<PAGE>

                                                                   EXHIBIT 10.12

                           CHANGE OF CONTROL AGREEMENT

                  AGREEMENT, dated as of the ____ day of ______, 200_ (this
"Agreement"), by and between Payless ShoeSource, Inc., a Delaware corporation
(the "Company"), and __________ (the "Executive").

                  WHEREAS, the Board of Directors of the Company (the "Board"),
has determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined herein). The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the current
Company and in the event of any threatened or pending Change of Control, and to
provide the Executive with compensation and benefits arrangements upon a Change
of Control that ensure that the compensation and benefits expectations of the
Executive will be satisfied and that are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.

                  NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

                  SECTION 1.        CERTAIN DEFINITIONS. (a) "Effective Date"
means the first date during the Change of Control Period (as defined herein) on
which a Change of Control occurs. Notwithstanding anything in this Agreement to
the contrary, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (1) was at the request of a third party that has taken
steps reasonably calculated to effect a Change of Control or (2) otherwise arose
in connection with or anticipation of a Change of Control, then "Effective Date"
means the date immediately prior to the date of such termination of employment.
Further, notwithstanding anything in this Agreement to the contrary, if a
Potential Change of Control occurs and if the Executive's employment with the
Company is terminated as provided in Section 5(e), then "Effective Date" means
the date immediately prior to the date of such termination of employment.

                  (b)      "Change of Control Period" means the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that, commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof, the "Renewal Date"), unless previously terminated, the
Change of Control Period shall be automatically extended so as to terminate
three years from such Renewal Date, unless, at least 60 days prior to the
Renewal Date, the Company shall give notice to the Executive that the Change of
Control Period shall not be so extended.

                  (c)      "affiliated company" means any company controlled by,
controlling or under common control with the Company.

                  (d)      "Change of Control" means:

<PAGE>

                  (1)      The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that, for purposes of this Section 1(d), none
of the following shall constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any affiliated company, (iv) any acquisition by any
corporation pursuant to a transaction that complies with Sections 1(d)(3)(A),
1(d)(3)(B) and 1(d)(3)(C) or (v) any acquisition by the Company which, by
reducing the number of shares of Outstanding Company Common Stock or Outstanding
Company Voting Securities, increases the proportionate number of shares of
Outstanding Company Common Stock or Outstanding Company Voting Securities
beneficially owned by any Person to 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
if such Person shall thereafter become the beneficial owner of any additional
shares of Outstanding Company Common Stock or Outstanding Company Voting
Securities and beneficially owns 20% or more of either the Outstanding Company
Common Sock or the Outstanding Company Voting Securities, then such additional
acquisition shall constitute a Change of Control; or

                  (2)      Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or

                  (3)      Consummation of a reorganization, merger,
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities that were the beneficial owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50%, respectively, of the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation that, as a result of such transaction, owns
the Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation resulting from

                                       2

<PAGE>

such Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then-outstanding voting
securities of such corporation, except to the extent that such ownership existed
prior to the Business Combination, and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement or of the action of the Board providing for such Business
Combination; or

                  (4)      Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.

                  (e)      "Potential Change of Control" means:

                  (1)      At least two directors of a particular class of
directors, as of the date hereof, are replaced for any reason by directors who
are not members of the Incumbent Board at the time of such replacement;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or

                  (2)      The Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change of Control has occurred.

                  SECTION 2.        EMPLOYMENT PERIOD. The Company hereby agrees
to continue the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company, subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
third anniversary of the Effective Date (the "Employment Period").

                  SECTION 3.        TERMS OF EMPLOYMENT. (a) POSITION AND
DUTIES. (1) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the office where the Executive
was employed immediately preceding the Effective Date or at any other location
less than 35 miles from such office.

                  (2)      During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the

                                       3

<PAGE>

Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that, to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.

                  (b)      COMPENSATION. (1) BASE SALARY. During the Employment
Period, the Executive shall receive an annual base salary (the "Annual Base
Salary"), which Annual Base Salary shall be paid at a monthly rate at least
equal to 12 times the highest monthly base salary paid or payable, including any
base salary that has been earned but deferred, to the Executive by the Company
and the affiliated companies in respect of the 12-month period immediately
preceding the month in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed at least annually, beginning no
more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date. Any increase in the Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. The Annual Base Salary shall not be reduced after any such increase
and the term "Annual Base Salary" shall refer to the Annual Base Salary as so
increased.

                  (2)      ANNUAL BONUS. In addition to the Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's highest bonus under the Company's annual and long-term
incentive plans, or any comparable bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the Effective Date
(annualized, in the event that the Executive was not employed by the Company for
the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.

                  (3)      INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies, and programs
applicable generally to other peer executives of the Company and the affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and the affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and the affiliated
companies.

                                       4

<PAGE>

                  (4)      WELFARE BENEFIT PLANS. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and the
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and the affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits that are less favorable, in the aggregate, than the most favorable
of such plans, practices, policies and programs in effect for the Executive at
any time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and the affiliated
companies.

                  (5)      EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and the affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and the affiliated companies.

                  (6)      FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and the
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and the affiliated companies.

                  (7)      OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and the affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and the affiliated
companies.

                  (8)      VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and the affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and the affiliated companies.

                  SECTION 4.        TERMINATION OF EMPLOYMENT. (a) DEATH OR
DISABILITY. The Executive's employment shall terminate automatically if the
Executive dies during the

                                       5

<PAGE>

Employment Period. If the Company determines in good faith that the Disability
(as defined herein) of the Executive has occurred during the Employment Period
(pursuant to the definition of "Disability"), it may give to the Executive
written notice in accordance with Section 11(b) of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. "Disability" means the absence of the
Executive from the Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to mental or
physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.

                  (b)      CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. "Cause" means:

                  (1)      the willful and continued failure of the Executive to
         perform substantially the Executive's duties with the Company or any
         affiliated company (other than any such failure resulting from
         incapacity due to physical or mental illness), after a written demand
         for substantial performance is delivered to the Executive by the Board
         or the Chief Executive Officer of the Company that specifically
         identifies the manner in which the Board or the Chief Executive Officer
         of the Company believes that the Executive has not substantially
         performed the Executive's duties, or

                  (2)      the willful engaging by the Executive in illegal
         conduct or gross misconduct that is materially and demonstrably
         injurious to the Company.

For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.

                  (C)      GOOD REASON. The Executive's employment may be
terminated by the Executive for Good Reason. "Good Reason" means:

                                       6

<PAGE>

                  (1)      the assignment to the Executive of any duties
         inconsistent in any respect with the Executive's position (including
         status, offices, titles and reporting requirements), authority, duties
         or responsibilities as contemplated by Section 3(a), or any other
         action by the Company that results in a diminution in such position,
         authority, duties or responsibilities, excluding for this purpose an
         isolated, insubstantial and inadvertent action not taken in bad faith
         and that is remedied by the Company promptly after receipt of notice
         thereof given by the Executive;

                  (2)      any failure by the Company to comply with any of the
         provisions of Section 3(b), other than an isolated, insubstantial and
         inadvertent failure not occurring in bad faith and that is remedied by
         the Company promptly after receipt of notice thereof given by the
         Executive;

                  (3)      the Company's requiring the Executive to be based at
         any office or location other than as provided in Section 3(a)(1)(B) or
         the Company's requiring the Executive to travel on Company business to
         a substantially greater extent than required immediately prior to the
         Effective Date;

                  (4)      any purported termination by the Company of the
         Executive's employment otherwise than as expressly permitted by this
         Agreement; or

                  (5)      any failure by the Company to comply with and satisfy
         Section 10(c).

                  For purposes of this Section 4(c), any good faith
determination of Good Reason made by the Executive shall be conclusive. Anything
in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of a Change of Control shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.

                  (d)      NOTICE OF TERMINATION. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 11(b).
"Notice of Termination" means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (3) if the Date of Termination (as defined herein)
is other than the date of receipt of such notice, specifies the Date of
Termination (which Date of Termination shall be not more than 30 days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance that contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's respective rights hereunder.

                  (e)      DATE OF TERMINATION. "Date of Termination" means (1)
if the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified in the Notice of Termination, as the case may be, (2)
if the Executive's employment is terminated by the

                                       7

<PAGE>

Company other than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such termination, and (3) if
the Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.

                  SECTION 5.        OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the
Employment Period, the Company terminates the Executive's employment other than
for Cause or Disability or the Executive terminates employment for Good Reason:

                  (1)      the Company shall pay to the Executive, in a lump sum
         in cash within 30 days after the Date of Termination, the aggregate of
         the following amounts:

                           (A)      the sum of (i) the Executive's Annual Base
                  Salary through the Date of Termination to the extent not
                  theretofore paid, (ii) the product of (x) the higher of (I)
                  the Recent Annual Bonus and (II) the Annual Bonus paid or
                  payable, including any bonus or portion thereof that has been
                  earned but deferred (and annualized for any fiscal year
                  consisting of less than 12 full months or during which the
                  Executive was employed for less than 12 full months), for the
                  most recently completed fiscal year during the Employment
                  Period, if any (such higher amount, the "Highest Annual
                  Bonus") and (y) a fraction, the numerator of which is the
                  number of days in the current fiscal year through the Date of
                  Termination and the denominator of which is 365, and (iii) any
                  compensation previously deferred by the Executive (together
                  with any accrued interest or earnings thereon) and any accrued
                  vacation pay, in each case, to the extent not theretofore paid
                  (the sum of the amounts described in subclauses (i), (ii) and
                  (iii), the "Accrued Obligations"); and

                           (B)      the amount equal to the product of (i) three
                  and (ii) the sum of (x) the Executive's Annual Base Salary and
                  (y) the Highest Annual Bonus; and

                           (C)      in lieu of the receipt of shares of common
                  stock of the Company ("Common Stock") issuable upon the
                  exercise of outstanding options (other than stock options
                  qualifying as incentive stock options ("ISOs") under Section
                  422A of the Internal Revenue Code of 1986, as amended (the
                  "Code") which ISOs were granted on or prior to April 29, 1996)
                  ("Options"), stock appreciation rights ("SARs") and
                  performance units ( "Units"), if any (the Options, SARs and
                  Units shall be referred to herein collectively as the
                  "Awards"), granted to the Executive under the Company's 1996
                  Stock Incentive Plan or any successor or substitute plans
                  thereto, an amount equal to the product of (i) the excess of
                  (x) in the case of an ISO granted after April 29, 1996, the
                  closing price of Common Stock as reported on the New York
                  Stock Exchange on the Date of Termination or the last full
                  trading day immediately prior to the Date of Termination (or,
                  if not listed on such exchange, on a nationally recognized
                  exchange or quotation system on which trading value in the
                  Common Stock is highest) (the "Closing Price") and, in the
                  case of all other Awards, the higher of the Closing Price and
                  the highest per share price for Common Stock actually paid in
                  connection with any Change of

                                       8

<PAGE>

                  Control, over (y) the per share exercise price (if any) of
                  each Award, and (2) the number of shares of Common Stock
                  covered by each such Award, whether or not such Award is
                  exercisable on the Date of Termination; and

                  (2)      for three years after the Executive's Date of
         Termination, or such longer period as may be provided by the terms of
         the appropriate plan, program, practice or policy, the Company shall
         continue benefits to the Executive and/or the Executive's family at
         least equal to those that would have been provided to them in
         accordance with the plans, programs, practices and policies described
         in Section 3(b)(4) if the Executive's employment had not been
         terminated or, if more favorable to the Executive, as in effect
         generally at any time thereafter with respect to other peer executives
         of the Company and the affiliated companies and their families,
         provided, however, that, if the Executive becomes re-employed with
         another employer and is eligible to receive medical or other welfare
         benefits under another employer provided plan, the medical and other
         welfare benefits described herein shall be secondary to those provided
         under such other plan during such applicable period of eligibility. If
         the Executive has attained age 50 on the Date of Termination and if,
         with five additional years of age and service beyond the Executive's
         age and years of service as of the Date of Termination, the Executive
         would have been entitled to receive any other benefits under the
         Company's post-retirement programs as in effect immediately prior to
         the Effective Date, then the Executive shall be entitled to such
         benefits as if the Executive had attained those five additional years
         of age and been employed by the Company for those five additional years
         of service, as of the Date of Termination, and such benefits shall
         commence immediately and be determined and provided under the terms of
         such plans as in effect immediately prior to the Effective Date,
         without regard to any amendments subsequent to the Effective Date that
         adversely affect the rights of participants thereunder; and

                  (3)      if the Executive has attained age 50 but has not
         attained age 55 on the Date of Termination, then for purposes of
         determining benefits under Section 3.2(c) of the Company's
         Supplementary Retirement Plan or any successor plan, as in effect
         immediately prior to the Effective Date (the "Supplemental Plan"), the
         Executive shall be deemed to be entitled to the benefits under Section
         3.2(c) of the Supplemental Plan if, during the five-year period
         following the Effective Date, the Company terminates the Executive's
         employment other than for Cause or the Executive terminates his
         employment for Good Reason (it being expressly agreed that,
         notwithstanding anything to the contrary contained herein, the rights
         under this Section 5(a)(3) shall survive for the five-year period
         following the Effective Date); and

                  (4)      the Company shall, at its sole expense as incurred,
         and subject to a maximum limit equal to three (3) times the Executive's
         monthly compensation, provide the Executive with outplacement services
         the scope and provider of which shall be selected by the Executive in
         the Executive's sole discretion; and

                  (5)      to the extent not theretofore paid or provided, the
         Company shall timely pay or provide to the Executive any other amounts
         or benefits required to be paid or provided or that the Executive is
         eligible to receive under any plan, program, policy or

                                       9

<PAGE>

         practice or contract or agreement of the Company and the affiliated
         companies (such other amounts and benefits, the "Other Benefits").

                  (b)      DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of the Other Benefits. The
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of the Other Benefits, the term "Other Benefits"
as utilized in this Section 5(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and the
affiliated companies to the estates and beneficiaries of peer executives of the
Company and the affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and the affiliated companies and their beneficiaries.

                  (c)      DISABILITY. If the Executive's employment is
terminated by reason of the Executive's Disability during the Employment Period,
this Agreement shall terminate without further obligations to the Executive,
other than for payment of Accrued Obligations and the timely payment or
provision of the Other Benefits. The Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination. With
respect to the provision of the Other Benefits, the term "Other Benefits" as
utilized in this Section 5(c) shall include, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable of those generally provided by the Company and
the affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer executives
and their families at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other peer
executives of the Company and the affiliated companies and their families.

                  (d)      CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (1) the Executive's Annual Base Salary
through the Date of Termination, (2) the amount of any compensation previously
deferred by the Executive, and (3) the Other Benefits, in each case, to the
extent theretofore unpaid. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for the Accrued Obligations and the timely payment or provision of the
Other Benefits. In such case, all the Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.

                  (e)      OBLIGATIONS OF THE COMPANY AND THE EXECUTIVE UPON A
POTENTIAL CHANGE OF CONTROL. If, during the Change of Control Period, a
Potential Change of Control

                                       10

<PAGE>

occurs, the Executive hereby agrees to remain in the employ of the Company, on
the same basis and terms and conditions as the Executive is employed by the
Company immediately prior to the Potential Change of Control, for the 12-month
period following such Potential Change of Control. If the Executive's employment
is terminated by the Company other than for Cause, death or Disability, or the
Executive terminates his employment for Good Reason, during the 12-month period
following the occurrence of a Potential Change of Control, without regard to
whether a Change of Control has actually occurred or is likely to occur, the
Executive's employment shall be deemed to have been terminated by the Company in
anticipation of a Change of Control, and the Executive shall be entitled to
receive the payments and benefits provided in Section 5(a) hereof.

                  SECTION 6.        NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or the affiliated companies and for which the Executive may qualify, nor,
subject to Section 11(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or the affiliated companies. Amounts that are vested benefits or that
the Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or the affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement,
except as explicitly modified by this Agreement.

                  SECTION 7.        FULL SETTLEMENT. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, or other claim, right or action that the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
and such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses that the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus, in each case, interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code.

                  SECTION 8.        CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

                  (a)      Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company or the affiliated
companies to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise but determined without regard to any additional payments required
under this Section 8) (the "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, collectively, the "Excise Tax"), then the

                                       11

<PAGE>

Executive shall be entitled to receive an additional payment (the "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 8(a), if it shall be determined that the Executive is entitled to the
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount that could be paid to the Executive such that the receipt of the Payments
would not give rise to any Excise Tax (the "Reduced Amount"), then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.

                  (b)      Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's independent public accountant or such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
that shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 8, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made (the "Underpayment"),
consistent with the calculations required to be made hereunder. In the event the
Company exhausts its remedies pursuant to Section 8(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

                  (c)      The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that the Company desires to contest such claim,
the Executive shall:

                                       12

<PAGE>

                  (1)      give the Company any information reasonably requested
         by the Company relating to such claim,

                  (2)      take such action in connection with contesting such
         claim as the Company shall reasonably request in writing from time to
         time, including, without limitation, accepting legal representation
         with respect to such claim by an attorney reasonably selected by the
         Company,

                  (3)      cooperate with the Company in good faith in order
         effectively to contest such claim, and

                  (4)      permit the Company to participate in any proceedings
         relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest, and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that, if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and provided, further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which the Gross-Up
Payment would be payable hereunder, and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

                  (d)      If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 8(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven

                                       13

<PAGE>

and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.

                  SECTION 9.        CONFIDENTIAL INFORMATION. The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or the
affiliated companies, and their respective businesses, which information,
knowledge or data shall have been obtained by the Executive during the
Executive's employment by the Company or the affiliated companies and which
information, knowledge or data shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those persons designated by the Company. In no event shall an asserted
violation of the provisions of this Section 9 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.

                  SECTION 10.       SUCCESSORS. (a) This Agreement is personal
to the Executive, and, without the prior written consent of the Company, shall
not be assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.

                  (b)      This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

                  (c)      The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. "Company" means the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid that assumes and agrees to
perform this Agreement by operation of law or otherwise.

                  SECTION 11.       MISCELLANEOUS. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified other than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.

                  (b)      All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

                                       14

<PAGE>

                  if to the Executive:
                  Name:____________
                  Payless ShoeSource, Inc.
                  3231 SE Sixth Avenue
                  Topeka, Kansas 66607

                  if to the Company:
                  Payless ShoeSource, Inc.
                  3231 SE Sixth Avenue
                  Topeka, Kansas 66607
                  Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

                  (c)      The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

                  (d)      The Company may withhold from any amounts payable
under this Agreement such United States federal, state or local or foreign taxes
as shall be required to be withheld pursuant to any applicable law or
regulation.

                  (e)      The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.

                  (f)      From and after the Effective Date, this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof; provided, however, in no event shall this Agreement
supersede or replace the Indemnification Agreement between the Executive and the
Company, dated as of March 24, 2003.

                  IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from the Board, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.

                                       15

<PAGE>

                                                  ______________________________
                                                  Name:

                                                  PAYLESS SHOESOURCE, INC.

                                                  By____________________________
                                                  Name:
                                                  Title:

                                       16