
 	
   
 	
  
Edwin J. Holman
   Chief Executive Officer
  	
   
 
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
Date Signed:    April 30, 2004
  	
  
 
  	
  
 
  	
  
Date Signed:    May 10, 2004
  	
  
 
  

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Exhibit A

GALYAN’S TRADING COMPANY, INC.
 2004 STOCK OPTION AGREEMENT

          THIS 2004 STOCK OPTION AGREEMENT (“Agreement”) is entered into as of  the _____ day of __________ 2004, by and between Galyan’s Trading Company, Inc., an Indiana corporation (“Company”), and Richard Leto (“Optionee”) pursuant to the Galyan’s Trading Company, Inc. 1999 Stock Option Plan, as amended (“Plan”).  All capitalized terms not otherwise defined herein shall have the meanings set forth in the Plan.

R E C I T A L S

          A.          Optionee is to be employed by the Company pursuant to an Employment Agreement dated May 10, 2004 (“Employment Agreement”).

          B.          Company has determined to grant Optionee the right to purchase shares of common stock of the Company pursuant to the terms and conditions of this Agreement and the Plan.

A G R E E M E N T:

          NOW, THEREFORE, in consideration of the covenants hereinafter set forth, the parties agree as follows:

	
  
 
  	
  
1.
  	
  
Options;   Number of Shares.
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
          (a)          Company   hereby grants to Optionee the right to purchase (each an “Option” and   collectively, the “Options”) up to 250,000 shares of common stock, no par value,   of the Company (“Common Stock” or “Shares”) at a per share price (“Purchase   Price”) equal to the closing price of a share of Common Stock on the date of   execution of the Employment Agreement (May 10, 2004), $9.17.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
          (b)          The Options and the right to purchase all or any   portion of the Shares are subject to the terms and conditions stated in this   Agreement and in the Plan.  Upon   exercise of an Option and payment of the Purchase Price, Optionee shall   become a shareholder of the Company, with all rights and privileges of a   shareholder of the Company in respect of any Shares issuable upon such   exercise.  It is intended that the   Options will not qualify for treatment as an incentive stock option under   Section 422 of the Internal Revenue Code of 1986, as amended (“Code”).
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
2.
  	
  
Exercise   Criteria.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
          (a)          Unless vesting of the Options is accelerated   pursuant to Subsection (b), one-third of the Options shall become vested on   each of the first three anniversaries of the date hereof, provided Optionee   is employed by Company on such anniversary date.
  

	
  
 
  	
  
          (b)          Upon a Change in Control (as defined in Section 7 of   the Employment Agreement), all outstanding Options shall become 100% vested.
  
	
  
 
  	
  
 
  
	
  
 
  	
  

          (c)          If
the Plan and the outstanding Options terminate pursuant to Section 13(b) of the
Plan (with no substitution, assumption, settlement, or other continuation), and
ten days’ notice referred to in Section 13(b) is required to be given to
Optionee (or would be required to be given to Optionee if his Options were
vested on such date), all of the Options shall become vested as of the date
preceding such notice, and Optionee shall have the exercise rights specified in
Section 13(d) with respect to all outstanding Options.

  

          3.        Termination of Options.  The Options and Optionee’s right to exercise the Options shall terminate on the expiration of seven (7) years from the date hereof, unless terminated earlier pursuant to Section 4 hereof or the Plan (including, without limitation, Section 13(b) of the Plan).

          4.        Effect of Termination of Employment or Death.  

	
  
 
  	
  
          (a)          If the Company terminates Optionee’s employment for   Cause (as defined in Section 4(a) of the Employment Agreement), or Optionee   resigns for other than Good Reason or Special Resignation pursuant to Section   4(e) or 4(f) of the Employment Agreement, Optionee’s right to exercise any   outstanding Options shall terminate immediately upon his termination of   employment.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (b)          If Optionee’s employment terminates during the term   of the Employment Agreement pursuant to Section 4(b), (c), (d), (e), or (f),   Optionee (or, Optionee’s estate, in case of his death) may exercise any or   all of his outstanding vested Options at any time before the earlier of (i)   the first anniversary of his termination of employment or (ii) the date on   which his right to exercise such vested Options would have terminated if he   had not terminated employment.
  
	
   
  	
  
 
  
	
  
 
  	
  
          (c)          If Optionee’s employment terminates for a reason   other than as provided in Subsection (a) or (b) above, Optionee (or his   estate, in case of his death) may exercise any or all of his outstanding   vested Options at any time before the earlier of (i) 90 days after his   termination of employment date or (ii) the date on which his right to   exercise such vested Options would have terminated if he had not terminated   employment.
  

          5.        Termination of Employment or Other Relationship.  The termination of Optionee’s employment shall not accelerate the vesting of the Options.  The Options may be exercised only with respect to that number of Shares which could have been exercised under the Options had such Options been exercised by Optionee on the date of such termination (for a termination other than Cause) and only for the limited period of time set forth in Section 4.

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          6.         Death of Optionee: No Assignment.  The rights of Optionee under this Agreement may not be assigned or transferred except by will, by the laws of descent or distribution, and may be exercised during the lifetime of Optionee only by such Optionee; provided, however, that in the event of disability (within the meaning of Section 22(e)(3) of the Code) of Optionee, Optionee’s designee or legal representative may exercise the Options on behalf of Optionee (provided the Options would have been exercisable by Optionee) until the right to exercise the Options otherwise expires.  Any attempt to sell, pledge, assign, hypothecate, transfer, or otherwise dispose of the Options in contravention of this Agreement or the Plan shall be void.  If Optionee should die while Optionee is engaged in an employment relationship with
the Company or within 90 days after termination of such relationship, and provided Optionee’s rights hereunder shall have vested, in whole or in part, pursuant to Section 2 hereof, Optionee’s designee, legal representative, or legatee, the successor trustee of Optionee’s inter vivos trust or the person who acquired the right to exercise the Options by reason of the death of Optionee (individually, a “Successor”) shall succeed to Optionee’s rights under this Agreement.  After the death of Optionee, only a Successor may exercise the Options.

          7.        Exercise of Options.  No Option granted under this Agreement shall be exercisable until and except to the extent that it has vested.  On or after the vesting of the Options in accordance with Section 2 hereof and until termination of the Options in accordance with this Agreement and the Plan, the Options may be exercised by Optionee (or such other person specified in Section 6 hereof) to the extent exercisable as determined under Section 2 hereof, upon delivery of the following to the Company at its principal executive offices:

	
  
 
  	
  
          (a)          a written notice of exercise which identifies this   Agreement, the type of Option to be exercised, and states the number of   Shares to be purchased;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (b)          a check, cash or any combination thereof in the   amount of the aggregate Purchase Price (or payment of the aggregate Purchase   Price in such other form of lawful consideration as the Committee may approve   from time to time under the provisions of Section 7 of the Plan);
  
	
  
 
  	
  
 
  
	
   
  	
  
          (c)          a check or cash in the amount reasonably requested   by the Company to satisfy the Company’s withholding obligations under   federal, state or other applicable tax laws with respect to the taxable income,   if any, recognized by Optionee in connection with the exercise, in whole or   in part, of the Options (unless the Company and Optionee shall have made   other arrangements for deductions or withholding from Optionee’s wages, bonus   or other income paid to Optionee by the Company, provided, however, such   arrangements must satisfy the requirements of all applicable tax laws);
  

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          (d)          any written representations and/or undertakings, in   such form and substance as the Company may deem necessary or desirable to   assure compliance with all applicable legal and accounting requirements; and
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (e)          such further acts as may be necessary to register   Optionee as a shareholder of the Company.
  

Fractional share interests shall be disregarded, but may be cumulated.  No fewer than 100 Options may be exercised at any one time, unless the number is the total number of Options exercisable at the time.

          8.        Continuance of Employment Required; No Employment Commitment.  The vesting schedule requires continued employment through each applicable vesting date as a condition to the vesting of the applicable installment of the Options and the rights and benefits under this Agreement.  Partial employment, even if substantial, during any vesting period will not entitle Optionee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment as provided in Section 3 above or under the Plan.

          9.        No Rights as a Stockholder.  Neither Optionee nor any other person entitled to exercise any Option shall have any of the rights or privileges of a stockholder of the Company as to any shares of Common Stock until the issuance and delivery to him or her of a certificate evidencing the shares registered in his or her name.  No adjustment will be made for dividends or other rights as to a stockholder for which a record date is prior to such date of delivery.

          10.       The Plan.  The Options and all rights of Optionee thereunder and/or hereunder are subject to, and Optionee agrees to be bound by, all of the terms and conditions of the Plan, which are incorporated herein by this reference.  Unless otherwise expressly provided in these terms and conditions, provisions of the Plan that confer discretionary authority on the Board or the Committee do not (and shall not be deemed to) create any additional rights in Optionee not expressly set forth in this Agreement or in a written amendment hereto signed by the Company.  If there is any conflict or inconsistency between the terms and conditions of this Agreement and of the Plan, the terms and conditions of the Plan shall govern; provided, however, notwithstanding any provision of the Plan to the contrary, including the final sentence of
Section 8.1 thereof, any determination of whether Optionee’s employment has terminated and the section of Optionee’s Employment Agreement pursuant to which such termination occurs shall be made pursuant to the terms of the Employment Agreement without regard to the Plan or this Option Agreement.  Optionee acknowledges receipt of a complete copy of the Plan and agrees to be bound by its terms.  Optionee acknowledges reading and understanding the Plan.

	
  
 
  	
  
          (a)          Further Assurances.  Each party hereto agrees to perform any   further acts and execute and deliver any documents which may be reasonably   necessary to carry out the intent of this Agreement.
  

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          (b)          Notices.    Except as otherwise provided herein, all notices, requests, demands   and other communications under this Agreement shall be in writing, and if by   telegram or telecopy, shall be deemed to have been validly served, given or   delivered when sent, or if by personal delivery or messenger or courier   service, or by registered or certified mail, shall be deemed to have been   validly served, given or delivered upon actual delivery, at the following   addresses, telephone and facsimile numbers (or such other address(es), telephone   and facsimile numbers a party may designate for itself by like notice):
  
	
  
 
  	
  
 
  
	
   
  	
  
If to Optionee:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
To the Optionee’s most recent   address or telecopy number reflected on the Company’s records.   
  
	
  
 
  	
  
 
  
	
  
 
  	
  
If to the Company:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
Galyan’s Trading Company, Inc.
  
	
  
 
  	
  
One Galyans Parkway
  
	
  
 
  	
  
Plainfield, IN 46168
  
	
  
 
  	
  
Attn:  General Counsel
  
	
  
 
  	
  
Telecopy:     (317)   532-0269
  
	
   
  	
  
 
  
	
  
 
  	
  
With a copy to:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
Norman S. Matthews
  
	
  
 
  	
  
650 Madison Ave., 23rd   Floor
  
	
  
 
  	
  
New York, NY  10022
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          c.          Amendments.  This Agreement may be amended only by a written agreement   executed by both of the parties hereto.    The Company may, however, unilaterally waive any provision hereof in   writing to the extent such waiver does not adversely affect the interests of   Optionee hereunder, but no such waiver shall operate as or be construed to be   a subsequent waiver of the same provision or a waiver of any other provision   hereof.
  
	
  
 
  	
  
 
  
	
   
  	
  
          d.          Governing Law.  This Agreement shall be governed by and construed in accordance   with the laws of the State of Indiana without regard to conflict of law   principles thereunder.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          e.          Entire Agreement.  This Agreement constitutes the entire   agreement and understanding among the parties pertaining to the subject   matter hereof and supersedes any and all prior agreements, whether written or   oral, relating hereto.
  

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          f.          Headings.  Introductory headings at the beginning of each section and   subsection of this Agreement are solely for the convenience of the parties   and shall not be deemed to be a limitation upon or description of the   contents of any such section and subsection of this Agreement.
  
	
  
 
  	
  
 
  
	
   
  	
  
          g.          Counterparts.  This Agreement may be executed in two counterparts, each of   which shall be deemed an original and both of which, when taken together,   shall constitute one and the same agreement.
  
	
  
 
  	
  
 
  

          IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement as of the date first above written.

	
  
 
  	
  
THE COMPANY:
  	
  
 
  	
  
OPTIONEE:
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
Galyan’s Trading Company, Inc.
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
an Indiana corporation
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  

  	
  
 
  	
  

  	
  
 
  
	
   
  	
   
  	
  Norman S. Matthews,
  	
   
  	
  Richard Leto
  	
   
  
	
   
  	
   
  	
  Chairman of the Board
  	
   
  	
   
  	
   
  

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