Document:

exv10w6

 

EXHIBIT 10.6

COLLECTIVE BRANDS, INC.

SUPPLEMENTARY RETIREMENT ACCOUNT PLAN

As Amended and Restated January 1, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	Section 1. Definitions
	 	 	1	 
	1.1 Account Balance
	 	 	1	 
	1.2 Actuarial Equivalent
	 	 	1	 
	1.3 Associate
	 	 	1	 
	1.4 Basic Credit
	 	 	1	 
	1.5 Basic Credit Account
	 	 	1	 
	1.6 Cause
	 	 	1	 
	1.7 CEO
	 	 	2	 
	1.8 Change in Control of the Company
	 	 	2	 
	1.9 Code
	 	 	3	 
	1.10 Committee
	 	 	3	 
	1.11 Company
	 	 	3	 
	1.12 Company Service
	 	 	3	 
	1.13 Compensation
	 	 	4	 
	1.14 Competing Business
	 	 	4	 
	1.15 Discretionary Credit
	 	 	5	 
	1.16 Discretionary Credit Account
	 	 	5	 
	1.17 Effective Date
	 	 	5	 
	1.18 Employer
	 	 	5	 
	1.19 Executive Management Member
	 	 	5	 
	1.20 Fiscal Year
	 	 	5	 
	1.21 Key Employee
	 	 	6	 
	1.22 Member
	 	 	6	 
	1.23 Minimum Benefit
	 	 	6	 

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	1.24 Payless Profit Sharing Plan
	 	 	6	 
	1.25 Payment Date
	 	 	6	 
	1.26 Performance Credit
	 	 	6	 
	1.27 Performance Credit Account
	 	 	6	 
	1.28 Performance Goal
	 	 	6	 
	1.29 Performance Measures
	 	 	6	 
	1.30 Plan Year
	 	 	7	 
	1.31 Termination of Employment
	 	 	7	 
	1.32 Transition Credit
	 	 	7	 
	1.33 Transition Credit Account
	 	 	7	 
	1.34 Trust
	 	 	7	 
	 
	 	 	 	 
	Section 2. Membership
	 	 	7	 
	2.1 Prior Members
	 	 	7	 
	2.2 New Members
	 	 	7	 
	2.3 Reemployed Members
	 	 	8	 
	2.4 Eligibility for Benefits
	 	 	8	 
	 
	 	 	 	 
	Section 3. Benefits
	 	 	9	 
	3.1 Transition Credit
	 	 	9	 
	3.2 Basic Credit
	 	 	9	 
	3.3 Performance Credit
	 	 	10	 
	3.4 Discretionary Credit
	 	 	10	 
	3.5 Vesting
	 	 	11	 
	3.6 Adjustment of Account Balance
	 	 	11	 
	3.7 Minimum Benefit
	 	 	12	 

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	3.8 Distributions to Members
	 	 	12	 
	3.9 Death of Member
	 	 	14	 
	3.10 Noncompetition
	 	 	14	 
	3.11 Indirect Payment of Benefits
	 	 	15	 
	3.12 Withholding
	 	 	15	 
	 
	 	 	 	 
	Section 4. Administration of the Plan
	 	 	15	 
	4.1 The Committee
	 	 	15	 
	4.2 Delegation of Duties
	 	 	15	 
	4.3 Authority
	 	 	15	 
	 
	 	 	 	 
	Section 5. Claims Procedure
	 	 	16	 
	5.1 Claim
	 	 	16	 
	5.2 Claim Decision
	 	 	16	 
	5.3 Request for Review
	 	 	16	 
	5.4 Review of Decision
	 	 	17	 
	 
	 	 	 	 
	Section 6. Certain Rights and Obligations
	 	 	18	 
	6.1 Rights of Members and Beneficiaries
	 	 	18	 
	6.2 Employer-Associate Relationship
	 	 	18	 
	6.3 Unfunded Nature of Plan
	 	 	18	 
	6.4 Trust
	 	 	18	 
	 
	 	 	 	 
	Section 7. Non-Alienation of Benefits
	 	 	19	 
	7.1 Provisions with Respect to Assignment and Levy
	 	 	19	 
	7.2 Alternate Application
	 	 	19	 

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	Section 8. Amendment and Termination
	 	 	19	 
	8.1 Company’s Rights
	 	 	19	 
	8.2 Rights to Terminate
	 	 	20	 
	 
	 	 	 	 
	Section 9. Construction
	 	 	20	 
	9.1 Governing Law
	 	 	20	 
	9.2 Terms and Headings
	 	 	20	 

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Collective Brands, Inc. Supplementary Retirement Account Plan

This document constitutes and sets forth the terms of the Collective Brands, Inc. Supplementary
Retirement Account Plan, which is an amendment and restatement of the Payless ShoeSource
Supplementary Retirement Plan effective as of January 1, 2008.

Section 1. Definitions.

1.1 Account Balance means, with respect to a Member, a credit on the records of the Employer equal
to the sum of (i) the Transition Credit Account balance, (ii) the Basic Credit Account balance,
(iii) the Performance Credit Account balance, and (iv) the Discretionary Credit Account balance.
The Account Balance, and each component thereof, shall be a bookkeeping entry only and shall be
utilized solely as a device for the measurement and determination of the amounts to be paid to a
Member, or his or her designated beneficiary, pursuant to this Plan.

1.2 Actuarial Equivalent means a benefit of equivalent value when computed on the basis of the
actuarial principles and tables adopted or otherwise approved by the Committee.

1.3 Associate means any associate of an Employer under the Payless Profit Sharing Plan.

1.4 Basic Credit means, for any one Plan Year, the amount determined in accordance with Section
3.2.

1.5 Basic Credit Account means (i) the sum of the Member’s Basic Credits, plus (ii) amounts
credited in accordance with all the applicable crediting provisions of this Plan that relate to the
Member’s Basic Credit Account, less (iii) all distributions made to the Member or his or her
beneficiary pursuant to this Plan that relate to the Member’s Basic Credit Account.

1.6 Cause means:

     (a) the willful and continued failure by the Member to substantially perform his or her duties
with the Company or an Employer (other than any such failure resulting from disability or, in the
case of a Member with whom the Company or an Employer has entered into a change in control
agreement providing for termination of employment for good reason following a Change in Control of
the Company, any such actual or anticipated failure after the Member notifies the Company or an
Employer of circumstances constituting good reason which occur after a Change in Control of the
Company) after a written demand for substantial performance is delivered to the Member by the
Company or Employer, which demand specifically identifies the manner in which the Company or
Employer believes the Member has not substantially performed his or her duties, or

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     (b) the willful engaging by the Member in conduct that is demonstrably and materially
injurious to the Company or Employer, monetarily or otherwise;

provided, however, that a Termination of Employment shall not be deemed for Cause if the Member’s
employment agreement with the Company provides a definition of “cause” under which “cause” has not
occurred. For the purposes of this Section 1.6, “good reason” has the meaning set forth in the
change in control agreement between the Member and the Company or an Employer, if any.

1.7 CEO means the Company’s Chief Executive Officer.

1.8 Change in Control of the Company means:

     (a) 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”) acquires beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the “Outstanding Company
Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that, for purposes of this Section 1.8(a), 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;

     (b) 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,

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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;

     (c) A reorganization, merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a “Business Combination”) is consummated, 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

     (d) The stockholders of the Company approve of a complete liquidation or dissolution of the
Company.

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

1.10 Committee means (i) for purposes of establishing and determining the satisfaction of
Performance Goals under Sections 1.28 and 3.3, the Compensation, Nominating and Governance
Committee of the board of directors of the Company, and (ii) for all other purposes under the Plan,
the committee established by Section 4 of this Plan.

1.11 Company means Collective Brands, Inc., a Delaware corporation, and any other organization
which may be a successor to it.

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1.12 Company Service means years of service during employment with an Employer, any other
subsidiary of the Company or any other affiliated company, determined using the elapsed time
method. Members shall receive a year of Company Service on each anniversary date of their
commencement of employment with an Employer, subject to any limitations or
restrictions as may be imposed in connection with such Employer’s adoption of the Plan; provided,
however, that Company Service shall also include service with The May Department Stores Company for
a Member who commenced employment with Payless ShoeSource, Inc.:

     (a) on or before May 4, 1996, or

     (b) prior to January 1, 1999 and received credit for service with The May Department Stores
Company for benefits purposes at the time of the Member’s initial employment with Payless
ShoeSource, Inc.

     In the event of a Member’s Termination of Employment and subsequent reemployment by an Employer,
any other subsidiary of the Company or any other affiliated company:

     (c) within 31 days, Company Service shall include the period between such Termination of
Employment and such reemployment and Company Service earned prior to such Termination of
Employment;

     (d) after 31 days but within one year, Company Service shall not include the period between
such Termination of Employment and such reemployment, but shall include Company Service earned
prior to such Termination of Employment; or

     (e) after one year, Company Service shall not include the period between such Termination of
Employment and such reemployment, and Company Service earned prior to such Termination of
Employment shall be forfeited.

1.13 Compensation means base salary and any annual incentive payment received by an Associate from
any Employer during any Plan Year, including amounts not otherwise includable in the Member’s
taxable income pursuant to Code Section 125 or 402(e)(3), and amounts subject to the Collective
Brands, Inc. Deferred Compensation Plan. Compensation shall not include any discretionary or
special cash awards, including, but not limited to, retention, spot awards, home sale bonuses, CEO
discretionary cash awards and sign on bonuses.

1.14 Competing Business includes for purposes of this Plan, but is not limited to, the following:

     (a) 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) that sells footwear

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and/or
accessories at retail to consumers at price points competitive, or likely to be competitive, with
the Company (e.g. including, without limitation, Wal-Mart Stores, Inc., Sears Holdings Corporation,
Target Corporation, Shoe Zone Limited, Bata Limited, Aldo Shoes, Inc., Genesco, Inc., Footlocker,
Inc., Brown Shoe Company, Inc., Shoe Carnival, Inc., Kohl’s Corporation, Liz Claiborne Inc., Big 5
Sporting Goods Corporation, and J.C. Penney
Company, Inc.) within 10 miles of any Company store or the store of any wholesale customer of
the Company in the United States or anywhere in any foreign country in which the Company has retail
stores, franchisees or wholesale customers;

     (b) 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 10
miles of any Company store or the store of any wholesale customer of the Company in the United
States, or anywhere in any foreign country in which the Company has retail stores, franchisees or
wholesale customers;

     (c) any footwear and/or accessory 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) that sells footwear and/or accessories to retailers or other footwear distributors located
within 10 miles of any Company store or the store of any wholesale customer of the Company in the
United States, or anywhere in any foreign country in which the Company has retail stores,
franchisees or wholesale customers (e.g. including without limitation, Nine West Shoes, Dexter Shoe
Company, Liz Claiborne Inc., Wolverine World Wide, Inc., The Timberland Company, Nike, Inc., Reebok
International Ltd., K-Swiss Inc. and Adidas Salomon AG); or

     (d) any business that provides buying office services to any store or group of stores or
businesses referred to in (a), (b) and (c) above.

1.15 Discretionary Credit means, for any one Plan Year, the amount determined in accordance with
Section 3.4.

1.16 Discretionary Credit Account means (i) the sum of the Member’s Discretionary Credits, plus
(ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that
relate to the Member’s Discretionary Credit Account, less (iii) all distributions made to the
Member or his or her beneficiary pursuant to this Plan that relate to the Member’s Discretionary
Credit Account.

1.17 Effective Date means January 1, 2008. The Plan was originally effective on May 4, 1996.

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1.18 Employer means the Company and, if authorized by the Company to participate herein, any
subsidiary of the Company or any other affiliated company which elects to participate herein.

1.19 Executive Management Member means any Member who is employed by an Employer in a position at
the level of Vice President or above.

1.20 Fiscal Year means the fiscal year of the Company.

1.21 Key Employee shall means any Member who is a “key employee” (as defined in Code Section 416(i)
without regard to paragraph (5) thereof) based upon the 12-month period ending on each December
31st (such 12-month period is referred to below as the “identification period”). All
Members who are determined to be key employees under Code Section 416(i) (without regard to
paragraph (5) thereof) during the identification period shall be treated as Key Employees for
purposes of the Plan during the 12-month period that begins on the first day of the 4th
month following the close of such identification period. For purposes of determining whether a
Member is a Key Employee, the definition of compensation set forth in Treasury Regulation Section
1.415(c)-2(a) shall be applied [without respect to any safe harbor provided in Section
1.415(c)-2(d), without respect to the special timing rules in Section 1.415(c)-2(e), and without
respect to any of the special rules in Section 1.415(c)-2(g)].

1.22 Member means any person included in the membership of the Plan as provided in Section 2.

1.23 Minimum Benefit means the amount determined in accordance with Section 3.7.

1.24 Payless Profit Sharing Plan means the Payless ShoeSource, Inc. 401(k) Profit Sharing Plan, as
amended from time to time, and any other successor retirement plan which may be designated by the
Committee, including the Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico Associates.

1.25 Payment Date means January 1 or July 1 of any Plan Year; provided, however, that payment on
any subsequent day during the same Plan Year shall constitute payment on the applicable Payment
Date.

1.26 Performance Credit means, for any one Plan Year, the amount determined in accordance with
Section 3.3.

1.27 Performance Credit Account means (i) the sum of the Member’s Performance Credits, plus (ii)
amounts credited in accordance with all the applicable crediting provisions of this Plan that
relate to the Member’s Performance Credit Account, less (iii) all distributions made to the Member
or his or her beneficiary pursuant to this Plan that relate to the Member’s Performance Credit
Account.

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1.28 Performance Goal means the goal or goals established with respect to the Executive Management
Members for a Plan Year by the Committee pursuant to Section 3.3.

1.29 Performance Measures means any of the following performance criteria, either alone or in any
combination, and may be expressed with respect to the Company or one or more operating units,
groups, or any Employer, as the Committee may determine: cash flow; cash flow from operations;
total earnings; earnings per share, diluted or basic; earnings per share from continuing
operations, diluted or basic; earnings before interest and taxes; earnings before interest, taxes,
depreciation, and amortization; earnings from continuing operations; net asset turnover; inventory
turnover; net earnings; operating earnings; operating margin; return on equity; return on net
assets; return on total assets; return on capital; return on investment; return on sales; revenues;
sales; market share; economic value added; expense reduction levels; stock price; total shareholder
return and operating income. For any Plan Year, Performance Measures may be determined on an
absolute basis or relative to internal goals or relative to levels attained in a year or years
prior to such Plan Year or related to other companies or indices or as ratios expressing
relationships between two or more Performance Measures. For any Plan Year, the Committee shall
provide how any Performance Measure shall be adjusted to the extent necessary to exclude the
effects of extraordinary, unusual, or non-recurring items; changes in applicable laws, regulations,
or accounting principles; currency fluctuations; discontinued operations; non-cash items, such as
amortization, depreciation, or reserves; or any recapitalization, restructuring, reorganization,
merger, acquisition, divestiture, consolidation, spin-off, split-up, combination, liquidation,
dissolution, sale of assets, or other similar corporate transaction, or stock dividends, or stock
splits or combinations.

1.30 Plan Year means the period between January 1st and December 31st of each
year.

1.31 Termination of Employment means a Member’s separation from service with all Employers, other
subsidiaries of the Company and other affiliated companies, involuntarily or voluntarily, for any
reason other than death, as determined in accordance with Code Section 409A.

1.32 Transition Credit means the amount determined in accordance with Section 3.1.

1.33 Transition Credit Account means (i) the Member’s Transition Credit, plus (ii) amounts credited
in accordance with all the applicable crediting provisions of this Plan that relate to the Member’s
Transition Credit Account, less (iii) all distributions made to the Member or his or her designated
beneficiary pursuant to this Plan that relate to the Member’s Transition Credit Account.

1.34 Trust means one or more trusts, commonly referred to as a “rabbi trust,” established between
the Company and the trustee named therein, as amended from time to time.

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Section 2. Membership.

2.1 Prior Members. Each Associate who was a Member on December 31, 2007, under the terms and
conditions of the Plan in effect on such date, shall continue to be a Member on the Effective Date.

2.2 New Members. On or after the Effective Date, each Associate not described in Section 2.1 shall
become a Member hereunder on January 1 of the first Plan Year (or such earlier date determined by
the Committee, in its sole discretion) on or after the date that both of the following requirements
are satisfied:

     (a) such Associate is employed by an Employer in a position at the level of Director or above;
and

     (b) such Associate’s base salary in effect on December 31 of the immediately preceding Plan
Year (or such other date determined by the Committee, in its sole discretion) equaled or exceeded
150% of the dollar amount in effect under Code Section 414(q) for such Plan Year or such larger
amount that the Committee, in its sole discretion, determines for such Plan Year;

provided, however, that any Associate who is employed by an Employer that is organized under the
laws of any country other than the United States, or who participates in the retirement or pension
scheme of any such country, shall not be eligible to become a Member; provided, however, that if an
Associate is not employed by an Employer on the date the requirements under this Section 2.2 are
satisfied, such Associate shall not become a Member until the date he or she becomes employed by an
Employer; provided, however, the CEO as of the Effective Date shall not be a Member; provided,
however, that an Associate shall not become a Member if an employment agreement between such
Associate and an Employer provides that such Associate shall not become a Member; provided,
however, that, on or before the date an Associate would otherwise become a Member under this
Section 2.2, the Committee may, in its sole discretion, exclude such Associate from membership in
the Plan (and, in its sole discretion, the Committee may designate any such Associate as a Member
as of any subsequent date that the Committee determine, provided that such Associate satisfies the
requirements under this Section 2.2 on such date).

2.3 Reemployed Members. In the event of a Member’s Termination of Employment and subsequent
reemployment by an Employer:

     (a) if such reemployment occurs within one year after the date of such Termination of
Employment, such former Member shall resume active membership in the Plan on the date of such
reemployment, provided that such former Member is reemployed in a position at the level of Director
or above and his or her base salary in effect upon such reemployment equals or exceeds the dollar
amount determined under Section 2.2(b) for the immediately preceding Plan Year;

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     (b) if such reemployment occurs more than one year after the date of such Termination of
Employment, or such former Member is reemployed in a position below the level of Director or his or
her base salary in effect upon such reemployment is less than the dollar amount determined under
Section 2.2(b) for the immediately preceding Plan Year, such former Member must subsequently
satisfy the requirements set forth in Section 2.2 to resume active membership in the Plan on
January 1 of the first Plan Year on or after the date such requirements are satisfied.

If any such former Member is receiving annual installment payments under the Plan, such payments
shall continue following reemployment and, if such former Member resumes active membership in the
Plan, a new Account Balance shall be established for such former Member in accordance with the
applicable terms and conditions of the Plan.

2.4 Eligibility for Benefits. Notwithstanding anything herein to the contrary, with respect to any
Member (whether described in Section 2.1, 2.2 or 2.3), on the date:

     (a) such Member is transferred to any subsidiary of the Company or any other affiliated
company which is not an Employer, or

     (b) such Member is demoted to a position below the level of Director,

such Member shall cease to be eligible for any Basic Credit, Performance Credit or Discretionary
Credit for any Plan Year ending on or after such date, except as otherwise provided in Section 3.2,
3.3 or 3.4, unless such Member subsequently satisfies the requirements set forth in Section 2.2 to
resume active membership in the Plan on January 1 of the first Plan Year on or after the date such
requirements are satisfied. Notwithstanding anything herein to the contrary, a Member whose base
salary is reduced to less than the dollar amount determined under Section 2.2(b) for the
immediately preceding Plan Year shall remain eligible for Basic Credits, Performance Credits and
Discretionary Credits, in accordance with the applicable provisions of the Plan, unless the
Committee determines, in its sole discretion, that such continued eligibility would result in the
Plan ceasing to be maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees for purposes of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”).

Section 3. Benefits.

3.1 Transition Credit. As of the Effective Date, the Employer shall credit the greatest of the
following amounts to the Transition Credit Account of a Member described in Section 2.1:

     (a) The Actuarial Equivalent of the annual supplementary retirement benefit payable to such
Member upon attainment of age 65 (or, if later, on the Effective Date), based

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on such Member’s
Average Annual Compensation, Plan Service, Annual Estimated Social Security Benefits, Annual
Retirement Benefits Offset and Annual Minimum Benefit Amount
as determined as of the day immediately preceding the Effective Date in accordance with the
provisions of the Plan in effect on such date.

     (b) An amount equal to the product of 5% of such Member’s base salary in effect on the
Effective Date multiplied by such Member’s Plan Service prior to the Effective Date, as determined
in accordance with the provisions of the Plan in effect on such date.

     (c) In the case of a Member whose projected Account Balance upon attainment of age 65 would be
less than the Actuarial Equivalent of the projected annual supplementary retirement benefit payable
to such Member upon attainment of age 65 under the terms of the Plan in effect on the day
immediately preceding the Effective Date, as determined in accordance with such assumptions and
methodology as are prescribed by the Committee, an amount that would limit such reduction to 25%;
provided, however, this Section 3.1(c) shall apply only in the case of a Member (i) whose age plus
years of Plan Service as of the day immediately preceding the Effective Date, as determined in
accordance with the provisions of the Plan in effect on such date, equals or exceeds 55, and (ii)
who has completed at least five years of such Plan Service as of the day immediately preceding the
Effective Date.

3.2 Basic Credit. For each Plan Year ending after the date an Associate becomes a Member, the
Employer shall credit to the Basic Credit Account of such Member an amount equal to 5% of such
Member’s Compensation for such Plan Year; provided, however that no such amount shall be credited
for a Plan Year in the case of a Member (i) who is not employed by an Employer, any other
subsidiary of the Company or any other affiliated company on December 31 of such Plan Year, unless
otherwise determined by the Committee, in its sole discretion, in the case of a Member whose
Termination of Employment is not due to Cause, or (ii) who is demoted to a position below the level
of Director during such Plan Year, unless otherwise determined by the Committee, in its sole
discretion; provided, however, the Committee may, in its sole discretion, reduce the amount of the
Basic Credit for any Plan Year for any Member for any nondiscriminatory reason. If a Member
commences membership during a Plan Year on a date other than January 1, such Member’s Basic Credit
for such Plan Year for such Plan Year shall be based on Compensation paid on or after the date such
membership commences. The Basic Credit for the Plan Year in which a Member is transferred to any
subsidiary of the Company or any other affiliated company which is not an Employer shall be based
on Compensation paid on or before the date of such transfer, demotion or reduction. The Basic
Credit for any Plan Year shall be credited to a Member’s Basic Credit Account as of a date in the
following Plan Year determined by the Committee that is not later than April 15.

3.3 Performance Credit. Within 90 days after the commencement of each Fiscal Year, the Committee
shall, in writing, determine for such Fiscal Year the Performance Goal or Performance Goals
applicable to each Executive Management Member based on one or more Performance Measures. If, upon
completion of the Fiscal Year, the Committee determines

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that such Performance Goal or Performance
Goals applicable to any Executive Management Member have been satisfied, the Employer shall credit
to Performance Credit Account of such Executive Management Member:

     (a) in the case of an Executive Management Member who is employed in a position at the level
of Vice President, an amount equal to 5% of such Executive Management Member’s Compensation for
such Fiscal Year (or for the portion of the Fiscal Year during which such Executive Management
Member is employed at such level); and

     (b) in the case of an Executive Management Member who is employed in a position above the
level of Vice President, an amount equal to 10% of such Executive Management Member’s Compensation
for such Fiscal Year (or for the portion of the Fiscal Year during which such Executive Management
Member is employed at such level);

provided, however that no such amount shall be credited for a Fiscal Year in the case of an
Executive Management Member (i) who is not employed by an Employer, any other subsidiary of the
Company or any other affiliated company on the last day of such Fiscal Year, unless otherwise
determined by the Committee, in its sole discretion, in the case of an Executive Management Member
whose Termination of Employment is not due to Cause, or (ii) who is demoted to a position below the
level of Vice President, unless otherwise determined by the Committee, in its sole discretion. The
Performance Credit for any Fiscal Year shall be credited to an Executive Management Member’s
Performance Credit Account as of a date in the following Fiscal Year determined by the Committee
that is not later than April 15.

3.4 Discretionary Credit. For each Plan Year, an Employer, in its sole discretion, may, but is not
required to, credit to the Discretionary Credit Account of any Member (including, solely for
purposes of this Section 3.4, any former Member who has been transferred to any subsidiary of the
Company or any other affiliated company which is not an Employer) any amount it desires. The
amount so credited to a Member may be smaller or larger than the amount credited to any other
Member, and the amount credited to any Member for a Plan Year may be zero, even though one or more
other Members are credited with a Discretionary Credit for that Plan Year. The Discretionary
Credit for any Plan Year shall be credited to a Member’s Discretionary Credit Account as of the
date determined by the Employer.

3.5 Vesting.

     (a) A Member shall become vested in his or her Transition Credit Account, if any, upon the
later of attainment of age 55 and completion of five years of Company Service.

     (b) A Member shall become vested in his or her Basic Credit Account, Performance Credit
Account and Discretionary Account, as applicable, in accordance with the following schedule:

- 16 -

 

	 	 	 
	Years of Company Service	 	Vested Percentage
	Fewer than 5 years
	 	    0 %
	5 years
	 	  50 %
	6 years
	 	  60 %
	7 years
	 	  70 %
	8 years
	 	  80 %
	9 years
	 	  90 %
	10 years or more
	 	100 %

     (c) Notwithstanding anything to the contrary contained in subsection (a) or (b), a Member’s
Account Balance shall immediately become 100% vested in the event of a Change in Control of the
Company.

     (d) The nonvested portion of a Member’s Account Balance shall be forfeited immediately upon
such Member’s death or Termination of Employment. If such Member is reemployed by an Employer, any
other subsidiary of the Company or any other affiliated company within one year following
Termination of Employment, the amount of his or her Account Balance which was forfeited shall be
restored on the date of such reemployment without adjustment for any interest that would otherwise
have been credited under Section 3.6 following Termination of Employment.

3.6 Adjustment of Account Balance.

     (a) A Member’s Transition Credit Account and the nonvested portion of a Member’s Basic Credit
Account, Performance Credit Account and Discretionary Credit Account shall be credited with
interest for each Plan Year at a rate determined by the Committee, in its sole discretion, for such
Plan Year. Such interest shall be credited as of such dates as shall be determined by the
Committee, in its sole discretion

     (b) The vested portion of a Member’s Basic Credit Account, Performance Credit Account and
Discretionary Credit Account (“Vested Accounts”) shall be credited with earnings or debited for
losses based on the performance of investment funds designated by the Committee, in its sole
discretion, from time to time. Such earnings or losses shall be credited or debited as of such
dates as shall be determined by the Committee, in its sole discretion.

          (i) A Member may elect, in increments of 1%, the percentage of his or her Vested Accounts
which shall have earnings credited or losses debited based on the performance of each such
investment fund, in accordance with rules and procedures established by the Committee. Any such
election may be changed by the Member as of such dates as shall be determined by the Committee, in
its sole discretion.

- 17 -

 

          (ii) In the event a Member fails to make the election described in paragraph (i), such
Member’s Vested Accounts shall have earnings credited or losses debited
based on the performance of one or more such investment funds as determined by the Committee, in
its sole discretion.

          (iii) Notwithstanding the foregoing, neither the Employer nor, if applicable, the trustee of
the Trust shall be required to actually invest a Member’s Vested Accounts in the investment funds
elected by such Member. If any such investment is made, no Member shall have any rights or
interest therein, and Members shall at all times remain unsecured creditors of the Employer.

3.7 Minimum Benefit. A Minimum Benefit shall be determined for each Member described in Section
2.1 who has attained age 55 and completed at least five years of Plan Service as of the day
immediately preceding the Effective Date, as determined in accordance with the provisions of the
Plan in effect on such date. The amount of the Minimum Benefit shall be equal to the Actuarial
Equivalent of the annual supplementary retirement benefit immediately payable to such Member if
such Member’s Termination of Employment occurred on the Effective Date, based on such Member’s
Average Annual Compensation, Plan Service, Annual Estimated Social Security Benefits, Annual
Retirement Benefits Offset and Annual Minimum Benefit Amount as determined as of the day
immediately preceding the Effective Date in accordance with the provisions of the Plan in effect on
such date. A Member’s Minimum Benefit (i) shall be fully vested at all times, and (ii) is a frozen
amount which shall not be credited with interest or earnings or debited for losses.
Notwithstanding anything herein to the contrary, the amount distributed under the Plan with respect
to any Member described in this Section 3.7 shall not be less than his or her Minimum Benefit.

3.8 Distributions to Members. Following Termination of Employment, a Member’s vested Account
Balance or, if greater, his or her Minimum Benefit, if any, shall be distributed in accordance with
the following:

     (a) A Member may elect in writing, on a form prescribed by the Committee (or in an electronic
format acceptable to the Committee), to receive his or her Account Balance in the form of (i) a
single lump sum payment, or (ii) annual installment payments over a period not to exceed 15 years
as approved by the Committee, with each annual installment payment equal to the amount determined
by dividing the Member’s Account Balance on each applicable Payment Date by the number of annual
installments remaining to be paid. Such election must be received by the Committee (i) prior to
the Effective Date in the case of a Member described in Section 2.1, or (ii) no later than 30 days
after commencement of membership in the Plan in the case of a Member described in Section 2.2 (or,
in the case of any such Member who previously participated in a nonqualified deferred compensation
plan aggregated with this Plan under Section 409A, prior to the Plan Year in which membership in
the Plan commences). If a Member fails to timely make an election under this subsection (a), such
Member shall be deemed to have elected to receive his or her Account Balance in the form of a
single lump sum payment. Except as otherwise provided in this subsection (a)

- 18 -

 

or subsection (d),
any election under this subsection (a) shall be irrevocable. If permitted by the Committee, a
Member may, prior to the beginning of each Plan Year, make a separate election regarding the form
of payment for amounts attributable to his or her Basic Credits, Performance Credits and
Discretionary Credits for such Plan Year; provided, however, that a
Member’s election under this subsection (a) shall remain in effect with respect to such amounts for
subsequent Plan Years unless changed by such Member in accordance with the foregoing for any such
Plan Year.

     (b) Notwithstanding anything to the contrary in subsection (a), in the case of a Member
described in Section 3.7, such Member shall receive an amount equal to his or her Minimum Benefit
in 10 equal annual installment payments. Any such Member’s election under subsection (a) shall
apply to the amount of his or her Account Balance in excess of the Minimum Benefit, if any.

     (c) Except as otherwise provided in subsection (d), payments under subsection (a) or (b) shall
be made or commence (i) in the case of a Key Employee, on the first Payment Date coinciding with or
next following the date which is six months after the date of his or her Termination of Employment,
or (ii) in the case of any other Member, on the first Payment Date coinciding with or next
following the date of his or her Termination of Employment. In the case of installment payments,
such payments shall continue on the same Payment Date in each subsequent Plan Year for the period
elected by the Member.

     (d) A Member may make a new election under subsection (a) with respect to his or her
Transition Credit Account and amounts attributable to his or her Basic Credits, Performance Credits
and Discretionary Credits for prior Plan Years. Any such election must be received by the
Committee at least 12 months before the Payment Date on which payment would otherwise be made or
commence under subsection (c). Payment pursuant to any such new election shall be made or commence
on the Payment Date which is five years after the Payment Date on which payment would otherwise
have been made or commenced. This subsection (d) shall not apply with respect to an amount equal
to a Member’s Minimum Benefit, if any.

     (e) Notwithstanding anything in Section 3.8 to the contrary, in the event a Member’s vested
Account Balance, plus his or her vested interest in any other nonqualified deferred compensation
plan aggregated with the Plan under Code Section 409A, does not exceed the applicable dollar amount
under Code Section 402(g)(1)(B) in effect on the date of his or her Termination Employment (or, in
the case of a Key Employee, the date which is six months after the date of his or her Termination
of Employment), such Member shall receive his or her vested Account Balance in a single lump sum
payment on such date; provided, however, that this subsection (e) shall only be applicable if such
Member’s interest in any other nonqualified deferred compensation plan aggregated with the Plan
under Code Section 409A is also paid in a single lump sum on such date.

- 19 -

 

3.9 Death of Member.

     (a) If a Member dies prior to Termination of Employment, or after Termination of Employment
but prior to the Payment Date on which payments would otherwise be made or commence under Section
3.8, such Member’s vested Account Balance or, if applicable, Minimum Benefit shall be paid to his
or her designated beneficiary in a single lump sum on the first Payment Date following the date of
such Member’s death.

     (b) If a Member dies after commencing receipt of annual installment payments of his or her
vested Account Balance or, if applicable, Minimum Benefit, the remainder of such vested Account
Balance or Minimum Benefit shall be paid to such Member’s designated beneficiary in a single lump
sum on the first Payment Date following the date of such Member’s death.

     (c) Each Member shall have the right, at any time, to designate one or more persons or
entities as beneficiaries (both primary and contingent) to receive payments under the Plan in the
event of such Member’s death. Any designation of a beneficiary must be made in writing on a form
prescribed by the Committee, and must be received by the Committee prior to the Member’s death. A
Member may change his or her designated beneficiary at any time in accordance with the foregoing,
and any such new beneficiary designation shall cancel any prior beneficiary designation. If a
Member fails to designate a beneficiary in accordance with the foregoing, or if all of a Member’s
designated beneficiaries predecease such Member or die prior to the Payment Date determined under
subsection (b), such Member’s designated beneficiary shall be deemed to be his or her estate.

3.10 Noncompetition. It is recognized that a Member’s duties during the period of employment with
the Company or an Employer entail the receipt of confidential information concerning not only the
current operations and procedures of the Company or an Employer but also its short-range and
long-range plans. If (A) the Member during any portion of the period of two (2) years following
his or her Termination of Employment (1) has an aggregate investment (as determined from time to
time) in a Competing Business equal to at least the greater of (i) $100,000, (ii) 1% in value of
such Competing Business, or (iii) such greater amount as the Committee may establish on a case by
case basis, or (2) personally renders services to a Competing Business in any manner, including
without limitation, as owner, partner, director, trustee, officer, employee, consultant or advisor
thereof, and (B) the Committee determines, in its sole discretion, that such investment or
rendering of personal services is contrary to the best interests of the Company, then all rights to
receive any payment of his or her Account Balance or Minimum Benefit under the Plan shall
immediately cease, and the Member shall be obligated to repay to the Employer any payments
previously received under the Plan, if the Member does not reduce such aggregate investment to an
amount permitted hereunder or cease rendering such personal services, within 60 days of receipt of
written notice of such determination from the Committee. The term “value” as used herein shall
mean the net worth of such Competing Business, as disclosed by the balance sheet of such Competing
Business, as of the close of the last preceding fiscal year; provided, however, that with respect
to an investment in stock or other

- 20 -

 

securities of a Competing Business, if such stock or other
securities are part of a class of stock or other securities listed on any stock exchange, the term
“value” shall mean the market value of such class of stock or other securities of such Competing
Business, as of the date of any such determination by the Committee.

3.11 Indirect Payment of Benefits. If any Member or his or her designated beneficiary is, in the
judgment of the Committee, legally, physically or mentally incapable or incompetent, payment may be
made to the guardian or other legal representative of such Member or
designated beneficiary or, if there be none, to such other person or institution who or which, in
the opinion of the Committee, based on information furnished to the Committee, is then maintaining
or has custody of such Member or designated beneficiary. Such payment shall constitute a full
discharge with respect thereto.

3.12 Withholding. The Employer shall withhold from amounts otherwise payable under this Plan any
amounts required to be withheld under federal, state or local law or regulations, such amounts to
be remitted on a timely basis to the appropriate governmental authorities. When a Member becomes
vested in any portion of his or her Account Balance, the Employer shall withhold from the Member’s
Compensation, in a manner determined by the Employer, the Member’s share of FICA and other
employment taxes on such vested portion of his or her Account Balance; provided, however, if
necessary, the Committee may reduce the vested portion of the Member’s Account Balance in order to
comply with such withholding obligation.

Section 4. Administration of the Plan.

4.1 The Committee. Except as otherwise provided herein, the Plan shall be administered by the
Committee constituted under the Payless Profit Sharing Plan.

4.2 Delegation of Duties. In the administration of the Plan, the Committee may, from time to time,
appoint agents and delegate to such agents and to the Administrative Subcommittee such duties as it
considers appropriate and to the extent that such duties have been so delegated, the Administrative
Subcommittee or agent, as the case may be, shall be exclusively responsible for the proper
discharge of such duties. The Committee, the Administrative Subcommittee or any agent may from
time to time consult with counsel who may be counsel to the Company.

4.3 Authority. Any decision or action of the Committee (or, with respect to any duty delegated to
it, any decision or action of the Administrative Subcommittee or of a duly appointed agent) in
respect of any question arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations thereunder shall be in its absolute
discretion and shall be final, conclusive and binding upon all persons having any interest in the
Plan.

- 21 -

 

Section 5. Claims Procedure.

5.1 Claim. A Member, beneficiary or other person who believes that he or she is being denied a
benefit to which he or she is entitled (hereinafter referred to as “Claimant”), or his or her duly
authorized representative, may file a written request for such benefit with a committee consisting
of the Vice President/Human Resources Solutions, the Director of Benefits and the Director of
Compensation (the “Review Committee”) setting forth his or her claim. The request must be
addressed to: Vice President/Human Resources Solutions, c/o Collective Brands, Inc. 3231 East
Sixth Street, Topeka, Kansas 66607.

5.2 Claim Decision. Upon receipt of a claim, the Review Committee shall advise the Claimant that a
reply will be forthcoming within a reasonable period of time, but ordinarily not later than 90
days, and shall, in fact, deliver such reply within such period. However, the Review Committee may
extend the reply period for an additional ninety days for reasonable cause. If the reply period
will be extended, the Review Committee shall advise the Claimant in writing during the initial
90-day period indicating the special circumstances requiring an extension and the date by which the
Review Committee expects to render the benefit determination. If the claim is denied in whole or
in part, the Review Committee will render a written opinion, using language calculated to be
understood by the Claimant, setting forth:

     (a) the specific reason or reasons for the denial;

     (b) the specific references to pertinent Plan provisions on which the denial is based;

     (c) a description of any additional material or information necessary for the Claimant to
perfect the claim and an explanation as to why such material or such information is necessary;

     (d) appropriate information as to the steps to be taken if the Claimant wishes to submit the
claim for review, including a statement of the Claimant’s right to bring a civil action under
Section 502(a) of ERISA following an adverse benefit determination on review; and

     (e) the time limits for requesting a review of the denial under Section 5.3 hereof and for the
actual review of the denial under Section 5.4 hereof.

5.3 Request for Review. Within 60 days after the receipt by the Claimant of the written opinion
described above, the Claimant may request in writing that the Committee review the Review
Committee’s prior determination. Such request must be addressed to the Committee, c/o Collective
Brands, Inc. 3231 East Sixth Street, Topeka, Kansas 66607. The Claimant or his or her duly
authorized representative may submit written comments, documents, records or other information
relating to the denied claim, which such information shall be considered in the review under this
subsection without regard to whether such information was submitted or considered in the initial
benefit determination. The Claimant or his or her duly

- 22 -

 

 authorized representative shall be
provided, upon request and free of charge, reasonable access to, and copies of, all non-privileged
documents, records and other information which (i) was relied upon by the Review Committee in
making its initial claims decision, (ii) was submitted, considered or generated in the course of
the Review Committee making its initial claims decision, without regard to whether such information
was actually relied upon by the Review Committee in making its decision or (iii) demonstrates
compliance by the Review Committee with its administrative processes and safeguards designed to
ensure and to verify that benefit claims determinations are made in accordance with governing Plan
documents and that, where appropriate, the Plan provisions have been applied consistently with
respect to similarly situated claimants. If the Claimant does not request a review of the Review
Committee’s determination within such 60-day period, he or she shall be barred and estopped from
challenging such determination.

5.4 Review of Decision. Within a reasonable period of time, ordinarily not later than 60 days,
after the Committee’s receipt of a request for review, it will review the Review Committee’s prior
determination. If special circumstances require that the 60-day time period be extended, the
Committee will so notify the Claimant within the initial 60-day period indicating the special
circumstances requiring an extension and the date by which the Committee expects to render its
decision on review, which shall be as soon as possible but not later than 120 days after receipt of
the request for review. In the event that the Committee extends the determination period on review
due to a Claimant’s failure to submit information necessary to decide a claim, the period for
making the benefit determination on review shall not take into account the period beginning on the
date on which notification of extension is sent to the Claimant and ending on the date on which the
Claimant responds to the request for additional information. The Committee has discretionary
authority to determine a Claimant’s eligibility for benefits and to interpret the terms of the
Plan. Benefits under the Plan will be paid only if the Committee decides in its discretion that
the Claimant is entitled to such benefits. The decision of the Committee shall be final and
non-reviewable, unless found to be arbitrary and capricious by a court of competent review. Such
decision will be binding upon the Employer and the Claimant. If the Committee makes an adverse
benefit determination on review, the Committee will render a written opinion, using language
calculated to be understood by the Claimant, setting forth:

     (a) the specific reason or reasons for the denial;

     (b) the specific references to pertinent Plan provisions on which the denial is based;

     (c) a statement that the Claimant is entitled to receive, upon request and free of charge,
reasonable access to, and copies of, all non-privileged documents, records and other information
which (i) was relied upon by the Committee in making its decision, (ii) was submitted, considered
or generated in the course of the Committee making its decision, without regard to whether such
information was actually relied upon by the Committee in making its decision or (iii) demonstrates
compliance by the Committee with its

- 23 -

 

administrative processes and safeguards designed to ensure and
to verify that benefit claims determinations are made in accordance with governing Plan documents,
and that, where appropriate, the Plan provisions have been applied consistently with respect to
similarly situated claimants; and

     (d) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA
following the adverse benefit determination on such review.

Section 6. Certain Rights and Obligations.

6.1 Rights of Members and Beneficiaries. The rights of the Members, their designated beneficiaries
and other persons are hereby expressly limited as set forth herein and shall be
determined solely in accordance with the provisions of the Plan. The full payment of the
applicable benefit under the Plan shall completely discharge all obligations of the Company and any
Employer to a Member and his or her designated beneficiary.

6.2 Employer-Associate Relationship. The establishment of the Plan shall not be construed as
conferring any legal or other rights upon any Associate or any other person for a continuation of
employment or as interfering with or affecting in any manner the right of the Company or any
Employer to discharge any Associate or otherwise act with relation to such Associate. The Company
or an Employer may take action (including discharge) with respect to any Associate or other person
and may treat him or her without regard to the effect which such action or treatment might have
upon him or her under the Plan.

6.3 Unfunded Nature of Plan. The Plan shall be unfunded. Neither an Employer nor the Committee
shall be required to segregate any assets in connection with benefits provided by the Plan.
Neither the Company, an Employer nor the Committee shall be deemed to be a trustee of any amounts
to be paid under the Plan. Any liability of the Company or an Employer to any person with respect
to benefits payable under the Plan shall be based solely upon such contractual obligations, if any,
as shall be created by the Plan and shall be only a claim against the general assets of the Company
or the Employer, and no such liability shall be deemed to be secured by any pledge or any other
encumbrance on any specific property of the Company or any Employer.

6.4 Trust.

     (a) Each Employer may, but is not obligated to, transfer over to the Trust such assets as the
Employer determines, in its sole discretion, are necessary to provide, on a present value basis,
for its respective future liabilities created with respect to the Account Balances and Minimum
Benefits for such Employer’s Members as of the date of such transfer.

     (b) The provisions of the Plan shall govern the rights of a Member to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the rights of the

- 24 -

 

Employers, Members and the creditors of the Employers to the assets transferred to the Trust. Each Employer
shall at all times remain liable to carry out its obligations under the Plan.

     (c) Each Employer’s obligations under the Plan maybe satisfied with Trust assets distributed
pursuant to the terms of the Trust, and any such distribution shall reduce the Employer’s
obligations under this Plan.

Section 7. Non-Alienation of Benefits.

7.1 Provisions with Respect to Assignment and Levy. No benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
levy or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge,
encumber, levy upon or charge the same shall be void; nor shall any such benefit be
in any manner liable for or, subject to the debts, contracts, liabilities, engagements or torts of
the person entitled to such benefit, except as specifically provided herein.

7.2 Alternate Application. If any Member or designated beneficiary under the Plan becomes bankrupt
or attempts to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit
under the Plan, except as specifically provided herein, or any benefit shall be levied upon,
garnished or attached, then such benefit shall, in the discretion of the Committee, cease, and in
that event the Committee may hold or apply the same or any part thereof to or for the benefit of
such Member or designated beneficiary, spouse, children or other dependents, or any of them, or in
such other manner and in such proportion as the Committee may deem proper.

Section 8. Amendment and Termination.

8.1 Right to Amend. The Company reserves the right at any time and from time to time in its sole
discretion to modify or amend in whole or in part any or all of the provisions of the Plan,
provided that no amendment shall reduce any Member’s vested Account Balance or Minimum Benefit, as
applicable, as of the date of such amendment. Notwithstanding anything provided to the contrary in
this Section 8.1 or Section 8.2, following a Change in Control of the Company the Plan may not be
amended or terminated in a manner that would adversely affect the rights of any Member to his or
her Account Balance. Notwithstanding any provision of the Plan to the contrary, in the event that
the Company determines that any provision of the Plan may cause amounts credited under the Plan to
become immediately taxable to any Member under Code Section 409A, the Company may (i) adopt such
amendments to the Plan and appropriate policies and procedures, including amendments and policies
with retroactive effect, that the Company determines necessary or appropriate to preserve the
intended tax treatment of the Plan benefits provided by the Plan, and/or (ii) take such other
actions as the Company determines necessary or appropriate to comply with the requirements of Code
Section 409A; provided, however, that the Company shall have no liability to any Member, designated
beneficiary or other person with respect to any such amendment or actions, or the failure to adopt
any such amendment or take any such actions.

- 25 -

 

8.2 Rights to Terminate. Except as provided in Section 8.1, the Company reserves the right at any
time and from time to time in its sole discretion to terminate the Plan in accordance with Code
Section 409A. In the event the Plan is terminated, the Employer shall be under no further
obligation to provide benefits under the Plan, except to the extent of a Member’s vested Account
Balance or Minimum Benefit, as applicable, as of the date of such termination.

Section 9. Construction.

9.1 Governing Law. The provisions of the Plan shall be construed, regulated, administered and
enforced according to the laws of the State of Kansas and in a manner consistent with Code Section
409A and the regulations thereunder.

9.2 Terms and Headings. Wherever applicable, any words used herein in the masculine gender shall
be construed as though they included the feminine gender, and any words used herein in the singular
form shall be construed as though they included in the plural form. Section headings are inserted
for convenience of reference and are not to be considered in the construction of the Plan.

- 26 -exv10w7

 

EXHIBIT 10.7

PAYLESS SHOESOURCE, INC. 401(k)

PROFIT SHARING PLAN

As Amended and Restated Effective August 1, 2007, or as otherwise specified

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	 	PAGE	 
	SECTION 1 Definitions
	 	 	2	 
	1.01 Accounts
	 	 	2	 
	1.02 Administrative Delegate
	 	 	2	 
	1.03 After-Tax Contributions
	 	 	2	 
	1.04 Allocation Pay Amount
	 	 	2	 
	1.05 Associate
	 	 	2	 
	1.06 Authorized Leave of Absence
	 	 	3	 
	1.07 Before-Tax Contributions
	 	 	3	 
	1.08 Beneficiary
	 	 	3	 
	1.09 Board
	 	 	3	 
	1.10 Code
	 	 	3	 
	1.11 Committee
	 	 	3	 
	1.12 Company
	 	 	3	 
	1.13 Company Accounts
	 	 	3	 
	1.14 Company Matching Contributions
	 	 	3	 
	1.15 Company Profit Sharing Contributions
	 	 	3	 
	1.16 Effective Date
	 	 	3	 
	1.17 Employer
	 	 	3	 
	1.18 ERISA
	 	 	3	 
	1.19 Fiduciary
	 	 	4	 
	1.20 Fiscal Year
	 	 	4	 
	1.21 Group
	 	 	4	 
	1.22 Highly Compensated Employee
	 	 	4	 
	1.23 Hour of Service
	 	 	4	 
	1.24 Investment Fund
	 	 	5	 
	1.25 May Plan
	 	 	5	 
	1.26 Member
	 	 	5	 
	1.27 Member Accounts
	 	 	5	 
	1.28 Member After-Tax Accounts
	 	 	5	 
	1.29 Member Before-Tax Accounts
	 	 	5	 
	1.30 Member Contributions
	 	 	5	 
	1.31 Member Rollover Contribution Accounts
	 	 	5	 
	1.32 Military Service
	 	 	5	 
	1.33 Net Profits
	 	 	5	 
	1.34 Non-Highly Compensated Employee
	 	 	5	 
	1.35 Pay
	 	 	6	 
	1.36 Pooled Investment Account
	 	 	6	 
	1.37 Plan
	 	 	6	 
	1.38 Plan Year
	 	 	6	 
	1.39 Prior Plan
	 	 	6	 
	1.40 Qualified Domestic Relations Order
	 	 	6	 
	1.41 Retirement
	 	 	6	 
	1.42 Rollover Contributions
	 	 	6	 

	 	 	 	 	 

i

 

	 	 	 	 	 
	 	 	 	PAGE	 
	1.43 Social Security Wage Base
	 	 	6	 
	1.44 Total and Permanent Disability or Disability
	 	 	6	 
	1.45 Transferred Accounts
	 	 	6	 
	1.46 Trust Agreement
	 	 	6	 
	1.47 Trust Fund
	 	 	7	 
	1.48 Trustee
	 	 	7	 
	1.49 Unit
	 	 	7	 
	1.50 Unit Value
	 	 	7	 
	1.51 Valuation Date
	 	 	7	 
	1.52 Vesting Service
	 	 	7	 
	1.53 Year of Service
	 	 	8	 
	 
	 	 	 	 
	SECTION 2 Membership
	 	 	9	 
	2.01 Conditions of Eligibility
	 	 	9	 
	2.02 Re-Employment
	 	 	10	 
	 
	 	 	 	 
	SECTION 3 Company Contributions
	 	 	11	 
	3.01 Amount of Company Profit Sharing Contribution
	 	 	11	 
	3.02 Amount of Company Matching Contribution
	 	 	11	 
	3.03 Allocation of Company Contributions
	 	 	11	 
	3.04 Profit Sharing Allocation Formula
	 	 	11	 
	3.05 Investment of the Company Contribution
	 	 	11	 
	3.06 Return of Company Contributions
	 	 	12	 
	 
	 	 	 	 
	SECTION 4 Member Contributions
	 	 	13	 
	4.01 Procedure for Making Contributions
	 	 	13	 
	4.02 Limitations On And Distributions Of Before-Tax Contributions For
Highly Compensated Employees
	 	 	15	 
	4.03 Distributions of Excess Deferrals
	 	 	16	 
	4.04 Limitations On And Distributions Of After-Tax Employee Contributions
And Matching Contributions For Highly Compensated Employees
	 	 	17	 
	4.05 Definitions and Special Rules
	 	 	18	 
	 
	 	 	 	 
	SECTION 5 Investment Provisions
	 	 	20	 
	5.01 Investment Funds
	 	 	20	 
	5.02 Investment Direction
	 	 	20	 
	 
	 	 	 	 
	SECTION 6 Accounts
	 	 	22	 
	6.01 Member Accounts
	 	 	22	 
	6.02 Company Accounts
	 	 	22	 
	6.03 Maintenance of Accounts
	 	 	22	 
	6.04 Valuation of Accounts
	 	 	22	 
	6.05 Member Statements
	 	 	22	 
	6.06 Shares of Payless ShoeSource, Inc. (“Payless Stock”) in the Payless
Common Stock Fund
	 	 	22	 
	6.07 Vesting in Member and Company Accounts
	 	 	23	 

ii

 

	 	 	 	 	 
	 	 	 	PAGE	 
	SECTION 7 Expenses
	 	 	27	 
	7.01 Administrative Expenses
	 	 	27	 
	 
	 	 	 	 
	SECTION 8 Withdrawals During Employment
	 	 	28	 
	8.01 Withdrawals Prohibited Unless Specifically Authorized
	 	 	28	 
	8.02 Authorized Withdrawals
	 	 	28	 
	 
	 	 	 	 
	SECTION 9 Benefits Upon Retirement, Death, Disability or Termination of Employment
	 	 	30	 
	9.01 Benefits
	 	 	30	 
	9.02 Beneficiary
	 	 	30	 
	 
	 	 	 	 
	SECTION 10 Payment of Benefits
	 	 	31	 
	10.01 Time of Payment
	 	 	31	 
	10.02 Form of Payment
	 	 	32	 
	10.03 Indirect Payment of Benefits
	 	 	32	 
	10.04 Inability to Find Member
	 	 	32	 
	10.05 Required Minimum Distributions
	 	 	32	 
	10.06 Commencement of Benefit Distribution to Beneficiary
	 	 	35	 
	10.07 Commencement of Benefit Distribution to Alternate Payee
	 	 	36	 
	 
	 	 	 	 
	SECTION 11 Permitted Rollover of Plan Distributions
	 	 	37	 
	11.01 Rollover to Other Plans
	 	 	37	 
	11.02 Rollover from Other Plans
	 	 	37	 
	11.03 Definitions
	 	 	38	 
	 
	 	 	 	 
	SECTION 12 Loans
	 	 	39	 
	12.01 Availability of Loans
	 	 	39	 
	12.02 Amount of Loans
	 	 	39	 
	12.03 Terms of Loans
	 	 	39	 
	 
	 	 	 	 
	SECTION 13 Limit on Contributions to the Plan
	 	 	41	 
	13.01 Limit on Contributions
	 	 	41	 
	13.02 Adjustment for Excessive Annual Additions
	 	 	41	 
	 
	 	 	 	 
	SECTION 14 Administration of the Plan
	 	 	43	 
	14.01 Plan Administrator
	 	 	43	 
	14.02 Delegation of Authority
	 	 	43	 
	14.03 Committee and Subcommittees
	 	 	43	 
	14.04 Accounts and Reports
	 	 	44	 
	14.05 Non-Discrimination
	 	 	44	 
	 
	 	 	 	 
	SECTION 15 Management of the Trust Fund
	 	 	45	 
	15.01 Use of the Trust Fund
	 	 	45	 
	15.02 Trustees
	 	 	45	 
	15.03 Investments and Reinvestments
	 	 	45	 
	 
	 	 	 	 
	SECTION 16 Certain Rights and Obligations of Employers and Members
	 	 	47	 
	16.01 Disclaimer of Employer Liability
	 	 	47	 

iii

 

	 	 	 	 	 
	 	 	 	PAGE	 
	16.02 Employer-Associate Relationship
	 	 	47	 
	16.03 Binding Effect
	 	 	47	 
	16.04 Corporate Action
	 	 	47	 
	16.05 Claim and Appeal Procedure
	 	 	47	 
	16.06 Venue for Litigation.
	 	 	50	 
	16.07 Acquisition Of Assets.
	 	 	50	 
	 
	 	 	 	 
	SECTION 17 Non-Alienation of Benefits
	 	 	51	 
	17.01 Provisions with Respect to Assignment and Levy
	 	 	51	 
	17.02 Alternate Application
	 	 	51	 
	 
	 	 	 	 
	SECTION 18 Amendments
	 	 	52	 
	18.01 Company’s Rights
	 	 	52	 
	18.02 Procedure to Amend
	 	 	52	 
	18.03 Provision Against Diversion
	 	 	52	 
	 
	 	 	 	 
	SECTION 19 Termination
	 	 	53	 
	19.01 Right to Terminate
	 	 	53	 
	19.02 Withdrawal of an Employer
	 	 	53	 
	19.03 Distribution in Event of Termination of Trust
	 	 	53	 
	19.04 Administration in Event of Continuance of Trust
	 	 	53	 
	19.05 Merger, Consolidation or Transfer
	 	 	53	 
	 
	 	 	 	 
	SECTION 20 Construction
	 	 	54	 
	20.01 Applicable Law
	 	 	54	 
	20.02 Gender and Number
	 	 	54	 
	 
	 	 	 	 
	SECTION 21 Top-Heavy Requirements
	 	 	55	 
	21.01 Generally
	 	 	55	 
	21.02 Minimum Allocations
	 	 	55	 
	21.03 Determination of Top Heaviness
	 	 	55	 
	21.04 Calculation of Top-Heavy Ratios
	 	 	56	 
	21.05 Cumulative Accounts and Cumulative Accrued Benefits
	 	 	56	 
	21.06 Other Definitions
	 	 	57	 

iv

 

PAYLESS SHOESOURCE, INC.

401(k) PROFIT SHARING PLAN

INTRODUCTION

     Effective April 1, 1996, Payless ShoeSource, Inc. withdrew from and ceased to be a
participating Employer in The May Department Stores Company Profit Sharing Plan (the “May Plan”),
and established the Payless ShoeSource, Inc. Profit Sharing Plan (the “Plan”). Effective January
1, 1997, a portion of the Plan covering Associates of Payless ShoeSource of Puerto Rico, Inc. was
spun off. As of August 1, 1997, Payless amended and restated the Plan, primarily to establish a
company matching contribution based on Members’ contributions effective January 1, 1998, to
institute automatic enrollment in before-tax contributions by Members, and to comply with certain
changes in the law. On June 1, 1998, Payless restructured its corporate organization into a
holding company structure with Payless ShoeSource, Inc., a Delaware corporation, as the parent
corporation and the named Company for this Plan. Effective March 20, 2000, the Company amended and
restated the Plan, primarily to include provisions for loans and the acceptance of rollover
contributions from other qualified plans, a change to daily valuation and other miscellaneous
changes.

     Effective January 1, 2002, the Company amended and restated the Plan to effect the adoption of
mandatory and certain permissive provisions of the Economic Growth and Tax Relief Reconciliation
Act of 2001 (“EGTRRA”). The EGTRRA amendments to the Plan are intended to be made in good faith
compliance with the requirements of EGTRRA and are to be construed in accordance with EGTRRA and
guidance issued thereunder. While the EGTRRA amendments are generally effective January 1, 2002,
some of the amendments are effective May 1, 2002, as indicated below. In addition, effective May
1, 2002, the Plan was amended to permit Full-Time Associates to participate in the Plan upon the
completion of 90 days of employment service with a participating Employer or other member of the
Group. Effective January 1, 2003 the Company again amended and restated the Plan to reflect the
terms of the final Treasury Regulations governing required minimum distributions. Effective March
28, 2005, the Company amended the Plan to reduce the limit for certain mandatory distributions as
described in IRS notice 2005-5. Other amendments made herein are effective on the dates as
specified. The Plan was further amended as specified to provide for a guaranteed minimum Company
Matching Contribution. Additional amendments were made effective January 1, 2006 to permit
Full-Time Associates to make elective contributions to the Plan after completing 60 days of
employment and to be eligible to receive the Company Matching Contribution after completing 180
days of employment. The hardship provisions of the Plan were also amended to expand the definition
of a “hardship”, consistent with Treasury regulations. The Plan was further amended effective
January 1, 2007 to provide for Part-Time Associates to be eligible to participate in the Plan upon
turning age 21 and completing a full year of employment and to remove the re-employment provision
specified under Section 2.02.

     Effective August 1, 2007, the terms and provisions of this restated plan are as follows:

1

 

SECTION 1

Definitions

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

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

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

     1.04 Allocation Pay Amount
means with respect to each eligible Member, (a) one (1) times the amount of Pay as defined in
Section 1.35 up to the Social Security Wage Base (“SSWB”) for the Plan Year, plus (b) two (2) times
the amount of such Pay in excess of the SSWB for the Plan Year. Notwithstanding any provision of
this Section 1.04 or of Section 3.04 to the contrary, in no event shall the percentage of Members’
Pay to be allocated for any year below the SSWB be less than fifty percent (50%) of the percentage
of Pay allocated with respect to Members’ Pay in excess of the SSWB, nor may the latter percentage
of Pay (above the SSWB) exceed the former percentage of Pay (below the SSWB) by more than 5.7% (or
such other percentage as may be the maximum permitted differential under Code Section 401(1) from
time to time).

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

     Notwithstanding the foregoing, with respect to any Plan Year for which applying the definition
of Allocation Pay Amount set forth above would cause the allocation made pursuant to Section 3.04
to violate the permitted disparity limitations of Treas. Reg. Section 1.401(l)-2, Allocation Pay
Amount shall be adjusted to permit Section 3.04 to operate in compliance with the limitations of
Treas. Reg. Section 1.401(l)-2.

     1.05 Associate
means any person who is classified as an employee by an Employer and who receives Pay from an
Employer. The term Associate also may include, based upon the express written determination of the
Company or the Committee, a U.S. citizen employed, at the request of the Company, by a member of
the Group (defined in Section 1.21) to the extent such employee otherwise qualifies for membership
under Section 2, in which case such Group member shall be
deemed to be an “Employer” hereunder, as to such person or persons only. The term “Associate”
shall not include (i) any person covered under a collective bargaining agreement unless and until
the Employer and the collective bargaining representatives so agree, (ii) any non-resident alien,
and (iii) any “Leased Employee” (as defined in Code Section 414(n), without regard to Section
414(n)(2)(B)).

2

 

     1.06 Authorized Leave of Absence
means any leave of absence authorized by the Employer under rules established by the Employer.

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

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

     1.09 Board
means the Board of Directors of the Company.

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

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

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

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

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

     1.15 Company Profit Sharing Contributions
means discretionary contributions made by the Company or an Employer, based on Net Profits,
pursuant to Section 3.01.

     1.16 Effective Date
originally meant April 1, 1996. However, the effective date of this amendment and restatement
of the Plan shall be August 1, 2007, unless otherwise specified herein.

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

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

3

 

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

     1.20 Fiscal Year
means the Company’s Fiscal Year.

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

     1.22 Highly Compensated Employee
means any Member who (a) was a “five percent owner” as defined in Section 21.06(f)(2) at any
time during either the determination year or the look-back year; or (b) received compensation
within the meaning of Code Section 415(c)(3) (including the deferrals described in Code Section
415(c)(3)(D)) from the Employer in excess of $100,000 (as adjusted pursuant to Code Section 415(d))
during the look-back year. For purposes of this Section 1.22, compensation within the meaning of
Code Section 415(c)(3) shall mean the remuneration as defined in Treasury Regulation Section
1.415(c)-2(d)(2) and shall include the deferrals described in Code Section 415(c)(3)(D).

     For purposes of this Section, the determination year shall be the Plan Year, and the look-back
year shall be the 12-month period immediately preceding the determination year. The determination
of who is a Highly Compensated Employee, including the determination of the compensation that is
considered, will be made in accordance with Code Section 414(q) and the regulations thereunder.

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

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

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

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

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

4

 

     1.24 Investment Fund
means any fund for investment of contributions as described in Section 5.01.

     1.25 May Plan
means The May Department Stores Company Profit Sharing Plan.

     1.26 Member
means any person included in the membership of this Plan as provided in Section 2.

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

     1.28 Member After-Tax Accounts
means the Member Accounts with respect to a Member’s After-Tax Contributions.

     1.29 Member Before-Tax Accounts
means the Member Accounts with respect to a Member’s Before-Tax Contributions.

     1.30 Member Contributions
means the Member’s Before-Tax Contributions and After-Tax Contributions.

     1.31 Member Rollover Contribution Accounts
means the Member Accounts with respect to an Associate’s or Member’s Rollover Contributions.

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

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

     1.34 Non-Highly Compensated Employee
means any Employee who is not a Highly Compensated Employee but who is eligible to participate
in the Plan.

5

 

     1.35 Pay
means the aggregate of (i) all regular pay, commissions, overtime pay, cash incentives, prizes
and cash awards, plus (ii) amounts which the Associate elects to have the Employer contribute
directly to the Plan on the Associate’s behalf in accordance with Section 4.01(b). Pay shall
include any amounts not otherwise includable in the Member’s taxable income pursuant to Code
Section 125. Pay shall not include amounts for a pension, a retirement allowance, a retainer or a
fee under contract, deferred compensation (including amounts deferred under the Deferred
Compensation Plan of The May Department Stores Company and the Deferred Compensation Plan of
Payless ShoeSource, Inc.), severance pay, distributions from this Plan, amounts earned before an
individual becomes a Member, or items of extraordinary income including but not limited to amounts
resulting from the exercise of stock options, spinoff cash, spinoff stock and restricted stock
awards. Pay in excess of $225,000 shall be disregarded, although such amount shall be adjusted for
cost-of-living increases in accordance with Code Section 401(a)(17)(B).

     1.36 Pooled Investment Account
means an account established pursuant to an administrative services agreement between the
Company and the Trustee.

     1.37 Plan
means this Payless ShoeSource, Inc. 401(k) Profit Sharing Plan.

     1.38 Plan Year
means a calendar year ending each December 31.

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

     1.40 Qualified Domestic Relations Order
means a “qualified domestic relations order” as that term is defined in Code Section 414(p),
provided that such order was entered on or after January 1, 1985.

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

     1.42 Rollover Contributions
means contributions which the Associate or Member, as applicable, elects to make in accordance
with Section 11.02.

     1.43 Social Security Wage Base
means, with respect to each Plan Year, the maximum amount of wages which are subject to tax in
such year under the Federal Old Age, Survivors and Disability Insurance System.

     1.44 Total and Permanent Disability or Disability
means the qualification for disability under Title 11 of the Federal Social Security Act.

     1.45 Transferred Accounts
means Member and Company Accounts transferred from the May Plan.

     1.46 Trust Agreement
means the agreement or agreements provided for in Section 15 as amended from time to time.

6

 

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

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

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

     1.50 Unit Value
means the value of each Unit in an Investment Fund as of the Valuation Date as determined
pursuant to Section 6.04.

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

     1.52 Vesting Service
for purposes of determining a Member’s vested interest under Section 6.07 is based on “elapsed
time” and is to be determined in accordance with the following definitions:

(a) “Employment Commencement Date” means the date upon which an Associate first performs an
Hour of Service.

(b) “Hour of Service” means an hour for which an Associate is paid or entitled to payment
for the performance of duties for the Employer or any other member of the Group.

(c) “Period of Service” means a period beginning on the Associate’s Employment Commencement
Date (or Reemployment Commencement Date, as the case may be) and ending on his Severance
from Service Date.

(d) “Severance from Service Date” means the earlier to occur of:

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

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

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

7

 

(e) “Period of Severance” means a period beginning on an Associate’s Severance from Service
Date and ending upon the Associate’s Reemployment Commencement Date.

(f) “Reemployment Commencement Date” means the first date, following a Severance from
Service Date, upon which the Associate performs an Hour of Service for the Employer or any
other member of the Group.

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

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

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

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

     The extent to which service with another organization, part or all of whose business
operations are acquired by the Company (or by an Employer), shall be credited as “Years of Service”
hereunder or as “Vesting Service” under Section 1.52 shall be determined by the Company or by the
Committee on a case-by-case basis.

8

 

SECTION 2

Membership

     2.01 Conditions of Eligibility.

(a) Each Associate who on July 31, 2007 was a Member of or is eligible to be a Member of the
Plan shall continue to be a Member of this Plan entitled to make Member Contributions
pursuant to Section 4 and eligible to share in Company Contributions pursuant to Section 3.

(b) On and after August 1, 2007, each other Associate shall be eligible to become a Member
of the Plan when the Associate attains age 21 and meets such other eligibility criteria for
Part-Time and Full-Time Associates as set forth below. Once determined eligible, membership
commences as of the first day of the month coincident with or following the date the
Associate has met the applicable eligibility requirements. Such Associate shall be
eligible:

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

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

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

     Effective January 1, 2006, a Full-Time Associate shall be eligible to make Member
Contributions pursuant to Section 4 as of the first day of the month coincident with or
following the date he has completed 60 days of employment with the Employer and attained age
21. Further, a Full-Time Associate shall be eligible to receive a Company Matching
Contribution coincident with or following the date he has completed 180 days of service with
the Company and satisfied the requirements of Section 3.03. For the purposes of the
preceding sentence, a “Full-Time Associate” is an Associate classified on the Employer’s
records as a Full-Time Associate. In many locations, this means the Associate is normally
scheduled to work 32 or more hours per week. However, the Associate’s classification on the
Employer’s records, and not the actual number of hours worked in any period, determines
Full-Time status. Effective January 1, 2007, a Part-Time Associate shall be eligible to
make Member Contributions pursuant to Section 4 as of the first day of the month coincident
with or following the date he has completed one full year of employment. Prior to the
effective date of January 1, 2007, Part-Time Associates must have completed one full Year of
Service to be eligible to make Member Contributions.

     (c) Each Member shall be deemed to have elected to make a three percent (3%) Before-Tax
Contribution pursuant to Section 4.01(b), commencing with the first paycheck issued with
respect to the first payroll period beginning on or after the first day of the month
coincident with or following the date the Employer determines he met the
foregoing eligibility requirements. Notwithstanding this “deemed” election, an Associate

9

 

or
Member may elect pursuant to procedures established by the Committee to not make, or to
suspend making, said three percent (3%) automatic Before-Tax Contribution, or pursuant to
Section 4.01(a) or 4.01(b) to make an After-Tax or a Before-Tax Contribution of an amount
other than three percent (3%).

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

(e) Notwithstanding any other provisions of the Plan, any individual who is providing
services to the Employer in the capacity of, or who is designated by the Employer as an
independent contractor, and who is subsequently reclassified as an Associate by court or
similar action (whether retroactively or prospectively), shall not be eligible to
participate in the Plan, and shall be treated as a member of an excluded class. No such
excluded individual shall have any claim for benefits under the Plan for any period during
which he is excluded from participation.

     2.02 Re-Employment
.. A former or inactive Member who is reemployed by the Employer more than 31 days after his
prior termination of employment must satisfy the eligibility requirements in Section 2.01 in order
to become a Member of the Plan again.

10

 

SECTION 3

Company Contributions

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

     3.02 Amount of Company Matching Contribution
.. The Company shall, in its discretion, contribute to the Trust, as of the end of each Plan
Year, a total combined amount as to this Plan and the Payless ShoeSource, Inc. Profit Sharing Plan
for Puerto Rico Associates (“Puerto Rico Plan”) equal to 21/2% of its Net Profits, until determined
otherwise by the Board of Directors, in the form of a Company Matching Contribution. Effective
beginning with the 2006 Plan Year, the Board has determined that a minimum guaranteed Company
Matching Contribution of $.25 per $1.00 of Member Contributions up to 5% of Pay will be contributed
each Plan Year by the Company. Such Company Matching Contributions may be made by an Employer,
rather than by the Company, as to that Employer’s participating Associates. The total amount of
such contribution shall be allocated in proportion to the amount that each Member’s Contributions
under Sections 4.01(a) and 4.01(b) for such Plan Year, up to a total of 5% of such Member’s Pay,
bears to the total amount of all Member Contributions up to 5% of such Members’ Pay. Such Company
Matching Contribution shall be determined and paid to the Trustee as soon as practicable after the
close of each Fiscal Year.

     3.03 Allocation of Company Contributions
.. The Company Contributions shall be allocated only to the Company Accounts of Members who
are employed by the Employer on the last day of the Plan Year and on behalf of Members whose
employment has terminated during the Plan Year by reason of Retirement, death or Disability.
Company Profit Sharing Contributions shall be credited to eligible Members’ Company Profit Sharing
Contribution Accounts. Company Profit Sharing Contributions allocated prior to or as of July 31,
1997 shall be fully vested; Company Profit Sharing Contributions allocated thereafter shall be
subject to the vesting provisions of Section 6.07. Company Matching Contributions shall be subject
to the vesting provisions of Section 6.07 and to the withdrawal penalty provisions of Section
8.02(a). No Company Matching Contribution shall be made with respect to a Member Before-Tax
Contribution in excess of the Code Section 402(g) and 414(v) limit, as revised from time to time.

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

     3.05 Investment of the Company Contribution
.. The amounts allocated to each Member pursuant to Section 3.03 shall be credited to his
Company Accounts and invested in one

11

 

or more of
the Investment Funds described in Section 5.01 and
in the percentages designated by the Member in the investment election filed pursuant to Section
5.02 effective at the time the amount is allocated.

     3.06 Return of Company Contributions.

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

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

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

12

 

SECTION 4

Member Contributions

     4.01 Procedure for Making Contributions.

(a) After-Tax Contributions. Subject to the limitations set forth in Sections 4.02, 4.03
and 4.04, each Member may contribute to the Plan an amount (in whole percentage points)
equal to not less than 1% nor more than 15% (effective May 1, 2002, 75%) of his Pay as he
shall have designated pursuant to procedures established by the Company (which may establish
lower permissible After-Tax Contributions for Highly Compensated Employees); provided,
however, that a Member shall not contribute, or elect to have contributed on his behalf,
amounts with respect to Pay received by him after the close of the calendar year during
which his employment terminates and further provided that any Before-Tax Contributions made
on behalf of the Member shall reduce, by the percentage which he elects to have contributed
pursuant to Section 4.01(b)(i), the percentage of Pay that the Member may contribute
pursuant to this Section 4.01(a).

     (b) Before-Tax Contributions.

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

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

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

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

(ii) may, except with respect to situations in which Section 4.01(h) applies, (and
prior to March 15 of the calendar year following the Plan Year in which such

13

 

contributions are made) declare all or such portion of the Before-Tax Contributions
theretofore or thereafter made on behalf of all or a portion of the Members to be
After-Tax Contributions. Effective January 1, 1997, if Before-Tax Contributions are
made to another plan or plans, this Plan and such other plans must be aggregated for
purposes of Section 410(b) of the Code (other than the average benefit percentage
test).

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

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

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

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

(h) Notwithstanding any election in accordance with Subsection (b), the total amount of a
Member’s Before-Tax Contributions and other contributions made by the Member under Code
Section 401(k) to another plan qualified under Code Section 401(a) for any
calendar year shall not exceed $15,500 (as adjusted from time to time by the Secretary of
the Treasury or his delegate, pursuant to Code Section 415(d)).
If any Member may

14

 

reach the
$15,500 limit (as adjusted) the Committee can direct that all or any portion of such
Member’s Contributions during such year shall be After-Tax Contributions regardless of such
Member’s elections pursuant to Sections 4.01(a) and 4.01(b). Effective May 1, 2002, all
employees who are eligible to make elective deferrals under this Plan and who have attained
age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in
accordance with, and subject to the limitations of, Section 414(v) of the Code. Such
catch-up contributions shall not be taken into account for purposes of the provisions of the
Plan implementing the required limitations of Sections 402(g) and 415 of the Code. The Plan
shall not be treated as failing to satisfy the provisions of the Plan implementing the
requirements of Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as
applicable, by reason of the making of such catch-up contributions.

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

     4.02 Limitations On And Distributions Of Before-Tax Contributions For Highly Compensated
Employees.

     The Committee is authorized to reduce to the extent necessary the maximum contributions under
Section 4.01(b) for Highly Compensated Employees prior to the close of the Plan Year if the
Committee reasonably believes that such reduction is necessary to prevent the Plan from failing
both tests in Code Section 401(k)(3). Such adjustments shall be made in accordance with rules
prescribed by the Committee. The Committee may implement rules limiting contributions under
Section 4.01(b) which may be made on behalf of some or all Highly Compensated Employees so that the
limits of Section 401(k)(3) or 401(m)(2) of the Code are satisfied. If for any Plan Year the Plan
satisfies neither of the tests set forth in Code Section 401(k)(3), the Trustee shall be directed
by the Committee to return to each Highly Compensated Employee his or her portion of the excess
contributions (plus the income or less the loss allocable to such excess contributions) for such
Plan Year within 12 months after the last day of such Plan Year. A Highly Compensated Employee
shall forfeit any Matching Contributions which were contributed on account of any portion of the
excess contributions even if such Matching Contributions are vested. Each Highly Compensated
Employee’s portion of the excess contributions for a Plan Year shall be determined under a two step
process. First, the aggregate amount of excess contributions shall be calculated. This shall be
done by reducing the actual deferral percentages of those Highly Compensated Employees with the
highest actual deferral percentages to the extent necessary but not below the next highest level of
actual deferral
percentages. This process shall be repeated, to the extent necessary, until the actual
deferral percentage for the group of Highly Compensated Employees satisfies one of the tests set
forth in Code Section 401(k)(3). The aggregate amount of excess contributions shall be equal to
the sum of all such reductions. Second, the aggregate amount of excess contributions to be
returned shall be allocated by reducing the Before-Tax Contributions of those Highly Compensated
Employees with the highest amount of Before-Tax Contributions to the extent necessary but not below
the next highest amount of Before-Tax Contributions. This process shall be repeated, to the extent
necessary, until all excess contributions to be returned shall

15

 

be allocated among the Highly
Compensated Employees. The income or loss allocable to a Highly Compensated Employee’s portion of
the excess contribution will be determined under such reasonable method as the Committee shall
establish, provided the method does not discriminate in favor of Highly Compensated Employees, is
used consistently for all Members and for all corrective distributions under the Plan for the Plan
Year, and is used by the Plan for allocating income to Members’ accounts.

(a) Coordination With Distributions Of Elective Deferrals. If the Plan is required to
distribute both elective deferrals and excess contributions for a Plan Year, the Plan shall:

(i) calculate and distribute the elective deferrals before determining the excess
contributions to be distributed to Highly Compensated Employees;

(ii) calculate the actual deferral percentage including the amount of excess
elective deferrals distributed pursuant to (i) above; and

(iii) distribute excess contributions to Members by reducing the excess
contributions distributed to a Member by the amount of excess elective deferrals
distributed to such Member.

(b) Election To Make Additional Contributions. Notwithstanding the above, in accordance
with Treasury Regulation Section 1.401(k)-2(a)(6), the Company may elect, in lieu of all or
a portion of the corrective distribution described above in this Section, to make additional
qualified nonelective contributions or qualified matching contributions which are treated as
elective deferrals under the Plan and that, in combination with the elective deferrals,
satisfy the actual deferral percentage test. Any such additional qualified nonelective
contributions will be credited to a Member Before-Tax Account and shall be allocated to each
Member who is not a Highly Compensated Employee in an amount as determined by the Company
and will be contributed as a percentage of such Member’s Pay for the Plan Year. Any such
additional qualified matching contributions will be credited to a Member Before-Tax Account
and shall be allocated to each Member who is not a Highly Compensated Employee and will be
contributed as a percentage of the amount contributed by such Member under Section 4.01(b).

(c) Testing Year. The actual deferral percentage of Non-Highly Compensated Employees shall
be determined as of the Plan Year preceding the Plan Year for which the Plan must satisfy
one of the tests in Code Section 401(k)(3).

     4.03 Distributions of Excess Deferrals.

     If a Member’s elective deferrals for any calendar year exceed $15,500 (or such higher amount
prescribed under Section 402(g) of the Code), then the Member may file an election form prescribed
by the Committee with the Employer/Company designating in writing the

16

 

amount of the Member’s Excess
Before-Tax Deferrals to be distributed from this Plan. Any such election form must be filed with
the Committee no later than the first March 1 following the close of such calendar year in order
for the Committee to act on it. If such an election form is timely filed, the Trustee shall
distribute to the Member the amount of such Excess Before-Tax Deferrals which the Member has
allocated to this Plan together with any income or less any loss allocable to such amount on or
before the first April 15 following the close of such calendar year. In the case of a Highly
Compensated Employee, any Matching Contributions which were contributed on account of the Excess
Before-Tax Deferrals being distributed will be forfeited, even if such Matching Contributions are
vested. For purposes of this Section 4.03, the income or loss allocable to such Excess Before-Tax
Deferrals will be determined under such reasonable method as the Committee shall establish,
provided the method does not discriminate in favor of Highly Compensated Employees, is used
consistently for all Members and for all corrective distributions under the Plan for the Plan Year,
and is used by the Plan for allocating income to Members’ accounts.

     4.04 Limitations On And Distributions Of After-Tax Employee Contributions And Matching
Contributions For Highly Compensated Employees.

     The Committee is authorized to reduce to the extent necessary the maximum amount of Employer
Matching Contributions under Section 3.02 and Member After-Tax Contributions contributed on behalf
of any Highly Compensated Employee prior to the close of the Plan Year if the Committee reasonably
believes that such adjustment is necessary to prevent the Plan from failing both tests in Code
Section 401(m)(2). Such reduction shall be made in accordance with rules prescribed by the
Committee. Notwithstanding anything herein to the contrary, the tests in Code Section 401(m)(2)
shall be treated as satisfied with respect to such Matching Contributions and After-Tax
Contributions to the Plan, or a portion of the Plan, if the Plan or such portion is a collectively
bargained plan that automatically satisfies Code Section 410(b), in accordance with Treasury
Regulation Sections 1.401(m)-1(b)(2) and 1.410(b)-2(b)(7). If for any Plan Year the Plan fails to
satisfy either of the tests set forth in Code Section 401(m)(2), the Trustee shall be directed by
the Committee to distribute to each Highly Compensated Employee his or her vested portion (and
forfeit the nonvested portion) of the excess aggregate contributions (plus the income or less the
losses allocable to such excess aggregate contributions) for such Plan Year, within 12 months after
the last day of such Plan Year. Each Highly Compensated Employee’s portion of the excess aggregate
contributions for a Plan Year shall be determined under a two step process. First, the aggregate
amount of excess aggregate contributions shall be calculated. This shall be done by reducing the
actual contribution percentages of those Highly Compensated Employees with the highest actual
contribution percentages to the extent necessary but not below the next highest level of actual
contribution percentages. This process shall be repeated, to the extent
necessary, until the actual contribution percentage for the group of Highly Compensated
Employees satisfies one of the tests set forth in Code Section 401(m)(2). The aggregate amount of
excess aggregate contributions shall be equal to the sum of all such reductions. Second, the
aggregate amount of excess aggregate contributions to be distributed or

17

 

forfeited shall be
allocated by first reducing any After-Tax Contributions and then any Matching Contributions made by
or on behalf of Highly Compensated Employees with the highest total amount of After-Tax
Contributions and Matching Contributions to the extent necessary but not below the next highest
total amount of After-Tax Contributions and Matching Contributions. This process shall be
repeated, to the extent necessary, until all excess aggregate contributions to be distributed or
forfeited shall be allocated among the Highly Compensated Employees. A Highly Compensated Employee
whose After-Tax Contributions are determined to be excess aggregate contributions shall forfeit any
Matching Contributions which were contributed on account of such After-Tax Contributions, even if
such Matching Contributions are vested. The income or loss allocable to a Highly Compensated
Employee’s portion of the excess aggregate contributions will be determined under such reasonable
method as the Committee shall establish, provided the method does not discriminate in favor of
Highly Compensated Employees, is used consistently for all Members and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to
Members’ accounts.

(a) Election To Make Additional Contributions. Notwithstanding the above, in accordance
with Treasury Regulation Section 1.401(m)-2(a)(6), the Company may elect, in lieu of all or
a portion of the distribution described above, to either (i) make an additional qualified
nonelective contribution that, in combination with Matching Contributions and After-Tax
Contributions for the Plan Year, satisfies the actual contribution percentage test or (ii)
recharacterize elective contributions as Matching Contributions. Any such additional
qualified nonelective contributions will be credited to a Member Before-Tax Account and
shall be allocated to each Member who is not a Highly Compensated Employee in an amount as
determined by the Company and will be contributed as a percentage of such Member’s Pay for
the Plan Year.

(b) The actual contribution percentage of Non-Highly Compensated Employees shall be
determined as of the Plan Year preceding the Plan Year for which the Plan must satisfy one
of the tests in Code Section 401(m)(2).

     4.05 Definitions and Special Rules.

(a) Repeal of Multiple Use Test. The Multiple use test described in Treasury Regulation
Section 1.401(m)-2 shall not apply for Plan Years beginning after December 31, 2001.

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

(c) Special Rule For Early Participation. If the Company applies Code Section 410(b)(4)(B)
in determining whether the Plan satisfies Code Section 410(b) by excluding
from consideration eligible Associates who have not met minimum age and service
requirements, the Company may exclude from consideration all Non-Highly Compensated
Employees who have not met the minimum age and service requirements of Code Section
410(a)(1)(A) for purposes of satisfying the tests in Code Sections 401(k)(3) and 401(m)(2).

(d) Highly Compensated Employee In Two Or More Qualified Plans. The actual contribution
percentage and the actual deferral percentage of a Highly Compensated Employee who is
eligible to participate in two or more qualified plans which have (i) cash or deferred
arrangements or (ii) Matching Contributions or After-Tax Contributions features maintained
by the Employer or a member of the Group, shall be

18

 

calculated by treating all such cash or
deferred arrangements in which the Highly Compensated Employee is eligible to participate as
one cash or deferred arrangement for purposes of calculating the actual deferral percentage
for such Highly Compensated Employee and all such features in which the Highly Compensated
Employee is eligible to participate as one feature for purposes of calculating the actual
contribution percentage for such Highly Compensated Employee with respect to years ending
within the same calendar year.

(e) Plan Restructuring. The Plan may be aggregated with another plan or other plans or
disaggregated under Section 1.401(k)-1(b)(4) and Section 1.401(m)-1(b)(4) of the Treasury
Regulations for any Plan Year in order to pass the actual contribution percentage and actual
deferral percentage tests set forth in this Section.

19

 

SECTION 5

Investment Provisions

     5.01 Investment Funds.

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

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

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

     5.02 Investment Direction.

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

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

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

(d) Notwithstanding this Section 5.02, effective March 20, 2000, during the black out period
as determined by the Committee and the Trustee established to change to daily valuation or a
change in recordkeepers, no investment transfers or changes may be made by a Member unless
provided in Section 6.06. Notwithstanding anything to the contrary,

20

 

no loans, withdrawals
or distributions shall be made during any such blackout period except as provided by the
Committee.

21

 

SECTION 6

Accounts

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

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

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

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

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

     6.06 Shares of Payless ShoeSource, Inc. (“Payless Stock”) in the Payless Common Stock Fund.

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

22

 

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

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

     6.07 Vesting in Member and Company Accounts.

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

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	Vesting Service	 	Vested Interest
	Fewer than 2 years
	 	 	0	%
	2 years
	 	 	25	%
	3 years
	 	 	50	%
	4 years
	 	 	75	%
	5 years or more
	 	 	100	%

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

(b) Cash-out Distributions to Partially Vested Members and Restoration of Forfeitures. If,
pursuant to Section 10.01, a partially-vested Member receives a cash-out distribution before
he incurs a Forfeiture Break in Service (as defined in Subsection (d) below), the cash-out
distribution will result in an immediate forfeiture of the nonvested portion(s) of the
Member’s Company Matching and Company Profit Sharing Contribution Account(s). See
Subsection (e) below. A partially-vested Member is a Member whose Vested Interest,
determined under Section 6.07(a), in either his Company Matching Contribution Account or his
Company Profit Sharing Contribution Account, or both, is less than 100%. A cash-out
distribution is a distribution of the entire vested portion of the Member’s Account(s).

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

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

24

 

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

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

(C) third, as otherwise permitted by law.

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

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

(c) Determination of Vesting Service. For purposes of determining a Member’s Vested
Interest in his Company Contributions Account(s) under Subsection (a) above, a Member shall
be credited with that number of years of Vesting Service determined by adding together all
of the Associate’s Periods of Service, whether or not consecutive. Notwithstanding the
foregoing, Vesting Service shall not include any Period of Service before the Plan Year in
which an Associate attains age eighteen (18). Only whole years of service shall be taken
into account for purposes of applying the schedule set forth in Subsection (a) above, and,
for purposes of determining a Member’s number of whole years of service, non-successive
Periods of Service must be aggregated, with 365 days of service being deemed to constitute
one year. For purposes of determining a Member’s Period of Service, the Service Spanning
rules described in Section 1.52(g) shall apply.

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

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

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

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

          The Plan Administrator shall determine the percentage of a Member’s Account(s)
forfeiture, if any, under this Subsection (e) solely by reference to the vesting schedule of
Section 6.07(a). As of the last day of each Plan Year, the total amount of forfeitures

25

 

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

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

26

 

SECTION 7

Expenses

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

27

 

SECTION 8

Withdrawals During Employment

     8.01 Withdrawals Prohibited Unless Specifically Authorized
.. No withdrawal from the Plan shall be permitted prior to a Member’s termination of
employment, except as provided in Section 8.02.

     8.02 Authorized Withdrawals.

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

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

(i) Expenses for (or necessary to obtain) medical care that would be deductible
under Code Sections 213(a) and (d) (determined without regard to whether the
expenses exceed any applicable threshold amount of adjusted gross income);

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

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

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

(v) (Effective January 1, 2006). Payments for burial or funeral expenses for a
Member’s deceased parent, spouse, children or dependents (as defined in Section

28

 

152 of the Code and effective January 1, 2006), without regard to Section 152(d)(1)(B).

(vi) (Effective January 1, 2006). Expenses for the repair of damage to Member’s
principal residence that would qualify for the casualty deduction under Section 165
of the Code (determined without regard to whether the loss exceeds 10% of adjusted
gross income).

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

     In addition, such hardship must be one which in the judgment of the Committee, based on the
Member’s representations, cannot be relieved (1) through reimbursement or compensation by insurance
or otherwise, (2) by reasonable liquidation of the Member’s assets to the extent such liquidation
would not itself cause an immediate and heavy financial need, (3) by cessation of Member
Contributions under the Plan, (4) by other distributions or loans from employee benefit plans,
including this Plan, maintained by the Company or any other employer or (5) by borrowing from
commercial sources on reasonable commercial terms. The Member shall be required to submit
documentation, to be determined by the Committee, with his hardship withdrawal request to enable
the Committee to make a judgment regarding the validity of such hardship withdrawal request. For
any Member who has attained age 591/2, the “hardship” requirement shall be deemed waived.

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

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

(e) A withdrawal election shall be made pursuant to application procedures established by
the Committee. Contribution totals and Account values shall be determined as of the
Valuation Date coinciding with or next following the filing of the withdrawal election. If
the Member Accounts from which withdrawal is made are in more than one Investment Fund, the
withdrawal shall be pro rata from each such Investment Fund except in the case the Member is
subject to Section 16 of the Securities Exchange Act of 1934 or has been designated as a
“Designated Insider,” in which case such Member’s withdrawal will be taken first from such
Member’s Investment Funds other than the Payless Common Stock Fund.

29

 

SECTION 9

Benefits Upon Retirement, Death, Disability or Termination of Employment

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

     Any person who is a Leased Employee (as defined in Code Section 414(n), without regard to
Section 414(n)(2)(B)) of any member of the Group shall be treated for all purposes of the Plan as
if he were employed by a member of the Group which has not adopted the Plan. Notwithstanding
anything to the contrary in the Plan, a transfer from the status of an employee of the Employer to
that of a Leased Employee shall not be considered a termination of employment under the Plan. An
individual who has such a transfer shall not have a termination of employment until he ceases to be
an employee of the Employer and all members of its Group and is no longer a Leased Employee.

     9.02 Beneficiary. Any benefits payable on account of a Member’s death shall be paid to such Member’s spouse.
If such Member has no spouse or if such Member’s spouse shall have consented to the naming of
another beneficiary, such benefits shall be paid to the person or persons (including, without
limitation, estates, trust, or other entities) last named as beneficiary by such Member on an
appropriate form filed with the Committee. A spouse’s consent shall acknowledge the effect of the
consent and be in writing, witnessed by a Plan representative or notary public. A spouse’s consent
shall be irrevocable. If no beneficiary has been so named or the Member has no designated
beneficiary, any payment to be made under this Plan on account of a Member’s death shall be paid to
such Member’s spouse, or, if he has no spouse, to such Member’s estate. Whenever permitted by the
Code or regulations thereunder, the Committee may waive the requirements that a spouse’s consent be
obtained. Such waiver may be on a case by case basis or by categories.

30

 

SECTION 10

Payment of Benefits

10.01 Time of Payment.

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

     Notwithstanding any provision of this Section 10 to the contrary, if the present value
of the nonforfeitable accrued benefit of a Member, including Company Contributions, Member
Contributions, Rollover Contributions and earnings thereon (but excluding accumulated
deductible employee contributions, if any) exceeds $1,000, no partial or total distribution
shall be made unless the Member has consented thereto in writing in the manner required by
law.

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

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

(c) A Member who is entitled to receive a distribution in excess of $1,000 may elect to
defer such distribution to the required minimum distribution age, as determined by law from
time to time. An election to defer distribution shall conform to such requirements as to
form, content, manner, and timing as shall be determined by the Committee and which
requirements shall be applied in a manner which does not discriminate in favor of Members
who are Highly Compensated Employees. All Accounts of a Member who
elects to defer his distribution shall continue to be revalued as of each succeeding
Valuation Date pursuant to Section 6.04. A deferred distribution shall be paid when such

31

 

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

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

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

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

     10.05 Required Minimum Distributions.

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

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

     (1) If the Member’s surviving spouse is the Member’s sole designated
beneficiary, then distributions to the surviving spouse will begin by December 31 of
the calendar year immediately following the calendar year in which the Member died,
or by December 31 of the calendar year in which the Member would have attained age
701/2, if later.

     (2) If the Member’s surviving spouse is not the Member’s sole designated
beneficiary, then distributions to the designated beneficiary will begin

32

 

by December
31 of the calendar year immediately following the calendar year in which the Member
died.

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

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

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

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

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

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

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

33

 

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

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

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

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

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

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

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

34

 

under subsection (a)(1),
this Section will apply as if the surviving spouse were the Member.

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

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

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

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

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

     (5) Required Beginning Date means the first day of April following the calendar
year in which the Member attains age 701/2 or, if later, the calendar
year in which the Member retires. In the case of a Member who is a “five
percent owner” as defined in Section 21.06(f)(2), Required Beginning Date means the
first day of April following the calendar year in which the Member attains age 701/2.

     10.06 Commencement of Benefit Distribution to Beneficiary. Distributions to the
Beneficiary entitled under Section 9.02 to receive any payments
payable under this Plan on

35

 

account of a Member’s death shall be made in a lump sum payment not
later than December 31 of the calendar year following the calendar year in which the Member died.

     10.07 Commencement of Benefit Distribution to Alternate Payee. Distributions to an alternate payee entitled under Section 17.01 to receive any payments
payable under this Plan pursuant to the terms of a Qualified Domestic Relations Order shall be made
in accordance with the terms of such Qualified Domestic Relations Order and this Plan on or after
the date on which the Member has attained his “earliest retirement age” (as defined under Code
Section 414(p)) under the Plan. Notwithstanding the foregoing, distribution to an alternate payee
may be made prior to the Member’s attainment of his earliest retirement age if, but only if: (1)
the Qualified Domestic Relations Order specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an earlier distribution; (2) the distribution
is a single sum distribution of the alternate payee’s entire benefit entitlement under the Plan;
and (3) in the event the present value of the alternate payee’s benefits under the Plan exceeds
$1,000, the alternate payee consents to any distribution occurring prior to the Member’s attainment
of earliest retirement age.

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

36

 

SECTION 11

Permitted Rollover of Plan Distributions

     11.01 Rollover to Other Plans. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a
Distributee’s election under this Section, a Distributee may elect, at the time and pursuant to
procedures prescribed by the Committee, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee in a direct rollover.
Such distribution may commence no less than thirty (30) days nor more than ninety (90) after any
notice required under Treas. Reg. Section 1.411(a)-11(c) (or its successor) and explanation of his
right to rollover his distribution and tax explanation in accordance with Internal Revenue Rules
are given to a Member or other Distributee, provided that the Member has been clearly informed that
he has a right to a period of at least thirty (30) days after receiving said notice to consider the
decision as to whether to elect a distribution or, if applicable, a distribution option, and the
Member nevertheless affirmatively elects distribution preceding the expiration of thirty (30) days.
A portion of the distribution shall not fail to be an Eligible Rollover Distribution merely
because the portion consists of after-tax Member contributions which are not includible in gross
income. However, such portion may be transferred only to (i) an individual retirement account or
annuity described in Sections 408(a) or (b) of the Code, or (ii) effective January 1, 2007, a
qualified plan described in Section 401(a) of the Code or an annuity contract described in Code
Section 403(b) that agrees to separately account for amounts so transferred, including separately
accounting for the portion of such distribution which is includible in gross income and the portion
of such distribution which is not so includible.

     11.02 Rollover from Other Plans. An Associate eligible to participate in the Plan, regardless of whether he has satisfied
the participation requirements of Section 2.01, may transfer to the Plan an Eligible Rollover
Distribution provided that such distribution is from an Eligible Retirement Plan other than an
individual retirement account described in Code Section 408(a) or an individual retirement annuity
described in Code Section 408(b); and, provided further, that this Plan shall not accept the
portion of any Eligible Rollover Distribution that is not includible in gross income. If such
transfer is not a direct transfer, such a transfer may be made only if the following conditions are
met:

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

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

The Committee shall develop such procedures, and may require such information, from a Member
desiring to make such a transfer, as it deems necessary or desirable to determine that the
proposed transfer will meet the requirements of the Section. Upon approval by
the Committee or its Administrative Delegate, the amount transferred shall be deposited in
the Trust Fund and shall be credited to the Member’s account. Such rollover amount shall be
one hundred percent (100%) vested in the Member, shall share in the income

37

 

allocations in
accordance with Section 5, but shall not share in the Company Profit Sharing Contributions,
the Company Matching Contributions or the forfeiture allocations. Upon termination of
employment, the total amount of the rollover contribution shall be distributed in accordance
with the terms of the Plan.

Upon such a transfer by an Associate who is otherwise eligible to participate in the Plan
but who has not yet completed the participation requirement of Section 2.01, his rollover
amount shall represent his sole interest in the Plan until he becomes a Member.

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

(a) Eligible Rollover Distribution. An Eligible Rollover Distribution is any distribution
of all or any portion of the balance to the credit of the distributee, except that an
Eligible Rollover Distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee’s beneficiary or for a specified period of ten years or
more; any distribution to the extent such distribution is required under Code Section
401(a)(9); and any hardship distribution.

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

(c) Distributee. A Distributee includes a Member or former Member. In addition, the Member
or former Member’s surviving spouse and the Member’s or former Member’s spouse or former
spouse who is the alternate payee under a Qualified Domestic Relations Order, as defined in
Code Section 414(p), are Distributees with regard to the interest of the spouse or former
spouse. Moreover, for purposes of Section 11.01, a designated non-spouse Beneficiary may be
a Distributee only with respect to an Eligible Retirement Plan that is an individual
retirement account described in Code Section 408(a) or an individual retirement annuity
described in Code Section 408(b).

(d) Direct Transfer. A Direct Transfer is a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee as described in Code Section 401(a)(31).

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SECTION 12

Loans

     12.01 Availability of Loans. Loans shall be permitted under this Plan to Members who are employed with the Employer on
the date the loan is made (and subject to the terms of this Section 12, to an interested party as
defined in Section 3(14) of ERISA, even if such interested party is no longer an Associate)
pursuant to a uniform and non-discriminatory policy of the Committee. Any such loan shall be
subject to such conditions and limitations as the Committee deems necessary for administrative
convenience and to preserve the tax-qualified status of the Plan. Loans are available to
Associates who have a Member Rollover Contribution Account.

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

     12.03 Terms of Loans.

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

(b) Loans shall not be made available to Highly Compensated Employees in an amount greater
than the amount made available to other Employees.

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

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

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

39

 

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

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

(a) Member Accounts

(b) Vested Company Accounts

(c) Member Rollover Contribution Accounts

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

40

 

SECTION 13

Limit on Contributions to the Plan

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

     13.01 Limit on Contributions. Notwithstanding any provision of the Plan to the contrary:

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

(1) $45,000; or

(2) 100% of the Member’s remuneration from the Employer or any
member of the Group during the Limitation Year; or

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

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

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

(c) For purposes of this Section, Annual Additions means the sum for the Limitation Year of
Employer contributions, Employee contributions (determined without regard to any rollover
contributions as defined in Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3) and
457(e)(16), without regard to catch-up contributions under Code Section 414(v) and without
regard to Employee contributions to a simplified employee pension plan which are excludible
from gross income under Section 408(k)(6) of the Code) and reallocated forfeitures.

     13.02 Adjustment for Excessive Annual Additions.

(a) If, as a result of the allocation of forfeitures, a reasonable error in estimating a
Member’s Pay or other limited facts and circumstances, the Annual Additions under this Plan
would cause the maximum Annual Additions to be exceeded for any Member, the Committee shall
(1) return any Member Contributions credited for the Limitation Year to the extent that the
return would reduce the “excess amount” in the Member’s Accounts,
(2) hold any “excess amount” remaining after the return of any Member Contributions in a
“Section 415 suspense account”, (3) use the “Section 415 suspense account” in the next
Limitation Year (and succeeding Limitation Years if necessary) to reduce either

41

 

Company
Contributions for that Member if that Member is covered by the Plan as of the end of the
Limitation Year or if such Member is not covered by the Plan at the end of the Limitation
Year to reduce Company Contributions for all Members in the Plan, before any Company
Contributions or Member Contributions which would constitute Annual Additions are made to
the Plan for such Limitation Year, (4) reduce Company Contributions for such Limitation Year
by the amount of the “Section 415 suspense account” allocated and reallocated during such
Limitation Year. For purposes of (3) above, the Plan may not distribute “excess amounts” to
Members or former Members.

(b) For purposes of this Section, “excess amount” for any Member for a Limitation Year shall
mean the excess, if any, of (1) the Annual Additions which would be credited to his account
under the terms of the Plan without regard to the limitations of Code Section 415 over (2)
the maximum Annual Additions determined pursuant to Section 13.01(a).

(c) For purposes of this Section, “Section 415 suspense account” shall mean an unallocated
account equal to the sum of “excess amount” for all Members in the Plan during the
Limitation Year. The “Section 415 suspense account” shall not share in any earnings or
losses of the Trust Fund.

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SECTION 14

Administration of the Plan

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

     14.02 Delegation of Authority.

(a) Authority to administer the Plan has been delegated to the Committee and the
Administrative Subcommittee, if any, in accordance with Sections 1.44 (Total and Permanent
Disability), 4.01 (Member Contributions), 6.01 (Member Accounts), 6.02 (Company Accounts),
6.05 (Member Statements), 8.02 (Authorized Withdrawals), 13.02 (Adjustment for Excessive
Annual Additions), 19.02 (Withdrawal of an Employer) and this Section 14.

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

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

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

     14.03 Committee and Subcommittees.

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

43

 

to such agents such duties
as it considers appropriate and to the extent that such duties have been so delegated, the
agent shall be exclusively responsible for the proper discharge of such duties.

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

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

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

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

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

     14.05 Non-Discrimination. Neither the Committee nor either Subcommittee shall exercise its discretion in such a way
as to result in discrimination in favor of officers, shareholders or Highly Compensated Employees.

44

 

SECTION 15

Management of the Trust Fund

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

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

     15.03 Investments and Reinvestments. The investment and reinvestment of the assets of the Trust Fund shall be in accordance with
the following:

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

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

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

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

45

 

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

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

46

 

SECTION 16

Certain Rights and Obligations of Employers and Members

     16.01 Disclaimer of Employer Liability.

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

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

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

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

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

     16.05 Claim and Appeal Procedure. A Member or Beneficiary or other person who believes that he is being denied a benefit to
which he is entitled (hereinafter referred to as “Claimant”) may file a written request for such
benefit with the Committee, setting forth his or her claim. The request must be addressed to: The
Committee, Payless ShoeSource, Inc. 401(k) Profit Sharing Plan, 3231 SE Sixth Avenue, Topeka, KS
66607. Notwithstanding anything in the Plan to the contrary, a claim must be filed within one year
from the date such claim first accrues or the Claimant will be forever barred
from pursuing such claim. A claim by a Claimant shall be deemed to have accrued on the
earlier of (i) the date the Claimant’s benefits commence or (ii) the date the Claimant became
aware, or should have become aware, that his or her position regarding his or her entitlement to
benefits is different from the Plan’s or the Company’s position regarding the Claimant’s
entitlement to benefits.

(a) Claim Decision. Upon receipt of a claim, the Committee shall advise the Claimant that a
reply will be forthcoming within 90 days and shall in fact deliver such

47

 

reply in writing
within such period. The Committee may, however, extend the reply period for an additional
90 days for reasonable cause. If the reply period will be extended, the Committee shall
advise the Claimant in writing during the initial 90-day period indicating the special
circumstances requiring an extension and the date by which the benefit determination is
expected. If the claim is denied in whole or in part, the Committee will render a written
opinion using language calculated to be understood by the Claimant setting forth:

(i) the specific reason or reasons for the denial;

(ii) specific references to pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary for the
Claimant to perfect the claim and an explanation why such material or such
information is necessary;

(iv) appropriate information as to the steps to be taken if the Claimant wishes to
submit the claim for review, including a statement of the Claimant’s right to bring
a civil action under Section 502(a) of ERISA following an adverse benefit
determination on review; and

(v) the time limits for requesting a review of the denial and for the actual review
of the denial.

(b) Request For Review. Within 60 days after the receipt by the Claimant of the written
opinion described above, the Claimant may request in writing that the committee, which shall
be comprised of up to three individuals (which may include members of the Committee)
appointed by the Company or by the Committee, review the determination of the Committee.
Such request must be addressed to: The Committee, Payless ShoeSource, Inc. 401(k) Profit
Sharing Plan, 3231 SE Sixth Avenue, Topeka, KS 66607. The Claimant or his or her duly
authorized representative may submit written comments, documents, records or other
information relating to the denied claim, which shall be considered in the review under this
subsection without regard to whether such information was submitted or considered in the
initial benefit determination.

     The Claimant or his or her duly authorized representative shall be provided, upon
request and free of charge, reasonable access to, and copies of, all documents, records and
other information which (i) was relied upon by the Committee in making its initial claims
decision, (ii) was submitted, considered or generated in the course of making the
initial claims decision, without regard to whether such instrument was actually relied
upon in making the decision or (iii) demonstrates compliance by the Committee with its
administrative processes and safeguards designed to ensure and to verify that benefit claims
determinations are made in accordance with governing Plan documents and that, where
appropriate, the Plan provisions have been applied consistently with respect to similarly
situated claimants. If the Claimant does not request a review of the

48

 

Committee’s
determination by the committee within such 60-day period, he shall be barred and estopped
from challenging the Committee’s determination.

(c) Review Of Decision. Within a reasonable period of time, ordinarily not later than 60
days, after the committee’s receipt of a request for review, it will review the prior
determination. If special circumstances require that the sixty (60) day time period be
extended, the committee will so notify the Claimant within the initial sixty (60)-day period
indicating the special circumstances requiring an extension and the date by which the
committee expects to render its decision on review, which shall be as soon as possible but
not later than one hundred twenty (120) days after receipt of the request for review. In
the event that the committee extends the determination period on review due to a Claimant’s
failure to submit information necessary to decide a claim, the period for making the benefit
determination on review shall not take into account the period beginning on the date on
which notification of extension is sent to the Claimant and ending on the date on which the
Claimant responds to the request for additional information.

     The committee has discretionary authority to determine a Claimant’s eligibility for
benefits and to interpret the terms of the Plan. Benefits under the Plan will be paid only
if the committee decides in its discretion that the Claimant is entitled to such benefits.
The decision of the committee shall be final and non-reviewable, unless found to be
arbitrary and capricious by a court of competent review. Such decision will be binding upon
the Company and the Claimant.

     If the committee makes an adverse benefit determination on review, the committee will
render a written opinion, using language calculated to be understood by the Claimant,
setting forth:

(i) the specific reason or reasons for the denial;

(ii) the specific references to pertinent Plan provisions on which the denial is
based;

(iii) a statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records and other
information which (A) was relied upon by the committee in making its decision, (B)
was submitted, considered or generated in the course of the committee making its
decision, without regard to whether such instrument was actually relied upon by the
committee in making its decision or (C) demonstrates compliance by the committee
with its administrative processes and safeguards designed to ensure and to verify
that benefit claims determinations are made in accordance with
governing Plan documents, and that, where appropriate, the Plan provisions have been
applied consistently with respect to similarly situated claimants; and

(iv) a statement of the Claimant’s right to bring a civil action under Section
502(a) of ERISA following the adverse benefit determination on such review.

49

 

     16.06 Venue for Litigation. In light of the Plan Administrator’s substantial contacts with the State of Kansas, the fact
that the Plan Administrator resides in Kansas and the Company is headquartered in Topeka, Kansas,
and the Company’s establishment of, and the Plan Administrator’s maintenance of, this Plan in
Kansas, any cause of action brought by a Claimant, Associate, Member, former Associate, former
Member or any beneficiary of such an individual involving benefits under the Plan shall be filed
and conducted exclusively in the federal courts in the District of Kansas.

     No action at law or in equity shall be brought to recover under the Plan prior to the
expiration of 60 days after receipt by the Claimant of the written decision regarding the
Claimant’s request for review under the claims procedure, nor shall such action be brought at all
unless within three years from receipt by the Claimant of such written decision by the final claims
reviewer under the claims procedure.

     16.07 Acquisition Of Assets. If the Employer acquires the assets (through purchase, merger or otherwise) of any other
entity and hires persons who had been employed by such entity, the division or other subgroup in
which such persons are employed shall be excluded from the groups included in the definition of
“Associate” unless the Company communicates to such division or subgroup that such division or
subgroup is accruing benefits under the Plan.

50

 

SECTION 17

Non-Alienation of Benefits

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

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

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

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SECTION 18

Amendments

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

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

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

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SECTION 19

Termination

     19.01 Right to Terminate. The Company reserves the right to terminate this Plan, in whole or in part, at any time
and, if this Plan shall be terminated either in its entirety or with respect to any Employer
included hereunder, the provisions of Section 19.03 shall apply and the Accounts of affected
Members shall become (or remain) fully vested and nonforfeitable.

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

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

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

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

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SECTION 20

Construction

     20.01 Applicable Law. The provisions of this Plan except as otherwise governed by ERISA shall be construed,
regulated, administered and enforced according to the laws of the State of Kansas and, whenever
possible, to be in conformity with the applicable requirements of ERISA and the Internal Revenue
Code.

     20.02 Gender and Number. Wherever applicable, the masculine pronoun as used herein shall include the feminine
pronoun and the singular pronoun shall include the plural.

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SECTION 21

Top-Heavy Requirements

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

     21.02 Minimum Allocations.

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

(b) The amount of the minimum allocation shall be the lesser of the following, percentages
of Top-Heavy Compensation: (i) three percent (3%) or, (ii) the highest percentage at which
such allocations are made under the Plan for the Plan Year on behalf of a Key Employee. For
purposes of this paragraph (b), all defined contribution plans required to be included in an
Aggregation Group shall be treated as one plan. This paragraph (b) shall not apply if the
Plan is required to be included in an Aggregation Group and the Plan enables a defined
benefit plan required to be included in the Aggregation Group to meet the requirement of
Code Sections 401(a)(4) or 410. For purposes of this paragraph (b), the calculation of the
percentage at which allocations are made for a Key Employee shall be based only on his
Top-Heavy Compensation not in excess of $225,000, such amount to be adjusted periodically
for increases in the cost of living in accordance with Code Section 401(a)(17). The minimum
allocation described in this paragraph (b) shall be in addition to (and shall not be reduced
by) any Member Contributions under Section 4 (whether Before-Tax or After-Tax).

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

     21.03 Determination of Top Heaviness.

(a) The determination of whether a plan is Top-Heavy shall be made in accordance with
paragraphs (b) through (d) of this Section 21.03.

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

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

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

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

     21.05 Cumulative Accounts and Cumulative Accrued Benefits.

(a) The Cumulative Accounts and Cumulative Accrued Benefits for any Employee shall be
determined in accordance with paragraphs (b) through (e) of this Section 21.05.

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

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

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

(e) Accounts and benefits shall be increased by the aggregate distributions during the
one-year period ending on the Determination Date made with respect to an Employee under the
plan or plans as the case may be or under a terminated plan which, if it had not been
terminated, would have been required to be included in the Aggregation Group. In the case
of a distribution made for a reason other than separation from service, death, or
disability, this provision shall be applied by substituting “five-year period” for “one-year
period.”

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

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

56

 

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

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

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

     21.06 Other Definitions.

(a) Solely for purposes of this Section 21, the definitions in paragraphs (b) through (g) of
this Section 21.06 shall apply, to be interpreted in accordance with the provisions of Code
Section 416 and the regulations thereunder.

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

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

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

(e) Employer means any corporation which is a member of the Group,

(f) Key Employee means any Employee or former Employee (including any deceased Employee) who
is, at any time during the Plan Year which includes the Determination Date, any one or more
of the following: (1) an officer of an Employer who has annual Pay of more $145,000 (as
adjusted under Code Section 416(i)(1)); (2) any person owning (or considered as owning
within the meaning of the Code Section 318) more than five percent of the outstanding stock
of an Employer or stock possessing more than five percent of the total combined voting power
of such stock; (3) a person who would be described in subsection (2) above if “one percent”
were substituted for “five percent” each place it appears in subsection (2) above, and who
has annual Pay of more than $150,000 (for purposes of determining ownership under this
subsection, Code

57

 

Section 318(a)(2)(C) shall be applied by substituting “five percent” for
“50 percent” and the rules of subsections (b), (c) and (m) of Code Section 414 shall not
apply).

(g) Top-Heavy Compensation means the remuneration as defined in Treasury Regulation Section
1.415(c)-2(d)(2) and shall include the deferrals described in Code Section 415(c)(3)(D).
Such compensation shall be considered only if earned while a Member.

     IN WITNESS WHEREOF, the Company has caused this amended Plan to be executed by a duly
authorized officer effective this 1st day of August, 2007.

	 	 	 	 	 	 	 
	 	 	PAYLESS SHOESOURCE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

58

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