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                                                                    EXHIBIT 10.8

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

  As Amended and Restated Effective January 1, 2003, or as otherwise specified

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                                TABLE OF CONTENTS

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                                                                                                                      PAGE
<S>                                                                                                                   <C>
SECTION 1 - 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...............................................................................................       4
     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.....................................................................................       5
     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...........................................................................       6
     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.............................................................................................       7
     1.47    Unit................................................................................................       7
     1.48    Unit Value..........................................................................................       7
     1.49    Valuation Date......................................................................................       7
     1.50    Year of Service.....................................................................................       7
</TABLE>

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<TABLE>
<S>                                                                                                                    <C>
     1.51    Vesting Service.....................................................................................       7
SECTION 2 - Membership...........................................................................................       9
     2.01    Conditions of Eligibility...........................................................................       9
     2.02    Re-Employment.......................................................................................      10

SECTION 3 - 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 - 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...................................................................      17
     4.04    Limitations On And Distributions Of After-Tax Employee Contributions And Matching
             Contributions For Highly Compensated Employees......................................................      17
     4.05    Limitations On Multiple Use of Alternative Limitation...............................................      18

SECTION 5 - Investment Provisions................................................................................      20
     5.01    Investment Funds....................................................................................      20
     5.02    Investment Direction................................................................................      20

SECTION 6 - Accounts.............................................................................................      22
     6.01    Member Accounts.....................................................................................      22
     6.02    Company Accounts....................................................................................      22
     6.03    Maintenance of Accounts.............................................................................      22
     6.04    Valuation of Accounts...............................................................................      22
     6.05    Member Statements...................................................................................      22
     6.06    Shares of Payless ShoeSource, Inc.  in the Payless Common Stock Fund................................      22
     6.07    Vesting in Member and Company Accounts..............................................................      23

SECTION 7 - Expenses.............................................................................................      27
     7.01    Administrative Expenses.............................................................................      27

SECTION 8 - Withdrawals During Employment........................................................................      28
     8.01    Withdrawals Prohibited Unless Specifically Authorized...............................................      28
     8.02    Authorized Withdrawals..............................................................................      28

SECTION 9 - Benefits Upon Retirement, Death, Disability or Termination of Employment.............................      30
     9.01    Benefits............................................................................................      30
     9.02    Beneficiary.........................................................................................      30

SECTION 10 - Payment of Benefits.................................................................................      31
     10.01     Time of Payment...................................................................................      31
     10.02     Form of Payment...................................................................................      32
     10.03     Indirect Payment of Benefits......................................................................      32
     10.04     Inability to Find Member..........................................................................      32
     10.05     Commencement of Benefit Distribution to Members...................................................      32
     10.06     Commencement of Benefit Distribution to Beneficiary...............................................      36
     10.07     Commencement of Benefit Distribution to Alternate Payee...........................................      36
</TABLE>

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<S>                                                                                                                    <C>
SECTION 11 - Permitted Rollover of Plan Distributions............................................................      37
     11.01     Rollover to Other Plans...........................................................................      37
     11.02     Rollover from Other Plans.........................................................................      37
     11.03     Definitions.......................................................................................      38

SECTION 12 - Loans...............................................................................................      40
   12.01     Availability of Loans...............................................................................      40
   12.02     Amount of Loans.....................................................................................      40
   12.03     Terms of Loans......................................................................................      40

SECTION 13 - Limit on Contributions to the Plan..................................................................      42
     13.01     Limit on Contributions............................................................................      42
     13.02     Adjustment for Excessive Annual Additions.........................................................      42

SECTION 14 - Administration of the Plan..........................................................................      44
     14.01     Plan Administrator................................................................................      44
     14.02     Delegation of Authority...........................................................................      44
     14.03     Committee and Subcommittees.......................................................................      44
     14.04     Accounts and Reports..............................................................................      45
     14.05     Non-Discrimination................................................................................      46

SECTION 15 - Management of the Trust Fund........................................................................      47
     15.01     Use of the Trust Fund.............................................................................      47
     15.02     Trustees..........................................................................................      47
     15.03     Investments and Reinvestments.....................................................................      47

SECTION 16 - Certain Rights and Obligations of Employers and Members.............................................      49
     16.01     Disclaimer of Employer Liability..................................................................      49
     16.02     Employer-Associate Relationship...................................................................      49
     16.03     Binding Effect....................................................................................      49
     16.04     Corporate Action..................................................................................      49
     16.05     Claim and Appeal Procedure........................................................................      49

SECTION 17 - Non-Alienation of Benefits..........................................................................      51
     17.01     Provisions with Respect to Assignment and Levy....................................................      51
     17.02     Alternate Application.............................................................................      51

SECTION 18 - Amendments..........................................................................................      52
     18.01     Company's Rights..................................................................................      52
     18.02     Procedure to Amend................................................................................      52
     18.03     Provision Against Diversion.......................................................................      52

SECTION 19 - Termination.........................................................................................      53
     19.01     Right to Terminate................................................................................      53
     19.02     Withdrawal of an Employer.........................................................................      53
     19.03     Distribution in Event of Termination of Trust.....................................................      53
     19.04     Administration in Event of Continuance of Trust...................................................      53
     19.05     Merger, Consolidation or Transfer.................................................................      53

SECTION 20 - Construction........................................................................................      54
     20.01     Applicable Law....................................................................................      54
     20.02     Gender and Number.................................................................................      54
</TABLE>

                                       iii

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<TABLE>
<S>                                                                                                                    <C>
SECTION 21 - Top-Heavy Requirements..............................................................................      55
     21.01     Generally.........................................................................................      55
     21.02     Minimum Allocations...............................................................................      55
     21.03     Participants Under Defined Benefit Plans..........................................................      55
     21.04     Determination of Top Heaviness....................................................................      55
     21.05     Calculation of Top-Heavy Ratios...................................................................      56
     21.06     Cumulative Accounts and Cumulative Accrued Benefits...............................................      56
     21.07     Other Definitions.................................................................................      57
</TABLE>

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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. Effective March 20, 2000, the
Company amended and restated 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.

         Effective January 1, 2002, the Company amended and restated the Plan to
effect the adoption of mandatory and certain permissive provisions of the
Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). The EGTRRA
amendments to the Plan are intended to be made in good faith compliance with the
requirements of EGTRRA and are to be construed in accordance with EGTRRA and
guidance issued thereunder. While the EGTRRA amendments are generally effective
January 1, 2002, some of the amendments are effective May 1, 2002, as indicated
below. In addition, effective May 1, 2002, the Plan was amended to permit Full
Time Associates to participate in the Plan upon the completion of 90 days of
employment service with a participating Employer or other member of the Group.
Effective January 1, 2003 the Company again amended and restated the Plan to
reflect the terms of the final Treasury Regulations governing required minimum
distributions. Other amendments made herein are effective on the dates as
specified.

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

                                       1

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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).

                                       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.

                                       3

<PAGE>

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

         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.

                                       4

<PAGE>

         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.

         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,

                                       5

<PAGE>

amounts earned before an individual becomes a Member, 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 $200,000 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.

         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
qualification for disability 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.

                                       6

<PAGE>

         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.

         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.

                                       7

<PAGE>

         (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:

                  (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.

                                       8

<PAGE>

                                    SECTION 2

                                   MEMBERSHIP

         2.01 CONDITIONS OF ELIGIBILITY.

         (a) Each Associate who on April 30, 2002 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.

                  Notwithstanding the foregoing, a Full Time Associate shall be
         eligible to make Member Contributions pursuant to Section 4 as of the
         first day of the month coincident with or following the date he has
         completed 90 days of employment with the Employer and attained age 21.
         For the purposes of the preceding sentence, a "Full Time Associate" is
         an Associate classified on the Employer's records as a Full Time
         Associate. In many locations, this means the Associate is normally
         scheduled to work 32 or more hours per week. However, the Associate's
         classification on the Employer's records, and not the actual number of
         hours worked in any period, determines Full Time status.

         (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) 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

                                       9

<PAGE>

         Accounts shall continue to be revalued as of each succeeding Valuation
         Date pursuant to Section 6.04.

         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>

                                    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) and 414(v) 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

                                       11

<PAGE>

or more of the Investment Funds described in Section 5.01 and in the percentages
designated by 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>

                                    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 (in whole percentage points) equal to not less than 1% nor more
         than 15% (effective May 1, 2002, 75%) 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>

                  (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. Effective
                  January 1, 1997, if Before-Tax Contributions are made to
                  another plan or plans, this Plan and such other plans must be
                  aggregated for purposes of Section 410(b) of the Code (other
                  than the average benefit percentage test).

         (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.

                                       14

<PAGE>

         (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 $11,000 (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 $11,000 limit (as adjusted) the Committee can
         direct that all or any portion of such 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). Effective May 1,
         2002, all employees who are eligible to make elective deferrals under
         this Plan and who have attained age 50 before the close of the Plan
         Year shall be eligible to make catch-up contributions in accordance
         with, and subject to the limitations of, section 414(v) of the Code.
         Such catch-up contributions shall not be taken into account for
         purposes of the provisions of the Plan implementing the required
         limitations of sections 402(g) and 415 of the Code. The Plan shall not
         be treated as failing to satisfy the provisions of the Plan
         implementing the requirements of sections 401(k)(3), 401(k)(11),
         401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the
         making of such catch-up contributions.

         (i) The Committee shall provide each new Member a notice that explains
         the procedure for making Before-Tax Contributions under Sections
         4.01(b) and 2.01(c), including the Member's right to elect to make no
         Before-Tax Contribution from his or her Pay and the manner in which the
         amount of such contributions may be changed. In addition, the Committee
         shall provide an annual notice to each Member indicating his or her
         Before-Tax Contributions as a percentage of Pay, describing the right
         to alter and the procedure for changing such percentage, and explaining
         the timing for implementation of any such change.

         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

                                       15

<PAGE>

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.

                  Effective January 1, 1997, if for any Plan Year, the Plan
satisfies neither of the tests set forth in Code Section 401(k)(3), the Trustee
shall be directed by the Committee to return to each Highly Compensated Employee
his or her portion of the excess contributions (plus the income or less the loss
allocable to such excess contributions) for such Plan Year within 12 months
after the last day of such Plan Year. A Highly Compensated Employee shall
forfeit any Matching Contributions which were contributed on account of any
portion of the excess contributions even if such Matching Contributions are
vested. Each Highly Compensated Employee's portion of the excess contributions
for a Plan Year shall be determined under a two step process. First, the
aggregate amount of excess contributions shall be calculated. This shall be done
by reducing the actual deferral percentages of those Highly Compensated
Employees with the highest actual deferral percentages to the extent necessary
but not below the next highest level of actual deferral percentages. This
process shall be repeated, to the extent necessary, until the actual deferral
percentages for the group of Highly Compensated Employees satisfies one of the
tests set forth in Code Section 401(k)(3). The aggregate amount of excess
contributions shall be calculated by multiplying the actual deferral percentage
reduction for each Highly Compensated Employee by his or her compensation
(within the meaning of Code Section 414(s)) for the Plan Year and adding the
product of each such multiplication. Second, the aggregate amount of excess
contributions to be returned shall be allocated by reducing the Before-Tax
Contributions of those Highly Compensated Employees with the highest amount of
Before-Tax Contributions to the extent necessary but not below the next highest
amount of Before-Tax Contributions. This process shall be repeated, to the
extent necessary, until all excess contributions to be returned shall be
allocated among the Highly Compensated Employees. The income or loss allocable
to a Highly Compensated Employee's portion of the excess contribution will be
determined under such reasonable method as the Committee shall establish,
provided the method does not discriminate in favor of Highly Compensated
Employees, is used consistently for all Members and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for
allocating income to Members' accounts.

                  If the Trustee is required to distribute both elective
deferrals and excess contributions for a Plan Year, the Trustee shall (a)
calculate and distribute elective deferrals before determining the excess
contributions to be distributed to Highly Compensated Employees; (b) calculate
the actual deferral percentage including the amount of excess deferrals
distributed pursuant to (a) above; and (c) distribute excess contributions to
Members by reducing the excess contributions distributed to a Member by the
amount of excess elective deferrals distributed to such Member.

                  The actual contribution percentage and the actual deferral
percentage of a Highly Compensated Employee who is eligible to participate in
two or more qualified plans which have cash or deferred arrangements or matching
contributions or after-tax contributions features (other than an employee stock
ownership plan) maintained by the Employer or a member of the Group shall be
calculated by treating all such cash or deferred arrangements in which the
Highly Compensated Employee is eligible to participate as one cash or deferred
arrangement for purposes

                                       16

<PAGE>

of calculating the actual deferral percentage for such Highly Compensated
Employee, and all such features in which the Highly Compensated Employee is
eligible to participate as one feature for purposes of calculating the actual
contribution percentage for such Highly Compensated Employee with respect to
years ending within the same calendar year.

         4.03 DISTRIBUTIONS OF EXCESS DEFERRALS.

                  If a Member's elective deferrals for any calendar year exceed
         $10,500 (or such higher amount prescribed under Section 402(g) of the
         Code), then the Member may file an election form prescribed by the
         Committee with the Employer/Company designating in writing the amount
         of the Member's Excess Before-Tax Deferrals to be distributed from this
         Plan. Any such election form must be filed with the Committee no later
         than the first March 1 following the close of such calendar year in
         order for the Committee to act on it. If such an election form is
         timely filed, the Trustee shall distribute to the Member the amount of
         such Excess Before-Tax Deferrals which the Member has allocated to this
         Plan together with any income or less any loss allocable to such amount
         on or before the first April 15 following the close of such calendar
         year. In the case of a Highly Compensated Employee, any matching
         contributions which were contributed on account of the Excess
         Before-Tax Deferrals being distributed will be forfeited, even if such
         matching contributions are vested. For purposes of this Section 4.03,
         the income or loss allocable to such Excess Before-Tax Deferrals will
         be determined under such reasonable method as the Committee shall
         establish, provided the method does not discriminate in favor of Highly
         Compensated Employees, is used consistently for all Members and for all
         corrective distributions under the Plan for the Plan Year, and is used
         by the Plan for allocating income to Members' accounts.

         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

                                       17

<PAGE>

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.

                  Effective January 1, 1997, if for any Plan Year, the Plan
fails to satisfy either of the tests set forth in Code Section 401(m)(2), the
Trustee shall be directed by the Committee to distribute to each Highly
Compensated Employee his or her vested portion (and forfeit the nonvested
portion) of the excess aggregate contributions (plus the income or less the
losses allocable to such excess aggregate contributions) for such Plan Year
within 12 months after the last day of such Plan Year. Each Highly Compensated
Employee's portion of the excess aggregate contributions for a Plan Year shall
be determined under a two step process. First, the aggregate amount of excess
aggregate contributions shall be calculated. This shall be done by reducing the
actual contribution percentages of those Highly Compensated Employees with the
highest actual contribution percentages to the extent necessary but not below
the next highest level of actual contribution percentages. This process shall be
repeated, to the extent necessary, until the actual contribution percentage for
the group of Highly Compensated Employees satisfies one of the tests set forth
in Code Section 401(m)(2). The aggregate amount of excess aggregate
contributions shall be calculated by multiplying the actual contribution
percentage reduction for each Highly Compensated Employee by his or her
compensation (within the meaning of Code Section 414(s)) for the Plan Year and
adding the product of each such multiplication. Second, the aggregate amount of
excess aggregate contributions to be distributed or forfeited shall be allocated
by first reducing any After-Tax Contributions and then any Matching
Contributions made by or on behalf of Highly Compensated Employees with the
highest total amount of After-Tax Contributions and Matching Contributions to
the extent necessary but not below the next highest total amount of After-Tax
Contributions and Matching Contributions. This process shall be repeated, to the
extent necessary, until all excess aggregate contributions to be distributed or
forfeited shall be allocated among the Highly Compensated Employees. A Highly
Compensated Employee whose After-Tax Contributions are determined to be excess
aggregate contributions shall forfeit any Matching Contributions which were
contributed on account of such After-Tax Contributions, even if such Matching
Contributions are vested. The income or loss allocable to a Highly Compensated
Employee's portion of the excess aggregate contributions will be determined
under such reasonable method as the Committee shall establish, provided the
method does not discriminate in favor of Highly Compensated Employees, is used
consistently for all Members and for all corrective distributions under the Plan
for the Plan Year, and is used by the Plan for allocating income to Members'
accounts.

         4.05 LIMITATIONS ON MULTIPLE USE OF ALTERNATIVE LIMITATION.

                  (a) Repeal of Multiple Use Test.

                                    The Multiple use test described in Treasury
                           Regulation section 1.401(m)-2 shall not apply for
                           Plan Years beginning after December 31, 2001.

                                       18

<PAGE>

                  (b) 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.

                                       19

<PAGE>

                                    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.

                                       20

<PAGE>

         (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 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.

                                       21

<PAGE>

                                    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

                                       22

<PAGE>

         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 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

                                       23

<PAGE>

         eligibility for such contributions after August 1, 1997, shall vest
         according to the following schedule:

<TABLE>
<CAPTION>
 Vesting Service                                            Vested Interest
------------------                                          ---------------
<S>                                                         <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).

                                       24

<PAGE>

                  (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):

                           (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
         Associate'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.

                                       25

<PAGE>

         (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 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.

                                       26

<PAGE>

                                    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.

                                       27

<PAGE>

                                    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.

                                       28

<PAGE>

                  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. 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.

                                       29

<PAGE>

                                    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.

                                       30

<PAGE>

                                   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 the required minimum
         distribution age, as determined by law from time to time. 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

                                       31

<PAGE>

         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 Section 6.04. A deferred distribution shall
         be paid when such Member attains the required minimum distribution age
         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 birthday coincident with the Member's required
         minimum distribution age 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 REQUIRED MINIMUM DISTRIBUTIONS.

                  Notwithstanding anything to the contrary contained in the
Plan, the entire interest of a Member will be distributed in accordance with
Code Section 401(a)(9) and the regulations thereunder beginning no later than
the Member's Required Beginning Date. The provisions of this Section will apply
for purposes of determining required minimum distributions for calendar years
beginning with the 2003 calendar year. Notwithstanding the other provisions of
this Section, distributions may be made under a designation made before January
1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal
Responsibility Act (TEFRA) and the provisions of the Plan that relate to section
242(b)(2) of TEFRA.

                  (a) If the Member dies before distributions begin, the
         Member's entire interest will be distributed, or begin to be
         distributed, no later than as follows:

                           (1) If the Member's surviving spouse is the Member's
                  sole designated beneficiary, then distributions to the
                  surviving spouse will begin by December 31

                                       32

<PAGE>

                  of the calendar year immediately following the calendar year
                  in which the Member died, or by December 31 of the calendar
                  year in which the Member would have attained age 70-1/2, if
                  later.

                           (2) If the Member's surviving spouse is not the
                  Member's sole designated beneficiary, then distributions to
                  the designated beneficiary will begin by December 31 of the
                  calendar year immediately following the calendar year in which
                  the Member died.

                           (3) If there is no designated beneficiary as of
                  September 30 of the year following the year of the Member's
                  death, the Member's entire interest will be distributed by
                  December 31 of the calendar year containing the fifth
                  anniversary of the Member's death.

                           (4) If the Member's surviving spouse is the Member's
                  sole designated beneficiary and the surviving spouse dies
                  after the Member but before distributions to the surviving
                  spouse begin, this subsection, other than subsection (a)(1),
                  will apply as if the surviving spouse were the Member.

         For purposes of this subsection, unless subsection (a)(4) applies,
         distributions are considered to begin on the Member's Required
         Beginning Date. If subsection (a)(4) applies, distributions are
         considered to begin on the date distributions are required to begin to
         the surviving spouse under subsection (a)(1). To the extent the Plan
         provides for distributions in the form of annuities, if distributions
         under an annuity purchased from an insurance company irrevocably
         commence to the Member before the Member's Required Beginning Date (or
         to the Member's surviving spouse before the date distributions are
         required to begin to the surviving spouse under subsection (a)(1)), the
         date distributions are considered to begin is the date distributions
         actually commence.

                  (b) Unless the Member's interest is distributed in the form of
         an annuity purchased from an insurance company or in a single sum on or
         before the Required Beginning Date, as of the first distribution
         calendar year distributions will be made in accordance with subsections
         (c) and (d). To the extent the Plan provides for distributions in the
         form of annuities, if the Member's interest is distributed in the form
         of an annuity purchased from an insurance company, distributions
         thereunder will be made in accordance with the requirements of Code
         Section 401(a)(9) and the Treasury regulations.

                  (c) During the Member's lifetime, the minimum amount that will
         be distributed for each distribution calendar year is the lesser of:

                           (1) the quotient obtained by dividing the Member's
                  account balance by the distribution period in the Uniform
                  Lifetime Table set forth in section 1.401(a)(9)-9 of the
                  Treasury regulations, using the Member's age as of the
                  Member's birthday in the distribution calendar year; or

                                       33

<PAGE>

                           (2) if the Member's sole designated beneficiary for
                  the distribution calendar year is the Member's spouse, the
                  quotient obtained by dividing the Member's account balance by
                  the number in the Joint and Last Survivor Table set forth in
                  section 1.401(a)(9)-9 of the Treasury regulations, using the
                  Member's and spouse's attained ages as of the Member's and
                  spouse's birthdays in the distribution calendar year.

         Required minimum distributions will be determined beginning with the
         first distribution calendar year and up to and including the
         distribution calendar year that includes the Member's date of death.

                  (d) If the Member dies on or after the date distributions
         begin and there is a designated beneficiary, the minimum amount that
         will be distributed for each distribution calendar year after the year
         of the Member's death is the quotient obtained by dividing the Member's
         account balance by the longer of the remaining life expectancy of the
         Member or the remaining life expectancy of the Member's designated
         Beneficiary, determined as follows:

                           (1) The Member's remaining life expectancy is
                  calculated using the age of the Member in the year of death,
                  reduced by one for each subsequent year.

                           (2) If the Member's surviving spouse is the Member's
                  sole designated beneficiary, the remaining life expectancy of
                  the surviving spouse is calculated for each distribution
                  calendar year after the year of the Member's death using the
                  surviving spouse's age as of the spouse's birthday in that
                  year. For distribution calendar years after the year of the
                  surviving spouse's death, the remaining life expectancy of the
                  surviving spouse is calculated using the age of the surviving
                  spouse as of the spouse's birthday in the calendar year of the
                  spouse's death, reduced by one for each subsequent calendar
                  year.

                           (3) If the Member's surviving spouse is not the
                  Member's sole designated beneficiary, the designated
                  beneficiary's remaining life expectancy is calculated using
                  the age of the beneficiary in the year following the year of
                  the Member's death, reduced by one for each subsequent year.

         If the Member dies on or after the date distributions begin and there
         is no designated beneficiary as of September 30 of the year after the
         year of the Member's death, the minimum amount that will be distributed
         for each distribution calendar year after the year of the Member's
         death is the quotient obtained by dividing the Member's account balance
         by the Member's remaining life expectancy calculated using the age of
         the Member in the year of death, reduced by one for each subsequent
         year.

                                       34

<PAGE>

                  (e) If the Member dies before the date distributions begin and
         there is a designated beneficiary, the minimum amount that will be
         distributed for each distribution calendar year after the year of the
         Member's death is the quotient obtained by dividing the Member's
         account balance by the remaining life expectancy of the Member's
         designated beneficiary, determined as provided in subsection (d). If
         the Member dies before the date distributions begin and there is no
         designated beneficiary as of September 30 of the year following the
         year of the Member's death, distribution of the Member's entire
         interest will be completed by December 31 of the calendar year
         containing the fifth anniversary of the Member's death. If the Member
         dies before the date distributions begin, the Member's surviving spouse
         is the Member's sole designated beneficiary, and the surviving spouse
         dies before distributions are required to begin to the surviving spouse
         under subsection (a)(1), this Section will apply as if the surviving
         spouse were the Member.

                  (f) The following definitions shall apply for purposes of this
         Section:

                           (1) Designated beneficiary shall mean the individual
                  who is designated as the beneficiary under the terms of the
                  Plan and is the designated beneficiary under Code Section
                  401(a)(9) and section 1.401(a)(9)-1, Q&A-4 of the Treasury
                  regulations.

                           (2) A distribution calendar year is a calendar year
                  for which a minimum distribution is required. For
                  distributions beginning before the Member's death, the first
                  distribution calendar year is the calendar year immediately
                  preceding the calendar year which contains the Member's
                  Required Beginning Date. For distributions beginning after the
                  Member's death, the first distribution calendar year is the
                  calendar year in which distributions are required to begin
                  under subsection (a). The required minimum distribution for
                  the Member's first distribution calendar year will be made on
                  or before the Member's Required Beginning Date. The required
                  minimum distribution for other distribution calendar years,
                  including the required minimum distribution for the
                  distribution calendar year in which the Member's Required
                  Beginning Date occurs, will be made on or before December 31
                  of that distribution calendar year.

                           (3) Life expectancy means an individual's life
                  expectancy as computed by use of the Single Life Table in
                  section 1.401(a)(9)-9 of the Treasury regulations.

                           (4) The Member's account balance is the account
                  balance as of the last valuation date in the calendar year
                  immediately preceding the distribution calendar year
                  (valuation calendar year) increased by the amount of any
                  contributions made and allocated or forfeitures allocated to
                  the account balance as of dates in the valuation calendar year
                  after the valuation date and decreased by distributions made
                  in the valuation calendar year after the valuation date. The
                  account balance for the valuation calendar year includes any
                  amounts rolled over or transferred to

                                       35

<PAGE>

                  the Plan either in the valuation calendar year or in the
                  distribution calendar year if distributed or transferred in
                  the valuation calendar year.

                           (5) Required Beginning Date means the first day of
                  April following the calendar year in which the Member attains
                  age 70-1/2 or, if later, the calendar year in which the Member
                  retires. In the case of a Member who is a "five percent owner"
                  as defined in Section 21.07(f)(3), Required Beginning Date
                  means the first day of April following the calendar year in
                  which the Member attains age 70-1/2.

         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 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.

                                       36

<PAGE>

                                   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. A portion of the distribution shall not fail to
be an eligible rollover distribution merely because the portion consists of
after-tax Member contributions which are not includible in gross income.
However, such portion may be transferred only to an individual retirement
account or annuity described in Sections 408(a) or (b) of the Code, or a
qualified defined contribution plan described in Sections 401(a) or 403(a) of
the Code that agrees to separately account for amounts so transferred, including
separately accounting for the portion of such distribution which is includible
in gross income and the portion of such distribution which is not so includible.

         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
other than an individual retirement account described in Code Section 408(a) or
an individual retirement annuity described in Code Section 408(b); and, provided
further, that this Plan shall not accept the portion of any eligible rollover
distribution that is not includible in gross income. 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.

                                       37

<PAGE>

                  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, 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, 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) and any hardship distribution.

         (b) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an
         individual retirement account described in Code Section 408(a), an
         individual retirement annuity described in Code Section 408(b), an
         annuity plan described in Code Section 403(a), an annuity contract
         described in Code Section 403(b), an eligible plan described in Code
         Section 457(b) maintained by a state, a political subdivision of a
         state, or any instrumentality of a state or political subdivision of a
         state, or a qualified trust described in Code Section 401(a), which
         accepts or will make, as applicable, an Eligible Rollover Distribution.
         This definition shall also apply to an Eligible Rollover Distribution
         to a Member's surviving spouse, or a former spouse who is an alternate
         payee under a Qualified Domestic Relations Order.

         (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.

                                       38

<PAGE>

         (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).

                                       39

<PAGE>

                                   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.

                                       40

<PAGE>

         (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.

         (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.

                                       41

<PAGE>

                                   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)      $40,000; or

                  (2)      100% 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)(10) and, effective January 1, 1998, shall also include the deferrals
described in Code Section 415(c)(3)(D)(including effective January 1, 2001,
elective amounts not included in gross income by reason of Code Section
132(f)(4).

         (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), without
         regard to catch-up contributions under Code Section 414(v) 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

                                       42

<PAGE>

         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
         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.

                                       43

<PAGE>

                                   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,

                                       44

<PAGE>

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 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.

                                       45

<PAGE>

         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)).

                                       46

<PAGE>

                                   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

                                       47

<PAGE>

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.

                                       48

<PAGE>

                                   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

                                       49

<PAGE>

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 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.

                                       50

<PAGE>

                                   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.

                                       51

<PAGE>

                                   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.

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                                   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 either in its entirety or with respect to any Employer included
hereunder, 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 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).

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                                   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 the State of Kansas and, whenever possible, to be in
conformity with the applicable requirements of ERISA and the Internal Revenue
Code.

         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.

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                                   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 $200,000, 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.

         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.

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<PAGE>

        (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.

         (e) Accounts and benefits shall be increased by the aggregate
         distributions during the one-year period ending on the Determination
         Date made with respect to an Employee

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<PAGE>

         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. In the case of a distribution made
         for a reason other than separation from service, death, or disability,
         this provision shall be applied by substituting "five-year period" for
         "one-year period."

         (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.

         (g) The accured benefits and acounts of any individual who has not
         performed services for the Employer during the one-year period ending
         on the Determination Date shall not be taken into account.

         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

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<PAGE>

         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 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 (including any
         deceased Employee) who is, at any time during the Plan Year which
         includes the Determination Date, any one or more of the following: (1)
         an officer of an Employer who has annual Pay of more $130,000 (as
         adjusted under Code Section 416(i)(1))(2) 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; (3) 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
         amended and restated Plan to be executed by a duly authorized officer
         effective January 1, 2003.

                                            PAYLESS SHOESOURCE, INC.

                                            By: /s/ Jay A. Lentz
                                                --------------------------------

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