EMPLOYMENT AGREEMENT - SAM K. DUNCAN
 
                                                                    
 
 
 
                              EMPLOYMENT AGREEMENT
 
    THIS EMPLOYMENT AGREEMENT is entered into this 28th day of October, 2002 by
and between SHOPKO STORES, INC., a Wisconsin corporation (the "Company"), and
Sam K. Duncan (the "Executive").
 
                                    RECITALS
 
    The Executive has been offered the position of President and Chief Executive
Officer of the Company. The Company desires to employ the Executive pursuant to
the terms of this Employment Agreement and the Executive desires to be employed
by the Company in accordance with the terms and provisions contained herein.
 
    In consideration of the premises and mutual covenants and agreements
contained herein, the parties hereto hereby agree as follows.
 
    1. Employment.
 
    (a) Agreement. The Company hereby employs the Executive, and the Executive
hereby accepts such employment, on the terms and subject to the conditions
contained herein. The Executive represents and warrants to the Company that he
has no non-compete, non-solicitation or other agreements with his current or
former employers which would prevent him from accepting employment with the
Company or fulfilling the obligations of his position as set forth herein.
 
    (b) Title and Duties. During the Employment Term (as defined in Section 2
below), the Executive shall serve as the President and Chief Executive Officer
("CEO") of the Company. In such capacity, the Executive shall faithfully and to
the best of his ability supervise, manage and administer the operations,
business and affairs of the Company. The Executive shall have responsibility,
subject to the control and direction of the Board of Directors, for the overall
strategic policies, management and leadership of Company and its subsidiaries.
 
    (c) Other Responsibilities. The Executive will be appointed as a director of
the Company by the Board of Directors as soon as reasonably practicable and will
also serve as an officer and/or director of such subsidiaries of the Company as
may be designated by the Board of Directors. The Executive will not receive
compensation in addition to that specified in this Agreement for serving as a
director of the Company or an officer or director of any Company subsidiaries.
If the Executive's employment with the Company terminates for any reason, he
will promptly resign as an officer and/or director of the Company and any of its
subsidiaries.
 
    (d) Commitment. During the Employment Term, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote substantially all of his business time, efforts and skills to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During his employment with the Company, Executive may
participate in charitable activities and personal investment activities to a
reasonable extent, so long as such activities do not interfere with the
performance of his duties and responsibilities hereunder.
 
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    2. Employment Term.
 
    The term of the employment of the Executive under this Agreement (the
"Employment Term") shall commence as on October 30, 2002 (the "Effective Date")
and shall continue, unless sooner terminated under Section 7 hereof, until the
third anniversary of the Effective Date; provided, however, that the Employment
Term shall be automatically extended for one additional year on the third
anniversary of the Effective Date and on every subsequent anniversary thereafter
(such date and each anniversary thereof referred to as a "Renewal Date"), until
the earlier of (i) termination of the Employment Term under Section 7 hereof or
(ii) the Company giving Executive notice 60 days prior to a Renewal Date that
the Employment Term will not be so extended.
 
    3. Salary.
 
         (a) Annual Base Salary. During the Employment Term, the Executive shall
    be paid a salary at the rate of $725,000 per annum (the "Annual Base
    Salary"), payable in equal installments in accordance with the Company's
    customary payroll practices for its senior executives in effect from time to
    time, but not less frequently than monthly.
 
         (b) Review. The Board of Directors, or a designated committee of the
    Board, shall review the Executive's Annual Base Salary at least annually,
    and may increase such Annual Base Salary at any time and from time to time
    as the Board of Directors, or its designee, in its sole discretion, shall
    deem appropriate. The term "Annual Base Salary" as utilized in this
    Agreement shall refer to Annual Base Salary as so increased. Any increase in
    Annual Base Salary shall not serve to limit or reduce any other obligation
    to the Executive under this Agreement. Annual Base Salary shall not be
    reduced at any time during the Employment Term.
 
    4. Bonus and Long-Employment Term Incentives.
 
         (a) Signing Bonus. Once the Executive has (i) signed this Agreement and
    (ii) worked for the Company in its Green Bay, Wisconsin offices for five
    business days, the Company will pay the Executive a one-time, signing bonus
    in the amount of $150,000. The bonus will be paid as soon as
    administratively practicable after the criteria for the signing bonus are
    met.
 
         (b) Annual Bonus. In addition to Annual Base Salary, the Executive
    shall be eligible to receive, for each fiscal year ending during the
    Employment Term, an annual bonus (the "Annual Bonus") determined in
    accordance with the Company's 1999 Executive Incentive Plan, as amended, or
    if the Executive Incentive Plan is no longer in effect, such successor plan
    as is approved by the Board of Directors (the "Bonus Plan"). The amount of
    the Executive's Annual Bonus shall be 60% of Annual Base Salary at the
    target level of performance and 120% of Annual Base Salary if the maximum
    level of performance is achieved. The performance goals to be used in
    determining the amount of the Executive's Annual Bonus shall be determined
    by the Compensation and Stock Option Committee of the Board of Directors of
    the Company (the "Compensation Committee") and Board of Directors. Any
    Annual Bonus payable to the Executive shall
 
 
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    be paid at the same time as bonus payments are made to the Company's other
    senior executives. Notwithstanding the foregoing, the Annual Bonus for the
    fiscal year which ends on February 1, 2003 will be determined based on the
    company-wide performance goals established by the Compensation Committee for
    that fiscal year and will be prorated in accordance with the provisions of
    the Bonus Plan to take into account the fact that he was not employed for
    the entire performance period. As regards the Annual Bonus for the fiscal
    year ending in January 2004, the minimum that the Executive will be paid is
    $275,000.
 
         (c) Participation in Long-Term Incentive Plan. The Executive shall be a
    participant in the 2000 Executive Long Term Incentive Plan or any successor
    thereto (the "Incentive Plan"). Awards under the Incentive Plan will equal
    50% of Annual Base Salary at the target level of performance and 100% of
    Annual Base Salary if the maximum level of performance is achieved. The
    performance goals under the Incentive Plan will be determined from time to
    time by the Compensation Committee. The Incentive Plan award is based on the
    performance over a three-year period. Thus, the first complete program for
    which the Executive will be eligible to participate begins in February of
    2003 and ends with January of 2006. For the three-year periods ending prior
    thereto, the Executive will be entitled to the award he otherwise would have
    received, prorated in accordance with the provisions of the Incentive Plan
    to take into account the fact that he was not employed for the entire
    performance period.
 
         (d) Award of Options. On the Effective Date, the Executive will be
    awarded options for 100,000 shares of Company common stock (the "Option").
    The exercise price shall be the closing sale price of a share of the
    Company's common stock on the date of grant, and the Option shall vest as to
    33,333 shares on the first anniversary of the date of grant, as to 33,333
    shares on the second anniversary of the date of grant and as to the
    remaining 33,334 shares on the third anniversary of the date of grant. All
    other terms and conditions of the Option shall be governed by the Company's
    2001 Stock Incentive Plan and the standard option grant form thereunder.
 
         (e) Award of Restricted Stock. On the Effective Date, the Executive
    will be awarded 50,000 shares of Company common stock subject to the
    following transfer restrictions (the "Restricted Stock"). The Executive will
    not have to pay anything for the Restricted Stock. The transfer restrictions
    will lapse ratably over four years, i.e., as to 12,500 shares on the first
    anniversary of the date of grant and as to 12,500 shares on each of the
    second, third and fourth anniversaries of the date of grant. All other terms
    and conditions of the Restricted Stock shall be governed by the Company's
    1993 Restricted Stock Plan and the standard form used for awards of
    restricted stock. Notwithstanding the foregoing, if the Executive so
    requests before the Effective Date, the period over which the transfer
    restrictions lapse may be extended. The Executive also has the right under
    the federal income tax laws to file a Section 83(b) election as regards the
    Restricted Stock during the first thirty days after the Effective Date. The
    Executive should consult with his tax advisor as to the advisability of
    filing such an election.
 
         (f) SERP Participation. The Executive shall also be eligible to
    participate in the Company's Executive Retirement Plan (the "SERP") starting
    on the Effective Date with
 
 
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    the following modification: the reference under "Early Retirement Date" in
    Section 1.8 to "at least ten Years of Service" shall be "at least five Years
    of Service." Any dispute as to the computation of Executive's Retirement
    Benefit under the SERP shall be decided by the Company's outside actuarial
    firm. Such decision shall be conclusive and binding on both Executive and
    the Company.
 
         (g) Reservation of Rights. Notwithstanding anything contained herein,
    the Company will have the right to amend or discontinue the Bonus Plan
    and/or Incentive Plan, to substitute another plan for one or both of these
    Plans or to change the percentages for different performance levels. Such
    amendment, discontinuance, substitution or change will not give rise to any
    claim by the Executive against the Company unless the Executive is
    discriminated against (when compared with the other senior officers of the
    Company) in connection with such amendment, discontinuance, substitution or
    change.
 
    5. Benefits.
 
         (a) In General. Subject to the application of any applicable
    anti-discrimination rules, the Executive shall be entitled to participate in
    all employee benefit plans, programs, practices or arrangements of the
    Company in which other senior executives of the Company are eligible to
    participate from time to time, including, without limitation, any qualified
    or non-qualified pension, profit sharing and savings plans including the
    Senior Officers Deferred Compensation Plan, any death benefit and disability
    benefit plans, and any medical, dental, health and welfare plans. In
    addition, the Executive shall be eligible to participate in the Company's
    Executive Retirement Plan in accordance with its terms.
 
         (b) Fringe Benefits. During the Employment Term, the Executive shall be
    entitled to fringe benefits applicable to other senior executives of the
    Company. In addition to the foregoing, the Company will allow the Executive
    to use one of its corporate golf memberships at Oneida Golf & Country Club
    while the Executive is employed by the Company. The Company will reimburse
    the Executive for the annual dues for the golf membership, but all other
    club expenses, except to the extent they are reimbursable as business
    expenses, will be the Executive's responsibility.
 
         (c) Vacation. The Executive will be entitled to five weeks of vacation
    per year, except that if the Executive is not employed by the Company for
    the entire calendar year, the amount of vacation to which he is entitled
    will be prorated based on the number of days in the calendar year he is
    employed by the Company. To the extent the full amount of vacation time is
    not taken, the Executive may only carry over vacation time to a subsequent
    year to the extent provided by the Company's policies, procedures and/or
    practices applicable to senior executives then in effect.
 
    6. Expenses. The Company shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses incurred by him in the course of performing
his duties for the Company in accordance with the Company's reimbursement
policies as in effect from time to time for other senior executives of the
Company. the Executive shall keep accurate records and receipts of
 
 
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such expenditures and shall submit such accounts and proof thereof as may from
time to time be required in accordance with such expense account or
reimbursement policies that the Company may establish for its senior executives
generally. In addition the Executive will be entitled to reimbursement for
moving expenses to Green Bay, Wisconsin and reasonable temporary living expenses
in Green Bay, Wisconsin in accordance with the Company policy applicable to
senior executives.
 
    7. Termination of Employment. During the Employment Term, the Executive's
employment hereunder may be terminated under any of the following circumstances:
 
         (a) Death or Disability. The Executive's employment hereunder shall
    terminate automatically upon the Executive's death during the Employment
    Term. If the Company determines in good faith that a Disability (as defined
    below) of the Executive has occurred during the Employment Term, the Company
    may give the Executive written notice in accordance with Section 7(d) of
    this Agreement of its intention to terminate the Executive's employment
    hereunder. In such event, the Executive 's employment with the Company shall
    terminate effective on the thirtieth (30th) day after receipt of such notice
    by the Executive (the "Disability Effective Date"), provided that, within
    thirty (30) days after such receipt, the Executive shall not have returned
    to full-time performance of the Executive's duties. For purposes of this
    Agreement, "Disability" means a mental or physical condition which, in the
    opinion of the Board of Directors, renders the Executive unable or
    incompetent to carry out the material job responsibilities which the
    Executive held or the material duties to which the Executive was assigned at
    the time the disability was incurred, which has existed for at least three
    months and which, in the opinion of a physician mutually agreed upon by the
    Company and the Executive, or his representative if the Executive his unable
    to agree (provided that neither party shall unreasonably withhold such
    agreement), is expected to be permanent or to last for an indefinite
    duration or a duration in excess of six months.
 
         (b) Termination by Company. The Company may terminate the Executive's
    employment for Cause or without Cause in accordance with the provisions of
    this Section 7. For purposes of this Agreement, "Cause" means:
 
                           (i) an act or acts of personal dishonesty taken by
                  the Executive and intended to result in substantial personal
                  enrichment of the Executive or his family at the expense of
                  the Company,
 
                           (ii) repeated violations by the Executive of the
                  Executive's obligations under Section l(b) of this Agreement
                  which are demonstrably willful and deliberate on the
                  Executive's part and which are not remedied in all material
                  respects within 30 days after the Executive's receipt of
                  written notice from the Company that specifically describes
                  such violations,
 
                           (iii)  the conviction of the Executive of a felony;
 
 
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                           (iv) conduct by the Executive which evinces a want of
                  integrity or an intentional breach of trust and which directly
                  causes (or the Board of Directors determines is reasonably
                  likely to cause) material injury to the Company; or
 
                           (v) a violation of Section 9 or 10 of this Agreement.
 
         (c) Termination by the Executive. The Executive may terminate his
    employment with the Company for Good Reason upon 60 days advance written
    notice to the Company in accordance with Section 7(d) of this Agreement. For
    purposes of this Agreement, "Good Reason" means (i) a breach of any of the
    material terms or conditions of this Agreement by the Company, not caused by
    the Executive, which breach has not been cured by the Company within 30 days
    after written notice thereof to the Company from the Executive; (ii) a
    reduction in the Executive's Base Salary; (iii) a reduction in his title of
    President and Chief Executive Officer or a material reduction in the duties
    which might reasonably be associated with such title without the Executive's
    consent; or (iv) the Company giving the Executive notice that the Employment
    Term will not be renewed pursuant to Section 2 hereof.
 
         (d) Notice of Termination. Any purported termination of the Executive's
    employment by either party shall be communicated by Notice of Termination to
    the other party. For purposes of this Agreement, a "Notice of Termination"
    shall mean a written notice which (i) indicates the specific termination
    provision in this Agreement relied upon; (ii) if applicable, sets forth in
    reasonable detail the facts and circumstances claimed to provide a basis for
    termination of the Executive's employment under the provision so indicated;
    and (iii) indicates the Termination Date. "Termination Date" shall mean in
    the case of the Executive's death, his date of death, or in all other cases
    of termination by the Company, the date specified in the Notice of
    Termination; provided, however, that the date specified in the Notice of
    Termination shall be at least thirty (30) days after the date the Notice of
    Termination is given by the Company to the Executive or by the Executive to
    the Company (other than in the case of death); and provided, further, that
    in the case of Disability, the Executive shall not have returned to the
    full-time performance of his duties during such period of at least thirty
    (30) days.
 
    8. Obligations Upon Termination.
 
         (a) Termination by the Company for Cause. If the Executive's employment
    with the Company is terminated by the Company for Cause, the Company will
    pay and/or provide the Executive with the following: (i) in a lump sum
    within thirty (30) days after the Termination Date, all amounts of the
    Executive's Annual Base Salary, vacation pay (but only for unused vacation
    days during the current year (including any unused vacation days for the
    prior year that pursuant to Company policy may be carried forward to the
    current year and which have not yet been used)), Annual Bonus (for the prior
    fiscal year), and long-term incentive awards (for a completed performance
    measurement period) that have been earned but are unpaid as of the
    Termination Date (such amounts collectively, the "Accrued Obligations") and
    (ii) all benefits to which the Executive is entitled under any benefit plans
    set forth in Section 5 hereof in accordance with the terms of such plans
    through the Termination Date.
 
 
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         (b) Termination by Reason of Disability or Death. If the Executive's
    employment with the Company is terminated during the Employment Term by
    reason of the Executive's Disability or death, the Company will pay and/or
    provide the Executive or the Executive's legal representative or
    Beneficiary, as the case may be, with the following:
 
                  (i) in a lump sum within thirty (30) days after compliance
         with subsection (d) hereof, all Accrued Obligations;
 
                  (ii) no later than the date on which the other senior
         executives receive their Annual Bonus payments and after compliance
         with subsection (d) hereof, a fraction of the Annual Bonus that would
         have been earned by the Executive for the fiscal year including the
         Termination Date, determined in accordance with the terms of the Bonus
         Plan; and
 
                  (iii) all benefits to which the Executive is entitled under
         any benefit plans set forth in Section 5 hereof in accordance with the
         terms of such plans through the Termination Date.
 
         (c) Termination by the Company Without Cause or by the Executive for
    Good Reason.  If the Company terminates the Executive's employment without
    Cause, or the Executive terminates his employment for Good Reason, the
    Company will pay and/or provide the Executive with the following:
 
                  (i) after compliance with subsection (d) hereof, Salary
         continuation for longer of (a) two years or (b) the remainder of the
         Employment Term, with Salary being defined as the sum of (x) the Annual
         Base Salary as in effect on the day the Notice of Termination is
         delivered and (y) the lesser of (A) the target bonus under the Bonus
         Plan or (B) the average Bonus actually paid to the Executive during the
         Employment Term, annualizing any part-year payment and treating the
         bonus amount as zero for any year in which the minimum target was not
         achieved; and
 
                  (ii) continuation of health and dental coverage under the
         Company's plans, subsidized by the Company to the same extent as active
         employees, as in effect on the day the Notice of Termination is
         delivered for the longer of (a) two years or (b) the remainder of the
         Employment Term; provided, however, that if the Executive becomes
         eligible to receive health or other benefits under another
         employer-provided plan, the health and dental benefits provided
         hereunder shall cease. The coverage period for purposes of the group
         health and dental continuation requirements of the Consolidated Omnibus
         Budget Reconciliation Act of 1987, as amended ("COBRA"), shall commence
         on the Termination Date.
 
         (d) Release of Claims. Notwithstanding the foregoing, the Company will
    not pay to the Executive, and the Executive will not have any right to
    receive any payments described in Sections 8(b) and (c), above, unless and
    until the Executive or his legal representative (in the case of the
    Executive's death or if the Executive is disabled such that he is unable to
    consent) executes, and there shall be effective following any statutory
 
 
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    period for revocation, a release, in a form reasonably acceptable to the
    Company, that irrevocably and unconditionally releases, waives, and fully
    and forever discharges the Company and its past and current shareholders,
    directors, officers, employees, and agents from and against any and all
    claims, liabilities, obligations, covenants, rights, demands and damages of
    any nature whatsoever, whether known or unknown, anticipated or
    unanticipated, relating to or arising out of the Executive's employment with
    the Company, including without limitation claims arising under the Age
    Discrimination in Employment Act of 1977, as amended, Title VII of the Civil
    Rights Act of 1974, as amended, the Civil Rights Act of 1991, as amended,
    the Equal Pay Act, as amended, and any other federal, state, or local law or
    regulation.
 
    9. Nondisclosure.
 
         (a) During the Employment Term and during the two-year period following
    his termination of employment with the Company, the Executive shall not make
    any Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized
    Disclosure" shall mean use by the Executive or disclosure by the Executive
    without the consent of tile Board of Directors to any person, other than use
    or disclosure that is reasonably necessary or appropriate in connection with
    the performance by the Executive of his duties as an executive of the
    Company or as may be legally required (provided the provisions of Section
    9(c) hereof are complied with), of any confidential information obtained by
    the Executive while in the employ of the Company, including, but not limited
    to, confidential information with respect to any of the Company's customers,
    suppliers, contractors, methods of operation, services, products,
    mechanisms, databases, processes, programs and access codes (the
    "Confidential Information"); provided, however, that Confidential
    Information shall not include any information which was or becomes generally
    available to the public (i) other than as a result of a wrongful disclosure
    by the Executive, (ii) as a result of disclosure by the Executive during the
    Employment Term which he reasonably and in good faith believes is required
    by the performance of his duties under this Agreement, or (iii) any
    information compelled to be disclosed by applicable law or administrative
    regulation; provided that the Executive, to the extent not prohibited from
    doing so by applicable law or administrative regulation, shall give the
    Company written notice of the information to be so disclosed pursuant to
    clause (iii) of this sentence as far in advance of its disclosure as is
    practicable. Nothing herein shall limit the Executive's confidentiality
    obligation as regards any information which is a trade secret as defined in
    Section 134.90 of the Wisconsin Statutes, or any successor thereto.
 
         (b) All memoranda, notes, records, papers, financial models,
    mechanisms, programs, flow charts, work papers, source codes, computer
    codes, designs, software, data and other documents and all copies thereof
    relating to the operations or business of the Company, some of which may be
    prepared by the Executive, and all objects associated therewith (such as
    samples) in any way obtained by him in connection with the performance of
    the Executive's duties hereunder shall be the exclusive property of the
    Company. The Executive shall not, except for the Company's use, copy or
    duplicate any of the aforementioned, not remove them from the Company's
    facilities, nor use any information concerning them, in each case, except
    for the Company's benefit, either
 
 
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    during his employment or thereafter. The Executive will deliver the original
    and all copies of all of the aforementioned that may be in his possession to
    the Company on termination of his employment, or at any other time on the
    request of the Board of Directors.
 
         (c) If the Executive is requested or becomes legally required or
    compelled (by oral questions, interrogatories, requests for information or
    documents, subpoena, civil or criminal investigative demand, or similar
    process) or is required by a governmental body to make any disclosure that
    is prohibited or otherwise constrained by this Agreement, the Executive will
    provide the Company with prompt notice of such request so that it may seek
    an appropriate protective order or other appropriate remedy. Subject to the
    foregoing, the Executive may furnish that portion (and only that portion) of
    the Confidential Information that the Executive is legally compelled or is
    otherwise required to disclose or else stand liable for contempt or suffer
    other material censure or material penalty.
 
    10. Noncompetition, Nonsolicitation and Nondisparagement. In consideration
for the Company entering into this Agreement, during the Employment Term and
during the two-year period following termination of the Executive's employment
with the Company:
 
         (a) The Executive will not, directly or indirectly, contact any
    supplier or prospective supplier of the Company with whom the Executive has
    had contact on behalf of the Company during the two-year period preceding
    the date of such termination so as to cause or attempt to cause such
    supplier or prospective supplier of the Company not to do business or to
    reduce or limit such supplier's business with the Company or divert any
    business from the Company.
 
         (b) The Executive will not, directly or indirectly, own more than five
    percent (5%) of, or act as an officer, director, partner, principal,
    employee, agent, representative, advisor, consultant or independent
    contractor of, or in any way assist, whether or not for consideration, any
    business, incorporated or otherwise, which is engaged, directly or
    indirectly, in the retail sale of a diversified offering of apparel and
    household goods, the retail sale of a diversified offering of discount
    household goods, the retail sale of health, hygiene or prescriptive
    products, or the retail sale of grocery products and which engages in
    business within, or is located within, any state in which the Company's
    business generated more than $30 million in revenues in the fiscal year
    preceding the termination of the Executive's employment with the Company.
    The Executive acknowledges that the scope of this limitation is reasonable
    in that, among other things, providing any such services or assistance
    during such two-year period would permit the Executive to use unfairly his
    close identification with the Company and the supplier contacts the
    Executive developed while employed by the Company and would involve the use
    or disclosure of Confidential Information pertaining to the Company.
 
         (c) The Executive will not, directly or indirectly, induce, solicit,
    entice or procure any person who is a management or exempt employee of the
    Company, or has been such a management or exempt employee within the six
    months preceding such contact by the Executive, to terminate his or her
    employment with the Company so as to accept
 
 
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    employment with any person, company, business entity, or other organization
    whatsoever.
 
         (d) The Executive, except as may be required by legal process, will
    refrain from making any written or oral statement, publicly or privately,
    which disparages the Company or its current or former directors or
    employees.
 
         (e) The Company (by and through its executive officers and directors),
    except as may be required by law or by the rules of any stock exchange on
    which the Company's securities trade, will refrain from making any written
    or oral statement, publicly or privately, which disparages the Executive.
 
    11. Enforcement of Covenants. The Executive recognizes that irreparable and
incalculable injury will result to the Company, its businesses or properties in
the event of his breach of any of the restrictions imposed by Sections 9 and 10,
above. In the event of any such actual, impending or threatened breach, the
Company will be entitled, in addition to any other remedies and damages, to stop
payment under Section 8 hereof and to temporary and permanent injunctive relief
(without the necessity of posting a bond or other security) restraining the
violation, or further violation, of such restrictions by the Executive and by
any other person or entity for whom the Executive may be acting or who is acting
for the Executive or in concert with the Executive.
 
    12. Exclusive Remedy. The payments, severance benefits and severance
protections provided to the Executive pursuant to this Agreement are to be paid
and provided in lieu of any severance payments, severance benefits and severance
protections provided in any other plan or policy of the Company, and any
payments relating to the period after employment terminates are not to be
included as compensation for purposes of any qualified or nonqualified pension,
deferred compensation or welfare benefit plan or program of the Company.
 
    13. Successors.
 
         (a) This Agreement is personal to the Executive and without the prior
    written consent of the Company shall not be assignable by the Executive
    otherwise than by will or the laws of descent and distribution. This
    Agreement shall inure to the benefit of and be enforceable by the
    Executive's legal representatives.
 
         (b) This Agreement shall inure to the benefit of and be binding upon
    the Company and its successors.
 
    14. Legal Fees and Disbursements. The Company shall pay on the Executive's
behalf reasonable attorneys' fees and disbursements incurred in connection with
the negotiation of this Agreement to the law firm retained by the Executive for
this purpose upon receipt of an itemized statement for such services, but not in
an amount in excess of $5,000.
 
    15. Miscellaneous.
 
         (a) Choice of Law, Captions and Amendment. This Agreement shall be
    governed by and construed in accordance with the laws of the State of
    Wisconsin,
 
 
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    without reference to principles of conflict of laws. The captions of this
    Agreement are not part of the provisions hereof and shall have no force or
    effect. This Agreement may not be amended or modified otherwise than by a
    written agreement executed by the Company and the Executive or their
    respective successors and legal representatives.
 
         (b) Beneficiaries. If the Executive dies prior to receiving all of the
    amounts payable to him in accordance with the terms and conditions of this
    Agreement, such amounts shall be paid to the beneficiary ("Beneficiary")
    designated by the Executive in writing to the Company during his lifetime,
    or if no such Beneficiary is designated, to the Executive's estate. Such
    payments shall be made in a lump sum to the extent so payable and, to the
    extent not payable in a lump sum, in accordance with the terms of this
    Agreement. The Executive, without the consent of any prior Beneficiary, may
    change his designation of Beneficiary or Beneficiaries at any time or from
    time to time by a submitting to the Company a new designation in writing.
 
         (c) Notice. All notices and other communications hereunder shall be in
    writing and shall be given by hand delivery to the other party, delivered by
    nationally-recognized overnight courier, or by certified mail, return
    receipt requested, postage prepaid, addressed as follows:
 
    If to the Executive:            His most recent home address on file with
                                    the Company
 
    If to the Company:              ShopKo Stores, Inc.
                                    700 Pilgrim Way
                                    P.O. Box 19070
                                    Green Bay, WI  54307-9070
                                    Attention:  Secretary
 
    With a copy to:                 Debra Sadow Koenig
                                    Godfrey & Kahn, S.C.
                                    780 North Water Street
                                    Milwaukee, Wisconsin  53202
 
    or to such other address as either party shall have furnished to the other
    in writing in accordance herewith. Notice and communications shall be
    effective when actually received by the addressee.
 
         (d) Enforceability. The invalidity or unenforceability of any provision
    of this Agreement shall not affect the validity or enforceability of any
    other provision of this Agreement.
 
         (e) No Waiver. The Executive's or Company's failure to insist upon
    strict compliance with any provision hereof shall not be deemed to be a
    waiver of such provision or any other provision thereof.
 
         (f) Entire Understanding. This Agreement contains the entire
    understanding of the Company and the Executive with respect to the subject
    matter hereof. This Agreement supersedes and replaces any other agreements,
    if any, understandings and
 
 
                                       11
<PAGE>
 
 
    arrangements, oral or written, between the parties hereto regarding the
    subject matter of this Agreement other than the Change of Control Severance
    Agreement between the Company and the Executive entered into on the same
    date as this Agreement (the "Change of Control Agreement"). In all events,
    and notwithstanding anything herein contained to the contrary, if a Change
    of Control (as defined in the Change of Control Agreement) occurs, this
    Agreement shall be of no further force and effect and the Change of Control
    Agreement shall govern the terms of the Executive's employment and any
    payments he is to receive upon the termination of his employment with the
    Company. In no event will the Executive be entitled to payments upon
    termination of his employment under this Agreement if he is entitled to
    payments upon termination of his employment under the Change of Control
    Agreement.
 
         (g) Withholding Taxes. All dollar amounts set forth herein are stated
    before reduction for any applicable federal and state income and employment
    tax withholding and all payments to be made and benefits to be provided to
    the Executive hereunder shall be reduced by any such applicable withholding
    taxes to the extent required by law.
 
    IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first set forth above.
 
                                    SHOPKO STORES, INC.
 
 
 
                                    By:
                                        ----------------------------------
                                         Jack W. Eugster
                                         Chairman of the Board
 
 
                                    EXECUTIVE
 
 
 
                                    --------------------------------------
                                    Sam K. Duncan