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                                                                   Exhibit 10.11











                         PAYLESS SHOESOURCE, INC. 401(K)
                               PROFIT SHARING PLAN



              As Amended March 16, 2000, or as otherwise specified












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                                TABLE OF CONTENTS
                                                                            PAGE

SECTION 1......................................................................2
   DEFINITIONS.................................................................2
     1.01 ACCOUNTS.............................................................2
     1.02 ADMINISTRATIVE DELEGATE..............................................2
     1.03 AFTER-TAX CONTRIBUTIONS..............................................2
     1.04 ALLOCATION PAY AMOUNT................................................2
     1.05 ASSOCIATE............................................................2
     1.06 AUTHORIZED LEAVE OF ABSENCE..........................................3
     1.07 BEFORE-TAX CONTRIBUTIONS.............................................3
     1.08 BENEFICIARY..........................................................3
     1.09 BOARD................................................................3
     1.10 CODE.................................................................3
     1.11 COMMITTEE............................................................3
     1.12 COMPANY..............................................................3
     1.13 COMPANY ACCOUNTS.....................................................3
     1.14 COMPANY MATCHING CONTRIBUTIONS.......................................3
     1.15 COMPANY PROFIT SHARING CONTRIBUTIONS.................................3
     1.16 EFFECTIVE DATE.......................................................3
     1.17 EMPLOYER.............................................................3
     1.18 ERISA................................................................3
     1.19 FIDUCIARY............................................................4
     1.20 FISCAL YEAR..........................................................4
     1.21 GROUP................................................................4
     1.22 HOUR OF SERVICE......................................................4
     1.23 INVESTMENT FUND......................................................4
     1.24 MAY PLAN.............................................................4
     1.25 MEMBER...............................................................4
     1.26 MEMBER ACCOUNTS......................................................4
     1.27 MEMBER AFTER-TAX ACCOUNTS............................................5
     1.28 MEMBER BEFORE-TAX ACCOUNTS...........................................5
     1.29 MEMBER CONTRIBUTIONS.................................................5
     1.30 MEMBER ROLLOVER CONTRIBUTION ACCOUNTS................................5
     1.31 MILITARY SERVICE.....................................................5
     1.32 NET PROFITS..........................................................5
     1.33 PAY..................................................................5
     1.34 POOLED INVESTMENT ACCOUNT............................................5
     1.35 PLAN.................................................................6
     1.36 PLAN YEAR............................................................6
     1.37 PRIOR PLAN...........................................................6
     1.38 QUALIFIED DOMESTIC RELATIONS ORDER...................................6
     1.39 RETIREMENT...........................................................6
     1.40 ROLLOVER CONTRIBUTIONS...............................................6
     1.41 SOCIAL SECURITY WAGE BASE............................................6
     1.42 TOTAL AND PERMANENT DISABILITY OR DISABILITY.........................6
     1.43 TRANSFERRED ACCOUNTS.................................................6
     1.44 TRUST AGREEMENT......................................................6
     1.45 TRUST FUND...........................................................6
     1.46 TRUSTEE..............................................................6
     1.47 UNIT.................................................................6
     1.48 UNIT VALUE...........................................................7
     1.49 VALUATION DATE.......................................................7
     1.50 YEAR OF SERVICE......................................................7
     1.51 VESTING SERVICE......................................................7


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SECTION 2......................................................................9
   MEMBERSHIP..................................................................9
     2.01 CONDITIONS OF ELIGIBILITY............................................9
     2.02 RE-EMPLOYMENT.......................................................10
SECTION 3.....................................................................11
   COMPANY CONTRIBUTIONS......................................................11
     3.01 AMOUNT OF COMPANY PROFIT SHARING CONTRIBUTION.......................11
     3.02 AMOUNT OF COMPANY MATCHING CONTRIBUTION.............................11
     3.03 ALLOCATION OF COMPANY CONTRIBUTIONS.................................11
     3.04 PROFIT SHARING ALLOCATION FORMULA...................................11
     3.05 INVESTMENT OF THE COMPANY CONTRIBUTION..............................11
     3.06 RETURN OF COMPANY CONTRIBUTIONS.....................................12
SECTION 4.....................................................................13
   MEMBER CONTRIBUTIONS.......................................................13
     4.01 PROCEDURE FOR MAKING CONTRIBUTIONS..................................13
     4.02 LIMITATIONS ON AND DISTRIBUTIONS ON BEFORE-TAX CONTRIBUTIONS FOR
          HIGHLY COMPENSATED EMPLOYEES........................................15
     4.03 DISTRIBUTIONS OF EXCESS DEFERRALS...................................15
     4.04 LIMITATIONS ON AND DISTRIBUTIONS OF AFTER-TAX EMPLOYEE
          CONTRIBUTIONS AND MATCHING CONTRIBUTIONS FOR HIGHLY COMPENSATED
          EMPLOYEES...........................................................16
     4.05 LIMITATIONS ON MULTIPLE USE OF ALTERNATIVE LIMITATION...............17
SECTION 5.....................................................................18
   INVESTMENT PROVISIONS......................................................18
     5.01 INVESTMENT FUNDS....................................................18
     5.02 INVESTMENT DIRECTION................................................18
SECTION 6.....................................................................20
   ACCOUNTS...................................................................20
     6.01 MEMBER ACCOUNTS.....................................................20
     6.02 COMPANY ACCOUNTS....................................................20
     6.03 MAINTENANCE OF ACCOUNTS.............................................20
     6.04 VALUATION OF ACCOUNTS...............................................20
     6.05 MEMBER STATEMENTS...................................................20
     6.06 SHARES OF PAYLESS SHOESOURCE, INC. (................................20
     6.07 VESTING IN MEMBER AND COMPANY ACCOUNTS..............................21
SECTION 7.....................................................................25
   EXPENSES...................................................................25
     7.01 ADMINISTRATIVE EXPENSES.............................................25
SECTION 8.....................................................................26
   WITHDRAWALS DURING EMPLOYMENT..............................................26
     8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED...............26
     8.02 AUTHORIZED WITHDRAWALS..............................................26
SECTION 9.....................................................................28
   BENEFITS UPON RETIREMENT, DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT...28
     9.01 BENEFITS............................................................28
     9.02 BENEFICIARY.........................................................28
SECTION 10....................................................................29
   PAYMENT OF BENEFITS........................................................29
     10.01 TIME OF PAYMENT....................................................29
     10.02 FORM OF PAYMENT....................................................30
     10.03 INDIRECT PAYMENT OF BENEFITS.......................................30
     10.04 INABILITY TO FIND MEMBER...........................................30
     10.05 COMMENCEMENT OF BENEFIT DISTRIBUTION TO MEMBERS....................30
     10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY................30
     10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE............30
SECTION 11....................................................................32
   PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS...................................32


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     11.01 ROLLOVER TO OTHER PLANS............................................32
     11.02 ROLLOVER FROM OTHER PLANS..........................................32
     11.03 DEFINITIONS........................................................33
SECTION 12....................................................................34
   LOANS......................................................................34
     12.01 AVAILABILITY OF LOANS..............................................34
     12.02 AMOUNT OF LOANS....................................................34
     12.03 TERMS OF LOANS.....................................................34
SECTION 13....................................................................36
     LIMIT ON CONTRIBUTIONS TO THE PLAN.......................................36
     13.01 LIMIT ON CONTRIBUTIONS.............................................36
     13.02 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS..........................36
SECTION 14....................................................................38
   ADMINISTRATION OF THE PLAN.................................................38
     14.01 PLAN ADMINISTRATOR.................................................38
     14.02 DELEGATION OF AUTHORITY............................................38
     14.03 COMMITTEE AND SUBCOMMITTEES........................................38
     14.04 ACCOUNTS AND REPORTS...............................................39
     14.05 NON-DISCRIMINATION.................................................40
SECTION 15....................................................................41
   MANAGEMENT OF THE TRUST FUND...............................................41
     15.01 USE OF THE TRUST FUND..............................................41
     15.02 TRUSTEES...........................................................41
     15.03 INVESTMENTS AND REINVESTMENTS......................................41
SECTION 16....................................................................43
   CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS....................43
     16.01 DISCLAIMER OF EMPLOYER LIABILITY...................................43
     16.02 EMPLOYER-ASSOCIATE RELATIONSHIP....................................43
     16.03 BINDING EFFECT.....................................................43
     16.04 CORPORATE ACTION...................................................43
     16.05 CLAIM AND APPEAL PROCEDURE.........................................43
SECTION 17....................................................................45
   NON-ALIENATION OF BENEFITS.................................................45
     17.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY.....................45
     17.02 ALTERNATE APPLICATION..............................................45
SECTION 18....................................................................46
   AMENDMENTS.................................................................46
     18.01 COMPANY'S RIGHTS...................................................46
     18.02 PROCEDURE TO AMEND.................................................46
     18.03 PROVISION AGAINST DIVERSION........................................46
SECTION 19....................................................................47
   TERMINATION................................................................47
     19.01 RIGHT TO TERMINATE.................................................47
     19.02 WITHDRAWAL OF AN EMPLOYER..........................................47
     19.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST......................47
     19.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST....................47
     19.05 MERGER, CONSOLIDATION OR TRANSFER..................................47
SECTION 20....................................................................48
   CONSTRUCTION...............................................................48
     20.01 APPLICABLE LAW.....................................................48
     20.02 GENDER AND NUMBER..................................................48
SECTION 21....................................................................49
   TOP-HEAVY REQUIREMENTS.....................................................49
     21.01 GENERALLY..........................................................49
     21.02 MINIMUM ALLOCATIONS................................................49
     21.03 PARTICIPANTS UNDER DEFINED BENEFIT PLANS...........................49


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     21.04 DETERMINATION OF TOP HEAVINESS.................................50
     21.05 CALCULATION OF TOP-HEAVY RATIOS................................50
     21.06 CUMULATIVE ACCOUNTS AND CUMULATIVE ACCRUED BENEFITS............50
     21.07 OTHER DEFINITIONS..............................................51



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                            PAYLESS SHOESOURCE, INC.
                           401(K) PROFIT SHARING PLAN

                                  INTRODUCTION

     Effective April 1, 1996, Payless ShoeSource, Inc. withdrew from and ceased
to be a participating Employer in The May Department Stores Company Profit
Sharing Plan (the "May Plan"), and established the Payless ShoeSource, Inc.
Profit Sharing Plan (the "Plan"). Effective January 1, 1997, a portion of the
Plan covering Associates of Payless ShoeSource of Puerto Rico, Inc. was spun
off. As of August 1, 1997, Payless amended and restated the Plan, primarily to
establish a company matching contribution based on Members' contributions
effective January 1, 1998, to institute automatic enrollment in before-tax
contributions by Members, and to comply with certain changes in the law. On June
1, 1998, Payless restructured its corporate organization into a holding company
structure with Payless ShoeSource, Inc., a Delaware corporation, as the parent
corporation and the named Company for this Plan.

     Now, effective March 20, 2000, or as otherwise specified, the Company is
amending and restating the Plan, primarily to include provisions for loans and
the acceptance of rollover contributions from other qualified plans, a change to
daily valuation and other miscellaneous changes. Such amendment and restatement
applies only to Associates or former Associates who were employed by an Employer
on or after the effective date(s) of the respective amended provisions, and the
rights and benefits of persons thereunder are to be determined solely in
accordance with the provisions of the Plan in effect on the date an Associate's
employment was or is terminated. Notwithstanding the preceding sentence, the
change in valuation date shall be effective for all Associates and former
Associates, without regard to employment after the effective date.

The terms and provisions of this new plan are as follows:



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                                    SECTION 1

                                   DEFINITIONS

     1.01 ACCOUNTS means the Company Accounts and Member Accounts established
under Section 6.

     1.02 ADMINISTRATIVE DELEGATE means one or more persons or institutions to
which the Committee has delegated certain administrative functions pursuant to a
written agreement.

     1.03 AFTER-TAX CONTRIBUTIONS means Member Contributions which are not
Before-Tax Contributions and which are made by the Member in accordance with
Section 4.01(a).

     1.04 ALLOCATION PAY AMOUNT means with respect to each eligible Member, (a)
one (1) times the amount of Pay as defined in Section 1.33 up to the Social
Security Wage Base ("SSWB") for the Plan Year, plus (b) two (2) times the amount
of such Pay in excess of the SSWB for the Plan Year. Notwithstanding any
provision of this Section 1.04 or of Section 3.03 to the contrary, in no event
shall the percentage of Members' Pay to be allocated for any year below the SSWB
be less than fifty percent (50%) of the percentage of Pay allocated with respect
to Members' Pay in excess of the SSWB, nor may the latter percentage of Pay
(above the SSWB) exceed the former percentage of Pay (below the SSWB) by more
than 5.7% (or such other percentage as may be the maximum permitted differential
under Code Section 401(1) from time to time).

     In determining each eligible Member's Allocation Pay Amount, only Pay
received during the part of the Plan Year the Member is eligible for the Company
Contribution feature of the Plan, pursuant to Section 2, shall be considered,
and the SSWB to be applied for such Member shall be proportionally prorated if
such eligibility is for less than a full Plan Year.

     Notwithstanding the foregoing, with respect to any Plan Year for which
applying the definition of Allocation Pay Amount set forth above would cause the
allocation made pursuant to Section 3.03 to violate the permitted disparity
limitations of Treas. Reg. Section 1.401(l)-2, Allocation Pay Amount shall be
adjusted to permit Section 3.03 to operate in compliance with the limitations of
Treas. Reg. Section 1.401(l)-2.

     1.05 ASSOCIATE means any person who is classified as an employee by an
Employer and who receives Pay from an Employer. The term Associate also may
include, based upon the express written determination of the Company or the
Committee, a U.S. citizen employed, at the request of the Company, by a member
of the Group (defined in Section 1.21) to the extent such employee otherwise
qualifies for membership under Section 2, in which case such Group member shall
be deemed to be an "Employer" hereunder, as to such person or persons only. The
term "Associate" shall not include (i) any person covered under a collective
bargaining agreement unless and until the Employer and the collective bargaining
representatives so agree, (ii) any non-resident alien, and (iii) any "leased
employee" within the meaning of Code Section 414(n)(2).



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     1.06 AUTHORIZED LEAVE OF ABSENCE means any leave of absence authorized by
the Employer under rules established by the Employer.

     1.07 BEFORE-TAX CONTRIBUTIONS means contributions which the Member elects
(in accordance with Section 4.01(b)) to have the Employer make directly to the
Plan on behalf of the Member, which election shall constitute an election under
Code Section 401(k)(2)(A). The "Member's Before-Tax Contributions" shall refer
to Before-Tax Contributions made to the Plan by the Employer on behalf of the
Member.

     1.08 BENEFICIARY means the person or persons entitled under Section 9.02 to
receive any payments payable under this Plan on account of a Member's death.

     1.09 BOARD means the Board of Directors of the Company.

     1.10 CODE means the Internal Revenue Code of 1986, as amended from time to
time.

     1.11 COMMITTEE means the Profit Sharing Committee comprised of three or
more members as determined and appointed from time to time by the Board.

     1.12 COMPANY means Payless ShoeSource, Inc., a Delaware corporation, and
any other organization which may be a successor to it.

     1.13 COMPANY ACCOUNTS means accounts reflecting the portion of each
Member's interest in the Investment Funds which are attributable to Company
Matching Contributions ("Company Matching Accounts") and to Company Profit
Sharing Contributions ("Company Profit Sharing Accounts") and to any
contributions made by an Employer under prior plans, as well as to any income
and/or earnings attributable to such Company Contributions and prior plan
contributions.

     1.14 COMPANY MATCHING CONTRIBUTIONS means contributions made by the Company
or an Employer, based on a Member's Before-Tax and/or After-Tax Contributions,
pursuant to Section 3.02.

     1.15 COMPANY PROFIT SHARING CONTRIBUTIONS means discretionary contributions
made by the Company or an Employer, based on Net Profits, pursuant to Section
3.03.

     1.16 EFFECTIVE DATE originally meant April 1, 1996. However, the effective
date of this amendment and restatement of the Plan shall be March 20, 2000,
unless otherwise specified herein.

     1.17 EMPLOYER means the Company and, if authorized by the Company to
participate herein, any subsidiary of the Company or any affiliated corporation,
partnership or sole proprietorship which elects to participate herein.

     1.18 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.


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     1.19 FIDUCIARY means the Employer, the Trustee, each of the members of
the Committee described in Section 14, and any investment manager designated
pursuant to Section 15.

     1.20 FISCAL YEAR means the Company's Fiscal Year.

     1.21 GROUP means the Company and any other company which is related to the
Company as a member of a controlled group of corporations in accordance with
Code Section 414(b), as a trade or business under common control in accordance
with Code Section 414(c) or as an affiliated service group in accordance with
Code Section 414(m) or the regulations under Code Section 414(o). For the
purposes of the Plan, for determining whether or not a person is an employee of
the Group and the period of employment of such person, each such other company
shall be included in the "Group" only for such period or periods during which
such other company is a member with the Company of a controlled group or under
common control.

     1.22 HOUR OF SERVICE means any hour for which an Associate (including a
leased employee) is directly or indirectly compensated, or entitled to
compensation, by the Employer or by any member of the Group, whether or not such
Group member has adopted the Plan, for any of the following:

     (a)  the performance of duties during the applicable computation period;

     (b)  a period during which no duties are performed (irrespective of whether
     the employment relationship has terminated) due to vacation, holiday,
     illness, incapacity (including disability), layoff, jury duty, Military
     Service, or Authorized Leave of Absence;

     (c)  a period for which back pay is awarded or agreed to, provided that no
     Hour of Service has been credited under subsection (a) or (b) with respect
     to the same period.

     Hours of Service and applicable computation periods shall be determined in
accordance with the requirements of 29 C.F.R. Section 2530.200b.

     1.23 INVESTMENT FUND means any fund for investment of contributions as
described in Section 5.01.

     1.24 MAY PLAN means The May Department Stores Company Profit Sharing Plan.

     1.25 MEMBER means any person included in the membership of this Plan as
provided in Section 2.

     1.26 MEMBER ACCOUNTS means the Member Before-Tax Accounts, the Member
After-Tax Accounts and the Member Rollover Contribution Accounts. To the extent
an Associate makes a Rollover Contribution pursuant to Section 11.02 and the
Associate is otherwise eligible but has not yet completed the participation
requirements of Section 2.01, such contribution shall also be a Member Account.


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     1.27 MEMBER AFTER-TAX ACCOUNTS means the Member Accounts with respect to a
Member's After-Tax Contributions.

     1.28 MEMBER BEFORE-TAX ACCOUNTS means the Member Accounts with respect to a
Member's Before-Tax Contributions.

     1.29 MEMBER CONTRIBUTIONS means the Member's Before-Tax Contributions and
After-Tax Contributions.

     1.30 MEMBER ROLLOVER CONTRIBUTION ACCOUNTS means the Member Accounts with
respect to an Associate's or Member's Rollover Contributions.

     1.31 MILITARY SERVICE means effective December 13, 1996, any period of
obligatory military service with the Armed Forces of the United States of
America, or voluntary service in lieu of such obligatory service, provided that
the Associate returns to active employment with the Employer within the period
during which the Employer would be required to re-employ the Associate under
Federal law. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits, loan repayment and service credit with respect to
qualified Military Service will be provided in accordance with Code Section
414(u).

     1.32 NET PROFITS means the consolidated net profits of the Company for any
given Fiscal Year, determined by generally accepted accounting principles except
that (i) no deduction or provision shall be made for any federal, state or other
taxes measured by net income, nor for any contributions to the Trust or to any
other pension or profit sharing plan, and (ii) there shall be excluded any
proceeds from life insurance of which the Company is beneficiary (whether paid
in a single sum or otherwise) and any gains or losses on the sale of capital
assets. Such term shall also mean any accumulated and undistributed Net Profits
(as defined in the preceding sentence) earned in prior Fiscal Years to the
extent that such accumulated and undistributed Net Profits constitute surplus of
the Company and its subsidiaries available for contributions hereunder.

     1.33 PAY means the aggregate of (i) all regular pay, commissions, overtime
pay, cash incentives, prizes and cash awards, plus (ii) amounts which the
Associate elects to have the Employer contribute directly to the Plan on the
Associate's behalf in accordance with Section 4.01(b). Pay shall include any
amounts not otherwise includable in the Member's taxable income pursuant to Code
Section 125. Pay shall not include amounts for a pension, a retirement
allowance, a retainer or a fee under contract, deferred compensation (including
amounts deferred under the Deferred Compensation Plan of The May Department
Stores Company and the Deferred Compensation Plan of Payless ShoeSource, Inc.),
severance pay, distributions from this Plan or items of extraordinary income
including but not limited to amounts resulting from the exercise of stock
options, spinoff cash, spinoff stock and restricted stock awards. Pay in excess
of $170,000 shall be disregarded, although such amount shall be adjusted at the
same time and in such manner as permitted under Code Section 415(d).

     1.34 POOLED INVESTMENT ACCOUNT means an account established pursuant to an
administrative services agreement between the Company and the Trustee.

                                       5


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     1.35 PLAN means this Payless ShoeSource Inc. 401(k) Profit Sharing Plan.

     1.36 PLAN YEAR means a calendar year ending each December 31.

     1.37 PRIOR PLAN means either The May Department Stores Company Profit
Sharing Plan, the Volume Shoe Corporation Profit Sharing Plan, or such other
qualified plan as may be so designated by the Committee.

     1.38 QUALIFIED DOMESTIC RELATIONS ORDER means a "qualified domestic
relations order" as that term is defined in Code Section 414(p), provided that
such order was entered on or after January 1, 1985.

     1.39 RETIREMENT means a Member's termination of employment on or after age
55 and after completing at least five (5) Years of Service or attaining the
fifth anniversary of participation, as of which date the Member's benefit shall
be nonforfeitable.

     1.40 ROLLOVER CONTRIBUTIONS means contributions which the Associate or
Member, as applicable, elects to make in accordance with Section 11.02.

     1.41 SOCIAL SECURITY WAGE BASE means, with respect to each Plan Year, the
maximum amount of wages which are subject to tax in such year under the Federal
Old Age, Survivors and Disability Insurance System.

     1.42 TOTAL AND PERMANENT DISABILITY OR DISABILITY means the total
incapacity of a Member for the continued performance of regular active
employment with an Employer, which disability is expected to be permanent, as
determined by the Committee, provided that a Member shall not be considered
totally and permanently disabled for purposes of this Plan unless he qualifies
for disability benefits under Title 11 of the Federal Social Security Act.

     1.43 TRANSFERRED ACCOUNTS means Member and Company Accounts transferred
from the May Plan.

     1.44 TRUST AGREEMENT means the agreement or agreements provided for in
Section 14, as amended from time to time.

     1.45 TRUST FUND means all the assets of the Investment Funds and any other
assets which are held in one or more trusts by the Trustee or Trustees for the
purposes of this Plan.

     1.46 TRUSTEE means the corporation(s), person or persons which may at any
time be acting as Trustee or Trustees under the Trust Agreement.

     1.47 UNIT means one of the units representing an interest in an Investment
Fund as provided in Section 6.03.

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<PAGE>   12



     1.48 UNIT VALUE means the value of each Unit in an Investment Fund as of
the Valuation Date as determined pursuant to Section 6.04.

     1.49 VALUATION DATE means any day that the New York Stock Exchange is open
for business or any other date chosen by the Committee. Prior to March 31, 2000,
Valuation Date means the last business day of each calendar month and any other
date chosen to perform a valuation.

     1.50 YEAR OF SERVICE for purposes of determining eligibility under Section
2 means a year of employment during which the Associate has been paid for not
less than 1,000 Hours of Service for an Employer or any other member of the
Group. An Associate shall be credited with a year of employment on each
anniversary date of his commencement of employment with an Employer during which
he earns not less than 1,000 Hours of Service for an Employer or any other
member of the Group. Periods of temporary illness, temporary layoff, Military
Service, and Authorized Leaves of Absence shall not be deemed as breaking
continuity of employment and shall be counted in determining Years of Service.
The term "Year of Service" shall also include an employment year during which,
except to the extent otherwise provided in Treasury Regulations, a "leased
employee" within the meaning of Code Section 414(n) has been paid for not less
than 1,000 Hours of Service for the Employer even though during such period the
leased employee was not an Associate as defined in Section 1.05. The term "Year
of Service" shall include any period required to be included by the Family and
Medical Leave Act of 1993.

     The extent to which service with another organization, part or all of whose
business operations are acquired by the Company (or by an Employer), shall be
credited as "Years of Service" hereunder or as "Vesting Service" under Section
1.51 shall be determined by the Company or by the Committee on a case-by-case
basis.

     1.51 VESTING SERVICE for purposes of determining a Member's vested interest
under Section 6.07 is based on "elapsed time" and is to be determined in
accordance with the following definitions:

          (a) "EMPLOYMENT COMMENCEMENT DATE" means the date upon which an
          Associate first performs an Hour of Service.

          (b) "HOUR OF SERVICE" means an hour for which an Associate is paid or
          entitled to payment for the performance of duties for the Employer or
          any other member of the Group.

          (c) "PERIOD OF SERVICE" means a period beginning on the Associate's
          Employment Commencement Date (or Reemployment Commencement Date, as
          the case may be) and ending on his Severance from Service Date.

          (d) "SEVERANCE FROM SERVICE DATE" means the earlier to occur of:

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<PAGE>   13



               (i) the last date upon which an Associate terminates employment
               with the Employer or any other member of the Group (either
               voluntarily or involuntarily), retires or dies; or

               (ii) the first anniversary of the date upon which the Associate
               was first absent from service with the Employer (with or without
               pay) for any other reason (i.e., vacation, sickness, disability,
               leave of absence or layoff).

     Notwithstanding the foregoing, the Severance from Service Date of an
Associate who is absent from service with the Employer beyond the first
anniversary of the first day of such absence on account of maternity or
paternity (as described in Code Sections 410(a)(5)(E) or 411(a)(6)(E)) shall be
the second anniversary of the first day of such absence; and the period of time
between such first and second anniversaries shall not be treated as a Period of
Service or as a Period of Severance.

          (e) "PERIOD OF SEVERANCE" means a period beginning on an Associate's
          Severance from Service Date and ending upon the Associate's
          Reemployment Commencement Date.

          (f) "REEMPLOYMENT COMMENCEMENT DATE" means the first date, following a
          Severance from Service Date, upon which the Associate performs an Hour
          of Service for the Employer or any other member of the Group.

          (g) "SERVICE SPANNING RULES." In determining whether or not an
          Associate has completed a twelve month Period of Service for purposes
          of vesting, the following Periods of Severance shall be treated as
          Periods of Service:

               (i) If an Associate terminates employment with the Employer
               (either voluntarily or involuntarily) or retires, and then
               performs an Hour of Service within the twelve month period
               beginning on the Severance from Service Date, such Period of
               Severance shall be treated as a Period of Service; and

               (ii) If an Associate terminates employment with the Employer
               (either voluntarily or involuntarily) or retires during an
               absence from service of twelve months or less for any reason
               other than a termination or retirement, and then performs an Hour
               of Service within a period of twelve months from the date the
               Employee was first absent from service, the Period of Severance
               shall be treated as a Period of Service.



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<PAGE>   14


                                    SECTION 2

                                   MEMBERSHIP

     2.01 CONDITIONS OF ELIGIBILITY.

          (a) Each Associate who on March 19, 2000 was a Member of or is
          eligible to be a Member of the Plan shall continue to be a Member of
          this Plan entitled to make Member Contributions pursuant to Section 4
          and eligible to share in Company Contributions pursuant to Section 3.

          (b) Each other Associate shall be eligible to become a Member of the
          Plan when the Associate has completed one Year of Service and attained
          age 21, with membership to commence as of the first day of the month
          coincident with or following the date he has met these eligibility
          requirements. Such Associate shall be eligible:

               (i) to make Member Contributions pursuant to Section 4;

               (ii) to share in Company Matching Contributions pursuant to
               Section 3.02;

               (iii) to share in Company Profit Sharing Contributions, if any,
               pursuant to Section 3.01.

          (c) Each Member shall be deemed to have elected to make a three
          percent (3%) Before-Tax Contribution pursuant to Section 4.01(b),
          commencing with the first paycheck issued with respect to the first
          payroll period beginning on or after the first day of the month
          coincident with or following the date the Employer determines he met
          the foregoing eligibility requirements. Notwithstanding this "deemed"
          election, an Associate or Member may elect pursuant to procedures
          established by the Committee to not make, or to suspend making, said
          three percent (3%) automatic Before-Tax Contribution, or pursuant to
          Section 4.01(a) or (b) to make an After-Tax or a Before-Tax
          Contribution of an amount other than three percent (3%).

          (d) All Years of Service with an Employer and Years of Service with
          The May Department Stores Company ("May") while the Employer was part
          of the Group which included May are counted toward eligibility,
          provided that, if an Associate has a 1-year break in service before a
          Year of Service, service with an Employer or May before such break
          will not be taken into account. For the purposes of this Section 2.01,
          "break in service" means a 12 consecutive month employment year as
          used in Section 1.50 during which the Associate does not complete more
          than 500 Hours of Service with the Employer and/or May while part of
          the Group.

          (e) Associates employed by the Company's Puerto Rican Subsidiaries are
          not eligible for membership hereunder. If any such Associate has
          Accounts in this Plan, such Accounts shall continue to be revalued as
          of each succeeding Valuation Date pursuant to Section 6.04.


                                       9


<PAGE>   15



     2.02 RE-EMPLOYMENT. A former Member who has retired or has otherwise
terminated employment and is rehired shall become a Member on the first day of
the calendar month after the Employer becomes aware of his rehire.


                                       10


<PAGE>   16


                                    SECTION 3

                              COMPANY CONTRIBUTIONS

     3.01 AMOUNT OF COMPANY PROFIT SHARING CONTRIBUTION. The Company or an
Employer may contribute to the Trust, as of the end of each Plan Year, a
percentage of the Company's Net Profits as a Company Profit Sharing
Contribution. The amount of such contribution, if any, shall be determined by
the Board of Directors in its discretion. Any such contribution shall be made as
soon as practicable after the close of the Company's Fiscal Year. All such
contributions advanced to the Plan by the Company shall be reimbursed to the
Company by the Employer.

     3.02 AMOUNT OF COMPANY MATCHING CONTRIBUTION. The Company shall, in its
discretion, contribute to the Trust, as of the end of each Plan Year, a total
combined amount as to this Plan and the Payless ShoeSource, Inc. Profit Sharing
Plan for Puerto Rico Associates ("Puerto Rico Plan") equal to 2 1/2% of its Net
Profits, until determined otherwise by the Board of Directors, in the form of a
Company Matching Contribution. Such contribution may be made by an Employer,
rather than by the Company, as to that Employer's participating Associates. The
total amount of such contribution shall be allocated in proportion to the amount
that each Member's Contributions under Sections 4.01(a) and (b) for such Plan
Year, up to a total of 5% of such Member's Pay, bears to the total amount of all
Member Contributions up to 5% of such Members' Pay. Such Company Matching
Contribution shall be determined and paid to the Trustee as soon as practicable
after the close of each Fiscal Year.

     3.03 ALLOCATION OF COMPANY CONTRIBUTIONS. The Company Contributions shall
be allocated only to the Company Accounts of Members who are employed by the
Employer on the last day of the Plan Year and on behalf of Members whose
employment has terminated during the Plan Year by reason of Retirement, death or
Disability. Company Profit Sharing Contributions shall be credited to eligible
Members' Company Profit Sharing Contribution Accounts. Company Profit Sharing
Contributions allocated prior to or as of July 31, 1997 shall be fully vested;
Company Profit Sharing Contributions allocated thereafter shall be subject to
the vesting provisions of Section 6.07. Company Matching Contributions shall be
subject to the vesting provisions of Section 6.07 and to the withdrawal penalty
provisions of Section 8.02(a). No Company Matching Contribution shall be made
with respect to a Member Before-Tax Contribution in excess of the Code Section
402(g) limit, as revised from time to time.

     3.04 PROFIT SHARING ALLOCATION FORMULA. The Company Profit Sharing
Contribution, if any, shall be allocated to all Members eligible to share in the
contribution according to the ratio that each Member's Allocation Pay Amount for
the Plan Year bears to the total Allocation Pay Amount for all eligible Members
for the Plan Year. For this purpose the term eligible Members includes Members
in both the Puerto Rico Plan and this Plan.

     3.05 INVESTMENT OF THE COMPANY CONTRIBUTION. The amounts allocated to each
Member pursuant to Section 3.03 shall be credited to his Company Accounts and
invested in one or more of the Investment Funds described in Section 5.01 and in
the percentages designated by


                                       11

<PAGE>   17


the Member in the investment election filed pursuant to Section 5.02 effective
at the time the amount is allocated.

     3.06 RETURN OF COMPANY CONTRIBUTIONS.

          (a) If, after the Company Contribution has been made and allocated, it
          should appear that, through oversight or a mistake of fact or law, a
          Member (or an Associate who should have been considered a Member) who
          should have been entitled to share in such contribution, receives no
          allocation or receives an allocation which was less than he should
          have received, the Company may, at its election and in lieu of
          reallocating such contribution, make a special make-up contribution
          for the Company Account of such Member in an amount sufficient to
          provide for him the same addition to his Company Account as he should
          have received. Similarly, if a Member received an allocation which was
          more than he should have received (or an Associate was inappropriately
          included in the Plan), the Company, at its election, may reallocate
          such contribution, offset other Company contributions against such
          allocation, or use such allocation to pay Plan expenses.

          (b) Each contribution made to the Trust shall be made on the condition
          that it is currently deductible by the Company or Employer under Code
          Section 404 for the taxable year with respect to which the
          contribution is made. If a contribution subsequently is determined,
          whether in whole or in part, not to be currently deductible as
          provided in the preceding sentence, then, within one year of the date
          of disallowance of the deduction of such Company Contribution, an
          amount equal to the disallowed deduction shall be returned to the
          Company or Employer.

          (c) Earnings attributable to a contribution that is returned pursuant
          to Subsection (a) or (b) above shall not be withdrawn, but losses
          attributable thereto shall reduce the amount returned to the Company
          and/or Employer.



                                       12

<PAGE>   18


                                    SECTION 4

                              MEMBER CONTRIBUTIONS

     4.01 PROCEDURE FOR MAKING CONTRIBUTIONS.

          (a) AFTER-TAX CONTRIBUTIONS. Subject to the limitations set forth in
          Sections 4.02, 4.03 and 4.04, each Member may contribute to the Plan
          an amount equal to not less than 1% nor more than 15% (in whole
          percentage points) of his Pay as he shall have designated pursuant to
          procedures established by the Company (which may establish lower
          permissible After-Tax Contributions for Highly Compensated Employees);
          provided, however, that a Member shall not contribute, or elect to
          have contributed on his behalf, amounts with respect to Pay received
          by him after the close of the calendar year during which his
          employment terminates and further provided that any Before-Tax
          Contributions made on behalf of the Member shall reduce, by the
          percentage which he elects to have contributed pursuant to Section
          4.01(b)(i), the percentage of Pay that the Member may contribute
          pursuant to this Section 4.01(a).

          (b) BEFORE-TAX CONTRIBUTIONS.

               (i) Subject to the limitations set forth below, each Member may
               elect that his Employer shall contribute directly to the Trust
               Fund an amount equal to a whole percentage of his Pay, not less
               than 1% nor greater than such percentage as may be determined
               from time to time by the Company which amount shall be his
               Before-Tax Contribution. The maximum Before-Tax Contribution by a
               Member determined to be a Highly Compensated Employee under
               Section 4.02, for the Plan Year in question, may be further
               restricted or limited by the Company or Committee from time to
               time.

               (ii) Pursuant to Section 2.01(c), each eligible Member shall be
               deemed to have elected to make a three percent (3%) Before-Tax
               Contribution, unless the Member elects otherwise in accordance
               with procedures established by the Committee.

          (c) Notwithstanding any election in accordance with Section 4.01(b),
          if the Committee at any time determines that all or any portion of the
          Member's Before-Tax Contributions should be treated as After-Tax
          Contributions in order for the Before-Tax Contribution provisions of
          the Plan to qualify as a "qualified cash or deferred arrangement" for
          purposes of Code Section 401(k), or if the Actual Deferral Percentage
          standards set forth in Code Section 401(k)(3) are not met at the end
          of the Plan Year, then the Committee, in its sole and absolute
          discretion,

               (i) may, in accordance with Section 4.02 below, limit the amount
               which shall be contributed by the Employer as Before-Tax
               Contributions after the date of such determination on behalf of
               all or any portion of the Members and,

                                      13
<PAGE>   19



               (ii) may, except with respect to situations in which Section
               4.01(h) applies, (and prior to March 15 of the calendar year
               following the Plan Year in which such contributions are made)
               declare all or such portion of the Before-Tax Contributions
               theretofore or thereafter made on behalf of all or a portion of
               the Members to be After-Tax Contributions.

          (d) The Employer shall (i) deduct a Member's After-Tax Contributions
          from the Pay of the Member in such installments as the Employer may
          deem appropriate, (ii) contribute a Member's Before-Tax Contributions
          on behalf of the Member, and (iii) reduce the Pay that is paid to the
          Member directly in cash by an amount equal to the Member's Before-Tax
          Contributions in such installments as the Employer shall deem
          appropriate. The amounts so deducted and so contributed shall be paid
          by the Employer to the Trustee not later than 15 days following the
          end of the month with respect to which such amounts are to be so
          deducted and contributed or within such shorter period of time as may
          be designated under the Code, ERISA or related regulations. The
          Employer may, from time to time, make estimated contribution payments
          to the Trustee during each month.

          (e) Effective with the first payroll period beginning in any calendar
          month, or as of such other effective time as may be determined by the
          Committee, a Member may elect to change the rate of his After-Tax
          Contributions to any other rate permitted by Subsection (a) of this
          Section 4.01 and may elect to change the amount to be contributed by
          the Employer directly to the Trust Fund as Before-Tax Contributions to
          an amount equal to an amount permitted by Subsection (b) of this
          Section 4.01 with respect to such contributions to be made after the
          effective date of the election, pursuant to procedures established by
          the Committee.

          (f) Not later than 15 days prior to the beginning of a payroll period
          of a Member, or not later than such other date as may be determined by
          the Committee, such Member may elect, pursuant to procedures
          established by the Committee, (i) to suspend making After-Tax
          Contributions and (ii) that the Employer should suspend making
          Before-Tax Contributions on his behalf, all as of the beginning of
          such payroll period. Not later than 15 days prior to the beginning of
          a payroll period of a Member, or not later than such other date as may
          be determined by the Committee, such Member may elect (i) to resume
          making After-Tax Contributions and, (ii) that the Employer shall
          resume making Before-Tax Contributions on his behalf, by indicating
          any amount of contributions permitted under Subsection (a) and
          designating an amount equal to any amount of Pay as Before-Tax
          Contributions that is permitted under Subsection (b) hereof.

          (g) Contributions pursuant to this Section 4.01 shall be credited to
          Member Accounts.

          (h) Notwithstanding any election in accordance with Subsection (b),
          the total amount of a Member's Before-Tax Contributions and other
          contributions made by the Member under Code Section 401(k) to another
          plan qualified under Code Section 401(a) for any calendar year shall
          not exceed $10,500 (as adjusted from time to time by the Secretary of
          the Treasury or his delegate, pursuant to Code Section 415(d)). If any
          Member may reach the $10,500 limit (as adjusted) the Committee can
          direct that all or any portion of such


                                       14

<PAGE>   20


          Member's Contributions during such year shall be After-Tax
          Contributions regardless of such Member's elections pursuant to
          Sections 4.01(a) and 4.01(b).

          (i) As of April 1, 2000, all then currently existing flat dollar
          Member Contributions shall be converted to Member Contributions based
          on 1% increments calculated by dividing such flat dollar amount by the
          Member's Pay for the prior year and rounding the product to the
          nearest whole percent; provided that no flat dollar contribution shall
          be converted to a percent contribution of less than 1%.

          (j) Notwithstanding this Section 4.01, effective March 20, 2000,
          during the black out period as determined by the Committee and the
          Trustee established to change to daily valuation or a change in
          recordkeepers, no contribution rate changes or suspensions may be made
          by a Member except as provided by the Committee.


     4.02 LIMITATIONS ON AND DISTRIBUTIONS OF BEFORE-TAX CONTRIBUTIONS FOR
HIGHLY COMPENSATED EMPLOYEES.

               The Committee is authorized to reduce to the extent necessary the
          maximum contributions under Section 4.01(b) for Highly Compensated
          Employees prior to the close of the Plan Year if the Committee
          reasonably believes that the reduction is necessary to prevent the
          Plan from failing Code Section 401(k)(3). Such adjustments shall be
          made in accordance with rules prescribed by the Employer.

               If the Plan fails to satisfy Code Section 401(k)(3), the Plan
          shall correct the failure within 12 months after the last day of such
          Plan Year under any method of combination of methods allowed under
          Code Section 401(k)(8) or Treasury Regulation Section 1.401(k)-1(f),
          taking into account any adjustments necessary due to changes to Code
          Section 401(k)(8)(C) that are reflected in the regulations. For
          purposes of this Section 4.01, the actual deferral percentage of
          Non-Highly Compensated Employees shall be determined as of the
          Plan Year for which the Plan must satisfy one of the tests in Code
          Section 401(k)(3), unless the Employer elects to determine such actual
          deferral percentage as of the Plan Year preceding the Plan Year for
          which the Plan must satisfy one of the tests in Code Section
          401(k)(3). Any such election shall not be changed except as provided
          by the Secretary of the Treasury.

     4.03 DISTRIBUTIONS OF EXCESS DEFERRALS.

          (a) Notwithstanding any other provision of the Plan, Excess Before-Tax
          Deferrals (as hereinafter defined) and earnings allocable thereto as
          determined pursuant to such rules and regulations as are prescribed by
          the Internal Revenue Service, shall be distributed no later than April
          15 to Members who claim such allocable Excess Before-Tax Amounts
          (which shall be the "Excess Before-Tax Deferrals" plus earnings, if
          any) for the preceding calendar year.



                                       15

<PAGE>   21



          (b) For purposes of this Section 4.03, "Excess Before-Tax Deferral"
          means the amount of elective deferrals (within the meaning of Code
          Section 402(g)(3)) which is a Member Contribution under Section 4.01
          for a calendar year that the Member allocates to this Plan pursuant to
          the claim procedure set forth in subsection 4.03(c) hereof.

          (c) The Member's claim shall be in writing; shall be submitted to the
          Committee no later than March 1; shall specify the amount of the
          Member's Excess Before-Tax Deferral for the preceding calendar year;
          and shall be accompanied by the Member's written statement that if
          such amounts are not distributed, the Excess Before-Tax Deferrals,
          when added to amounts deferred under other plans or arrangements
          described in Code Sections 401(k), 408(k) or 403(b), exceeds the limit
          imposed on the Member in accordance with the applicable provisions of
          the Code for the year in which the deferral occurred.

          (d) Notwithstanding any provision of Sections 3 or 4 to the contrary,
          any Company Matching Allocation which would have been attributable to
          an Excess Before-Tax Deferral distributed to a Member under Section
          4.02(a) shall not be retained or distributed, but shall be held
          unallocated in a suspense account and, as of the end of the Plan Year,
          forfeited and added to and allocated with Company Contributions in the
          next following Plan Year.

     4.04 LIMITATIONS ON AND DISTRIBUTIONS OF AFTER-TAX EMPLOYEE CONTRIBUTIONS
AND MATCHING CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES .

     The Committee is authorized to reduce to the extent necessary the maximum
amount of Employee After-Tax Contributions and Employer Matching Contributions
under Sections 4.01(a) and 3.02 contributed on behalf of any Highly Compensated
Employee prior to the close of the Plan Year if the Committee reasonably
believes that such adjustment is necessary to prevent the Plan from failing Code
Section 401(m)(2). Such reduction shall be made in accordance with rules
prescribed by the Employer.

     If the Plan fails to satisfy Code Section 401(m)(2), the Plan shall correct
the failure within 12 months after the last day of such Plan Year under any
method or combination of methods allowed under Treasury Regulation
1.401(m)-1(e), taking into account any adjustments necessary due to changes to
Code Section 401(m)(6)(c) that are not reflected in the regulations. For
purposes of this Section 4.04, the actual contribution percentage of Non-Highly
Compensated Employees shall be determined as of the Plan Year for which the Plan
must satisfy one of the tests in Code Section 401(m)(2), unless the Employer
elects to determine such actual contribution percentage as of the Plan Year
preceding the Plan Year for which the Plan must satisfy one of the tests in Code
Section 401(m)(2). Any such election shall not be changed except as provided by
the Secretary of the Treasury.



                                       16

<PAGE>   22



     4.05 LIMITATIONS ON MULTIPLE USE OF ALTERNATIVE LIMITATION.

          (a) Determination of Multiple Use.

                    The Committee will determine whether or not multiple use of
               the alternative limitation has occurred. Such determination will
               be made in accordance with Section 401(m)(9) of the Code.

          (b) Correction Of Multiple Use.

                    If a multiple use of the alternative limitation occurs, the
               Committee shall correct such multiple use by reducing the actual
               contribution percentages of Highly Compensated Employees in the
               manner set forth in Section 4 so that there is no multiple use of
               the alternative limitation.

          (c) Special Definitions.

                    All terms used in this Section 4 shall have the meaning
               given such terms in Code Sections 401(k) and 401(m) and the
               regulations thereunder.



                                       17

<PAGE>   23


                                    SECTION 5

                              INVESTMENT PROVISIONS

     5.01 INVESTMENT FUNDS.

     (a) There shall be established as part of the Trust Fund a reasonable range
     of investment options. The Committee may from time to time, in its
     discretion, change, delete or add Investment Funds available within the
     Trust Fund; provided that unless and until the Plan is amended accordingly,
     the Plan shall continue to provide a Payless Common Stock Fund as an
     investment option.

     (b) Income from and proceeds of sales of investments in each Investment
     Fund shall be reinvested in the same Investment Fund. Any income or other
     taxes payable with respect to a Fund shall be charged to such Fund.

     (c) A Trustee may, from time to time, make temporary investments in short
     term obligations of the United States Government, commercial paper, or
     other investments of a short term nature, pending investment in an
     Investment Fund.

     5.02 INVESTMENT DIRECTION.

     (a) A Member may elect that his Member Contributions be invested in 1%
     increments totaling 100% in one or more of the Investment Funds. Such
     election must be made pursuant to procedures prescribed by the Committee.
     Such election shall be effective until and unless a Member makes a
     different election for any period, but only as provided for under
     Subsection 5.02(b) and Subsection 5.02(c). If the Member fails to file a
     timely initial investment election, he shall be deemed to have elected to
     have 100% of his Member Contributions invested in the stable, fixed income
     investment as may be determined by the Committee. Until such time as the
     Committee determines otherwise and so notifies Members, a Member's share of
     any Company Contributions, when allocated as of Plan Year-end, shall be
     invested in the same Investment Funds in the same proportions as the Member
     has elected in connection with investment of his Member Contributions at
     the time the Company Contribution is contributed to the Trust.

     (b) A Member may change his election with respect to future Member and
     Company Contributions effective pursuant to procedures prescribed by the
     Committee and may not change his election in any other manner except as
     provided in Subsection 5.02(c).

     (c) Effective as of the date determined by the Committee, and pursuant to
     procedures prescribed by the Committee, a Member may elect to have any or
     all of the value in any of the Investment Funds which are credited to his
     Member and/or Company Accounts transferred and invested in any one or more
     of the Investment Funds.

     (d) Notwithstanding this Section 5.02, effective March 20, 2000, during the
     black out period as determined by the Committee and the Trustee established
     to change to daily


                                       18

<PAGE>   24


     valuation or a change in recordkeepers, no investment transfers or changes
     may be made by a Member unless provided in Section 6.06. Notwithstanding
     anything to the contrary, no loans, withdrawals or distributions shall be
     made during any such blackout period except as provided by the Committee.




                                       19

<PAGE>   25


                                    SECTION 6

                                    ACCOUNTS

     6.01 MEMBER ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Member
Contributions are invested separate Member Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to his
contributions. The Member's After-Tax Contributions shall be credited to a
separate Member After-Tax Account. The Member's Before-Tax Contributions shall
be credited to a separate Member Before-Tax Account. The Member's or Associate's
Rollover Contribution shall be credited to a separate Member Rollover
Contribution Account.

     6.02 COMPANY ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Company
Contributions are invested separate Company Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to Company
Contributions, as well as to contributions made by an Employer under prior plans
and to any income or earnings attributable to such Company Contributions and
prior plan contributions. The Member's Company Matching Contributions shall be
credited to a separate Company Matching Contribution Account. The Member's
Company Profit Sharing Contribution, if any, shall be credited to a separate
Company Profit Sharing Contribution Account.

     6.03 MAINTENANCE OF ACCOUNTS. For the purposes of maintaining Accounts
pursuant to this Section 6, each Investment Fund shall be divided into Units,
and the Interest of each Member in such Investment Fund shall be evidenced by
the number of Units in such Investment Fund credited to his Accounts.

     6.04 VALUATION OF ACCOUNTS. As of each Valuation Date the Committee
shall determine the value of a Unit in each Account by dividing the current
market value of all property in each such Account as of such Valuation Date
(after deducting any expenses or other amounts including withdrawals properly
chargeable against such Account) by the number of Units then outstanding to the
credit of all Members in each such Account.

     6.05 MEMBER STATEMENTS. The Committee shall furnish or cause to be
furnished to each Member a statement of his Company and Member Accounts, at
least once each year, or more frequently if required by applicable law.

     6.06 SHARES OF PAYLESS SHOESOURCE, INC. ("PAYLESS STOCK") IN THE PAYLESS
COMMON STOCK FUND.

     (a) Each Member (or beneficiary of a deceased Member) who has Accounts
     invested in the Payless Common Stock Fund shall, as a named fiduciary
     within the meaning of Section 403(a)(1) of ERISA, have the right to direct
     the Trustee with respect to the vote of the number of shares of Payless
     Stock attributable to Units credited to him in the Payless Common Stock
     Fund as of the latest practicable Valuation Date prior to or
     contemporaneous with the record date set by the Company for each meeting of


                                       20

<PAGE>   26


     shareowners of the Company. For such purpose the Trustee shall furnish to
     each such Member prior to each such meeting the proxy statement for such
     meeting, together with a form to be returned to the Trustee on which may be
     set forth the Member's instructions as to the manner of voting such shares
     of stock. Upon receipt of such instructions, the Trustee shall vote such
     shares in accordance therewith. If a Member's instructions are not received
     by the Trustee in a timely manner, the Trustee shall vote such Member's
     shares in the same proportion as the shares of Common Stock for which
     instructions were actually timely received from Members. The Trustee shall
     not divulge the instructions of any Member.

     (b) Each Member (or beneficiary of a deceased Member) who has Accounts
     invested in the Payless Common Stock Fund shall, as a named fiduciary
     within the meaning of Section 403(a)(1) of ERISA, have the right with
     respect to the number of shares of Payless Stock attributable to Units
     credited to him in the Payless Common Stock Fund as of the latest
     practicable Valuation Date, to direct the Trustee in writing as to the
     manner in which to respond to a tender or exchange offer with respect to
     Payless Stock, and the Trustee shall respond in accordance with the
     instructions so received. The Trustee shall utilize its best efforts to
     timely distribute or cause to be distributed to each Member such
     information as will be distributed to shareowners of the Company in
     connection with any such tender or exchange offer, together with a form
     requesting instructions on whether or not such shares will be tendered or
     exchanged. If the Trustee shall not receive timely direction from a Member
     as to the manner in which to respond to such a tender or exchange offer,
     the Trustee shall not tender or exchange any shares of Payless Stock with
     respect to which such Member has the right of direction. Tenders as a
     result of a self-tender offer by the Company shall continue notwithstanding
     any investment change blackout. The Trustee shall not divulge the
     instructions of any member. The proceeds from the tender or exchange of
     shares attributable to Units in Payless Common Stock Investment Fund
     accounts of Members shall be transferred to one of the Investment Funds
     described in Section 5.01 pursuant to a procedure established by the
     Committee.

     6.07 VESTING IN MEMBER AND COMPANY ACCOUNTS.

     (a) VESTING SCHEDULE. A Member shall have a fully vested interest at all
     times (i) in his Member Accounts and (ii) in his Company Profit Sharing
     Contribution Account balance determined as of July 31, 1997. A Member who
     has completed at least two full Years of Service as of August 1, 1997 also
     shall be fully vested at all times (i) in his Company Matching Contribution
     Account and (ii) in his Company Profit Sharing Contribution Account
     determined at any time after July 31, 1997. The Company Matching
     Contribution Account of a Member who is not or was not credited with at
     least two Years of Service as of August 1, 1997 and his Company Profit
     Sharing Contribution Account attributable to Company Profit Sharing
     Contributions, if any, based on such Member's eligibility for such
     contributions after August 1, 1997, shall vest according to the following
     schedule:


                                       21

<PAGE>   27



<TABLE>
<CAPTION>
           Vesting Service                                       Vested Interest

<S>       <C>                                                    <C>
          Fewer than 2 years                                            0%

               2 years                                                 25%

               3 years                                                 50%

               4 years                                                 75%

           5 years or more                                            100%
</TABLE>


          Notwithstanding the foregoing, a Member's interest in his Company
     Matching Contribution Account and his Company Profit Sharing Contribution
     Account shall become fully vested if the Member terminates employment on
     account of Retirement, death or Disability.

     (b) CASH-OUT DISTRIBUTIONS TO PARTIALLY VESTED MEMBERS AND RESTORATION OF
     FORFEITURES. If, pursuant to Section 10.01, a partially-vested Member
     receives a cash-out distribution before he incurs a Forfeiture Break in
     Service (as defined in Subsection (e) below), the cash-out distribution
     will result in an immediate forfeiture of the nonvested portion(s) of the
     Member's Company Matching and Company Profit Sharing Contribution
     Account(s). See Subsection (e) below. A partially-vested Member is a Member
     whose Vested Interest, determined under Section 6.07(a), in either his
     Company Matching Contribution Account or his Company Profit Sharing
     Contribution Account, or both, is less than 100%. A cash-out distribution
     is a distribution of the entire vested portion of the Member's Account(s).

          (i) A partially-vested Member who is reemployed by an Employer after
          receiving a cash-out distribution of the vested portion of his
          Account(s) shall have such forfeited amount restored, unless the
          Member no longer has a right to restoration under this subparagraph
          (i). The amount restored by the Plan Administrator shall be the same
          dollar amount as the dollar amount of his Account(s) on the Valuation
          Date immediately preceding the date of the cash-out distribution,
          unadjusted for any gains or losses occurring subsequent to that
          Valuation Date but reduced by the amount of the prior cash-out
          distribution. Restoration of the Member's Account balance(s) includes
          restoration of all Code Section 411(d)(6) protected benefits with
          respect to the restored Account(s) in accordance with applicable
          Treasury regulations. The Plan Administrator will not restore a
          reemployed Member's Account balance(s) under this subparagraph (i) if
          the Member has incurred a Forfeiture Break in Service (as defined in
          Subsection (d) below).

          (ii) If restoration of the Member's Account(s) is permitted under
          subparagraph (i) above, the Plan Administrator will restore the
          Member's Account(s) on the same day as the date of allocation of the
          Company Contribution for the Plan Year during which such Member was
          reemployed by an Employer. To restore the Member's Account(s), the
          Plan Administrator, to the extent necessary, will allocate to the
          Member's Account(s):


                                       22

<PAGE>   28



               (A) first, the amount, if any, of Member forfeitures otherwise
               available for allocation under Subsection (f) below;

               (B) second, deductible Employer contributions for the Plan Year
               to the extent made under a discretionary formula; and

               (C) third, as otherwise permitted by law.

The Plan Administrator will not take into account any allocation under this
Subsection (b) in applying the limitation on allocations under Section 13.

          (iii) The deemed cash-out rule applies to a 0% vested Member. A 0%
          vested Member is a Member whose Account(s) derived from Employer
          contributions is (are) entirely forfeitable at the time of his
          termination of employment. Under the deemed cash-out rule, the Plan
          Administrator will treat the 0% vested Member as having received a
          cash-out distribution on the date of the Member's termination of
          employment or, if the Member's Account(s) is (are) entitled to an
          allocation of Employer contributions for the Plan Year in which he
          terminates employment, on the last day of that Plan Year.

     (c) DETERMINATION OF VESTING SERVICE. For purposes of determining a
     Member's Vested Interest in his Company Contributions Account(s) under
     Subsection (a) above, a Member shall be credited with that number of years
     of Vesting Service determined by adding together all of the Associates's
     Periods of Service, whether or not consecutive. Notwithstanding the
     foregoing, Vesting Service shall not include any Period of Service before
     the Plan Year in which an Associate attains age eighteen (18). Only whole
     years of service shall be taken into account for purposes of applying the
     schedule set forth in Subsection (a) above, and, for purposes of
     determining a Member's number of whole years of service, non-successive
     Periods of Service must be aggregated, with 365 days of service being
     deemed to constitute one year. For purposes of determining a Member's
     Period of Service, the Service Spanning rules described in Section 1.51(g)
     shall apply.

     (d) FORFEITURE BREAK IN SERVICE. For purposes of this Section 6.07, a
     "Break in Service" is a Period of Severance of at least 365 consecutive
     days. A "Forfeiture Break in Service" occurs when a Member or former Member
     incurs 5 consecutive Breaks in Service.

     (e) FORFEITURE OCCURS. A Member's forfeiture, if any, of his Account
     balance(s) derived from Company contributions occurs under the Plan on the
     earlier of:

          (i) the last day of the last pay period ending within the Plan Year in
          which the Member first incurs a Forfeiture Break in Service; or

          (ii) the date the Member receives a cash-out distribution.

          The Plan Administrator shall determine the percentage of a Member's
     Account(s) forfeiture, if any, under this Subsection (e) solely by
     reference to the vesting schedule of


                                       23

<PAGE>   29


     Section 6.07(a). As of the last day of each Plan Year, the total amount of
     forfeitures which occurred during such Plan Year shall be calculated and
     such amount shall be applied (i) to restore under (b) above any amounts
     previously forfeited from rehired Members' Accounts, (ii) to pay
     Administrative Expenses under Section 7.01 and (iii) the balance, if any,
     shall be added to and allocated with the Company Matching Contribution for
     that Plan Year.

     (f) FORMER MAY PLAN MEMBERS. The provisions of this Subsection (f) apply to
     a Member who previously was employed by the Employer, when it was part of
     the Group which included The May Department Stores Company, and who at the
     termination of his employment had Company Accounts in the May Plan which
     were forfeited as a result of termination of employment. If such Member has
     not incurred five consecutive Breaks in Service as defined in Section
     6.07(b), the value of the Member's Company Account forfeited under the May
     Plan will be restored under this Plan (in the manner described in
     Subsection (b) above) and will be 100% vested.



                                       24

<PAGE>   30


                                    SECTION 7

                                    EXPENSES

     7.01 ADMINISTRATIVE EXPENSES. To the extent permitted by applicable law,
the costs and expenses for administering this Plan, consisting of Trustee fees
and expenses, Investment Manager fees and expenses, fees and expenses of outside
experts, expenses of maintaining records under Section 6 of the Plan, and all
other administrative expenses of the Plan, shall be paid out of the Trust Fund
unless the Company elects to pay them with its own funds. Costs incident to the
purchase and sale of securities, such as brokerage fees, commissions and stock
transfer fees, are not regarded as administrative expenses and shall be borne by
the appropriate Investment Fund as determined by the Trustee or Committee.



                                       25

<PAGE>   31


                                    SECTION 8

                          WITHDRAWALS DURING EMPLOYMENT

     8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED.  No withdrawal
from the Plan shall be permitted prior to a Member's termination of employment,
except as provided in Section 8.02.

     8.02 AUTHORIZED WITHDRAWALS.

     (a) Prior to his termination of employment, a Member may elect to withdraw,
in cash, any or all of the value in his Member After-Tax Accounts. However, in
the event a Member elects to withdraw all or a portion of his After-Tax
Contributions made after August 1, 1997, such Member shall forfeit his right to
fifty percent (50%) of the Company Matching Contribution, if any, otherwise
allocable in connection with his Member Contributions for the Plan Year in which
the withdrawal occurs.

     (b) Prior to his termination of employment, a Member may elect to withdraw,
in the event of a "hardship", an amount in cash up to (i) the total amount of
the Before-Tax Contributions made to the Trust on his behalf, or (ii) the value
in his Member Before-Tax Account, whichever is less. In any event the amount
withdrawn may not be greater than the amount determined by the Committee as
being required to meet the immediate financial need created by the "hardship"
and not reasonably available from other resources of the Member, whichever
amount is less. The term "hardship" means a heavy financial hardship in light of
immediate and heavy financial needs as determined by the Committee in accordance
with Internal Revenue Service regulations. The amount of an immediate and heavy
financial need may include any amounts necessary to pay any federal, state or
local taxes or penalties reasonably anticipated to result from the distribution.
The determination shall be made in a nondiscriminatory manner. Hardship shall
include but not be limited to the following:

          (i) Medical expenses described in Code Section 213(d) previously
          incurred by the Member, the Member's spouse, or any of the Member's
          dependents (as defined in Code Section 125) or necessary for these
          persons to obtain medical care described in Section 213(d);

          (ii) Purchase (excluding mortgage payments) of a principal residence
          for the Member;

          (iii) Payment of tuition, related educational fees, and room and board
          expenses for the next 12 months of post-secondary education for the
          Member, his or her spouse, children, or dependents (as defined in Code
          Section 152);

          (iv) The need to prevent the eviction of the Member from his or her
          principal residence or foreclosure on the mortgage of the Member's
          principal residence.



                                       26

<PAGE>   32



          The Committee may adopt written guidelines which identify additional
circumstances constituting hardship and which provide procedures to be followed
in the administration of hardship withdrawal requests, which guidelines are
hereby incorporated herein.

          In addition, such hardship must be one which in the judgment of the
Committee, based on the Member's representations, cannot be relieved (1) through
reimbursement or compensation by insurance or otherwise, (2) by reasonable
liquidation of the Member's assets to the extent such liquidation would not
itself cause an immediate and heavy financial need, (3) by cessation of Member
Contributions under the Plan, (4) by other distributions or loans from employee
benefit plans, including this Plan, maintained by the Company or any other
employer or (5) by borrowing from commercial sources on reasonable commercial
terms. The Member shall be required to submit documentation, to be determined by
the Committee, with his hardship withdrawal request to enable the Committee to
make a judgment regarding the validity of such hardship withdrawal request. For
any Member who has attained age 59 1/2, the "hardship" requirement shall be
deemed waived.

     (c) A Member who was a Participant in or eligible to be a Participant in
the Volume Shoe Corporation Profit Sharing Plan (the "Volume Plan") as of
December 31, 1988 and who had an account balance in the Volume Plan attributable
to Employer Contributions made to the Volume Plan before July 31, 1976 and which
account became a Company Account under The May Department Stores Company Profit
Sharing Plan and which has been transferred to this Plan, shall be entitled to
withdraw the market value of such account balance determined (and frozen) as of
December 31, 1988.

     (d) Associates with Member Rollover Contribution Accounts may elect to
withdraw their Member Rollover Contribution Accounts prior to termination of
employment.

     (e) A withdrawal election shall be made pursuant to application procedures
established by the Committee. For any withdrawal under this Section 8.02, if the
amount which may be withdrawn exceeds $100, the Member may not withdraw less
than $100, and if the amount which may be withdrawn is less than $100, the
Member shall be required to withdraw all of such amount. Contribution totals and
Account values shall be determined as of the Valuation Date coinciding with or
next following the filing of the withdrawal election. If the Member Accounts
from which withdrawal is made are in more than one Investment Fund, the
withdrawal shall be pro rata from each such Investment Fund except in the case
the Member is subject to Section 16 of the Securities Exchange Act of 1934 or
has been designated as a "Designated Insider," in which case such Member's
withdrawal will be taken first from such Member's Investment Funds other than
the Payless Common Stock Fund.


                                       27

<PAGE>   33


                                    SECTION 9

    BENEFITS UPON RETIREMENT, DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT

     9.01 BENEFITS. Upon a Member's Retirement, death, Disability, or other
termination of employment, the value of his Member Accounts and of his vested
Company Accounts shall be determined as of the Valuation Date prior to the date
the distribution is calculated. A temporary Authorized Leave of Absence for
Military Service or for other purposes approved by the Employer shall not, while
any such Authorized Leave of Absence is validly in effect, be regarded as a
termination of employment.

     9.02 BENEFICIARY. Any benefits payable on account of a Member's death shall
be paid to such Member's spouse. If such Member has no spouse or if such
Member's spouse shall have consented to the naming of another beneficiary, such
benefits shall be paid to the person or persons (including, without limitation,
estates, trust, or other entities) last named as beneficiary by such Member on
an appropriate form filed with the Committee. A spouse's consent shall
acknowledge the effect of the consent and be in writing, witnessed by a Plan
representative or notary public. A spouse's consent shall be irrevocable. If no
beneficiary has been so named or the named beneficiary does not survive the
Member, any payment to be made under this Plan on account of a Member's death
shall be paid to such Member's spouse, or, if he has no spouse, to such Member's
estate. Whenever permitted by the Code or regulations thereunder, the Committee
may waive the requirements that a spouse's consent be obtained. Such waiver may
be on a case by case basis or by categories.



                                       28

<PAGE>   34


                                   SECTION 10

                               PAYMENT OF BENEFITS

     10.01 TIME OF PAYMENT.

     (a) All amounts distributable to a Member or Beneficiary pursuant to
     Section 9 shall, unless the Member makes an approved election pursuant to
     Section 10.01(b) or 10.01(c), be paid in a lump sum payment to be made as
     soon as practicable after the Valuation Date as of which the Account values
     are determined pursuant to Section 9.01; provided, however, that any
     additional amounts which may be allocated to a Member's Company Accounts
     resulting from a Company Contribution in respect of the calendar year in
     which employment terminates shall be paid as soon as practicable after such
     contribution.

          Notwithstanding any provision of this Section 10 to the contrary, if
     the present value of the nonforfeitable accrued benefit of a Member,
     including Company and Member Contributions (but excluding accumulated
     deductible employee contribution, if any) exceeds (or for distributions
     made prior to March 22, 1999, ever has exceeded) $5,000, no partial or
     total distribution shall be made unless the Member has consented thereto in
     writing in the manner required by law.

     (b) A Member who was a Member of the May Plan as of June 30, 1990 may elect
     that all Transferred Accounts distributable to him pursuant to Section 9
     shall be paid in annual installments over a period not to exceed ten years
     beginning with the Valuation Date as of which the lump sum payment would
     otherwise be made. In the event of the death of a Member prior to the
     expiration of such period, all amounts which have not been distributed to
     him shall be paid in a lump sum to his designated Beneficiary or his estate
     if there is no designated Beneficiary. Subject to the foregoing, each such
     installment shall be paid as of a Valuation Date and, until all the
     Accounts of the Member have been fully distributed, they shall continue to
     be revalued as of each succeeding Valuation Date pursuant to Section 6.04.

          Notwithstanding the paragraph above, a Member who as of December 31,
     1988 was or was entitled to be a Participant in the Volume Shoe Corporation
     Profit Sharing Plan may elect that all Transferred Accounts distributable
     to him pursuant to Section 9 be paid in the form of equal monthly
     installments over a period not to exceed 120 months. Such payments shall
     otherwise be made in accordance with the foregoing portion of this
     Subsection 10.01(b).

     (c) A Member who is entitled to receive a distribution in excess of $5,000
     may elect to defer such distribution to age 65. An election to defer
     distribution shall conform to such requirements as to form, content,
     manner, and timing as shall be determined by the Committee and which
     requirements shall be applied in a manner which does not discriminate in
     favor of Members who are highly compensated employees (within the meaning
     of Code Section 414(q)). All Accounts of a Member who elects to defer his
     distribution shall continue to be revalued as of each succeeding Valuation
     Date pursuant to


                                       29

<PAGE>   35


     Section 6.04. A deferred distribution shall be paid when such Member
     attains the age of 65 years or at such earlier or later time as shall be
     determined by the Committee as permitted by law. In the event of the death
     of a Member prior to distribution of the deferred amounts, all amounts
     shall be distributed in a lump sum to his designated Beneficiary or to his
     estate if there is no designated Beneficiary. The value for payment shall
     be determined as of the Valuation Date coincident with or next following
     such Member's 65th birthday or such other payment date determined by the
     Committee.

     10.02 FORM OF PAYMENT. All distributions shall be made in the form of cash,
except that distributions from the Payless Common Stock Fund shall be made in
the form of full shares of Payless Common Stock, as applicable (with payment in
cash for a fraction of a share) or in cash if elected by the Member or
Beneficiary. The rights extended to a Member hereunder shall also apply to any
Beneficiary or alternate payee of such Member.

     10.03 INDIRECT PAYMENT OF BENEFITS. If any Member or Beneficiary has been
adjudged to be legally, physically or mentally incapable or incompetent, payment
may be made to the legal guardian or other legal representative of such Member
or Beneficiary as determined by the Committee. Such payments shall constitute a
full discharge with respect thereto.

     10.04 INABILITY TO FIND MEMBER. If a Member or Beneficiary or other person
to whom a benefit payment is due cannot be found during the three years
subsequent to the date a distribution was required to be made under this Plan,
the Accounts shall be forfeited at the end of such three-year period. The value
of such Accounts as of the date the distribution was required to be made shall
be restored if such Member or Beneficiary or other person makes a claim.

     10.05 COMMENCEMENT OF BENEFIT DISTRIBUTION TO MEMBERS. In accordance with
Code Section 401(a)(9) and Treasury Regulations promulgated thereunder,
distributions to a Member must commence not later than the first day of April
following the calendar year in which the Member attains age 70 1/2.
Notwithstanding the foregoing, distribution to a Member who is not a "five
percent owner" as defined in Section 20.10(f)(3) shall commence not later than
April 1 following the calendar year in which the Member attains age 70 1/2 or,
if later, the calendar year in which the Member retires.

     10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY. Distributions to
the Beneficiary entitled under Section 9.02 to receive any payments payable
under this Plan on account of a Member's death shall be made in a lump sum
payment not later than December 31 of the calendar year following the calendar
year in which the Member died.

     10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE.
Distributions to an alternate payee entitled under Section 16.01 to receive any
payments payable under this Plan pursuant to the terms of a Qualified Domestic
Relations Order shall be made in accordance with the terms of such Qualified
Domestic Relations Order and this Plan on or after the date on which the Member
has attained his "earliest retirement age" (as defined under Code Section
414(p)) under the Plan. Notwithstanding the foregoing, distribution to an
alternate payee may be made prior to the Member's attainment of his earliest
retirement age if, but only if: (1) the Qualified Domestic Relations Order
specifies distribution at that time or permits an agreement between the


                                       30

<PAGE>   36


Plan and the alternate payee to authorize an earlier distribution; (2) the
distribution is a single sum distribution of the alternate payee's entire
benefit entitlement under the Plan; and (3) in the event the present value of
the alternate payee's benefits under the Plan exceeds $5,000, the alternate
payee consents to any distribution occurring prior to the Member's attainment of
earliest retirement age.

     Nothing in this Section 10.07 shall be construed to permit a Member to (1)
receive a distribution at a time not otherwise permitted under the Plan, (2)
permit the alternate payee to receive a form of payment not otherwise permitted
under the Plan, or (3) cause his Plan accounts to be valued or otherwise
determined in a manner not otherwise permitted under the Plan.



                                       31

<PAGE>   37


                                   SECTION 11

                    PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS

     11.01 ROLLOVER TO OTHER PLANS. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and pursuant to procedures
prescribed by the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. Such distribution may commence no less than
thirty (30) days nor more than ninety (90) after any notice required under
Treas. Reg. Section 1.411(a)-11(c) (or its successor) and explanation of his
right to rollover his distribution and tax explanation in accordance with
Internal Revenue Rules are given to a Member or other distributee, provided that
the Member has been clearly informed that he has a right to a period of at least
thirty (30) days after receiving said notice to consider the decision as to
whether to elect a distribution or, if applicable, a distribution option, and
the Member nevertheless affirmatively elects distribution preceding the
expiration of thirty (30) days.

     11.02 ROLLOVER FROM OTHER PLANS. An Associate eligible to participate in
the Plan, regardless of whether he has satisfied the participation requirements
of Section 2.01, may transfer to the Plan an Eligible Rollover Distribution
provided that such distribution is from an Eligible Retirement Plan. If such
transfer is not a direct transfer, such a transfer may be made only if the
following conditions are met:

          (a) the transfer occurs on or before the 60th day following the
          Associate's receipt of the distribution from the Eligible Retirement
          Plan; and

          (b) The amount transferred is equal to any portion of the distribution
          the Associate received from the Eligible Retirement Plan, not in
          excess of the fair market value of all property received in such a
          distribution reduced by employee contributions, as defined in Code
          Section 402(a)(5)(E).

          The Committee shall develop such procedures, and may require such
          information, from a Member desiring to make such a transfer, as it
          deems necessary or desirable to determine that the proposed transfer
          will meet the requirements of the Section. Upon approval by the
          Committee or its Administrative Delegate, the amount transferred shall
          be deposited in the Trust Fund and shall be credited to the Member's
          account. Such rollover amount shall be one hundred percent (100%)
          vested in the Member, shall share in the income allocations in
          accordance with Section 5, but shall not share in the Company Profit
          Sharing Contributions, the Company Matching Contributions or the
          forfeiture allocations. Upon termination of employment, the total
          amount of the rollover contribution shall be distributed in accordance
          with the terms of the Plan.

          Upon such a transfer by an Associate who is otherwise eligible to
          participate in the Plan but who has not yet completed the
          participation requirement of Section 2.01,


                                       32

<PAGE>   38


          his rollover amount shall represent his sole interest in the Plan
          until he becomes a Member.

     11.03 DEFINITIONS. The following definitions shall apply for the purposes
of this Section 11:

     (a) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover distribution is
     any distribution of all or any portion of the balance to the credit of the
     distributee as defined in Code Section 402(c), except that an eligible
     rollover distribution does not include: any distribution that is one of a
     series of substantially equal periodic payments (not less frequently than
     annually) made for the life (or life expectancy) of the distributee or the
     joint lives (or joint life expectancies) of the distributee and the
     distributee's beneficiary or for a specified period of ten years or more;
     any distribution to the extent such distribution is required under Code
     Section 401(a)(9); the portion of any distribution that is not includable
     in gross income (determined without regard to the exclusion for net
     unrealized appreciation with respect to employer securities); and any
     hardship distribution attributable to Before-Tax Contributions.

     (b) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an individual
     retirement account described in Code Section 408(u), an individual
     retirement annuity described in Code Section 408(b), an annuity plan
     described in Code Section 403(a), or a qualified trust described in Code
     Section 401(a), which accepts or will make, as applicable, an Eligible
     Rollover Distribution. However, in the case of an Eligible Rollover
     Distribution to a Member's surviving spouse, an eligible retirement plan is
     an individual retirement account or individual retirement annuity.

     (c) DISTRIBUTEE. A distributee includes a Member or former Member. In
     addition, the Member or former Member's surviving spouse and the Member's
     or former Member's spouse or former spouse who is the alternate payee under
     a qualified domestic relations order, as defined in Code Section 414(p),
     are distributees with regard to the interest of the spouse or former
     spouse.

     (d) DIRECT TRANSFER. A direct transfer is a payment by the Plan to the
     eligible retirement plan specified by the distributee as described in Code
     Section 401(a)(31).



                                       33

<PAGE>   39


                                   SECTION 12

                                      LOANS

     12.01 AVAILABILITY OF LOANS. Loans shall be permitted under this Plan as
established by the policy of the Committee. Any such loan shall be subject to
such conditions and limitations as the Committee deems necessary for
administrative convenience and to preserve the tax-qualified status of the Plan.
Loans are available to Associates who have a Member Rollover Contribution
Account.

     12.02 AMOUNT OF LOANS. No loan to any Associate, Member or Beneficiary may
be made to the extent that such loan, when added to the outstanding balance of
all other loans to the Associate, Member or Beneficiary, would exceed the lesser
of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance
of loans during the one-year period ending on the day before the loan is made,
over the outstanding balance of loans from the Plan on the date the loan is
made, or (b) one-half the present value of the nonforfeitable accrued benefit of
the Participant. For the purpose of the above limitation, all loans from all
plans of the Employer and other members of a group of employers described in
Code Sections 414(b), 414(c), 414(m) and 414(o) are aggregated. Furthermore, any
loan shall by its terms require that repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond four and one-half years from the date of the loan. If such
loan is used to acquire a dwelling unit which within a reasonable time
(determined at the time the loan is made) will be used as the principal
residence of the Participant, the repayment period shall not extend beyond
twenty nine and one-half years from the date of the loan. An assignment or
pledge of any portion of the Participant's interest in the Plan and a loan,
pledge, or assignment with respect to any insurance contract purchased under the
Plan will be treated as a loan under this paragraph.

     12.03 TERMS OF LOANS.

     (a) Loans shall be made available to all Associates, Members and
     Beneficiaries on a reasonably equivalent basis.

     (b) Loans shall not be made available to Highly Compensated Employees (as
     defined in Code Section 414(q)) in an amount greater than the amount made
     available to other Employees.

     (c) Loans must be adequately secured using not more than fifty percent
     (50%) of the Member's Vested Account balance, and bear a reasonable
     interest rate as determined from time to time by the Committee.

     (d) An Associate or Member loan for less than $1,000 is not permitted;
     provided, however, that if such Associate or Member also receives a loan
     from the Puerto Rico Plan, such minimum amount limitation shall not apply.

     (e) In the event of a default, foreclosure on the note and attachment of
     security will not occur until a distributable event occurs under the Plan
     with respect to the Member.


                                       34

<PAGE>   40



     (f) No loans will be made to any Associate or Member who on any day during
     the Company's applicable fiscal year is a beneficial owner of more than
     five percent (5%) of the outstanding stock of the Company.

     (g) All loans shall be made pursuant to a written Member loan program
     incorporated herein by reference.

     (h) Loans are available from the following accounts, and will be withdrawn
     from the Members accounts in the following hierarchy:

          (a)   Member Accounts
          (b)   Vested Company Accounts
          (c)   Member Rollover Contribution Accounts

     (i) Loans will be taken and repaid from and to the Investment Funds on a
     pro rata basis, except in the case the Member is subject to Section 16 of
     the Securities Exchange Act of 1934 or has been designated as a "Designated
     Insider," in which case such Member's loan will be taken first from such
     Member's Investment Funds other than the Payless Common Stock Fund.



                                       35

<PAGE>   41


                                   SECTION 13

                       LIMIT ON CONTRIBUTIONS TO THE PLAN

     This Section 13 is intended to conform the Plan to the requirements of Code
Section 415 and limits the contributions that can be made by and for an
individual under the Plan.

     13.01 LIMIT ON CONTRIBUTIONS. Notwithstanding any provision of the Plan to
the contrary:

     (a) The amounts allocated to a Participant during the Limitation Year under
     the Plan and allocated to the Participant under any other defined
     contribution plan to which the Employer or any other member of the Group
     has contributed shall be proportionately reduced, to the extent necessary,
     so that the Annual Addition does not exceed the least of:

          (1)  $30,000; or

          (2)  25% of the Participant's remuneration from the Employer or any
               member of the Group during the Limitation Year; or

          (3)  such other limits set forth in Code Section 415.

The amount set forth in subparagraph (1) above shall automatically be adjusted
to reflect adjustments made by applicable law. Remuneration for purposes of this
Section means remuneration as defined in Treasury Regulation Section 1.415-2(d)
and shall also include the deferrals described in Code Section 415(c)(3)(D).

          (b) For purposes of this Section, Limitation Year means the 12 month
          period commencing on January 1 and ending on December 31.

          (c) For purposes of this Section, Annual Additions means the sum for
          the Limitation Year of Employer contributions, Employee contributions
          (determined without regard to any rollover contributions as defined in
          Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3) and
          without regard to Employee contributions to a simplified employee
          pension plan which are excludible from gross income under 408(k)(6) of
          the Code) and forfeitures.

          13.02 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.

          (a) If, as a result of the allocation of forfeitures, a reasonable
          error in estimating a Member's Pay or other facts and circumstances to
          which Treasury Regulation Section 1.415-6(b)(6) shall be applicable,
          the "annual additions" under this Plan would cause the maximum "annual
          additions" to be exceeded for any Member, the Committee shall (1)
          return any Member Contributions credited for the "limitation year" to
          the extent that the return would reduce the "excess amount" in the
          Member's Accounts, (2) hold any "excess amount" remaining after the
          return of any member Contributions in a "Section 415 suspense
          account", (3) use the "Section 415 suspense account" in the next
          "limitation


                                       36

<PAGE>   42


          year" (and succeeding "limitation years" if necessary) to reduce
          either Company Contributions for that Member if that Member is covered
          by the Plan as of the end of the "limitation year" or if such Member
          is not covered by the Plan at the end of the "limitation year" to
          reduce Company Contributions for all Members in the Plan, before any
          Company Contributions or Member Contributions which would constitute
          "annual additions" are made to the Plan for such "limitation year,"
          (4) reduce Company Contributions for such "limitation year" by the
          amount of the "Section 415 suspense account" allocated and reallocated
          during such "limitation year." For purposes of (3) above, the Plan may
          not distribute "excess amounts" to Members or former Members.

          (b) For purposes of this Section, "EXCESS AMOUNT" for any Member for a
          "limitation year" shall mean the excess, if any, of (1) the "annual
          additions" which would be credited to his account under the terms of
          the Plan without regard to the limitations of Code Section 415 over
          (2) the maximum "annual additions" determined pursuant to Section
          13.01(a).

          (c) For purposes of this Section, "SECTION 415 SUSPENSE ACCOUNT" shall
          mean an unallocated account equal to the sum of "excess amount" for
          all Members in the Plan during the "limitation year." The "Section 415
          suspense account" shall not share in any earnings or losses of the
          Trust Fund.



                                       37

<PAGE>   43


                                   SECTION 14

                           ADMINISTRATION OF THE PLAN

     14.01 PLAN ADMINISTRATOR. The Company shall be the Plan Administrator of
the Plan for purposes of ERISA and shall be a "named fiduciary" as determined in
ERISA Section 402(a)(2).

     14.02    DELEGATION OF AUTHORITY.

     (a) Authority to administer the Plan has been delegated to the Committee
and the Administrative Subcommittee, if any, in accordance with Sections 1.42
(Total and Permanent Disability), 4.01 (Member Contributions), 6.01 (Member
Accounts), 6.02 (Company Accounts), 6.05 (Member Statements), 8.02 (Authorized
Withdrawals), 13.02 (Adjustment for Excessive Annual Additions), 20.02
(Withdrawal of an Employer) and this Section 14.

     (b) Authority with respect to the Investment Funds of the Plan has been
delegated to the Trustee in accordance with Sections 7.01 (Administrative
Expenses), 5.01(c) (Investment Funds), 15 (Management of the Trust Fund) and
6.06 (shares of Payless ShoeSource, Inc. (Payless Stock) in the Payless Common
Stock Fund).

     (c) Authority to direct the investment of the Plan's funds has been
delegated to the Investment Subcommittee, if any, in accordance with Section
15.03(b), (c) and (d) (Investments and Reinvestments).

     (d) The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, administrative functions within the frame work of policies,
interpretations, rules practices and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Member to the Committee in accordance with the claims
review procedure in Section 16.05. Any decisions which call for interpretations
of the Plan provisions not previously made by the Committee shall be made only
by the Committee. The Administrative Delegate shall not be considered a
fiduciary with respect to the services it provides.

     14.03 COMMITTEE AND SUBCOMMITTEES.

     (a) The Committee may appoint two subcommittees (an "Administrative
Subcommittee" and an "Investment Subcommittee"), each Subcommittee to consist of
at least three persons, who need not be members of the Board. The Committee and
each Subcommittee, if appointed, shall elect from its members a Chairman and a
Secretary, and may appoint one or more Assistant Secretaries who may, but need
not be, members of the Committee or such Subcommittee, and may employ such
agents, such legal counsel and such clerical, medical, accounting, actuarial and
other services as it may from time to time deem advisable to assist in the
administration of the Plan. The Committee and each Subcommittee may, from time
to time, appoint agents and delegate to such agents such duties as it considers
appropriate and to the extent


                                       38

<PAGE>   44


that such duties have been so delegated, the agent shall be exclusively
responsible for the proper discharge of such duties.

     (b) The Administrative Subcommittee shall have the general responsibility
for the administration of the Plan and the carrying out of its provisions, and
shall have general powers with respect to Plan administration, including, but
not limited to, the powers listed in this Section 14.03. The Administrative
Subcommittee shall have the discretionary authority to interpret and construe
the Plan, the power to establish rules for the administration of the Plan and
the transaction of its business, the power to remedy and resolve inconsistencies
and omissions, and the power to determine all questions which arise in the
administration, interpretation, or application of the Plan, including but not
limited to questions regarding the eligibility, status, Account value and any
rights of any Member, Beneficiary, and any other person hereunder.

     (c) The Investment Subcommittee shall have the powers provided for in
Section 15.03(b).

     (d) The Committee and each Subcommittee shall act by a majority of its
members and the action of such majority expressed by a vote at a meeting, or in
writing without a meeting, shall constitute the action of the Committee or such
Subcommittee. All decisions, determinations, actions or interpretations with
respect to the Plan by the Committee or either Subcommittee and the individual
committee or subcommittee members shall be in the Committee's, Subcommittee's or
individual member's sole discretion. The decision, determination, action or
interpretation of the Committee or either Subcommittee and the respective
individual members of the Committee or Subcommittee in respect to all matters
within the scope of its authority shall be conclusive and binding on all
persons. No member of the Committee or either Subcommittee shall have any
liability to any person for any action or omission except each for his own
individual willful misconduct. If a Subcommittee is not appointed, the Committee
shall exercise such Subcommittee's authority and perform its duties as described
herein.

     (e) Nothing in this Section 14 or in any other provision of the Plan shall
be deemed to relieve any person who is a fiduciary under the Plan for purposes
of ERISA from any responsibility or liability for any responsibility, obligation
or duty which Part 4 of Title I of ERISA shall impose upon such person with
respect to this Plan.

     14.04 ACCOUNTS AND REPORTS. The Committee shall maintain or cause to be
maintained accounts reflecting the fiscal transactions of the Plan and shall
keep in convenient form such data as may be necessary for the administration of
the Plan. The Committee shall prepare annually a report showing in reasonable
detail the assets and liabilities of the Plan and setting forth a brief account
of the operation of the Plan for the preceding year.



                                       39

<PAGE>   45


     14.05 NON-DISCRIMINATION. Neither the Committee nor either Subcommittee
shall exercise its discretion in such a way as to result in discrimination in
favor of officers, shareholders or highly compensated employees (within the
meaning of Code Section 414(q)).



                                       40

<PAGE>   46




                                   SECTION 15

                          MANAGEMENT OF THE TRUST FUND

     15.01 USE OF THE TRUST FUND. All assets of the Plan shall be held as a
Trust Fund in one or more trusts and shall be used to provide the benefits of
this Plan. No part of the corpus or income shall be used for, or diverted to,
purposes other than for the exclusive benefit of Members and their Beneficiaries
under this Plan and administrative expenses of this Plan.

     15.02 TRUSTEES. The Trust Fund may, at the direction of the Company, be
divided into one or more separate trusts, each of which may have a separate
Trustee appointed from time to time by the Company and subject to removal by the
Company. The Trustee or Trustees of each trust shall have complete authority and
discretion with respect to the investment and reinvestment of the assets of each
trust, subject, however, to (i) the provisions in the Trust Agreements between
the Trustee or Trustees and the Company, and (ii) the provisions of this Plan.
Any or all of such separate trusts shall be referred to collectively from time
to time as the Trust Fund. Any division of the Trust Fund into one or more
separate trusts shall be at the direction of the Company.

     15.03 INVESTMENTS AND REINVESTMENTS. The investment and reinvestment of the
assets of the Trust Fund shall be in accordance with the following:

     (a) The Company shall have the authority to instruct the Trustee or
Trustees to accept and follow the instructions of any designated investment
manager (within the meaning of ERISA Section 3(38)) with respect to the
investment and reinvestment of the assets constituting a money market or stable
value fund, a fixed income fund, a common stock fund, or any other Investment
Funds the Company may designate.

     (b) The Investment Subcommittee shall have the powers, with respect to
investment and reinvestment of the assets constituting the Investment Funds, to
promulgate limitations, restrictions, rules or guidelines with respect to the
investment policies and classes of investments in which the assets of the
Investment Funds may be invested or reinvested by the Trustee or Trustees,
including any such investments made pursuant to the instructions of any
investment manager. In the event an investment manager designated pursuant to
Section 15.03(a) resigns or otherwise is unable to act, the Investment
Subcommittee shall have such power and authority as otherwise would be
exercisable by such Investment Manager.

     (c) In the event that the assets of the Trust Fund shall be divided into
one or more separate trusts pursuant to the authority provided for in Section
15.02, then the powers of the Investment Subcommittee as provided for in Section
15.03(b) may be exercised with respect to one or more of such trusts within the
discretion of the Investment Subcommittee.

     (d) The powers of the Investment Subcommittee as provided in Section
15.03(b) may be exercised at any time or from time to time by the Investment
Subcommittee within the discretion of the Investment Subcommittee and shall be
pursuant to a written agreement between


                                       41

<PAGE>   47


the Investment Subcommittee and the Trustee or Trustees or, if an investment
manager has been appointed, between the Investment Subcommittee and the
investment manager.

     (e) The Trust Agreement between the Company and the Trustee or Trustees
implementing the Plan shall contain provisions effectuating the provisions of
this Section 15 of the Plan.



                                       42

<PAGE>   48


                                   SECTION 16

             CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS

     16.01 DISCLAIMER OF EMPLOYER LIABILITY.

     (a) No liability shall attach to any Employer with respect to a benefit or
claim hereunder and Members and their Beneficiaries, and all persons claiming
under or through them, shall have recourse only to the Trust Fund for payment of
any benefit hereunder.

     (b) The rights of the Members, their Beneficiaries and other persons are
hereby expressly limited and shall be only in accordance with the provisions of
the Plan. Nothing contained herein shall be deemed to give a Member any interest
in any specific property of the Trust or any interest other than a right to
receive payments pursuant to the provisions of the Plan.

     16.02 EMPLOYER-ASSOCIATE RELATIONSHIP. Neither the establishment of this
Plan nor its communication through a Summary Plan Description (or otherwise)
shall be construed as conferring any legal or other rights upon any Associate or
any other person to continue in employment or as interfering with or affecting
in any manner the right of an Employer to discharge any Associate or otherwise
act with relation to him. Each Employer may take any action (including
discharge) with respect to any Associate or other person and may treat him
without regard to the effect which such action or treatment might have upon him
as a Member of this Plan.

     16.03 BINDING EFFECT. Each Member, by executing an enrollment form,
beneficiary designation and otherwise agreeing to participate in the Plan agrees
for himself, his beneficiary(ies), heirs, successors and assigns to be bound by
all of the provisions of the Plan.

     16.04 CORPORATE ACTION. With respect to any action permitted or required by
the Plan, the Company may act through its appropriate officers.

     16.05 CLAIM AND APPEAL PROCEDURE. A Member or beneficiary may file with the
Committee or its designee at any time a written claim in connection either with
a benefit payable hereunder or otherwise. The Committee or its designee,
normally within 90 days after receipt of a written claim, shall render a written
decision on the claim, unless an additional 90 days is required by special
circumstances which shall be explained to the claimant. If the claim is denied,
either in whole or in part, the decision shall include the reason or reasons for
the denial; a specific reference to the Plan provision or provisions which are
the basis for the denial; a description of any additional material or
information necessary for the claimant to perfect the claim; an explanation as
to why the information or material is necessary; and an explanation of the
Plan's entire claim procedure. The claimant may file with the Committee, within
60 days after receiving the written decision from the Committee, a written
notice of request for review of the Committee's decision. The review shall be
made by a committee of up to three individuals (which may include members of the
Committee) appointed by the Company or by the Committee. Said committee shall
render a written decision on the claim containing the specific reasons for their
decision, including a reference to the Plan's provisions, normally within 60
days after receipt of the request


                                       43

<PAGE>   49


for review, unless an additional 60 days is required by special circumstances
which shall be explained to the claimant. If a Member or beneficiary does not
file written notice of a claim with the Committee or its designee at the times
set forth above, he shall have waived any right to a benefit other than as
originally proposed by the Company or the Committee.



                                       44

<PAGE>   50


                                   SECTION 17

                           NON-ALIENATION OF BENEFITS

     17.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY. No benefit payable
under this Plan shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, levy or charge, and any attempt
so to anticipate, alienate, sell, transfer, assign, encumber, levy upon or
charge the same shall be void; nor shall any such benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled to such benefit, except as specifically provided herein.
Notwithstanding the foregoing, the creation, assignment, or recognition of a
right to any benefit payable to an alternate payee with respect to a Qualified
Domestic Relations Order shall not be treated as an assignment or alienation
prohibited by this Section. Any other provision of the Plan to the contrary
notwithstanding, if a Qualified Domestic Relations order requires the
distribution of all or part of a Member's benefits under the Plan, the
establishment or acknowledgment of the alternate payee's right to benefits under
the Plan in accordance with the terms of such Qualified Domestic Relations Order
shall in all events be deemed to be consistent with the terms of the Plan.

     Notwithstanding the above a Member's benefit will be offset against any
amount he or she is ordered or required to pay to the Plan pursuant to an order
or requirement which arises under a judgment of conviction for a crime involving
the Plan, under a civil judgment entered by a court in an action involving a
fiduciary breach, or pursuant to a settlement agreement between the Participant
and the Department of Labor or the Pension Benefit Guaranty Corporation. Any
such offset shall be made pursuant to Section 206(d) of ERISA.

     17.02 ALTERNATE APPLICATION. If a Member or Beneficiary under this Plan
becomes bankrupt or attempts to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefit under this Plan, except as specifically
provided herein, or if any benefit shall, in the discretion of the Committee,
cease, and in that event the Committee may hold or apply the same or any part
thereof to or for the benefit of such Member or Beneficiary, his spouse,
children or other dependents, or any of them, or in such other manner and in
such proportion as the Committee may deem proper.



                                       45

<PAGE>   51


                                   SECTION 18

                                   AMENDMENTS

     18.01 COMPANY'S RIGHTS. The Company reserves the right at any time and from
time to time in its sole discretion to alter, amend, or modify, in whole or in
part, any or all of the provisions of this Plan, provided, however, no such
alteration, amendment or modification shall be made which shall decrease the
accrued benefit of any Member. Anything in this Plan to the contrary
notwithstanding, the Company in its sole discretion may make any modifications
or amendments, additions or deletions in or to this Plan as to benefits or
otherwise and retroactively if necessary, and regardless of the effect thereof
on the rights of any particular Member or Beneficiary, which it deems
appropriate and/or necessary in order to comply with or satisfy any conditions
of any law or regulation relating to the qualification of this Plan and the
trust or trusts created pursuant hereto and to keep this Plan and said trusts
qualified under Code Section 401(a) and to have the trust or trusts declared
exempt from taxation under Code Section 501(a).

     18.02 PROCEDURE TO AMEND. This Plan may be amended by action of the
Company's Board of Directors and evidenced by a written amendment signed by the
Company's Secretary or by any other person so authorized by or pursuant to
authority of the Board of Directors.

     18.03 PROVISION AGAINST DIVERSION. No part of the assets of the Trust Fund
shall, by reason of any modification or amendment or otherwise, be used for, or
diverted to, purposes other than for the exclusive benefit of Members and their
Beneficiaries under this Plan and administrative expenses of this Plan.




                                       46
<PAGE>   52
                                   SECTION 19

                                   TERMINATION

         19.01 RIGHT TO TERMINATE. The Company reserves the right to terminate
this Plan, in whole or in part, at any time and, if this Plan shall be
terminated, the provisions of Section 19.03 shall apply and the Accounts of
affected Members shall become (or remain) fully vested and nonforfeitable.

         19.02 WITHDRAWAL OF AN EMPLOYER. If an Employer shall cease to be a
participating Employer in this Plan, the Trust Fund and the Accounts of the
Members of the withdrawing Employer and their Beneficiaries shall be revalued as
if such withdrawal date were a Valuation Date. The Committee shall then direct
the Trustee either to distribute the Accounts of the Members of the withdrawing
Employer as of the date of such withdrawal on the same basis as if the Plan had
been terminated pursuant to Section 19.03 or to deposit in a trust established
by the withdrawing Employer pursuant to a plan substantially similar to this
Plan assets equal in value to the assets of the Trust Fund allocable to the
Accounts of the Members of the withdrawing Employer.

         19.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST. If this Plan is
terminated at any time including a partial termination as defined in US Code
Section 411(d)(3), or if contributions are completely discontinued and the
Company determines that the trust shall be terminated, in whole or in part, the
Trust Fund and all Accounts shall be revalued as if the termination date were a
Valuation Date and the affected Members' Accounts shall be distributed in
accordance with Section 10.

         19.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST. If this Plan
shall be terminated in whole or in part or contributions completely discontinued
but the Company determines that the trust shall be continued pursuant to the
terms of the Trust Agreement, the trust shall continue to be administered as
though the Plan were otherwise in effect. Upon the subsequent termination of the
trust, in whole or in part, the provisions of Section 19.03 shall apply.

         19.05 MERGER, CONSOLIDATION OR TRANSFER. In the case of any merger or
consolidation with, or transfer of Plan assets or liabilities to, any other plan
each Member shall be entitled to receive a benefit immediately after the merger,
consolidation or transfer (if the transferee plan then terminated) which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).

                                       47

<PAGE>   53



                                   SECTION 20

                                  CONSTRUCTION

         20.01 APPLICABLE LAW. The provisions of this Plan except as otherwise
governed by ERISA shall be construed, regulated, administered and enforced
according to the laws of Puerto Rico and, whenever possible, to be in conformity
with the applicable requirements of ERISA, of the US Code to the extent
applicable and of the PR Code of 1994.

         20.02 GENDER AND NUMBER. Wherever applicable, the masculine pronoun as
used herein shall include the feminine pronoun and the singular pronoun shall
include the plural.

          IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
a duly authorized officer this ______ day of _____________, 2000.

                                                     PAYLESS SHOESOURCE, INC.


                                                     By:________________________





                                       53
<PAGE>   54

                                                                    Ex.10.11.doc

                                   SECTION 21

                             TOP-HEAVY REQUIREMENTS

         21.01 GENERALLY. For any Plan Year in which the Plan is a Top-Heavy
Plan, the provisions of Sections 21.02 and 21.03 shall automatically take effect
in accordance with Code Section 416.

         21.02    MINIMUM ALLOCATIONS.

        (a) Minimum Employer Allocations and allocations of Plan forfeitures for
        a Member who is not a Key Employee shall be required under the Plan for
        the Plan Year as set forth in Section 21.02 (b) and(c).

        (b) The amount of the minimum allocation shall be the lesser of the
        following, percentages of Pay: (i) four percent (4%) or, (ii) the
        highest percentage at which such allocations are made under the Plan for
        the Plan Year on behalf of a Key Employee. For purposes of this
        paragraph (b), all defined contribution plans required to be included in
        an Aggregation Group shall be treated as one plan. This paragraph (b)
        shall not apply if the Plan is required to be included in an Aggregation
        Group and the Plan enables a defined benefit plan required to be
        included in the Aggregation Group to meet the requirement of Code
        Sections 401(a)(4) or 410. For purposes of this paragraph (b), the
        calculation of the percentage at which allocations are made for a Key
        Employee shall be based only on his Pay not in excess of $170,000, such
        amount to be adjusted periodically for increases in the cost of living
        in accordance with Code Section 401(a)(17). The minimum allocation
        described in this paragraph (b) shall be in addition to (and shall not
        be reduced by) any Member Contributions under Section 4 (whether
        Before-Tax or After-Tax) and any allocation of forfeitures, if any, to
        which a Member may be entitled.

        (c) For purposes of this Section 21.02, the term "Member" shall be
        deemed to refer to all Members who have not separated from service at
        the end of the Plan Year including, without limitation, individuals who
        declined to make contributions to the Plan.

         21.03 PARTICIPANTS UNDER DEFINED BENEFIT PLANS. If any Member other
than a Key Employee is also a participant under a defined benefit plan of an
Employer which is a Top-Heavy Plan, then Section 21.03(a) shall not apply and
the required minimum annual contribution for such Member under this Plan shall
be 7 percent (7 %) of such Member's Pay. Such contribution shall be made without
regard to the amount of contribution, if any, made to the Plan on behalf of
Employees.


                                       49
<PAGE>   55


         21.04    DETERMINATION OF TOP HEAVINESS.

        (a) The determination of whether a plan is Top-Heavy shall be made in
        accordance with paragraphs (b) through (d) of this Section 21.04.

        (b) If the Plan is not required to be included in an Aggregated Group
        with other plans, then it shall be Top-Heavy only if when considered by
        itself, it is a Top-Heavy Plan and it is not included in a permissive
        Aggregation Group that is not a Top-Heavy Group.

        (c) If the Plan is required to be included in an Aggregation Group with
        other plans, it shall be Top-Heavy only if the Aggregation Group,
        including any permissively aggregated plans, is Top-Heavy.

        (d) If a plan is not a Top-Heavy Plan and is not required to be included
        in an Aggregation Group, then it shall not be Top-Heavy even if it is
        permissively aggregated in an Aggregation Group which is a Top-Heavy
        Group.

         21.05 CALCULATION OF TOP-HEAVY RATIOS. A plan shall be Top-Heavy and an
Aggregation Group shall be a Top-Heavy Group with respect to any Plan Year as of
the Determination Date if the sum as of the Determination Date of the Cumulative
Accrued Benefits and the Cumulative Accounts of Employees who are Key Employees
for the Plan Year exceeds 60 percent (60%) of a similar sum determined for all
Employees, excluding former Key Employees.

         21.06    CUMULATIVE ACCOUNTS AND CUMULATIVE ACCRUED BENEFITS.

        (a) The Cumulative Accounts and Cumulative Accrued Benefits for any
        Employee shall be determined in accordance with paragraphs (b) through
        (e) of this Section 21.06.

        (b) Cumulative Account shall mean the sum of the amount of an Employee's
        accounts under a defined contribution plan (for an unaggregated plan) or
        under all defined contribution plans included in an Aggregation Group
        (for aggregated plans) determined as of the most recent plan Valuation
        Date within a 12-month period ending on the Determination Date,
        increased by any allocations due after such Valuation Date and before
        the Determination Date.

        (c) Cumulative Accrued Benefit means the sum of the present value of an
        Employee's accrued benefits under a defined benefit plan (for an
        unaggregated plan) or under all defined benefit plans included in an
        Aggregation Group (for aggregated plans), determined under the actuarial
        assumptions set forth in such plan or plans, as of the most recent plan
        Valuation Date within a 12-month period ending on the Determination Date
        as if the Employee voluntarily terminated service as of such Valuation
        Date.

        (d) Accounts and benefits shall be calculated to include all amounts
        attributable to both Matching Allocations and Employee contributions but
        excluding amounts attributable to voluntary deductible Employee
        contributions.


                                       50
<PAGE>   56

        (e) Accounts and benefits shall be increased by the aggregate
        distributions during the five-year period ending on the Determination
        Date made with respect to an Employee under the plan or plans as the
        case may be or under a terminated plan which, if it had not been
        terminated, would have been required to be included in the Aggregation
        Group.

        (f)      Rollovers and direct plan-to-plan transfers shall be handled
                 as follows:

                 (i) If the transfer is initiated by the Employee and made from
                 a plan maintained by one Employer to a plan maintained by
                 another Employer, the transferring plan continues to count the
                 amount transferred under the rules for counting distributions.
                 The receiving plan does not count the amount if accepted after
                 December 31, 1983, but does count it if accepted prior to
                 December 31, 1983.

                 (ii) If the transfer is not initiated by the Employee or is
                 made between plans maintained by the Employers, the
                 transferring plan shall no longer count the amount transferred
                 and the receiving plan shall count the amount transferred.

                 (iii) For purposes of this subsection (f), all Employers
                 aggregated under the rules of Code Sections 414(b), (c) and (m)
                 shall be considered a single employer.

         21.07    OTHER DEFINITIONS.

        (a) Solely for purposes of this Section 21, the definitions in
        paragraphs (b) through (i) of this Section 21.07 shall apply, to be
        interpreted in accordance with the provisions of Code Section 416 and
        the regulations thereunder.

        (b) AGGREGATION GROUP means a plan or group of plans which included all
        plans maintained by the Employer in which a Key Employee is a
        participant or which enables any plan in which a Key Employee is a
        participant to meet the requirements of Code Section 401(a)(4) or Code
        Section 410, as well as all other plans selected by the Company for
        permissive aggregation, the inclusion of which would not prevent the
        group of plans from continuing to meet the requirements of such Code
        sections.

        (c) DETERMINATION DATE means, with respect to any Plan Year, the last
        day of the preceding Plan Year.

        (d) EMPLOYEE means any person employed by an Employer and shall also
        include any Beneficiary of such persons, provided that the requirements
        of Sections 21.02 and 21.03 shall not apply to any person included in a
        unit of Employees covered by an agreement which the Secretary of Labor
        finds to be a collective bargaining agreement between Employee
        representatives and one or more Employers if there is evidence that
        retirement benefits were the subject of good faith bargaining between
        such Employee representatives and such Employer or Employers.

        (e) EMPLOYER means any corporation which is a member of a controlled
        group of corporations (as defined in Code Section 414(b)) which includes
        the Company or any
                                       51
<PAGE>   57
        trades or businesses (whether or not incorporated) which are under
        common control (as defined in Code Section 414(c)) with the Company, or
        a member of an affiliated service group (as defined in Code Section
        414(m)) which includes the Company,

        (f) KEY EMPLOYEE means any Employee or former Employee who is, at any
        time during the Plan Year, or was, during any one of the four preceding
        Plan Years any one or more of the following: (1) an officer of an
        Employer who has annual Pay of more than 50% of the amount in effect
        under Code Section 415(b)(1)(A) for such Plan Year, unless fifty (50)
        other such officers have higher annual Pay; (2) one of the 10 persons
        employed by an Employer having annual Pay greater than the limitation in
        effect under Code Section 415(c)(1)(A), and owning (or considered as
        owning within the meaning of Code Section 318) the largest interests in
        the Employers (if two Employees have the same interest, the one with the
        greater Compensation shall be treated as owning the larger interest);
        (3) any person owning (or considered as owning within the meaning of the
        Code Section 318) more than five percent of the outstanding stock of an
        Employer or stock possessing more than five percent of the total
        combined voting power of such stock; (4) a person who would be described
        in subsection (3) above if "one percent" were substituted for "five
        percent" each place it appears in subsection (3) above, and who has
        annual Pay of more than $150,000 (for purposes of determining ownership
        under this subsection, Code Section 318(a)(2)(C) shall be applied by
        substituting "five percent" for "50 percent" and the rules of
        subsections (b), (c) and (m) of Code Section 414 shall not apply).

                  IN WITNESS WHEREOF, the Company has caused this Plan to be
        executed by a duly authorized officer this ____________ day of
        __________________, 2000.

                                               PAYLESS SHOESOURCE, INC.



                                               By:______________________________


                                       52