Document:

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                                                                    Exhibit 10.2

                            MODIFICATION AGREEMENT

        This Modification Agreement (this "Agreement") is entered into as of
August 31, 1999 by and among Galyan's Trading Company, Inc., an Indiana
corporation (the "Company"), FS Equity Partners IV, L.P., a Delaware limited
partnership (the "FS Stockholder") and The Limited, Inc., a Delaware corporation
("The Limited") and is made with reference to that certain Transaction Agreement
dated as of May 3, 1999 (the "Transaction Agreement") by and among the Company,
the FS Stockholder and The Limited. All capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Transaction
Agreement.

        WHEREAS, certain conditions to Closing set forth in the Transaction
Agreement will not be satisfied on or before the Closing Date; and

        WHEREAS, the parties to the Transaction Agreement wish to waive certain
conditions to Closing, amend certain provisions of the Transaction Agreement and
to set forth their agreements with respect to certain other matters.

        The parties agree as follows:

        Section 1.    Certain Real Estate Transactions.
                      --------------------------------

                1.1   Certain Definitions. In order to accurately describe
                      -------------------
certain transactions which are not sale-leaseback transactions but rather the
sale of a property subject to a lease, the parties agree that the terms
"Property Sale Agreements," "Specified Properties" and "Specified Property
Leases" shall be substituted for the terms "Sale-Leaseback Agreements,"
"Sale-Leaseback Properties" and "Sale-Leaseback Leases" which are defined in the
Transaction Agreement. It is understood that the underlying definitions set
forth in the Transaction Agreement shall not change.

                1.2   Real Estate Equity. It is understood that if a third
                      ------------------
party does not provide approximately $15,000,000 of real estate equity (the
"Third Party Equity") on or prior to August 31, 1999 then the FS Stockholder
will contribute approximately $10,000,000 of real estate equity and The Limited
will contribute approximately $5,000,000 of real estate equity, such aggregate
amount to be allocated to six newly formed limited liability companies; provided
                                                                        --------
that, until August 30, 1999 the FS Stockholder's obligation to provide real
----
estate equity is subject to its satisfactory completion of diligence with
respect to the relevant real estate. The parties agree that if the FS
Stockholder and The Limited provide such real estate equity, the consummation of
the transactions contemplated by the Property Sale Agreements (related to
properties 1-6 listed in Schedule 8.03 to the Transaction Agreement) will occur
immediately following the Closing under the Transaction Agreement; provided
that, prior to the Closing under the Transaction Agreement, all of the parties
to the Property Sale Agreements have unconditionally agreed to consummate such
transactions at such time without the necessity of any further action by any
party. Neither of the FS Stockholder nor The Limited shall have an obligation to
contribute real estate equity other than in connection with the Closing under
the Transaction Agreement as contemplated by this Section 1.2.

<PAGE>

                1.3   Real Estate Proceeds/Working Capital Adjustment. In
                      -----------------------------------------------
addition to the conditions to closing listed in the Transaction Agreement, if
the Third Party Equity is not in place on or prior to August 31, 1999, then the
obligation of The Limited to consummate the Closing is subject to it having, as
of the Closing Date, the unconditional right to receive proceeds under the
Property Sale Agreements (related to properties 1-6 listed in Schedule 8.03 to
the Transaction Agreement) of not less than $57,500,000 (the "Real Estate
Proceeds") immediately following the consummation of the Closing. The parties
agree that, for purposes of determining the payment due under Section 2.02(g) of
the Transaction Agreement, (i) if the Real Estate Proceeds are equal to or less
than $60,500,000, the Base Adjusted Net Assets shall be deemed to be reduced by
$500,000, (ii) if the Real Estate Proceeds are greater than $60,500,000 but less
than or equal to $561,000,000, the Base Adjusted Net Assets shall be deemed to
be reduced by an amount equal to $61,000,000 minus the amount of the Real Estate
                                             -----
Proceeds, and (iii) if the Real Estate Proceeds are greater than $61,000,000, no
adjustment shall be made to the Base Adjusted Net Assets and any such amount in
excess of $61,000,000 shall be paid by The Limited to the Company. In the event
any subsequent payment is made to The Limited in the nature of an adjustment to
Real Estate Proceeds, the calculations described in the preceding sentence shall
be recomputed and The Limited shall pay to the Company the amount, if any, by
which the original reduction to Base Adjusted Net Assets is greater than the
recomputed reduction.

                From and after the Closing, the parties agree that the borrower
shall pay to The Limited any payments that the borrower receives from GMAC as a
result of any decrease in the 10-year CMBS spread reported by Morgan Stanley
pursuant to the loan agreement between the borrower and GMAC which shall be
treated as "Real Estate Proceeds" for purposes of the preceding paragraph. For
avoidance of doubt, any payments to The Limited following the Closing Date in
connection with the sale or transfer of equity in the LLC shall not be
considered Real Estate Proceeds. The definitions of "Property Sale Agreements"
and "Specified Properties" shall exclude the Lenox (Atlanta (Buckhead), GA)
store for all purposes of the Transaction Agreement except in 8.03(b)(i).

                1.4   Letter of Credit. The Company agrees to obtain and
                      ----------------
maintain a letter of credit for the benefit of the lender under the Property
Sale Agreements which currently is contemplated to be GMAC in amounts sufficient
to satisfy certain reserve requirements under the loan documents between GMAC
and the LLC.

                1.5   Forms of Lease. FS Stockholder and The Limited agree that
                      --------------
Attachment F of the Transaction Agreement is deleted in its entirety and
replaced with the lease which is attached hereto as Exhibit F-1. FS Stockholder
and The Limited agree that the lease for the Lenox (Atlanta (Buckhead), GA) and
Sawmill Road (Columbus, OH) stores shall not be substantially in the form of
Exhibit F-1 but rather in substantially the form of attached Exhibit F-2 and
Exhibit F-3, respectively.

        Section 2.    Mezzanine Securities. Subject to the satisfaction of the
                      --------------------
other conditions to closing listed in the Transaction Agreement, including,
without limitation, the condition set forth in Section 2.1 of this Agreement,
the parties have decided to proceed with the closing under the Transaction
Agreement notwithstanding the absence of a third party purchaser of the
Mezzanine Securities. Accordingly, the FS Stockholder and The Limited expect to

                                       2
<PAGE>

execute a Securities Purchase Agreement, which shall be substantially in the
form attached hereto as Exhibit 3 pursuant to which The Limited will purchase an
aggregate of $15,000,000 of the Mezzanine Securities and the FS Stockholder will
purchase an aggregate of $35,000,000 of the Mezzanine Securities therein
described and will receive the Facility Fee therein provided. FS Stockholder
agrees to use its reasonable best efforts to sell, and The Limited agrees to
cooperate in connection with a sale, to a third party the Mezzanine Securities
(or of mezzanine securities issued by the Company in a refinancing thereof). If
The Limited does not contribute $5,000,000 to the real estate equity as
contemplated by Section 1, The Limited will purchase an additional amount of
Mezzanine Securities equal to the amount not so funded and FS Stockholder will
purchase less Mezzanine Securities in a like amount. The parties further agree
that any such third party purchaser will be made a party to the Registration
Rights Agreement, which shall be amended to provide to such party pro rata
"piggy back" registration rights and two demand registration rights in each case
with respect to the shares issuable upon exercise of the warrants only. The
parties further agree that so long as The Limited holds more than $10,000,000 of
the Mezzanine Securities, the Company will not agree to any modification or
waiver of the Securities Purchase Agreement without the consent of The Limited.
Additionally, the FS Stockholder will not be permitted to sell any Mezzanine
Securities in a particular series unless The Limited has previously sold or is
concurrently selling (or, in connection with the specific opportunity to sell,
has elected not to sell) its Mezzanine Securities in the same series.

        Section 3.    Equity Issuances. The parties hereby agree that,
                      ----------------
notwithstanding anything to the contrary in the Transaction Agreement, at
Closing, (1) the Company will issue live million shares of Class A Common Stock
to the FS Stockholder and the FS Stockholder will pay, as the purchase price for
such shares of Class A Common Stock, $50 million in immediately available funds
and (2) the FS Stockholder will make a loan to the Company in the aggregate
principal amount of $4,000,000 (the "FS Loan") which shall be evidenced by a
promissory note (the "FS Note"), which shall be substantially in the form
attached hereto as Exhibit 3. Each time during the 60 days following the Closing
that the Company issues Class A Common Stock to employees or directors in
exchange for any combination of cash and notes, the Company shall repay an
amount of principal of the FS Loan equal to the amount of the cash and the
principal amount of the notes received by the Company for such stock. Each such
payment shall be accompanied by a payment of accrued interest on the principal
being paid. On the next Business Day following the 60th day following the
Closing, the Company shall satisfy the balance, if any, of the FS Loan then
outstanding by issuing to the FS Stockholder additional shares of Class A Common
Stock, each of which shares shall satisfy $10 of principal of the FS Loan
together with all accrued interest thereon. If the Company issues more than
400,000 shares of Class A Common Stock to employees and directors during such
60-day period, any such additional shares up to a maximum of 125,000 will dilute
all shareholders ratably; provided, however, The Limited shall have the right to
                          --------
purchase a number of shares at $10.00 per share which will enable The Limited to
maintain its ownership percentage.

        Section 4.    Buffalo Store.
                      -------------

                4.1   Construction of Buffalo Store. Although the parties to the
                      -----------------------------
Transaction Agreement originally contemplated that the Closing would occur prior
to the commencement of the construction of the Buffalo Store (the "Commencement
Date"), the

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Closing will not take place until after the Commencement Date. In light of such
circumstance, the parties acknowledge that The Limited has caused the Company to
begin construction of the Buffalo Store, and the parties agree that any actions
taken by The Limited or the Company in connection with such construction,
including actions taken prior to the date hereof, shall be deemed not to breach
any provision of the Transaction Agreement, including, without limitation, the
representations, warranties, covenants any provisions of and agreements therein.

                4.2   Construction Financing. The parties to the Transaction
                      ----------------------
Agreement originally contemplated that prior to the Commencement Date the
Company and a third party would enter into an agreement whereby the third party
would provide the Company with Third Party Construction Financing. However, The
Limited has caused its store planning division to proceed with the construction
on the Buffalo Store prior to the Closing. In the event that proceeds from Third
Party Construction Financing are not available at Closing to reimburse The
Limited for Construction Costs (as defined below), the Company agrees to
diligently pursue and use reasonable best efforts to enter into Third Party
Construction Financing.

                4.3   Reimbursement by Company. The parties agree that any
                      ------------------------
reasonable out-of-pocket costs incurred by The Limited or any of its Affiliates
attributable to construction of the Buffalo Store that could have been financed
by a third party construction loan (i.e., such costs are of a nature which are
customarily financed by a third party construction lender) had such a loan been
in place at the time the relevant costs were incurred ("Construction Costs")
shall be reimbursed by the Company (together with the interest referred to in
the immediately following sentence) on the earlier of(a) the execution of
documentation for Third Party Construction Financing, which shall be on terms
mutually acceptable to the FS Stockholder and The Limited, and(b) October 31,
1999. The Limited's estimate of such costs incurred as of August 24, 1999 was
$594,000 with which the Company and the FS Stockholder agree. The Construction
Costs shall bear interest at the Reference Rate from the Commencement Date to
the date of the reimbursement. All other reasonable out-of-pocket costs incurred
by the store planning division of The Limited attributable to the construction
of the Buffalo Store shall be included in the calculation of "Adjusted Net
Assets" pursuant to the Transaction Agreement notwithstanding any other
provision or understanding under the Transaction Agreement. It is understood and
agreed that after October 31, 1999, none of The Limited and its Affiliates will
pay for any Construction Costs related to the Buffalo Store.

                4.4   Amendment of Section 2.04. The parties agree that the
                      -------------------------
third sentence of Section 2.04(a) of the Transaction Agreement is hereby amended
by inserting after "such remaining obligations" and before "shall be deemed
contributed" the following clause:

                      (except for those obligations of Company to
                      The Limited and its affiliates that are
                      expressly contemplated by the Transaction
                      Documents to survive the closing of the
                      Transaction Agreement)

        Section 5.   G Trademark, Inc. Prior to Closing, The Limited contributed
                     -----------------
all of its outstanding shares of common stock of the Company to G Trademark,
Inc. ("G Trademark"), a wholly owned subsidiary. As a result, G Trademark will
enter into the

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<PAGE>

Stockholders Agreement and the Registration Rights Agreement pursuant to ss.
2.02(1) of the Transaction Agreement. The parties agree that the condition set
forth in ss. 11.02(c) of the Transaction Agreement will be satisfied if G
Trademark enters into the Stockholders Agreement in addition to The Limited.

        Section 6.    Inventory Count. The parties wish to clarify that
                      ---------------
the "customary physical inventory count" referred to in clause 2.03(b) of the
Transaction Agreement shall mean a customary physical inventory count as of June
30, 1999 with a customary "roll-forward" of that physical inventory to the
Closing Date.

        Section 7.    Amendment to Section 2.02. The parties agree that
                      -------------------------
(A) the reference to "$7,127,000" in the fifth line of clause (c) of Section
2.02 of the Transaction Agreement shall be replaced with a reference to
"$8,344,000" and (B) the reference to "$61,873,000" in the third line of clause
(f) of Section 2.02 of the Transaction Agreement shall be replaced with a
reference to "$60,656,000."

        Section 8.    Closing Balance Sheet and Income Statement. The
                      ------------------------------------------
Closing will be effective at the close of business on Tuesday, August 31, 1999.
The Company will roll forward the August 28, 1999 consolidated balance sheet and
profit and loss statement account balances from August 28, 1999 to the close
of business on Tuesday, August 31, 1999 (the "Interim Period").

        The Company's balance sheet roll forward for the Interim Period shall be
based on, among other things, (1) actual cash on hand as of August 31, 1999;
(2) accounts receivable as of August 28, 1999 plus any applicable trade sales
less cash receipts collected on the outstanding balances during the Interim
Period; (3) inventory balance per the Company's inventory stock ledger as of
August 31, 1999 less normal and recurring adjustments for markdowns, shrinkage
and other inventory adjustments applicable to the Interim Period; (4) prepaid
and other current assets as of August 28, 1999 plus any applicable additions
less amortization during the Interim period; (5) accounts payable as of August
28, 1999 plus all receipts recorded in the inventory stock ledger and any other
applicable additions less any payment made in relation to the balances during
the Interim Period; and (6) accrued expenses as of August 28, 1999 plus three
days or three twenty-eighths of August 1999 monthly operating expenses less any
applicable adjustments during the Interim Period.

        The profit and loss statement roll forward for the Interim Period shall
be based on, among other things, (1) the actual net sales generated by the
Company during the Interim Period; (2) the actual gross profit for each product
class from the gross margin stock ledger for the Interim Period before shrink
reserve; (3) applying the current shrink percentage against sales for the
Interim Period and (4) by applying three twenty-eighths (28 days in the monthly
period ended August 28, 1999) of August's monthly operating expenses to the
Interim Period, with the exception of expenses relating to the Mall of Georgia,
which will be allocated based on seventeen days of operation for the period
ended August 28, 1999.

                                       5
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        Section 9.    Guarantees. It is agreed that Section 8.03(c) of
                      ----------
the Transaction Agreement shall be deleted in its entirety. The Limited hereby
agrees to provide a customary completion guarantee to the construction lender
for the store to be constructed in Buffalo, New York. The Company hereby agrees
to reimburse The Limited for any amounts paid by The Limited under any
guarantees (together with interest at the Reference Rate from the date of any
such payment by The Limited until reimbursement by the Company), including the
construction guaranty and any lease guarantees, promptly after receipt from The
Limited of notice thereof accompanied by written evidence of the underlying
payment obligation and that The Limited shall have customary subrogation rights
with respect thereto.

        Section 10.   Letters of Credit. With respect to the letters of
                      -----------------
credit described on Schedule I hereto, The Limited agrees that its reimbursement
obligations thereunder (as in effect on the Closing Date) shall remain in place
until October 31, 1999. The Company hereby agrees to reimburse The Limited for
any amounts paid on such letters of credit by The Limited (together with
interest at the Reference Rate from the date of any such payment by The Limited
until reimbursement by the Company) promptly after receipt from The Limited of
notice thereof accompanied by written evidence of the underlying payment
obligation.

        Section 11.   Calculation of Adjusted Net Assets. The parties
                      ----------------------------------
hereby acknowledge that the Estimated Closing Date Adjusted Net Assets reflects
only The Limited's good faith estimate (determined as of August 24, 1999) of
such amount and will not affect in any respect the calculation of Closing Date
Adjusted Net Assets or Final Closing Date Adjusted Net Assets.

        Section 12.   Miscellaneous Real Estate.
                      -------------------------

                12.1  Sawmill Property. For avoidance of doubt, the parties
                      ----------------
agree to add the following language to the end of Section 8.03(a)(iii) of the
Transaction Agreement: Company and Galyan's Property Holding Co. ("Property
Holding"), a wholly-owned subsidiary of The Limited, agree to enter into an
assignment and assumption agreement at the closing of the sale of the Sawmill
Property, pursuant to which Company agrees to transfer the exercised purchase
option for the Sawmill Property to Property Holding on the condition that either
(a) Property Holding amend and restate the existing lease of the Sawmill
Property so that the existing lease will be substantially in the form of the
attached Exhibit F-3 immediately upon its purchase of the Sawmill Property, or
(b) in the event Property Holding does not itself purchase the Sawmill Property,
but transfers such right to a third party, Property Holding transfers such right
to purchase the Sawmill Property subject to such amended and restated lease with
Company in the form attached as Exhibit F-3. For avoidance of doubt, FS
Stockholder and The Limited agree that any and all closing costs, including,
without limitation, any transfer taxes, relating to the purchase by Property
Holding, The Limited or any of its Affiliates of the Sawmill Property from the
current fee owner shall be paid for by Property Holding, The Limited, or such
Affiliate and such fee owner, and will not in any event be or become the
obligation of Company. Company and Property Holding agree to execute and
deliver such documents and take such actions as are reasonably necessary to
effectuate the foregoing.

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                12.2  Buckhead Lease. The parties hereby waive the covenant of
                      --------------
The Limited in Section 6.01(j) of the Transaction Agreement to the extent
necessary to permit the Company to enter into a subground lease and a store
lease, substantially in the form of Exhibit F-2, with Property Holding for the
Galyan's store located in Buckhead, Georgia. Such lease will provide for the
payment of rent as set forth on Exhibit 14 by the Company to Property Holding
for the period from August 1, 1999 until the consummation of a sale-leaseback
transaction with respect to that property at which time such leases will be
assigned by Property Holding to the ultimate purchaser. It is understood that,
upon the consummation of such transaction, the subground lease and the store
lease will be assigned by Property Holding to such ultimate purchaser, except
that the Company shall agree to modify such leases or execute new leases with
identical provisions (other than the initial term) as necessary to ensure that
the remaining term of such leases is 20 years after such consummation; provided
that such consummation occurs within one year from the date hereof.

                12.3  Leawood Store. For avoidance of doubt, the parties agree
                      -------------
that title to the real estate underlying the Leawood, KS store shall be
transferred from the Company to Galyan's Property Holding Company or its
designee prior to or at the Closing; provided, that all closing costs,
                                     --------
including, without limitation, any transfer taxes relating to such transfer
shall be paid by The Limited.

        Section 13.   Schedule 2.02. It is understood that the legal fees of
                      -------------
 Freeman Spogli described on Schedule 2.02 are legal fees relating to the
negotiation and execution of the Transaction Agreement.

        Section 14.   Schedule 8.03. Schedule 8.03 to the Transaction
                      -------------
Agreement is hereby deleted in its entirety and the schedule attached hereto as
Exhibit 14 shall be substituted therefore.

        Section 15.   Distribution Center. If(i) the Company elects to expand
                      -------------------
the Company's Plainfield, Indiana distribution center to a size not to
exceed 360,000 square feet in an easterly direction, (ii) the Company has used
all reasonable efforts to obtain all required zoning approvals (including
reasonable consultation with The Limited with respect to the zoning approval
process) and (iii) there is a final determination by the applicable governmental
authority that, in order to ensure compliance with applicable zoning
requirements, the Company requires additional land to effect such expansion,
then The Limited will convey or cause to be conveyed by one of its affiliates to
the Company, at no cost to the Company, such additional land, up to a maximum of
three acres, as is necessary to permit the Company to address the zoning issues
raised in the final determination referred to above. In the event The Limited or
one of its affiliates conveys land to the Company in accordance with the
preceding sentence, the land to be conveyed shall be immediately to the south of
the Company's lot in Plainfield, Indiana and shall be conveyed in a manner such
that the new line dividing the lots of the Company, on the one hand, and The
Limited and its affiliates, on the other hand, shall be parallel to the existing
lot line. It is understood that, regardless of applicable zoning requirements,
in no event shall The Limited be obligated to convey or cause to be conveyed
more than three acres of land to the Company or to convey such land in a manner
other than as set forth in the immediately preceding sentence.

                                       7
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        Section 16.   Miscellaneous.
                      -------------

                16.1  Limited Waiver. Nothing in this Agreement shall be deemed
                      --------------
to constitute a waiver by any party of compliance by any other party with
respect to any other term, provision or condition of any of the Transaction
Agreement not specifically addressed herein. Except as expressly set forth
herein, the terms, provisions and conditions of the Transaction Agreement shall
remain in full force and effect and in all other respects are hereby ratified
and confirmed.

                16.2  Transaction Document. This Agreement and the FS Note shall
                      --------------------
be deemed to be "Transaction Documents" as defined in the Transaction Agreement.

                16.3  Amendments. This Agreement may be amended or waived, if
                      ----------
and only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by all of the parties hereto, or in the case of a waiver, by the
party against whom the waiver is to be effective.

                16.4  Governing Law. This Agreement shall be construed in
                      -------------
accordance with and governed by the laws of the State of New York (without
regard to the choice of law provisions thereof).

                16.5  Captions. The captions herein are included for convenience
                      --------
of reference only and shall be ignored in the construction or interpretation
hereof.

                16.6  Severability. Any term or provision of this Agreement
                      ------------
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdictions, it
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.

                16.7  Counterparts. This Agreement may be signed in any number
                      ------------
of counterparts, each of which shall be an original, with the same effect as if
the signature thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other parties hereto.

                16.8  Jurisdiction. Any suit, action or proceeding seeking to
                      ------------
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought against any of the parties in the United States District Court of the
Southern District of New York or any state court sitting in the City of New
York, Borough of Manhattan, and each of the parties hereby consents to the
exclusive jurisdiction of such court (and of the appropriate appellate courts)
in any such suit, action or proceeding and waives any objection to venue laid
therein. Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the State of New York.

                                       8
<PAGE>

                16.9   WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
                       --------------------
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

                                       9
<PAGE>

        IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.

                                        GALYAN'S TRADING COMPANY, INC.

                                        By: /s/ Joel Silverman
                                            --------------------------------
                                            Name:  Joel Silverman
                                            Title: President and CEO

                                      S-1
<PAGE>

                                        FS EQUITY PARTNERS IV, L.P.

                                        By:   FS CAPITAL PARTNERS, LLC
                                        Its:  General Partner

                                        By: /s/ Todd Halloran
                                            --------------------------------
                                            Name:  Todd Halloran
                                            Title: Managing Member

                                      S-2
<PAGE>

                                        THE LIMITED, INC.

                                        By: /s/ Jeffery G. Naylor
                                            ---------------------------------
                                            Name:  Jeffery G. Naylor
                                            Title: Vice President, Controller

                                      S-3<PAGE>

                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT
                              --------------------

          This Agreement ("Agreement") is made and entered into as of the 29th
day of September 2000 by and between Robert Mang, residing at 425 Walsh Road,
Atherton, California 94027 ("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 on October 1, 2000 and ending at the close of business
on the third anniversary of such date or on such earlier date upon which this
Agreement is terminated in accordance with the provisions set forth herein (the
"Initial Term").  The term of this Agreement will automatically extend past the
Initial Term for succeeding periods of one year each unless either party
terminates this Agreement as of the end of the Initial Term, or as of the end of
any subsequent one-year period (in either case, the "Termination Date"), by
delivering notice to the other party specifying the applicable Termination Date
not later than 90 days prior to the date so specified.  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
     (i) serve as Chief Executive Officer and Chairman of the Company and, in
     such capacity, shall, subject to supervision by the Board of Directors of
     the Company (the "Board"), have responsibility and authority over all
     operations and employees of the Company and shall perform such other duties
     and have such other responsibilities not materially inconsistent with the
     foregoing as may from time to time be assigned or delegated to him by the
     Board, (ii) shall diligently and conscientiously devote his full and
     exclusive business time, energy and ability to his duties and the business
     of  the Company, (iii) shall serve as a member of the Board; and (iv) shall
     perform his duties as set forth herein faithfully and efficiently, subject
     to the direction of the Board and in compliance with Company policies and
     regulations given or promulgated by the Board.  The provisions of this
     Agreement, however, shall not be construed to preclude service by the
     Employee as a non-employee director of entities not in competition with the
     business of the Company.

(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) by signing this Agreement
     he is not breaching any contract or legal obligation he owes to any third
     party and (iii) 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 $450,000 for fiscal year 2000 (such amount reduced pro rata based
     upon the date

                                      -1-
<PAGE>

     the Employee commences his daily duties and responsibilities as Chief
     Executive Officer of the Company), $500,000 for fiscal year 2001 and
     $550,000 for fiscal year 2002, with an increase to at least $600,000 per
     year for fiscal year 2003 to the extent such year is covered by this
     Agreement, 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 and shall, in the
     initial year of this Agreement also be entitled to reimbursement (to a
     maximum of $10,000) of expenses for legal, tax and financial advice related
     to his employment by the Company.

(b)  Signing Bonus:  On January 3, 2001, the Company shall pay to Employee a
     one-time payment of $500,000, less income and payroll tax, withholding and
     other authorized deductions (the "Signing Bonus").  Employee agrees that,
     if on the first anniversary of the date of execution of this Agreement his
     employment with the Company has been terminated, he shall repay the after-
     tax portion of the Signing Bonus no later than thirty (30) days following a
     request for such repayment by Company; provided however, that such
     repayment shall not be required if (i) the Company's Repurchase Option
     pursuant to the terms of Section 4 of the Stock Subscription Agreement by
     and between the parties hereto has not terminated in accordance with such
     terms and the Company elects not to exercise such Repurchase Option, (ii)
     Employee terminates his employment for Good Reason or (iii) Employee is
     terminated by the Company other than for Cause.

(c)  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.  In lieu of receiving coverage under such plan,
     Employee may at his option elect to have the Company pay or reimburse the
     Employee for the cost of continued coverage (up to a maximum of $10,000 per
     year) under the plan of a prior employer of the Employee.

(d)  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 60% of base salary in each fiscal year
     beginning in fiscal year 2001 (or $300,000 in fiscal year 2001 and $330,000
     in fiscal year 2002) with the ability to earn up to 200% of the Target
     Bonus if the Target Income is exceeded by an amount to be determined by the
     Board.  Notwithstanding anything to the contrary herein, Employee shall
     receive from the Company on January 3, 2001 a bonus of $180,000 for the
     partial fiscal year 2000 in lieu of a Target Bonus for that year.

(e)  Company Stock/Options.  The Company shall grant to Employee (i) the right
     to purchase shares of  Class A common stock of Company (the "Common Stock")
     upon the terms and conditions set forth in a Stock Subscription Agreement
     attached hereto as Exhibit A and (ii) 90,000 options with a $10.00 exercise
                        ---------
     price and 75,000 options with a $20.00 exercise price pursuant to Company's
     1999 Stock Option Plan (collectively, the "Options"); provided that the
     grant of Options is subject to Employee purchasing at least $700,000 of
     Common Stock (up to $300,000 of which may be financed by the Company on the
     terms and conditions set forth in

                                      -2-
<PAGE>

     the Stock Subscription Agreement and the related Stock Pledge Agreement and
     Secured Promissory Note attached hereto as Exhibit B and Exhibit C,
                                                ---------     ---------
     respectively) pursuant to clause (i) hereof. The Options shall become
     vested in one-third increments on the Employee's first anniversary, second
     anniversary and third anniversary with the Company. The Options shall be
     governed by and subject to the terms and conditions of the 1999 Stock
     Option Plan and Employee's Stock Option Agreement.

(f)  MVP.com SARs.  The Company shall grant to the Employee certain stock
     appreciation rights for 41,000 units with respect to the common stock of
     MVP.com, Inc. subject to the terms and conditions set forth in the SAR
     Award Agreement by and between the parties hereto.

(g)  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.

(h)  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.

(i)  Moving Expenses: Company shall reimburse Employee for (1) reasonable
     expenses incurred in connection with Employee's relocation to Indiana
     (including the relocation of Employee's family and pets), (2)  the
     reasonable commuting and temporary living costs for a period of eight
     months from the date hereof, including, without limitation, airfare and
     ground transportation between Atherton, California and Indianapolis,
     Indiana every other week during such eight-month period, car rental in
     Indianapolis, Indiana during such eight-month period, house hunting and
     relocation trips to Indianapolis, Indiana for Employee's wife and daughter
     during such eight-month period and (3) points associated with the purchase
     of a residence in the greater Indianapolis area, in each case upon the
     provision to the Company of receipts evidencing such expenses.  Company
     agrees to indemnify Employee against any incremental income tax liability
     incurred as a result of the payment of his temporary living costs and any
     other non-deductible relocation costs by Company.

4.  TERMINATION:  Employee's employment with Company during the Term may be
    -----------
terminated by Company under the circumstances described in this Paragraph 4, and
subject to the provisions of Paragraph 5:

(a)  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" shall mean that Company, acting reasonably and in good faith based
     upon the information then known to Company, determines that Employee has
     engaged in or committed: willful misconduct; gross negligence; theft, fraud
     or other illegal conduct; any willful act that is likely to materially
     injure the

                                      -3-
<PAGE>

     reputation, business or a business relationship of Company; refusal or
     unwillingness to perform his duties or responsibilities under this
     Agreement in a satisfactory manner or failure to comply with written
     policies and directives of Company, in either case for thirty (30) days
     following specific written notice thereof; Employee's death or Disability
     (as defined below); or material breach of any term of this Agreement
     following specific notice thereof from Company. For purposes of this
     Paragraph 4(a), "Disability" shall mean a physical or mental impairment
     which substantially limits a major life activity of Employee and which
     renders Employee unable to perform the essential functions of his position,
     even with reasonable accommodation which does not impose an undue hardship
     on Company. Company, acting reasonably and in good faith, shall have the
     right to make the determination of disability under this Agreement.

(b)  Other than Cause:  Company may immediately terminate Employee's employment
     for any reason other than Cause by giving ten (10) days written notice to
     Employee.

(c)  Good Reason.  Employee may terminate employment hereunder for "Good Reason"
     by delivering to the Company (1) a Preliminary Notice of Good Reason (as
     defined below), and (2) 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, the assignment (without the express written consent of
     Employee) to Employee of a significantly lower position in the organization
     in terms of his responsibility, authority and status,  any significant
     reduction in Employee's authority or status, or requiring Employee to
     perform services not commensurate with Employee's ability, experience and
     qualifications; requiring Employee (without his consent) to relocate his
     primary work location more than 50 miles away from the current principal
     office of the Company in Plainfield, Indiana; any reduction in the
     Employee's base salary or bonus opportunity; or any material breach by the
     Company of the terms of this Agreement; provided that "Good Reason" shall
     not include (A) acts not taken in bad faith which are cured by the Company
     in all respects not later than thirty (30) days from the receipt by the
     Company of a written notice from the Employee identifying in reasonable
     detail the act or acts constituting "Good Reason" (a "Preliminary Notice of
     Good Reason") or (b) acts taken by the Company as a result of grounds for
     termination of employment for Cause pursuant to Section 4(a) hereof.  A
     Preliminary Notice of Good Reason shall not, by itself, constitute a Notice
     of Termination.

5.  OBLIGATIONS UPON TERMINATION:
    ----------------------------
(a)  Cause:  If Company terminates Employee for Cause at any time during the
     Term, Employee (or his estate in the event of his death) 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 (except in the
     case of death or disability) any bonus.  In the event of disability or
     death, Employee (or his estate) shall also receive a payment (at the time
     Company traditionally makes such payment) equal to a pro-rata share of the
     annual bonus he would have earned (as determined in a manner consistent
     with Paragraph 3(d) hereof) 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 disability and the denominator of which shall be 365.
     Other than the

                                      -4-
<PAGE>

     amounts specified in this Paragraph 5(a), Employee will not be entitled to
     any severance pay or any other compensation or benefits of any nature
     whatsoever, except as may be payable under the terms of other plans or
     agreements in the event of disability or death.

(b)  Other Than Cause:  If Company terminates Employee for any reason other than
     Cause at any time during the Term or if Employee terminates employment for
     any Good Reason, 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 retirement benefits accrued through the
     date of such termination and payable under the terms of such plans,
     (ii) the Target Bonus, if any, for the applicable fiscal year in which the
     Employee is terminated and (iii) severance pay constituting the
     continuation of his then-current base salary, less standard income and
     payroll tax withholding and other authorized deductions, plus continued
     health coverage and a payment equal to the benefits that absent termination
     of employment would have accrued under the Company's tax-qualified and non-
     qualified retirement plans (which benefits shall be deemed fully vested),
     until the later of the date that is (x) the first  anniversary of the date
     of his termination and (y) the third anniversary of the date hereof.

(c)  Exclusive Remedy:  Employee acknowledges that, other than the payments
     described in this Paragraph 5, 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 Paragraph 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.
     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.

(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

                                      -5-
<PAGE>

     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.

(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 Paragraphs
     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.

                                      -6-
<PAGE>

(f)  Non-Competition Period:  "Non-Competition Period" means the period
     beginning on the date hereof and ending on the date that is the later of
     (i) the second anniversary of the date of termination of Employee's
     employment with Company and (ii) September 29, 2003.

(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 Paragraph 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
     Paragraph 6.

7.  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.

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

9.  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.

10.  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.

11.  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.

12.  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.

13.  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

                                      -7-
<PAGE>

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.

14.  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.

15.  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.

16.  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 paragraph):

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

          With copies to:

          George H. Bostick
          Sutherland Asbill & Brennan LLP
          1275 Pennsylvania Avenue, N.W.
          Washington, DC  20004

          If to Company, to it at:

          2437 E. Main Street
          Plainfield, Indiana  46168
          Attn: Chuck Nelson

          With copies to:

          O'Melveny & Myers LLP
          153 East 53rd Street
          New York, New York  10022
          Attn:  Jeffrey J. Rosen

          Freeman Spogli & Co.
          599 Lexington Avenue
          18th Floor
          New York, New York 10022
          Attn: John M. Roth

                                      -8-
<PAGE>

17.  WITHHOLDING:  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.  Company agrees that if any tax is
owed by Employee with respect to the issuance of stock and granting of options
provided for in Paragraph 3(e) of this Agreement, Company shall pay such tax
when due or, if such tax is required to be withheld from Employee, Company shall
pay such withholding tax.

                  (Remainder of Page Intentionally Left Blank)

                                      -9-
<PAGE>

          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/ Robert Mang                      By    /s/ Norman S. Matthews
--------------------------------     ---------------------------------
Robert Mang                          Name: Norman S. Matthews
                                     Title:Chairman of the Board

                                      S-1

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