<PAGE>1

                        SEVERANCE AGREEMENT, RESIGNATION,
                            AND FULL GENERAL RELEASE

     This Settlement Agreement,  Resignation,  and Release ("Agreement") is made
and  entered  into on January 21, 1998 by and  between  PAYLESS  CASHWAYS,  INC.
("PAYLESS") and Stephen A. Lightstone ("LIGHTSTONE").

     WHEREAS,  LIGHTSTONE  was  employed  by PAYLESS on  November 1, 1983 and is
entitled to the  benefits  of an  Employment  Agreement  dated as of February 8,
1993, as amended as of October 17, 1996, June 30, 1997 and August 20, 1997, (the
"Employment Agreement"); and

     WHEREAS,  PAYLESS and LIGHTSTONE  mutually wish to terminate the employment
status of  LIGHTSTONE,  and  LIGHTSTONE's  employment  with PAYLESS shall end on
January 30, 1998; and

     WHEREAS, PAYLESS AND LIGHTSTONE have agreed that LIGHTSTONE shall resign as
Senior Vice President Finance, Chief Financial Officer, and Treasurer,  but that
for  purposes  of his  severance  benefits  LIGHTSTONE's  termination  shall  be
regarded as a termination of his employment without cause by PAYLESS;

     NOW THEREFORE,  in  consideration  of the mutual  promises,  agreements and
releases contained in this Agreement, the parties agree as follows:

1.  A.  PAYLESS' AGREEMENTS

     1. EFFECTIVE DATE

     PAYLESS  acknowledges  that this Agreement will become effective on the 8th
day after LIGHTSTONE signs (the "Effective  Date"), and that LIGHTSTONE will not
be required to perform services for PAYLESS after January 30, 1998.

     2. SEVERANCE BENEFITS

     PAYLESS  agrees to provide  LIGHTSTONE  the  severance  benefits  set forth
below.

          1. Lump Sum Payment

               (1) PAYLESS agrees to pay LIGHTSTONE on the Effective Date a lump
sum payment  (less  applicable  payroll  deductions)  in the amount set forth on
Schedule I hereto. As set forth in Schedule 1, such lump sum payment consists of
(A) the amount  that  LIGHTSTONE  would have  received  as base  salary from the
Effective Date through March 1, 1999 (the "Severance Period") (based on his base
salary in effect on January 20, 1998),  (B) the


<PAGE>2


remaining amount due LIGHTSTONE under the PAYLESS Reorganization Retention Plan,
and (C) an amount for unused earned vacation days through the Effective Date. In
addition,  PAYLESS shall pay  LIGHTSTONE  on the  Effective  Date or as promptly
thereafter  as is  practicable  an amount equal to any  previously  unreimbursed
business expenses.

               (2) PAYLESS also agrees to pay, in lieu of matching contributions
to the Payless  Cashways,  Inc. Employee Savings Plan which would otherwise have
been  made  on  LIGHTSTONE's   behalf  during  the  Severance  Period,   and  in
consideration for the Release of Liability contained herein in Paragraph B.2, an
additional lump sum payment (less applicable payroll deductions) of $10,000.00.

          2.  Continuation of Benefits  PAYLESS agrees that during the Severance
Period it will provide  LIGHTSTONE  with health,  life  (including  supplemental
death benefits),  and dental benefits substantially equivalent to those received
by eligible active employees of PAYLESS. Such benefits are described in Schedule
II and shall be provided during the Severance Period (or, if longer,  the period
during which such benefits  would have been  provided at PAYLESS'  expense under
applicable  plans of  PAYLESS).  Except as may be indicated in Schedule II, such
health,  life and dental  benefits shall be provided at the same coverage levels
provided to eligible  active  employees of PAYLESS,  and such benefits  shall be
provided at PAYLESS' expense,  subject to the same cost sharing  provisions,  if
any.  In  addition,  PAYLESS  agrees that  during the  Severance  Period it will
provide LIGHTSTONE with disability benefits similar to those that LIGHTSTONE was
receiving or was entitled to receive under the Employment Agreement, except that
during the  Severance  Period,  such  benefits  will  provide a maximum  monthly
benefit of  $5,000.00.  Such  benefits are also listed in Schedule II. After the
Severance Period,  LIGHTSTONE shall be eligible for COBRA continuation  coverage
of health and dental  benefits  for a period of 18 months or such  period as may
then be  provided  by law.  LIGHTSTONE  shall not be  entitled  to receive  such
benefits to the extent that he obtains other  employment prior to the end of the
Severance Period that provides  comparable  benefits,  provided,  however,  that
LIGHTSTONE is under no obligation to seek other employment during such period.

          3. Retirement Benefits PAYLESS agrees that for purposes of determining
the benefits  payable to LIGHTSTONE  under the Payless  Cashways,  Inc.  Amended
Retirement  Plan (the "Pension  Plan") and  LIGHTSTONE's  eligibility  therefor,
LIGHTSTONE's  date of  separation  from  PAYLESS  shall be deemed to be March 1,
1999,  his  age  shall  be  deemed  to be his age on such  date  and the  amount
allocable to base pay  included in the lump sum payment in  Paragraph  A.2.a (i)
shall be included in determining career average pay. If the terms of the Pension
Plan do not permit the  foregoing,  then on the Effective Date PAYLESS shall pay
LIGHTSTONE  an amount equal to the present  value of the  additional  retirement
benefits  that would have  accrued  had he  continued  to perform  services  for
PAYLESS through the Severance  Period at the same rate of compensation as was in
effect on January  21,  1998.  The  present  value  payable  hereunder  shall be
calculated using GATT rate currently in effect under the Pension Plan.

          4.  Automobile  PAYLESS  also  agrees  to a  lump  sum  payment  (less


<PAGE>3


applicable  payroll  deductions)  of  $9,233.25  in  lieu  of  LIGHTSTONE's  car
allowance,  to be paid on the Effective Date.  LIGHTSTONE and PAYLESS agree that
the lease, and use, of his company car will be terminated.

     3. DEATH OF LIGHTSTONE

     The death of LIGHTSTONE  prior to the expiration of this Agreement will not
void this Agreement,  but the terms thereof will survive his death. In the event
that  LIGHTSTONE  dies prior to  receipt  of all sums set forth in section  A.2.
above,  then any and all such  remaining  sums not yet  received  by  LIGHTSTONE
otherwise  due  under  this  Agreement  shall  become  due  and  payable  to the
beneficiaries hereinafter listed: Principal Beneficiary:  Executor of the Estate
of Stephen A. Lightstone. .

     4. STOCK INCENTIVE

     The parties acknowledge that LIGHTSTONE has no vested stock incentives.

     5. OUTPLACEMENT

     PAYLESS  will  provide   LIGHTSTONE  at  PAYLESS'  expense  with  telephone
answering  and  e-mail  services  at  Payless  for  a  period  of  60  days  and
executive-level  outplacement  services at an  outplacement  service of PAYLESS'
choice in the Kansas  City area,  including  an office  and  telephone  transfer
services, until he obtains other employment, for a maximum of 18 months.

     6. INDEMNIFICATION

     Set forth as  Schedules  III  through V hereto  are  provisions  of PAYLESS
Certificate of Incorporation and Bylaws relating to indemnification of directors
and officers and an  Indemnification  Agreement dated December 2, 1997,  between
PAYLESS  and  LIGHTSTONE  (collectively  "Indemnification   Provisions").   Such
Indemnification Provisions are incorporated by this reference and made a part of
this  Agreement  in  their  entirety.   PAYLESS  acknowledges  and  agrees  that
LIGHTSTONE  and his estate are  entitled to the benefit of such  Indemnification
Provisions  notwithstanding  his termination of service and that such provisions
apply to his  service  as an officer  of  PAYLESS  and any of its  predecessors.
PAYLESS  further  acknowledges  that  the  Indemnification  Provisions  obligate
PAYLESS,  among  other  matters,  to  indemnify  LIGHTSTONE  against any and all
expenses(including  costs and attorneys' fees) which he might incur as a witness
or party  with  respect to that  certain  matter  pending  in the United  States
District  Court for the Southern  District of Iowa captioned  PAYLESS  Cashways,
Inc. Partners [et. al.] v. PAYLESS Cashways,  Inc. [et. al.].  PAYLESS agrees to
honor such  obligations  with respect to such proceeding or any other proceeding
to which  LIGHTSTONE may become a party or witness by reason of the fact that he
served  as  an  officer  of   PAYLESS,   except  as  may  be   provided  in  the
Indemnification  Provisions.  PAYLESS further agrees that as to LIGHTSTONE,  any
amendments  or  changes  to the  Indemnification  Provisions  or  the  insurance
coverages  described in paragraph A.7 below will not adversely affect LIGHTSTONE
without  LIGHTSTONE's  written  consent,  and


<PAGE>4


that breach by LIGHTSTONE of any provision of this AGREEMENT will not constitute
grounds by PAYLESS to change such  coverages  or to  terminate  its  obligations
under  this  Agreement  or  otherwise   with  respect  to  the   Indemnification
Provisions.  PAYLESS and LIGHTSTONE agree that said Indemnification Agreement is
hereby amended to delete section 9.6 thereof in its entirety.

     7. LIABILITY INSURANCE

     PAYLESS  currently  maintains  $30  million  in  directors'  and  officers'
liability  insurance that provides  coverage for LIGHTSTONE and other  directors
and officers of PAYLESS.  The coverage period,  including the run-off provisions
provided for thereunder,  continue through  December 2, 2003.  PAYLESS agrees to
maintain  such  directors'  and  officers'  liability  insurance  coverage or to
provide  similar  coverage to LIGHTSTONE so that  LIGHTSTONE will remain insured
under similar  coverage at current levels until December 2, 2003 with respect to
the period of time that LIGHTSTONE served as an officer of PAYLESS.  PAYLESS has
given LIGHTSTONE a copy of such policy and will give him a copy of any amendment
or rider promptly after it becomes effective.

     8. NON-COMPETE PROVISIONS

     PAYLESS agrees that the provisions of Section 5 of the Employment Agreement
do not apply after the Effective Date.

     9. RELEASE OF LIABILITY

     PAYLESS releases LIGHTSTONE of all claims and demands of any kind, known or
unknown,  which it may have against LIGHTSTONE as of the Effective Date or which
it may  have had at any  time  before  the  Effective  Date  for any acts  which
LIGHTSTONE  committed or omitted  during his  employment  with PAYLESS.  PAYLESS
understands that it is releasing  LIGHTSTONE,  to the maximum extent permissible
by law,  from any  liability  which  LIGHTSTONE  may  have  had to it,  known or
unknown, at any time up to and including the Effective Date.

2.  LIGHTSTONE'S AGREEMENTS

     1. VOLUNTARY RESIGNATION

     LIGHTSTONE and PAYLESS  acknowledge that LIGHTSTONE does and he hereby does
voluntarily  resign his employment as Senior Vice  President,  Finance and Chief
Financial  Officer,  effective as of the Effective Date.  LIGHTSTONE and PAYLESS
acknowledge that the resignation which is the subject of this Agreement has been
effected by the mutual and amicable  agreement of both parties.  Notwithstanding
the  foregoing  LIGHTSTONE  will,  at  PAYLESS'  request,  provide  transitional
advisory services to PAYLESS' acting Chief Executive Officer for a period ending
April 30, 1998. Such service will be performed without  compensation  other than


<PAGE>5


reimbursement of business  expenses.  The hours (if any) during which LIGHTSTONE
performs  such  transitional  advisory  services  on  any  given  day  shall  be
determined by him, although he will use reasonable  efforts to respond timely to
accommodate the reasonable  requests of PAYLESS' acting Chief Executive  Officer
for his services.

     2. RELEASE OF LIABILITY

     LIGHTSTONE releases PAYLESS from the terms of the Employment  Agreement and
acknowledges  that  further  obligations  of  LIGHTSTONE  and  PAYLESS  in  that
Employment  Agreement are extinguished upon execution of this Agreement,  except
as  specifically  noted  herein.  LIGHTSTONE  understands  that he is  releasing
PAYLESS to the maximum  extent  permissible  by law,  from any  liability  which
LIGHTSTONE believes PAYLESS may have had to him, at any time up to and including
the date he signs this  Agreement.  LIGHTSTONE  waives any legal right or claims
LIGHTSTONE may have or may have had,  including claims of race, color,  national
origin, sex or gender, age or disability discrimination, arising under the Title
VII of the Civil Rights Acts of 1964, the  Rehabilitation Act of 1973, the Civil
Rights Act of 1866 (Section 1981), the Americans with  Disabilities Act of 1990,
the Employee  Retirement Income Security Act of 1974, the Age  Discrimination in
Employment  Act, the Family and Medical  Leave Act of 1993,  the Missouri  Human
Rights Act,  the Missouri  Workers  Compensation  Act and the  Missouri  Service
Letter Act and under any other federal, state, or local statute,  regulation, or
common  law of any  state,  including  any and all  claims in tort or  contract;
provided,  however,  that nothing  contained in this Release of Liability  shall
modify or in any way detract from the  Indemnification  provisions  of Paragraph
A.6 herein.

     3. COOPERATION AGREEMENT

     LIGHTSTONE also agrees to cooperate and assist PAYLESS in the investigation
and  handling  of  any  actual  or  threatened  court  action,   arbitration  or
administrative  proceeding  or dispute  involving  any matter that arose  during
LIGHTSTONE's employment (including, but not limited to, testifying in deposition
and/or court and providing  information to PAYLESS).  PAYLESS  acknowledges  and
agrees that it is  responsible  for any and all  expenses  (including  costs and
attorneys'  fees)  that  LIGHTSTONE  may  incur  in  connection  with  any  such
proceeding.

                            ADEQUACY OF CONSIDERATION

     LIGHTSTONE  acknowledges  that the sum paid by PAYLESS under this Agreement
is adequate  consideration  for  LIGHTSTONE's  execution of this Agreement,  and
further  acknowledges that the sum is in excess of the amounts to which he would
be  entitled  under the  existing  Employment  Agreement,  as  amended,  and any
policies or practices of PAYLESS.


<PAGE>6


     4. CONFIDENTIALITY AND NON-SOLICITATION

     LIGHTSTONE  agrees that  notwithstanding  the provisions of this Agreement,
the provisions of Section 4 of his  Employment  Agreement will continue to apply
in accordance with their terms after the Effective Date.

3.  OTHER AGREEMENTS

     1. NON-DISPARAGEMENT

     LIGHTSTONE and PAYLESS  acknowledge and agree that  disparaging or critical
statements made by LIGHTSTONE  about PAYLESS or its board members,  officers and
employees of PAYLESS or disparaging  statements  made by board members or senior
officers  of PAYLESS  about  LIGHTSTONE  would be  uniquely  detrimental  to the
interests of both parties.  Therefore,  LIGHTSTONE agrees to refrain from making
such  disparaging or critical  statements  about PAYLESS,  or its board members,
officers,  and  employees of PAYLESS,  and PAYLESS  agrees that  PAYLESS'  board
members and senior officers (i.e. the Chairman,  acting Chief Executive Officer,
President,  and the senior  vice  presidents)  will  refrain  from  making  such
disparaging or critical  statements  about  LIGHTSTONE.  All other provisions of
this  Agreement  notwithstanding,  PAYLESS  agrees that any  statements  made by
LIGHTSTONE  during any testimony given by him as part of any  deposition,  court
hearing,  trial,  arbitration  hearing  or  similar  proceeding,  shall  not  be
considered a disparaging or critical  statement and  LIGHTSTONE  agrees that any
statements  made by PAYLESS or its board  members,  officers,  and  employees of
PAYLESS  during any  testimony  given by any of them as part of any  deposition,
court hearing, trial,  arbitration hearing, or similar proceeding,  shall not be
considered a disparaging or critical statement.

     2. NO ADMISSION OF LIABILITY

     LIGHTSTONE  acknowledges  that  this  Agreement  shall  not in  any  way be
construed as an  admission  by PAYLESS of any  liability on the part of PAYLESS,
and that all such liability is expressly  denied by PAYLESS.  Likewise,  PAYLESS
acknowledges  that  this  Agreement  shall  not in any  way be  construed  as an
admission by LIGHTSTONE of any liability on the part of LIGHTSTONE  and that all
such liability is expressly denied by LIGHTSTONE.

     3. VOLUNTARY NATURE OF AGREEMENT AND ADVICE OF COUNSEL

     LIGHTSTONE  acknowledges  that he has read this  Agreement and any attached
exhibits,  understands  their terms, and signs the Agreement  voluntarily of his
own free will,  without coercion or duress,  and with full  understanding of the
significance and binding effect of the Agreement.  LIGHTSTONE has consulted with
his attorney before signing this Agreement. LIGHTSTONE further acknowledges that
he has been  represented  by counsel with  respect to his pending and  potential
claims and has  thoroughly  discussed  all  aspects of this  Agreement  with his


<PAGE>7


attorney.

     4. CONSIDERATION PERIOD AND REVOCATION

     LIGHTSTONE  received  this  Agreement  on  January  21,  1998.   LIGHTSTONE
acknowledges that he has had a reasonable time, and has had adequate opportunity
to  consider  the terms of the  Agreement  and  whether or not to enter into the
Agreement.  LIGHTSTONE  has  twenty-one  (21)  calendar  days,  after  the  date
LIGHTSTONE  received the  Agreement,  within  which to consider  the  Agreement,
although he may sign and deliver sooner if he desires. LIGHTSTONE may revoke the
Agreement by delivering a written notice of revocation to Louise Iennacaro, Vice
President of Human  Resources,  within seven (7) calendar days after  LIGHTSTONE
signs the Agreement.  The provisions of this Agreement will become effective and
enforceable on the eighth (8th) calendar day following the date LIGHTSTONE signs
the Agreement.

     5. BINDING EFFECT

     This   Agreement   will  be  binding   upon   LIGHTSTONE   and  his  heirs,
administrators,  representatives,  executors,  successors and assigns,  and will
inure to the benefit of PAYLESS and its successors and assigns.  Similarly, this
Agreement  will be binding on PAYLESS,  its officers,  agents and  successors in
interest and assigns and will inure to the benefit of LIGHTSTONE  and his heirs,
administrators, representatives, executors, successors and assigns.

     6. NEWS RELEASES

     PAYLESS agrees that before it makes any public announcements concerning the
resignation  of  LIGHTSTONE  in  any  newspaper,   trade   publication,   radio,
television,  or  other  form of  public  communication,  it will  submit  such a
prepared  announcement  to  LIGHTSTONE  for his  review  and  approval.  No such
announcement  will be made without the prior approval of LIGHTSTONE.  LIGHTSTONE
agrees that his approval shall not be unreasonably refused.

     7. GOVERNING LAW

     This Agreement will be interpreted and enforced in accordance with the laws
of the State of Missouri.

     8. SEVERABILITY

     Should any provision of this Agreement be declared or determined by a court
of  competent  jurisdiction  to  be  invalid  or  otherwise  unenforceable,  the
remaining  parts,  terms and provisions  shall  continue to be valid,  legal and
enforceable,  and will be performed and enforced to the fullest extent permitted
by law.


<PAGE>8


     9. COMPLETE AGREEMENT

     Except for the Indemnification  Provisions and rights and obligations under
directors' and officers'  liability  insurance  policy referred to in paragraphs
A.6 and A.7, which this Agreement merely  supplements but which otherwise remain
in  full   force  and   effect,   and  except   for  the   confidentiality   and
non-solicitation provision referred to in Paragraph B.5, this Agreement contains
the entire agreement between  LIGHTSTONE and PAYLESS with respect to the subject
matter  hereof  and,  except as  otherwise  noted  herein  supersedes  all prior
agreements  or  understandings  between them. No change or waiver of any part of
this Agreement will be valid unless in writing and signed by both LIGHTSTONE and
PAYLESS.

     10. ARBITRATION

     The parties  hereby agree that any dispute  arising  hereunder or any claim
for breach or violation  of any item hereof  shall be  submitted to  arbitration
pursuant to the rules of the American Arbitration Association ("AAA") to a panel
of three  arbitrators  selected  by mutual  agreement  of the parties or, if the
parties do not mutually agree on the  arbitrators,  in accordance with the rules
of the AAA.  The  award  determination  of the  arbitrators  shall be final  and
binding upon the parties  without  right of appeal.  Either party shall have the
right to bring an action in any court of competent  jurisdiction to enforce this
Paragraph  and to enforce  any  arbitrators'  award  rendered  pursuant  to this
Paragraph.  The venue for all  proceedings in arbitration  hereunder and for any
judicial proceedings related thereto shall be in Kansas City, Missouri.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth first above written.


PAYLESS CASHWAYS, INC.                   STEPHEN A. LIGHTSTONE

By:  /s/ Donald E. Roller                /s/  Stephen A. Lightstone
   ----------------------                ---------------------------
Name:  Donald E. Roller                  Date:  January 21, 1998

Title:  Acting Chief Executive Officer

Date:  January 22, 1998


<PAGE>9


                  Schedule I to Lightstone Settlement Agreement
                          Lump sum payment computation



Severance Period Base Salary -          $ 319,583.32
  Through March 1, 1999

Unpaid Retention Bonus                     44,250.00
  (50% of 30% of $295,000)

Unused Vacation Days  (4 weeks)
  Through Effective Date                   22,692.31
                                         -----------
         Total                          $ 386,525.63


<PAGE>10


                 Schedule II to Lightstone Settlement Agreement
                              Benefit Continuation



Group Medical/Vision
Group Dental
Long/Term  Disability  and  Supplemental  Disability  (up to a  maximum  monthly
     benefit of $5,000.00)
GroupLife Insurance and Supplemental Death Benefits during the Severance Period,
     and a $295,000.00 life insurance policy thereafter
Annual Physical in early 1998
1997 Tax Preparation ($1,000 limit)


<PAGE>11

                 Schedule III to Lightstone Settlement Agreement

                          CERTIFICATE OF INCORPORATION
                            INDEMNIFICATION PROVISION


                                  ARTICLE VIII
                           INDEMNIFICATION; INSURANCE

     The directors and officers of the  corporation  shall be indemnified to the
maximum extent permitted by law. Without limiting the foregoing, each person who
was or is made a party or is threatened  to be made a party to any action,  suit
or  proceeding,   whether  civil,  criminal,   administrative  or  investigative
(hereinafter a "proceeding"),  by reason of the fact that he or she, or a person
of whom he or she is the legal  representative,  is or was a director or officer
of the corporation,  or is or was serving, at the request of the corporation, as
a director, officer, employee, fiduciary or agent of another corporation or of a
partnership,  joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation, to the fullest extent which it is empowered to
do so by the  Delaware  General  Corporation  Law,  as the  same  exists  or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment  permits the corporation to provide broader  indemnification
rights  than  said  law  permitted  the  corporation  to  provide  prior to such
amendment),   against  all  expenses,  judgments,  fines  and  amounts  paid  in
settlement  actually and reasonably  incurred by such person in connection  with
such proceeding, including attorneys' fees, and such indemnification shall inure
to the  benefit of his or her heirs,  executors  and  administrators;  provided,
however,  that,  except  as  provided  in the  bylaws  of the  corporation,  the
corporation  shall  indemnify  any  such  person  seeking   indemnification   in
connection  with a proceeding  initiated by such person only if such  proceeding
was authorized by the board of directors of the corporation.  Expenses  incurred
by a director  or officer of the  corporation  in  defending a civil or criminal
action,  suit or proceeding  shall be paid by the  corporation in advance of the
final  disposition  of  such  action,  suit or  proceeding  upon  receipt  of an
undertaking  by or on behalf of the  director or officer to repay such amount if
it is ultimately  determined  that the director or officer is not entitled to be
indemnified by the corporation as authorized by the Delaware General Corporation
Law. The foregoing right of indemnification and advancement of expenses shall be
a  contract  right  and  shall in no way be  exclusive  of any  other  rights of
indemnification  and  advancement  of  expenses  to which any such  director  or
officer  may  be  entitled  by  law,  agreement,  vote  of  stockholders  or  of
disinterested  directors  or  otherwise.   All  rights  of  indemnification  and
advancement of expenses  hereunder  shall survive any repeal or  modification of
this  Article VIII as to any set of facts or  proceeding  then  existing,  shall
continue  as to a person who has ceased to be an officer or  director  and shall
inure to the  benefit  of the  heirs,  executors  and  administrators  of such a
director or officer. The procedures with respect to indemnification shall be set
forth in the bylaws of the corporation.


<PAGE>12


     The corporation may maintain  insurance,  at its expense, to protect itself
and any  person  who is or was a  director,  officer,  employee  or agent of the
corporation  or is or  was  serving  at the  request  of  the  corporation  as a
director, officer, employee or agent of another corporation,  partnership, joint
venture, trust or other enterprise against any such expense,  liability or loss,
whether or not the  corporation  would have the power to  indemnify  such person
against such expense,  liability or loss under the Delaware General  Corporation
Law.


<PAGE>13


                 Schedule IV to Lightstone Settlement Agreement

                                     BYLAWS
                           INDEMNIFICATION PROVISIONS


                                    ARTICLE V
                INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS

     Section 1.  Procedure for  Indemnification  of Directors and Officers.  Any
indemnification  of a  director  or  officer  of the  corporation  or advance of
expenses under Article VIII of the  certificate of  incorporation  shall be made
promptly,  and in any event within thirty days,  upon the written request of the
director or officer.  If a determination by the corporation that the director or
officer is entitled to  indemnification  pursuant to this Article V is required,
and the corporation  fails to respond within sixty days to a written request for
indemnity,  the corporation shall be deemed to have approved the request. If the
corporation  denies a  written  request  for  indemnification  or  advancing  of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty days, the right to indemnification or advances as granted
by this Article V shall be  enforceable  by the director or officer in any court
of  competent  jurisdiction.  Such  person's  costs  and  expenses  incurred  in
connection with successfully  establishing his or her right to  indemnification,
in  whole or in  part,  in any such  action  shall  also be  indemnified  by the
corporation.  It shall be a defense  to any such  action  (other  than an action
brought to enforce a claim for expenses  incurred in defending any proceeding in
advance of its final  disposition  where the required  undertaking,  if any, has
been tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the burden
of  such  defense  shall  be on the  corporation.  Neither  the  failure  of the
corporation (including its board of directors,  independent legal counsel or its
stockholders)  to have made a  determination  prior to the  commencement of such
action  that  indemnification  of the  claimant  is proper in the  circumstances
because he or she has met the  applicable  standard  of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including   its  board  of   directors,   independent   legal  counsel  or  its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a  presumption  that the claimant has
not met the applicable standard of conduct.

     Section 2. Article Not  Exclusive.  The rights to  indemnification  and the
payment of expenses  incurred in defending a proceeding  in advance of its final
disposition  conferred  in this  Article V shall not be  exclusive  of any other
right  which  any  person  may have or  hereafter  acquire  under  any  statute,
provision  or the  certificate  of  incorporation,  bylaw,  agreement,  vote  of
stockholders or disinterested directors or otherwise.


<PAGE>14


     Section  3.  Employees  and  Agents.  Persons  who are not  covered  by the
foregoing  provisions of this Article V and who are or were  employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise,  may be indemnified to the extent authorized at any time or
from  time to time by the board of  directors.  Expenses  (including  attorneys'
fees)  incurred  by  employees  and  agents  may be paid  upon  such  terms  and
conditions, if any, as the board of directors deems appropriate;  provided, that
such expenses may only be paid by the  corporation  in advance of a proceeding's
final  disposition  upon  receipt  of an  undertaking  by or on  behalf  of such
employee or agent to repay such amount if it shall ultimately be determined that
he or she is not entitled to be indemnified by the corporation.

     Section 4.  Contract  Rights.  The  provisions  of this  Article V shall be
deemed to be a contract  right  between  the  corporation  and each  director or
officer who serves in any such capacity at any time while this Article V and the
relevant  provisions of the Delaware General Corporation Law or other applicable
law are in effect,  and any repeal or modification of this Article V or any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.

     Section  5.  Merger or  Consolidation.  For  purposes  of this  Article  V,
references  to "the  corporation"  shall  include,  in addition to the resulting
corporation,  any  constituent  corporation  (including  any  constituent  of  a
constituent)  absorbed  in a  consolidation  or merger  which,  if its  separate
existence  had  continued,  would have had power and  authority to indemnify its
directors,  officers,  and  employees  or  agents,  so that any  person who is a
director,  officer,  employee or agent of such constituent  corporation or is or
was  serving  at the  request of such  constituent  corporation  as a  director,
officer, employee or agent of another corporation,  partnership,  joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving  corporation  as he or she would have
with  respect to such  constituent  corporation  if its separate  existence  had
continued.


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                  Schedule V to Lightstone Settlement Agreement

                            INDEMNIFICATION AGREEMENT