Document:

exv10w2w1

 

	 	 	 
	BANK OF AMERICA, N.A.

	 	BANC OF AMERICA SECURITIES LLC
	700 Louisiana, 8th  Floor

	 	214 North Tryon St., 18th  Floor
	Houston, Texas 77002

	 	Charlotte, North Carolina 28255
	 
	 	 
	JPMORGAN CHASE BANK, N.A.

	 	J.P. MORGAN SECURITIES INC.
	600 Travis St., 20th Floor

	 	600 Travis St., 20th Floor
	Houston, Texas 77002

	 	Houston, Texas 77002
	 
	July 6, 2007
	 	 

Devon Energy Corporation

20 North Broadway, Suite 1500

Oklahoma City, Oklahoma 73102-8260

Attention: Jeff Agosta

          Re: $1,000,000,000 Senior Credit Facility

Ladies and Gentlemen:

Bank of
America, N.A. (“Bank of America”) is pleased to commit to be the sole and exclusive
administrative agent (in such capacity, the “Administrative Agent”) for the Senior Credit Facility
(as defined in the Summary of Terms and Conditions) for Devon Energy Corporation (the “Borrower”),
and each of Bank of America and JPMorgan Chase Bank, N.A. (“JPMorgan”) is pleased to commit to
lend up to $150,000,000 of the Senior Credit Facility, upon and subject to the terms and
conditions of this letter and the Summary of Terms and Conditions attached hereto (the “Summary of
Terms”). The commitments of Bank of America and JPMorgan hereunder are several and not joint
obligations.

Banc of America Securities LLC (“BAS”) and J.P. Morgan Securities, Inc. (“JPMS”) are pleased to
advise you of their willingness in connection with the foregoing commitments to act as joint lead
arrangers and book managers (in such capacities, the “Joint Lead Arrangers”) for the Senior Credit
Facility and to use their best efforts to form a syndicate of financial institutions (the
“Lenders”) reasonably acceptable to you for the Senior Credit Facility.

Bank of America will act as sole and exclusive Administrative Agent for the Senior Credit Facility
and BAS and JPMS will act as Joint Lead Arrangers for the Senior Credit Facility. No additional
agents, co-agents or arrangers will be appointed and no other titles will be awarded without our
prior written approval. You hereby agree that, effective upon your acceptance of this Commitment
Letter and continuing through August 17, 2007, you shall not solicit any other bank, investment
bank, financial institution, person or entity to provide, structure, arrange or syndicate the
Senior Credit Facility or any other senior bank-style financing similar to or as a replacement of
the Senior Credit Facility.

The
commitments of Bank of America and JPMorgan hereunder and the undertakings of the Joint Lead
Arrangers to provide the services described herein are subject to the satisfaction of each of the
following conditions precedent in a manner reasonably acceptable to Bank of America, JPMorgan and
the Joint Lead Arrangers (the “Bank Parties”): (a) the accuracy and completeness in all material
respects of all

			
	 	 	 
	
	 	

 

 

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July 6, 2007

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representations that you and your affiliates make to the Bank Parties and your compliance
in all material respects with the terms of this Commitment Letter (including the Summary of Terms)
and the Fee Letter (as hereinafter defined); (b) prior to and during the syndication of the Senior
Credit Facility there shall be no competing offering, placement or arrangement of any syndicated
bank financing by or on behalf of the Borrower or any of its subsidiaries; (c) the negotiation,
execution and delivery of definitive documentation for the Senior Credit Facility consistent with
the Summary of Terms and otherwise reasonably satisfactory to the Bank Parties (“Definitive
Documentation”); (d) no information or development existing as of the date hereof is disclosed to
or discovered by any Bank Party that was not otherwise available to such Bank Party on or prior to
the date hereof which could reasonably be expected to have a Material Adverse Effect on the
Borrower; and (e) the absence of any change, effect or development since the date hereof which
could reasonably be expected to have a Material Adverse Effect on the Borrower. The commitments of
Bank of America and JPMorgan hereunder are further subject to the condition that commitments shall
have been received from other Lenders for the remaining $700,000,000 of the Senior Credit Facility
on the terms and conditions referred to herein and in the Summary of Terms.

For purposes of this letter, the term “Material Adverse Effect” means, when used in connection with
a specified person, any change or effect (or any development that, insofar as can reasonably be
foreseen, is likely to result in any change or effect) that is materially adverse to the business,
properties, assets and liabilities (taken together), financial condition or results of operations
of such person, and its subsidiaries taken as a whole; provided, however, that (i) any adverse
change, effect or development that is caused by or results from conditions affecting the United
States economy generally or the economy of any nation or region in which such person or its
subsidiaries conducts business that is material to the business of such person and its
subsidiaries, taken as whole, shall not be taken into account in determining whether there has
been (or whether there could reasonably be foreseen) a “Material Adverse Effect” with respect to
such person, and (ii) any adverse change, effect or development that is caused by or results from
conditions generally affecting the industries (including the oil and gas industry) in which such
person conducts its business shall not be taken into account in determining whether there has been
(or whether there could reasonably be foreseen) a “Material Adverse Effect” with respect to such
person.

The Joint Lead Arrangers intend to commence syndication efforts promptly after your acceptance of
this Commitment Letter and the Fee Letter. You agree to actively assist the Joint Lead Arrangers in
achieving a syndication of the Senior Credit Facility that is reasonably satisfactory to you and
the Joint Lead Arrangers. Such assistance shall include (a) your providing and using your
commercially reasonable best efforts to cause your advisors to provide the Bank Parties and the
other Lenders upon request with all information reasonably deemed necessary by the Bank Parties to
complete syndication; (b) your assistance in the preparation of an Information Memorandum to be
used in connection with the syndication of the Senior Credit Facility; (c) your using commercially
reasonable best efforts to ensure that the syndication efforts of the Joint Lead Arrangers benefit
materially from your existing lending and investment banking relationships; and (d) otherwise
assisting the Joint Lead Arrangers in their syndication efforts, including by making the senior
management and advisors of the Borrower and its subsidiaries available from time to time to attend
and make presentations regarding the business and prospects of the Borrower and its subsidiaries,
as appropriate, at one or more meetings of prospective Lenders.

			
	 	 	 
	
	 	

 

 

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It is understood and agreed that the Joint Lead Arrangers will manage and control all
aspects of the syndication in consultation with you, including decisions as to the selection of
prospective Lenders and any titles offered to proposed Lenders, when commitments will be accepted
and the final allocations of the commitments among the Lenders. It is understood and agreed that
no Lender participating in the Senior Credit Facility will receive compensation from you in order
to obtain its commitment, except on the terms contained herein and in the Summary of Terms or as
otherwise consented to by the Bank Parties. It is also understood and agreed that the amount and
distribution of the fees among the Lenders will be determined by the Borrower, the Administrative
Agent and the Joint Lead Arrangers.

You hereby represent, warrant and covenant that (a) all information (other than the Projections
(defined below)) which has been or is hereafter made available to the Joint Lead Arrangers, the
Administrative Agent or the Lenders by you or any of your representatives (or on their behalf) in
connection with the transactions contemplated hereby (the “Information”), when taken as a whole, is
and will be complete and correct in all material respects and does not and will not contain any
untrue statement of a material fact or omit to state a material fact (other than industry-wide
risks normally associated with the types of businesses conducted by the Borrower and its
subsidiaries) necessary to make the statements contained therein not materially misleading in light
of the circumstances under which such statements are made, provided that all such Information and
Projections are to be viewed in conjunction with all reports, statements, schedules and other
information included in filings made by the Borrower and its subsidiaries with the Securities and
Exchange Commission, and (b) all financial projections concerning the Borrower and its subsidiaries
that have been or are hereafter made available to the Joint Lead Arrangers, the Administrative
Agent or the Lenders by you or any of your representatives in connection with the transactions
contemplated hereby (the “Projections”) have been or will be prepared in good faith based upon
assumptions you believe to be reasonable. You agree to furnish us with such Information and
Projections as we may reasonably request and to supplement the Information and the Projections from
time to time until the execution of the Definitive Documentation so that the representation and
warranty contained in the immediately preceding sentence is materially correct on the date of such
execution. You understand that in issuing this commitment and in arranging and syndicating the
Senior Credit Facility, the Bank Parties are and will be using and relying on the Information and
the Projections (collectively, the “Pre-Commitment Information”) without independent verification
thereof.

You acknowledge that (a) one or more of the Bank Parties on your behalf will make available the
Pre-Commitment Information to the proposed syndicate of Lenders by posting the Pre-Commitment
Information on IntraLinks or another similar electronic system and (b) certain prospective Lenders
(such Lenders, “Public Lenders”; all other Lenders,
“Private Lenders”) may have personnel that do
not wish to receive material non-public information (within the meaning of the United States
federal securities laws, “MNPI”) with respect to the Borrower or its affiliates, or the respective
securities of any of the foregoing, and who may be engaged in investment and other market-related
activities with respect to such entities’ securities. If requested, you will assist us in
preparing an additional version of the Pre-Commitment Information not containing MNPI (the “Public
Information Materials”) to be distributed to prospective Public Lenders.

Before distribution of any Pre-Commitment Information (a) to prospective Private Lenders, you shall
provide us with a customary letter authorizing the dissemination of the Pre-Commitment Information
and (b) to prospective Public Lenders, you shall provide us with a customary letter authorizing the
dissemination of the Public Information and confirming the absence of MNPI therefrom. In addition,
at

			
	 	 	 
	
	 	

 

 

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our request, you shall identify Public Information Materials by clearly and conspicuously
marking the same as “PUBLIC”.

You agree that any of the Bank Parties on your behalf may distribute the following documents to
all prospective Lenders, unless you advise the Bank Parties in writing (including by email) within
a reasonable time prior to their intended distributions that such material should only be
distributed to prospective Private Lenders: (a) administrative materials for prospective Lenders
such as lender meeting invitations and funding and closing memoranda, (b) notifications of changes
to Senior Credit Facility’s terms and (c) other materials intended for prospective Lenders after
the initial distribution of the Pre-Commitment Information, including drafts and final versions of
definitive documents with respect to the Senior Credit Facility. If you advise us that any of the
foregoing items should be distributed only to Private Lenders, then the Bank Parties will not
distribute such materials to Public Lenders without further discussions with you. You agree
(whether or not any Pre-Commitment Information is marked “PUBLIC”) that Pre-Commitment Information
made available to prospective Public Lenders in accordance with this Commitment Letter shall not
contain MNPI.

By executing this Commitment Letter, you agree to reimburse the Joint Lead Arrangers and the
Administrative Agent from time to time on written demand therefor for all reasonable and
documented out-of-pocket fees and expenses (including, but not limited to, the reasonable and
documented fees, disbursements and other charges of Thompson & Knight L.L.P., as counsel to the
BAS and the Administrative Agent and due diligence expenses) incurred in connection with the
Senior Credit Facility, the syndication thereof and the preparation of the Definitive
Documentation therefor.

You agree to indemnify and hold harmless each of the Joint Lead Arrangers, the Administrative
Agent, each Lender and each of their affiliates and their respective officers, directors,
employees, agents, advisors and other representatives (each, an
“Indemnified Party”) from and
against (and will reimburse each Indemnified Party as the same are incurred for) any and all
claims, damages, losses, liabilities and expenses (including, without limitation, the reasonable
and documented fees, disbursements and other charges of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of or in connection
with or by reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith) (a) any matters
contemplated by this Commitment Letter or any related transaction or (b) the Senior Credit Facility
or any use made or proposed to be made with the proceeds thereof (in all cases, whether or not
caused by or arising, in whole or in part, out of the negligence of the Indemnified Party), except
to the extent such claim, damage, loss, liability or expense is found in a final judgment by a
court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or
willful misconduct. You shall not be liable for any settlement of any such proceeding effected
without your written consent, but if settled with such consent or if there shall be a final
judgment for the plaintiff, you shall indemnify the Indemnified Parties from and against any loss
or liability by reason of such settlement or judgment subject to your rights in this paragraph to
claim exemption from your indemnity obligations. You shall not, without the prior written consent
of any Indemnified Party, effect any settlement of any pending or threatened proceeding in respect
of which such Indemnified Party is or could reasonably be expected to become a party and indemnity
could have been sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability or claims that are the subject
matter of such proceeding. In the case of an investigation, litigation or proceeding to which the
indemnity in this paragraph applies, such indemnity shall be effective whether or

			
	 	 	 
	
	 	

 

 

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not such investigation, litigation or proceeding is brought by you, your equity holders or
creditors or an Indemnified Party, whether or not an Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are consummated. You also agree
that no Indemnified Party shall have any liability (whether direct or indirect, in contract or
tort or otherwise) to you or your subsidiaries or affiliates or to your or their respective equity
holders or creditors arising out of, related to or in connection with any aspect of the Senior
Credit Facility, except to the extent of direct, as opposed to special, indirect, consequential or
punitive, damages determined in a final judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party’s gross negligence or willful misconduct. It is further
agreed that Bank of America and JPMorgan shall only have liability to you (as opposed to any other
person), that each of Bank of America and JPMorgan shall be liable
solely in respect of its own
commitment to the Senior Credit Facility on a several, and not joint, basis with any other Lender,
and that such liability shall only arise to the extent damages have been caused by a breach of
Bank of America’s or JPMorgan’s obligations hereunder to negotiate in good faith Definitive
Documentation for the Senior Credit Facility on the terms set forth herein as determined in a
final judgment by a court of competent jurisdiction. Notwithstanding any other provision of this
Commitment Letter, no Indemnified Party shall be liable for any damages arising from the use by
others of information or other materials obtained through electronic telecommunications or other
information transmission systems except to the extent such damages are found in a final judgment
of a court of competent jurisdiction to have resulted from such Indemnified Party’s gross
negligence or willful misconduct.

This Commitment Letter relating to the arrangement, management and structure of the Senior Credit
Facility and the separate Fee Letters of even date herewith among you and the various Bank Parties
relating to arrangement fees, the upfront fees and the Administrative Agent’s fees (collectively,
the “Fee Letter”) and the contents hereof and thereof are confidential and, except for disclosure
hereof or thereof on a confidential basis to your accountants, attorneys and other professional
advisors retained by you in connection with the Senior Credit Facility or as otherwise required by
law (including any judicial or administrative proceeding), may not be disclosed in whole or in part
to any person or entity without our prior written consent; provided, however, it is understood and
agreed that you may disclose this Commitment Letter (including the Summary of Terms) but not the
Fee Letter after your acceptance of this Commitment Letter and the Fee Letter, in filings with the
Securities and Exchange Commission and other applicable regulatory authorities and stock exchanges.
The Bank Parties shall be permitted to use information related to the syndication and arrangement
of the Senior Credit Facility in connection with marketing, press releases or other transactional
announcements or updates provided to investor or trade publications, provided that the content and
final form of any such press releases/transactional updates shall be reasonably acceptable to the
Borrower. The Bank Parties hereby notify you that pursuant to the requirements of the USA Patriot
Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Act”), each of them is
required to obtain, verify and record information that identifies you, which information includes
your name and address and other information that will allow the Bank Parties to identify you in
accordance with the Act.

You acknowledge that the Bank Parties or their affiliates may be providing financing or other
services to parties whose interests may conflict with yours. The Bank Parties agree that they will
not furnish confidential information obtained from you to any of their other customers and that
they will treat confidential information relating to you and your affiliates with the same degree
of care as they treat their own confidential information. The Bank Parties further advise you that
they will not make available to you confidential information that they have obtained or may obtain
from any other customer.

			
	 	 	 
	
	 	

 

 

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In connection with the services and transactions contemplated hereby, you agree that the Bank
Parties are permitted to access, use and share with any of their bank or non-bank affiliates,
agents, advisors (legal or otherwise) or representatives any information concerning you or any of
your affiliates that is or may come into the possession of the Bank Parties or any of such
affiliates. Each of the Bank Parties agrees to keep confidential the information furnished or made
available to it pursuant to this Commitment Letter; provided that nothing herein shall prevent
such Bank Party from disclosing any information furnished or made available to it by the Borrower
(i) to any Lender that agrees to keep such information confidential on substantially similar
terms, (ii) as required by any law, rule, or regulation or upon the order of any court,
administrative agency or regulatory authority; provided that such Bank Party shall notify the
Borrower if such disclosure is required unless it is prohibited from doing so under any such order
or applicable law, (iii) that is or becomes available to the public or that is or becomes
available to us, other than (x) as a result of a disclosure by such Bank Party prohibited by this
Commitment Letter or by any other confidentiality agreement entered into by such Bank Party with
respect to such information or (y) from a source which such Bank Party knows was required to keep
such information confidential, (iv) in connection with any litigation to which any Indemnified
Party may be a party with respect to this Commitment Letter, the Fee Letter, or the transactions
contemplated hereby or thereby and (v) as expressly permitted by this Commitment Letter with
respect to marketing, press releases or other transactional updates reasonably acceptable to the
Borrower.

In connection with all aspects of each transaction contemplated by this letter, you acknowledge and
agree, and acknowledge your affiliates’ understanding, that: (i) the Senior Credit Facility and any
related arranging or other services described in this letter is an arm’s-length commercial
transaction between you and your affiliates, on the one hand, and the Bank Parties, on the other
hand, and you are capable of evaluating and understanding and understand and accept the terms,
risks and conditions of the transactions contemplated by this letter; (ii) in connection with the
process leading to such transaction, each of the Bank Parties is and has been acting solely as a
principal and is not the financial advisor, agent or fiduciary, for you or any of your affiliates,
stockholders, creditors or employees or any other party; (iii) none of the Bank Parties has assumed
or will assume an advisory, agency or fiduciary responsibility in your or your affiliates’ favor
with respect to any of the transactions contemplated hereby or the process leading thereto
(irrespective of whether any of the Bank Parties has advised or is currently advising you or your
affiliates on other matters) and none of the Bank Parties has any obligation to you or your
affiliates with respect to the transactions contemplated hereby except those obligations expressly
set forth in this letter; (iv) the Bank Parties and their respective affiliates may be engaged in a
broad range of transactions that involve interests that differ from yours and your affiliates and
the Bank Parties have no obligation to disclose any of such interests by virtue of any advisory,
agency or fiduciary relationship; and (v) the Bank Parties have not provided any legal, accounting,
regulatory or tax advice with respect to any of the transactions contemplated hereby and you have
consulted your own legal, accounting, regulatory and tax advisors to the extent you have deemed
appropriate. You hereby waive and release, to the fullest extent permitted by law, any claims that
you may have against the Bank Parties with respect to any breach or alleged breach of agency or
fiduciary duty arising out of or related to any of the transactions contemplated hereby or the
process leading thereto.

The provisions of the immediately preceding six paragraphs shall remain in full force and effect
regardless of whether any Definitive Documentation for the Senior Credit Facility shall be
executed and delivered, and notwithstanding the termination of this letter or any commitment or
undertaking hereunder, but upon the execution of Definitive Documentation, any matter which is
expressly covered during the

			
	 	 	 
	
	 	

 

 

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applicable time period by comparable provisions of the Definitive Documentation shall be
deemed, on a prospective basis, to be superseded by the comparable provisions, if any, of such
Definitive Documentation.

This Commitment Letter and the Fee Letter may be executed in counterparts which, taken together,
shall constitute an original. Delivery of an executed counterpart of this Commitment Letter or the
Fee Letter by telecopier or facsimile shall be effective as delivery of a manually executed
counterpart thereof.

This Commitment Letter and the Fee Letter shall be governed by, and construed in accordance with,
the laws of the State of New York. Each of you and the Bank Parties hereby irrevocably waives any
and all right to trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Commitment Letter (including,
without limitation, the Summary of Terms), the Fee Letter, the transactions contemplated hereby
and thereby or the actions of the Bank Parties in the negotiation, performance or enforcement
hereof. The commitments and undertakings of the Bank Parties may be terminated by us, if you fail
to perform your obligations under this Commitment Letter or the Fee Letter on a timely basis.

Any legal action or proceeding with respect to this Commitment Letter or the Fee Letter may be
brought in the courts of the State of New York sitting in New York City or of the United States for
the Southern District of such state, and by execution and delivery of this Commitment Letter, the
Borrower and each Bank Party consents, for itself and in respect of its property, to the
non-exclusive jurisdiction of those courts. The Borrower and each Bank Party irrevocably waives any
objection, including without limitation any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action
or proceeding in such jurisdiction in respect of this Commitment Letter or the Fee Letter. The
Borrower and each Bank Party waives personal service of any summons, complaint or other process,
which may be made by any other means permitted by the law of such state.

This Commitment Letter, together with the Summary of Terms and the Fee Letter, embodies the entire
agreement and understanding among the Bank Parties, you and your affiliates with respect to the
Senior Credit Facility and supercedes all prior agreements and understandings relating to the
specific matters hereof. However, please note that the terms and conditions of the commitments of
Bank of America and JPMorgan and the undertakings of the Joint Lead Arrangers hereunder are not
limited to those set forth herein or in the Summary of Terms. Those matters that are not covered
or made clear herein or in the Summary of Terms or the Fee Letter are subject to mutual agreement
of the parties. No party has been authorized by any Bank Party to make any oral or written
statements that are inconsistent with this Commitment Letter. This Commitment Letter is not
assignable by any Borrower without our prior written consent and is intended to be solely for the
benefit of the parties hereto and the Indemnified Parties.

This offer will expire at 5:00 p.m. Central Daylight Time on July 11, 2007 unless you execute this
letter and the Fee Letter and return them to us prior to that time (which may be by facsimile
transmission), whereupon this letter and the Fee Letter (each of which may be signed in one or
more counterparts) shall become binding agreements. Thereafter, this undertaking and commitment
will expire on August 17, 2007 unless Definitive Documentation for the Senior Credit Facility is
executed and delivered prior to such date.

			
	 	 	 
	
	 	

 

 

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THIS WRITTEN AGREEMENT (WHICH INCLUDES THE SUMMARY OF TERMS) AND THE FEE LETTER REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

[The balance of this page is intentionally left blank]

			
	 	 	 
	
	 	

 

 

We are pleased to have the opportunity to work with you in connection with this important
financing.

	 	 	 	 	 
	 	Very truly yours,

BANK OF AMERICA, N.A.

 	 
	 	By:  	/s/ Gabe Gomez
 	 
	 	 	Name:  	Gabe Gomez 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	BANC OF AMERICA SECURITIES LLC

 	 
	 	By:  	/s/ Allison Randall
 	 
	 	 	Name:  	Allison Randall 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	JPMORGAN CHASE BANK, N.A.

 	 
	 	By:  	/s/ Robert W. Traband
 	 
	 	 	Name:  	Robert W. Traband 	 
	 	 	Title:  	Executive Director 	 
	 

	 	 	 	 	 
	 	J. P. MORGAN SECURITIES INC.

 	 
	 	By:  	/s/ Lisa Koptf
 	 
	 	 	Name:  	Lisa Koptf 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	DEVON ENERGY CORPORATION

 	 
	 	By:  	/s/ Jeffrey A. Agosta
 	 
	 	 	Name:  	Jeffrey A. Agosta 	 
	 	 	Title:  	Vice President, Corporate Finance
and Treasurer 	 
	 

 

 

SUMMARY OF TERMS AND CONDITIONS

DEVON ENERGY CORPORATION

$1,000,000,000 364-DAY SENIOR CREDIT FACILITY

	 	 	 
	Borrower:

	 	Devon Energy Corporation, a Delaware corporation (“Borrower”).
	 
	 	 
	Guarantors

	 	The Senior Credit Facility (defined below) shall be
guaranteed by Devon Financing Corporation, U.L.C. (the
“ULC”). The
guarantee shall have the same terms as the guarantee of the
Existing Senior Credit Facility (defined below).
	 
	 	 
	Administrative Agent:

	 	Bank of America, N.A. (the
“Administrative Agent” or “Bank of
America”) will act as sole and exclusive administrative agent
under the Senior Credit Facility.
	 
	 	 
	Joint Lead Arrangers and
Book Managers:

	 	Banc of America Securities LLC and J.P. Morgan Securities Inc.
(the “Joint Arrangers”).
	 
	 	 
	Lenders:

	 	A syndicate of financial institutions including Bank of America
and JPMorgan Chase Bank, N.A. (“JP Morgan”) arranged by the Joint
Arrangers, which institutions shall be acceptable to the Borrower
and the Administrative Agent.
	 
	 	 
	Facility Amount:

	 	$1 billion or such other amount as provided for under the
Accordion section of this Summary of Terms and Conditions, but in
no event to exceed $2 billion.
	 
	 	 
	Type of Facility:

	 	364-day revolving credit facility with Term-Out Option (the
“Senior Credit Facility”).
	 
	 	 
	Accordion:

	 	The Borrower shall have the right, without the consent of any
of the Lenders but with the prior approval of the Administrative
Agent, to cause from time to time an increase in the amount of the
Senior Credit Facility in minimum increments of $50,000,000 up to
$2 billion, by adding one or more additional Lenders or by
allowing one or more Lenders to increase their respective
commitments, provided that no default under the Senior Credit
Facility has occurred that is then continuing.
	 
	 	 
	Closing Date:

	 	The execution of definitive loan documentation, to occur on or
before August 17, 2007 or such later date as may be agreed upon by
the Borrower, the Administrative Agent and the Joint
Arrangers (the “Closing Date”).

	 	 	 
	
	 	

 

 

	 	 	 
	Purpose:

	 	The proceeds of the Senior Credit
Facility shall be used for short to
medium-term liquidity needs, including, but
not limited to, commercial paper backstop
and general corporate purposes.
	 
	 	 
	Interest Rates:

	 	As set forth in Addendum I.
	 
	 	 
	Maturity:

	 	The Senior Credit Facility shall terminate
and all amounts outstanding thereunder
shall be due and payable 364 days from the
Closing Date, subject to the Borrower’s
election of the Term-Out Option.
	 
	 	 
	Term-Out Option:

	 	Provided that (i) no default or event of
default under the Senior Credit Facility
shall have occurred and be then
continuing and (ii) all representations
and warranties (including without
limitation the representation and
warranty as to no material adverse change
and no material litigation) are true and
correct as of the date of conversion, the
outstanding principal amount of loans under
the Senior Credit Facility on such maturity
date may, at the Borrower’s election and
without the consent of any Lender, be
converted to a term loan which will be
repayable in a single payment 12 months
from such maturity date.
	 
	 	 
	Financial Covenant:

	 	Funded Debt to Total Capitalization of 65%.
	 
	 	 
	Representations,
Warranties, Covenants And
Events Of Default:

	 	The Senior Credit Facility will
have substantially the same
representations and warranties, affirmative
and negative covenants, and events of
default as those set forth in the Credit
Agreement effective as of April 7, 2006, as
amended (the “Existing Senior Credit
Facility”), among the Borrower, the
Canadian Borrowers (as defined therein),
the Administrative Agent and certain
lenders, modified as appropriate for the
Senior Credit Facility in a manner
reasonably acceptable to the Borrower, the
Administrative Agent, the Joint Arrangers
and the Lenders reflecting, among other
things, the terms and conditions set forth
herein and in the Commitment Letter and the
Fee Letter for the Senior Credit Facility.
	 
	 	 
	Conditions Precedent

To Closing:

	 	The effectiveness (and the initial funding)
of the Senior Credit Facility will be
subject to satisfaction of the conditions
precedent deemed reasonably appropriate by
the Administrative Agent and the Lenders
including, but not limited to, the
following:
	 
	 	 
	 

	 	(i) The negotiation, execution and
delivery of definitive loan documentation
(the “Definitive Documentation”)
and satisfactory legal opinions and
other customary closing documents for
the Senior Credit Facility satisfactory to
the Joint Arrangers, the Administrative
Agent and the Lenders.

	 
	 	 
	 

	 	(ii) There shall not have occurred an
event which would reasonably be expected to
have a material and adverse effect upon (a)
the

			
	 
	 	 
	
	 	

 

 

	 	 	 
	 

	 	Borrower’s consolidated
financial condition, (b) the
Borrower’s consolidated
operations, properties or
business, considered as a
whole, (c) the Borrower’s
ability to timely pay its
obligations under the Senior
Credit Facility, or (d) the
enforceability of the material
terms of any of the Definitive
Documentation or the Senior
Credit Facility (“Material
Adverse Effect”).

	 
	 	 
	 

	 	(iii) All accrued fees
and expenses of the Joint
Arrangers and the
Administrative Agent
(including without limitation
the fees and expenses of
counsel for the Administrative
Agent) shall have been paid.

	 
	 	 
	 

	 	(iv) The Administrative
Agent shall have received, at
least five business days prior
to the Closing Date, all
documentation and other
information required by
regulatory authorities under
applicable “know your
customer” and anti-money
laundering rules and
regulations, including without
limitation the Patriot Act.

	 
	 	 
	Conditions Precedent To
Each Borrowing, Commitment
Increase and Election of
Term-Out Option:

	 	Each borrowing, the exercise
of the Accordion and the
election of the Term-Out
Option under the Senior Credit
Facility will be subject to
satisfaction of the following
conditions precedent: (i) all
of the representations and
warranties in the Definitive
Documentation shall be true
and correct in all material
respects (except to the extent
that such representations and
warranties specifically refer
to an earlier date, in which
case they shall be true and
correct in all material
respects as of such earlier date); and (ii) no defaults or
events of default shall exist,
or would result from such
proposed borrowing.
	 
	 	 
	Pricing/Fees/ Expenses:

	 	As set forth in Addendum I.

	 	 	 
	
	 	

 

 

ADDENDUM I

PRICING, FEES AND EXPENSES

	 	 	 
	Facility Fee:

	 	The Borrower will pay a fee (the “Facility Fee”), determined in
accordance with the Performance Pricing grid set forth below, on each
Lender’s commitment amount, regardless of usage. The Facility Fee is
payable quarterly in arrears commencing upon the Closing Date.
	 
	 	 
	Utilization Fee:

	 	The Borrower will pay a fee (the
“Utilization Fee”), determined in
accordance with the Performance Pricing grid set forth below, on all
outstanding loans under the Senior Credit Facility if the aggregate
outstanding loans exceed 50% of the aggregate amount of the Senior
Credit Facility. The Utilization Fee is payable quarterly in arrears
commencing upon the Closing Date.
	 
	 	 
	Term-Out Premium:

	 	The Borrower will pay a fee (the “Term-Out Premium”), determined by
multiplying 25 basis points (0.25%) times the outstanding principal
amount of loans under the Senior Credit Facility that are converted
into a term loan on the original maturity date of the Senior Credit
Facility. The Term-Out Premium shall be paid on the original maturity
date of the Senior Credit Facility and will be shared proportionately
by the Lenders under the Senior Credit Facility.
	 
	 	 
	Senior Credit 

Facility Interest 

Rates:

	 	The Senior Credit Facility shall bear interest at a rate as follows:
	 

	 	(a) Each LIBOR Loan shall bear interest at a rate equal to LIBOR
plus the Applicable Margin.
	 
	 	 
	 

	 	(b) Each Base Rate Loan shall bear interest at a rate equal to
the higher of (i) the Bank of America prime rate and (ii) the Federal
Funds rate plus .50%.

	 
	 	 
	 

	 	The Borrower may select interest periods for LIBOR Loans of (i) 1, 2,
3 or 6 months, or (ii) subject to availability from each Lender, 9 or
12 months.
	 
	 	 
	 

	 	A penalty rate shall apply on past due amounts at a rate per annum of
2% above the applicable interest rate.

	 	 	 
	
	 	

 

 

	 	 	 
	Performance Pricing:

	 	The Facility Fee and
Applicable Margin for LIBOR
Loans shall be, at any time,
the rate per annum (expressed
in basis points) set forth in
the table below opposite the
non-credit enhanced senior
unsecured long-term debt
rating of the Borrower by
Standard & Poor’s Ratings
Group and Moody’s Investors
Service Inc. (In the case of a
split rating, the higher
rating will apply and in the
case of a multiple split
rating, the rating that is one
level lower than the higher
rating will apply.)

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	All-in	 	 	 	All-in
	 	 	Senior Unsecured	 	 	 	Applicable Margin	 	Drawn Cost	 	Utilization	 	Drawn Cost
	Level	 	Debt Rating	 	Facility Fee	 	For LIBOR Loans	 	(<50% Usage)	 	Fee	 	(>50% Usage)
	I
	 	3A-/A3
	 	  4.0
	 	21.0
	 	25.0
	 	  5.0
	 	30.0
	II
	 	BBB+/Baa1
	 	  5.0
	 	25.0
	 	30.0
	 	  5.0
	 	35.0
	III
	 	BBB/Baa2
	 	  7.0
	 	33.0
	 	40.0
	 	  5.0
	 	45.0
	IV
	 	BBB-/Baa3
	 	  9.0
	 	46.0
	 	55.0
	 	10.0
	 	65.0
	V
	 	£BB+/Ba1
	 	10.5
	 	59.5
	 	70.0
	 	10.0
	 	80.0

	 	 	 
	Calculation of Interest and
Fees:

	 	Other than calculations in respect
of interest on Base Rate Loans,
(which shall be made on the basis
of actual number of days elapsed
in a 365/366 day year), all
calculations of interest and fees
shall be made on the basis of
actual number of days elapsed in a
360 day year.
	 
	 	 
	Cost and Yield
Protection:

	 	Customary for transactions and
facilities of this type,
including, without limitation, in
respect of breakage or
redeployment costs incurred in
connection with prepayments,
changes in capital adequacy and
capital requirements or their
interpretation, illegality,
unavailability and reserves,
without offset and payments free
and clear of withholding or other
taxes.
	 
	 	 
	Expenses:

	 	The Borrower will pay the expenses
of the Administrative Agent and
each Lender in connection
with the enforcement of any
loan documentation.exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made this       day of      , 2007 (the “Effective Date”), by and
between PAYLESS SHOESOURCE, INC., a Delaware corporation, (“PSS”) and                     
(“Executive”).

WITNESSETH:

     WHEREAS, Payless and its related entities are one of the leading retail companies in the
United States with self service shoe stores throughout the United States, Puerto Rico and the U.S.
Virgin Islands, Guam, Saipan and Canada.

     WHEREAS, PSS conducts its business in part through various direct and indirect subsidiaries
(PSS and its subsidiaries and affiliates being collectively referred to as “Payless”).

     WHEREAS, Executive is employed by Payless as a Senior Vice President pursuant to that certain
Amended and Restated Employment Agreement dated effective as of                      (the “Prior Employment
Agreement”).

     WHEREAS, Executive recognizes and acknowledges that Executive’s position with Payless provides
Executive with access to Payless’ proprietary, trade secret and other confidential information
relating to its business.

     WHEREAS, Payless has expended a great deal of time, money and effort to develop and maintain
its proprietary, trade secret and confidential information; this information, if misused or
disclosed, could be very harmful to Payless’ business and its competitive position in the
marketplace.

     WHEREAS, Executive recognizes and acknowledges that if Executive’s employment with Payless
ceases, Payless needs certain protections to ensure that Executive does not misuse or disclose any
proprietary, trade secret or confidential information entrusted to Executive during the course of
employment or take any other action which could result in a loss of Payless’ good will that was
generated on Payless’ behalf and at its expense, and, more generally, to prevent Executive from
having an unfair competitive advantage over Payless.

     WHEREAS, Executive desires to be employed by Payless, to be eligible for potential
compensation increases and to be given access to proprietary, trade secret and confidential
information of Payless necessary for Executive to perform Executive’s job, but which Payless would
not make available but for Executive’s signing and agreeing to abide by the terms of this
Agreement.

     WHEREAS, the parties desire to terminate the Prior Employment Agreement in its entirety and to
be subject to and bound by the terms and conditions of this Agreement.

     In consideration of the mutual promises and agreements herein contained, and other good and
valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:

 

 

1. Term. This Agreement shall commence on the Effective Date and shall expire on May 31,
2009 (the “Contract Term”), unless sooner terminated in accordance with Paragraph 8 hereof.
Beginning on May 31, 2007, the Contract Term will be automatically extended each day by one day,
until either party delivers to the other written notice of non-renewal.

2. Duties.

     (a) Executive shall perform all duties incident to the position of Senior Vice President, as
well as any other duties as may be assigned from time to time by Payless, and agrees to abide by
all the by-laws, policies, practices, procedures and rules of Payless. Executive agrees to use
Executive’s best efforts, energies and skill to perform the duties and responsibilities of the
position, and to this end will devote Executive’s full time and attention exclusively to the
business of Payless. Executive may be assigned or transferred to another management position, as
designated by Payless, which may or may not provide the same level of responsibility as the initial
assignment. [Inasmuch as Executive is a licensed attorney, this Agreement is intended to take into
account not only Payless’ needs and interests, but also Executive’s ethical and other duties and
responsibilities as an attorney.—only in attorney agreements] This Agreement shall remain in
effect and shall apply to Executive, without any need for re-execution, regardless of the Payless
subsidiary or business division for which Executive works or provides services, or the duties to
which Executive may in the future be assigned.

     (b) At all times during the Contract Term, Executive will maintain Executive’s residence
within reasonable access to the Corporate Headquarters of Payless or any division to which
Executive may be assigned.

3. Compensation; Benefits.

     (a) Base Salary. Payless agrees to pay Executive a base salary during the Contract
Term at the annual rate of $                    , less applicable taxes and withholding, payable in equal
bi-weekly installments, which annual rate will be subject to an annual review, which may result in
an increase or decrease in salary, during Payless’ regularly scheduled review time.

     (b) Incentive Plans. Executive shall be eligible to participate in such annual and
long-term plans, programs or arrangements established from time to time for senior executives of
Payless (the “Incentive Plans”), in accordance with and subject to all of the terms and provisions
of such Incentive Plans.

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

     (d) Benefits. Payless has adopted certain welfare benefit plans (including, but not
limited to, medical, prescription drug, dental, disability, and life insurance) and has established
certain perquisites which may, from time to time, confer rights and benefits on Executive in
accordance with their terms. Payless may also, in the future, adopt additional welfare benefit
plans, establish additional perquisites, or amend, modify or terminate any of the aforesaid welfare
benefit plans and arrangements, all in accordance with their terms and in accordance with
applicable law. Unless effectively waived, Executive shall be entitled to whatever rights

-2-

 

and benefits which may be conferred on Executive, from time to time in accordance with the terms of
such plans and arrangements.

     (e) Stock. Executive will be eligible for future grants of restricted stock,
stock-settled stock appreciation rights, stock options, or performance units, if any, as may be
granted under the terms of the Payless ShoeSource, Inc. 2006 Stock Incentive Plan, in accordance
with the criteria established from time to time by the Compensation Committee of the Payless
ShoeSource, Inc. Board of Directors.

     (f) Automobile Allowance. Executive shall be eligible for an automobile allowance as
determined by Payless from time to time, paid monthly upon written request. The portion of the
allowance that is substantiated as business-related will not be considered taxable.

4. Noncompete.

     (a) At all times during the Contract Term, and for a period of two (2) years immediately
following Executive’s last day of employment with Payless, Executive will not directly or
indirectly:

     (i) own, manage, operate, finance, join, control, or participate in the ownership,
management, operation, financing, or control of, or be a partner in, be employed by, or act
as an advisor, consultant, agent, officer, director, or independent contractor for, or
otherwise have an interest in, a Competing Business; or

     (ii) solicit, induce, hire, or attempt to aid or assist any person or entity other than
Payless in soliciting for employment, offering employment to, or hiring, any employee of
Payless or any person who, at any time during the 12 months prior to the solicitation, was
employed by Payless.

Nothing in this Paragraph 4(a) shall prevent Executive, however, from performing Executive’s
duties and responsibilities for Payless. In addition, 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 4(a)(i). [ Provided Paragraph 4(a) shall not apply to Executive if Executive is
employed by or acting as an advisor to a Competing Business solely in Executive’s capacity
as a lawyer.—only in attorney agreements]

     (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 or accessories in whole or in part competitive to that sold by Payless
(“Competitive Footwear”) (including, without limitation, Wal-Mart Stores, Inc.; Sears
Holdings Corporation; Target Corporation; Foot Star, Inc.; DSW, Inc.; Aldo Shoes, Inc.; Ross
Stores, Inc.; T.J. Maxx; Off-Broadway Shoes; Burlington Coat Factory Warehouse Corporation;
Gennesco Inc.; Brown Shoe Company, Inc.; Shoe Carnival, Inc.; Kohl’s

-3-

 

Corporation; Liz Claiborne, Inc.; Big 5 Sporting Goods Corporation; J.C. Penney
Company; Shoe Zone, Limited; Bata, Limited; Shoes.com; Zappos.com) within 10 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 or wholesale customers;

     (ii) any franchising or wholesaling business with gross sales or revenues 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 revenues in the prior fiscal year of more than
$25 million) which sells Competitive Footwear at wholesale to franchisees, retailers or
other footwear distributors located within 10 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 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 Competitive Footwear to retailers, wholesale customers, or other
footwear distributors located within 10 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 or wholesale customers (including, without limitation, Nine
West Shoes; Dexter Shoe Company; Liz Claiborne, Inc.; Wolverine Worldwide, Inc.; Timberland
Company; Nike, Inc.; Reebok International, Ltd.; K-Swiss, Inc.; and adidas-Salomon AG); or

     (iv) any business which provides buying office services to any store or group of stores
or businesses referred to in Paragraph 4(b).

     (c) Background of non-compete restrictions:

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

     (ii) Executive recognizes and acknowledges that Executive’s position with Payless
provides Executive with access to Payless’ proprietary, trade secret, and confidential
information;

     (iii) Payless compensates its employees 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;

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

-4-

 

     (v) Executive recognizes and acknowledges that if Executive’s employment with Payless
were to cease, Payless would need certain protections in order to ensure that Executive does
not appropriate or use any confidential and proprietary trade secret information entrusted
to Executive during the course of employment 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 restrictions. Executive acknowledges and agrees that the
restrictions in Paragraph 4 are reasonable and that such restrictions are enforceable in view of
the background for the non-compete restrictions set forth in the Paragraph 4(c), and in view of,
among other things, the following:

     (i) the markets in which Payless operates its businesses;

     (ii) the proprietary, trade secret, and other confidential business information to
which Executive has or will have access;

     (iii) Executive’s training and background, which are such that neither Payless nor
Executive believes that the restraint will pose an undue hardship on the Executive or
prevent Executive from finding suitable non-competitive employment during the specified
period of non-competition;

     (iv) a Competing Business could benefit greatly if it were to obtain Payless’
proprietary, trade secret, and other confidential business information;

     (v) Payless would not have adequate protection if Executive is permitted to work for
any Competing Business in violation of this Agreement since Payless would be unable to
verify whether its proprietary, trade secret, and other confidential business information
was being disclosed or misused;

     (vi) the limited duration and limited scope of, and the limited activities prohibited
by, the restrictions in Paragraph 4; and

     (vii) Payless’ legitimate interests in protecting its proprietary, trade secret, and
other confidential business information, goodwill and relationships.

     (e) If Executive violates Executive’s obligations under Paragraph 4, then 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 10 of this Agreement. Further, any time in which
Executive is in violation of Executive’s obligations shall not count toward satisfying the time
during which any injunctive restriction shall apply. For example, if Executive were to join a
competitor in violation of the restrictions in Paragraph 4(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 in which Executive violated the
restriction would not count toward the time that the restriction applies.

-5-

 

     (f) Executive agrees to provide a copy of this Agreement (with Paragraph 3(a) redacted, if
desired) to any prospective employer Executive contacts during or after termination or resignation
of employment. Executive authorizes Payless to contact Executive’s future employers and other
entities with which Executive has any business relationship to determine Executive’s compliance
with this Agreement or to communicate the contents of this Agreement to such employer and entities.
Executive releases Payless, its employees and agents, from all liability for damages arising from
such contact or communications.

5. Confidential Information.

     (a) Executive will not, at any time during the Contract Term or after termination of
employment, directly or indirectly use, make known, disclose, furnish, or make available
Confidential Information (as defined herein), other than in the proper performance of the duties
contemplated herein.

     (b) “Confidential Information” means any non-public information pertaining to Payless’
business disclosed by Payless to Executive, or developed or learned by Executive during the course
of Executive’s Payless employment, including, without limitation, any confidential information and
documents concerning Payless’ customers; customer, supplier, and vendor lists; terms, conditions
and other business arrangements with vendors, suppliers, or factories; contract factory lists;
manufacturing plans; advertising, marketing plans and strategies; pricing information; profit
margins; seasonal plans, goals, objectives and projections; compilations, analyses and projections
regarding Payless’ businesses, product segments, product lines, suppliers, sales and expense
information; patent applications (prior to their being public); salary, staffing and employment
information (including information about performance of other executives); operations manuals;
computer software applications and other programs; techniques, methods, styles, designs and design
concepts, business plans, knowledge and data related to processes, products, compounds,
compositions, formulae, lasts and molds, and “know-how,” techniques or any technical information
not of a published nature relating, for example, to how Payless conducts its business;

     (c) Executive acknowledges that Payless’ business is intensely competitive and that, by virtue
of Executive’s employment with Payless, Executive will have access to and knowledge of Confidential
Information. Executive also agrees that the misuse or direct or indirect disclosure of
Confidential Information to existing or potential competitors of Payless would place it at a
competitive disadvantage and would harm and damage Payless’ business.

     (d) 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 Confidential Information, (ii) assist in preventing any reoccurrence of such possession, use or
knowledge, and (iii) cooperate with Payless in any litigation or other action to protect or
retrieve Confidential Information.

6. Payless Intellectual Property. (a) Executive hereby assigns to Payless all of
Executive’s rights, title, and interest (including but not limited to all patent, trademark,
copyright and trade

-6-

 

secret rights) in and to all Work Product (as defined herein). Executive further acknowledges and
agrees that all copyrightable Work Product prepared by Executive within the scope of Executive’s
employment with Payless are “works made for hire” and, consequently, that Payless owns all
copyrights thereto. For purposes of this Agreement, “Work Product” shall include but is not
limited to, all literary works, software, documentation, memoranda, photographs, artwork, sound
recordings, audiovisual works, ideas, designs, inventions, discoveries, creations, conceptions,
improvements, processes, algorithms, and so forth which (i) are prepared or developed by Executive,
individually or jointly with others, during Executive’s employment with Payless, or within six (6)
months thereafter, whether or not during working hours, and (ii) relate to or arise in any way out
of (1) current and/or anticipated business and/or activities of Payless, (2) Payless’ current
and/or anticipated research or development, (3) any work performed by Executive for Payless, and/or
(4) any information or assistance provided by Payless, including but not limited to Confidential
Information.

     (b) Executive shall promptly disclose to Payless all Work Product. All such Work Product is
and shall forthwith become the property of Payless, or its designee, whether or not patentable or
copyrightable. Executive will execute promptly upon request any documents or instruments at any
time deemed necessary or proper by Payless in order to formally convey and transfer to Payless or
its designee title to such Work Product, or to confirm Payless or its designee’s title therein, and
it order to enable Payless or its designee to obtain and enforce United States and foreign Letters
Patent, Trademarks and Copyrights thereon. Executive will perform Executive’s obligations under
this Paragraph 6 without further compensation, except for reimbursement of reasonable out-of-pocket
expenses incurred at the request of Payless.

7. Disability. If Executive becomes Disabled and remains continuously so Disabled for a
period of 180 days, then Payless’ obligations under this Agreement may be terminated by notice in
writing to that effect during the continuance of such 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. If Executive has made a previous election to participate in the Payless
ShoeSource, Inc. Long-Term Disability Plan (subject to the terms and provisions of that plan), then
the terms of that plan shall apply. “Disability” or “Disabled” shall mean disability as defined
under the Payless ShoeSource, Inc. Long-Term Disability Plan applicable to Executive.

8. Termination.

     (a) For Cause; Voluntary Resignation; Death; Disability. Payless may terminate
Executive’s employment for Cause at any time upon written notice to Executive, with immediate
effect. Executive may voluntarily resign from Payless at any time upon 30 days written notice to
Payless; provided, Payless may require Executive to cease working earlier and which date shall be
the termination date. If Executive’s employment terminates during the Contract Term by reason of
Executive’s death or Disability, by Executive’s voluntary termination of employment, or by Payless
for Cause:

     (i) Executive’s basic compensation and employee benefits shall cease on the date of
such termination or resignation, except as otherwise provided in any applicable employee
benefit plan or program;

-7-

 

     (ii) Executive shall be entitled to receive Executive’s base salary through that date
of termination or resignation (including payment for any accrued but unused vacation),
payable within the first pay period following termination or resignation;

     (iii) Executive will be reimbursed, in accordance with Payless policy, for any business
expenses properly incurred by Executive prior to the date of termination or resignation;

     (iv) Executive shall be entitled to any equity-linked awards, consistent with the terms
of the applicable award agreements;

     (v) Executive shall be entitled to such portion of any long-term cash incentive
compensation as shall be payable under the terms of the Incentive Plans; and

     (vi) Executive will have the opportunity to continue coverage in Payless’ medical,
dental, and vision plans in which Executive is participating on the date of termination or
resignation, through COBRA.

     (b) Without Cause by Payless. Payless may terminate Executive’s employment Without
Cause at any time upon written notice to Executive. If Executive’s employment is terminated
Without 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 employee benefit
plan or program;

     (ii) Executive shall be entitled to receive Executive’s base salary through that
date of termination (including payment for any accrued but unused vacation);

     (iii) Executive will be reimbursed, in accordance with Payless policy, for any business
expenses properly incurred by Executive prior to the date of termination;

     (iv) Provided that Executive is not in violation of, and does not violate, any of
Executive’s obligations under Paragraphs 2, 4, 5, and 6 of this Agreement, Executive shall
be entitled to a severance payment in an amount equal to two (2) times Executive’s then
current base salary at the time of termination of employment, payable in a lump sum, less
applicable withholdings and deductions;

     (v) Executive shall be entitled to the amount of any annual award payable to
Executive under the Incentive Plans for the fiscal year in which Executive’s employment is
terminated, prorated by the number of days Executive is actively employed in that fiscal
year divided by the number of days in the fiscal year, and payable at the time and pursuant
to the terms of such Incentive Plans, less applicable withholdings and deductions; provided,
however, such Annual Award must be paid no later than 2 1/2 months from the end of Payless’
fiscal year in which Executive’s employment terminates;

-8-

 

     (vi) Executive shall be entitled to any equity-linked awards, consistent with the
terms of the applicable award agreements;

     (vii) Executive shall be entitled to such portion of any long-term cash incentive
compensation as shall be payable under the terms of the Incentive Plans;

     (viii) Executive will receive a special payment which is the equivalent, before
taxes, to the portion paid by Payless towards 18 months of COBRA coverage under Payless’
medical, dental and vision plans, to the extent Executive is participating in such plan(s)
on the date of termination; and.

     (ix) Executive shall receive executive-level outplacement services to be coordinated by
the Human Resources Department. Executive must commence utilizing the outplacement services
no later than 30 days following the date of termination or the right to such services will
cease. Provided, however, the services in no event will extend beyond 15 months following
the date of termination.

     (x) If at the time that Executive terminates employment Executive is a “key employee”
within the meaning of IRC Section 409A and regulation issued thereunder, then, if necessary
to comply with 409A, payment to Executive shall not be made until six (6) months after
termination of employment and such payment shall be made in a lump sum, less applicable
withholdings and deductions.

     (c) “Cause” means:

     (i) an act of fraud, embezzlement, or theft against Payless, or any other violation of
the law that is harmful to the Company’s operations (excluding minor traffic violations), or
conviction of a felony;

     (ii) grossly negligent disclosure of Confidential Information contrary to the policy of
Payless;

     (iii) material breach of any of the terms of this Agreement, abuse of Executive’s
position for personal gain, or breach of Executive’s duties to Payless and its shareholders;

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

     (v) grossly negligent breach of any policy of Payless including those contained in
Payless’ Code of Ethics;

     (vi) the conviction of Executive, or a plea of guilty or nolo contendre, to any crime
involving moral turpitude;

     (vii) the willful and continued failure by Executive to substantially perform

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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 or materially
injurious to Payless, monetarily or otherwise.

For purposes of this Paragraph 8(c), 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, as determined by Payless’ Senior Vice President-Human Resources.
Failure to meet performance standards or objectives, by itself, will not constitute “Cause”.

Payless shall be entitled to suspend Executive with pay while investigating any conduct that
could constitute Cause.

     (d) Executive agrees that, in addition to any other remedies, and to the extent permitted by
law and or plan, Payless shall be permitted, as part of the computation of any final amount due to
Executive as compensation, wages, bonus, 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.

     (e) Executive’s obligations under Paragraph 2 shall cease on the effective date of such
resignation or termination for whatever cause(s), Executive’s obligations under the Agreement,
including Paragraphs 4, 5, and 6, shall 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 referenced in Paragraph 10 of this Agreement.

     (f) Upon resignation or termination of employment due to whatever cause(s), Executive shall
return all property of Payless which is then or thereafter comes into Executive’s possession,
including but not limited to documents, contracts, agreements, plans, photographs, books, notes,
records, computer diskettes and tapes, and any other electronically stored data and all copies of
the foregoing, as well as an other material or equipment supplied by Payless, keys, credit cards,
and equipment, and delete from Executive’s own computer or other electronic storage medium any
Confidential Information. Executive shall also sign all documents necessary for Executive’s
immediate resignation as an officer of Payless.

     (g) The payments and other benefits provided in Paragraph 8 are not made pursuant to any
welfare benefit or pension plan as defined by the Employee Retirement Income Security Act of 1974.

9. Release and Waiver of Claims. The parties agree that payment of severance and other
benefits provided in Paragraph 8 shall constitute payment in full for all compensation due to
Executive, are in lieu of any benefits which Executive may otherwise be entitled under the Payless
ShoeSource, Inc. Severance Plan, and constitute full and complete discharge of any and all claims
which Executive might otherwise have or purport to have with respect to any period subsequent to
the effective date of such resignation or termination, for the payment of

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compensation, or any additional benefits provided by Payless to Executive. Provided, however, the
payments of the amounts specified in Paragraph 8(b)(iv),(v),(viii) and (ix) are contingent upon
Executive signing a Separation Agreement and General Release, prior to payment.

10. Remedies. Executive acknowledges and agrees that the restrictions in this Agreement
are reasonable in order to protect Payless’ expectations and rights under this Agreement and to
provide Payless with the protections it needs to, among other things, safeguard its Confidential
Information. Executive agrees that any breach or threatened breach of Paragraphs 4, 5, or 6 of
this Agreement by Executive will cause immediate irreparable injury to Payless, for which an award
of damages alone may be inadequate. Therefore, Payless shall be entitled, in addition to any other
legal or equitable right or remedy it may have, to temporary, preliminary, and permanent injunctive
relief restraining such breach or threatened breach of Paragraphs 4, 5, or 6 of this Agreement.
Moreover, any award of injunctive relief shall not preclude Payless from seeking or recovering any
lawful compensatory damages which may have resulted from a breach of this Agreement, including
forfeiture of any payments not yet made and return of any payments already received by Executive.
In the event Payless is successful in any suit or proceeding relating to the enforcement of this
Agreement, Executive agrees to pay Payless’ fees, costs and expenses, including attorneys’ fees.

11. Representations of Executive. Executive hereby represents and warrants that the
execution and delivery of this Agreement and Executive’s employment with Payless do not violate any
previous employment agreement or other contractual obligation of Executive with any other party.
Executive has not disclosed, and will not disclose, to Payless any information, whether
confidential, proprietary or otherwise, which Executive is not legally free to disclose. Executive
shall abide by the terms of any nondisclosure or confidentiality agreement between Payless and any
other parties.

12. Severability. The invalidity or unenforceability of any provision, or portion thereof,
of this Agreement shall not affect the remainder of that provision or any other provision of the
Agreement. If any clause is deemed overly broad, illegal, invalid, or unenforceable with respect
to the duration of time or the geographic scope, then such clause shall automatically be amended to
the extent (but only to the extent) necessary to make it sufficiently narrow in scope, time and
geographic area so that it shall be enforceable, and that it is not illegal, void or unenforceable.
All other remaining terms and provisions shall remain in full force and effect.

13. Entire Agreement. With the sole exception of the Change of Control Agreement dated
                    , and the Indemnification Agreement dated                     , each between
Payless and Executive, and each amended from time to time (collectively, the “Related Agreements”),
the entire understanding and agreement between the parties has been incorporated into this
Agreement, and this Agreement supersedes all other employment agreements or other arrangements
(except the Related Agreements), whether oral or written, with respect to the subject matter
contained herein, including the Prior Employment Agreement which is hereby terminated. 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.

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14. Amendment, Breach and Waiver. This Agreement may not be changed, amended, or modified
in any manner except by a written instrument in writing signed by both the parties hereto, except
that if IRC Section 409A is determined to have applicability to any portion of this Agreement, with
the effect that Executive shall have no right to any payment hereunder prior to six months from
employment termination, this Agreement may be amended by Payless to comply with IRC Section 409A.
The failure of either party to enforce at any time any of the provisions of this Agreement shall in
no way be construed to be a waiver of any of such provision, or of the right to such party thereto
to enforce each and every such provision in the event of a subsequent breach.

15. Successors and Assigns. This Agreement and/or the rights hereunder shall be freely
assignable by Payless. This Agreement shall inure to the benefit of, and be binding upon, any
entity which shall succeed to Payless’ business. Being a contract for personal services, neither
this Agreement nor any rights hereunder, shall be assigned by Executive, and any such attempts or
purported assignment shall be null and void.

16. Third Party Beneficiary. Each PSS direct and indirect subsidiary is a third party
beneficiary of this Agreement with respect to, among other things, the protection of each such
subsidiary’s interest in such subsidiary’s Confidential Information, customer goodwill,
relationships and contacts, and each such subsidiary has the full rights and power to enforce the
rights, interests and obligations under this Agreement of or relating to such subsidiary.

[17. Ethical Obligations. In recognition of Executive’s ethical duties and
responsibilities as a licensed attorney, the parties agree that nothing in this Agreement shall
prevent Executive from providing legal advice or otherwise being engaged in the practice of law;
provided, however, that Executive agrees not to breach any ethical obligations Executive has by
virtue of being, or having been, Payless’ general counsel. — only in attorney employment
agreements]

18. Governing Law; Choice of Forum. This Agreement, and any questions relating or
regarding the validity, interpretation, or performance, shall be governed by and construed in
accordance with the laws of the State of Kansas, without reference to the conflicts or choice of
law principles thereof. Payless and Executive agree that any action to enforce any provision of
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. Payless and Executive hereby waive
any defense of lack of personal jurisdiction or venue in such courts and agree that process may be
served, if made upon Payless, upon Payless’ registered agent (with a copy to Payless’ General
Counsel), or if made upon Executive, at Executive’s last known address on the records of Payless.

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

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ALL SUCH QUESTIONS; AND (E) UNDERSTANDS EXECUTIVE’S RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	EXECUTIVE
 	 
	 	
 	 
	 	 

PAYLESS SHOESOURCE, INC.

 	 
	 	By:  	
 	 
	 	 	Its: 	 	 
	 	 	 	 
	 

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