Document:

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                                                                  EXHIBIT 10.23

                              EMPLOYMENT AGREEMENT

         THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into
on the 1st day of October, 2003, (the "Restatement Effective Date"), by and
between PAYLESS SHOESOURCE, INC., a Delaware corporation ("Payless"), and Steven
J. Douglass ("Executive").

         In consideration of mutual promises and agreements set forth in this
Employment Agreement, Payless and Executive agree as follows:

1.       (a)      Payless agrees to employ Executive, and Executive agrees to
render personal services to Payless, as Chairman of the Board of Directors (the
"Board") and Chief Executive Officer of Payless ShoeSource, Inc., for the period
commencing on the Restatement Effective Date of this Employment Agreement
through May 31, 2007 (the "Initial Term"). Commencing on June 1, 2006, the
Initial Term will be automatically extended each day by one day, until the
earlier of (i) one year following the date on which either party delivers to the
other in accordance with Paragraph 11 written notice of non-renewal (a
"Non-Renewal Notice"), or (ii) the date Executive attains age 65. The Initial
Term as so extended is referred to in this Agreement as the "Contract Term."
Notwithstanding the foregoing, following Executive's delivery of a Non-Renewal
Notice, Payless may shorten the Contract Term in its discretion, provided that
Payless shall pay Executive the amounts he would have received (as and when they
would have become due) pursuant to Paragraphs 1(b), 1(c) and 1(d) had Executive
remained employed through the date which is one year from the date on which
Executive delivered the Non-Renewal Notice.

         (b)      Payless agrees to pay Executive basic compensation for such
services during the Contract Term at the annual rate of $905,000.00, payable in
equal bi-weekly installments, and in accordance with Paragraph 5, which annual
rate will be subject to an annual review during Payless' regularly scheduled
review time.

         (c)      If Executive is eligible to participate in one of Payless'
bonus plans (the "Incentive Plan"), then Executive shall be entitled to such
Awards, if any, which may be payable under the Incentive Plan, determined in
accordance with and subject to all of the terms and provisions of the Incentive
Plan. If the Executive participates in the Payless ShoeSource, Inc. Executive
Incentive Compensation Plan (the "EICP") for the long-term performance periods
ending in fiscal years 2003 or 2004, the Executive hereby consents to the
long-term award, if any, being calculated using the following formula: long-term
performance period ending in 2003, 1/3 of the bonus under the EICP plus 2/3
bonus under the Incentive Compensation Plan (the "ICP"); and for the long-term
performance period ending in 2004, 100 percent of the bonus will be determined
under the ICP. Such awards are subject to the terms and provisions of the EICP
and ICP respectively.

         (d)      Payless shall reimburse Executive for all items of normal
expense incurred by Executive as an employee of Payless in accordance with
Payless' reimbursement policies in effect from time to time.

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         (e)      Payless has adopted certain employee benefit plans ("Benefit
Plans") and has established certain arrangements concerning executive
perquisites which may, from time to time, confer rights and benefits on the
Executive in accordance with their terms, and Payless may, in the future, adopt
additional Benefit Plans and establish additional arrangements concerning
executive perquisites, and may in the future amend, modify or terminate any of
the aforesaid Benefit Plans and arrangements, all in accordance with their terms
and in accordance with applicable law. Executive shall be entitled to whatever
rights and benefits may be conferred on Executive, from time to time in
accordance with the terms of such Benefit Plans and arrangements, as they may be
amended from time to time, independent of this Agreement except as required by
Paragraph 14 of this Agreement. All references to payment dates or vesting dates
in this Paragraph 1 or in such Benefit Plans and arrangements, shall require
that Executive be employed by Payless on such date to receive such payment or be
vested in such benefit.

         (f)      Executive will be eligible for future grants of restricted
stock and stock options as may be made under the terms of the 1996 Stock
Incentive Plan or any successor plan ("SIP") in accordance with the levels
established by the Compensation Committee of the Board of Directors.

         (g)      Payless will (to the extent Payless has not already done so
prior to the Restatement Effective Date):

                  (i)      grant Executive 120,000 options on shares of common
         stock under the SIP on May 25, 2001, such options to vest as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------
NUMBER OF SHARES                         VESTING DATE
-----------------------------------------------------
<S>                                      <C>
     15,000                              May 25, 2002
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     15,000                              May 25, 2003
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     20,000                              May 25, 2004
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     20,000                              May 25, 2005
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     25,000                              May 25, 2006
-----------------------------------------------------
     25,000                              May 25, 2007
-----------------------------------------------------
</TABLE>

         and

                  (ii)     on November 18, 2003, grant Executive stock
         appreciation rights and performance units, as follows:

                           (1)      stock appreciation rights on 420,000 shares
                  of the Payless common stock, payable in cash, which shall vest
                  in equal installments beginning on May 23, 2004, and
                  continuing annually thereafter through the anniversary of such
                  date on May 23, 2007, as set forth in the Stock Appreciation
                  Unit Agreement attached as "Exhibit 1" and incorporated herein
                  by reference; and

                           (2)      140,000 performance units, payable in cash,
                  which shall vest in equal installments beginning on May 23,
                  2004, and continuing annually thereafter

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                  through the anniversary of such date on May 23, 2007, as set
                  forth in the Performance Unit Agreement attached as "Exhibit
                  2" and incorporated herein by reference; and

                           (3)      Such grants shall not count towards, or be
                  included in, any calculation made under the Payless
                  ShoeSource, Inc. Supplemental Retirement Plan or any successor
                  plan (the "SRP").

                  (iii)    amend the SRP (or otherwise cause Executive to be
         paid the equivalent benefit) to provide for the Executive (1) immediate
         benefit eligibility (prior to age 55) upon a Change of Control (as such
         term is defined in the Executive's Amended and Restated Change of
         Control Agreement dated October 1, 2003, as amended from time to time
         (the "Change of Control Agreement")), termination of Executive's
         employment by Payless without Cause or by Executive with Good Reason
         and vesting of benefits in the event of Executive's death; (2) in the
         event of Executive's disability prior to age 55, immediate eligibility
         for benefits to be integrated with, and funded pursuant to, Payless'
         disability plans; (3) that, notwithstanding Section 3.6(c) of the SRP,
         SRP benefits are a binding irrevocable contractual obligation of
         Payless payable without regard to Payless' level of profits; (4) that,
         notwithstanding Section 1.7 of the SRP, the definition of "Annual
         Retirement Benefit Offset" shall not include any reduction for benefits
         under any defined contribution plan maintained by Payless; (5) that,
         notwithstanding Section 1.13 of the SRP, the definition of
         "Compensation" shall include only amounts paid to (or earned by)
         Executive pursuant to Paragraphs 1(b) and 1(c) of this Agreement and
         for purposes of determining "Compensation" and "Annual Compensation",
         the "severance payment" (as defined below) shall be included as though
         paid ratably over the period provided under Paragraph 5(e)(ii); and (6)
         that, notwithstanding Section 3.4 of the SRP, on the fifth annual
         anniversary of the commencement of payments to Executive under the SRP
         or upon any termination without Cause after a Change of Control,
         payment of the remaining obligations of Payless to Executive under the
         SRP shall be settled by a payment to Executive of a single lump sum in
         cash equal to the present value (determined under the Pension Benefit
         Guaranty Corporation interest rate plus twenty-five basis points,
         mortality and other assumptions for immediate annuities, as then in
         effect and set forth in Appendix C to 20 CFR Part 4022; for purposes of
         clause (5) above, "severance payment" means an amount equal to three
         times the sum of (x) the "Annual Base Salary" (as defined below in
         Paragraph 5(e)(ii)(1) and (y) the "bonus amount" as hereafter defined;
         "bonus amount" means the Annual Base Salary multiplied by a fraction,
         the numerator of which is the bonuses paid (or earned) by Executive
         pursuant to Paragraph 1(c) for the three consecutive years completed in
         the five fiscal years of the Company (ending prior to Executive's date
         of termination) that produces the highest sum and the denominator of
         which is the aggregate of the base salaries earned during such years;
         and

                  (iv)     amend the Payless ShoeSource, Inc. Executive
         Post-Retirement Life Medical Insurance Program ("Retiree Medical Plan")
         (or otherwise cause Executive to receive the equivalent after-tax
         benefit) to provide the Executive and his spouse with lifetime retiree
         medical insurance coverage at Payless' cost (1) upon the Executive's
         termination for any reason without Cause after age 55, and (2) prior to
         the Executive

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         reaching age 55, in the event of Executive's termination following a
         Change of Control, termination of Executive's employment by Payless
         without Cause or by Executive with Good Reason, or the Executive
         becoming disabled (as defined by the Retiree Medical Plan); and

                  (v)      amend the EICP to increase the maximum (as defined in
         Section 4.c.i. of the EICP) for each of the "Annual EPS Factor" and
         "Annual RONA Factor" to 56.25%.

2.       (a)      At all times during the Contract Term, Executive will:

                  (i)      faithfully and diligently perform Executive's duties
         in conformity with the directions of Payless and serve Payless to the
         best of Executive's ability; and

                  (ii)     devote Executive's undivided time and attention to
         the business of Payless, subject to reasonable vacations in accordance
         with Payless' vacation policy as it applies from time to time, to such
         extent as may be reasonably necessary for the proper performance of the
         personal services to be rendered by Executive under this Agreement; and

                  (iii)    maintain Executive's residence in the Topeka, Kansas
         metropolitan area or the environs thereof within reasonable access to
         the business activities of Payless therein for the Contract Term.

         (b)      At all times during the Contract Term, Executive will not:

                  (i)      engage in any activity which conflicts or materially
         interferes with or adversely affects Executive's performance of
         Executive's duties hereunder, or

                  (ii)     accept any other employment, whether as an Executive
         or as a consultant or in any other capacity, and whether or not
         compensated therefor, or

                  (iii)    violate the terms of any of the policies described in
         Payless' Policy of Business Conduct distributed from time to time to
         Executive.

         (c)      This Paragraph 2 shall not apply to prevent the service of
Executive as a member of boards of directors of other entities (whether business
or not-for-profit), provided (x) such service does not violate the terms of
Paragraphs 2(b)(i) or 2(b)(iii) or Paragraph 3 of this Agreement, and (y) any
such service commencing after the Restatement Effective Date is approved by the
Board in advance (which approval shall not be unreasonably withheld).

3.       (a)      At all times during the Contract Term, and for a period of two
years from actual termination of employment, Executive will not:

                  (i)      directly or indirectly, own, manage, operate,
         finance, join, control, or participate in the ownership, management,
         operation, financing or control of, or be employed by or connected in
         any manner with any Competing Business, or

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                  (ii)     solicit for employment, hire or offer employment to,
         or disclose information to or otherwise aid or assist any other person
         or entity other than Payless or any subsidiary of Payless in soliciting
         for employment, hiring or offering employment to, any employee of
         Payless or any subsidiary of Payless, or

                  (iii)    take any action which is intended to harm Payless or
         its reputation, which Payless reasonably concludes could harm Payless
         or its reputation or which Payless reasonably concludes could lead to
         unwanted or unfavorable publicity to Payless.

Ownership of an investment of less than the greater of $25,000 or 1 % of any
class of equity or debt security of a Competing Business shall not constitute
ownership or participation in ownership in violation of Paragraph 3(a).

         (b)      The term "Competing Business" shall include, but not be
limited to,

                  (i)      any retail business with gross sales or revenue in
         the prior fiscal year of more than $25 million (or which is a
         subsidiary, affiliate or joint venture partner of a business with gross
         sales or revenue in the prior fiscal year of more than $25 million)
         which sells footwear at retail to consumers at price points
         competitive, or likely to be competitive with Payless (e.g., including,
         without limitation, Wal-Mart, K-Mart, Target, Ames, Mervyn's Pic-N-Pay,
         Foot Star, Inc., Edison, Aldo, Genesco, Venator, Famous Footwear, Shoe
         Carnival, Jones Apparel Group, Kohl's, Liz Claiborne, Big Five, J.C.
         Penney and Sears) within 20 miles of any Payless store or the store of
         any wholesale customer of Payless in the United States, or anywhere in
         any foreign country in which Payless has retail stores, franchisees or
         wholesale customers;

                  (ii)     any franchising or wholesaling business with gross
         sales or revenue in the prior fiscal year of more than $25 million (or
         which is a subsidiary, affiliate or joint venture partner of a business
         with gross sales or revenue in the prior fiscal year of more than $25
         million) which sells footwear at wholesale to franchisees, retailers or
         other footwear distributors located within 20 miles of any Payless
         store or the store of any wholesale customer of Payless in the United
         States, or anywhere in any foreign country in which Payless has retail
         stores, franchisees or wholesale customers;

                  (iii)    any footwear manufacturing business with gross sales
         or revenue in the prior fiscal year of more than $25 million (or which
         is a subsidiary, affiliate or joint venture partner of a business with
         gross sales or revenue in the prior fiscal year of more than $25
         million) which sells footwear to retailers or other footwear
         distributors located within 20 miles of any Payless store or the store
         of any wholesale customer of Payless in the United States, or anywhere
         in any foreign country in which Payless has retail stores, franchisees,
         or wholesale customers; (e.g., including, without limitation, Jones
         Apparel Group, Dexter, Stride Rite, Liz Claiborne, Wolverine Worldwide,
         Timberland, Nike, Reebok, K-Swiss, Keds and Adidas); or

                  (iv)     any business which provides buying office services to
         any store or group of stores or businesses referred to in Paragraph
         3.(b)(i), 3.(b)(ii) and 3.(b)(iii).

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         (c)      Background of non-compete restriction:

                  (i)      Payless is one of the leading retail companies in
         North America, with self-service shoe stores throughout the United
         States and its territories and Canada; and

                  (ii)     In connection with its business, Payless has expended
         a great deal of time, money and effort to develop and maintain its
         confidential, proprietary and trade secret information; this
         information, if misused or disclosed, could be very harmful to Payless'
         business and its competitive position in the marketplace; and

                  (iii)    Executive desires to be employed by Payless, to be
         eligible for opportunities for advancement within Payless, to be
         eligible for potential compensation increases and to be given access to
         confidential and proprietary information of Payless necessary for
         Executive to perform Executive's job, but which Payless would not make
         available to Executive but for Executive's signing and agreeing to
         abide by the terms of this Agreement as a condition of Executive's
         employment by Payless; and

                  (iv)     Executive recognizes and acknowledges that
         Executive's position with Payless provides Executive with access to
         Payless' confidential and proprietary trade secret information and
         other confidential business information; and

                  (v)      Payless compensates its associates to, among other
         things, develop and preserve goodwill and relationships on Payless'
         behalf and to develop and preserve business information for Payless'
         exclusive ownership and use; and

                  (vi)     Long-term customer and supplier relationships often
         can be difficult to develop and require a significant investment of
         time, effort and expense; and

                  (vii)    Executive recognizes and acknowledges that if
         Executive's employment with Payless were to cease, Payless needs
         certain protections in order to ensure that Executive does not
         appropriate and use any confidential information entrusted to Executive
         during the course of Executive's employment by Payless or take any
         other action which could result in a loss of Payless' goodwill that was
         generated on Payless' behalf and at its expense, and, more generally,
         to prevent Executive from having an unfair competitive advantage over
         Payless.

         (d)      Reasonableness of non-compete restriction. Executive
acknowledges and agrees that the restrictions in Paragraph 3(a) are reasonable
and enforceable in view of the background for the non-compete restriction set
forth in Paragraph 3(c) and in view of, among other things,

                  (i)      the markets in which Payless and its subsidiaries
         operate their business; and

                  (ii)     the confidential information to which Executive has
         access; and

                  (iii)    Executive's training and background, which are such
         that neither Payless nor Executive believe that the restraint will pose
         an undue hardship on Executive; and

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                  (iv)     the fact that a Competing Business could benefit
         greatly if it were to obtain Payless' confidential information; and

                  (v)      the fact that Payless would not have adequate
         protection if Executive were permitted to work for any Competing
         Business since Payless would be unable to verify whether its
         confidential information was being disclosed or misused; and

                  (vi)     the limited duration of, the limited scope of, and
         the limited activities prohibited by, the restrictions in Paragraph
         3(a); and

                  (vii)    Payless' legitimate interests in protecting its
         confidential information, goodwill and relationships.

         (e)      If Executive violates Executive's obligations under Paragraph
3(a), then Payless shall be entitled to an injunction and other relief provided
for in this Agreement to prevent such violation, and the time during which
Executive violated the obligations shall not count toward satisfying the time
during which the restriction shall apply. For example, if Executive were to join
a competitor at the end of the Contract Term in violation of the restrictions in
Paragraph 3(a) and work for such competitor for one month before a court
enjoined such violation, then the two year time period of the restriction would
begin when such injunction were issued; the one month during which Executive
violated such restriction would not count toward the time that the restriction
applies.

4.       If Executive becomes Totally Disabled and remains continuously so
Totally Disabled for a period of 180 days, then Payless' obligations under this
Employment Agreement, at Payless' option, may be terminated by notice in writing
to that effect given during the continuance of such Total Disability, such
termination to take effect the later of (a) the last day of the month during
which such notice is given or (b) the last day of such 180 day period. "Total
Disability" or "Totally Disabled" shall mean the inability of Executive to
perform the normal duties of Executive's job under this Agreement.

5.       (a)      If Executive's employment terminates at the expiration of the
Contract Term after delivery by either party of a Non-Renewal Notice or during
the Contract Term by reason of Executive's death or Total Disability, by
Executive's voluntary termination of employment or by Payless' termination of
Executive for Cause,

                  (i)      Executive's basic compensation and employee benefits
         shall cease on the date of such termination, except as otherwise
         provided herein or in any applicable Benefit Plan or program; and

                  (ii)     Executive (or Executive's legal representative(s))
         shall be entitled to such portion of any incentive compensation as
         shall be payable under the terms of the Incentive Plan.

         (b)      In addition, if Executive's employment is terminated by reason
of death, then Executive's obligations under Paragraphs 1 and 2 shall cease on
the effective date of such termination.

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         (c)      In addition, if Executive's employment is terminated by reason
of Total Disability, by Executive voluntarily or by Payless for Cause, then
Executive's obligations under Paragraphs 1 and 2 shall cease on the effective
date of such termination and Executive's obligations under Paragraphs 3 and 6
remain in full force and effect, and Payless shall be entitled to all legal and
equitable rights and remedies under this Agreement, including all of its rights
and remedies referred to in Paragraph 8 of this Agreement, and Payless shall be
entitled to enjoin Executive from violating the provisions of Paragraphs 3 and 6
of this Agreement.

         (d)      In addition, if Executive's employment is terminated by reason
of Executive's death or Total Disability, then notwithstanding Paragraph 5(a)(i)
all of Executive's Equity Awards shall become fully exercisable and vested and
shall not thereafter be forfeited for any reason but shall otherwise terminate
in accordance with their terms. Further, if Executive's employment is terminated
following his attainment of age 55 for any reason other than Cause, then
notwithstanding Paragraph 5(a)(i) it shall be considered a "retirement" for
purposes of the Equity Awards. For purposes of this Paragraph 5, "Equity Awards"
means any stock option, stock appreciation right, stock appreciation unit,
performance unit, restricted stock, or other equity interest in Payless granted
on or after the Restatement Effective Date, including without limitation all
awards granted to Executive under Paragraph 1(g)(ii) of this Agreement.

         (e)      If Executive's employment is terminated during the Contract
Term by Executive with Good Reason, or by Payless without Cause (other than
pursuant to Payless' delivery of a Non-Renewal Notice to the Executive), then

                  (i)      Executive's employment (and status as an employee
         except as otherwise provided in this Paragraph 5(e)) shall cease
         immediately; and

                  (ii)     Payless shall pay to Executive ratably for 36 months
         (beginning with the month following such termination) an amount equal
         to three times the sum of (x) Executive's Annual Base Salary and (y)
         Executive's Target Annual Bonus. For this purpose:

                           (1)      "Annual Base Salary" means the higher of (x)
                  Executive's basic compensation specifically stated in
                  Paragraph 1 (b) as of the date of this Agreement, and (y)
                  Executive's basic compensation at the time Executive's
                  employment terminates; and

                           (2)      "Target Annual Bonus" means the bonus to
                  which Executive would be entitled under the Incentive Plan for
                  the fiscal year of Payless in which termination of employment
                  occurs assuming satisfaction of all personal and corporate
                  performance goals at target performance.

                  (iii)    Executive shall be entitled to such portion of any
         incentive compensation as shall be payable under the terms of the
         Incentive Plan; and

                  (iv)     All of Executive's Equity Awards shall become fully
         exercisable and vested and shall not thereafter be forfeited for any
         reason but shall otherwise terminate in accordance with their terms;
         and

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                  (v)      For 36 months following the end of the Contract Term,
         Payless shall continue to provide medical and dental benefits to
         Executive, his spouse and his eligible dependents on the same basis as
         such benefits are provided to active senior executive officers of
         Payless (the "Medical Benefits"); provided that such benefits shall be
         secondary to any other coverage obtained by Executive; provided,
         further, that if Payless' welfare plans do not permit such coverage,
         Payless will provide Executive the Medical Benefits with the same after
         tax effect; and

                  (vi)     Executive shall be entitled to post-termination
         benefits that are payable under Payless' SRP and all other Benefit
         Plans in accordance with their terms, including any rights Executive
         may have to continued participation in Payless' medical plans under
         COBRA, for which purpose Executive's "qualifying event" shall occur at
         the end of the period of Benefit Plan continuation prescribed by
         Paragraph 5(e)(v) above; and

                  (vii)    Except as expressly provided in Paragraph 5(i),
         Executive's post-termination obligations under this Agreement,
         including, without limitation, the provisions of Paragraphs 3 and 6,
         shall continue to apply following such termination; and

                  (viii)   Payless shall not be required to make the payments
         and provide the benefits specified in this Paragraph 5(e) unless
         Executive executes and delivers to Payless an agreement releasing
         Payless, its affiliates and its officers, directors and employees from
         all liability (other than the payments and benefits under this
         Agreement) substantially in the form attached hereto as Exhibit 3.

         (f)      "Cause" means

                  (i)      an intentional act of fraud, embezzlement, theft or
         any other material violation of law in connection with Executive's
         duties or in the course of Executive's employment with Payless; or

                  (ii)     intentional material damage to assets of Payless; or

                  (iii)    intentional and harmful disclosure of confidential
         information of Payless contrary to this Agreement or to a policy of
         Payless communicated in writing to Executive prior to such disclosure;
         or

                  (iv)     willful and material breach of Executive's
         obligations under this Agreement; or

                  (v)      intentional engagement in any competitive activity
         which would constitute a breach of Executive's duty of loyalty or of
         Executive's obligations under this Agreement; or

                  (vi)     intentional and material breach of any policy of
         Payless communicated in writing to Executive prior to such breach; or

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                  (vii)    the willful and continued failure by Executive to
         substantially perform Executive's duties with Payless (other than any
         such failure resulting from Executive's incapacity due to physical or
         mental illness); or

                  (viii)   the willful engaging by Executive in conduct which is
         demonstrably and materially injurious to Payless, monetarily or
         otherwise.

For purposes of this Paragraph 5(f), an act, or a failure to act, shall not be
deemed "willful" or "intentional" unless it is done, or omitted to be done, by
Executive in bad faith or without reasonable belief that Executive's action or
omission was in the best interest of Payless. Failure to meet performance
standards or objectives, by itself, will not constitute "Cause".

         (g)      "Good Reason" means in the absence of a written consent by
Executive:

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

                  (ii)     any failure by Payless to comply with any of the
         provisions of Paragraph 1, other than an isolated, insubstantial and
         inadvertent failure not occurring in bad faith and that is remedied by
         Payless promptly after receipt of notice thereof given by the
         Executive;

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

                  (iv)     any failure by Payless to require any successor
         (whether direct or indirect, by purchase, merger, consolidation or
         otherwise) to all or substantially all of the business or assets of the
         company to assume expressly and agree to perform this Agreement in the
         same manner and to the same extent that Payless would be required to
         perform it if no such succession had taken place.

Notwithstanding the foregoing, placing Executive on a paid leave for up to 30
days, pending the determination of whether there is a basis to terminate
Executive for Cause, shall not constitute a "Good Reason" event. If Executive
does not deliver to Payless a written notice of termination within 120 days
after Executive has knowledge that an event constituting Good Reason has
occurred, the event will no longer constitute Good Reason.

         (h)      Executive agrees that, in addition to any other remedies,
Payless shall be permitted, as part of the computation of any final amount or
amounts due to Executive as wages, compensation, bonus, deferred compensation or
otherwise, and before any such amount shall be due and owing, to reduce any
amount which Payless may otherwise owe to Executive by any unpaid amount which
Executive owes to Payless.

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6.       (a)      Executive will not, at any time, directly or indirectly, use
or disclose any of Payless' Confidential Information except as authorized and
within the scope of Executive's employment with Payless or if required to do so
by a court of law, by any governmental agency having supervisory authority over
the business of Payless or by any administrative or legislative body (including
a committee thereof) with apparent jurisdiction to order him to divulge,
disclose or make accessible such information.

         (b)      At Payless' request and/or termination of Executive's
employment with Payless, Executive will return to Payless all documents,
records, notebooks, computer diskettes and tapes and anything else containing
Payless' Confidential Information, including all copies thereof, as well as any
other Payless property, in Executive's possession, custody or control. Executive
will also delete from Executive's own computer or other electronic storage
medium any of Payless' proprietary or Confidential Information. Not later than
20 days after Executive's employment is terminated, Executive will certify in
writing to Payless that Executive has complied with these obligations.

         (c)      During Executive's employment with Payless and thereafter,
Executive will

                  (i)      notify and provide Payless immediately with the
         details of any unauthorized possession, use or knowledge of any of
         Payless' Confidential Information,

                  (ii)     assist in preventing any reoccurrence of this
         possession, use or knowledge, and

                  (iii)    cooperate with Payless in any litigation or other
         action to protect or retrieve Payless' Confidential information.

         (d)      "Confidential Information" means any non-public information
pertaining to Payless' business. Confidential Information includes information
disclosed by Payless to Executive, and information developed or learned by
Executive during the course of or as a result of Executive's employment with
Payless, which Executive also agrees is Payless' property. Executive further
agrees that any item of intellectual or artistic property generated or prepared
by Executive, for Executive or with others, in connection with Executive's
employment by Payless is Payless' sole property and shall remain so unless
Payless otherwise specifically agrees in writing. Confidential Information
includes, without limitation, information and documents concerning Payless'
processes; suppliers (including Payless' terms, conditions and other business
arrangements with suppliers); supplier and customer lists; advertising,
marketing plans and strategies; profit margins; seasonal plans, goals,
objectives and projections, compilations, analyses and projections regarding
Payless' divisions, businesses, product segments, product lines, suppliers,
sales and expenses; files; trade secrets and patent applications (prior to their
being public); salary, staffing and employment information (including
information about performance of other executives); and "know-how," techniques
or any technical information not of a published nature relating, for example, to
how Payless conducts its business.

         (e)      Executive agrees that Executive will not disclose to Payless
or use, or induce Payless to use, any proprietary information, trade secret or
confidential business information of any other person or entity, including any
previous employer of Executive. Executive also

                                     - 11 -
<PAGE>

represents that Executive has returned property, proprietary information, trade
secret and confidential business information belonging to any prior employer.

7.       (a)      If any court of competent jurisdiction determines that, but
for the provisions of this Paragraph 7, any provision of this Agreement is
illegal, void as against public policy or otherwise unenforceable because it is
deemed to be overbroad, then such provision shall automatically be amended to
the extent (but only to the extent) necessary to make it sufficiently narrow in
scope, time and geographic area that it is not illegal, void as against public
policy or overbroad. All other remaining terms and provisions shall remain in
full force and effect.

         (b)      If Executive raises any question regarding the enforceability
of any aspect of this Agreement, including, without limitation, Paragraphs 3 or
6, Executive specifically agrees that Executive will abide fully by such
provisions unless and until a court of competent jurisdiction has rendered a
final judgment that such provisions are not fully enforceable. Following any
such final judgment, Executive and Payless will abide fully by such judgment.

8.       (a)      Payless and Executive shall each be entitled to pursue all
legal and equitable rights and remedies to secure performance of the obligations
and duties of the other under this Agreement, and enforcement of one or more of
such rights and remedies shall in no way preclude Payless or Executive from
pursuing any and all other rights and remedies available to each of them.

         (b)      Executive acknowledges and agrees that the individualized
services and capabilities that Executive will render and provide to Payless
during the Contract Term are of a personal, special, unique, unusual,
extraordinary and intellectual character.

         (c)      Executive acknowledges and agrees that the restrictions in
this Agreement on Executive are reasonable in order to protect Payless'
expectations and rights under this Agreement and to provide Payless with the
protections that Payless needs to, among other things, safeguard its
confidential information. Payless shall be entitled to injunctive relief in
addition to any other remedy it may have, and Executive expressly consents to
injunctive and such other equitable relief as Payless in good faith believes it
may need. Without limiting the generality of the foregoing, if Executive
breaches or threatens to breach Executive's obligations under Paragraphs 3 or 6
hereof, Executive consents to entry of an order enjoining Executive from
rendering personal services to or in connection with a Competing Business and
from using or disclosing any confidential information.

         (d)      Notwithstanding Section VI.1(a) of the SIP, Section III.1(1)
of the Stock Appreciation and Phantom Stock Unit Plan of Payless ShoeSource,
Inc. and its Subsidiaries for Payless ShoeSource International Employees, or
similar "clawback" provision in any other Benefit Plan, Payless shall not be
entitled to cancel or rescind any Equity Award (as such term is defined in
Paragraph 5(d)) as a remedy for any purported violation of Paragraph 3 or 6 of
this Agreement.

9.       Payless Work-Product: The Executive agrees to disclose fully to
Payless, and hereby assigns and transfers to Payless, and agrees to execute any
additional documentation Payless may reasonably request to evidence the
assignment and transfer, immediately upon the conception,

                                     - 12 -
<PAGE>

development, making or acquisition thereof, the right, title, and interest in
and to any and all inventions, discoveries, improvements, innovations, and/or
designs (the "Work Product") conceived, discovered, developed, acquired or
secured by the Executive, solely or jointly with others or otherwise, together
with all associated U.S. and foreign intellectual property rights (i.e.,
patents, copyrights, trademarks or trade secrets) either:

         (a)      during the period of Executive's employment, if such Work
Product is related directly or indirectly, to the business of, or to the
research or development work of Payless;

         (b)      with the use of the time, materials, or facilities of Payless;
or

         (c)      within one year after termination of such employment if
conceived as a result of and is attributable to work done during such employment
and relates to Work Product within the scope of the business of Payless,
together with rights to all intellectual property rights which may be granted
thereon.

Upon discovery, development or acquisitions or any such Work Product, Executive
shall notify Payless and shall execute and deliver to Payless, without further
compensation, such documents prepared by Payless as may be reasonable or
necessary to prepare or prosecute applications for such Work Product and to
assign and transfer to Payless Executive's right, title and interest in and to
such Work Product and intellectual property rights thereof. Executive
acknowledges that Executive has carefully read and considered the provisions of
this paragraph and, having done so, agrees that the restrictions set forth
herein are fair and reasonable and are reasonably required for the protection of
the interests of Payless, its officers, directors, and other executives.

10.      (a)      If Executive incurs reasonable legal, accounting, expert
witness or other fees and expenses ("Legal Fees") in an effort to establish his
entitlement to compensation and benefits under this Agreement, Payless shall
reimburse Executive for such legal fees promptly on Executive's request for
reimbursement accompanied by evidence that Legal Fees were incurred; provided,
however, that to the extent a court or arbitrator in such proceeding determines
that Executive's position was either frivolous or not maintained in good faith
or unreasonable no further reimbursement of Legal Fees shall be due to Executive
and Executive shall promptly refund any amounts previously reimbursed hereunder
with respect to such action.

         (b)      If Payless fails to pay any amount provided under this
Agreement (or any Benefit Plan subject to this Agreement), when due, Payless
shall pay interest on such amount at a rate equal to the rate of interest
charged from time to time by Payless' principal revolving credit lender on
outstanding balances; or if there is no principal revolving credit lender, the
prime commercial lending rate announced by Citicorp N.A. plus one hundred basis
points; but in no event more than the maximum legal rate of interest permitted
for this Agreement by applicable law.

11.      For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when received by or tendered to Payless or Executive, as applicable, by
pre-paid courier or by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:

         If to Payless:             Payless Shoesource, Inc.

                                     - 13 -
<PAGE>

                                    3121 SE Sixth Street
                                    Topeka, Kansas 66607
                                    Attention: General Counsel

         If to Executive:           To his last known personal residence

         With a copy to:            Roger C. Siske, Esq.
                                    8000 Sears Tower
                                    233 South Wacker Drive
                                    Chicago, IL 80606

12.      The entire understanding and agreement between the parties has been
incorporated into this Agreement and the Change of Control Agreement, and this
Agreement supersedes all other agreements and understandings between the
Executive and Payless and its parents and subsidiaries with respect to the
employment of Executive by Payless and its parents and subsidiaries (other than
the Change of Control Agreement). This Agreement shall inure to the benefit of,
and shall be binding upon, Payless, its successors and assigns and upon
Executive and Executive's heirs, successors and assigns; provided, however,
that, since this is an agreement for the rendering of personal services,
Executive cannot assign any of Executive's obligations under this Agreement to
anyone else. This Agreement may be executed in counterparts, in which case each
of the two counterparts shall be deemed to be an original and the final
counterpart shall be deemed to have been executed in Topeka, Kansas.

13.      Executive agrees that this Agreement may be assigned by Payless to a
subsidiary of Payless; such assignment, however, shall not relieve Payless of
any of its obligations hereunder except to the extent that such obligations are
actually discharged by such subsidiary.

14.      The provisions of this Agreement relating to any Benefit Plan
(including without limitation the SIP, the SRP, the Retiree Medical Plan, the
EICP, ICP, and any successor to any of the foregoing) and any awards or other
benefits thereunder shall control and supersede any inconsistent provisions in
such Benefit Plan with respect to the benefits of Executive under such Benefit
Plan.

15.      This Agreement has been executed by Payless at Payless' corporate
headquarters and principal executive offices in Topeka, Kansas. Any questions or
other matter arising under this Agreement, whether of validity, interpretation,
performance or otherwise, shall be governed by and construed in accordance with
the laws of the State of Kansas applicable to agreements made and to be
performed in such state without regard to such state's conflicts of law
provision. All actions and proceedings arising out of or relating directly or
indirectly to this Agreement shall be filed and litigated exclusively in any
state court or federal court located in the City of Topeka, Kansas or in Shawnee
County, Kansas. The parties hereto expressly consent to the jurisdiction of any
such court and to venue therein and consent to service of process if made upon
Payless' registered agent or if made at Executive's last known address on the
records of Payless.

                                     - 14 -
<PAGE>

BY SIGNING THIS AGREEMENT, EXECUTIVE HEREBY CERTIFIES THAT EXECUTIVE (A) HAS
RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE SIGNING IT; (B)
HAS READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT; (C) HAS HAD SUFFICIENT
OPPORTUNITY TO REVIEW THE AGREEMENT WITH ANY ADVISOR WHICH EXECUTIVE MAY DESIRE
TO CONSULT, INCLUDING LEGAL COUNSEL; (D) HAS HAD SUFFICIENT OPPORTUNITY BEFORE
SIGNING IT TO ASK ANY QUESTIONS EXECUTIVE HAS ABOUT THIS AGREEMENT AND HAS
RECEIVED SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS; AND (E) UNDERSTANDS
EXECUTIVE'S RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT.

                                     - 15 -
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been executed by Executive, and
then by Payless in Topeka, Kansas, effective as of the date first above written.

                                                 /s/ Steven J. Douglass
                                       -----------------------------------------
                                                  Steven J. Douglass

                                       PAYLESS SHOESOURCE, INC.

                                       By:    /s/ Jay A. Lentz
                                              ----------------------------------
                                       Name:  Jay A. Lentz
                                       Title: Senior Vice President -
                                              Human Resources

                                     - 16 -
<PAGE>

                                                                       EXHIBIT 1

                            PAYLESS SHOESOURCE, INC.
                        STOCK APPRECIATION UNIT AGREEMENT

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                        AWARD DATE
EXECUTIVE            NOVEMBER 18, 2003        NUMBER OF UNITS               EXERCISE PRICE PER UNIT
               --------------------------------------------------------------------------------------
                      EXPIRATION DATE                            VESTING SCHEDULE
<S>                  <C>                      <C>
                                               units will vest in equal installments on May 23, 2004,
                                               May 23, 2005, May 23, 2006 and May 23, 2007.
-----------------------------------------------------------------------------------------------------
</TABLE>

         Payless ShoeSource, Inc. has approved granting Executive an award
("Award") consisting of "Stock Appreciation Units" or "Units") on the terms and
subject to the conditions set forth in this Agreement. Therefore, the Company
and Executive hereby agree as follows:

Capitalized words used in this Agreement are defined below:

DEFINITIONS.

CAUSE has the meaning defined for such term in the Employment Agreement as then
in effect between the Company and the Executive (the "Employment Agreement").
Any termination for Cause shall be effective only if accomplished in accordance
with any procedural requirements for such termination specified in the
Employment Agreement.

A CHANGE OF CONTROL occurs if:

         (1)      The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that, none of the following shall constitute a Change of
Control: (i) any acquisition directly from the Company of 30% or less of
Outstanding Company Common Stock or Outstanding Company Voting Securities
provided that at least a majority of the members of the board of directors of
the Company following such acquisition were members of the Incumbent Board at
the time of the Board's approval of such acquisition, (ii) any acquisition by
the Company, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any affiliated company, or (iv)
any acquisition by the Company which, by reducing the number of shares of
Outstanding Company Common Stock or Outstanding Company Voting Securities,
increases the proportionate number of shares of Outstanding Company Common Stock
or Outstanding Company Voting Securities beneficially owned by any Person to 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities; provided, however, that, if such Person shall thereafter become the
beneficial owner of any additional shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities and beneficially owns 20% or more of
either the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, then such additional acquisition shall constitute a Change of
Control; or

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

         (3)      Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, immediately following
such Business Combination, (A) more than 50%, respectively, of the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of (x) the corporation resulting from such
Business Combination, or (y) a corporation that, as a result of such
transaction, owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries, is represented by
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities (or, if applicable, is represented by shares into which Outstanding
Company Common Stock or Outstanding Company Voting Securities were converted
pursuant to such Business Combination) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then-outstanding voting
securities of such corporation, except to the extent that such ownership existed
prior to the Business Combination, and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement or of the action of the Board providing for such Business
Combination; or

         (4)      Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company. COMMITTEE means the Compensation and
Nominating Committee of the Company's Board of Directors.

COMPANY means Payless ShoeSource, Inc., a Delaware corporation.

<PAGE>

DISABILITY, DISABLED means a permanent and total disability which enables the
Executive to be eligible for and receive a disability benefit under the Federal
Social Security Act.

FAIR MARKET VALUE means the average of the high and low prices of the Stock on
the New York Stock Exchange (or such other stock exchange on which the Stock may
be listed) on such date or dates as may be provided in this Agreement. In the
absence of any listing of the Stock on an established stock exchange, Fair
Market Value means the fair market value of the Stock on such date or dates as
may be provided in this Agreement as determined in good faith by the Committee.

GOOD REASON has the meaning defined for such term in the Employment Agreement.

RETIREMENT, RETIRES means retirement as that word is defined in the Company's
Profit Sharing Plan.

STOCK means the Common Stock of the Company.

SUBSIDIARY means a subsidiary of the Company or an unincorporated organization
controlled, directly or indirectly, by the Company.

         SECTION 1.     The Company hereby grants to Executive an Award
consisting of that number of Stock Appreciation Units shown above, each with the
Exercise Price shown above. The parties acknowledge that payments under this
Agreement are specifically excluded from the Company's Supplementary Retirement
Plan and shall not count towards, or be included in any calculation made under,
the Company's Supplementary Retirement Plan.

         SECTION 2.     Subject to all other terms and conditions in this
Agreement, the Award may be exercised by Executive in such amounts and on and
after such dates as shown in the Vesting Schedule above; provided, however, that
the Award may be exercised only on or before the Expiration Date shown above. On
the Expiration Date, each remaining unexercised Unit, the Fair Market Value of
which (which shall equal the Fair Market Value of a share of Stock) exceeds the
Exercise Price, shall automatically be exercised. If on the Expiration Date the
Fair Market Value for such Units does not exceed the Exercise Price therefor,
then the Units shall terminate and no payment shall be made for such Units.

         SECTION 3.     In order to elect to exercise the Award for Units
which are then exercisable, the Executive shall give to the Company a written
notice of election on a form provided by the Company. Such notice shall be
deemed to have been given when it is physically received in the corporate
offices of the Company in Topeka, Kansas or at such other place as the Company
shall establish in a written notice to Executive.

         SECTION 4.     Upon the exercise of the Award, the Executive shall be
entitled to receive the excess of the Fair Market Value over the Exercise Price
of the Units subject to such exercise. The Award shall be paid entirely in cash,
promptly following exercise, in United States dollars or in local currency,
determined on such basis and at such conversion rate as the Committee shall deem
reasonable.

         SECTION 5.

         (a)      In no event may the Award be exercised after the Expiration
Date shown above, provided, however, that the Award may be sooner terminated in
accordance with this Section 5.

         (b)      If the Executive ceases to be an employee of the Company or of
a Subsidiary for any reason other than the Executive's Disability, Retirement,
death, termination by the Company without Cause, or termination by the Executive
with Good Reason, then the Award shall immediately terminate and may not
thereafter be exercised, and no payment shall be made for any such Units.
Executive's employment shall not be deemed to have ceased solely by reason of a
leave of absence (i) during the first 90 consecutive days of a paid military,
sick, family or other bona fide paid leave of absence, or (ii) thereafter, if
Executive has a right of reemployment expressly guaranteed by either statute or
contract. In the event of such a leave of absence, the number of Units for which
the Award may be exercised during the periods described in clauses (i) and (ii)
in the foregoing sentence shall be the number of Units which were exercisable as
of the date that the leave of absence began, subject to the other terms and
conditions of this Section 5.

         (c)      If Executive Retires or becomes Disabled, the term of the
Award shall extend for a period ending on the earliest of (i) the date upon
which the Award would otherwise expire, (ii) three years after such Retirement
(for a reason other than Disability, (iii) twelve months after such Disability.
In the event of Retirement, the number of Units for which the Award may be
exercised after such Retirement shall be the number of Units which were
exercisable as of the date of that Retirement, subject to the other terms and
conditions of this Section 5. Units which were not exercisable as of the date of
such Retirement will no longer be deemed to be outstanding thereafter. In the
event of Disability, the number of Units for which the Award may be exercised
after such Disability shall be number of Units outstanding on the date of
Disability (whether or not the Award was already exercisable on the date of
Disability). For purposes of this Section 5(c), "Retirement" shall be deemed to
include a termination for any reason other than Cause following the Executive's
attainment of age 55.

         (d)      (i) If Executive dies while in the employment of the Company
or a Subsidiary without having fully exercised this Award, the beneficiary
designated by Executive (or, in the absence of such designation, the executor(s)
or administrator(s) or legatee(s) or distributee(s) of Executive's estate) shall
have the right to exercise such Award, in whole or in part, during the period
ending on the earlier of (A) the date upon which the Award would otherwise
expire, or (B) three years after the date of death. In that event, the number of
Units for which the Award may be exercised after such death shall be the number
of Units outstanding on the date of death (whether or not the Award was already
exercisable on the date of Death).

                  (ii) If Executive dies during any period following Executive's
Retirement or Disability, without having fully exercised the Award, the
beneficiary designated by Executive (or, in the absence of such designation, the
executor(s) or administrator(s) or legatee(s) or distributee(s) of Executive's
estate) shall have the right to exercise such Award, in whole or in part during
the period ending on the earlier of (A) the date upon which the Award would
otherwise expire, or (B) three years after the date of death. In that event, the
number of Units for which the Award may be exercised after such death shall be
the number of Units for which the Award was exercisable as of the date of
Retirement or Disability and which remain outstanding on the date of Executive's
death.

         (e)      If Executive ceases to be an employee of the Company or of a
Subsidiary by reason of termination of employment by the Company without Cause
or by the Executive with Good Reason, then from and after such date, the Award
shall be exercisable in full and the term of the Award shall extend for a period
ending on the earliest of (i) the date upon which the Award would otherwise
expire, or (ii) twelve months after such termination.

<PAGE>

         (f)      Anything in this Agreement to the contrary notwithstanding,
nothing in this Section 5 or elsewhere in this Agreement shall be deemed or
construed as extending period referred to in Section 5(a) hereinabove.

         (g)      If (a) a Change of Control occurs and (b) Executive is
actively employed on the date of such event, then from and after such date, the
Award shall be exercisable in full.

         SECTION 6.     In the event that there is any change in the capital
structure of the Company through merger, consolidation, reorganization,
recapitalization, spinoff, or otherwise, or if there shall be a dividend greater
than 25% on the Stock or if there shall be a Stock split or a combination of
shares, the number and/or the Exercise Price of Units shall be proportionately
adjusted by the Board as it deems equitable, in its absolute discretion, to
prevent dilution or enlargement of the Award. The issuance of Stock for
consideration and the issuance of Stock rights shall not be considered a change
in the Company's capital structure.

         SECTION 7.     The Award shall be administered by the Committee subject
to all applicable provisions of this Agreement. The Committee is authorized to
construe and interpret this Agreement and to make all determinations and take
all actions necessary or advisable for the administration of the Award. The
Committee shall act by vote or written consent of a majority of its members.

         SECTION 8.

         (a)      Except as provided in subsection (b), the Award is personal to
the Executive, is not transferable or assignable by the Executive to any third
party (except by will or the laws of descent and distribution), and during the
Executive's lifetime, is exercisable by, and payable to, only the Executive.

         (b)      Notwithstanding subsection (a) above, the Executive may
transfer all or any part of the Award, for no consideration, to a Permitted
Transferee, pursuant to a written instrument a copy of which shall be filed with
the Committee. Following the transfer of all or any part of the Award to a
Permitted Transferee, the Permitted Transferee shall have all of the rights and
obligations of the Executive (and shall be subject to all of the terms and
conditions of this Agreement) and the Executive shall not retain any rights with
respect to the transferred Award, except that the payment of any tax
attributable to the exercise of the Award shall remain the obligation of the
Executive, and (ii) the period during which the Award shall become exercisable
or remain exercisable shall depend on the service of the Executive and the
circumstances of his termination of employment. A Permitted Transferee may not
again transfer an Award to another Permitted Transferee. If for any reason an
Award is exercised by a Permitted Transferee other than the Executive, the
Permitted Transferee exercising the Award shall supply the Committee with such
evidence as the Committee may reasonably require to establish the identity of
such person and such person's right to exercise or receive payment under this
Award. For purposes of this subsection (b), the term "Permitted Transferee"
means any member of the Immediate Family of the Executive, any trust of which
all of the primary beneficiaries are the Executive or members of his or her
Immediate Family, or any partnership of which all of the partners are the
Executive or members of his or her Immediate Family. The "Immediate Family" of
the Executive means the his spouse, children, step children, grandchildren,
parents, stepparents, siblings, grandparents, nieces and nephews.

         SECTION 9.     The exercise of the Award shall be subject to the
condition that if at any time the Company shall determine in its discretion that
the satisfaction of withholding tax or other withholding penalties under the
laws of any applicable jurisdiction or the consent or approval of any regulatory
body is necessary or desirable as a condition of, or in connection with, such
exercise, then, in any such event, such exercise shall not be effective unless
such withholding, consent or approval shall have been effected or obtained free
of any conditions not acceptable to Company.

         SECTION 10.    To the extent applicable, as Company may determine, the
Company may deduct from the amount of any payment pursuant to the exercise of
the Award any taxes which may be required by law to be withheld from such
amount.

         SECTION 11.    The Company may deduct from the amounts payable to the
Executive under this Agreement any amounts owed to the Company by the Executive.
Whether or not the Company elects to make any set-off in whole or in part, if
the Company does not recover by means of set-off in the full amount owed by the
Executive, then the Executive agrees to pay immediately the unpaid balance to
the Company.

         SECTION 12.    This Agreement may not be amended, altered or modified,
except by a written instrument signed by both parties, or their respective
successors, and then only with Committee approval.

         SECTION 13.    Nothing in this Agreement shall be deemed by implication
or otherwise to impose any limitation on any right of the Company or any
Subsidiary to terminate the Executive's employment at any time.

         SECTION 14.    Any notice to be given hereunder by the Executive shall
be sent by first-class mail addressed to the Company for the attention of the
Compensation and Benefits Department to:

           Payless ShoeSource, Inc.
           3231 S.E. Sixth Avenue
           Topeka, Kansas 66607

and any notice by the Company to the Executive shall be sent by first-class mail
addressed to the Executive at the address shown on the face of the Agreement or
if an address is not available, to the Executive at the Executive's work
location. Either party may, by notice given to the other in accordance with the
provisions of this Section, change the address to which subsequent notices shall
be sent.

         SECTION 15.    This Agreement shall be governed by the laws of the
State of Kansas. This Agreement may not be modified except in writing signed by
both parties and then only with Committee approval.

         SECTION 16.    Executive acknowledges that Executive has received a
copy of this Agreement, has read and understands the terms of this Agreement and
agrees to all of the terms and conditions provided for in the Agreement.

<PAGE>

Payless ShoeSource, Inc. has caused this agreement to be executed in its
corporate name and Executive has executed the same in evidence of the
Executive's acceptance hereof upon the terms and conditions herein set forth as
of the grant date shown above.

PAYLESS SHOESOURCE, INC.

BY ________________________________________

EXECUTIVE

___________________________________________

<PAGE>

                                                                       EXHIBIT 2

                           PERFORMANCE UNIT AGREEMENT

THIS AWARD AGREEMENT (the "Agreement") is made and entered into as of November
18, 2003 (the "Date of Grant"), by and between Payless ShoeSource, Inc.
("Company"), and Steven J. Douglass ("Employee").

                                    AGREEMENT

1.       GRANT OF AWARD. The Company grants to Employee One Hundred and Forty
         Thousand (140,000) performance units ("Performance Units"), subject to
         the terms, conditions, and adjustments set forth in this Agreement. The
         parties acknowledge that payments under this Agreement are specifically
         excluded from the Company's Supplementary Retirement Plan and shall not
         count towards, or be included in any calculation made under, the
         Company's Supplementary Retirement Plan.

2.       VESTING PERIOD. Subject to the provisions of Section 4, the 140,000
         Performance Units (collectively the "Performance Award") shall vest in
         equal installments of twenty-five percent (25%) beginning on May 23,
         2004 and ending on May 23, 2007, as follows:

<TABLE>
<CAPTION>
    Date                                   Number of Performance Units Which Vest
    ----                                   --------------------------------------
<S>                                        <C>
May 23, 2004                                               35,000
May 23, 2005                                               35,000
May 23, 2006                                               35,000
May 23, 2007                                               35,000
</TABLE>

3.       PAYMENT.

         (a)      Subject to early termination of this Agreement pursuant to
         Section 4 below, as soon as practicable after each of the dates set
         forth above (or the date of full vesting on death or Disability or a
         termination by the Company without Cause or by the Employee for Good
         Reason as described in Section 4), the Company shall pay to Employee
         (or the Employee's designated beneficiary or estate in the event of
         death) a cash payment equal to the fair market value of one (1) share
         of the Company's common stock as determined on the date of vesting, for
         each vested Performance Unit. For this purpose, "fair market value"
         means the average of the high and low prices of the Company's common
         stock on the New York Stock Exchange (or such other stock exchange on
         which the Company's common stock may be listed) on the vesting date. In
         the absence of any listing of the Company's common stock on any
         established stock exchange, fair market value means the fair market
         value of the Company's common stock on the vesting date as determined
         in good faith by the Committee.

         (b)      At the time the Company pays a cash dividend on its common
         stock, the Company will make a cash payment to Employee equal to the
         amount of dividends that Employee would have received if Employee had
         directly owned that number of shares of common stock equal to his
         unvested Performance Units which have not been forfeited pursuant to
         Section 4.

<PAGE>

4.       TERMINATION OF AGREEMENT.

         (a)      Except as provided in subsections (b) and (c), this Agreement
         will terminate and be of no further force or effect and all unvested
         Performance Units shall immediately be forfeited on the date that
         Employee is no longer employed by the Company or any of its
         subsidiaries.

         (b)      Notwithstanding subsection (a), if (i) Employee ceases to be
         an employee of the Company by reason of Disability or death, (ii)
         Employee has been in continuous employment of the Company from the Date
         of Grant through the date of such event, and (iii) such Disability or
         death occurs more than one year after the Date of Grant, then the
         Performance Units shall immediately vest upon the Employee's death or
         termination of employment on account of Disability. As used herein,
         "Disability" means a permanent and total disability which enables the
         Employee to be eligible for and receive a disability benefit under the
         Federal Social Security Act. Employee will, however, be entitled to
         receive any cash payment payable under Section 3 of this Agreement if
         Employee's employment terminates after the date Performance Units have
         vested but before Employee's receipt of payment for such Performance
         Units.

         For purposes of this Section 4(b), the Employee's employment shall not
         be deemed to have ceased solely by reason of a leave of absence (i)
         during the first 90 consecutive days of paid military, sick, family or
         other bona fide paid leave of absence, or (ii) thereafter, if Employee
         has a right of reemployment expressly guaranteed by either statute or
         contract.

         (c)      Notwithstanding subsection (a), if Employee ceases to be an
         employee of the Company or of a Subsidiary by reason of termination of
         employment by the Company without Cause or by the Employee with Good
         Reason, then from and after such date, the Performance Award shall be
         exercisable in full and the Performance Units shall immediately vest
         and become fully payable.

         For purposes of this Section 4(c), the terms "Cause" and "Good Reason"
         have the meanings defined for such terms in the Employment Agreement as
         then in effect between the Company and the Employee (the "Employment
         Agreement") and any termination for Cause shall be effective only if
         accomplished in accordance with any procedural requirements for such
         termination specified in the Employment Agreement.

5.       ADMINISTRATION. The Performance Award shall be administered by the
         Committee subject to all applicable provisions of this Agreement. The
         Committee is authorized to construe and interpret this Agreement and to
         make all determinations and take all actions necessary or advisable for
         the administration of the Performance Award. The Committee shall act by
         vote or written consent of a majority of its members.

6.       CHANGE OF CONTROL.

         (a)      If the Employee has unvested Performance Units outstanding at
         the time the Company experiences a Change of Control, the Performance
         Units shall immediately vest and become fully payable.

                                      -2-

<PAGE>

         (b)      A Change of Control occurs if:

                  (i)      The acquisition by any individual, entity or group
                           (within the meaning of Section 13(d)(3) or 14(d)(2)
                           of the Securities Exchange Act of 1934, as amended
                           (the "Exchange Act")) (a "Person") of beneficial
                           ownership (within the meaning of Rule 13d-3
                           promulgated under the Exchange Act) of 20% or more of
                           either (A) the then-outstanding shares of common
                           stock of the Company (the "Outstanding Company Common
                           Stock") or (B) the combined voting power of the
                           then-outstanding voting securities of the Company
                           entitled to vote generally in the election of
                           directors (the "Outstanding Company Voting
                           Securities"); provided, however, that, for purposes
                           of this Section 6(b), none of the following shall
                           constitute a Change of Control: (i) any acquisition
                           directly from the Company of 30% or less of
                           Outstanding Company Common Stock or Outstanding
                           Company Voting Securities provided that at least a
                           majority of the members of the board of directors of
                           the Company following such acquisition were members
                           of the Incumbent Board at the time of the Board's
                           approval of such acquisition, (ii) any acquisition by
                           the Company, (iii) any acquisition by any employee
                           benefit plan (or related trust) sponsored or
                           maintained by the Company or any affiliated company,
                           or (iv) any acquisition by the Company which, by
                           reducing the number of shares of Outstanding Company
                           Common Stock or Outstanding Company Voting
                           Securities, increases the proportionate number of
                           shares of Outstanding Company Common Stock or
                           Outstanding Company Voting Securities beneficially
                           owned by any Person to 20% or more of the Outstanding
                           Company Common Stock or Outstanding Company Voting
                           Securities; provided, however, that, if such Person
                           shall thereafter become the beneficial owner of any
                           additional shares of Outstanding Company Common Stock
                           or Outstanding Company Voting Securities and
                           beneficially owns 20% or more of either the
                           Outstanding Company Common Stock or the Outstanding
                           Company Voting Securities, then such additional
                           acquisition shall constitute a Change of Control; or

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

                  (iii)    Consummation of a reorganization, merger,
                           consolidation or sale or other disposition of all or
                           substantially all of the assets of the Company (a

                                      -3-

<PAGE>

                           "Business Combination"), in each case, unless,
                           immediately following such Business Combination, (A)
                           more than 50%, respectively, of the then-outstanding
                           shares of common stock and the combined voting power
                           of the then-outstanding voting securities entitled to
                           vote generally in the election of directors, as the
                           case may be, of (x) the corporation resulting from
                           such Business Combination, or (y) a corporation that,
                           as a result of such transaction, owns the Company or
                           all or substantially all of the Company's assets
                           either directly or through one or more subsidiaries,
                           is represented by the Outstanding Company Common
                           Stock and the Outstanding Company Voting Securities
                           (or, if applicable, is represented by shares into
                           which Outstanding Company Common Stock or Outstanding
                           Company Voting Securities were converted pursuant to
                           such Business Combination) in substantially the same
                           proportions as their ownership immediately prior to
                           such Business Combination of the Outstanding Company
                           Common Stock and the Outstanding Company Voting
                           Securities, as the case may be, (B) no Person
                           (excluding any corporation resulting from such
                           Business Combination or any employee benefit plan (or
                           related trust) of the Company or such corporation
                           resulting from such Business Combination)
                           beneficially owns, directly or indirectly, 20% or
                           more of, respectively, the then-outstanding shares of
                           common stock of the corporation resulting from such
                           Business Combination or the combined voting power of
                           the then-outstanding voting securities of such
                           corporation, except to the extent that such ownership
                           existed prior to the Business Combination, and (C) at
                           least a majority of the members of the board of
                           directors of the corporation resulting from such
                           Business Combination were members of the Incumbent
                           Board at the time of the execution of the initial
                           agreement or of the action of the Board providing for
                           such Business Combination; or

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

7.       CHANGE IN CAPITAL STRUCTURE. In the event that there is a change in the
         capital structure of the Company through merger, consolidation,
         reorganization, recapitalization, spin-off or otherwise, or if there
         shall be a stock split or a combination of shares, then the number of
         Performance Units which are awarded under this Agreement may be
         proportionately adjusted by the Committee as it deems equitable, in its
         absolute discretion, to prevent dilution or enlargement of the rights
         of the Employee.

8.       TAX WITHHOLDING. Payments received by the Employee pursuant to Section
         3 of this Agreement will be subject to any and all federal, state, and
         local tax withholding that in the opinion of the Company is required by
         law.

9.       OFFSET. The Company may deduct from the amounts payable to the Employee
         under this Agreement any amounts owed to the Company by the Employee.
         Whether or not the Company elects to make any set-off in whole or in
         part, if the Company does not recover by means of set-off the full
         amount owed by the Employee, then the Employee agrees to pay
         immediately the unpaid balance to the Company.

                                      -4-

<PAGE>

10.      NON-TRANSFERABILITY. Except as provided in subsection (b),

         (a)      Neither this Performance Award nor any rights under this
         Agreement may be assigned, transferred, or in any manner encumbered
         except by will or the laws of descent and distribution, and any
         attempted assignment, transfer, mortgage, pledge or encumbrance except
         as herein authorized, will be void and of no effect.

         (b)      Notwithstanding subsection (a) above, the Employee may
         transfer all or any part of the Performance Award, for no
         consideration, to a Permitted Transferee, pursuant to a written
         instrument a copy of which shall be filed with the Committee. Following
         the transfer of all or any part of the Performance Award to a Permitted
         Transferee, the Permitted Transferee shall have all of the rights and
         obligations of the Employee (and shall be subject to all of the terms
         and conditions of this Agreement) and Employee shall not retain any
         rights with respect to the transferred Performance Award, except that
         the payment of any tax attributable to the exercise of the Performance
         Award shall remain the obligation of the Employee, and (ii) the period
         during which the Performance Award shall become exercisable or remain
         exercisable shall depend on the service of the Employee and the
         circumstances of his termination of employment. A Permitted Transferee
         may not again transfer a Performance Award to another Permitted
         Transferee. If for any reason a Performance Award is exercised by a
         Permitted Transferee other than the Employee, the Permitted Transferee
         exercising the Performance Award shall supply the Committee with such
         evidence as the Committee may reasonably require to establish the
         identity of such person and such person's right to exercise or receive
         payment under this Performance Award. For purposes of this subsection
         (b), the term "Permitted Transferee" means any member of the Immediate
         Family of the Employee, any trust of which all of the primary
         beneficiaries are the Employee or members of his or her Immediate
         Family, or any partnership of which all of the partners are the
         Employee or members of his or her Immediate Family. The "Immediate
         Family" of the Employee means the his spouse, children, step children,
         grandchildren, parents, stepparents, siblings, grandparents, nieces and
         nephews.

11.      GOVERNING LAW. The law of the State of Kansas shall apply to all awards
         and interpretations under this Agreement without regard to the
         application of such state's conflict of laws principles.

12.      NO EMPLOYMENT CONTRACT. Nothing in this Agreement shall be deemed by
         implication or otherwise to impose any limitation on any right of the
         Company to terminate the Employee's employment at any time.

13.      NOTICE. Any notice, consent or demand required or permitted to be given
         under the provisions of this Agreement shall be in writing, and shall
         be signed by the party giving or making the same.

         Any notice to be given hereunder by the Employee shall be sent by
         first-class mail addressed to the Company for the attention of the
         Compensation and Benefits Department to:

                                      -5-

<PAGE>

                             Payless ShoeSource, Inc.
                             3231 S.E. Sixth Avenue
                             Topeka, Kansas 66607

         and any notice by the Company to the Employee shall be sent by
         first-class mail addressed to the Employee at the address listed in the
         Employee's personnel record as the Employee's current place of
         residence. If no such address is available, notice shall be sent by
         mail addressed to the Employee at the Employee's work location. Either
         party may change the address to which notice is to be sent by giving
         notice of the change of address in the manner aforesaid.

14.      AMENDMENT. This Agreement may not be amended, altered or modified,
         except by a written instrument signed by both parties, or their
         respective successors, and then only with Committee approval.

                                      -6-

<PAGE>

Payless ShoeSource, Inc. has caused this Agreement to be executed in its
corporate name and Employee has executed the same in evidence of the Employee's
acceptance hereof upon the terms and conditions herein set forth as of the Date
of Grant.

                                 PAYLESS SHOESOURCE, INC.

                                 By: ___________________________________________

                                 Its: __________________________________________

                                 EMPLOYEE

                                 _______________________________________________
                                 Steven J. Douglass

                                      -7-

<PAGE>

                                                                       EXHIBIT 3

                            MUTUAL WAIVER AND RELEASE

                  THIS MUTUAL WAIVER AND RELEASE (this "Waiver and Release") is
entered into by and between Payless ShoeSource, Inc., a Delaware corporation
(the "Company") and Steven J. Douglass (the "Executive") pursuant to that
certain Employment Agreement executed by and between the Company and the
Executive on the ___ day of October 2003, as amended from time to time (the
"Employment Agreement"). The Company and the Executive hereby agree knowingly
and voluntarily as follows:

                  1.       In consideration of the payments and benefits
pursuant to Paragraph 5(e) of the Employment Agreement (the "Benefits") the
Executive agrees that the Benefits constitute consideration for this agreement
to which the Executive would not otherwise be entitled and are in lieu of any
rights or claims that the Executive may have with respect to separation or
severance benefits, or any other form of remuneration from the Company or any of
its affiliates, and in consideration thereof, after the opportunity to consult
legal counsel, the Executive hereby for himself, and his heirs, agents,
executors, successors, assigns and administrators (collectively, "Related
Parties"), forever releases, remises, and discharges, in all their capacities,
the Company and all of its affiliates or subsidiaries, and any of their present
or former directors, employees, fiduciaries, representatives, officers and
agents, successors and assigns (collectively, the "Releasees") individually and
in their official capacities, of and from all covenants, obligations,
liabilities and agreements, and forever waives all claims, rights and causes of
action whatsoever, in law or in equity, whether known or unknown, asserted or
unasserted, suspected or unsuspected, that the Executive or any Related Parties
ever had, may have in the future or have now in connection with or arising from
the Executive's employment relationship with the Company or termination of the
Executive's employment relationship with the Company; including, without
limitation, any claims, rights and causes of action under United States federal,
state or local law, regulation or decision, and the national or local law
(statutory or decisional) of any foreign country, including, without limitation,
those under the Age Discrimination in Employment Act, as amended 29 U.S.C.
Sections 621 et. seq., the Older Workers Benefit Protection Act, 29 U.S.C.
Section 626

<PAGE>

(f)(1), Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991,
the Americans with Disabilities Act, 42 U.S.C. Sections 12101-12213, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the
Family and Medical Leave Act of 1993, the Fair Labor Standards Act, and any
other similar or related law, regulation or decision relating to or dealing with
discrimination including, without limitation, any claims, rights or causes of
action for punitive damages, attorney's fees, expenses and costs of litigation.
Notwithstanding the foregoing, the Executive and Related Parties do not release
or waive any right or claim (i) the Executive and Related Parties may have to
obtain post-employment payments and benefits and exercise any rights pursuant to
the Employment Agreement or award thereunder (including, but not limited to,
Paragraph 5(e) thereof); (ii) to obtain post-employment payments and benefits
and exercise any rights under any plan or agreement referred to in the
Employment Agreement or award thereunder (including, but not limited to, the
EICP, the ICP, the SRP, the Benefit Plans, the SIP, the Change of Control
Agreement, and the Retiree Medical Plan (all as defined in the Employment
Agreement)); (iii) under ERISA to obtain post-employment payments and benefits
under any employee benefit plan (as defined in ERISA); (iv) for indemnification
under any agreement with or policy of the Company or its affiliates relating to
indemnification of directors or officers or under any provision of the Company's
articles or by-laws relating to indemnification of directors or officers; (v)
under any policy of directors' or officers' liability insurance; (vi) that
arises against the Company after the date of this Waiver and Release; and (vii)
to obtain contribution as permitted by law in the event of entry of judgment
against the Executive and the Company as a result of any act or failure to act
for which the Executive and the Company are jointly liable.

                  2.       The Executive represents that he has not filed, and
will not hereafter file, any claim against the Company relating to his
employment and/or cessation of employment with the Company, or otherwise
involving facts that occurred on or prior to the date that Executive has signed
this Waiver and Release except as permitted under paragraph 1 hereof.

                                      -2-

<PAGE>

                  3.       The Executive understands and agrees that if
Executive commences, continues, joins in, or in any other manner attempts to
assert any claim released herein against the Company, or otherwise violates the
terms of this Waiver and Release, (i) the Executive will cease to have any
further rights to the Benefits from the Company referred to in the first
paragraph of this Waiver and Release and (ii) the Executive shall be required to
return any payments made to the Executive by the Company pursuant to Paragraph
5(e) of the Employment Agreement (together with interest thereon).

                  4.       In consideration for the Executive's release and
waiver of claims herein and other good and valuable consideration, the Company,
on behalf of itself and the Releasees, forever releases, remises and discharges,
in all their capacities, the Executive and the Related Parties, individually and
in their official capacities, of and from all covenants, obligations,
liabilities and agreements, and forever waives all claims, rights and causes of
action whatsoever, in law or in equity, whether known or unknown, asserted or
unasserted, suspected or unsuspected, that the Company or any of the Releasees
ever had, may have in the future or have now in connection with or arising from
the Executive's employment relationship with the Company or termination of the
Executive's employment relationship with the Company; including, without
limitation, any claims, rights and causes of action under United States federal,
state or local law, regulation or decision, and the national or local law
(statutory or decisional) of any foreign country. Notwithstanding the foregoing,
the Company and the Releasees do not release or waive (i) any right or claim
that arises against the Executive after the date of this Waiver and Release,
(ii) any claim against the Executive based on intentional misconduct, fraud,
misappropriation or gross neglect or (iii) any right the Company and the
Releasees may have to obtain contribution as permitted by law in the event of
entry of judgment against the Executive and the Company as a result of any act
or failure to act for which the Executive and the Company are jointly liable.

                  5.       The Executive understands and agrees that the
payments by the Company to the Executive and the signing of this Waiver and
Release by the Executive

                                      -3-

<PAGE>

do not in any way indicate that the Executive has any viable claims against the
Company or that the Company admits any liability to the Executive whatsoever.

                  6.       The Executive affirms that, prior to the execution of
this Waiver and Release, the Executive was advised by an attorney of the
Executive's choice concerning the terms and conditions set forth herein, and
that the Executive was given up to twenty-one (21) days to consider
(notwithstanding the time lapsed, if any, during such twenty-one day period to
review and revise) this Waiver and Release and its consequences. The Executive
has seven (7) days following the Executive's signing of this Waiver and Release
to revoke and cancel the terms and conditions contained herein, and the terms
and conditions of this Waiver and Release shall not become effective or
enforceable until such revocation period has expired.

                                      -4-

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Waiver and
Release this ___ day of _________.

                                     EXECUTIVE:

                                     STEVEN J. DOUGLASS

                                     By: _______________________________________

                                     COMPANY:

                                     PAYLESS SHOESOURCE, INC.

                                     By: _______________________________________
                                         Name:
                                         Title:<PAGE>
                                                                  EXHIBIT 10.24

                           CHANGE OF CONTROL AGREEMENT

         This AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT (this
"Agreement"), is restated as of the 1st day of October, 2003, (the "Restatement
Effective Date") by and between Payless ShoeSource, Inc., a Delaware corporation
(the "Company"), and Steven J. Douglass (the "Executive").

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

                 NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

         SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first
date on which a Change of Control occurs. Notwithstanding anything in this
Agreement to the contrary, if a Change of Control occurs and if the Executive's
employment with the Company is terminated without Cause or for Good Reason
within one year prior to the date on which the Change of Control occurs then
"Effective Date" means the date immediately prior to the date of such
termination of employment unless such termination did not occur at the request
of a third party that has taken steps reasonably calculated to effect a Change
of Control. Further, notwithstanding anything in this Agreement to the contrary,
if a Potential Change of Control occurs and if the Executive's employment with
the Company is terminated as provided in Section 5(e), then "Effective Date"
means the date immediately prior to the date of such termination of employment.

         (b)      "Change of Control Period" means the period commencing on the
Effective Date and ending on the third anniversary thereof.

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

         (d)      "Change of Control" means:

         (1)      The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the

<PAGE>

meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that, for purposes of this Section 1(d), none of the
following shall constitute a Change of Control: (i) any acquisition directly
from the Company of 30% or less of Outstanding Company Common Stock or
Outstanding Company Voting Securities provided that at least a majority of the
members of the board of directors of the Company following such acquisition were
members of the Incumbent Board at the time of the Board's approval of such
acquisition, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any affiliated company, or (iv) any acquisition by the Company which, by
reducing the number of shares of Outstanding Company Common Stock or Outstanding
Company Voting Securities, increases the proportionate number of shares of
Outstanding Company Common Stock or Outstanding Company Voting Securities
beneficially owned by any Person to 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
if such Person shall thereafter become the beneficial owner of any additional
shares of Outstanding Company Common Stock or Outstanding Company Voting
Securities and beneficially owns 20% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, then such additional
acquisition shall constitute a Change of Control; or

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

         (3)      Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, immediately following
such Business Combination, (A) more than 50%, respectively, of the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of (x) the corporation resulting from such
Business Combination, or (y) a corporation that, as a result of such
transaction, owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries, is represented by
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities (or, if applicable, is represented by shares into which Outstanding
Company Common Stock or Outstanding Company

                                      -2-
<PAGE>

Voting Securities were converted pursuant to such Business Combination) in
substantially the same proportions as their ownership immediately prior to such
Business Combination of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement or of the action of the Board
providing for such Business Combination; or

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

         (e)      "Potential Change of Control" means:

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

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

         SECTION 2. TERM OF AGREEMENT AND COVERED EMPLOYMENT. (a) TERM OF
AGREEMENT. This Agreement shall be in effect from the Restatement Effective Date
and shall terminate on the third anniversary thereof; provided, however, that,
commencing on the date one year after the Restatement Effective Date, and on
each annual anniversary of such date (such date and each annual anniversary
thereof, the "Renewal Date"), unless previously terminated, this Agreement shall
be automatically extended so as to terminate three years from such Renewal Date,
unless, at least 60 days prior to the Renewal Date, the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended (a "Nonrenewal Notice"). Notwithstanding the delivery of any such
Nonrenewal Notice, this Agreement shall

                                      -3-
<PAGE>

continue in effect for the Change of Control Period if a Change of Control
occurs during the term of this Agreement.

         (b)      COVERED EMPLOYMENT. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
Change of Control Period.

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

         (2)      During the Change of Control Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Change of Control Period, it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that, to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.

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

                                      -4-
<PAGE>

this Agreement. The Annual Base Salary shall not be reduced after any such
increase and the term "Annual Base Salary" shall refer to the Annual Base Salary
as so increased.

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

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

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

         (5)      EXPENSES. During the Change of Control Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of

                                      -5-
<PAGE>

the Company and the affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and the affiliated companies.

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

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

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

         SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically if the Executive dies
during the Change of Control Period. If the Company determines in good faith
that the Disability (as defined herein) of the Executive has occurred during the
Change of Control Period (pursuant to the definition of "Disability"), it may
give to the Executive written notice in accordance with Section 11(b) of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
"Disability" means the absence of the Executive from the Executive's duties with
the Company on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness that is determined to be total
and permanent by a physician selected by the

                                      -6-
<PAGE>

Company or its insurers and acceptable to the Executive or the Executive's legal
representative.

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

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

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

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

                  (c)      GOOD REASON. The Executive's employment may be
terminated by the Executive for Good Reason. "Good Reason" means in the absence
of a written consent by the Executive:

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

                                      -7-

<PAGE>

         remedied by the Company promptly after receipt of notice thereof given
         by the Executive;

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

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

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

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

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

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

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

                                      -8-
<PAGE>

termination, and (3) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.

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

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

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

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

                           (C)      in lieu of the receipt of shares of common
                  stock of the Company ("Common Stock") issuable upon the
                  exercise of outstanding options (other than stock options
                  qualifying as incentive stock options ("ISOs") under Section
                  422A of the Internal Revenue Code of 1986, as amended (the
                  "Code") which ISOs were granted on or prior to April 15, 1996)
                  ("Options"), stock appreciation rights ("SARs") and
                  performance units ("Units"), if any (the Options, SARs and
                  Units shall be referred to herein collectively as the
                  "Awards"), granted to the Executive under the Company's 1996
                  Stock Incentive Plan or any successor or substitute plans
                  thereto, an amount equal to the product of (i) the excess of
                  (x) in the case of an ISO granted after April 15, 1996, the
                  closing price of Common Stock as reported on the New York
                  Stock Exchange on the Date of

                                      -9-
<PAGE>

                  Termination or the last full trading day immediately prior to
                  the Date of Termination (or, if not listed on such exchange,
                  on a nationally recognized exchange or quotation system on
                  which trading value in the Common Stock is highest) (the
                  "Closing Price") and, in the case of all other Awards, the
                  higher of the Closing Price and the highest per share price
                  for Common Stock actually paid in connection with any Change
                  of Control, over (y) the per share exercise price (if any) of
                  each Award, and (2) the number of shares of Common Stock
                  covered by each such Award, whether or not such Award is
                  exercisable on the Date of Termination; and

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

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

                                      -10-
<PAGE>

         under this Section 5(a)(3) shall survive for the five-year period
         following the Effective Date); and

                  (4)      Notwithstanding any provision in any equity or
         equity-based grant agreement or any other agreement or plan covering
         the Executive, all of the non-competition restrictions imposed on the
         Executive under such equity or equity-based grant agreement shall cease
         to apply for all purposes of such equity or equity-based grant
         agreement, including but not limited to all options, stock appreciation
         rights, and performance units granted to the Executive at any time;

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

                  (6)      to the extent not theretofore paid or provided, the
         Company shall timely pay or provide to the Executive any other amounts
         or benefits required to be paid or provided or that the Executive is
         eligible to receive under any plan, program, policy or practice or
         contract or agreement of the Company and the affiliated companies (such
         other amounts and benefits, the "Other Benefits").

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

                  (c)      DISABILITY. If the Executive's employment is
terminated by reason of the Executive's Disability during the Change of Control
Period, this Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the timely payment
or provision of the Other Benefits. The Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination. With
respect to the provision of the Other Benefits, the term "Other

                                      -11-
<PAGE>

Benefits" as utilized in this Section 5(c) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and the affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and the affiliated
companies and their families.

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

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

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

                                      -12-
<PAGE>

companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement,
except as explicitly modified by this Agreement.

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

                  SECTION 8.  CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

                  (a)      Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company or the affiliated
companies to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise but determined without regard to any additional payments required
under this Section 8) (the "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, collectively, the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (the "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if
it shall be determined that the Executive is entitled to the Gross-Up Payment,
but that the Payments do not exceed 110% of the greatest amount that could be
paid to the Executive such that the receipt of the Payments would not give rise
to any Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made
to the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.

                  (b)      Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up

                                      -13-
<PAGE>

Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") that shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, is not able to make the determinations required
hereunder for any reason, or the Company determines that the Accounting Firm is
precluded from performing such services under applicable independence standards
or otherwise, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder or as a result of a permitted or required
redetermination of the Excise Tax, it is possible that Gross-Up Payments that
will not have been made by the Company should have been made (the
"Underpayment") or that Gross-up Payments that were initially made by the
Company exceeded the amount necessary to reimburse the Executive as contemplated
in the first sentence of Section 8(a) or were not due pursuant to the
application of the last sentence of Section 8(a) ("Overpayment"). In the event
the Company exhausts its remedies pursuant to Section 8(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. The Accounting Firm shall determine the amount of any Overpayment
that has been made and whether any permitted redetermination of the Excise Tax
would result in an Overpayment and such Overpayment shall be promptly paid to
the Company by the Executive to the extent he is entitled to a refund on account
of such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code from the date of such entitlement). It is the intent of
this provision that the Gross-Up Payment reflect the Excise Tax liability, if
any, actually incurred by the Executive in the opinion of the Accounting Firm.

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

                                      -14-
<PAGE>

taxes with respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that the Company desires to
contest such claim, the Executive shall:

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

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

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

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

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

                  (d)      If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund

                                      -15-
<PAGE>

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

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

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

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

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

                                      -16-
<PAGE>

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

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

                  If to the Executive:
                  Steven J. Douglass
                  Payless ShoeSource, Inc.
                  3231 SE Sixth Avenue
                  Topeka, Kansas 66607

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

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

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

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

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

                  (f)      From and after the Effective Date or the date that a
Potential Change of Control occurs, and except as expressly set forth herein,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof, including the Amended and Restated
Employment Agreement, dated October 1,

                                      -17-
<PAGE>

2003 (the "Employment Agreement"); provided, however, in no event shall this
Agreement supersede or replace the Indemnification Agreement between the
Executive and the Company, dated as of March 22, 2000 as from time to time
amended prior to the Effective Date; and provided further that, to the extent
not inconsistent with any provision hereof, the following provisions of the
Employment Agreement shall remain in effect during the Change of Control Period:
Paragraphs 1(g)(ii) (relating to the grant of certain equity-based awards),
1(g)(iii) (relating to the Executive's benefit under the SRP (as defined in the
Employment Agreement)), 1(g)(iv) (relating to the Executive's entitlement under
the Retiree Medical Plan (as defined in the Employment Agreement)), 3 (relating
to non-competition), 5(d) and 5(e)(iv) (relating to vesting and exercisability
of certain equity awards), and 8(a) (relating to certain remedies that the
Company and the Executive shall have).

                                      -18-
<PAGE>

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

                             /s/ Steven J. Douglass
                             ---------------------------------------------------
                                         Steven J. Douglass

                             PAYLESS SHOESOURCE, INC.

                             By /s/ Jay A. Lentz
                                -----------------------------------------------
                                Name:  Jay A. Lentz
                                Title: Senior Vice President -- Human Resources

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