LA QUINTA INNS INC, 10-K, 1994-03-23

LA QUINTA INNS INC
10-K, 1994-03-23
HOTELS & MOTELS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K

(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 1993

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________________

Commission File No. 1-7790

LA QUINTA INNS, INC.
(Exact name of registrant as specified in its charter)

TEXAS 74-1724417
(State of Incorporation) (I.R.S. Employer Identification Number)

WESTON CENTRE 78299-2636
112 EAST PECAN STREET (Zip Code)
P.O. BOX 2636
SAN ANTONIO, TEXAS
(Address of principal executive office)

Registrant's telephone number, including area code: (210) 302-6000
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock New York Stock Exchange, Inc.
($.10 par value)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES X NO
--------- ----------

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. (X)

The aggregate market value of the voting stock held by non-affiliates
of registrant as of February 28, 1994 was $420,847,410. As of February 28,
1994, there were 32,111,364 shares of registrant's Common Stock issued and
30,378,497 such shares outstanding, giving effect for the three for two stock
split in March 1994.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the following document are
incorporated by reference into the designated parts of this Form 10-K:
definitive Proxy Statement, dated on or about April 15, 1994 relating to
Registrant's 1994 Annual Meeting of Shareholders (in Part III), which Registrant
intends to file not later than 120 days after the end of the fiscal year covered
by this Form 10-K.

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FORM 10-K INDEX

PART I

PAGE
----
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . 3

Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 7

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 10

Item 4. Submission of Matters to a Vote of Security Holders. . . 11

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . 11

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 12

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . 13

Item 8. Financial Statements and Supplementary Data . . . . . . . 21

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . 46

PART III

Item 10. Directors and Executive Officers of the Registrant. . . . 46

Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . 47

Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . 47

Item 13. Certain Relationships and Related Transactions. . . . . . 47

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 47

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

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PART I

ITEM 1. BUSINESS

La Quinta Inns, Inc. ("La Quinta" or the "Company") is a leader in the
upper economy segment of the lodging market. Founded in 1968, the La Quinta
chain's 221 inns are located in 29 states with concentrations in Texas, Florida
and California. As of January 31, 1994, the Company owned interests in and
operated all but one of its inns. The Company maintains a minority interest in
nine inns which it manages pursuant to long-term management contracts and has
one licensed inn.

La Quinta is incorporated under the laws of Texas and maintains its
executive offices at Weston Centre, 112 East Pecan Street, P.O. Box 2636, San
Antonio, Texas 78299-2636, telephone (210) 302-6000.

PRODUCT

La Quinta inns appeal to guests who desire high-quality rooms and
convenient locations at attractive prices and whose needs do not include banquet
and convention facilities, in-house restaurants, cocktail lounges or room
service. As a result of the cost savings associated with the elimination of
these management intensive facilities and services, the Company believes it is
able to offer its guests an excellent value -- convenient locations and room
quality comparable to mid-priced full service hotels at a lower price.

La Quinta inns contain an average of 130 spacious, quiet and comfortably
furnished rooms with an average of 300 square feet. Each inn features a choice
of rooms for non-smokers and smokers, complimentary continental breakfast, free
unlimited local telephone calls, remote-control television with Showtime or The
Movie Channel, telecopy services, same day laundry and dry cleaning service,
24-hour front desk and message service and free parking. La Quinta inns are
generally located near interstate highways, major traffic arteries or
destination areas such as airports and convention centers. Food service to La
Quinta guests generally is provided by adjacent free-standing restaurants.

La Quinta's strategy is to continue its growth as a high-quality provider
in the upper economy segment of the hotel industry, focusing on enhancing
revenues, cash flow and profitability. Specifically, the Company's strategy
centers upon:

CONTINUED FOCUS ON UPPER ECONOMY SEGMENT - The upper economy
segment of the lodging industry is characterized by inns that
provide for the basic needs of cost-conscious business travelers
who desire high-quality rooms and convenient locations. Because
the Company competes primarily in the upper economy segment,
management's attention is totally focused on meeting the needs of
La Quinta's target customers. The upper economy segment is one
of the fastest growing segments in the lodging industry, growing
over 5% annually, since 1989.

LA QUINTA MANAGEMENT OF INNS - In contrast to many of its
competitors, La Quinta manages and has ownership interests in
virtually all of its inns. La Quinta manages all but one of the
221 inns in the chain. At January 31, 1994, the Company owned
100% of 166 inns and 40% or more of an additional 45.
As a result, the Company believes it is able to achieve a
higher level of consistency in both product quality and
service than its competition. In addition, La Quinta's position
as one of the few primarily owner-operated chains enables La
Quinta to offer new services, direct expansion, effect pricing
and to make other marketing decisions on a system-wide or local
basis as conditions dictate, usually without consulting
third-party owners, management companies or franchisees as
required of most other lodging chains. The Company's management
of the inns also enables it to control costs and allocate
resources effectively to provide excellent value to the consumer.

IMAGE ENHANCEMENT PROGRAM - In 1993, La Quinta has undertaken a
comprehensive chainwide image enhancement program intended to
give its properties a new, fresh, crisp appearance while
preserving their unique character. The program features new
signage displaying a new logo as well as exterior and lobby
upgrades including brighter colors, more extensive lighting,
additional

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landscaping, enhanced guest entry and a full lobby renovation
with contemporary furnishings and seating area for continental
breakfast. Thirty nine properties completed the reimaging process
in 1993 with program completion targeted for June 1994.

REGIONALLY FOCUSED GROWTH - La Quinta acquired eleven existing
lodging facilities and converted them to the La Quinta brand in
1993 and anticipates expanding in a similar manner in 1994.

COMPETITION

Inns operated and licensed by La Quinta are in competition with other
major lodging brands. Each La Quinta inn competes in its market area with
numerous full service lodging brands, especially in the mid-priced range, and
with numerous other hotels, motels and other lodging establishments. Chains such
as Hampton Inns, Red Roof Inns, Fairfield Inns and Drury Inns are direct
competitors of La Quinta. Other well-known competitors include Holiday Inns,
Ramada Inns, Quality Inns, and Travelodge. There is no single competitor or
group of competitors of La Quinta that is dominant in the lodging industry.
Competitive factors in the industry include reasonableness of room rates,
quality of accommodations, degree of service and convenience of locations.

Demand is affected by normally recurring seasonal patterns. At most La
Quinta inns demand is higher in the spring and summer months (March through
August) than in the balance of the year. Overall occupancy levels may also be
affected by the number of new inns opened by the Company and the length of time
such inns have been in operation.

The lodging industry in general, including La Quinta, may be adversely
affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular inn may be adversely
affected by many factors including changes in travel patterns, local and
regional economic conditions and the degree of competition with other inns in
the area.

STRUCTURE AND OWNERSHIP

The Company is a combined entity comprised of La Quinta Inns, Inc., which
owns and operates 211 inns, four subsidiaries and 16 combined unincorporated
partnerships and joint ventures. The combined unincorporated partnerships and
joint ventures own 45 inns operated by the Company. The Company manages 9 inns,
99% owned by CIGNA which are accounted for using the equity method in the
Company's financial statements.

During 1993, the Company acquired, in separately negotiated transactions,
limited partners' interests in 14 of the Company's combined unincorporated
partnerships and joint ventures which owned 44 La Quinta inns. The Company
purchased the ownership interests for an aggregate purchase price of $87,897,000
which included cash at closing, the assumption of $22,824,000 of existing debt
attributable to certain limited partners' interests, and $29,878,000 in notes to
certain sellers.

The Board of Directors of the Company authorized three-for-two stock
splits effective in October 1993 and March 1994. References to the Company's
common stock prior to the October split is described herein as "pre-split" and
references to the Company's common stock after the March split is described
herein as "post split".

On October 27, 1993, the Company entered into a definitive Partnership
Acquisition Agreement (the "Merger Agreement") with La Quinta Motor Inns Limited
Partnership ("the Partnership" or "LQP") and other parties, pursuant to which
the Company, through wholly-owned subsidiaries, would acquire all units of the
Partnership (the "Units") that it did not beneficially own at a price of $13.00
net per Unit in cash. The Merger Agreement provided for a tender offer (the
"Offer") for all of the Partnership's outstanding Units at a price of $13.00 net
per Unit in cash, which Offer commenced on November 1, 1993 and expired at
midnight on November 30, 1993. The Offer resulted in the purchase of 2,805,190
Units (approximately 70.6% of the outstanding Units) by the Company through its
wholly-owned subsidiary, LQI Acquisition Corporation. As a result of a
contribution of additional units previously owned by the Company subsequent to
the Offer, LQI Acquisition Corporation beneficially owned 3,257,890 Units
(approximately 82% of the Units) at December 31, 1993. Pursuant to the Merger
Agreement, a Special Meeting of Unitholders was then held on January 24, 1994 to
approve the merger of a subsidiary of LQI Acquisition Corporation with and into
the Partnership, with the Partnership as the surviving entity. As a result of
this merger which was approved by the requisite vote of Unitholders on January
24, 1994, all of the Partnership's outstanding Units other than Units

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owned by the Company or any direct or indirect subsidiary of the Company were
converted into the right to receive $13.00 net in cash without interest.

The following table describes the composition of inns in the La Quinta
chain at:

December 31, 1993 (5) December 31, 1992
------------------------------------ ------------------------------------
La Quinta La Quinta
Equivalent Equivalent
Inns Rooms Rooms(1) Inns Rooms Rooms (1)
------ --------- ----------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Owned 100% (2) . . . . . . . . . . . . . 166 21,001 21,001 89 11,456 11,456
Owned 40 - 80% (3) . . . . . . . . . . . 45 6,077 2,588 80 10,218 4,919
------ --------- ----------- ------ -------- ----------
Total Company owned and operated . . . . 211 27,078 23,589 169 21,674 16,375
Managed Inns . . . . . . . . . . . . . . 9 1,176 12 40 4,978 75
Licensed Inns (4). . . . . . . . . . . . 1 120 -- 3 366 --
------ --------- ----------- ------ -------- ----------
221 28,374 23,601 212 27,018 16,450
------ --------- ----------- ------ -------- ----------
------ --------- ----------- ------ -------- ----------

<FN>
(1) Represents the Company's proportionate ownership interest in system rooms.
(2) Two inns are operated under brands other than La Quinta.
(3) One inn is operated under a brand other than La Quinta.
(4) One inn is licensed to a third party.
(5) Includes 100% of the rooms owned by LQP as though the acquisition were
completed on December 31, 1993.
</TABLE>

JOINT VENTURES AND PARTNERSHIPS. La Quinta historically financed its
development, in part, through partnerships and joint ventures with large
insurance companies or financial institutions. Under the terms of the joint
venture and partnership agreements, available cash flow is generally used to pay
debt and provide for capital improvements, with remaining cash flow being
distributed to the partners in accordance with their respective ownership
interests. In 1993 La Quinta began to purchase the interests in the
unincorporated joint ventures and partnerships, acquiring 14 by the end of the
year. In addition, the Company successfully completed the acquisition of LQP in
January 1994. See further discussions above.

In March of 1990, the Company entered into the La Quinta Development
Partners, L.P. ("LQDP" or the "Development Partnership") with AEW Partners, L.P.
("AEW Partners"). La Quinta Inns, Inc. is the general partner and owns a 40%
ownership interest and AEW Partners is the limited partner and owns a 60%
ownership interest. This partnership was established for the purpose of owning,
operating, acquiring and developing inns. La Quinta originally contributed 18
inns with a deemed value of $44,000,000 (net of existing debt assumed by LQDP)
and $4,000,000 in cash. AEW Partners contributed $3,000,000 and a promissory
note ("the AEW Note") to the Development Partnership in the amount of
$69,000,000. Under the terms of the agreement, proceeds from the AEW Note are to
be used for the construction of inns or for the acquisition and conversion of
existing inns into the La Quinta brand. In 1993, the AEW Partners fully paid
the balance of the AEW Note. At December 31, 1993, the Development Partnership
had acquired and converted 19 inns (nine during 1993). Under the terms of the
Development Partnership agreement, AEW Partners currently has the ability to
convert 66 2/3% of its ownership interest in the Development Partnership to
3,535,976 (post-split) shares of the Company's common stock. Such number of
shares is reduced as distributions are made out of the Development Partnership
to AEW Partners. The partnership units may be converted at any time prior to
December 31, 1998. As of December 31, 1993, no partnership units had been
converted. Shares of the Company's common stock issuable upon conversion are
antidilutive at December 31, 1993.

Under the terms of a management agreement between the Company and the
Development Partnership, La Quinta earns management, national advertising, chain
services and license fees for the use of its name and services. La Quinta is
also entitled to receive acquisition and conversion fees for its services in
finding inns suitable for acquisition and in managing the conversion of such
inns. La Quinta is also entitled to receive fees on project costs of inns
constructed by the Development Partnership.

MANAGED INNS. In 1987, the Company formed two joint ventures with
investment partnerships managed by CIGNA Investments, Inc. ("CIGNA I" and "CIGNA
II"). The Company maintains a 1% ownership interest in

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each of these ventures and manages the inns pursuant to long-term management
contracts. As of December 31, 1993, the ventures owned nine inns and six
free-standing restaurants operated by third parties.

La Quinta receives licensing, management, national advertising and chain
services fees for the use of its brand name and services from management of the
inns. The Company accounts for its ownership interest in these entities using
the equity method.

LICENSING

The Company selectively licensed the name "La Quinta" to others for
operations in the United States until February 1977, at which time La Quinta
discontinued its domestic licensing program to unrelated third parties. One inn
remains in operation under a franchise agreement.

During 1990, the Company entered into a licensing agreement with
Desarrollos Turisticos Vanguardia S.A. de C.V. ("Desarrollos") for expansion of
the La Quinta chain into Saltillo, Coahuila, Mexico. In February 1994, one inn
developed under the license agreement opened for operation. Under the
arrangement, the inn is owned by the licensee and managed by La Quinta under a
separate management agreement. The Company is currently reviewing other
potential management/licensing arrangements within Mexico and other Latin
American countries.

"La Quinta -R-" and "teLQuik -R-" have been registered as service marks by
La Quinta with the U.S. Patent and Trademark Office, and in Mexico, Canada and
the United Kingdom.

OPERATIONS

Management of the La Quinta chain is coordinated from the Company's
headquarters in San Antonio, Texas. Centralized corporate services and
functions include marketing, accounting and reporting, purchasing, quality
control, development, legal, reservations and training.

Inn operations are currently organized into Eastern and Western divisions
with each division headed by a Divisional Vice President. Regional Managers
report to the Divisional Vice Presidents and are each responsible for
approximately 13 inns. Regional Managers are responsible for the service,
cleanliness and profitability of the inns in their regions.

Individual inns are typically managed by resident managers who live on the
premises. Managers receive inn management training which includes an emphasis
on service, cleanliness, cost controls, sales and basic repair skills. Because
La Quinta's professionally trained managers are substantially relieved of
responsibility for food service, they are able to devote their attention to
assuring friendly guest service and quality facilities, consistent with
chain-wide standards. On a typical day shift, they will supervise one
housekeeping supervisor, eight room attendants, two laundry workers, two general
maintenance persons and three front desk service representatives.

At December 31, 1993, La Quinta employed approximately 6,100 persons, of
whom approximately 88% were compensated on an hourly basis. Approximately 240
individuals were employed at corporate and 5,850 were employed in inn management
and services. The Company's employees are not currently represented by labor
unions. Management believes its ongoing labor relations are good.

MARKETING

La Quinta's primary media focus is on business travelers, who account for
over half of La Quinta's rooms rented. The Company's core market consists of
business travelers who visit a given area several times per year. For example,
typical customers include salespersons covering a regional territory, government
and military personnel and technicians. The profile of a typical La Quinta
customer is a college educated business traveler, age 25 to 54, from a two
income household who has a middle management, white collar occupation or upper
level blue collar occupation. In addition, the Company's target markets include
vacation travelers and retired travelers. The Company focuses on reaching its
target markets by utilizing advertising, direct sales, programs which provide
incentives to repeat travelers, and other marketing programs targeted at
specific customer segments.

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The Company advertises primarily through network and local radio, cable
television networks and print advertisements which focus on value. The Company
utilizes the same campaign concept throughout the country with minor
modifications made to address regional differences. The Company also utilizes
billboard advertisements along major highways which announce a La Quinta inn's
presence in upcoming towns.

The Company markets directly to companies and other organizations through
its direct sales force of 24 sales representatives and managers. This sales
force calls on companies which have a significant number of individuals
traveling in the regions in which La Quinta operates and which are capable of
producing a high volume of room nights.

La Quinta enjoys a large amount of repeat business. Based on internal
surveys conducted in 1993, management estimates the average customer spent
approximately 14 nights per year in a La Quinta inn during the year ended
December 31, 1993. The Company focuses a number of marketing programs on
maintaining the high number of repeat visits. La Quinta promotes a "Returns
Club" for repeat guests. This club provides its members with preferred status
and rates when checking into a La Quinta inn and offers rewards for frequent
stays. The Returns Club currently has over 140,000 members.

The Company provides a reservation system, "teLQuik" -R-, which currently
accounts for reservations for approximately 50% of room occupancy. The
teLQuik system allows customers to make reservations toll free or from special
reservations phones placed in the lobbies of all La Quinta inns. The teLQuik
system enables guests to make their next night's reservations from their
previous night's La Quinta inn. In 1994, the Company completed a new
reservation center which is a part of its program to improve operating results
by providing state-of-the-art technology in processing reservations more
efficiently. La Quinta, through its national sales managers, markets its
reservation services to travel agents and corporate travel planners who may
access teLQuik through the five major airline reservation systems.

ASSET MANAGEMENT

La Quinta's asset management strategy is founded on the importance of
ownership of all or a significant portion of each of its inns. See "Structure
and Ownership" on this Form 10-K. Management believes that Company ownership
and management of La Quinta inns enables the Company to achieve more consistency
in quality and service than its competitors.

Historically, the Company financed a large part of its development through
partnerships and joint ventures with large insurance companies and other
financial institutions, while managing the inns. However, during 1993, the
Company acquired in separately negotiated transactions limited partners'
interests in 14 of the Company's combined unincorporated partnerships and joint
ventures that owned 44 La Quinta inns. The Company also completed the
acquisition of 100% of the limited partners' interests in an additional 31
inns owned by a subsidiary of LQP in January of 1994, after acquiring 82% of
LQP during 1993. Additionally, the Company acquired eleven existing inns
during 1993. Currently, the Company owns 100% of 166 inns and between 40%-80%
of 45 other inns. The Company manages an additional nine La Quinta inns in
which it owns a 1% interest.

La Quinta's current development program focuses on the acquisition of
competitor properties at discounts to replacement costs. At current prices,
acquisition and conversion of existing properties is more cost effective than
new construction. In 1993, La Quinta acquired and is converting a total of
eleven inns, nine were purchased through the Development Partnership and two
were purchased as wholly-owned, with an aggregate of 1,611 rooms, at an average
cost of approximately $28,000 per room.

ITEM 2. PROPERTIES

La Quinta inns appeal to guests who desire high-quality rooms and whose
needs do not include banquet and convention facilities, in-house restaurants,
cocktail lounges or room service. La Quinta inns contain an average of 130
rooms and provide spacious, quiet and comfortably furnished rooms with an
average of 300 square feet, a choice of rooms for non-smokers and smokers,
complimentary continental breakfast, free unlimited local telephone calls,
remote-control television with Showtime or The Movie Channel, telecopy services,
same-day laundry and dry cleaning service, 24-hour front desk and message
service and free parking.

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To maintain the overall quality of La Quinta's inns and to remain
competitive in its service-oriented environment, each inn undergoes
refurbishments and capital improvements as needed. Typically, refurbishing has
been provided at intervals of between five and seven years, based on an annual
review of the condition of each inn. In each of the years ended December 31,
1993, 1992 and 1991, the Company spent approximately $32,600,000 (of which
$15,400,000 was spent on the image enhancement program described below),
$15,500,000 and $13,800,000, respectively, on capital improvements to existing
inns. As a result of these expenditures, the Company believes it has been able
to maintain a chainwide quality of rooms and common areas at its properties
unmatched by any other national economy hotel chain.

In 1993, the Company undertook an image enhancement program intended to
give its properties a new, fresh, crisp appearance while preserving their unique
character. The program features new signage displaying a new logo as well as
exterior and lobby upgrades including brighter colors, additional landscaping,
enhanced guest entry and a full lobby renovation with contemporary furnishings
and seating area for continental breakfast. Of the chain's 221 inns, 97 began
the image enhancement program during 1993, of which 39 were complete as of
December 31, 1993. Twenty properties begin the reimaging process every six to
eight weeks with program completion targeted for June 1994. Signs displaying the
Company's new logo were in place at substantially all properties at December 31,
1993. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Commitments."

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At December 31, 1993, there were 221 inns located in 29 states, with
concentrations in Texas, Florida and California. The states and cities in which
the inns are located are set forth in the following table:

<S> <C> <C> <C>
ALABAMA KANSAS TENNESSEE WYOMING
Birmingham Lenexa Knoxville Casper
Huntsville (2) Wichita Memphis (3) Cheyenne
Mobile Nashville (3) Rock Springs
Montgomery KENTUCKY
Tuscaloosa Lexington TEXAS LICENSED
Abilene LA QUINTA INN
ARIZONA LOUISIANA Amarillo (2)
Phoenix (3) Baton Rouge Arlington Texas
Tucson (2) Bossier City Austin (5) McAllen
Kenner Beaumont
ARKANSAS Lafayette Bedford OTHER
Little Rock (5) Monroe Brownsville OWNED INNS
New Orleans (5) Clute (operated under other
CALIFORNIA Slidell College Station brands)
Bakersfield Sulphur Corpus Christi (2)
Costa Mesa Dallas Metro Area(12) TEXAS
Fresno MICHIGAN Del Rio El Paso
Irvine Kalamazoo Denton La Marque
La Palma Eagle Pass San Antonio
Redding MISSISSIPPI El Paso (3)
Sacramento (2) Jackson (2) Fort Worth (2)
San Bernardino Galveston
San Diego (3) MISSOURI Harlingen
San Francisco St. Louis Houston Metro Area (17)
Stockton Killeen
Ventura NEBRASKA Laredo
Omaha Longview
COLORADO Lubbock
Colorado Springs NEVADA Lufkin
Denver (7) Las Vegas Midland
Reno Nacogdoches
FLORIDA Odessa
Daytona Beach NEW Mexico Round Rock
Deerfield Beach Albuquerque (3) San Angelo
Ft. Myers Farmington San Antonio (11)
Gainesville Las Cruces Temple
Jacksonville (3) Santa Fe Texarkana
Miami Tyler
Orlando (2) NORTH CAROLINA Victoria
Pensacola Charlotte (2) Waco
Tallahassee (2) Wichita Falls
Tampa (5) OHIO
Columbus Utah
GEORGIA Layton
Atlanta (7) OKLAHOMA Salt Lake City
Augusta Oklahoma City (2)
Columbus Tulsa (3) VIRGINIA
Savannah Hampton
PENNSYLVANIA Richmond
ILLINOIS Pittsburgh Virginia Beach
Champaign
Chicago Metro Area (5) SOUTH CAROLINA WASHINGTON
Moline Charleston Seattle (2)
Columbia Tacoma
INDIANA Greenville
Indianapolis (2)
Merrillville

</TABLE>

Typically, food service for La Quinta guests is provided by adjacent, free
standing restaurants. At December 31, 1993, the Company had an ownership
interest in 124 restaurant buildings adjacent to its inns. These restaurants
generally are leased pursuant to build-to-suit leases that require the operator
to pay, in addition to minimum and percentage rentals, all expenses, including
building maintenance, taxes and insurance.

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The Company's inns and restaurants were substantially pledged to secure all
long-term debt maturing in various years from 1994 to 2015 (See note 2 of Notes
to Combined Financial Statements).

ITEM 3. LEGAL PROCEEDINGS

On October 18, 1993, the Company announced that its Board of Directors had
authorized its officers to enter into negotiations with La Quinta Motor Inns
Limited Partnership (the "Partnership") regarding the acquisition of all units
of the Partnership which it did not currently own, at a price of up to $12 per
unit. See "Structure and Ownership" on this Form 10-K. On October 18, 1993, the
Board of Directors of the General Partner of the Partnership elected three
independent directors (the "Special Committee"), among other things, to
negotiate the sale of Units to the Company. On October 18, 1993, two separate
lawsuits were filed in Delaware Court of Chancery on behalf of the Partnership's
unitholders against the Company, the Partnership, La Quinta Realty Corp., a
subsidiary of the Company, and general partner of the Partnership (the "General
Partner") and certain directors and officers of the General Partner
(collectively, the "Defendants"). The lawsuits are captioned GREENBERG V.
SCHULTZ, ET AL., C.A. No. 13199 and GORIN BROTHERS, INC., V. SCHULTZ, ET. AL.,
C.A. No. 13200 (collectively, the "Actions"). The complaints in the Actions
allege, among other things, that Defendants breached their fiduciary duties to
Unitholders by offering grossly inadequate consideration to entrench themselves
in control of the Partnership, by failing to solicit competing bids, and by
making inadequate public disclosure regarding the transaction. The complaints
additionally allege that the Company used unequal knowledge and economic power,
given its affiliation with the General Partner, to the detriment of the
Unitholders. The independence of the members of the Special Committee was also
questioned, allegedly resulting in the lack of arm's length negotiations and the
lack of any independent appraisal or evaluation. The complaints in the Actions
sought, among other things, (i) a declaration that the Defendants breached their
fiduciary duties to members of the alleged class, (ii) an order preliminarily
and permanently enjoining consummation of the proposed transaction, (iii) the
award of compensatory damages, and (iv) the award of costs and disbursements. On
October 27, 1993, the parties reached a settlement in principle in these
actions. The settlement is subject to certain conditions, including court
approval. On March 15, 1994, the Delaware Court of Chancery entered an Order and
Final Judgment ("Judgment") which approved the settlement and dismissed the
cases. All persons and entities who were owners of Units of the Partnership at
October 18, 1993 and their transferees and successors in interest, immediate and
remote (the "Class"), are bound by the Judgment. The Company and all other
defendants were discharged from any and all liability under any claims which
were or could have been brought by plaintiffs or any member of the Class
regarding the acquisition and merger of the Partnership. The appeal period on
the Judgment will run on April 14, 1994.

In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies. The suit
alleges breach of an employment agreement, misrepresentation, wrongful
termination, self-dealing, breach of fiduciary duty, usurpation of corporate
opportunity and tortious interference with contractual relations. The suit seeks
compensatory damages of $2,500,000 and exemplary damages of $5,000,000. The
Company believes that the claims are wholly without merit and intends to
vigorously defend against this suit.

Actions for negligence or other tort claims occur routinely as an ordinary
incident to the Company's business. Several lawsuits are pending against the
Company which have arisen in the ordinary course of the business, but none of
these proceedings involves a claim for damages (in excess of applicable excess
umbrella insurance coverages) involving more than 10% of current assets of the
Company. The Company does not anticipate any amounts which it may be required to
pay as a result of an adverse determination of such legal

10
<PAGE>

proceedings and the matters discussed above, individually or in the aggregate,
or any other relief granted by reason thereof, will have a material adverse
effect on the Company's financial position or results of operations.

The Company has established a paid loss program (the "Paid Loss Program")
for inns owned and managed by the Company, which includes excess umbrella
policies for commercial general liability insurance, automobile liability
insurance, fire and extended property insurance, workers' compensation and
employer's liability insurance for losses above the deductible limits, and such
other insurance as is customarily obtained for similar properties and which may
be required by the terms of loan or similar documents with respect to the inns.
In connection with the general liability, workers' compensation and automobile
coverages, all inns participate in the Paid Loss Program, under which claims and
expenses are shared pro rata, with excess umbrella insurance being maintained to
cover losses, claims and costs in excess of the deductible limits per matter of
$500,000 for general liability, $250,000 for workers' compensation and $250,000
for automobile coverage. All pro rata expenses and premiums under the Paid Loss
Program with respect to inns owned by persons other than the Company constitute
direct operating expenses of said inns under the terms of the respective
management agreements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the year covered by this Annual Report on Form
10-K, no matter was submitted to a vote of Registrant's security holders through
the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's Common Stock is listed on The New York Stock Exchange. The
range of the high and low sale prices, as adjusted for the three-for-two stock
split in October 1993 and the three-for-two stock split in March 1994, of the
Company's Common Stock for each of the quarters during the years ended December
31, 1993 and 1992 is set forth below:

1993 1992
--------------------------- -----------------------

Per Share Per Share
High Low Dividend High Low Dividend
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter. . . . . . $13 3/4 $9 $-- $7 7/8 $6 3/8 $--
Second Quarter . . . . . 14 3/8 12 -- 8 3/8 7 1/4 --
Third Quarter. . . . . . 19 3/8 12 1/2 .025 8 1/4 7 1/8 --
Fourth Quarter . . . . . 23 7/8 18 5/8 .025 9 1/4 7 7/8 --

</TABLE>

The Company paid cash dividends in both the third and fourth quarters of
1993 in the amount of $.025 per share under its quarterly dividend policy as
authorized by the Board of Directors. The Company increased its cash dividend by
50 percent in conjunction with the March 1994 three-for-two stock split to an
annual rate of $.10 per share on post-split common shares. For restrictions on
the Company's present or future ability to pay cash dividends, see note 2 of
Notes to Combined Financial Statements. The declaration and payment of dividends
in the future will be determined by the Board of Directors based upon the
Company's earnings, financial condition, capital requirements and such other
factors as the Board of Directors may deem relevant.

As of February 28, 1994, the approximate number of holders of record of the
Company's Common stock was 915.

11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

Years Ended December 31
-------------------------------------------------------------------
1993 1992 1991 1990 1989 (2)
-------- -------- ------- -------- ---------
(in thousands, except per share amounts, ratios, and inn statistics)

STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . $271,850 $254,122 $240,888 $226,830 $206,172
Direct and corporate operating costs and expenses (4). . . . . 168,365 156,845 155,126 147,809 131,528
Depreciation, amortization and asset retirements . . . . . . . 23,711 24,477 34,921 34,411 32,962
Performance stock option . . . . . . . . . . . . . . . . . . . 4,407 -- -- -- --
Non-recurring cash and non-cash charges (4). . . . . . . . . . -- 38,225 7,952 503 --
Operating income . . . . . . . . . . . . . . . . . . . . . . . 75,367 34,575 42,889 44,107 41,682
Net interest expense . . . . . . . . . . . . . . . . . . . . . 26,219 27,046 30,271 32,304 36,692
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . 20,301 (8,754) 129 2,175 6,130
Net earnings (loss) before extraordinary items
and cumulative effect of accounting change . . . . . . . . . 19,420 (7,796) 1,398 2,175 6,130
Net earnings (loss) per share (3). . . . . . . . . . . . . . .. .64 (.29) -- .07 .21
OTHER DATA
Capital expenditures (5) . . . . . . . . . . . . . . . . . . . 32,623 15,529 13,803 17,696 26,317
Purchase of inns and conversion costs. . . . . . . . . . . . . 38,858 4,060 15,487 18,574 15,477
Purchase of partners' equity interests (6) . . . . . . . . . . 78,169 -- 3,546 -- 754
Net cash provided by operating activities. . . . . . . . . . . 77,364 60,543 54,056 42,106 39,719
Net cash used by investing activities. . . . . . . . . . . . . (145,027) (15,166) (35,083) (40,061) (44,920)
Net cash provided (used) by financing activities . . . . . . . 78,650 (40,471) (24,428) (101) (15,819)
Cash dividends declared per common share . . . . . . . . . . . .05 -- -- -- --
EBITDA (7) . . . . . . . . . . . . . . . . . . . . . . . . . . 103,485 97,277 85,762 79,021 74,644
BALANCE SHEET DATA
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 744,241 539,183 574,687 586,969 577,388
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . 149,057 124,321 130,175 129,167 123,193
Partners' capital. . . . . . . . . . . . . . . . . . . . . . . 85,976 62,060 50,471 37,270 29,223
Current installments of long-term debt . . . . . . . . . . . . 22,491 21,711 22,116 24,002 16,991
Long-term debt, excluding current installments . . . . . . . . 414,004 274,824 316,014 341,902 350,986
Combined effective debt-to-equity ratio (1). . . . . . . . . . 1.76 1.47 1.75 2.05 2.3
OPERATING DATA
Inns owned . . . . . . . . . . . . . . . . . . . . . . . . . . 211 169 168 164 161
Inns managed . . . . . . . . . . . . . . . . . . . . . . . . . 9 40 40 40 40
Inns licensed. . . . . . . . . . . . . . . . . . . . . . . . . 1 3 4 6 6
------ ------ ------ ------ ------
Number of inns . . . . . . . . . . . . . . . . . . . . . . . . 221 212 212 210 207
Occupancy percentage . . . . . . . . . . . . . . . . . . . . . 65.1% 65.6% 64.8% 66.0% 65.5%
Average daily room rate. . . . . . . . . . . . . . . . . . . . $46.36 $44.33 $43.11 $40.93 $38.67

- -----------------------------
<FN>
(1) Ratio of long-term debt, excluding current installments, to partners'
capital plus shareholders' equity at year end.

(2) Effective June 1, 1989, the Company changed its year-end from May 31 to
December 31. The year ended December 31, 1989 is an aggregation of the
results from the seven months ended December 31, 1989 and the five months
ended May 31, 1989.

(3) Earnings (loss) per share are computed on the basis of the weighted average
number of common and common equivalent shares outstanding in each year
after giving effect to the three-for-two stock splits.

(4) Non-recurring cash and non-cash charges include charges related to the
write-down of certain joint venture interests carried on the equity method,
land and computer equipment, severance and other employee-related
costs and charges associated with a series of studies to improve operating
results. For the year ended December 31, 1992, these charges also include
a $2,696,000 increase in the allowance for certain notes receivable related
to inns sold by the Company, prior to 1985, and $210,000 related to other
corporate expense items.

(5) The December 31, 1993 capital expenditures include $15,400,000 for the
Company's image enhancement program.
</TABLE>

12
<PAGE>

<TABLE>
<S> <C>
(6) Purchase of partners' equity interests in 1993 includes approximately
$42,091,000 related to acquisition of 3,257,890 units of LQP through
December 1993.

(7) EBITDA is earnings before net interest expense, income taxes, depreciation,
amortization and fixed asset retirements, extraordinary items, partners'
equity in earnings and losses, gain or loss on property and investment
transactions and other non-recurring cash and non-cash charges. EBITDA is
not intended to represent cash flow or any other measure of performance in
accordance with generally accepted accounting principles ("GAAP"). EBITDA
is included herein because management believes that certain investors find
it to be a useful tool for measuring the ability to service debt.
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The Company's financial statements include the accounts of the Company's
wholly-owned subsidiaries and unincorporated partnerships and joint ventures
in which the Company has at least a 40% interest and over which it exercises
substantial legal, financial and operational control. Investments in other
entities in which the Company has less than a 40% ownership interest and over
which the Company has the ability to exercise significant influence, but does
not have control, are accounted for using the equity method.

During 1993, the Company acquired, in separately negotiated transactions,
limited partners' interests in 14 of the Company's combined unincorporated
partnerships and joint ventures which owned 44 inns. The Company purchased the
ownership interests for an aggregate purchase price of $87,897,000 which
included cash at closing, the assumption of $22,824,000 of existing debt
attributable to certain limited partners' interests, and $29,878,000 in notes to
certain sellers.

As a result of the following transactions, the operations of LQP for the
month of December 1993 were included in the combined financial statements of the
Company. On October 27, 1993, the Company entered into a definitive Partnership
Acquisition Agreement (the "Merger Agreement") with LQP and other parties,
pursuant to which the Company, through wholly-owned subsidiaries, would acquire
all units of the Partnership (the "Units") that it did not beneficially own at a
price of $13.00 net per Unit in cash. The Merger Agreement provided for a tender
offer (the "Offer") for all of the Partnership's outstanding Units at a price of
$13.00 net per Unit in cash, which Offer commenced on November 1, 1993 and
expired at midnight on November 30, 1993. The Offer resulted in the purchase of
2,805,190 Units (approximately 70.6% of the outstanding Units) by the Company
through its wholly-owned subsidiary, LQI Acquisition Corporation. As a result of
a contribution of additional units previously owned by the Company subsequent to
the Offer, LQI Acquisition Corporation beneficially owned 3,257,890 Units
(approximately 82% of the Units) at December 31, 1993. Pursuant to the Merger
Agreement, a Special Meeting of Unitholders was then held on January 24, 1994 to
approve the merger of a subsidiary of LQI Acquisition Corporation with and into
the Partnership, with the Partnership as the surviving entity. As a result of
this merger which was approved by the requisite vote of Unitholders on January
24, 1994, all of the Partnership's outstanding Units other than Units owned by
the Company or any direct or indirect subsidiary of the Company were converted
into the right to receive $13.00 net in cash without interest.

In 1993, the Company completed the acquisition of eleven inns and began
renovating and converting them to the La Quinta brand. Of these inns, nine were
purchased through the Development Partnership and two were purchased as
wholly-owned properties. Although these inns remained open for business during
conversion construction, hotel operations are disrupted during the typical
three-to-four month construction period. Conversion of these inns will be
completed during the first quarter of 1994.

References to "Company Inns" are to inns owned by the Company or by
unincorporated partnerships and joint ventures in which the Company owns at
least a 40% interest. References to "Managed Inns" are to those inns in which
the Company owns less than a 40% interest and which are managed by the Company
under long-term management contracts. "Managed Inns" include nine inns held in
two joint ventures with CIGNA Investments, Inc. ("CIGNA") for the year ended
December 31, 1993 and the 31 inns of the LQP through November 30, 1993. "Managed
Inns" were accounted for using the equity method.

13
<PAGE>

The following chart shows certain historical operating statistics and
revenue data. References to the percentages of occupancy and the average daily
rate refer to Company Inns. Managed Inns and the La Quinta licensed inn are
excluded from occupancy and average daily rate statistics for all periods for
purposes of comparability. All financial data is related to Company Inns unless
otherwise specified.

COMPARATIVE OPERATING STATISTICS AND REVENUE DATA
----------------------------------------------------
YEARS ENDED DECEMBER 31
-----------------------
(IN THOUSANDS, EXCEPT RATES AND PERCENTAGES)
----------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Room revenue $248,428 $230,054 $218,225
Other inn revenue 10,101 9,772 8,871
-------- -------- --------
Total inn revenue $258,529 $239,826 $227,096

-------- -------- -------
-------- -------- -------
Percentage of occupancy 65.1% 65.6% 64.8%
Average room rate $ 46.36 $ 44.33 $ 43.11
Available rooms (1) 8,226 7,916 7,817

<FN>
(1) Available rooms represent the number of rooms available for sale multiplied
by the number of days in the period reported.
</TABLE>

During 1991, the Company implemented certain changes in its operations
and organization which resulted in charges of $7,952,000. Such charges included
severance costs resulting from a reduction in work force and the termination of
four executive officers of the Company, charges related to the write-down of
computer equipment and other assets and costs associated with the Company's cost
reduction study. During 1992, the Company made additional changes in operations
and organization based on a comprehensive review of the Company by its senior
management team and recognized charges of approximately $39,751,000. These
charges included a provision for the write-down of partnership investments,
land, severance and other employee- related costs and other charges which
affected corporate expenses and partners' equity in earnings and losses, as more
fully described below.

YEAR ENDED DECEMBER 31, 1993
COMPARED TO YEAR ENDED DECEMBER 31, 1992

TOTAL REVENUES increased to $271,850,000 in 1993 from $254,122,000 in 1992,
an increase of $17,728,000 or 7.0%. Of the total revenues reported in 1993,
95.1% were revenues from inns, 2.4% were revenues from restaurant rentals and
other revenue and 2.5% were revenues from management services.

INN REVENUES are derived from room rentals and other sources such as
charges to guests for long-distance telephone calls, fax machine use and laundry
services. Inn revenues increased to $258,529,000 in 1993 from $239,826,000 in
1992, an increase of $18,703,000 or 7.8%. The increase in inn revenues was due
primarily to an increase in average room rate, an increase in the number of
available rooms and the acquisition of LQP. The average room rate increased to
$46.36 in 1993 from $44.33 in 1992, an increase of $2.03 or 4.6%, while
occupancy declined .5 percentage points. As anticipated, the Company's image
enhancement program caused temporary construction related disruption in normal
business operations and occupancies at properties which underwent the process.
Newly acquired inns remain open during conversion construction which also
disrupts the hotel operations during the typical three-to-four month
construction period. Also, management's decision to discontinue a coupon
promotion used in 1992 had a positive impact on room rate and had the effect of
reducing occupancy in 1993. Available rooms for 1993 were 8,226,000 as compared
to 7,916,000 for 1992, an increase of 310,000 available rooms, or 3.9%. The
increase in the number of available rooms was due to the acquisitions of 11 inns
during the year ended December 31, 1993 and the acquisition of LQP in December
of 1993. The acquisition of LQP in December 1993 added $2,758,000 to inn
revenues.

RESTAURANT RENTAL AND OTHER REVENUES includes rental payments from
restaurants owned by the Company and leased to and operated by third parties.
Restaurant rental and other revenues also include the Company's interest in the
earnings (accounted for using the equity method) of two CIGNA joint ventures
through the year ended December 31, 1993 and LQP, up to December 1, 1993, and
miscellaneous other revenues, such as third party rental revenue from an office
building which also housed the Company's corporate offices through May 1993.
Restaurant rental and other decreased to $6,464,000 in 1993 from $7,208,000 in
1992, a decrease of $744,000 or 10.3%, primarily due to a reduction in earnings
related to investments accounted for on the equity method.

MANAGEMENT SERVICES REVENUE is primarily related to fees earned by the
Company for services rendered in conjunction with Managed Inns. Management
service revenue decreased to $6,857,000 in 1993 from $7,088,000

14
<PAGE>

in 1992, a decrease of $231,000 or 3.3%. Management fees decreased due to
there being two less franchisees and the consolidation of LQP in December 1993
eliminating the related management fees charged by the Company to LQP for that
month.

DIRECT EXPENSES include costs directly associated with the operation of
Company Inns. In 1993, approximately 42% of direct expenses were represented by
salaries, wages, and related costs. Other major categories of direct expenses
include utilities, repairs and maintenance, property taxes, advertising and room
supplies.

Direct expenses increased to $148,915,000 ($27.79 per occupied room) in
1993 compared to $135,790,000 ($26.17 per occupied room) in 1992, an increase of
$13,125,000 or 9.7%. As a percentage of total revenues, direct expenses
increased to 54.8% in 1993 from 53.4% in 1992. The increase in direct expense
resulted primarily from the Company's implementation of a complimentary
continental breakfast at all La Quinta inns during the first quarter of 1993,
(which amounted to $1.08 per occupied room). Newly acquired inns typically
incur more direct expenses as a percentage of revenue during the first twelve
months of operations compared to the inns which have been operating as a La
Quinta for more than a twelve month period. The Company acquired 11 inns during
1993 and did not acquire or convert any inns in the 1992 period. Direct
expenses incurred by LQP in December 1993 were $2,048,000.

CORPORATE EXPENSES include the costs of general management, office rent,
training and field supervision of inn managers and other marketing and
administrative expenses. The major components of corporate expenses are
salaries, wages and related expenses and information systems. Corporate
expenses decreased to $19,450,000 ($1.96 per available room, including Managed
Inns) in 1993 from $21,055,000 ($2.16 per available room before non-recurring
charges, including Managed Inns) in 1992 before non-recurring charges, a
decrease of $1,605,000 or 7.6%. As a percent of total revenues, corporate
expenses decreased to 7.2% in 1993 from 8.3% in 1992 before non-recurring
charges. The 1992 corporate expenses included a non-recurring charge to
increase the allowance for certain notes receivable, based upon estimates of the
value of the real estate held as collateral for such notes and evaluations of
the financial condition of certain borrowers, and a provision related to the
settlement of certain litigation.

The PROVISION FOR WRITE-DOWN OF PARTNERSHIP INVESTMENTS, LAND AND OTHER in
1992 includes charges related to the write-down of certain joint venture
interests, land previously held for future development, computer equipment and
other assets, as more fully described in "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year Ended December 31, 1992
Compared to Year Ended December 31, 1991."

SEVERANCE AND OTHER EMPLOYEE RELATED COSTS in 1992 consisted of costs
related to the severance of certain executive officers and other employees,
executive search fees and relocation costs for new officers.

PERFORMANCE STOCK OPTION relates to the costs of stock options which became
exercisable when the average price of the Company's stock reached $30 per share
(pre-split) for twenty consecutive days. Performance stock option expense and
certain other options were accelerated as a result of this condition being met.
See note 5 to the Combined Financial Statements.

DEPRECIATION, AMORTIZATION AND ASSET RETIREMENTS decreased to $23,711,000
in 1993 from $24,477,000 in 1992, a decrease of $766,000 or 3.1%. The decrease
in depreciation, amortization and asset retirements was due to assets which
became fully depreciated during 1993 and the write-off of computer equipment and
signage in the prior year. Replacement and installation of new computer
equipment and signs was substantially completed in the latter part of 1993.

OPERATING INCOME increased to $75,367,000 in 1993 from $34,575,000 in 1992,
an increase of $40,792,000. Operating income before a non-recurring, non-cash
charge of approximately $4,407,000 to recognize compensation expense related to
the vesting of performance stock options, increased to $79,774,000 in 1993 from
$73,112,000 in 1992 before write-downs, severance and employee related costs and
other non-recurring charges, an increase of $6,662,000 or 9.1%.

INTEREST INCOME primarily represents earnings on the note receivable from
AEW Partners (the "AEW Note") and on the short-term investment of Company funds
in money market instruments prior to their use in operations or acquiring inns.
Interest income decreased to $5,147,000 in 1993 from $6,041,000 in 1992, a
decrease of $894,000 or 14.8%. The decrease in interest income is primarily
attributable to principal reductions on the AEW Note of $16,700,000 and
$19,300,000 in September and December 1993 respectively, and the

<PAGE>

corresponding reduction in interest earned thereon. As of December 31, 1993 the
AEW Note had been fully collected.

INTEREST ON LONG-TERM DEBT decreased to $31,366,000 in 1993 from
$33,087,000 in 1992, a decrease of $1,721,000 or 5.2%. The decrease in
interest expense is attributable to the early extinguishment of approximately
$117,000,000 of certain high interest rate debt with proceeds from the 9 1/4%
Senior Subordinated Notes due 2003 and bank financing which more than offset
interest on borrowings to purchase limited partners' interests. In addition,
certain Industrial Revenue Bond issues were refinanced to obtain more favorable
interest rates.

PARTNERS' EQUITY IN EARNINGS AND LOSSES reflects the interests of partners
in the earnings and losses of the combined joint ventures and partnerships which
are owned at least 40% and controlled by the Company. Partners' equity in
earnings and losses decreased to $12,965,000 in 1993 from $15,081,000 in 1992, a
decrease of $2,116,000 or 14.0%. The decrease in partners' equity in earnings
and losses is attributable to the acquisition of limited partners' interests in
14 combined unincorporated partnerships and joint ventures partially offset by
increases in the earnings of the Development Partnership. As of December 31,
1993, the Development Partnership operated 37 inns compared to 28 inns as of
December 31, 1992.

NET GAIN (LOSS) ON PROPERTY AND INVESTMENT TRANSACTIONS decreased to a loss
of ($4,347,000) in 1993 from a gain of $282,000 in 1992. The loss in 1993
includes a $4,900,000 loss related to the Company's conveyance to the mortgagee
of the title on the property in which the Company's headquarters were located.

INCOME TAXES for 1993 were calculated using an estimated effective tax rate
of 39%.

For the reasons discussed above, the Company reported EARNINGS (LOSS)
BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE OF
$19,420,000 in 1993 compared with ($7,796,000) in 1992, an increase of
$27,216,000.

The Company reported EXTRAORDINARY ITEMS, NET OF INCOME TAXES of ($619,000)
in 1993 compared with ($958,000) in 1992. The 1993 extraordinary loss consisted
of ($6,007,000), ($3,664,0000) net of income taxes, related to the early
extinguishment and refinancing of certain debt partially offset by an
extraordinary gain of $4,991,000, $3,045,000 net of income taxes, resulting from
the Company's transfer of ownership to the mortgagee of property in which the
Company's headquarters were located.

The cumulative effect of a change in accounting for income taxes of
$1,500,000 or $.05 per share in 1993 was the result of the implementation of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."

For the reasons discussed above, the Company reported NET EARNINGS of
$20,301,000 in 1993 compared with a net loss of ($8,754,000) in 1992, an
increase of $29,055,000.

YEAR ENDED DECEMBER 31, 1992
COMPARED TO YEAR ENDED DECEMBER 31, 1991

TOTAL REVENUES increased to $254,122,000 in 1992 from $240,888,000 in 1991,
an increase of $13,234,000 or 5.5%. Of the total revenues reported in 1992,
94.4% were revenues from inns, 2.8% were revenues from restaurant rentals and
other revenue and 2.8% were revenues from management services.

INN REVENUES increased to $239,826,000 in 1992 from $227,096,000 in 1991,
an increase of $12,730,000 or 5.6%. The increase in inn revenues was due
primarily to an increase in average room rate, an increase in the number of
available rooms and a slight increase in the percentage of occupancy. The
average room rate increased to $44.33 in 1992 from $43.11 in 1991, an increase
of $1.22 or 2.8%. The increase in room rate for 1992 was primarily attributable
to rate increases made in selected stronger markets in January and June. The
percentage of occupancy increased to 65.6% in 1992 from 64.8% in 1991. Available
rooms for 1992 were 7,916,000 as compared to 7,817,000 for 1991, an increase of
99,000 available rooms or 1.3%. The increase in the number of available rooms
was due to the acquisition of two inns in the fourth quarter of 1991 and the
conversion of a licensed inn to a wholly-owned inn in 1992.

RESTAURANT RENTAL AND OTHER increased slightly to $7,208,000 in 1992 from
$6,910,000 in 1991. Management service revenue increased to $7,088,000 in 1992
from $6,882,000 in 1991, an increase of $206,000 or 3.0%.

In 1992, approximately 44% of DIRECT EXPENSES were represented by salaries,
wages and related costs. Direct expenses were $135,790,000 ($26.17 per occupied
room) in 1992 compared to $135,443,000 ($26.75 per

16
<PAGE>

occupied room) in 1991, an increase of $347,000 or 0.3%. As a percentage of
total revenues, direct expenses decreased to 53.4% in 1992 from 56.2% in 1991.
The increase in total direct expenses was primarily due to increases in property
taxes, insurance and employee health care claims expenses. However, the
increase was partially offset by decreases in workers' compensation insurance
resulting from new safety programs implemented by the Company, supplies and
advertising expenses.

CORPORATE EXPENSES increased to $21,055,000 ($2.16 per available room,
including Managed Inns) in 1992 before $2,906,000 of non-recurring charges from
$19,683,000 ($2.04 per available room, including Managed Inns) in 1991, an
increase of $1,372,000 or 7.0%. As a percent of total revenues, corporate
expenses before non-recurring charges increased to 8.3% in 1992 from 8.2% in
1991. The 1992 non-recurring charge was primarily attributable to an increase
of $2,696,000 in the allowance for certain notes receivable, related to inns
sold by the company prior to 1985, based on estimates of the value of the real
estate held as collateral for such notes and evaluations of the financial
condition of certain borrowers. The increase in corporate expense was partially
related to a provision for settlement of certain litigation.

During 1992, the Company recorded NON-RECURRING CASH AND NON-CASH CHARGES
of approximately $39,751,000. Of these charges $28,383,000 are included as a
provision for write-down of partnership investments, land and other; $6,936,000
related to severance and other employee related costs; and the remaining
$4,432,000 affected corporate expenses and partners' equity in earnings and
losses. All of these charges resulted from certain changes being made in the
Company's operations and organization based on a comprehensive review by the
Company's senior management team.

During 1991, the Company recognized non-recurring cash and non-cash charges
of $7,952,000 resulting from certain changes made in the Company's operations
and organization. Of those charges, approximately $4,097,000 were for severance
related costs for former employees which resulted from a reduction in the work
force of approximately 72 employees, 50 of which were employed at the Company's
headquarters and the termination of four executive officers of the Company under
the various provisions of their severance agreements. Of the remaining charges,
approximately $2,165,000 related to the write-down of computer equipment and
other assets and approximately $1,690,000 represented costs associated with the
Company's study to enhance shareholder value.

DEPRECIATION, AMORTIZATION AND ASSET RETIREMENTS decreased to $24,477,000
in 1992 from $34,921,000 in 1991, a decrease of $10,444,000 or 29.9%.
Approximately $9,200,000 of the decrease was due to the Company's change in
the depreciable lives of the building assets from 30 years to 40 years,
effective January 1, 1992.

OPERATING INCOME decreased to $34,575,000 in 1992 from $42,889,000 in 1991,
a decrease of $8,314,000 or 19.4%, primarily due to certain charges recorded in
1992, as more fully described above. Operating income before non-recurring
charges and the effect of a change in estimated useful lives of buildings
increased to $63,914,000 in 1992 from $50,841,000 in 1991 an increase of
$13,073,000 or 25.7%. The net impact of these charges and adjustments on
operating income for 1992 amounted to a net charge of $29,339,000 compared with
$7,952,000 for 1991. As a percentage of total revenues, operating income
decreased to 13.6% in 1992 from 17.8% in 1991.

INTEREST INCOME decreased to $6,041,000 in 1992 from $8,442,000 in 1991, a
decrease of $2,401,000 or 28.4% The decrease in interest income is primarily
attributable to a $14,866,000 reduction in principal on the AEW Note in March
1992 and the corresponding reduction in interest earned thereon.

INTEREST ON LONG-TERM DEBT decreased to $33,087,000 in 1992 from
$38,713,000 in 1991, a decrease of $5,626,000 or 14.5%. The decrease in
interest expense is related to the refinancing of approximately $42,000,000
in industrial revenue bond issues in 1992 and 1991 to obtain more favorable
interest rates, the decline in the prime interest rate and the reduction of the
average outstanding balance on the Company's Credit Facility due to improving
operating cash flow.

PARTNERS' EQUITY IN EARNINGS AND LOSSES increased to $15,081,000 in 1992
from $9,421,000 in 1991, an increase of $5,660,000 or 60.1%. The increase in
partners' equity in earnings and losses is primarily attributable to a decrease
in depreciation expense related to the change in building lives of properties
owned by the combined partnerships and joint ventures from 30 years to 40 years
and to the increase in earnings of the Development Partnership. As of December
31, 1992, the Development Partnership operated 28 inns compared to 26 inns as of
December 31, 1991. Partners' equity in earnings and losses in 1992 was also
impacted by a $1,214,000 adjustment to reallocate losses of a joint venture to
the Company.

17
<PAGE>

NET GAIN (LOSS) ON PROPERTY AND INVESTMENT TRANSACTIONS increased to
$282,000 in 1992 from a loss of ($1,012,000) in 1991. The majority of the 1991
loss was the result of write-downs on four properties partially offset by gains
on three land condemnations.

The Company's effective tax rate for 1992 was primarily affected by
deferred tax benefits that had not been recognized related to certain charges
incurred during the year.

For the reasons discussed above, the Company reported a LOSS BEFORE
EXTRAORDINARY ITEMS of ($7,796,000) in 1992 compared with the earnings before
extraordinary items of $1,398,000 in 1991, a decrease of $9,194,000.

The Company reported EXTRAORDINARY ITEMS, NET OF INCOME TAXES of
($958,000) in 1992 compared with ($1,269,000) in 1991. The extraordinary items
reported in each period were primarily a result of the refinancing of three
industrial revenue bond issues totaling $12,910,000 in principal in 1992 and
nine industrial revenue bond issues totaling $28,950,000 in principal in 1991.
Extraordinary items in 1992 also relate to the early extinguishment of the
Company's 10% Convertible Subordinated Debentures due 2002.

For the reasons discussed above, the Company reported a NET LOSS of
($8,754,000) in 1992 compared with net earnings of $129,000 in 1991, a decrease
of $8,883,000.

CAPITAL RESOURCES AND LIQUIDITY

The Company has historically financed its development program through
partnerships with financial institutions, a public debt offering and borrowings
under the Company's Credit Facilities. During the years ended December 31, 1993
and 1992, the Company funded a majority of its development program through the
Development Partnership. The Company's inns and adjacent restaurant land and
buildings are substantially pledged to secure long-term debt of the Company.
Distributions of cash, if any, from the Company's joint ventures and
partnerships are made from cash available after payment of operating expenses,
debt service, capital expenditures and acquisition and development of new inns.

At December 31, 1993, the Company had $23,848,000 of cash and cash
equivalents, an increase of $10,987,000 from December 31, 1992. The increase
was due to the collection of $19,300,000 on AEW Partners' obligation to the
Development Partnership in December 1993. In July 1993, the Company completed
negotiations on a new $40,000,000 Secured Line of Credit and $30,000,000 Secured
Term Credit Facility. On December 22, 1993, the Company completed negotiations
on an additional $30,000,000 Secured Line of Credit which bore interest at the
prime rate plus 1/2%. The additional Line of Credit matured upon the closing of
the amendment to the $40,000,000 Secured Line of Credit and $30,000,000 Secured
Term Credit Facility more fully discussed below. At December 31, 1993 the
Company had approximately $31,380,000 available on its credit facility.

In January 1994, the Company completed negotiations to amend the
$40,000,000 Secured Line of Credit and increase the Secured Term Credit Facility
from $30,000,000 to $145,000,000. Borrowings under the $40,000,000 secured line
of credit, which will expire May 30, 1997 will be made at varying interest rates
of LIBOR plus 1 3/4%, the prime rate, or certificate of deposit rate plus 1
7/8%. Borrowings under the $145,000,000 Secured Term Credit Facility, which
will expire May 31, 2000, will be made through October 31, 1994 and will bear
interest at varying interest rates of LIBOR plus 2%, the prime rate plus 1/4%,
or certificate of deposit rate plus 2 1/8%. Amounts borrowed under the Secured
Term Credit Facility will require semi-annual principal payments commencing
November 30, 1994 through May 31, 2000. In February 1994, the Company used the
Secured Term Credit Facility to retire $65,742,000 of 11.25% mortgage debt
assumed through the acquisition of LQP, which would have matured in November
1994. As of February 28, 1994, the Company had $27,125,000 available on its
credit facility.

At December 31, 1993, the AEW Note to the Development Partnership had been
fully collected. The Company anticipates that substantially all of its
development activity in 1994 will occur through the Development Partnership by
using the Partnership's available cash and cash from operations and that no
distributions of cash will be made to partners.

Net cash provided by operating activities increased to $77,364,000 in 1993
from $60,543,000 in 1992, an increase of $16,821,000 or 27.8%. The increase was
due to increased inn revenues and an increase in accounts payable and accrued
expenses due to the timing of payment. Net cash provided by operating
activities increased to $60,543,000 in 1992 from $54,056,000 in 1991, an
increase of $6,487,000 or 12.0%. The majority of the increase was due to an
increase in inn revenues as a result of increased occupancy and average room
rates.

18
<PAGE>

Net cash used by investing activities increased to $145,027,000 in 1993
from $15,166,000 in 1992, an increase of $129,861,000. The increase was related
to the acquisition of LQP, the acquisition of partners' interest in 14
unincorporated joint ventures and partnerships, the acquisition of eleven inns
and capital expenditures related to the Company's image enhancement program. Net
cash used by investing activities decreased to $15,166,000 in 1992 from
$35,083,000 in 1991, a decrease of $19,917,000 or 56.8%. This decrease
resulted from no inns being acquired during 1992 compared to three inns and a
partner's interest in an additional five inns in 1991.

Net cash provided by financing activities was $78,650,000 in 1993 compared
to net cash used by financing activities of ($40,471,000) in 1992. The increase
in cash provided by financing activities was the result of the issuance of the 9
1/4% Senior Subordinated Notes due 2003, the collection of the AEW Note and the
decrease in distributions to partners partially offset payments on long-term
debt. Net cash used by financing activities increased to $40,471,000 in 1992
from $24,428,000 in 1991, an increase of $16,043,000 or 65.7%. This increase
was primarily impacted by a reduction of the Company's average outstanding
balance on the Credit Facility.

COMMITMENTS

In accordance with the unincorporated partnership or joint venture
agreements executed by the Company, La Quinta is committed to advance funds
necessary to cover operating expenses of a joint venture. In addition, four
other unincorporated partnerships and joint ventures executed promissory notes
in which the Company guaranteed to fund amounts not to exceed $4,985,000 in the
aggregate.

The estimated additional cost to complete the conversion and renovation of
inns for which commitments have been made is $36,455,000 at December 31, 1993,
of which includes amounts for the Company's image enhancement program that were
in process or under contract. Funds on hand, committed and anticipated from
cash flow are sufficient to complete these projects.

The Company has undertaken a comprehensive chainwide image enhancement
program intended to give its properties a new, fresh, crisp appearance while
preserving their unique character. The program features new signage displaying
a new logo as well as exterior and lobby upgrades including brighter colors,
more extensive lighting, additional landscaping, enhanced guest entry and full
lobby renovation with contemporary furnishings and seating area for continental
breakfast. In the first quarter of 1993, the Company began its property and
image enhancement program on the La Quinta inns it manages or owns. The Company
anticipates that $36,379,000 will be needed to complete the project, including
$27,493,000 related to work which was in process or under contract at
December 31, 1993. The Company intends to fund its image enhancement program
through funds generated from operations and available on its Credit Facility.
The Company does not anticipate the funding of this program will have an
adverse effect on its ability to fund its operations.

Under the terms of a Partnership agreement between the Company and AEW
Partners, the Company maintains a reserve for renovating, remodeling and
conversion of the inns in the Development Partnership based on 5% of gross room
revenue of the Partnership which includes certain amounts required by loan
agreements. At December 31, 1993 and 1992 the Company had $3,833,000 and
$3,920,000, respectively, of restricted cash which is classified as investments.

In accordance with the requirements of an escrow agreement related to a
pool of mortgage notes executed by the Company and a third party lender, the
Company is required to make annual deposits into an escrow account for the
purpose of establishing a reserve for the replacement of furnishings, fixtures
and equipment used on or incorporated into the mortgaged properties. The
Company shall be relieved of its obligation to make such annual deposits for any
year in which the escrow account has an aggregate balance of $2,431,000. At
December 31, 1993 and 1992, the Company had reserved $2,431,000 and $5,754,000,
respectively.

In 1993, the Company entered into a ten year operating lease for its
corporate headquarters in San Antonio. In addition, the Company entered into a
ten year lease in December 1993 to house the Company's reservation facilities.

Funds on hand, anticipated from future cash flows and available on the
Company's Credit Facility are sufficient to fund operating expenses, debt
service and other capital requirements through at least the end of 1994.
The Company will evaluate from time to time the necessity of other financing
alternatives.

19
<PAGE>

SEASONALITY

Demand, and thus room occupancy, is affected by normally recurring seasonal
patterns and, in most La Quinta inns, is higher in the spring and summer months
(March through August) than in the balance of the year.

INCOME TAXES

In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
Statement requires the use of the asset and liability method of accounting for
deferred income taxes and was implemented in 1993. The impact of the
Statement's implementation has been disclosed in note 4 of Notes to Combined
Financial Statements.

INFLATION

The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenues or net earnings (loss) of
the Company in the three most recent years.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LA QUINTA INNS, INC.

COMBINED BALANCE SHEETS
(in thousands, except share data)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

December 31
--------------------
ASSETS 1993 1992
----- -----
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . $23,848 $12,861
Receivables:
Trade. . . . . . . . . . . . . . . . . . . . . . . . 6,744 4,093
La Quinta Motor Inns Limited Partnership . . . . . . -- 364
Other. . . . . . . . . . . . . . . . . . . . . . . . 3,191 2,167
Income taxes . . . . . . . . . . . . . . . . . . . . -- 1,076
Supplies . . . . . . . . . . . . . . . . . . . . . . . 5,921 4,554
Prepaid expenses . . . . . . . . . . . . . . . . . . . 581 341
------- -------
Total current assets . . . . . . . . . . . . . . . 40,285 25,456
------- -------
Notes receivable, excluding current installments
(net of allowance of $3,167 and $3,058) . . . . . . . . 7,683 7,696
------- -------
Investments, including joint ventures accounted for
on the equity method (notes 6, 9, 12 and 14) . . . . . 6,583 10,296
------- -------
Properties held for sale, at estimated net realizable
value . . . . . . . . . . . . . . . . . . . . . . . . . 3,401 3,920
------- -------
Land held for future development, at cost. . . . . . . . 1,452 1,452
------- -------
Property and equipment, at cost, substantially all
pledged (notes 2, 7 and 14):
Buildings. . . . . . . . . . . . . . . . . . . . . . . 660,278 512,317
Furniture, fixtures and equipment. . . . . . . . . . . 114,113 90,715
Land and leasehold improvements. . . . . . . . . . . . 129,862 94,836
------- -------
Total property and equipment . . . . . . . . . . . 904,253 697,868
Less accumulated depreciation and amortization . . . . 230,917 214,398
------- -------
Net property and equipment . . . . . . . . . . . . 673,336 483,470
------- -------
Deferred charges and other assets, at cost
less applicable amortization . . . . . . . . . . . . . 11,501 6,893
------- -------
Total assets . . . . . . . . . . . . . . . . . . . $744,241 $539,183
------- -------
------- -------
</TABLE>

See accompanying notes to combined financial statements.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

LA QUINTA INNS, INC.

December 31
-----------------
1993 1992
------ ------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (notes 2 and 14). . . . . . . . . $ 22,491 $ 21,711
Accounts payable:
Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,282 9,217
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,584 5,468
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,830 --
Accrued expenses:
Payroll and employee benefits. . . . . . . . . . . . . . . . . . . . . 17,620 12,852
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,379 1,016
Property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,994 7,233
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,870 1,198
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 79,050 58,695
-------- --------
Long term debt, excluding current installments (notes 2 and 14). . . . . . 414,004 274,824
-------- --------
Deferred gain (note 12). . . . . . . . . . . . . . . . . . . . . . . . . . 143 1,618
-------- --------
Deferred income taxes, pension and other . . . . . . . . . . . . . . . . . 16,011 17,665
-------- --------
Partners' capital (notes 3 and 14) . . . . . . . . . . . . . . . . . . . . 85,976 62,060
-------- --------
Shareholders' equity (notes 2 and 5):
Common stock ($.10 par value; 40,000,000 shares authorized;
32,111,364 and 14,668,074 shares issued). . . . . . . . . . . . . . .. 3,211 1,467
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 60,573 56,749
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,059 80,773
Minimum pension liability adjustment (note 6). . . . . . . . . . . . . . (1,458) --
-------- --------

162,385 138,989

Less treasury stock, at cost (1,732,867 and 1,273,416 shares). . . . . . 13,328 14,668
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 149,057 124,321

Commitments and contingencies (notes 7, 9, and 10)
-------- --------
Total liabilities and shareholders' equity . . . . . . . . . . . . . $744,241 $539,183
-------- --------
-------- --------

</TABLE>

See accompanying notes to combined financial statements.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

22
<PAGE>

LA QUINTA INNS, INC.

COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Years Ended December 31
--------------------------------------
1993 1992 1991
------- ------- ------
<S> <C> <C> <C>
Revenues:
Inn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $258,529 $239,826 $227,096
Restaurant rental and other. . . . . . . . . . . . . . . . . . . . . 6,464 7,208 6,910
Management services (notes 12 and 14). . . . . . . . . . . . . . . . 6,857 7,088 6,882
-------- -------- --------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 271,850 254,122 240,888
-------- -------- --------

Operating costs and expenses:
Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,915 135,790 135,443
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,450 23,961 19,683
Provision for write-down of partnership investments,
land and other (note 8). . . . . . . . . . . . . . . . . . . . . . -- 28,383 3,855
Severance and other employee related costs (note 8). . . . . . . . . -- 6,936 4,097
Performance stock option (note 5). . . . . . . . . . . . . . . . . . 4,407 -- --
Depreciation, amortization and fixed asset retirements (note 1). . . 23,711 24,477 34,921
-------- -------- --------
Total operating costs and expenses . . . . . . . . . . . . . . . . 196,483 219,547 197,999
-------- -------- --------
Operating income.. . . . . . . . . . . . . . . . . . . . . . . . . 75,367 34,575 42,889
-------- -------- --------
Other (income) expense:
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . (5,147) (6,041) (8,442)
Interest on long-term debt:. . . . . . . . . . . . . . . . . . . . . 31,366 33,087 38,713
Partners' equity in earnings and losses (note 3) . . . . . . . . . . 12,965 15,081 9,421
-------- -------- --------
Earnings (loss) before property and investment transactions. . . 36,183 (7,552) 3,197
Net gain (loss) on property and investment transactions
(note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,347) 282 (1,012)
-------- -------- --------
Earnings (loss) before income taxes, extraordinary
items and cumulative effect of accounting change . . . . . . . 31,836 (7,270) 2,185
Income taxes (note 4). . . . . . . . . . . . . . . . . . . . . . . . . 12,416 526 787
-------- -------- --------
Earnings (loss) before extraordinary items and cumulative
effect of accounting change. . . . . . . . . . . . . . . . . . 19,420 (7,796) 1,398
Extraordinary items, net of income taxes (note 2). . . . . . . . . . . (619) (958) (1,269)
-------- -------- --------
Earnings (loss) before cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,801 (8,754) 129
Cumulative effect of accounting change (note 4). . . . . . . . . . . . 1,500 -- --
-------- -------- --------
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . $ 20,301 $ (8,754) $ 129
-------- -------- --------
-------- -------- --------
Earnings (loss) per common and common equivalent share:
Earnings (loss) before extraordinary items and
cumulative effect of accounting change . . . . . . . . . . . . $ .61 $ (.26) $ .05
Extraordinary items, net of income taxes . . . . . . . . . . . . (.02) (.03) (.05)
Cumulative effect of accounting change . . . . . . . . . . . . . .05 -- --
-------- -------- --------
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . $ .64 $ (.29) $ --
-------- -------- --------
-------- -------- --------

Weighted average number of common and common
equivalent shares outstanding, as restated (note 5). . . . . . . . . 31,537 30,201 29,704
-------- -------- --------
-------- -------- --------
</TABLE>

23
<PAGE>

LA QUINTA INNS, INC.

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Minimum
Additional Pension
Common Stock Treasury Stock Paid-In Retained Liability
--------------- ---------------
Shares Amount Shares Amount Capital Earnings Adjustment Total
--------------- ------ -------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1990. . . . . . . . 14,668 $1,467 (1,548) $(17,839) $55,878 $89,661 $ -- $129,167
Stock options. . . . . . . . . . . . . . . -- -- 90 1,066 76 -- -- 1,142
Redemption of stock rights . . . . . . . . -- -- -- -- -- (263) -- (263)
Net earnings . . . . . . . . . . . . . . . -- -- -- -- -- 129 -- 129
------ ------- ------- -------- ------- ------- --------- --------
Balances at December 31, 1991. . . . . . . . 14,668 1,467 (1,458) (16,773) 55,954 89,527 -- 130,175
Stock options. . . . . . . . . . . . . . . -- -- 185 2,105 795 -- -- 2,900
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- -- (8,754) -- (8,754)
------- ------ ------ ------- ------ ------- -------- --------
Balances at December 31, 1992. . . . . . . . 14,668 1,467 (1,273) (14,668) 56,749 80,773 -- 124,321
Effect of stock split at October 1, 1993 . 6,740 674 -- -- (674) -- -- --
Effect of stock split at March 15, 1994. . 10,703 1,070 (578) -- (1,070) -- -- --
Stock options. . . . . . . . . . . . . . . -- -- 118 1,340 5,568 -- -- 6,908
Dividends paid . . . . . . . . . . . . . . -- -- -- -- -- (1,015) -- (1,015)
Net earnings . . . . . . . . . . . . . . . -- -- -- -- -- 20,301 -- 20,301
Minimum pension liability adjustment . . . -- -- -- -- -- -- (1,458) (1,458)
------- ------ ------ ------- ------ ------- -------- --------

Balances at December 31, 1993. . . . . . . . 32,111 $3,211 (1,733) $(13,328) $60,573 $100,059 $(1,458) $149,057
------- ------ ------ ------- ------ ------- -------- --------
------- ------ ------ ------- ------ ------- -------- --------
</TABLE>

See accompanying notes to combined financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

24
<PAGE>

LA QUINTA INNS, INC.

COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>

Years ended December 31
-----------------------------------------
1993 1992 1991
------ ------ -----
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) .. . . . . . . . . . . . . . . . . . . $ 20,301 $ (8,754) $ 129
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization of property and
equipment. . . . . . . . . . . . . . . . . . . . . . 22,994 22,700 32,354
Amortization of deferred charges . . . . . . . . . . . 1,651 1,446 1,676
Loss on retirement of fixed assets . . . . . . . . . . 156 1,074 1,536
Non-recurring, non-cash charges. . . . . . . . . . . . -- 32,913 1,380
Performance stock options. . . . . . . . . . . . . . . 4,407 -- --
(Gain) loss on sale of assets. . . . . . . . . . . . . (616) (282) 1,012
Undistributed earnings of affiliates . . . . . . . . . 50 72 441
Partners' equity in earnings and losses. . . . . . . . 12,965 15,081 9,421
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . (1,500) -- --
--------- --------- ---------
Net cash provided by operating activities before
changes in operating assets and liabilities. . . . . 60,408 64,250 47,949
--------- --------- ---------
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . (1,832) 410 3,336
Income taxes . . . . . . . . . . . . . . . . . . . . . 2,906 (1,244) 3,501
Supplies and prepaid expenses. . . . . . . . . . . . . (991) 584 138
Accounts payable and accrued expenses. . . . . . . . . 13,685 947 6,869
Deferred charges and other assets. . . . . . . . . . . 460 (969) (2,386)
Deferred credits and other . . . . . . . . . . . . . . 2,728 (3,435) (5,351)
--------- --------- ---------
Net cash provided by operating activities. . . . . 77,364 60,543 54,056
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . (32,623) (15,529) (13,803)
Proceeds from property transactions. . . . . . . . . . . 982 1,998 1,576
Purchase and conversion of inns. . . . . . . . . . . . . (38,858) (4,060) (15,487)
Purchase of partners' equity interests . . . . . . . . . (78,169) -- (3,546)
Decrease (increase) in notes receivable and
other investments. . . . . . . . . . . . . . . . . . 3,641 2,425 (3,823)
--------- --------- ---------
Net cash used by investing activities. . . . . . . (145,027) (15,166) (35,083)
--------- --------- ---------

Cash flows from financing activities:
Proceeds from secured line of credit and
long-term borrowings . . . . . . . . . . . . . . . . 223,198 61,275 47,957
Principal payments on secured line of credit
and long-term borrowings . . . . . . . . . . . . . . (178,528) (101,156) (77,940)
Capital contributions by partners . . . . . . . . . . . . 35,908 15,216 18,226
Capital distributions to partners . . . . . . . . . . . . (3,414) (18,706) (13,550)
Dividends to shareholders . . . . . . . . . . . . . . . . (1,015) -- --
Net proceeds from stock transactions . . . . . . . . . . 2,501 2,900 879
--------- --------- ---------
Net cash provided (used) by
financing activities . . . . . . . . . . . . . . 78,650 (40,471) (24,428)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents . . . . . . 10,987 4,906 (5,455)
Cash and cash equivalents at beginning of period . . . . . . 12,861 7,955 13,410
--------- --------- ---------
Cash and cash equivalents at end of period . . . . . . . . . $ 23,848 $ 12,861 $ 7,955
--------- --------- ---------
--------- --------- ---------

</TABLE>

25
<PAGE>

LA QUINTA INNS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS AND BASIS OF PRESENTATION

The Company develops, owns and operates inns. The combined financial
statements include the accounts of subsidiaries (all wholly-owned) and
unincorporated partnerships and joint ventures in which the Company has at least
a 40% interest and exercises substantial legal, financial and operational
control. All significant intercompany accounts and transactions have been
eliminated in combination. Investments in other unconsolidated affiliates in
which the Company has less than a 40% ownership interest and over which the
Company has the ability to exercise significant influence are accounted for
using the equity method. Certain reclassifications of prior period amounts have
been made to conform with the current period presentation.

PARTNERS' CAPITAL

Partners' capital at December 31, 1992 is shown net of a $35,908,000 note
receivable to La Quinta Development Partners, L.P. ("LQDP" or the "Development
Partnership") representing a portion of the initial capital contribution to LQDP
by AEW Partner's L.P. Collections on this note are reflected as an increase to
partners' capital. In 1993, the outstanding balance of this note was fully
collected.

PROPERTY AND EQUIPMENT

Depreciation and amortization of property and equipment for 1993 and 1992
are computed using the straight-line method over the following estimated useful
lives:

Buildings............................................ 40 years
Furniture, fixtures and equipment.................... 4-10 years
Leasehold and land improvements...................... 10-20 years

Maintenance and repairs are charged to operations as incurred. Expenditures
for improvements are capitalized.

During the third quarter of 1992, the Company changed the estimated useful
lives of its buildings from 30 years to 40 years effective January 1, 1992,
based on a review of the depreciable lives of its assets.

CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less at
the date of acquisition are considered cash equivalents.

DEFERRED CHARGES

Deferred charges consist primarily of issuance costs related to Senior
Subordinated Notes due 2003, Industrial Development Revenue Bonds ("IRB"), loan
fees, preopening and organizational costs. Issuance costs are amortized over
the life of the related debt using the interest method. Preopening costs are
amortized over two years, organizational costs over five years and loan fees
over the respective terms of the loans using the straight-line method.

SELF-INSURANCE PROGRAMS

The Company uses a paid loss retrospective self-insurance plan for general
and auto liability and workers' compensation. Predetermined loss limits have
been arranged with insurance companies to limit the Company's per occurrence
cash outlay.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and dependents which is partially
funded by payroll deductions. Payments for major medical and hospitalization
to individual participants less than specified amounts are self-insured by
the Company. Claims for benefits in excess of these amounts are covered by
insurance purchased by the Company.

Provisions have been made in the combined financial statements which
represent the expected future payments based on estimated ultimate cost for
incidents incurred through the balance sheet date.

INCOME TAXES

Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using currently enacted tax rates in effect for the years in
which the differences are expected to reverse. In 1993, the Company recorded
an adjustment to income of $1,500,000 which represents the net decrease of
the deferred tax liability at January 1, 1993. Such amount has been
reflected in the combined statement of operations for the year ended December
31, 1993 as the cumulative effect of an accounting change. Prior years'
financial statements have not been restated to apply the provisions of SFAS
109. The deferred method under APB Opinion 11 was applied in 1992 and prior
years.

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share are computed on the basis of the weighted
average number of common and common equivalent (dilutive stock options)
shares outstanding in each year after giving retroactive effect to the stock
splits effected as stock dividends as discussed in note 5 of these Combined
Financial Statements. Shares of the Company's common stock issuable upon
conversion of the Development Partnership Units are antidilutive at December
31, 1993 and prior years. Primary and fully diluted earnings (loss) per share
are not significantly different.

PROPERTIES HELD FOR SALE

Properties held for sale are stated at the lower of cost or estimated
net realizable value. Charges to reduce the carrying amounts of properties
held for sale to estimated net realizable value are recognized in income.
The Company recorded charges of $9,926,000 in 1992 and $2,145,000 in 1991 in
the statements of operations related to the write-down of properties held for
sale.

(2) LONG-TERM DEBT

December 31,
------------
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Mortgage loans maturing 1994-2015 (9.4% weighted average)......... $179,418 $194,085

Industrial Development Revenue Bonds, maturing 1994-2012
(7.3% weighted average)........................................... 72,682 79,450

Senior subordinated notes, due 2003 (9.25%)....................... 120,000 -

Bank secured term credit facility, maturing May 31, 2000 (5.6%)... 28,620 -

Bank secured line of credit (5.4% at December 31, 1993)........... 35,775 23,000
-------- -------
Total......................................................... 436,495 296,535

Less current installments......................................... 22,491 21,711
------- --------
Net long-term debt............................................ $414,004 $274,824
-------- --------
-------- --------
</TABLE>

At December 31, 1993, the Company had a $40,000,000 Secured Line of Credit,
renegotiated in July 1993, and a $30,000,000 Secured Term Credit Facility with
participating banks. On December 22, 1993, the Company completed negotiations
on an additional $30,000,000 Secured Line of Credit which bore interest at the
prime rate plus 1/2%. At December 31, 1993, the Company had $31,380,000
available on its Secured Term and Line of Credit. In January 1994, the Company
completed negotiations to amend the $40,000,000 Secured Line of Credit and
increase its Secured Term Credit Facility from $30,000,000 to $145,000,000.
Borrowings under the

27
<PAGE>

$40,000,000 Secured Line of Credit, which will expire May 30, 1997 will be made
at varying interest rates of LIBOR plus 1 3/4%, the prime rate, or certificate
of deposit rate plus 1 7/8%. Borrowings under the $145,000,000 Secured Term
Credit Facility, which will expire May 31, 2000, will be made through October
31, 1994 and will bear interest at varying interest rates of LIBOR plus 2%, the
prime rate plus 1/4%, or certificate of deposit rate plus 2 1/8%. Amounts
borrowed under the Secured Term Credit Facility will require semi-annual
principal payments commencing November 30, 1994 through May 31, 2000. The
Company pays a commitment fee of .5% per annum on the undrawn portion of the
credit line. The annual maturities reflect the payment terms of the amended and
restated Secured Line of Credit and Secured Term Credit Facility. Commitment
fees totaled $164,000, $105,000 and $71,000 for the years ended December 31,
1993, 1992 and 1991, respectively.

Annual maturities for the four years subsequent to December 31, 1994 are as
follows:

(in thousands)
<S> <C>
1995. . . . . . . . . . . . . $28,487
1996. . . . . . . . . . . . . 29,548
1997. . . . . . . . . . . . . 66,598
1998. . . . . . . . . . . . . 36,205

</TABLE>

Interest paid during the years ended December 31, 1993, 1992 and 1991
amounted to $27,913,000, $32,523,000 and $38,320,000, respectively.

In December 1993, the Company assumed the outstanding mortgage notes
payable of La Quinta Motor Inns Master Limited Partnership ("LQP") totaling
$65,962,000 (see note 14). The notes bear interest at 11 1/4% and mature on
November 1, 1994. Subsequent to December 31, 1993, the Company paid off the
entire outstanding balance with proceeds from its renegotiated Secured Term
Credit Facility. In 1993, the Company recognized an extraordinary loss of
$986,000 ($602,000 net of income taxes) related to the prepayment fees for the
early retirement of this debt.

In 1993, the Company completed an offering of $120,000,000 in principal
amount of 9 1/4% Senior Subordinated Notes due 2003. The proceeds of the
financing and the Secured Term Credit Facility were used to partially fund the
acquisitions of partners' interests in certain consolidated partnerships and
joint ventures and to prepay approximately $106,000,000 of existing
indebtedness. In addition, the Company refinanced three issues of IRBs
totaling $11,200,000 in 1993. In 1992, the Company refinanced three issues of
IRBs totaling $12,910,000 and retired its 10% Convertible Subordinated
Debentures due 2002. The Company reported extraordinary items, net of income
taxes, of $3,062,000 and $958,000 in 1993 and 1992, respectively, related to
these refinancings and retirements.

In May 1993, the Company conveyed title to the property in which its
corporate headquarters was located to the lender holding a $10.1 million
non-recourse mortgage on the property. Completion of this transaction resulted
in the elimination of the liability for the non-recourse mortgage on the
Company's balance sheet. The Company recognized a loss on property transactions
of $4,900,000 related to the write-down of the property to its estimated fair
value and an extraordinary gain of $4,991,000, $3,045,000 net of income taxes,
for the difference between the carrying amount of the debt and the estimated
fair value of the building.

The Company is obligated by agreements relating to seventeen issues of IRBs
in an aggregate amount of $55,515,000 to purchase the bonds at face value prior
to maturity under certain circumstances. The bonds have floating interest rates
which are indexed periodically. Bondholders may, when the rate is changed, put
the bonds to the designated remarketing agent. If the remarketing agent is
unable to resell the bonds, it may draw upon an irrevocable letter of credit
which secure the IRBs. In such event, the Company would be required to repay
the funds drawn on the letters of credit within 24 months.

As of December 31, 1993 no draws had been made upon any such letters of
credit. The schedule of annual maturities shown above includes these IRBs as if
they will not be subject to repayment prior to maturity. Assuming all bonds
under such IRB arrangements are presented for payment prior to December 31, 1994
and the remarketing agents are unable to resell such bonds, the maturities of
long-term debt shown above would increase by $42,210,000 for the year ending
December 31, 1995.

28
<PAGE>

In January 1992, the Company entered into several five year interest rate
swap agreements with a commercial bank in order to manage exposure to
fluctuations in interest rates on certain floating rate long-term obligations.
The agreement effectively changes the Company's interest rate exposure on
approximately $39,050,000 and $13,218,000 of certain floating rate IRBs
outstanding at December 31, 1993 to fixed rates of 5.26% and 6.5%, respectively.
Net payments or receipts due under these agreements are included as adjustments
to interest expense. The Company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreements, however,
the Company does not anticipate nonperformance by the counterparty.

The Secured Line of Credit, Secured Term Credit Facility and certain
agreements associated with IRBs are governed by a uniform covenant agreement.
The most restrictive covenants preclude the following: payment of cash
dividends in excess of defined limits, limitations on the incurrence of debt,
mergers, sales of substantial assets, loans and advances, certain investments or
any material changes in character of business. The agreement contains
provisions to limit the total dollar amounts of certain investments and capital
expenditures.

The Company's 9 1/4% Senior Subordinated Notes are governed by a Trust
Indenture dated May 15, 1993. The Trust Indenture contains certain covenants
for the benefit of holders of the notes, including, among others, covenants
placing limitations on the incurrence of debt, dividend payments, certain
investments, transactions with related persons, asset sales, mergers and the
sale of substantially all the assets of the Company.

At December 31, 1993, the Company was in compliance with all restrictions
and covenants.

(3) UNINCORPORATED VENTURES AND PARTNERSHIPS

Summary financial information with respect to unincorporated ventures and
partnerships included in the combined financial statements follows. In 1993 the
Company acquired several unincorporated ventures and partnerships which are
included in the December 1992 financial information for the balance sheet and
statement of operations which are not included in the balance sheet at December
31, 1993 or statement of operations for a full year in 1993. LQP was not
included in the balance sheet or income statement for 1992, however, as a result
of the acquisition of Units by the Company the financial information below
includes assets and liabilities at December 31, 1993 and operations for the
month of December 31, 1993 (also see note 14):

December 31,
--------------------
1993 1992
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Total current assets..................................................................... $ 27,956 $ 14,924
Notes receivable, excluding current installments......................................... 2,668 2,665
Investments and other assets............................................................. 5,883 6,464
Property and equipment, net.............................................................. 252,343 205,075
-------- --------
$288,850 $229,128
-------- --------
-------- --------

LIABILITIES AND OWNERS' EQUITY
Total current liabilities................................................................ $ 28,542 $ 28,032
Long-term debt, excluding current installments............................................ 97,465 93,264
Deferred credits.......................................................................... 10 244
Owners' equity:
Company's............................................................................ 76,857 45,528
Partners'............................................................................ 85,976 62,060
-------- --------
$288,850 $229,128
-------- --------
-------- --------
</TABLE>

29
<PAGE>

Years Ended December 31,
------------------------------------
1993 1992 1991
--------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Revenues................................................................................ $104,394 $119,040 $111,880
Operating costs and expenses............................................................ 75,661 85,127 87,417
-------- -------- --------
Operating income........................................................................ 28,733 33,913 24,463
Other deductions, principally interest.................................................. (5,690) (7,794) (8,040)
-------- -------- --------
Earnings before gain on property transactions........................................... 23,043 26,119 16,423
Gain on property transactions........................................................... 324 73 1,339
--------- ---------- --------
Earnings before extraordinary items..................................................... 23,367 26,192 17,762
Extraordinary items..................................................................... (133) (280) -
--------- ----------- --------
Pretax earnings.................................................................... $ 23,234 $ 25,912 $ 17,762
--------- ----------- ---------
--------- ----------- ---------
Equity in pretax earnings:
Company's ......................................................................... $ 10,269 $ 10,831 $ 8,341
Partners'.......................................................................... 12,965 15,081 9,421
--------- ---------- ---------
$ 23,234 $ 25,912 $ 17,762
--------- ---------- --------
--------- ---------- --------
</TABLE>

(4) INCOME TAXES

As discussed in note 1, the Company adopted SFAS 109 effective
January 1, 1993.

Income tax expense attributable to income from continuing
operations consists of:

Years Ended December 31,
-------------------------------------------
1993 1992 1991
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Federal
Current $ 8,752 $ 3,818 $ 4,970
Deferred 1,918 (3,759) (4,262)
------- ------- -------
10,670 59 708
------- ------- -------

State
Current 974 937 707
Deferred 772 (470) (628)
------- ------- -------
1,746 467 79
------- ------- -------

Total $12,416 $ 526 $ 787
------- ------- -------
------- ------- -------
</TABLE>

The effective tax rate varies from the statutory rate for the following
reasons:

Years Ended December 31,
-------------------------------------
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate............. $11,143 $(2,472) $ 743
Unrecognized tax benefits of write-downs of
partnerships, investments and other............ - 2,856 -
Targeted jobs tax credit............................ (39) (109) (182)
Capital gains....................................... - (13) (31)
State income taxes.................................. 1,157 491 80
Other, net.......................................... 155 (227) 177
------- ------- ------
Provision for income taxes........................ $12,416 $ 526 $ 787
------- ------ -----
------- ------ -----
</TABLE>

30
<PAGE>

The following are cash transactions relating to the Company's income taxes:

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income taxes paid $5,953 $5,459 $4,012
------ ------ ------
------ ------ ------
Income tax refund $ 71 $ 99 $2,338
------ ------ ------
------ ------ ------
</TABLE>

For the years ended December 31, 1992 and 1991, deferred income tax expense
resulted from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below:

Years Ended December 31,
--------------------------------
1992 1991
------ ------
(in thousands)
<S> <C> <C>
Depreciation and asset write-downs.............. $ 1,101 $(1,242)
Capitalized loan interest....................... 335 351
State income taxes.............................. (208) (500)
Installment sales............................... (124) (99)
Deferred gain................................... 24 24
Partners' losses recognized by Company.......... (398) 80
Expense provisions, including non-recurring charges (4,017) (2,914)
Preopening costs.................................... (33) (94)
Minimum tax......................................... (658) (257)
Targeted jobs tax credit........................... (26) (23)
Special partnership allocations.................... 347 (3)
Other, net......................................... (572) (213)
------ -------
$(4,229) $(4,890)
------- --------
------- --------
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1993 are presented below:

(in thousands)
<S> <C>
Deferred tax assets:
Notes receivable, principally due to allowance for financial reporting purposes.......... $ 1,529
Land, principally due to write-downs for financial reporting purposes.................... 2,991
Property and equipment, principally due to acquisitions of partnership interests......... 8,307
Expense provisions....................................................................... 8,785
Deferred gain for financial reporting purposes........................................... 82
Targeted jobs tax credit carryforwards................................................... 411
Minimum pension liability................................................................ 932
Alternative minimum tax credit carryforwards............................................. 2,781
Other.................................................................................... 97
-------
Total gross deferred tax assets........................................................ 25,915
Less valuation allowance............................................................... (277)
-------
Net deferred tax assets................................................................ 25,638
-------
Deferred tax liabilities:
Investments in partnerships, principally due to differences in depreciation
and capitalized interest.............................................................. (3,439)
Property and equipment, principally due to differences in depreciation and
capitalized interest.................................................................. (25,899)
Deferred gains for tax purposes......................................................... (1,251)
Other................................................................................... (5)
-------
Total gross deferred tax liabilities.................................................. (30,594)
--------
Net deferred tax liability............................................................ $ (4,956)
--------
--------
</TABLE>

<PAGE>

LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

The valuation allowance at December 31, 1993 represents the tax benefit of
certain future deductible amounts which are not expected to offset future
taxable amounts resulting from the reversal of existing taxable temporary
differences. The Company anticipates that the reversal of existing taxable
temporary differences will provide sufficient taxable income to realize the tax
benefits of the remaining deferred tax assets. The valuation allowance decreased
by $6,816,000, principally as a result of the acquisition of a substantial
portion of the units of the La Quinta Motor Inns Limited Partnership as more
fully described in Note 14 of these notes to Combined Financial Statements.

At December 31, 1993, the Company had targeted jobs tax credit
carryforwards for Federal income tax purposes of approximately $411,000
(expiring 2007 through 2009) which are available to reduce future Federal
income taxes. In addition, the Company had alternative minimum tax credit
carryforwards of approximately $2,781,000 which are available to reduce future
regular Federal income taxes over an indefinite period.

(5) SHAREHOLDERS' EQUITY

The Board of Directors authorized three-for-two stock splits effective in
October 1993 and March 1994. Earnings per share, the weighted average number
of shares outstanding, shareholders' equity and the following information have
been adjusted to give effect to each of these distributions. In January 1994,
the Company announced that its Board of Directors authorized the purchase of
up to $10,000,000 of its common stock. Such purchases would be made from time
to time in the open market as deemed appropriate by the Company.

The Company's stock option plans cover the granting of options to purchase
an aggregate of 6,155,996 common shares. Options granted under the plans are
issuable to certain officers, certain employees and Board Members generally at
prices not less than fair market value at date of grant. Options are generally
exercisable in four equal installments on successive anniversary dates of the
date of grant and are exercisable thereafter in whole or in part. Outstanding
options not exercised expire ten years from the date of grant.

Total
Option price option
Number range price
of shares per share (in thousands)
---------- --------------- ---------------
<S> <C> <C> <C>
Outsanding December 31, 1991................ 1,720,073 $ 4.64 - $10.84 $ 9,877
Granted................................... 3,471,750 6.67 - 8.78 25,441
Canceled or expired....................... (347,465) 5.25 - 8.98 (2,117)
Exercised................................. (463,403) 4.64 - 7.95 (2,654)
--------- --------

Outstanding December 31, 1992............... 4,380,995 $ 4.64 - $10.84 30,547
Granted................................... 164,250 12.89 - 13.56 2,189
Canceled or expired....................... (100,112) 5.25 - 8.67 (581)
Exercised................................. (244,271) 4.78 - 10.83 (1,556)
--------- --------

Outstanding December 31, 1993............... 4,200,822 $ 4.64 - $13.56 $30,599
--------- --------
--------- --------

Exercisable at:
December 31, 1992......................... 648,347 $ 4.78 - $10.84 $3,930
--------- --------
--------- --------
December 31, 1993......................... 2,563,745 $ 4.78 - $ 8.78 $17,397
--------- --------
--------- --------

Available for future grants at:
December 31, 1992......................... 2,022,725
---------
---------

December 31, 1993......................... 1,955,174
---------
---------

</TABLE>

Upon exercise, the excess of the option price received over the par value of
the shares issued, net of expenses and including the related income tax
benefits, is credited to additional paid-in capital.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

32
<PAGE>

In 1993, the Company recognized compensation expense of $4,407,000 related to
performance stock options for the difference between the option price at the
date of grant and a predetermined level when it became probable that the
Company's stock would trade at that predetermined level. Beginning in 1992, the
Company recognized $367,000 in compensation expense for the difference between
the market price and option price on date of grant related to a portion of
these options which vested in annual increments.

Under the terms of the La Quinta Development Partners, L.P. ("LQDP" or the
"Development Partnership") partnership agreement, AEW Partners, L.P. ("AEW
Partners") has the ability to convert 66 2/3% of its 60% ownership in the
Development Partnership currently to 3,535,976 shares (post-split) of the
Company's common stock after giving retroactive effect to the stock splits
effected as stock dividends. Shares of the Company's common stock issuable upon
conversion of the Development Partnership Units are antidilutive at December 31,
1993. AEW partner's units in LQDP may be converted over the seven year period
beginning December 31, 1991. As of December 31, 1993, AEW Partners had not
converted any of its ownership in the Development Partnership into the Company's
common stock.

(6) PENSION PLAN

The Retirement Plan and Trust of La Quinta Inns, Inc. (the "Plan") is a
defined benefit pension plan covering all employees. The Plan was amended in
1993 to allow highly compensated employees to rejoin the Retirement Plan as
active participants. Benefits accruing under the Plan are determined according
to a career average benefit formula which is integrated with Social Security
benefits. For each year of service as a participant in the Plan, an employee
accrues a benefit equal to one percent of his or her annual compensation plus
.65 percent of compensation in excess of the Social Security covered
compensation amount. The Company's funding policy for the Retirement Plan is to
annually contribute the minimum amount required by federal law.

The Supplemental Executive Retirement Plan and Trust ("SERP") continues to
cover a select group of management employees. Benefits under the SERP are
determined by a formula which considers service and total compensation; the
results of the formula-derived benefit are then reduced by the participant's
pension entitlement from the qualified Retirement Plan.

In accordance with the provisions of Statement of Financial Standards No. 87
- - Employer's Accounting for Pensions, the Company has recorded an additional
minimum liability of $4,092,000 at December 31, 1993. This provision represents
the excess of the accumulated benefit obligation over the fair value of plan
assets and accrued pension liability at the measurement date. An amount of
$1,702,000 was recognized as an intangible asset to the extent of unrecognized
prior service cost and the balance of $2,390,000 ($1,458,000 net of income tax)
is recorded as a reduction of shareholders' equity.

The following table sets forth the funded status and amounts recognized in
the Company's combined financial statements for the Plan at December 31, 1993
and 1992.

December 31,
------------------------
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $7,947 and $6,876................................ $(12,298) $ (7,874)
-------- --------
-------- --------

Projected benefit obligation for services rendered to date..... $(15,585) $ (9,016)
Plan assets at fair value, primarily marketable stocks and CDs 6,727 6,536
-------- --------
Projected benefit obligation in excess of plan assets.......... (8,858) (2,480)
Unrecognized net loss from past experiences different from
that assumed................................................. 5,677 1,065
Prior service costs............................................ 1,702 (243)
Additional liability due to plan adjustment.................... (4,092) -
-------- --------
Accrued pension costs.................................... $ (5,571) $ (1,658)
-------- --------
-------- --------
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

33
<PAGE>

The following table sets forth the funded status of the SERP and amounts
recognized in the Company's financial statements for the SERP:

December 31,
-------------------------
1993 1992
----- -----
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,851 and $1,285................................. $(1,983) $ (1,355)
------- --------
------- --------

Projected benefit obligation for services rendered to date...... $(3,868) $ (5,674)
Unrecognized net (gain) loss from past experience different from
that assumed.................................................. (208) 203
Unrecognized net loss from modifications........................ 294 2,437
------- --------
Accrued pension costs..................................... $ (3,782) $ (3,034)
------- --------
------- --------
</TABLE>

At December 31, 1993, the Company had accumulated $1,144,000 in a trust
account intended for use in settling benefits due under the SERP. These funds,
which are included in investments on the accompanying balance sheets, are not
restricted for the exclusive benefit of SERP participants and their
beneficiaries. The SERP funds are invested primarily in equity investments.
However, in the event of a change in the Company's control, as defined, such
funds would become restricted for the exclusive benefit of SERP participants and
their beneficiaries.

Net pension cost includes the following components:

For The Years Ended December 31,
--------------------------------
1993 1992 1991
----- ----- -----
(in thousands)
<S> <C> <C> <C>
Service cost (benefits earned during the period).................. $ 1,564 $ 1,769 $ 1,597
Interest cost on projected benefit obligation..................... 1,207 1,255 1,154
Actual return on plan assets...................................... (493) (72) (1,535)
Net amortization and deferral..................................... 589 (160) 1,239
------- ------- -------
Net periodic pension cost before allocation to
Managed inns.................................................... 2,867 2,792 2,455
Cost allocated to Managed Inns.................................... (238) (222) (184)
------- ------- ------

Net periodic pension cost..................................... $ 2,629 $ 2,570 $ 2,271
------- ------- ------
------- ------- ------
</TABLE>

The assumptions used in the calculations shown above were:

1993 1992 1991
------ ------------- ------------
<S> <C> <C> <C>
Discount rate (post-termination)........................ 7.50% 4.00% - 7.50% 4.00% - 7.25%
Discount rate (pre-termination)......................... 7.50% 8.00% 9.00%
Expected long-term rate of return on assets............. 8.00% 9.00% 9.00%
Rate of increase in compensation levels................. 5.00% - 6.00% 5.50% - 7.50% 5.50% - 7.50%

</TABLE>

(7) OPERATING LEASES

LESSEE

The Company leases a portion of the real estate and equipment used in
operations. Certain ground lease arrangements contain contingent rental
provisions based upon revenues and also contain renewal options at fair market
values at the conclusion of the initial lease terms. In 1993, the Company
entered into two ten year operating leases for its corporate headquarters in San
Antonio and its reservation facilities.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

34
<PAGE>

Future annual minimum rental payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year at
December 31, 1993 follow:

(in thousands)
<S> <C>
1994............................. $ 2,510
1995............................. 2,164
1996............................. 1,960
1997............................. 1,790
1998............................. 1,700
Later years...................... 10,986
-------
Total minimum payments required.. $21,110
-------
-------
</TABLE>

Total rental expense for operating leases was $2,840,000, $1,976,000 and
$2,359,000 for the years ended December 31, 1993, 1992 and 1991, respectively.

LESSOR

The Company leases 107 restaurants it owns to third parties. The leases are
accounted for as operating leases expiring during a period from 1994 to 2016 and
provide for minimum rentals and contingent rentals based on a percentage of
annual sales in excess of stipulated amounts. The following is a summary of
restaurant property leased at December 31, 1993.

(in thousands)
<S> <C>
Buildings............................ $33,861
Less: accumulated depreciation...... 10,565
-------
23,296
Land................................ 17,043
-------
Total leased property............. $40,339
-------
-------
</TABLE>

Minimum future rentals to be received under the noncancellable restaurant
leases in effect at December 31, 1993 follow:

(in thousands)
<S> <C>
1994................................. $ 5,904
1995................................. 5,918
1996................................. 5,858
1997................................. 5,651
1998................................. 5,387
Later years.......................... 25,815
-------
$54,533
-------
-------
</TABLE>

Contingent rental income amounted to $811,000, $854,000, and $669,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.

(8) NON-RECURRING, CASH AND NON-CASH CHARGES

During 1992, the Company recognized charges of $39,751,000 ($27,946,000 net
of income taxes and partners' equity) resulting from certain changes being made
in the Company's operations and organization based on a review by the Company's
senior management team.

Of those charges, $28,383,000 relate to the write-down of certain joint
venture interests, land, computer equipment, and other assets. During the third
quarter of 1992, the senior management team re-evaluated the Company's
investments in joint venture arrangements and shortly thereafter completed
negotiations that resulted in amendments to the agreements related to certain
joint venture arrangements and the write-down of the Company's investments in
those ventures. The write-down of the land, computer equipment and other assets
resulted

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

35
<PAGE>

LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

primarily from the Company's decisions to sell certain land that had previously
been held for future development and to replace the Company's existing computer
systems and certain other assets.

In addition, the Company recognized $6,936,000 and $4,097,000 for the years
ended December 31, 1992 and 1991, respectively, in severance and other employee
related charges. Those charges relate to severance benefits for certain
terminated employees, costs of hiring and relocating new management and other
employee related costs resulting from personnel changes.

The remaining $4,432,000 of the charges recognized in 1992 affected various
corporate expenses and partners' equity in earnings and losses.

(9) COMMITMENTS

In accordance with the unincorporated partnership or joint venture agreements
executed by the Company, La Quinta is committed to advance funds necessary to
cover operating expenses of a joint venture. In addition, four other
unincorporated partnerships and joint ventures executed promissory notes in
which the Company guaranteed to fund amounts not to exceed $4,985,000 in
aggregate.

The estimated additional cost to complete the conversion and renovation of
inns for which commitments have been made is $36,455,000 at December 31, 1993,
which includes amounts for the Company's image enhancement program that were
in process or under contract. Funds on hand, committed and anticipated from
cash flow are sufficient to complete these projects.

The Company has undertaken an image enhancement program intended to give its
properties a new, fresh, crisp appearance while preserving their unique
character. The program features new signage displaying a new logo as well as
exterior and lobby upgrades including brighter colors, additional landscaping,
enhanced guest entry and full lobby renovation with contemporary furnishings and
seating area for continental breakfast. In the first quarter of 1993, the
Company began its property and image enhancement program on its La Quinta inns
it manages or owns. The Company anticipates that an additional $36,687,000 will
be needed to complete the project, including $27,493,000 related to work which
was in process or under contract at December 31, 1993. The Company intends to
fund its image enhancement program through funds generated from operations and
available on its Credit Facility. The Company does not anticipate the funding of
this program will have an adverse effect on its ability to fund its operations.

In accordance with the requirements of an escrow agreement related to a pool
of mortgage notes executed by the Company and a third party lender, the Company
is required to make annual deposits into an escrow account for the purpose of
establishing a reserve for the replacement of furnishings, fixtures and
equipment used on or incorporated into the mortgaged properties. The Company
shall be relieved of its obligation to make such annual deposits for any year in
which the escrow account has an aggregate balance of $2,431,000. At December 31,
1993 and 1992, the Company had reserved $2,431,000 and $5,754,000, respectively.

(10) CONTINGENCIES

LITIGATION

In connection with the Company's tender offer for the units of limited
partnership interest of LQP (see note 14), two separate lawsuits were filed in
Delaware Court of Chancery on behalf of the Partnership's unitholders against
the Company, the Partnership, La Quinta Realty Corp., a subsidiary of the
Company, and general partner of the Partnership (the "General Partner") and
certain directors and officers of the General Partner. On October 27, 1993, the
parties reached a settlement in principle in these actions. The settlement is
subject to certain

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

36
<PAGE>

LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

conditions, including court approval. On March 15, 1994, the Delaware Court of
Chancery entered an Order and Final Judgment ("Judgment") which approved the
settlement and dismissed the cases. All persons and entities who were owners
of Units of the Partnership at October 18, 1993 and their transferees and
successors in interest, immediate and remote (the "Class"), are bound by the
Judgment. The Company and all other defendants were discharged from any and
all liability under any claims which were or could have been brought by
plaintiffs or any member of the Class regarding the acquisition and merger of
the Partnership. The appeal period on the Judgment will run on April 14, 1994.

In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies. The suit
alleges breach of an employment agreement, misrepresentation, wrongful
termination, self-dealing, breach of fiduciary duty, usurpation of corporate
opportunity and tortious interference with contractual relations. The suits
seeks compensatory damages of $2,500,000 and exemplary damages of $5,000,000.
The Company intends to vigorously defend against this suit.

The Company is also party to various lawsuits and claims generally
incidental to its business. The ultimate disposition of these and the above
discussed matters are not expected to have a significant adverse effect on the
Company's financial position or results of operations.

SEVERANCE AND EMPLOYMENT AGREEMENT

The Company entered into a five year employment agreement which
includes a severance provision granting the executive the right to receive
certain benefits, including among others, 3.0 times annual base salary
and bonus if there occurs a termination (as defined in the agreement) within
the five year term of the agreement, or resignation (as defined in the
agreement). The maximum contingent liability under the severance provisions of
this agreement is $1,627,000.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

37
<PAGE>

LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

(11) QUARTERLY FINANCIAL DATA (UNAUDITED)

The unaudited combined results of operations by quarter are summarized
below:

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Revenues............................................. $60,607 $70,633 $76,923 $63,687
Operating income..................................... 16,491 19,446 26,887 12,543
Net earnings before extraordinary items
and cumulataive effect of accounting
change............................................. 4,144 2,692 10,011 2,573
Net earnings......................................... 5,644 3,634 9,711 1,312
Earnings per share before extraordinary
items and cumulative effect of
accounting change.................................. .13 .08 .32 .08
Earnings per share................................... $ .18 $ .12 $ .31 $ .04

Year Ended December 31, 1992
Revenues............................................. $57,815 $66,991 $72,286 $57,030
Operating income (loss).............................. 12,150 17,709 (7,596) 12,312
Earnings (loss) before extraordinary
items.............................................. 1,410 4,545 (16,392) 2,641
Net earnings (loss).................................. 1,035 4,348 (16,392) 2,255
Earnings (loss) per share before
extraordinary items................................ .05 .15 (.54) .09
Earnings (loss) per share............................ $ .04 $ .14 $ (.54) $ .08

Year ended December 31, 1991:
Revenues............................................. $55,406 $64,490 $67,829 $53,163
Operating income..................................... 8,942 8,198 19,187 6,562
Net earnings (loss) before
extraordinary items................................ (589) (1,602) 5,624 (2,035)
Net earnings (loss).................................. (589) (2,065) 5,266 (2,483)
Earnings (loss) per share before
extraordinary items................................ (.02) (.05) .19 (.07)
Earnings (loss) per share............................ $ (.02) $ (.07) $ .18 $ (.08)

</TABLE>

In the fourth quarter of 1993, the Company recorded an adjustment of $1,273,000
($777,000 net of income taxes) to decrease its expense related to the self-
insurance program for major medical and hospitalization coverage due to
decreases in actual claims and estimates of incurred but not reported claims.

(12) RELATED PARTY TRANSACTIONS

LQM OPERATING PARTNERS, L.P.

In October 1986, the Company sold 31 inns to LQM Operating Partners, L.P.
("the Operating Partnership") which is owned and controlled by La Quinta Motor
Inns Limited Partnership ("LQP"), a publicly traded master limited partnership.
At December 31, 1992, approximately $1,425,000 net of partners' equity, remained
deferred on this sale associated with debt assumed by the Partnership. A pre-tax
gain on sale of assets of approximately $230,000, $220,000 and $592,000, net of
partners' equity, related to this transaction was recognized in the years ended
December 31, 1993, 1992 and 1991. The deferred gain balance remaining at
December 1, 1993 was treated as a purchase price adjustment upon LQI Acquisition
Corporation's acquisition of approximately 82% of the units of limited
partnership interest in the LQP. (See note 14 to Combined Financial Statements).

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

38
<PAGE>

MANAGEMENT SERVICES FEE

All inns owned by LQP (through November 30, 1993) and by the two joint
ventures (the "Ventures") between the Company and investment partnerships
managed by CIGNA Investments, Inc. (collectively the "Managed Inns") operate
under the La Quinta name and are managed by the Company in accordance with
long-term management agreements. The Company earns management and licensing
fees as well as fees for chain services such as bookkeeping, national
advertising and reservations.

OTHER RECURRING TRANSACTIONS

La Quinta pays all direct operating expenses on behalf of the partnerships
and ventures and is reimbursed for all such payments.

EMPLOYMENT AGREEMENT

In October 1991, the Company and its Chairman of the Board entered into an
Employment Agreement (the "Employment Agreement"), providing for his employment
as the Chairman of the Board of the Company for five years from the date
thereof. Under the terms of the Employment Agreement, he is entitled to receive
as compensation certain benefits, including, among others, (i) an annual base
salary, (ii) incentive compensation awards as a result of his participation in
the Company's long-term and short-term incentive bonus plans or programs, and
(iii) the amount of $2,200,000, which was treated as prepaid compensation for
financial statement purposes. The Employment Agreement generally provides that
20% of the prepaid compensation is earned on each anniversary thereof, with the
exception that in the case of the executive's (a) voluntary resignation (except
for a voluntary resignation within one year following a change in control or
after a constructive termination without cause) or (b) termination for cause,
then the remaining unamortized balance will become due and payable over the
remaining term in equal monthly installments. As a result of changes in
management and reorganization of duties, the remaining compensation of
$1,760,000 related to this Employment Agreement was included in the 1992
non-recurring cash and non-cash charges, described in note 8 to these Combined
Financial Statements. In March 1994 the Chairman retired from the Company and
resigned from the Board of Directors and received certain compensation and
benefits as defined in the Employment Agreement.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the value of
each class of financial instruments for which it is practical to estimate that
value:

CASH AND CASH EQUIVALENTS
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.

NOTES RECEIVABLES
The carrying value for notes receivable approximates the fair value based
on the estimated underlying value of the collateral.

INVESTMENTS
The fair value of some investments is estimated based on quoted market
prices for these or similar investments. For other securities, the carrying
amount is a reasonable estimate of fair value.

LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
current market prices for the same or similar issues or on the current rates
available to the Company for debt of the same maturities.

INTEREST RATE SWAP AGREEMENTS
The fair value of interest rate swap agreements represents the estimated
amount the Company would pay to terminate the agreements, taking into
consideration current interest rates and the current creditworthiness of the
counterparties.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

39
<PAGE>

LA QUINTAS INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

The estimated fair values of the Company's financial instruments are
summarized as follows:

December 31, 1993 December 31, 1992
-------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents..................................... $ 23,848 $ 23,848 $ 12,861 $ 12,861
Notes receivable.............................................. 7,683 7,683 7,696 7,696
Investments................................................... 6,583 6,583 10,767 10,892
Long-term debt and related letters of credit.................. (436,493) ( 447,580) (296,535) (310,210)
Interest rate swap agreements-
in a net payable position................................. $ (114) $ (2,276) $ (107) $ (1,705)

</TABLE>

(14) ACQUISITION OF PARTNERS' INTERESTS

LQI Acquisition Corporation obtained funds to acquire the Units as a result
of a capital contribution by La Quinta. In order to make such a capital
contribution to LQI Acquisition Corporation, the Company borrowed approximately
$45.9 million under its existing credit facility as more fully described in note
2.

During 1993, the Company purchased in separately negotiated transactions,
the limited partners' interests in 14 of the Company's combined unincorporated
partnerships and joint ventures, which own 44 inns, for an aggregate price of
$87,897,000 which included cash at closing, the assumption of $22,824,000 of
existing debt attributable to the limited partners' interest, and $29,878,000 of
notes to the sellers. The Company was the general partner and owned the
remainder of the ownership interests in each of these partnerships and ventures.
The Company intends to continue to operate the properties as La Quinta inns.

The following unaudited pro forma information reflects the combined results
of operations of the Company as if the acquisition of the 82% interest in LQP
and the limited partners' interests in the 14 combined partnerships and joint
ventures had occurred at the beginning of 1993 and 1992. The pro forma
information gives effect to certain adjustments, including additional
depreciation expense on property and equipment based on their fair values,
increased interest expense on additional debt incurred, elimination of related
party revenues and expenses, and extraordinary losses on early extinguishment of
debt. The pro forma results are not necessarily indicative of operating results
that would have occurred had the acquisitions been consummated as of the
beginning of 1993 and 1992, nor are they necessarily indicative of future
operating results.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

40
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

December 31,
----------------------

1993 1992
(Unaudited) --------- ---------
(in thousands, except
per share data)
<S> <C> <C>
Total revenues $ 308,290 $ 291,477
--------- ----------
--------- ----------
Earnings (loss) before extraordinary items
and cumulative effect of accounting change $ 19,448 $ (8,133)
--------- ----------
--------- ----------

Net earnings (loss) $ 20,738 $ (10,171)
--------- ---------
--------- ---------

Earnings (loss) per share $ 0.66 $ (0.34)
--------- ---------
--------- ---------
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

41
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
La Quinta Inns, Inc.:

We have audited the combined balance sheets of La Quinta Inns, Inc. as of
December 31, 1993 and 1992 and the related combined statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993. In connection with our audits of the combined
financial statements, we also have audited the financial statement schedules as
listed in Item 14(a)(2) of Form 10-K. These combined financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of La Quinta Inns,
Inc. as of December 31, 1993 and 1992 and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1993, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic combined financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.

As discussed in Note 1 to the combined financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109 in
1993.

KPMG PEAT MARWICK
San Antonio, Texas
January 31, 1994,
except as to the
first paragraph of
note 5, which is as
of February 9, 1994

42
<PAGE>

Schedule V

LA QUINTA INNS, INC.

Property, Plant and Equipment
(in thousands)
<TABLE>
<CAPTION>

Balance at Balance
beginning Additions at end
Classifications of period at cost Retirements of period
----------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1991
Land . . . . . . . . . . . . . . . . . . . . . . . . $ 81,675 $ 5,546 $ 1,699 $ 85,522
Buildings. . . . . . . . . . . . . . . . . . . . . . 496,448 34,251 24,712 505,987
Furniture, fixtures and equipment. . . . . . . . . . 90,018 10,309 10,129 90,198
Leasehold and land improvements. . . . . . . . . . . 7,274 293 115 7,452
-------- -------- -------- --------
$675,415 $ 50,399 $ 36,655 $689,159
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1992
Land . . . . . . . . . . . . . . . . . . . . . . . . $ 85,522 $ 1,792 $ 214 $ 87,100
Buildings. . . . . . . . . . . . . . . . . . . . . . 505,987 25,487 19,157 512,317
Furniture, fixtures and equipment. . . . . . . . . . 90,198 12,188 11,671 90,715
Leasehold and land improvements. . . . . . . . . . . 7,452 312 28 7,736
-------- -------- -------- --------
$689,159 $ 39,779 $31,070 $697,868
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1993
Land . . . . . . . . . . . . . . . . . . . . . . . . $ 87,100 $ 38,118 $ 1,424 $123,794
Buildings. . . . . . . . . . . . . . . . . . . . . . 512,317 159,461 11,500 660,278
Furniture, fixtures and equipment. . . . . . . . . . 90,715 25,878 2,480 114,113
Leasehold and land improvements. . . . . . . . . . . 7,736 337 2,005 6,068
-------- -------- -------- --------
$697,868 $223,794 $17,409 $904,253
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

43
<PAGE>

Schedule VI

LA QUINTA INNS, INC.

Accumulated Depreciation and Amortization
of Property, Plant and Equipment
(in thousands)
<TABLE>
<CAPTION>

Balance at Balance
beginning at end
Classifications of period Additions Retirements of period
----------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1991
Buildings. . . . . . . . . . . . . . . . . . . . . . $127,626 $ 21,443 $ 4,199 $144,870
Furniture, fixtures and equipment. . . . . . . . . . 50,238 10,465 7,871 52,832
Leasehold and land improvements. . . . . . . . . . . 2,648 478 38 3,088
-------- -------- -------- --------
$180,512 $ 32,386 $12,108 $200,790
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1992
Buildings. . . . . . . . . . . . . . . . . . . . . . $144,870 $ 11,574 $ 861 $155,583
Furniture, fixtures and equipment. . . . . . . . . . 52,832 10,968 8,219 55,581
Leasehold and land improvements. . . . . . . . . . . 3,088 158 12 3,234
-------- -------- -------- --------
$200,790 $ 22,700 $ 9,092 $214,398
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1993
Buildings. . . . . . . . . . . . . . . . . . . . . . $155,583 $ 12,834 $ 3,418 $164,999
Furniture, fixtures and equipment. . . . . . . . . . 55,581 9,983 1,794 63,770
Leasehold and land improvements. . . . . . . . . . . 3,234 177 1,263 2,148
-------- -------- -------- --------
$214,398 $22,994 $ 6,475 $230,917
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

44
<PAGE>

Schedule X

LA QUINTA INNS, INC.

Supplemental Income Statement Information
(in thousands)
<TABLE>
<CAPTION>

Years ended December 31
------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs. . . . . . . . . . . . . $ 9,607 $ 9,555 $10,046
------- ------- -------
------- ------- -------
Taxes, other than income and payroll:
Ad valorem . . . . . . . . . . . . . . . . . . $10,796 $10,781 $10,048
Other. . . . . . . . . . . . . . . . . . . . . 183 530 339
------- ------- -------
$10,979 $11,311 $10,387
------- ------- -------
------- ------- -------

Advertising costs. . . . . . . . . . . . . . . . $ 7,025 $ 5,233 $ 6,216
------- ------- -------
------- ------- -------
</TABLE>

45
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(A) DIRECTORS OF REGISTRANT

There is incorporated in this Item 10 by reference that portion of the
Company's definitive Proxy Statement, dated on or about April 15, 1994, which
Registrant intends to file not later than 120 days after the end of the fiscal
year covered by this Form 10-K, appearing under the captions "Election of
Directors," and "Meetings and Committees of the Board of Directors."

(B) EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information is set forth below concerning the executive officers
of the Company, each of whom has been elected to serve until the regular
annual meeting of the Board of Directors following the next Annual Meeting of
Shareholders and until his/her successor is duly elected and qualified.

Gary L. Mead 46 President and Chief Executive
Officer and Director
Michael A. Depatie 37 Sr. Vice President - Finance, Chief
Financing Officer
William C. Hammett, Jr. 47 Sr. Vice President - Accounting &
Administration
Thomas W. Higgins 46 Sr. Vice President - Operations
R. John Kaegi 45 Sr. Vice President - Marketing
Steven T. Schultz 47 Sr. Vice President - Development
John F. Schmutz 46 Vice President - General Counsel
and Secretary

Gary L. Mead has been Director, President and Chief Executive Officer of
the Company since March 1992. He served as Executive Vice President - Finance
of Motel 6 G.P., Inc., the managing general partner of Motel 6, L.P., from
October 1987 to January 1991.

Michael A. Depatie has been Senior Vice President - Finance, Chief
Financing Officer of the Company since July 1992. He served as Senior Vice
President, Summerfield Hotel from May 1989 to July 1992. He served as Managing
General Partner of PacWest Capital Partners from April 1988 to April 1989. He
served as Vice President - Finance of The Residence Inn Company from July 1984
to July 1986 and Senior Vice President - Finance from July 1986 to March 1988.

William C. Hammett, Jr. has been Senior Vice President - Accounting and
Administration since June 1992. He served as Executive Vice President - Finance
of Motel 6 G.P., Inc., from February 1991 to June 1992. He served as Vice
President-Controller of Motel 6 G.P., Inc. from September 1988 to February 1991.
He served as Controller of Spartan Food Systems from August 1973 to September
1988.

Thomas W. Higgins has been Senior Vice President - Operations of the
Company since September 1992. He served as Vice President - Human Resources of
the Company from June 1992 to September 1992. He served as Vice President -
Human Resources of Motel 6 G.P., Inc. from May 1988 to June 1992. He served as
Director of Training/Employment of General Mills from October 1986 to May 1988.

R. John Kaegi has been Senior Vice President - Marketing of the Company
since July 1992. He served as Senior Vice President - Marketing and Strategic
Planning of KinderCare Learning Centers, Inc. from December 1989 to July 1992.
He served as Vice President - Marketing of KinderCare Learning Centers, Inc.
from July 1987 to December 1989. He served as Director Field Marketing of
Holiday Inns, Inc. from November 1985 to July 1987.

Steven T. Schultz has been Senior Vice President - Development of the
Company since June 1992. He served as Senior Vice President - Development of
Embassy Suites from October 1986 to June 1992.

<PAGE>

John F. Schmutz has been Vice President - General Counsel and Secretary of
the Company since June 1992. He served as Vice President - General Counsel of
Sbarro, Inc. from May 1991 to June 1992. He served as Vice President - Legal of
Hardee's Food Systems, Inc. from April 1983 to May 1991.

ITEM 11. EXECUTIVE COMPENSATION

There are incorporated in this Item 11 by reference those portions of the
Company's definitive Proxy Statement, dated on or about April 15, 1994, which
Registrant intends to file not later than 120 days after the end of the fiscal
year covered by this Form 10-K, appearing under the captions "Executive
Compensation," "Compensation Pursuant to Plans," "Other Compensation,"
"Compensation of Directors," and "Termination of Employment and Change of
Control Arrangements."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

There are incorporated in this Item 12 by reference those portions of the
Company's definitive Proxy Statement, dated on or about April 15, 1994, which
Registrant intends to file not later than 120 days after the end of the fiscal
year covered by this Form 10-K, appearing under the captions "Principal
Shareholders" and "Security Ownership of Management".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is incorporated in this Item 13 by reference that portion of the
Company's definitive Proxy Statement, dated on or about April 15, 1994, which
Registrant intends to file not later than 120 days after the end of the fiscal
year covered by this Form 10-K, appearing under the caption "Certain
Relationships and Related Transactions."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements

The Combined Financial Statements of the Company appearing in Item 8
are as follows:

Combined Balance Sheets at December 31, 1993 and 1992
Combined Statements of Operations for the years ended December 31,
1993, 1992 and 1991
Combined Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991
Combined Statements of Cash Flows for the years ended December 31,
1993, 1992 and 1991
Notes to Combined Financial Statements
Independent Auditors' Report on financial statements and schedules

(2) Financial Statement Schedules

Schedule V - Property, Plant and Equipment - For the years ended
December 31, 1993, 1992 and 1991.
Schedule VI - Accumulated Depreciation and Amortization of Property,
Plant and Equipment - For the years ended December 31, 1993, 1992
and 1991.
Schedule X - Supplemental Income Statement Information-For the years
ended December 31, 1993, 1992 and 1991.

47
<PAGE>

All other schedules for which provision is made in the
applicable regulation to the Securities and Exchange
Commission are not required under the related instructions
or are inapplicable and have been omitted.

(3) The following exhibits are filed as a part of this Report:

(3)(a) Restated Articles of Incorporation of La Quinta Inns, Inc.,
as amended on May 21, 1993. (8)

(3)(b) Amended and Restated By-Laws of La Quinta Inns, Inc. (1)

(10)(a) La Quinta Inns, Inc. 1978 Non-Qualified Stock Option Plan,
as amended. (2)

(10)(b) La Quinta Inns, Inc. 1984 Stock Option Plan. (3)

(10)(c) Amendment No. 1 to La Quinta Inns, Inc. 1984 Stock Option Plan. (4)

(10)(d) Amendment No. 2 to La Quinta Inns, Inc. 1984 Stock Option Plan. (5)

(10)(e) Amended and Restated La Quinta Inns, Inc. 1984 Stock Option
Plan, as of November 21, 1991. (1)

(10)(f) La Quinta Development Partners, L.P. Amended and Restated
Agreement of Limited Partnership, dated March 21, 1990, by
and between Registrant and AEW Partners, L.P. (6)

(10)(g) La Quinta Development Partners, L.P. Contribution Agreement,
dated March 21, 1990, by and between Registrant and AEW
Partners, L.P. (6)

(10)(h) Management and Development Agreement by and between
Registrant and La Quinta Development Partners, L.P., dated
March 21, 1990. (6)

(10)(i) Supplemental Executive Retirement Plan and Trust Agreement
of Registrant, dated April 20, 1990, by and between
Registrant and Frost National Bank. (7)

(10)(j) La Quinta Inns, Inc. Deferred Compensation Plan, effective
June 1, 1987. (7)

(10)(k) Form of Bonus Agreement dated February 22, 1991, by and
between Registrant and each of Messrs. Sam Barshop, David B.
Daviss, Alan L. Tallis and Francis P. Bissaillon. (7)

(10)(l) Form of Indemnification Agreement, made and entered into as
of November 15, 1990 and thereafter (with respect to persons
who became directors of Registrant after such dates), by
and between Registrant and each of its directors. (7)

(10)(m) Form of Indemnification Agreement, made and entered into as
of November 15, 1990 and thereafter (with respect to persons
who became directors of Registrant after such dates), by and
between Registrant and each of its officers. (7)

(10)(n) Registration Rights Agreement, dated as of July 31, 1991 by
and between Registrant and Sam Barshop and his wife, Ann
Barshop. (1)

(10)(o) Employment Agreement, dated as of October 1, 1991, by and
between Registrant and Sam Barshop. (1)

(10)(p) Employment Agreement, dated as of March 3, 1992, by and
between Registrant and Gary L. Mead. (1)

(10)(q) Non-Qualified Stock Option Agreement, dated as of March 3,
1992, between Registrant and Gary L. Mead. (1)

48
<PAGE>

(10)(r) Registration Rights Agreement, dated as of March 3, 1992,
between Gary L. Mead. (1)

(10)(s) Second Amended and Restated Master Convenant Agreement dated
June 15, 1993. (8)

(10)(t) $126,795,786.64 Credit Agreement dated June 15, 1993. (8)

(10)(u) Indenture dated May 15, 1993 Re: $120,000,000 9 1/4%
Senior Subordinated Notes due 1003. (8)

(10)(v) Partnership Acquisition Agreement dated October 27, 1993,
among the Partnership, the General Partner, La Quinta, LQI
Acquisition Corporation and LQI Merger Corporation. (9)

(10)(w) $241,844,955.21 Amended and Restated Credit Agreement Among
La Quinta Inns, Inc. Certain lenders and NationsBank of
Texas, N.A. as Administrative Lender dated January 25, 1994
filed herewith.

(10)(x) Third Amended and Restated Master Covenant Agreement dated
as of January 25, 1994 filed herewith.

(11) Statement regarding computation of per share earnings filed
herewith.

(22) Subsidiaries of La Quinta Inns, Inc. as of March 3, 1994
filed herewith.

(23) Registrant's definitive Proxy Statement, dated on or about
April 15, 1994, to be filed by Registrant within 120 days
after the end of the fiscal year covered by this Form 10-K.

(24) Consent by KPMG Peat Marwick dated March 23, 1994 to
incorporation by reference of their reports dated January
31, 1994, except as to the first paragraph of note 5, which
is as of February 9, 1994, in various Registration Statements
filed herewith.

(25) Powers of Attorney filed herewith.

(b) Reports on Form 8-K.
Registrant filed two Current Reports on Form 8-K, dated
November 3, 1993 and December 15, 1993 with the Securities
and Exchange Commission. The Report dated November 3, 1993
was filed under Items 5 and 7 describing the Merger
Agreement between La Quinta Inns, Inc. and La Quinta Motor
Inns Limited Partnership ("the Partnership"). The report
dated December 15, 1993 was filed under Items 2 and 7
describing the acquisition of the Partnership, the
Partnership's December 31, 1992 Consolidated Financial
Statements and pro forma information for the year ended
December 31, 1992 and the nine month period ended September
30, 1993.

- ----------------------------

(1) Previously filed as an exhibit to the Registrant's
Registration Statement on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.

(2) Previously filed as an exhibit to the Registrant's
Registration Statement on Form S-8 (No. 2-65645) and
incorporated herein by reference.

(3) Previously filed as an exhibit to the Registrant's
Registration Statement on Form 10-K for the year ended May
31, 1984 and incorporated herein by reference.

(4) Previously filed as an exhibit to the Registrant's
Registration Statement on Form S-8 (No. 2-97266) and
incorporated herein by reference.

(5) Previously filed as an exhibit to the Registrant's
Registration Statement and incorporated herein by reference.

(6) Previously filed as an exhibit to the Registrant's
Registration Statement for the Transition Period Report on
Form 10-K for the seven months ended December 31, 1989 and
incorporated herein by reference.

49
<PAGE>

(7) Previously filed as an exhibit to the Registrant's
Registration Statement on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference.

(8) Previously filed as an exhibit to Registrant's Registration
Statement on Form 10-Q for the period ended June 30, 1993.

(9) Previously filed to the Registrant's Schedule 14D-1 filed
November 1, 1993.

50
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

LA QUINTA INNS, INC.
(Registrant)

By:-----------------------------------
William C. Hammett, Jr.
Senior Vice President
Chief Accounting Officer

By:-----------------------------------
Michael A. Depatie
Senior Vice President
Chief Financing Officer
Date:

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, and in the capacities and on the date indicated.

Signature Title

Gary L. Mead President and Chief Executive Officer,
Director

William C. Hammett, Jr. Sr. Vice President - Accounting and
Administration

Thomas M. Taylor Chairman of the Board

Michael A. Depatie Sr. Vice President - Finance

Joseph F. Azrack Director

Philip M. Barshop Director

William H. Cunningham Director

Barry K. Fingerhut Director

George Kozmetsky Director

Donald J. McNamara Director

Peter Sterling Director

<PAGE>

- -------------------------------------------------------------------------------

$241,844,955.21

AMENDED AND RESTATED

CREDIT AGREEMENT

AMONG

LA QUINTA INNS, INC.

CERTAIN LENDERS

AND

NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER

January 25, 1994

- -------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS

PAGE
----
ARTICLE 1

DEFINITIONS

Section 1.1 DEFINED TERMS............................................ 1
Section 1.2 AMENDMENTS AND RENEWALS.................................. 21
Section 1.3 CONSTRUCTION............................................. 21

ARTICLE 2

ADVANCES

Section 2.1 THE ADVANCES............................................. 21
Section 2.2 MANNER OF BORROWING AND DISBURSEMENT..................... 22
Section 2.3 INTEREST................................................. 24
Section 2.4 FEES..................................................... 25
Section 2.5 PREPAYMENT............................................... 27
Section 2.6 REDUCTION OF COMMITMENTS................................. 27
Section 2.7 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER........ 29
Section 2.8 PAYMENT OF PRINCIPAL OF ADVANCES......................... 29
Section 2.9 REIMBURSEMENT............................................ 29
Section 2.10 MANNER OF PAYMENT........................................ 30
Section 2.11 LIBOR LENDING OFFICES.................................... 30
Section 2.12 SHARING OF PAYMENTS...................................... 31
Section 2.13 CALCULATION OF RATES..................................... 31
Section 2.14 BOOKING LOANS............................................ 31
Section 2.15 TAXES.................................................... 31
Section 2.16 LETTERS OF CREDIT........................................ 35
Section 2.17 BOND LETTERS OF CREDIT................................... 41
Section 2.18 EXTENSION OF REVOLVING CREDIT MATURITY DATE.............. 42

ARTICLE 3

CONDITIONS PRECEDENT

Section 3.1 CONDITIONS PRECEDENT TO CLOSING, THE INITIAL ADVANCE, THE
LETTERS OF CREDIT AND THE BOND LETTERS OF CREDIT......... 42
Section 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT................................................... 44
Section 3.3 AETNA ADVANCE............................................ 45

-i-
<PAGE>

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Section 4.1 REPRESENTATIONS AND WARRANTIES........................... 45
Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.......... 52

ARTICLE 5

GENERAL COVENANTS

Section 5.1 FACILITIES .............................................. 52
Section 5.2 USE OF PROCEEDS.......................................... 53
Section 5.3 INDEMNITY................................................ 53

ARTICLE 6

DEFAULT

Section 6.1 EVENTS OF DEFAULT........................................ 54
Section 6.2 REMEDIES................................................. 57

ARTICLE 7

CHANGES IN CIRCUMSTANCES

Section 7.1 LIBOR BASIS OR CD BASIS DETERMINATION INADEQUATE......... 58
Section 7.2 ILLEGALITY............................................... 58
Section 7.3 INCREASED COSTS.......................................... 59
Section 7.4 EFFECT ON PRIME RATE ADVANCES............................ 60
Section 7.5 CAPITAL ADEQUACY......................................... 60

ARTICLE 8

AGREEMENT AMONG LENDERS

Section 8.1 AGREEMENT AMONG LENDERS.................................. 61
Section 8.2 LENDER CREDIT DECISION................................... 63
Section 8.3 BENEFITS OF ARTICLE...................................... 63

-ii-
<PAGE>

ARTICLE 9

MISCELLANEOUS

Section 9.1 NOTICES.................................................. 64
Section 9.2 EXPENSES................................................. 64
Section 9.3 WAIVERS.................................................. 65
Section 9.4 DETERMINATION BY THE LENDERS CONCLUSIVE AND BINDING...... 65
Section 9.5 SET-OFF.................................................. 65
Section 9.6 ASSIGNMENT............................................... 66
Section 9.7 COUNTERPARTS............................................. 68
Section 9.8 SEVERABILITY............................................. 68
Section 9.9 INTEREST AND CHARGES..................................... 68
Section 9.10 CONFIDENTIALITY.......................................... 69
Section 9.11 HEADINGS................................................. 69
Section 9.12 AMENDMENT AND WAIVER.................................... 69
Section 9.13 EXCEPTION TO COVENANTS................................... 70
Section 9.14 NO LIABILITY OF ISSUING BANK............................. 70
SECTION 9.15 GOVERNING LAW............................................ 70
SECTION 9.16 WAIVER OF JURY TRIAL..................................... 71
SECTION 9.17 ENTIRE AGREEMENT......................................... 71

-iii-
<PAGE>

Schedules and Exhibits

Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Litigation
Schedule 3: Subsidiaries and Unincorporated Ventures
Schedule 4: Bond Letters of Credit
Schedule 5: Facilities
Schedule 6: Unincorporated Ventures to be Purchased
Schedule 7: Benefit Agreements With Former Employees
Schedule 8: Insolvent Unincorporated Ventures

Exhibit A: Revolving Credit Note
Exhibit B: Term Loan Note
Exhibit C: Deed of Trust
Exhibit D: Subsidiary Guaranty
Exhibit E: Assignment Agreement
Exhibit F: Confidentiality Agreement
Exhibit G: Participation Agreement
Exhibit H: LQM Guaranty
Exhibit I: LQ Realty Pledge Agreement
Exhibit J: LQI Acquisition Pledge Agreement
Exhibit K: LQ-Big Apple Guaranty
Exhibit L: LQ-LNL Guaranty
Exhibit M: Initial Commitment Amount
Exhibit N: LQ-East Irvine Guaranty

-iv-

<PAGE>

AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of January 25, 1994,
among LA QUINTA INNS, INC., a Texas corporation ("Borrower"), the Lenders from
time to time party hereto, and NATIONSBANK OF TEXAS, N.A., a national banking
association, as administrative agent for the Lenders.

BACKGROUND

The Borrower, certain of the Lenders and the Administrative Lender are
parties to that certain Credit Agreement dated as of June 15, 1993 (said Credit
Agreement, as amended, the "Credit Agreement"). The Borrower has requested that
the Lenders amend and restate the Credit Agreement by making a credit facility
available to the Borrower in the maximum principal amount of $241,844,955.21.
The Lenders have agreed to do so, subject to the terms and conditions set forth
below.

In consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration hereby acknowledged, the parties
hereto agree that the Credit Agreement is amended and restated in its entirety
as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 DEFINED TERMS. For purposes of this Agreement:

"ACQUISITION" shall mean the acquisition by LQI Acquisition of 100% of the
issued and outstanding limited partnership units of LQP.

"ADDITIONAL COLLATERAL" shall have the meaning set forth in Section 5.1
hereof.

"ADDITIONAL COSTS" shall have the meaning set forth in Section 7.5 hereof.

"ADJUSTED EBITDA" shall mean, for any period, determined in accordance with
GAAP on Parent Company basis, the sum of (without duplication) (a) EBITDA, plus
(b) Net Cash Distributions.

"ADMINISTRATIVE LENDER" shall mean NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 8.1(b) hereof.

<PAGE>

"ADVANCE" shall mean any amount advanced by the Lenders to the Borrower
pursuant to Article 2 hereof on the occasion of any borrowing, including without
limitation any Refinancing Advance.

"AETNA" shall mean the AEtna Life Insurance Company.

"AETNA ADVANCE" shall mean the Advance in the amount of $65,741,576.00,
plus applicable prepayment penalty not to exceed $1,200,000 in aggregate amount,
to be made on February 1, 1994, the proceeds of which shall be used on such date
by LQI Acquisition to pay off in full all debt owed to AEtna by LQP.

"AFFILIATE" shall mean any Person that directly or indirectly through one
or more Subsidiaries Controls, or is Controlled By or Under Common Control with,
the Borrower.

"AGREEMENT" shall mean this Credit Agreement, as amended, modified,
supplemented and restated from time to time.

"AGREEMENT DATE" shall mean the date of this Agreement.

"AMORTIZATION DATE" shall mean November 30, 1994.

"Applicable Environmental Laws" shall mean applicable laws pertaining to
health or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA"), the Texas Water Code, and the Texas Solid
Waste Disposal Act.

"APPLICABLE LAW" shall mean (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
Sections 85 and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the maximum
rates of interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute
of the State of Texas now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit; provided that the parties hereto
agree that the provisions of Chapter 15, Title 79, Revised Civil

-2-

<PAGE>

Statutes of Texas, 1925, as amended, shall not apply to Advances, this
Agreement, the Notes or any other Loan Papers.

"APPLICABLE REVOLVING MARGIN" shall mean the following per annum
percentages, applicable in the following situations:

<TABLE>
<CAPTION>
PRIME RATE LIBOR CD
APPLICABILITY BASIS BASIS BASIS
------------- ---------- ----- -----
<S> <C> <C> <C>

(a) INITIAL PRICING PERIOD. 0.00 1.75 1.875

(b) SUBSEQUENT PRICING PERIOD.
(i) If the Leverage Ratio 0.00 1.75 1.875
is not less than 4.50 to 1

(ii) If the Leverage Ratio 0.00 1.50 1.625
is less than 4.50 to 1 but
not less than 3.75 to 1

(iii) If the Leverage Ratio 0.00 1.25 1.375
is less than 3.75 to 1
</TABLE>

The Applicable Revolving Margin payable by the Borrower on the Revolving
Advances outstanding hereunder shall be subject to reduction or increase, as
applicable and as set forth in the table above, on a quarterly basis according
to the performance of the Borrower as tested by using the Leverage Ratio for the
most recent fiscal quarter; PROVIDED, that each adjustment in the LIBOR Rate and
the CD Rate shall be effective with respect to LIBOR Advances and CD Advances
(i) made following receipt by the Administrative Lender of the financial
statements required pursuant to Section 5.1(A) or 5.1(B), as applicable, of the
Master Covenant Agreement, on the date of making of such LIBOR Advance or CD
Advance and (ii) outstanding on the date of receipt of the financial statements
referred to in clause (i) immediately preceding and which are continued as LIBOR
Advances or CD Advances beyond the then effective Interest Period therefor, on
the first day of the immediately succeeding Interest Period. If financial
statements of the Borrower setting forth the Leverage Ratio are not received by
the Administrative Lender by the date required pursuant to Section 5.1(A) or
5.1(B), as applicable, of the Master Covenant Agreement, the Applicable
Revolving Margin shall be determined as if the Leverage Ratio is not less than
4.50 to 1 until such time as such financial statements are received.

"APPLICABLE TERM MARGIN" shall mean the following per annum percentages,
applicable in the following situations:

-3-
<PAGE>

<TABLE>
<CAPTION>
PRIME RATE LIBOR CD
APPLICABILITY BASIS BASIS BASIS
------------- ---------- ----- -----
<S> <C> <C> <C>
(a) INITIAL PRICING PERIOD. 0.25 2.00 2.125

(b) SUBSEQUENT PRICING PERIOD.
(i) If the Leverage Ratio 0.25 2.00 2.125
is not less than 4.50 to 1

(ii) If the Leverage Ratio 0.00 1.75 1.875
is less than 4.50 to 1 but
is not less than 3.75 to 1

(iii) If the Leverage Ratio 0.00 1.50 1.625
is less than 3.75 to 1 but
not less than 3.00 to 1

(iv) If the Leverage Ratio 0.00 1.25 1.375
is less than 3.00 to 1
</TABLE>

The Applicable Term Margin payable by the Borrower on the Term Loan Advances
outstanding hereunder shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Leverage Ratio for the most
recent fiscal quarter; PROVIDED, that each adjustment (a) in the Prime Rate
shall be effective with respect to Prime Rate Advances (i) made following
receipt by the Administrative Lender of the financial statements required
pursuant to Section 5.1(A) or 5.1(B), as applicable, of the Master Covenant
Agreement, on the date of making of such Prime Rate Advance and (ii) outstanding
on the date of receipt of the financial statements referred to in clause (i)
immediately preceding, on such date and (b) in the LIBOR Rate and the CD Rate
shall be effective with respect to LIBOR Advances and CD Advances (i) made
following receipt by the Administrative Lender of the financial statements
required pursuant to Section 5.1(A) or 5.1(B), as applicable, of the Master
Covenant Agreement, on the date of making of such LIBOR Advance or CD Advance
and (ii) outstanding on the date of receipt of the financial statements referred
to in clause (i) immediately preceding and which are continued as LIBOR Advances
or CD Advances beyond the then effective Interest Period therefor, on the first
day of the immediately succeeding Interest Period. If financial statements of
the Borrower setting forth the Leverage Ratio are not received by the
Administrative Lender by the date required pursuant to Section 5.1(A) or 5.1(B),
as applicable, of the Master Covenant Agreement, the Applicable Term Margin
shall be determined as if the Leverage Ratio is not less than 4.50 to 1 until
such time as such financial statements are received.

"ART. 1.04" shall have the meaning ascribed thereto in the definition of
"APPLICABLE LAW."

-4-
<PAGE>

"ASSESSMENT RATE" means for any day the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund classified as
well capitalized and within supervisory subgroup "B" (or a comparable successor
assessment risk classification) within the meaning of 12 C.F.R. Section 327.3(d)
(or any successor provision) to the Federal Deposit Insurance Corporation (or
any successor) for such Corporation's (or such successor's) insuring time
deposits at offices of such institution in the United States. The CD Basis
applicable to any CD Advance for any Interest Period shall be adjusted
automatically on and as of the effective date of each change in the relevant
Assessment Rate during such Interest Period.

"ASSIGNEES" shall mean any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in Section 9.6 hereof.

"ASSIGNMENT AGREEMENT" shall have the meaning ascribed thereto in Section
9.6 hereof.

"AUTHORIZED SIGNATORY" shall mean such senior personnel of the Borrower as
may be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances or Letters of Credit hereunder.

"BANK DEBT" shall have the meaning given to such term in the Master
Covenant Agreement.

"BOND DOCUMENTS" shall mean the Bond Letters of Credit, the Bond
Reimbursement Agreements and any other document or agreement executed or
delivered from time to time by the Borrower, any Subsidiary or any other Person
in connection therewith.

"BOND LETTERS OF CREDIT" shall mean those certain letters of credit issued
or to be issued by Issuing Bank as more specifically identified on SCHEDULE 4
hereto, as amended and reduced from time to time.

"BOND LETTER OF CREDIT COMMITMENT" shall mean $56,844,995.21, as reduced or
terminated from time to time pursuant to the terms of the Bond Documents.

"BOND REIMBURSEMENT AGREEMENTS" shall mean those certain Reimbursement
Agreements between the Borrower or an Affiliate of Borrower and the Issuing Bank
with respect to the Bond Letters of Credit, as amended, modified, supplemented
and restated from time to time.

"BORROWER" shall mean La Quinta Inns, Inc., a Texas corporation.

"BUSINESS DAY" shall mean a day on which banks are open for the transaction
of business in Dallas, Texas and New York, New York, and, with respect to any
LIBOR Advance, in London, England.

"CAPITAL STOCK" shall mean, with respect to any Person, any capital stock,
partnership or joint venture interests of such Person and shares, interests,
participations or other ownership

-5-
<PAGE>

interests (however designated) of any Person and any rights (other than debt
securities convertible into corporate stock), warrants or options to purchase
any of the foregoing.

"CAPITALIZED LEASE OBLIGATIONS" shall mean that portion of any obligation
of the Borrower or any Subsidiary as lessee under a lease which at the time
would be required to be capitalized on a balance sheet prepared in accordance
with GAAP.

"CD ADVANCE" shall mean an Advance which the Borrower requests to be made
as a CD Advance or which is reborrowed as a CD Advance, in accordance with the
provisions of Section 2.2 hereof.

"CD BASE RATE" shall mean, with respect to any Interest Period for a CD
Advance, the rate of interest determined by Administrative Lender to be the
average (rounded upward, if necessary, to the nearest whole 1/10 of 1%) of the
prevailing rates per annum quoted at approximately 10:00 A.M. (Dallas time) (or
as soon thereafter as is practicable) on the first day of such Interest Period
by two or more certificate of deposit dealers of recognized standing for the
purchase at face value from the Administrative Lender of certificates of deposit
of the Administrative Lender in the secondary market in an amount approximately
equal to the principal amount of the Administrative Lender's Specified
Percentage of such CD Advance and with a maturity corresponding to the last day
of such Interest Period.

"CD BASIS" shall mean, with respect to each CD Advance for each Interest
Period, a rate per annum equal to the lesser of (a) the Highest Lawful Rate and
(b) the sum of the following: (i) the CD Base Rate divided by 1.00 minus the CD
Reserve Requirement, plus (ii) the Assessment Rate, plus (iii) the Applicable
Revolving Margin or Applicable Term Margin, as appropriate.

"CD RESERVE REQUIREMENT" means, on any date, that percentage (expressed as
a decimal fraction) which is in effect on such day, as provided by the Board of
Governors of the Federal Reserve System (or any successor governmental body) for
determining the applicable maximum reserve requirements (including without
limitation, basic, supplemental, marginal and emergency reserves) under
Regulation D applicable to nonpersonal time deposits in units of $100,000 or
more for a length of time approximately equal to the Interest Period for the CD
Advance sought by the Borrower (issued by member banks of the Federal Reserve
Bank of Dallas having time deposits exceeding $1,000,000,000) rounded to the
next highest .01 of 1%. Each determination by the Administrative Lender of the
CD Reserve Requirement shall, in the absence of manifest error, be conclusive
and binding.

"CHANGE OF CONTROL" shall mean (a) any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether
or not applicable), is or becomes the "beneficial owner" (as that term is used
in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable,
except that a person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time (including, without
limitation,

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<PAGE>

the right of AEW Partners, L.P. to convert its limited partnership units owned
as of the Issue Date in La Quinta Development Partners, L.P. into common stock
of the Borrower)), directly or indirectly, of more than 50% of the total voting
power in the aggregate of all classes of Capital Stock then outstanding of the
Borrower normally entitled to vote in elections of directors, PROVIDED, that for
the purposes of this clause (a), neither Thomas M. Taylor & Co., Trust for the
benefit of Mr. Taylor's son, Sid R. Bass, Inc., Lee M. Bass, Inc., The Bass
Management Trust, Annie R. Bass Trust for Lee M. Bass, Ann R. Bass Trust for Sid
R. Bass, Peter Sterling Trusts nor Peter Sterling, each of which is a principal
shareholder of the Borrower as of the Agreement Date, nor any person who on the
Agreement Date is, or at any time thereafter becomes, a member of any group
which includes any of such entities and persons, shall be deemed to be a
"person" or "group" for purposes of this definition, or (b) during any period of
24 consecutive months after May 21, 1992, individuals who at the beginning of
such period constituted the Board of Directors of the Borrower (together with
any new directors whose election by such Board or whose nomination for election
by the shareholders of the Borrower was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of the Board of
Directors of the Borrower then in office.

"CODE" shall mean the Internal Revenue Code of 1986, as amended, together
with all regulations thereunder.

"COLLATERAL" shall mean any collateral hereafter granted by any Person to
the Administrative Lender for the benefit of the Lenders to secure all or any
part of the Obligations.

"COLLATERAL DEFICIENCY" shall have the meaning set forth in Section 5.1
hereof.

"COLLATERAL DOCUMENT" shall mean any document under which Collateral is
granted and any document related thereto.

"COMBINED" includes, with respect to financial statements, the combined
accounts of the Borrower, its Subsidiaries and Unincorporated Ventures which are
included in the Borrower's Annual Report to Shareholders and in the Borrower's
Form 10-K filed with the Securities and Exchange Commission (the "COMBINED
FINANCIAL STATEMENTS").

"COMMITMENT" shall mean the Revolving Credit Commitment, the Term Loan
Commitment or the Bond Letter of Credit Commitment.

"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in Section
9.10 hereof.

"CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of voting securities, by
contract or otherwise); provided, however, that in any event any Person which
beneficially owns, directly or indirectly, 10% or more (in

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<PAGE>

number of votes) of the securities having ordinary voting power for the election
of directors of a corporation shall be conclusively presumed to control such
corporation.

"CONTROLLED GROUP" shall mean as of the applicable date, as to any Person,
all members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) which are under common control with such Person
and which, together with such Person, are treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code; provided, however, that the
Subsidiaries and Unincorporated Ventures of the Borrower shall be deemed to be
members of the Borrower's Controlled Group.

"CREDIT AGREEMENT" shall have the meaning given to such term in the
Background provision of this Agreement.

"DEBT" of any Person shall mean, at any date, without duplication, all
obligations, contingent or otherwise, (a) of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (b) of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) representing the balance
deferred and unpaid of the purchase price of any property or services (other
than accounts payable or other obligations arising in the ordinary course of
business), if and to the extent any of the foregoing described in clauses (a),
(b) and (c) would appear as a liability on the balance sheet of such Person, (d)
of such Person in respect of bankers' acceptances, letters of credit or other
similar instruments (or reimbursement obligations with respect thereto), (e) of
such Person under Capitalized Lease Obligations, (f) all liabilities secured by
a Lien on any asset of such Person to the extent of the value of such asset,
whether or not such liability is an obligation of such Person, (g) all liability
of others guaranteed by such Person (but only to the extent of such guarantees),
(h) to the extent not otherwise included, obligations of such Person under
currency risk-hedging agreements and Interest Rate Protection Agreement, (i) the
liquidation preference and any mandatory redemption payment obligations (without
duplication) of such Person's Subsidiaries in respect of preferred stock issued
by any such Subsidiary, (j) in the case of such Person, the liquidation
preference and any mandatory redemption payment obligations (without
duplication) in respect of Disqualified Capital Stock, and (k) unfunded vested
benefits under any Plan to the extent in excess of minimum funding requirements
under Applicable Law. "Debt" shall exclude on a Parent Company basis, but shall
include on a Combined basis, (a) any obligation of an Unincorporated Venture of
such Person and (b) any obligation of such Person arising solely by virtue of
such Person being a general partner or venturer of any Unincorporated Venture.

"DEBTOR RELIEF LAWS" shall mean any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization or similar debtor relief Laws affecting the rights of creditors
generally from time to time in effect.

"DEEDS OF TRUST" means the deeds of trust and mortgages substantially in
the form of EXHIBIT C hereto relating to the Facilities, as amended, modified,
renewed, supplemented or restated from time to time.

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<PAGE>

"DEFAULT" shall mean an Event of Default and/or any of the events specified
in Section 6.1, regardless of whether there shall have occurred any passage of
time or giving of notice that would be necessary in order to constitute such
event an Event of Default.

"DEFAULT RATE" shall mean a simple per annum interest rate equal to the
lesser of (a) the Highest Lawful Rate, or (b) the sum of the Prime Rate plus
three percent.

"DETERMINING LENDERS" shall mean, on any date of determination, any
combination of the Lenders having at least 66-2/3% of the aggregate amount of
the Advances then outstanding; provided, however, that if there are no Advances
outstanding hereunder, "Determining Lenders" shall mean any combination of
Lenders whose Specified Percentages aggregate at least 66-2/3%.

"DISQUALIFIED CAPITAL STOCK" shall mean with respect to any Person any
series or class of Capital Stock of such Person which is or may be required to
be redeemed, in whole or in part, or may be put to such Person or any of its
Subsidiaries, in whole or in part, at the option of the Holder thereof, on or
prior to the final maturity of the Senior Subordinated Notes, or is or may be
convertible or exchangeable into or exercisable for such Capital Stock on or
prior to the final maturity of the Notes; PROVIDED, that Capital Stock will not
be deemed to be Disqualified Capital Stock if it may only be so redeemed or put
solely in consideration of Qualified Capital Stock.

"EBIT" shall mean, for any period, determined in accordance with GAAP on a
Parent Company basis, the sum of (a) Operating Income, plus (b) nonrecurring,
non-cash charges which decrease Operating Income, minus (c) nonrecurring credits
which are included in Operating Income.

"EBITDA" shall mean, for any period, determined in accordance with GAAP on
a Parent Company basis, the sum (without duplication) of (a) EBIT, plus (b)
depreciation, amortization and non-cash fixed asset retirements.

"EFFECTIVE DATE" shall mean the date on which the Administrative Lender
shall notify the Borrower that all the conditions set forth in Sections 3.1 and
3.2 hereof have been satisfied.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.

"ERISA EVENT" shall mean, with respect to the Borrower and its
Subsidiaries, (a) a Reportable Event (other than a Reportable Event not subject
to the provision for 30-day notice to the PBGC under regulations issued under
Section 4043 of ERISA), (b) the withdrawal of any such Person or any member of
its Controlled Group from a Plan subject to Title IV of ERISA during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, (c) the filing of a notice of intent to terminate under Section 4041(c)
of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC,
(e) the failure to make required contributions which could result in the
imposition of a lien under Section 412 of the Code or Section 302 of ERISA, or
(f) any other event or condition which might reasonably be expected

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<PAGE>

to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan or the imposition of any
liability under Title IV of ERISA other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.

"ENVIRONMENTAL DEFECTS" shall have the meaning set forth in Section 5.1
hereof.

"EVENT OF DEFAULT" shall mean any of the events specified in Section 6.1,
provided that any requirement for notice or lapse of time has been satisfied.

"FACILITIES" shall mean those inns generally described on SCHEDULE 5
hereto.

"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to the
Administrative Lender on such day on such transactions as determined by
Administrative Lender.

"FEE LETTER" shall have the meaning set forth in Section 2.4(c) hereof.

"FINANCIAL LETTER OF CREDIT" shall mean any Letter of Credit issued under
the Letter of Credit Facility which is a "financial guarantee - type standby
letter of credit" as defined in Appendix A to 12 CFR Part 3 issued by the Office
of the Comptroller of the Currency.

"GAAP" shall mean generally accepted accounting principles, set forth in
the Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants, or their successors which are applicable in the
circumstances as of the date in question (except as stated in the last sentence
of this definition). The requisite that such principles be applied on a
consistent basis shall mean that the accounting principles observed in a current
period are comparable in all material respects to those applied in a preceding
period, except as otherwise required by the adoption of Statements by the
Financial Accounting Standards Board. Notwithstanding the foregoing, each
determination and computation with respect to financial covenants and ratios in
this Agreement shall be made in accordance with GAAP as in effect on the
Agreement Date.

"GUARANTY" or "GUARANTEED", as applied to an obligation of another Person,
shall mean and include (a) a guaranty, direct or indirect, in any manner, of any
part or all of such obligation, and (b) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including, without
limiting the

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<PAGE>

foregoing, any reimbursement obligations with respect to amounts which may be
drawn by beneficiaries of outstanding letters of credit.

"GUARANTY AGREEMENTS" shall mean the LQM Guaranty, the LQ-Big Apple
Guaranty, the LQ-LNL Guaranty, the LQ-East Irvine Guaranty and the Subsidiary
Guaranty.

"GUARANTOR" shall mean each Significant Subsidiary.

"HIGHEST LAWFUL RATE" shall mean at the particular time in question the
maximum rate of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations. If the maximum rate of interest which,
under Applicable Law, the Lenders are permitted to charge on the Obligations
shall change after the date hereof, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, from time to time as
of the effective time of each change in the Highest Lawful Rate without notice
to the Borrower. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be (a)
the indicated rate ceiling described in and computed in accordance with the
provisions of Section (a)(1) of Art. 1.04, or (b) if the parties subsequently
contract as allowed by Applicable Law, the quarterly ceiling or the annualized
ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that
at any time the indicated rate ceiling, the quarterly ceiling or the annualized
ceiling shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for
purposes of such determination, as applicable.

"INCREASED ADVANCE COSTS" shall have the meaning set forth in Section 7.3
hereof.

"INCREASED ADVANCE COSTS RETROACTIVE EFFECTIVE DATE" shall have the meaning
set forth in Section 7.3 hereof.

"INCREASED ADVANCE COSTS SET DATE" shall have the meaning set forth in
Section 7.3 hereof.

"INCREASED LETTER OF CREDIT COSTS" shall have the meaning set forth in
Section 2.16(d) hereof.

"INCREASED LETTER OF CREDIT COSTS RETROACTIVE EFFECTIVE DATE" shall have
the meaning set forth in Section 2.16(d) hereof.

"INCREASED LETTER OF CREDIT COSTS SET DATE" shall have the meaning set
forth in Section 2.16(d) hereof.

"INDEMNIFIED MATTERS" shall have the meaning set forth in Section 5.3(a)
hereof.

"INDEMNITEES" shall have the meaning ascribed to it in Section 5.3(a)
hereof.

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<PAGE>

"INITIAL COMMITMENT AMOUNT" shall mean those amounts set forth for each
Lender on EXHIBIT M hereto.

"INITIAL PRICING PERIOD" shall mean that period from the Agreement Date to
and including the Rate Adjustment Date.

"INSOLVENT UNINCORPORATED VENTURES" shall mean those Unincorporated
Ventures set forth on SCHEDULE 8 hereto.

"INTEREST PERIOD" shall mean (a) for any Prime Rate Advance, the period
beginning on the day the Advance was made and ending on the first Quarterly Date
thereafter, (b) for any LIBOR Advance, the period beginning on the day such
Advance is made and ending one, two, three, six months or twelve months
thereafter (as the Borrower shall select) and (c) for any CD Advance, the period
beginning on the day such Advance is made and ending 14, 30, 60, 90, 180 or 360
days thereafter (as the Borrower shall select).

"INTEREST RATE PROTECTION AGREEMENT" shall mean an interest rate swap, cap,
collar or similar interest rate protection agreement between the Borrower or any
Subsidiary and any Lender.

"INVESTMENT" shall mean, in one or a series of related transactions, any
direct or indirect acquisition of all or substantially all assets of any Person,
or any direct or indirect purchase or other acquisition of, or beneficial
interest in, capital stock or other securities of any other Person, or any
direct or indirect loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution or transfer of property, assets or
value to, or investment, in any other Person, including without limitation the
incurrence or sufferance of Debt or the purchase of accounts receivable of any
other Person that are not current assets or do not arise in the ordinary course
of business.

"ISSUE DATE" shall mean the date of issuance of the Senior Subordinated
Notes.

"ISSUING BANK" shall mean NationsBank of Texas, N.A. in its capacity as
issuer of the Letters of Credit and the Bond Letters of Credit.

"LENDER" shall mean each financial institution shown on the signature pages
hereof so long as such financial institution maintains a Commitment or is owed
any part of the Obligations (including the Administrative Lender in its
individual capacity), and each Assignee that hereafter becomes party hereto
pursuant to Section 9.6 hereof.

"L/C CASH COLLATERAL ACCOUNT" shall have the meaning specified in Section
2.16(g) hereof.

"L/C RELATED DOCUMENTS" shall have the meaning specified in Section 2.16(e)
hereof.

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<PAGE>

"LETTERS OF CREDIT" shall mean letters of credit under the Letter of Credit
Facility and letters of credit issued under the Credit Agreement and outstanding
on the Agreement Date, but does not include Bond Letters of Credit.

"LETTER OF CREDIT AGREEMENT" shall have the meaning specified in Section
2.16 (b) hereof.

"LETTER OF CREDIT FACILITY" shall mean the amount of Letters of Credit the
Issuing Bank may issue pursuant to Section 2.16(a) hereof.

"LEVERAGE RATIO" shall mean, for any date of determination on a Parent
Company basis, the ratio of (i) Total Debt as of the fiscal quarter immediately
preceding the date of determination to (ii) Adjusted EBITDA minus Maintenance
Capital Expenditures, in each case for the four consecutive fiscal quarters
preceding the date of determination. For purposes of calculation of Adjusted
EBITDA, there shall be (i) included in EBITDA (without duplication) the EBITDA
of any assets acquired during any such four fiscal quarters and (ii) excluded
from EBITDA the EBITDA of any asset disposed during any of such four fiscal
quarters.

"LIBOR ADVANCE" shall mean an Advance which the Borrower requests to be
made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance
with the provisions of Section 2.2 hereof.

"LIBOR BASIS" shall mean with respect to each LIBOR Advance for each
Interest Period, a rate per annum equal to the lesser of (a) the Highest Lawful
Rate, or (b) the sum of the LIBOR Rate plus the Applicable Revolving Margin or
Applicable Term Margin, as appropriate. The LIBOR Basis shall, with respect to
LIBOR Advances subject to reserve or deposit requirements, be subject to
premiums therefor assessed by each Lender which are based on the applicable
maximum reserve or deposit requirements in effect from time to time with respect
to each Lender as provided by the Board of Governors of the Federal Reserve
System (or any successor governmental body) in respect of the category of
liabilities which includes deposits by reference to which the interest rate on
LIBOR Advances is determined, and which are payable directly to each Lender.
Once determined, the LIBOR Basis shall remain unchanged during the applicable
Interest Period.

"LIBOR LENDING OFFICE" shall mean, with respect to a Lender, the office
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
other office of the Lender or any of its affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.

"LIBOR RATE" shall mean, for any Interest Period, the interest rate per
annum (rounded upward to the nearest one-sixteenth (1/16th) of one percent) at
which deposits in United States Dollars are offered to the Administrative Lender
by leading banks reasonably selected by the Administrative Lender in the London
interbank market at approximately 11:00 a.m. (London time), two Business Days
before the first day of such Interest Period, in an amount

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<PAGE>

approximately equal to the principal amount of, and for a length of time
approximately equal to the Interest Period for, the LIBOR Advance sought by the
Borrower.

"LIEN" shall mean, with respect to any property, any mortgage, lien,
pledge, collateral assignment, hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure, attachment, garnishment or other
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.

"LIEN DEFECT" shall have the meaning set forth in Section 5.1 hereof.

"LOAN PAPERS" shall mean this Agreement, the Notes, the Deeds of Trust, the
Guaranty Agreements, the Pledge Agreements, the Fee Letter, the Bond Documents
and any other document or agreement executed or delivered from time to time by
the Borrower, any Subsidiary or any other Person in connection herewith or as
security for all or any part of the Obligations.

"LOAN PARTY" shall mean the Borrower and each Guarantor.

"LQ-BIG APPLE GUARANTY" shall mean the Guaranty executed by LQ-Big Apple
Joint Venture, a Texas general partnership, guaranteeing payment and performance
of the Obligations, substantially in the form of EXHIBIT K hereto, as amended,
modified, supplemented or restated from time to time.

"LQ-EAST IRVINE GUARANTY" shall mean the Guaranty executed by LQ-East
Irvine Joint Venture, a California general partnership, guaranteeing payment and
performance of the Obligations, substantially in the form of EXHIBIT N hereto,
as amended, modified, supplemented or restated from time to time.

"LQ-LNL GUARANTY" shall mean the Guaranty executed by LQ-LNL Limited
Partnership, a Texas limited partnership, guaranteeing payment and performance
of the Obligations, substantially in the form of EXHIBIT L hereto, as amended,
modified, supplemented or restated from time to time.

"LQI ACQUISITION" shall mean LQI Acquisition Corporation, a Delaware
corporation and wholly-owned Subsidiary of the Borrower.

"LQI ACQUISITION PLEDGE AGREEMENT" shall mean the Pledge Agreement executed
by LQI Acquisition in substantially the form of EXHIBIT J hereto, pledging 100%
of the limited partnership units of LQP to secure payment and performance of the
Obligations, as amended, modified, supplemented or restated from time to time.

"LQM" shall mean LQM Operating Partners, L.P., a Delaware limited
partnership and wholly-owned Subsidiary of LQP.

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<PAGE>

"LQM GUARANTY" shall mean the Guaranty executed by LQM guaranteeing payment
and performance of the Obligations, substantially in the form of EXHIBIT H
hereto, as such agreement may be amended, modified, supplemented or restated
from time to time.

"LQP" shall mean La Quinta Motor Inns Limited Partnership, a Delaware
limited partnership and, upon completion of the Acquisition, a wholly-owned
Subsidiary of LQI Acquisition, of which La Quinta Realty Corp., a Texas
corporation and wholly-owned Subsidiary of the Borrower, serves as the general
partner.

"LQ REALTY PLEDGE AGREEMENT" shall mean the Pledge Agreement executed by La
Quinta Realty Corp., a Texas corporation, in substantially the form of EXHIBIT I
hereto, pledging 100% of the general partnership units of LQP to secure payment
and performance of the Obligations, as amended, modified, supplemented or
restated from time to time.

"MAINTENANCE CAPITAL EXPENDITURES" shall mean, for any date of
determination computed on a Parent Company basis, an amount equal to the product
of (a) 5% multiplied by (b) room revenues (as disclosed in the Parent Company
or Combined financial statements, as appropriate), for the four consecutive
fiscal quarters preceding the date of determination.

"MASTER COVENANT AGREEMENT" shall mean the Third Amended and Restated
Master Covenant Agreement dated January 25, 1994 by and among the Borrower,
NationsBank of Texas, N.A., The Frost National Bank, First Interstate Bank of
Texas, N.A., Citicorp USA, Inc., Texas Commerce Bank National Association, Bank
of Scotland, Continental Bank N.A., Bank One, Texas, N.A., and U.S. Bank of
Washington, National Association, as such agreement may be amended, restated,
supplemented or otherwise modified from time to time.

"MATERIAL ADVERSE CHANGE OR EFFECT" shall mean any act or circumstance or
event which (a) is material and adverse to the combined or consolidated
financial condition of the Borrower, its Subsidiaries and Unincorporated
Ventures as represented in the Combined Financial Statements most recently
delivered to the Lenders at the time of any determination thereof or be material
and adverse to the combined or consolidated business operations or properties of
the Borrower, its Subsidiaries and Unincorporated Ventures, (b) impairs the
ability of the Borrower, any Subsidiary or any other Person to perform in any
material respect their respective obligations under the Loan Papers or any loan
documents in respect of any Bank Debt or (c) is material and adverse to any
material part of the Collateral which is not covered by insurance.

"MATERIAL AMOUNT" shall mean, as of the determination thereof, an amount
equal to the greater of (a) $1,000,000 or (b) the lesser of (i) $3,000,000 or
(ii) 1% of the consolidated revenues of the Borrower and its Subsidiaries
computed on a Parent Company basis for the fiscal year preceding the date of
determination.

"MAXIMUM AMOUNT" shall mean the maximum amount of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations.

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<PAGE>

"MULTIEMPLOYER PLAN" shall mean, as to any Person, at any time, a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which such Person or any member of its Controlled Group is making, or is
obligated to make contributions or has made, or been obligated to make,
contributions.

"NECESSARY AUTHORIZATION" shall mean any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with, any
governmental or other regulatory authority necessary or appropriate to enable
the Borrower or any Subsidiary or Unincorporated Venture to maintain and operate
its business and properties.

"NET CASH DISTRIBUTIONS" shall mean, for any period of the Borrower and its
Subsidiaries on a Parent Company basis, the lesser of (a) equity of the Borrower
in the aggregate earnings and losses of Unincorporated Ventures and (b) capital
distributions from Unincorporated Ventures to the Borrower and its Significant
Subsidiaries.

"NET INCOME" shall mean, with respect to any Person for any period, the net
income (loss) of such Person for such period, as determined in accordance with
GAAP.

"NON-FINANCIAL LETTER OF CREDIT" shall mean any Letter of Credit issued
under the Letter of Credit Facility which is a "performance-based standby letter
of credit" as defined in Appendix A to 12 CFR Part 3 issued by the Office of the
Comptroller of the Currency.

"NON-RECOURSE DEBT" shall mean Debt of a Person to the extent that under
the terms thereof and pursuant to Applicable Law, no personal recourse could be
had against such Person for the payment of the principal of or interest or
premium or any other amounts with respect to such Debt or for any claim based on
such Debt and that enforcement of obligations on such Debt is limited solely to
recourse against interests in specified assets.

"NOTE" shall mean any Revolving Credit Note or Term Loan Note.

"NOTICE OF ISSUANCE" shall have the meaning ascribed to it in Section
2.16(b) hereof.

"OBLIGATIONS" shall mean (a) all obligations of any nature (whether matured
or unmatured, fixed or contingent, including the Reimbursement Obligations) of
the Borrower, any Subsidiary or any other Person to the Lenders and the Issuing
Bank under the Loan Papers as they may be amended from time to time, and (b) all
obligations of the Borrower, any Subsidiary or any other Person for losses,
damages, expenses or any other liabilities of any kind that any Lender may
suffer by reason of a breach by the Borrower, any Subsidiary or any other Person
of any obligation, covenant or undertaking with respect to any Loan Paper.

"OBLIGOR" shall mean Borrower or each other Person liable for performance
of any of the Obligations or the property of which secures any of the
Obligations.

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<PAGE>

"OPERATING INCOME" means, with respect to any Person for any period, the
operating income (loss) of such Person, as determined in accordance with GAAP.

"OTHER TAXES" shall have the meaning set forth in Section 2.15 hereof.

"PARENT COMPANY" includes, with respect to financial statements and the
calculations of the Leverage Ratio and the definitions related thereto, the
uncombined, consolidated financial statements of the Borrower and its
Subsidiaries, including equity method investments, as defined by GAAP, in
Unincorporated Ventures and designated "La Quinta Inns, Inc. (Parent Company and
Wholly-Owned Subsidiaries)" on the Borrower's audit report.

"PARTICIPANT" shall have the meaning set forth in Section 9.6(c) hereof.

"PARTICIPATION" shall have the meaning set forth in Section 9.6(c) hereof.

"PARTICIPATION AGREEMENT" shall mean the Participation Agreement in respect
of the Bond Letters of Credit executed by Issuing Bank and each other Lender,
substantially in the form of EXHIBIT G hereto, as amended, modified,
supplemented or restated from time to time.

"PAYMENT DATE" shall mean the last day of the Interest Period for any
Advance.

"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

"PERMITTED COLLATERAL LIENS" shall have the meaning given to such term in
the Master Covenant Agreement.

"PERMITTED LIENS" shall have the meaning given to such term as provided in
the Master Covenant Agreement.

"PERSON" shall mean an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.

"PLAN" shall mean an employee benefit plan as defined in Section 3(3) of
ERISA (including a Multiemployer Plan that is covered by Title IV of ERISA)
pursuant to which any employees of the Borrower, its Subsidiaries,
Unincorporated Ventures or any member of their Controlled Group participate;
PROVIDED, HOWEVER, "Plan" shall not include those agreements with former
employees of any of such Persons described on SCHEDULE 7 hereto, the obligations
pursuant to which do not exceed $450,000 in aggregate amount.

"PLEDGE AGREEMENTS" shall mean the LQI Acquisition Pledge Agreement and the
LQ Realty Pledge Agreement.

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<PAGE>

"PRIME RATE" shall mean, at any time, the prime interest rate announced or
published by the Administrative Lender from time to time as its reference rate
for the determination of interest rates for loans of varying maturities in
United States dollars to United States residents of varying degrees of
creditworthiness and being quoted at such time by the Administrative Lender as
its "prime rate;" it being understood that such rate may not be the lowest rate
of interest charged by the Administrative Lender.

"PRIME RATE ADVANCE" shall mean an Advance which the Borrower requests to
be made as a Prime Rate Advance or which is reborrowed as a Prime Rate Advance,
in accordance with the provisions of Section 2.2 hereof.

"PRIME RATE BASIS" shall mean, for any day, a per annum interest rate equal
to the lesser of (a) the Highest Lawful Rate on such day, or (b) the sum of (i)
the Prime Rate on such day plus (ii) the Applicable Revolving Margin or the
Applicable Term Margin, as appropriate. The Prime Rate Basis shall be adjusted
automatically as of the opening of business on the effective date of each change
in the Prime Rate to account for such change.

"QUARTERLY DATE" shall mean the last Business Day of each February, May,
August and November, beginning February 28, 1994.

"RATE ADJUSTMENT DATE" shall mean the date that the Lenders receive the
financial statements for the fiscal quarter ending June 30, 1994 required to be
delivered pursuant to Section 5.1(A) of the Master Covenant Agreement.

"REIMBURSEMENT OBLIGATIONS" shall mean, in respect of any Letter of Credit
as at any date of determination, the sum of (a) the maximum aggregate amount
which is then available to be drawn under such Letter of Credit plus (b) the
aggregate amount of all drawings under such Letter of Credit and not theretofore
reimbursed by the Borrower.

"REFINANCING ADVANCE" shall mean any Advance which is used to pay the
principal amount (or any portion thereof) of an Advance at the end of its
Interest Period and which, after giving effect to such application, does not
result in an increase in the aggregate amount of outstanding Advances.

"REGULATORY MODIFICATION RETROACTIVE EFFECTIVE DATE" shall have the meaning
set forth in Section 7.5 hereof.

"REGULATORY MODIFICATION SET DATE" shall have the meaning set forth in
Section 7.5 hereof.

"RELEASE DATE" shall mean the date on which the Notes have been paid, all
other Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.

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<PAGE>

"REPORTABLE EVENT" shall have the meaning set forth in Section 4043(b) of
ERISA.

"REVOLVING CREDIT ADVANCE" shall mean an Advance made pursuant to
Section 2.1(a) hereof.

"REVOLVING CREDIT COMMITMENT" shall mean $40,000,000, as reduced from time
to time pursuant to Section 2.6 hereof.

"REVOLVING CREDIT MATURITY DATE" shall mean May 30, 1997, or the earlier
date of termination in whole of the Revolving Credit Commitment pursuant to
Section 2.6 or 6.2 hereof, or such later date as agreed to by the Borrower and
the Lenders pursuant to Section 2.18 hereof.

"REVOLVING CREDIT NOTE" shall mean each Revolving Credit Note of the
Borrower evidencing Revolving Credit Advances hereunder, substantially in the
form of EXHIBIT A hereto, together with any extension, renewal or amendment
thereof, or substitution therefor.

"RIGHTS" shall mean rights, remedies, powers and privileges.

"SEMI-ANNUAL DATE" shall mean the last Business Day of each November and
May.

"SENIOR SUBORDINATED NOTES" shall mean the Borrower's $120,000,000 9 1/4%
Senior Subordinated Notes due May 15, 2003 issued pursuant to the Senior
Subordinated Note Indenture.

"SENIOR SUBORDINATED NOTE INDENTURE" shall mean the Indenture pursuant to
which the Senior Subordinated Notes may be issued, as the same may be amended,
supplemented or otherwise modified.

"SIGNIFICANT SUBSIDIARY" shall mean any Subsidiary of the Borrower (a) the
revenues attributable to which for the then most recently completed four fiscal
quarters constituted (or, with respect to Subsidiaries acquired during such four
fiscal quarters, would have constituted had the revenues of such Subsidiary been
included for such period) 2.5% or more of the consolidated revenues of the
Borrower and its Subsidiaries for such period, or (b) the assets of which as of
the end of such period constituted 2.5% or more of the consolidated assets of
the Borrower and its Subsidiaries as of the end of such period.

"SOLVENT" shall mean, with respect to any Person, that the fair value of
the assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can

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<PAGE>

reasonably be expected to become an actual or matured liability discounted to
present value at rates believed to be reasonable by such Person.

"SPECIAL COUNSEL" shall mean the law firm of Donohoe, Jameson & Carroll,
P.C., or such other legal counsel as the Administrative Lender may select.

"SPECIFIED PERCENTAGE" shall mean, as to any Lender, the percentage
indicated beside its name on the signature pages hereof, or if applicable,
specified in its most recent Assignment Agreement.

"SUBSEQUENT PRICING PERIOD" shall mean the period from the date which is
the first day following the end of the Initial Pricing Period to the Term Loan
Maturity Date.

"SUBSIDIARY" with respect to any Person, shall mean a corporation at least
a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person and shall also mean, with respect to the
Borrower, LQP and LQM.

"SUBSIDIARY GUARANTY" shall mean the Guaranty executed by each Significant
Subsidiary (other than LQM, LQ-Big Apple Joint Venture and LQ-LNL Limited
Partnership) guaranteeing payment and performance of the Obligations,
substantially in the form of EXHIBIT D hereto, as such agreement may be amended,
modified, supplemented or restated from time to time.

"TAXES" shall have the meaning set forth in Section 2.15 hereof.

"TERM LOAN ADVANCE" shall mean an Advance made pursuant to Section 2.1(b)
hereof.

"TERM LOAN COMMITMENT" shall mean $145,000,000, as reduced from time to
time or terminated pursuant to Section 2.6 hereof.

"TERM LOAN NOTE" shall mean each Term Loan Note of Borrower evidencing Term
Loan Advances hereunder, substantially in the form of EXHIBIT B hereto, together
with any extension, renewal or amendment thereof, or substitution therefor.

"TERM LOAN MATURITY DATE" shall mean May 31, 2000, or the earlier date of
termination in whole of the Term Loan Commitment pursuant to Section 2.6 or 8.2
hereof.

"TITLE DEFECT" shall have the meaning set forth in Section 5.1 hereof.

"TOTAL COMMITMENT" shall mean the lesser of $241,844,955.21, or the sum of
the Revolving Credit Commitment, the Term Loan Commitment and the Bond Letter of
Credit Commitment.

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<PAGE>

"TOTAL DEBT" shall mean, as of any date of determination, determined on a
Parent Company basis, the sum (without duplication) of (a) all Debt of the
Borrower and its Subsidiaries, minus (b) all Debt of the Borrower and its
Subsidiaries of the type described in (i) clauses (f) and (g) of the definition
of "Debt" herein which are set forth in EXHIBIT E to the Master Covenant
Agreement, and (ii) clauses (h) and (k) of the definition of "Debt" herein, but
specifically including the aggregate face amount of Letters of Credit and Bond
Letters of Credit outstanding hereunder.

"UCC" shall mean the Uniform Commercial Code of Texas, as amended from time
to time.

"UNINCORPORATED VENTURES" means any Person (other than a corporation) in
which the Borrower or a Subsidiary (i) has, directly or indirectly, an ownership
interest of at least 40% but less than 100% and (ii) exercises legal, financial
and operational control, and which is combined in the Borrower's Combined
Financial Statements.

Section 1.2 AMENDMENTS AND RENEWALS. Each definition of an agreement in
this Article 1 shall include such agreement as amended to date, and as amended
or renewed from time to time in accordance with its terms, but only with the
prior written consent of the Determining Lenders.

Section 1.3 CONSTRUCTION. The terms defined in this Article 1 (except
as otherwise expressly provided in this Agreement) for all purposes shall have
the meanings set forth in Section 1.1 hereof, and the singular shall include the
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.

ARTICLE 2

ADVANCES

Section 2.1 THE ADVANCES. Each Lender severally agrees, upon the terms
and subject to the conditions of this Agreement, to make (a) Revolving Credit
Advances to the Borrower from time to time up to and including the Revolving
Credit Maturity Date in an aggregate amount not to exceed an amount equal to its
Specified Percentage of the Revolving Credit Commitment less an amount equal to
its Specified Percentage of the aggregate amount of all Reimbursement
Obligations then outstanding (assuming compliance with all conditions to
drawing) for the purposes set forth in Section 5.2 hereof, and (b) to make Term
Loan Advances to the Borrower from time to time in an aggregate amount not to
exceed its Specified Percentage of the Term Loan Commitment for the purposes set
forth in Section 5.2 hereof. Subject to Section 2.9 hereof, Advances may be
repaid and then reborrowed; provided, however, that (i) after October 31, 1994,
there shall be no increase in the aggregate outstanding principal

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<PAGE>

amount of Term Loan Advances, (ii) all reborrowings of Term Advances shall be
Refinancing Advances and (iii) at all times, Revolving Credit Advances shall be
outstanding in an amount no less than $10.00. Any Advance shall, at the option
of the Borrower as provided in Section 2.2 hereof (and, in the case of LIBOR
Advances and CD Advances, subject to availability and to the provisions of
Article 7 hereof), be made as a Prime Rate Advance, a LIBOR Advance or a CD
Advance; provided that there shall not be outstanding to any Lender, at any one
time, more than six LIBOR Advances and six CD Advances. Notwithstanding any
provision in any Loan Paper to the contrary, in no event shall the principal
amount of all (a) outstanding Revolving Credit Advances exceed the Revolving
Credit Commitment or (b) outstanding Term Loan Advances exceed the Term Loan
Commitment. On the Revolving Credit Maturity Date unless sooner paid as
provided herein, the outstanding Revolving Credit Advances shall be repaid in
full. On the Term Loan Maturity Date unless sooner paid as provided herein, the
outstanding Term Loan Advances shall be repaid in full.

Section 2.2 MANNER OF BORROWING AND DISBURSEMENT.

(a) In the case of Prime Rate Advances other than a Refinancing Advance,
the Borrower, through an Authorized Signatory, shall give the Administrative
Lender prior to 10:00 a.m., Dallas, Texas time, on the date of any proposed
Prime Rate Advance irrevocable written notice, or irrevocable telephonic notice
followed immediately by written notice (provided, however, that the Borrower's
failure to confirm any telephonic notice in writing shall not invalidate any
notice so given), of its intention to borrow or reborrow a Prime Rate Advance
hereunder. Such notice of borrowing shall specify the requested funding date,
which shall be a Business Day, and the amount of the proposed aggregate Prime
Rate Advances to be made by Lenders. Each Prime Rate Advance shall have an
Interest Period beginning on the date such Advance is made and ending on the
Quarterly Date next following the date the Advance is made; provided that no
such Interest Period shall extend past the Revolving Credit Maturity Date or the
Term Loan Maturity Date, as appropriate.

(b) In the case of LIBOR Advances and CD Advances, the Borrower, through
an Authorized Signatory, shall give the Administrative Lender at least three
Business Days' irrevocable written notice for LIBOR Advances and one Business
Day's irrevocable written notice for CD Advances, or irrevocable telephonic
notice followed immediately by written notice (provided, however, that the
Borrower's failure to confirm any telephonic notice in writing shall not
invalidate any notice so given), of its intention to borrow or reborrow a LIBOR
Advance or CD Advance hereunder. Notice shall be given to the Administrative
Lender prior to 11:00 a.m., Dallas, Texas time, in order for such Business Day
to count toward the minimum number of Business Days required. LIBOR Advances
and CD Advances shall in all cases be subject to availability and to Article 7
hereof. For LIBOR Advances and CD Advances, the notice of borrowing shall
specify the requested funding date, which shall be a Business Day, the amount of
the proposed aggregate LIBOR Advances or CD Advances, as appropriate, to be made
by Lenders and the Interest Period selected by the Borrower, provided that no
such Interest Period shall extend past the Revolving Credit Maturity Date or the
Term Loan Maturity Date, as appropriate.

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<PAGE>

(c) Subject to Sections 2.1 and 2.9 hereof, at least three Business Days
prior to each Payment Date for a LIBOR Advance and at least one Business Day
prior to each Payment Date for a CD Advance, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender irrevocable written notice, or
irrevocable telephonic notice followed immediately by written notice (provided,
however, that the Borrower's failure to confirm any telephonic notice in writing
shall not invalidate any notice so given), specifying whether all or a portion
of such LIBOR Advance or such CD Advance outstanding on the Payment Date (i) is
to be repaid and then reborrowed in whole or in part as a Prime Rate Advance,
LIBOR Advance or a CD Advance, as appropriate, or (ii) is to be repaid and not
reborrowed; provided, however, notwithstanding anything in this Agreement to the
contrary, if on any Payment Date a Default shall exist, such LIBOR Advance or
such CD Advance may only be reborrowed as a Prime Rate Advance. Upon such
Payment Date, such LIBOR Advance or such CD Advance shall, subject to the
provisions hereof, be so repaid and, as applicable, reborrowed.

(d) Subject to Sections 2.1 and 2.9 hereof, upon irrevocable written
notice prior to 11:00 a.m., Dallas, Texas, time on each Payment Date (or three
Business Days if the Borrower wishes to reborrow a LIBOR Advance or one Business
Day if the Borrower wishes to reborrow a CD Advance), through an Authorized
Signatory, or irrevocable telephonic notice followed immediately by written
notice (provided, however, that the Borrower's failure to confirm any telephonic
notice in writing shall not invalidate any notice so given), the Borrower may
repay a Prime Rate Advance on its Payment Date, and (i) reborrow all or a
portion of the principal amount thereof as a Prime Rate Advance, (ii) reborrow
all or a portion of the principal amount thereof as one or more LIBOR Advances
or CD Advances, or (iii) not reborrow all or any portion of such Prime Rate
Advance. Upon such Payment Date or date of repayment, such Prime Rate Advance
shall, subject to the provisions hereof, be so repaid and, as applicable,
reborrowed.

(e) The aggregate amount of Prime Rate Advances to be made by the Lenders
on any day shall be in a principal amount which is at least $1,000,000 and which
is an integral multiple of $100,000; provided, however, that such amount may
equal the unused amount of the applicable Commitment. The aggregate amount of
LIBOR Advances or CD Advances having the same Interest Period and to be made by
the Lenders on any day shall be in a principal amount which is at least
$3,000,000 and which is an integral multiple of $500,000.

(f) The Administrative Lender shall promptly notify the Lenders of each
notice received from the Borrower pursuant to this Section. Failure of the
Borrower to give any notice in accordance with Sections 2.2(c) and (d) hereof
shall result in a repayment of any such existing Advance on the applicable
Payment Date by a Refinancing Advance which is a Prime Rate Advance. Each
Lender shall, not later than 1:00 p.m., Dallas, Texas time, on the date of any
Advance that is not a Refinancing Advance, deliver to the Administrative Lender,
at its address set forth herein, such Lender's Specified Percentage of such
Advance in immediately available funds in accordance with the Administrative
Lender's instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date of
any Advance hereunder that is not a Refinancing Advance, the Administrative
Lender shall, subject to satisfaction of the conditions set forth in Article 3,

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<PAGE>

disburse the amounts made available to the Administrative Lender by the Lenders
by (i) transferring such amounts by wire transfer pursuant to the Borrower's
instructions, or (ii) in the absence of such instructions, crediting such
amounts to the account of the Borrower maintained with the Administrative
Lender. All Advances shall be made by each Lender according to its Specified
Percentage.

Section 2.3 INTEREST.

(a) ON PRIME RATE ADVANCES.

(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of each Prime Rate Advance, from the date such Advance is
made until it is due (whether at maturity, by reason of acceleration, by
scheduled reduction, or otherwise) or repaid, which shall be payable as set
forth in Section 2.3(a)(ii) hereof, at a simple interest rate per annum
equal to the appropriate Prime Rate Basis for such Prime Rate Advance as in
effect from time to time, provided that interest on such Prime Rate Advance
shall not exceed the Maximum Amount. If at any time the appropriate Prime
Rate Basis would exceed the Highest Lawful Rate, interest payable on such
Prime Rate Advance shall be limited to the Highest Lawful Rate, but the
appropriate Prime Rate Basis shall not thereafter be reduced below the
Highest Lawful Rate until the total amount of interest accrued on such
Advance equals the amount of interest that would have accrued if the
appropriate Prime Rate Basis had been in effect at all times.

(ii) Interest on each Prime Rate Advance shall be computed on the
basis of a year of 365 or 366 days, as applicable, for the number of days
actually elapsed, and shall be payable in arrears on each Quarterly Date
and on the Revolving Credit Maturity Date or the Term Loan Maturity Date,
as appropriate.

(b) ON LIBOR ADVANCES.

(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid, at a rate per annum equal to the LIBOR Basis for such
Advance. The Administrative Lender, whose determination shall be
conclusive, shall determine the LIBOR Basis on the second Business Day
prior to the applicable funding date and shall notify the Borrower and the
Lenders of such LIBOR Basis.

(ii) Subject to Section 9.9 hereof, interest on each LIBOR Advance
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Revolving Credit Maturity Date or the Term Loan Maturity
Date, as appropriate; provided, however, that if the Interest Period for
such Advance exceeds three months, interest shall also be due and payable
in arrears on each Quarterly Date during such Interest Period.

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<PAGE>

(i) The Borrower shall pay interest on the unpaid principal amount of
each CD Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid, at a rate per annum equal to the CD Basis for such
Advance. The Administrative Lender, whose determination shall be
conclusive, shall determine the CD Basis on the Business Day immediately
preceding the applicable funding date and shall notify the Borrower and the
Lenders of such CD Basis.

(ii) Subject to Section 9.9 hereof, interest on each CD Advance shall
be computed on the basis of a 360-day year for the actual number of days
elapsed, and shall be payable in arrears on the applicable Payment Date and
on the Revolving Credit Maturity Date or the Term Loan Maturity Date, as
appropriate; provided, however, that if the Interest Period for such
Advance exceeds 90 days, interest shall also be due and payable in arrears
on each Quarterly Date during such Interest Period.

(d) INTEREST IF NO NOTICE OF SELECTION OF INTEREST RATE BASIS. If the
Borrower fails to give the Administrative Lender timely notice of its selection
of a LIBOR Basis or a CD Basis or an Interest Period for a LIBOR Advance or CD
Advance, or if for any reason a determination of a LIBOR Basis or a CD Basis for
any Advance is not timely concluded due to the fault of the Borrower, the
appropriate Prime Rate Basis shall apply to the applicable Advance.

(e) INTEREST AFTER AN EVENT OF DEFAULT. (i) After an Event of Default
(other than an Event of Default specified in Section 6.1(f) hereof) and during
any continuance thereof, at the option of Determining Lenders, and (ii) after an
Event of Default specified in Section 6.1(f) hereof and during any continuance
thereof, automatically and without any action by the Administrative Lender or
any Lender, the Obligations shall bear interest at a rate per annum equal to the
Default Rate. Such interest shall be payable on the earlier of demand or the
Revolving Credit Maturity Date or the Term Loan Maturity Date, as appropriate,
and shall accrue until the earlier of (i) waiver or cure (to the satisfaction of
the Determining Lenders) of the applicable Event of Default, (ii) agreement by
the Lenders to rescind the charging of interest at the Default Rate, or (iii)
payment in full of the Obligations. The Lenders shall not be required to
accelerate the maturity of the Advances, to exercise any other rights or
remedies under the Loan Papers, or to give notice to the Borrower of the
decision to charge interest at the Default Rate. The Lenders will undertake to
notify the Borrower, after the effective date, of the decision to charge
interest at the Default Rate.

Section 2.4 FEES.

(a) COMMITMENT FEE. Subject to Section 9.9 hereof, the Borrower agrees to
pay to the Administrative Lender, for the ratable account of the Lenders, a
commitment fee on the daily average unused portion (commencing on the Effective
Date) of the Revolving Credit

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<PAGE>

Commitment and the Term Loan Commitment at the following per annum percentages,
applicable in the following situations:

<TABLE>
<CAPTION>
APPLICABILITY PERCENTAGE
<S> <C>
(a) INITIAL PRICING PERIOD. 0.50

(b) SUBSEQUENT PRICING PERIOD.

(i) If the Leverage Ratio is not less than 4.50 to 1 0.50

(ii) If the Leverage Ratio is less than 4.50 to 1 0.375
</TABLE>

Such fee shall be (i) payable in arrears on each Quarterly Date and, with
respect to the Term Loan Commitment also on October 31, 1994, and with respect
to the Revolving Credit Commitment, also on the Revolving Credit Maturity Date,
fully earned when due and, subject to Section 9.9 hereof, nonrefundable when
paid and (ii) subject to Section 9.9 hereof, computed on the basis of a year of
365 or 366 days, as applicable, for the actual number of days elapsed. For
purposes of calculation of the commitment fee, outstanding Letters of Credit
from time to time will reduce the unused portion of the Revolving Credit
Commitment. The fee payable in respect of the Revolving Credit Commitment and
the Term Loan Commitment shall be subject to reduction or increase, as
applicable and as set forth in the table above, on a quarterly basis according
to the performance of the Borrower as tested by using the Leverage Ratio for the
most recent fiscal quarter. Any such increase or reduction in such fee shall be
effective on the date of receipt of the financial statements required pursuant
to Section 5.1(A) or 5.1(B), as applicable, of the Master Covenant Agreement.
If such financial statements are not received by the date required thereunder,
the fee payable in respect of such Commitments shall be determined as if the
Leverage Ratio is not less than 4.50 to 1 until such time as such financial
statements are received.

(b) AMENDMENT/EXTENSION FEE. Subject to Section 9.9 hereof, the Borrower
agrees to pay to the Administrative Lender, for the account of the Lenders an
amendment/extension fee at the following percentages based on the amount of each
Lender's Total Commitment as follows:

<TABLE>
<CAPTION>
AMENDMENT/
MINIMUM TOTAL COMMITMENT EXTENSION FEE
<S> <C>
At least $15,000,000 but less than $25,000,000 .25%

At least $25,000,000 but less than $50,000,000 .375%

$50,000,000 or greater .50%
</TABLE>

Such fee shall be payable on the Agreement Date, fully earned when due and,
subject to Section 9.9 hereof, nonrefundable when paid. Notwithstanding the
Total Commitment of each

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<PAGE>

Lender, the percentage amount used to determine the facility fee of each Lender
will be based upon each Lender's Initial Commitment Amount (e.g., if a Lender's
Initial Commitment Amount was $25,000,000, but the Total Commitment of such
Lender is $15,000,000, such Lender's facility fee shall be equal to the product
of .375% multiplied by $15,000,000).

(c) OTHER FEES. Subject to Section 9.9 hereof, the Borrower agrees to pay
to the Administrative Lender, for its account and not the account of the
Lenders, the fees provided for in the letter agreement ("FEE LETTER"), dated as
of the Agreement Date, between the Borrower and the Administrative Lender on the
date and in the amounts specified therein.

Section 2.5 PREPAYMENT.

(a) VOLUNTARY PREPAYMENTS. The principal amount of any Prime Rate Advance
may be prepaid in full or in part at any time, without penalty and without
regard to the Payment Date for such Advance, upon notice as required for a
repayment of a Prime Rate Advance as provided in Section 2.2(d) hereof. LIBOR
Advances and CD Advances may be voluntarily prepaid upon notice as required for
repayments of LIBOR Advances and CD Advances as provided in Section 2.2(c)
hereof, but only so long as the Borrower concurrently reimburses the Lenders in
accordance with Section 2.9 hereof. Any notice of prepayment shall be
irrevocable.

(b) MANDATORY PREPAYMENT. On or before the date of any reduction of
either the Revolving Credit Commitment or the Term Loan Commitment, the Borrower
shall prepay applicable outstanding Advances in an amount necessary to reduce
the same to an amount less than or equal to the applicable Commitment as so
reduced. The Borrower shall first prepay all Prime Rate Advances and shall
thereafter prepay LIBOR Advances and CD Advances. To the extent that any
prepayment requires that a LIBOR Advance or a CD Advance be repaid on a date
other than the last day of its Interest Period, the Borrower shall reimburse
each Lender in accordance with Section 2.9 hereof. To the extent that
outstanding Advances exceed the applicable Commitment after any reduction
thereof, the Borrower shall repay any such excess amount and all accrued
interest thereon on the date of such reduction.

(c) PREPAYMENTS, GENERALLY. Any prepayment of an Advance shall be
accompanied by interest accrued on the principal amount being prepaid. Any
voluntary partial prepayment of a Prime Rate Advance shall be in a principal
amount of $100,000 or an integral multiple thereof. All voluntary prepayments
shall be applied in the order directed in writing by the Borrower to the
Administrative Lender. If the Borrower fails to so direct the Administrative
Lender or if the prepayment occurs during the occurrence and continuance of an
Event of Default, such prepayment shall be applied in the inverse order of
maturity.

Section 2.6 REDUCTION OF COMMITMENTS.

(a) VOLUNTARY REDUCTION. The Borrower shall have the right, upon not less
than 10 Business Days' notice (provided no notice shall be required for a
termination in whole of either the Revolving Credit Commitment or the Term Loan
Commitment) by an Authorized Signatory

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to the Administrative Lender (if telephonic, to be confirmed by telex or in
writing on or before the date of reduction or termination), which shall promptly
notify the Lenders, to terminate or reduce either the Revolving Credit
Commitment or the Term Loan Commitment, in whole or in part. Each partial
termination shall be in an aggregate amount which is at least $1,000,000 and
which is an integral multiple of $100,000, and no voluntary reduction in a
Commitment shall cause any LIBOR Advance or CD Advance to be repaid prior to the
last day of its Interest Period.

(b) MANDATORY REDUCTION. The Term Loan Commitment shall be automatically
reduced by the amount of any Term Loan Advance other than a Refinancing Advance
that is repaid.

(c) AMORTIZATION. Commencing on the Amortization Date, the Term Loan
Commitment shall automatically reduce on the last Business Day of each Semi-
Annual Date set forth below in each case by the amount set opposite such dates:
<TABLE>
<CAPTION>

DATE AMOUNT
<S> <C>
November, 1994 $10,000,000
May, 1995 $10,000,000
November, 1995 $10,000,000
May, 1996 $10,000,000
November, 1996 $10,000,000
May, 1997 $10,000,000
November, 1997 $10,000,000
May, 1998 $12,500,000
November, 1998 $12,500,000
May, 1999 $12,500,000
November, 1999 $12,500,000
May 31, 2000 $25,000,000
</TABLE>

If the aggregate Term Loan Advances outstanding on October 31, 1994 is less
than the Term Loan Commitment, the amount of the Term Loan Commitment reduction
required above shall be reduced pro rata by the amount equal to the Term Loan
Commitment minus the aggregate Term Loan Advances outstanding on such date. On
the Term Loan Maturity Date, the Term Loan Commitment shall automatically reduce
to zero. On the Revolving Credit Maturity Date, the Revolving Credit Commitment
shall automatically reduce to zero.

(d) GENERAL REQUIREMENTS. Upon any reduction of a Commitment pursuant to
this Section, the Borrower shall immediately make a repayment of applicable
Advances in accordance with Section 2.5(b) hereof. The Borrower shall reimburse
each Lender for any loss or out-of-pocket expense incurred by each Lender in
connection with any such payment, as set forth in Section 2.9 hereof to the
extent applicable. The Borrower shall not have any right to rescind any
termination or reduction. Once reduced, the Commitments may not be increased or
reinstated.

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Section 2.7 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER. Unless
the Administrative Lender shall have been notified by a Lender prior to the date
of any proposed Advance (which notice shall be effective upon receipt) that such
Lender does not intend to make the proceeds of such Advance available to the
Administrative Lender, the Administrative Lender may assume that such Lender has
made such proceeds available to the Administrative Lender on such date, and the
Administrative Lender may in reliance upon such assumption (but shall not be
required to) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Lender
by such Lender, the Administrative Lender shall, without prejudice to the
Borrower's rights against such Lender, be entitled to recover such amount on
demand from such Lender (or, if such Lender fails to pay such amount forthwith
upon such demand, from the Borrower) together with interest thereon in respect
of each day during the period commencing on the date such amount was available
to the Borrower and ending on (but excluding) the date the Administrative Lender
receives such amount from the Lender, at a per annum rate equal to the lesser of
(i) the Highest Lawful Rate or (ii)(A) in the case of such Lender, the Federal
Funds Rate or (B) in the case of the Borrower, the interest rate applicable to
such Advance. No Lender shall be liable for any other Lender's failure to fund
an Advance hereunder.

Section 2.8 PAYMENT OF PRINCIPAL OF ADVANCES. The Borrower agrees to
pay the principal amount of the Advances to the Administrative Lender for the
account of the Lenders as follows:

(a) END OF INTEREST PERIOD. The principal amount of each Advance
hereunder shall be due and payable on its Payment Date, which principal payment
may be made by means of a Refinancing Advance.

(b) COMMITMENT REDUCTION. On the date of reduction of any Commitment
pursuant to Section 2.6 hereof, including the applicable Maturity Date, the
aggregate amount of the applicable Advances outstanding on such date of
reduction in excess of the Commitment as reduced shall be due and payable, which
principal payment may not be made by means of Refinancing Advances.

(c) MATURITY DATE. To the extent not otherwise required to be paid
earlier as provided herein, the principal amount of the Revolving Credit
Advances, all accrued interest and fees thereon, and all other Obligations
related thereto, shall be due and payable in full on the Revolving Credit
Maturity Date. To the extent not otherwise required to be paid earlier as
provided herein, the principal amount of the Term Loan Advances and all accrued
interest thereon, and all other Obligations related thereto, shall be due and
payable in full on the Term Loan Maturity Date.

Section 2.9 REIMBURSEMENT. Whenever any Lender shall sustain or incur
any losses or reasonable out-of-pocket expenses in connection with (a) failure
by the Borrower to borrow any LIBOR Advance or CD Advance after having given
notice of its intention to borrow in accordance with Section 2.2 hereof (whether
by reason of the Borrower's election not to proceed

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or the non-fulfillment of any of the conditions set forth in Article 3 hereof),
or (b) any prepayment for any reason of any LIBOR Advance or CD Advance in whole
or in part, the Borrower agrees to pay to any such Lender, upon its demand, an
amount sufficient to compensate such Lender for all such losses and
out-of-pocket expenses, subject to Section 9.9 hereof. Such Lender's good faith
determination of the amount of such losses or out-of-pocket expenses, calculated
in its usual fashion, absent manifest error, shall be binding and conclusive.
Such losses shall include, without limiting the generality of the foregoing,
lost profits and reasonable expenses incurred by such Lender in connection with
the re-employment of funds prepaid, repaid, converted or not borrowed, converted
or paid, as the case may be. Upon request of the Borrower, such Lender shall
provide a certificate setting forth the amount to be paid to it by the Borrower
hereunder and calculations therefor.

Section 2.10 MANNER OF PAYMENT.

(a) Each payment (including prepayments) by the Borrower of the principal
of or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Paper shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Lender at the Administrative Lender's office, in lawful money
of the United States of America constituting immediately available funds.

(b) If any payment under this Agreement or any other Loan Paper shall be
specified to be made upon a day which is not a Business Day, it shall be made on
the next succeeding day which is a Business Day, unless such Business Day falls
in another calendar month, in which case payment shall be made on the preceding
Business Day. Any extension of time shall in such case be included in computing
interest and fees, if any, in connection with such payment.

(c) The Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Papers without deduction for set-off or counterclaim
or any deduction whatsoever.

(d) If some but less than all amounts due from the Borrower are
received by the Administrative Lender, the Administrative Lender shall apply
such amounts in the following order of priority: (i) to the payment of the
Administrative Lender's expenses incurred on behalf of the Lenders then due and
payable, if any; (ii) to the payment of all other fees and amounts then due and
payable under the Loan Papers; (iii) to the payment of interest then due and
payable on the Advances; and (iv) to the payment of principal then due and
payable on the Advances.

Section 2.11 LIBOR LENDING OFFICES. Each Lender's initial LIBOR Lending
Office is set forth opposite its name in Schedule 1 attached hereto. Each
Lender shall have the right at any time and from time to time to designate a
different office of itself or of any Affiliate as such Lender's LIBOR Lending
Office, and to transfer any outstanding LIBOR Advance to such LIBOR Lending
Office. No such designation or transfer shall result in any liability on the
part

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<PAGE>

of the Borrower for increased costs or expenses resulting solely from such
designation or transfer (except any such transfer which is made by a Lender
pursuant to Section 7.2 or 7.3 hereof, or otherwise for the purpose of complying
with Applicable Law). Increased costs for expenses resulting from a change in
law occurring subsequent to any such designation or transfer shall be deemed not
to result solely from such designation or transfer.

Section 2.12 SHARING OF PAYMENTS. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances or its participation in the Letters of
Credit or the Bond Letters of Credit in excess of its Specified Percentage of
all payments made by the Borrower with respect to Advances, the Letters of
Credit or the Bond Letters of Credit shall purchase from each other Lender such
participation in the Advances made by such other Lender or its participation in
the Letters of Credit or the Bond Letters of Credit as shall be necessary to
cause such purchasing Lender to share the excess payment pro rata according to
Specified Percentages with each other Lender; provided, however, that if all or
any portion of such excess payment is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section, to the fullest extent permitted by law, may exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower in the amount
of such participation.

Section 2.13 CALCULATION OF RATES. The provisions of this Agreement
relating to calculation of the LIBOR Rate or CD Rate are included only for the
purpose of determining the rate of interest or other amounts to be paid
hereunder that are based upon such rate, it being understood that each Lender
shall be entitled to fund and maintain its funding of all or any part of a LIBOR
Advance or a CD Advance as it sees fit.

Section 2.14 BOOKING LOANS. Any Lender may make, carry or transfer
Advances at, to or for the account of any of its branch offices or the office of
any Affiliate.

Section 2.15 TAXES.

(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.10, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, EXCLUDING, in the case
of each Lender and the Administrative Lender, taxes imposed on, based upon or
measured by its overall net income, net worth or capital, and franchise taxes,
doing business taxes or minimum taxes imposed on it, (i) by the jurisdiction
under the laws of which such Lender or the Administrative Lender (as the case
may be) is organized and in which it has its applicable lending office or any
political subdivision thereof; (ii) by any other jurisdiction, or any political
subdivision thereof, other than those imposed by reason of (A) an asserted
relation of such jurisdiction to the transactions contemplated by this
Agreement, (B) the activities of the Borrower in such jurisdiction, or (C) the
activities in connection with the transactions

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<PAGE>

contemplated by this Agreement of a Lender or the Administrative Lender; (iii)
by reason of failure by the Lender or the Administrative Lender to comply with
the requirements of paragraph (e) of this Section 2.15; and (iv) in the case of
any Lender, any Taxes in the nature of transfer, stamp, recording or documentary
taxes resulting from a transfer (other than as a result of foreclosure) by such
Lender of all or any portion of its interest in this Agreement, the Notes or any
other Loan Papers (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "TAXES").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder to any Lender or the Administrative Lender, (x) the
sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.15) such Lender or the Administrative Lender (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (y) the Borrower shall make such deductions and (z) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.

(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than (i) Taxes described in clause (iv) of the first
sentence of Section 2.15(a) and (ii) mortgage taxes payable in Oklahoma) that
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Paper (hereinafter referred to as "OTHER TAXES").

(c) The Borrower will indemnify each Lender and the Administrative Lender
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.15) paid by such Lender or the Administrative Lender (as the case may
be) and all liabilities (including penalties, additions to tax, interest and
reasonable expenses) arising therefrom or with respect thereto whether or not
such Taxes or Other Taxes were correctly or legally asserted, other than
penalties, additions to tax, interest and expenses arising as a result of gross
negligence on the part of such Lender or the Administrative Lender, PROVIDED,
HOWEVER, that the Borrower shall have no obligation to indemnify such Lender or
the Administrative Lender unless and until such Lender or the Administrative
Lender shall have delivered to the Borrower a certificate setting forth in
reasonable detail the basis of the Borrower's obligation to indemnify such
Lender or the Administrative Lender pursuant to this Section 2.15. This
indemnification shall be made within 30 days from the date such Lender or the
Administrative Lender (as the case may be) makes written demand therefor.

(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Lender the original or a certified copy of a
receipt evidencing payment thereof. If no Taxes are payable in respect of any
payment hereunder, the Borrower will furnish to the Administrative Lender a
certificate from each appropriate taxing authority, or an opinion of counsel
acceptable to the Administrative Lender, in either case stating that such
payment is exempt from or not subject to Taxes, PROVIDED, HOWEVER, that such
certificate or opinion need

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only be given if: (i) the Borrower makes any payment from any account located
outside the United States, or (ii) the payment is made by a payor that is not a
United States Person. For purposes of this Section 2.15 the terms "UNITED
STATES" and "UNITED STATES PERSON" shall have the meanings set forth in Section
7701 of the code.

(e) Each lender which is not a United States Person hereby agrees that:

(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to section 9.6 after the
Agreement Date, the date upon which such Lender becomes a party hereto)
deliver to the Borrower through the Administrative Lender, with a copy to
the Administrative Lender:

(A) if any lending office is located in the United States of America,
two (2) accurate and complete signed originals of Internal
Revenue Service Form 4224 or any successor thereto ("FORM 4224"),

(B) if any lending office is located outside the United States of
America, two (2) accurate and complete signed originals of
Internal Revenue Service Form 1001 or any successor thereto
("FORM 1001").

in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such lending office or lending offices under this Agreement free
from withholding of United States Federal income tax;

(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter but only to the extent the forms
previously delivered by it hereunder are no longer effective, deliver to
the Borrower through the Administrative Lender, with a copy to the
Administrative Lender, in replacement for the forms previously delivered by
it hereunder:

(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed
originals of Form 4224; or

(B) otherwise, two (2) accurate and complete signed originals of Form
1001,

in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such changed or additional lending office under this Agreement
free from withholding of United States Federal income tax;

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<PAGE>

(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in clause
(ii) above) requiring a change in the most recent Form 4224 or Form 1001
previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Administrative Lender with a
copy to the Administrative Lender, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such Lender;

(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes; and

(v) it shall notify the Borrower within 30 days after any event
(including an amendment to, or a change in any applicable law or regulation
or in the written interpretation thereof by any regulatory authority or any
judicial authority, or by ruling applicable to such Lender of any
governmental authority charged with the interpretation or administration of
any law) shall occur that results in such Lender no longer being capable of
receiving payments without any deduction or withholding of United States
federal income tax.

(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.15 shall survive the payment in full of principal and interest
hereunder.

(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.15 shall use its reasonable best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
lending office, if the making of such a change would avoid the need for, or
reduce the amount of, any such additional amounts which may thereafter accrue
and would not, in the reasonable judgment of such Lender, be materially
disadvantageous to such Lender.

(h) Each Lender (and the Administrative Lender with respect to payments to
the Administrative Lender for its own account) agrees that (i) it will take all
reasonable actions by all usual means to maintain all exemptions, if any,
available to it from United States withholding taxes (whether available by
treaty, existing administrative waiver, by virtue of the location of any
Lender's lending office) and (ii) otherwise cooperate with the Borrower to
minimize amounts payable by the Borrower under this Section 2.15; PROVIDED,
HOWEVER, the Lenders and the Administrative Lender shall not be obligated by
reason of this Section 2.15(h) to contest the payment of any Taxes or Other
Taxes or to disclose any information regarding its tax affairs or tax
computations or reorder its tax or other affairs or tax or other planning.
Subject to the foregoing, to the extent the Borrower pays sums pursuant to this
Section 2.15 and the Lender or the Administrative Lender receives a refund of
any or all of such sums, such refund shall be applied to reduce any amounts then
due and owing under this Agreement or, to the extent that

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no amounts are due and owing under this Agreement at the time such refunds are
received, the party receiving such refund shall promptly pay over all such
refunded sums to the Borrower, provided that no Default or Event of Default is
in existence at such time.

Section 2.16 LETTERS OF CREDIT.

(a) THE LETTER OF CREDIT FACILITY. The Borrower may request the Issuing
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "LETTERS OF
CREDIT") for the account of the Borrower from time to time on any Business Day
from the date of the initial Advance until the Revolving Credit Maturity Date in
an aggregate maximum amount (assuming compliance with all conditions to drawing)
not to exceed at any time outstanding the lesser of (i) $20,000,000 (the "LETTER
OF CREDIT FACILITY") and (ii) the sum of (A) the Revolving Credit Commitment
MINUS (B) the aggregate principal amount of Revolving Credit Advances then
outstanding. No Letter of Credit shall have an expiration date (including all
rights of renewal) later than the Revolving Credit Maturity Date. Immediately
upon the issuance of each Letter of Credit, the Issuing Bank shall be deemed to
have sold and transferred to each Lender, and each Lender shall be deemed to
have purchased and received from the Issuing Bank, in each case irrevocably and
without any further action by any party, an undivided interest and participation
in such Letter of Credit, each drawing thereunder and the obligations of the
Borrower under this Agreement in respect thereof in an amount equal to the
product of (x) a fraction the numerator of which is equal to such Lender's
Specified Percentage of the Revolving Credit Commitment and the denominator of
which is the Revolving Credit Commitment times (y) the maximum amount available
to be drawn under such Letter of Credit (assuming compliance with all conditions
to drawing). Within the limits of the Letter of Credit Facility, and subject to
the limits referred to above, the Borrower may request the issuance of Letters
of Credit under this Section 2.16(a), repay any Revolving Credit Advances
resulting from drawings thereunder pursuant to Section 2.16(c) and request the
issuance of additional Letters of Credit under this Section 2.16(a).

(b) REQUEST FOR ISSUANCE. Each Letter of Credit shall be issued upon
notice, given not later than 11:00 A.M. (Dallas time) on the third Business Day
prior to the date of the proposed issuance of such Letter of Credit, by the
Borrower to the Issuing Bank, which shall give to the Administrative Lender and
each Lender prompt notice thereof by telex, telecopier or cable. Each Letter of
Credit shall be issued upon notice given in accordance with the terms of any
separate agreement between the Borrower and the Issuing Bank in form and
substance reasonably satisfactory to the Borrower and the Issuing Bank providing
for the issuance of Letters of Credit pursuant to this Agreement and containing
terms and conditions not inconsistent with this Agreement (a "LETTER OF CREDIT
AGREEMENT"), PROVIDED that if any such terms and conditions are inconsistent
with this Agreement, this Agreement shall control. Each such notice of issuance
of a Letter of Credit (a "NOTICE OF ISSUANCE") shall be by telex, telecopier or
cable, specifying therein, in the case of a Letter of Credit, the requested (A)
date of such issuance (which shall be a Business Day), (B) maximum amount of
such Letter of Credit, (C) expiration date of such Letter of Credit, (D) name
and address of the beneficiary of such Letter of Credit, (E) form of such Letter
of Credit and (F) such other information as shall be required pursuant to the
relevant

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Letter of Credit Agreement. If the requested terms of such Letter of Credit are
acceptable to the Issuing Bank in its reasonable discretion, the Issuing Bank
will, upon fulfillment of the applicable conditions set forth in Article 3
hereof, make such Letter of Credit available to the Borrower at its office
referred to in Section 9.1 or as otherwise agreed with the Borrower in
connection with such issuance.

(c) DRAWING AND REIMBURSEMENT. The payment by the Issuing Bank of a draft
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Revolving Credit Advance, which
shall bear interest at the applicable Prime Rate Basis, in the amount of such
draft (but without any requirement for compliance with the conditions set forth
in Article 3 hereof). In the event that a drawing under any Letter of Credit is
not reimbursed by the Borrower by 11:00 A.M. (Dallas time) on the first Business
Day after such drawing, the Issuing Bank shall promptly notify Administrative
Lender and each other Lender. Each such Lender shall, on the first Business Day
following such notification, make a Revolving Credit Advance, which shall bear
interest at the applicable Prime Rate Basis, and shall be used to repay the
applicable portion of the Issuing Bank's Revolving Credit Advance with respect
to such Letter of Credit, in an amount equal to the amount of its participation
in such drawing for application to reimburse the Issuing Bank (but without any
requirement for compliance with the applicable conditions set forth in Article 3
hereof) and shall make available to the Administrative Lender for the account of
the Issuing Bank, by deposit at the Administrative Lender's office, in same day
funds, the amount of such Revolving Credit Advance. In the event that any
Lender fails to make available to the Administrative Lender for the account of
the Issuing Bank the amount of such Revolving Credit Advance, the Issuing Bank
shall be entitled to recover such amount on demand from such Lender together
with interest thereon at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate or (ii) the Federal Funds Rate.

(d) INCREASED COSTS. If any change in any law or regulation or in the
interpretation thereof by any court or administrative or governmental authority
charged with the administration thereof shall either (i) impose, modify or deem
applicable any reserve, special deposit or similar requirement against letters
of credit or guarantees issued by, or assets held by, or deposits in or for the
account of, the Issuing Bank or any Lender or (ii) impose on the Issuing Bank or
any Lender any other condition regarding this Agreement or such Lender or any
Letter of Credit, and the result of any event referred to in the preceding
clause (i) or (ii) shall be to increase the cost to the Issuing Bank of issuing
or maintaining any Letter of Credit or to any Lender of purchasing any
participation therein or making any Revolving Credit Advance pursuant to Section
2.16(c) ("INCREASED LETTER OF CREDIT COSTS"), then, upon demand by the Issuing
Bank or such Lender, the Borrower shall, subject to Section 9.9 hereof, pay to
the Issuing Bank or such Lender, from time to time as specified by the Issuing
Bank or such Lender, additional amounts that shall be sufficient to compensate
the Issuing Bank or such Lender for such Increased Letter of Credit Costs.
Notwithstanding the foregoing, any demand for Increased Letter of Credit Costs
shall not include any Letter of Credit Costs with respect to any period more
than 180 days prior to the date that the Issuing Bank or any Lender gives notice
to the Borrower of such Increased Letter of Credit Costs unless the effective
date of the condition which results in the

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right to receive Increased Letter of Credit Costs is retroactive (the "INCREASED
LETTER OF CREDIT COSTS RETROACTIVE EFFECTIVE DATE"). If any Increased Letter of
Credit Costs has an Increased Costs Letter of Credit Retroactive Effective Date
and the Issuing Bank or any Lender demands compensation within 180 days after
the date setting the Increased Letter of Credit Costs Effective Date (the
"INCREASED LETTER OF CREDIT COSTS SET DATE"), the Issuing Bank or such Lender,
as appropriate, shall have the right to receive such Increased Letter of Credit
Costs from the Increased Letter of Credit Retroactive Effective Date. If the
Issuing Bank or a Lender does not demand such Increased Letter of Credit Costs
within 180 days after the Increased Letter of Credit Costs Set Date, the Issuing
Bank or such Lender, as appropriate, may not receive payment of Increased Letter
of Credit Costs with respect to any period more than 180 days prior to such
demand. A certificate as to the amount of such Increased Costs, submitted to
the Borrower by the Issuing Bank or such Lender, shall include in reasonable
detail the basis for the demand for additional compensation and shall be
conclusive and binding for all purposes, absent manifest error. The obligations
of the Borrower under this Section 2.16(d) shall survive termination of this
Agreement. The Issuing Bank or any Lender claiming any additional compensation
under this Section 2.16(d) shall use reasonable efforts (consistent with legal
and regulatory restrictions) to reduce or eliminate any such additional
compensation which may thereafter accrue and which efforts would not, in the
sole discretion of the Issuing Bank or such Lender, be otherwise
disadvantageous.

(e) OBLIGATIONS ABSOLUTE. The obligations of the Borrower under this
Agreement with respect to any Letter of Credit, any Letter of Credit Agreement
and any other agreement or instrument relating to any Letter of Credit or any
Revolving Credit Advance pursuant to Section 2.16(c) shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:

(i) any lack of validity or enforceability of this Agreement, any
other Loan Paper, any Letter of Credit Agreement, any Letter of Credit or
any other agreement or instrument relating thereto (collectively, the "L/C
RELATED DOCUMENTS");

(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations of the Borrower in respect of
the Letters of Credit or any Revolving Credit Advance pursuant to Section
2.16(c) or any other amendment or waiver of or any consent to departure
from all or any of the L/C Related Documents;

(iii) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank, any
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C Related Documents or any
unrelated transaction;

-37-

<PAGE>

(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect,
except to the extent that the failure of the Issuing Bank to determine such
insufficiency is a result of the Issuing Bank's gross negligence or wilful
misconduct;

(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms
of the Letter of Credit, except for any payment made upon the Issuing
Bank's gross negligence or willful misconduct;

(vi) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any
Subsidiary Guaranty or any other guarantee, for all or any of the
Obligations of the Borrower in respect of the Letters of Credit or any
Revolving Credit Advance pursuant to Section 2.16(c); or

(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor, other than the Issuing's Bank
gross negligence or wilful misconduct.

(f) COMPENSATION.

(i) FINANCIAL LETTERS OF CREDIT. Subject to Section 9.9 hereof, the
Borrower shall pay to the Administrative Lender for the account of each
Lender a fee (which shall be payable quarterly in arrears on each Quarterly
Date and on the Revolving Credit Maturity Date) on the average daily amount
available for drawing under all outstanding Financial Letters of Credit
(commencing on the Effective Date) at the following per annum percentages,
applicable in the following situations:

<TABLE>
<CAPTION>
APPLICABILITY PERCENTAGE
<S> <C>

(A) INITIAL PRICING PERIOD. 2.00

(B) SUBSEQUENT PRICING PERIOD.

(1) If the Leverage Ratio 2.00
is not less than 4.50 to 1

(2) If the Leverage Ratio is 1.75
less than 4.50 to 1 but is not
less than 3.75 to 1

(3) If the Leverage Ratio is 1.50
less than 3.75 to 1 but is not
less than 3.0 to 1

</TABLE>

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<PAGE>

<TABLE>
<S> <C>
(4) If the Leverage Ratio is 1.25
less than 3.0 to 1
</TABLE>

(ii) NON-FINANCIAL LETTERS OF CREDIT. Subject to Section 9.9
hereof, the Borrower shall pay to the Administrative Lender for the
account of each Lender a fee (which shall be payable quarterly in
arrears on each Quarterly Date and on the Revolving Credit Maturity
Date) on the average daily amount available for drawing under all
outstanding Non-Financial Letters of Credit (commencing on the
Effective Date) at the following per annum percentages, applicable in
the following situations:

<TABLE>
<CAPTION>
APPLICABILITY PERCENTAGE
<S> <C>

(A) INITIAL PRICING PERIOD. 1.00

(B) SUBSEQUENT PRICING PERIOD.

(1) If the Leverage Ratio 1.00
is not less than 4.50 to 1

(2) If the Leverage Ratio is 0.875
less than 4.50 to 1 but is not
less than 3.75 to 1

(3) If the Leverage Ratio is 0.750
less than 3.75 to 1 but not less
than 3.0 to 1

(4) If the Leverage Ratio is 0.625
less than 3.0 to 1
</TABLE>

(iii) ADJUSTMENT OF LETTER OF CREDIT FEE. The fee payable in
respect of the Letters of Credit shall be subject to reduction or increase,
as applicable and as set forth in the tables in (i) and (ii) above, on a
quarterly basis according to the performance of the Borrower as tested by
using the Leverage Ratio for the most recent fiscal quarter. Any such
increase or reduction in such fee shall be effective on the date of receipt
of the financial statements required pursuant to Section 5.1(A) or 5.1(B)
of the Master Covenant Agreement. If such financial statements are not
received by the date required thereunder, the fee payable in respect of the
Letters of Credit shall be determined as if the Leverage Ratio is not less
than 4.50 to 1 until such time as such financial statements are received.
Subject to Section 9.9 hereof, such fee shall be computed on the basis of a
360-day year for the actual number of days elapsed.

(iv) OTHER FEES. In addition to the foregoing fees, subject to
Section 9.9 hereof, the Borrower shall also pay to the Issuing Bank for its
sole account (i) such customary fees, costs and expenses as may be
separately agreed to between the Borrower and the Issuing Bank and (ii) a
fronting fee in the amount of 0.10% of the average daily amount

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<PAGE>

available for drawing under all outstanding Letters of Credit, which fronting
fee shall be payable quarterly in arrears on each Quarterly Date and on the
Revolving Credit Maturity Date.

(g) L/C CASH COLLATERAL ACCOUNT.

(i) Upon the occurrence and continuance of an Event of Default and
demand by the Administrative Lender pursuant to Section 6.2(c), the
Borrower will promptly pay to the Administrative Lender in immediately
available funds (which payment may not be made by means of an Advance) an
amount equal to 102% of the maximum amount then available to be drawn under
the Letters of Credit then outstanding. Any amounts so received by the
Administrative Lender shall be deposited by the Administrative Lender in a
deposit account maintained by the Issuing Bank (the "L/C CASH COLLATERAL
ACCOUNT").

(ii) As security for the payment of all Reimbursement Obligations and
for any other Obligations, the Borrower hereby grants, conveys, assigns,
pledges, sets over and transfers to the Administrative Lender (for the
benefit of the Issuing Bank and Lenders), and creates in the Administrative
Lender's favor (for the benefit of the Issuing Bank and Lenders) a Lien in,
all money, instruments and securities at any time held in or acquired in
connection with the L/C Cash Collateral Account, together with all proceeds
thereof. The L/C Cash Collateral Account shall be under the sole dominion
and control of the Administrative Lender and the Borrower shall have no
right to withdraw or to cause the Administrative Lender to withdraw any
funds deposited in the L/C Cash Collateral Account. At any time and from
time to time, upon the Administrative Lender's request, the Borrower
promptly shall execute and deliver any and all such further instruments and
documents, including UCC financing statements, as may be necessary,
appropriate or desirable in the Administrative Lender's judgment to obtain
the full benefits (including perfection and priority) of the security
interest created or intended to be created by this paragraph (ii) and of
the rights and powers herein granted. The Borrower shall not create or
suffer to exist any Lien on any amounts or investments held in the L/C Cash
Collateral Account other than (A) the Lien granted under this paragraph
(ii) and (B) Permitted Collateral Liens.

(iii) The Administrative Lender shall (A) apply any funds in the L/C
Cash Collateral Account on account of Reimbursement Obligations when the
same become due and payable if and to the extent that the Borrower shall
fail directly to pay such Reimbursement Obligations and (B) after the Term
Loan Maturity Date and provided no Letters of Credit are outstanding, apply
any proceeds remaining in the L/C Cash Collateral Account first to pay any
unpaid Obligations then outstanding hereunder and then to refund any
remaining amount to the Borrower.

(iv) The Borrower, no more than once in any calendar month, may direct
the Administrative Lender to invest the funds held in the L/C Cash
Collateral Account (so long as the aggregate amount of such funds exceeds
any relevant minimum investment

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<PAGE>

requirement) in (A) direct obligations of the United States or any
agency thereof, or obligations guaranteed by the United States or any
agency thereof and (B) one or more other types of investments
permitted by the Determining Lenders, in each case with such
maturities as the Borrower, with the consent of the Determining
Lenders, may specify, pending application of such funds on account of
Reimbursement Obligations or on account of other Obligations, as the
case may be. In the absence of any such direction from the Borrower,
the Administrative Lender shall invest the funds held in the L/C Cash
Collateral Account (so long as the aggregate amount of such funds
exceeds any relevant minimum investment requirement) in one or more
types of investments with the consent of the Determining Lenders with
such maturities as the Administrative Lender, with the consent of the
Determining Lenders, may specify, pending application of such funds on
account of Reimbursement Obligations or on account of other
Obligations, as the case may be. All such investments shall be made
in the Administrative Lender's name for the account of the Lenders.
The Borrower recognizes that any losses or taxes with respect to such
investments shall be borne solely by the Borrower, and the Borrower
agrees to hold the Administrative Lender and the Lenders harmless from
any and all such losses and taxes. Administrative Lender may
liquidate any investment held in the L/C Cash Collateral Account in
order to apply the proceeds of such investment on account of the
Reimbursement Obligations (or on account of any other Obligation then
due and payable, as the case may be) without regard to whether such
investment has matured and without liability for any penalty or other
fee incurred (with respect to which the Borrower hereby agrees to
reimburse the Administrative Lender) as a result of such application.

(v) At such time, if any, which the Revolving Credit Commitment has
been terminated and the only unpaid amount of the Obligations outstanding
is Reimbursement Obligations, the Administrative Lender shall release to
the Borrower, no more than once in any calendar month, the amount by which
funds held in the L/C Cash Collateral Account exceed 110% of the aggregate
outstanding Reimbursement Obligations. At such time as any Event of
Default is cured or waived, the Administrative Lender shall, upon written
instruction from the Borrower, promptly distribute to the Borrower any
funds held in the L/C Cash Collateral Account.

(vi) The Borrower shall pay to the Administrative Lender the fees
customarily charged by the Issuing Bank with respect to the maintenance of
accounts similar to the L/C Cash Collateral Account.

Section 2.17 BOND LETTERS OF CREDIT. The Issuing Bank has issued the
Bond Letters of Credit in the amount of the Bond Letter of Credit Commitment.
Each Lender, by executing a Participation Agreement in respect of the Bond
Letters of Credit, has severally purchased from the Issuing Bank for such
Lender's own account and risk and undivided interest equal to such Lender's
Specified Percentage in the Issuing Bank's obligations and rights under each
Bond Letter of Credit and each Reimbursement Agreement (as described in such
Participation Agreement), subject to the terms of such Participation Agreement.

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<PAGE>

Section 2.18 EXTENSION OF REVOLVING CREDIT MATURITY DATE. The Borrower
may notify the Lender in writing delivered to the Administrative Lender
simultaneously with the delivery of the annual financial statements required
pursuant to Section 5.1(B) of the Master Covenant Agreement, commencing with the
annual financial statements required to be delivered for fiscal year 1993, of
its desire to extend the Revolving Credit Maturity Date for an additional 12
months beyond the then present Revolving Credit Maturity Date. If such notice
is given by the Borrower, the Administrative Lender, by June 30 of each year
will notify the Borrower in writing of the Lenders' decision whether to extend
the Revolving Credit Maturity Date. Extension of the Revolving Credit Maturity
Date shall be at the sole option and discretion of the Lenders, and the decision
to extend the Revolving Credit Maturity Date shall require the consent of all
Lenders. If either the Borrower or the Administrative Lender fail to give
notice within the time prescribed above, the Revolving Credit Maturity Date
shall continue to be the then present Revolving Credit Maturity Date. An
extension of the Revolving Credit maturity Date pursuant to this Section 2.18
shall not require any renewal of the Revolving Credit Note or amendment or
supplement to this Agreement or any other Loan Document, unless otherwise
required by the Administrative Lender.

ARTICLE 3

CONDITIONS PRECEDENT

Section 3.1 CONDITIONS PRECEDENT TO CLOSING, THE INITIAL ADVANCE, THE
LETTERS OF CREDIT AND THE BOND LETTERS OF CREDIT. The obligation of each Lender
to sign this Agreement and to make any Advance, and the obligation of the
Issuing Bank to issue Letters of Credit, and the obligation of each Lender
(other than the Issuing Bank) to participate in the Bond Letters of Credit is
subject to receipt by the Administrative Lender of each of the following, in
form and substance satisfactory to each Lender, with a copy (except for the
Notes) for each Lender:

(a) a loan certificate of the Borrower certifying as to the accuracy of
its representations and warranties in the Loan Papers, certifying that no
Default has occurred, and including a certificate of incumbency with respect to
each Authorized Signatory, and including (i) a copy of the articles of
incorporation of the Borrower, certified to be true, complete and correct by the
secretary of state of its state of incorporation, (ii) a copy of the by-laws of
the Borrower, as in effect on the Agreement Date, (iii) a copy of the
resolutions of the Borrower authorizing it to execute, deliver and perform this
Agreement, the Notes and the other Loan Papers to which it is a party, and (iv)
a copy of a certificate of good standing and a certificate of existence for its
state of incorporation and each state in which it is qualified to do business;

(b) a certificate of an officer acceptable to the Lenders of each
Significant Subsidiary, certifying as to the incumbency of the officers signing
the Loan Papers to which it is a party, and including (i) a copy of its articles
of incorporation (or articles of partnership or other appropriate governing
documents), certified as true, complete and correct by the secretary of state of
its state of incorporation or organization, (ii) a copy of its by-laws (or
partnership

-42-
<PAGE>

agreement or other appropriate governing document), as in effect on the
Agreement Date, (iii) a copy of the resolutions authorizing it to execute,
deliver and perform the Loan Papers to which it is a party, and (iv) a copy of a
certificate of good standing and a certificate of existence for its state of
incorporation and each state in which it is qualified to do business;

(c) duly executed Revolving Credit Notes and Term Loan Notes, payable to
the order of each Lender and in an amount for each Lender equal to its Specified
Percentage of the Revolving Credit Commitment and the Term Loan Commitment,
respectively;

(d) duly executed and completed Deeds of Trust, dated as of the Agreement
Date granting to the trustee named therein for the benefit of the Administrative
Lender on behalf of the Lenders a first priority Lien (subject to Permitted
Liens as defined in the Master Covenant Agreement) in the Facilities, together
with executed financing statements related thereto;

(e) standard mortgagee's title commitments (or title reports if title
commitments are unavailable as the result of any title company refusing to issue
a commitment) as to the Facilities, together with copies of all title
exceptions, containing only title exceptions as approved by the Administrative
Lender;

(f) copies of surveys of the Facilities showing all improvements thereon
as of the Agreement Date, and including thereon or therewith a certification
that none of the Facilities is located within any flood hazard area, or if any
Facility is located within a flood hazard area, evidence of flood insurance with
respect thereto;

(g) UCC-11 searches in appropriate jurisdictions where Collateral is
located;

(h) opinions of counsel to the Borrower addressed to the Lenders and in
form and substance satisfactory to the Lenders, dated the Agreement Date, and
covering the matters set forth in Sections 4.1(a), (b), (c), (g), (l), (m) and
(o) and such other matters incident to the transactions contemplated hereby as
the Administrative Lender or Special Counsel may reasonably request and opinions
of local counsel in states other than Texas in which Facilities are located in
form and substance satisfactory to the Administrative Lender regarding the Deeds
of Trust;

(i) copies of insurance binders or certificates covering the assets of the
Borrower and meeting the requirements of Section 4.1(B) of the Master Covenant
Agreement and Section 2.2(f) of the Deeds of Trust;

(j) reimbursement for the Administrative Lender for Special Counsel's
reasonable fees and expenses rendered through the Agreement Date;

(k) evidence that all corporate or other proceedings of the Borrower and
Subsidiaries taken in connection with the transactions contemplated by this
Agreement and the other Loan Papers shall be reasonably satisfactory in form and
substance to the Lenders and Special

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<PAGE>

Counsel; and the Lenders shall have received copies of all documents or other
evidence which the Administrative Lender, Special Counsel or any Lender may
reasonably request in connection with such transactions;

(l) the amendment/extension fee as required pursuant to Sections 2.4(b);

(m) the duly executed and completed Guaranty Agreements, dated as of the
Agreement Date;

(n) receipt by the Administrative Lender of evidence, in form and
substance satisfactory to the Administrative Lender, that the Acquisition has
been completed;

(o) the duly executed amendments to the Bond Reimbursement Agreements in
form and substance satisfactory to the Issuing Bank;

(p) duly executed Participation Agreements with respect to the Bond
Letters of Credit;

(q) any fees required to be paid pursuant to the Fee Letter;

(r) the duly executed Master Covenant Agreement;

(s) the duly executed Pledge Agreements;

(t) a certificate of an officer acceptable to the Lenders, in form and
substance satisfactory to the Lenders, certifying that the execution, delivery
and performance by the Obligors of the Loan Papers will not violate or result in
a default in respect of any of the terms of the Senior Subordinated Notes;

(u) payment in full of all accrued and outstanding obligations under the
Credit Agreement; and

(v) in form and substance satisfactory to the Lenders and Special Counsel,
such other documents, instruments and certificates as the Administrative Lender
or any Lender may reasonably require in connection with the transactions
contemplated hereby, including without limitation the status, organization or
authority of the Borrower or any Subsidiary or any other Person executing a Loan
Paper, and the enforceability of the Obligation.

Section 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT.
The obligation of each Lender to make each Advance hereunder and the obligation
of the Issuing Bank to issue each Letter of Credit hereunder is subject to
fulfillment of the following conditions immediately prior to or
contemporaneously with each such Advance or issuance:

(a) With respect to Advances other than Refinancing Advances and each
issuance of a Letter of Credit, all of the representations and warranties of the
Borrower under this

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<PAGE>

Agreement, which, pursuant to Section 4.2 hereof, are made at and as of the time
of such Advance or issuance, shall be true and correct at such time in all
material respects, both before and after giving effect to the application of the
proceeds of the Advance or issuance;

(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 3.1(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Administrative Lender. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance or issuance, is received by the Administrative
Lender from the Borrower prior to the making of such Advance or issuance;

(c) There shall not exist a Default hereunder, with respect to Advances
other than Refinancing Advances, or with respect to the issuance of Letters of
Credit, or an Event of Default, with respect to any Refinancing Advance, and,
with respect to each Advance other than a Refinancing Advance, and with respect
to issuance of each Letter of Credit, the Administrative Lender shall have
received written or telephonic certification thereof by an Authorized Signatory
(which certification, if telephonic, shall be followed promptly by written
certification);

(d) The aggregate Advances and amounts available for draw under Letters of
Credit, after giving effect to such proposed Advance or Letter of Credit, shall
not exceed the maximum principal amount then permitted to be outstanding
hereunder; and

(e) The Administrative Lender shall have received all such other
certificates, reports, statements, opinions of counsel or other documents as the
Administrative Lender or any Lender may reasonably request.

Section 3.3 AETNA ADVANCE. Notwithstanding anything herein to the
contrary, the AEtna Advance shall not be made unless simultaneously therewith
the Borrower shall obtain release of liens from AEtna relating to the Collateral
and such other documents satisfactory to the Lenders evidencing that all
obligations owed AEtna have been or will be (with the proceeds of the AEtna
Advance) satisfied in full and all collateral therefor has been or will be (upon
receipt of the proceeds of the AEtna Advance) released.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Section 4.1 REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to each Lender as follows:

(a) ORGANIZATION; POWER; QUALIFICATION. As of the Agreement Date, the
respective jurisdiction of incorporation and percentage ownership by the
Borrower or another Subsidiary

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<PAGE>

of the Subsidiaries and Unincorporated Ventures listed on SCHEDULE 3 are true
and correct. Each of the Borrower and its Subsidiaries and Unincorporated
Ventures is a corporation or partnership, as designated on SCHEDULE 3, duly
organized, validly existing and in good standing under the laws of its state of
organization. Each of the Borrower and its Subsidiaries has the corporate or
other power and authority to own its properties and to carry on its business as
now being and hereafter proposed to be conducted. Each of the Borrower and its
Subsidiaries and Unincorporated Ventures is duly qualified, in good standing and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization except where the failure to be so qualified or authorized would
not have a Material Adverse Effect.

(b) AUTHORIZATION. The Borrower has corporate power and has taken all
necessary corporate action to authorize it to borrow hereunder. Each of the
Loan Parties has corporate or other power and has taken all necessary corporate
or other action to execute, deliver and perform the Loan Papers to which it is
party in accordance with the terms thereof, and to consummate the transactions
contemplated thereby. Each Loan Paper has been duly executed and delivered by
the Loan Party executing it. Each of the Loan Papers to which the Loan Parties
are party is a legal, valid and binding respective obligation of the Loan Party
executing it, enforceable in accordance with its terms, subject to the following
qualifications: (i) equitable principles generally, and (ii) Debtor Relief Laws
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of any Loan Party).

(c) COMPLIANCE WITH OTHER LOAN PAPERS AND CONTEMPLATED TRANSACTIONS. The
execution, delivery and performance by the Loan Parties of the Loan Papers to
which they are respectively a party, and the consummation of the transactions
contemplated thereby, do not and will not (i) require any consent or approval
not already obtained, (ii) violate any Applicable Law, (iii) conflict with,
result in a breach of, or constitute a default under the articles of
incorporation, by-laws, articles of partnership, partnership agreements or
similar governing documents of any Loan Party, or under any Necessary
Authorization, indenture, agreement or other instrument, to which any Loan Party
is a party or by which they or their respective properties may be bound, or
(iv) result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by any Loan Party,
except Permitted Liens.

(d) LICENSES, ETC. All Necessary Authorizations which are material have
been duly obtained, and are in full force and effect without any known conflict
with the rights of others and free from any unduly burdensome restrictions which
could reasonably be expected to have a Material Adverse Effect. The Borrower
and its Subsidiaries and Unincorporated Ventures are and will continue to be in
compliance in all material respects with all provisions thereof. No
circumstance exists which might impair the utility of the Necessary
Authorization or the right to renew such Necessary Authorization the effect of
which would have a Material Adverse Effect. No Necessary Authorization which
could reasonably be expected to have a Material Adverse Effect is the subject of
any pending or, to the best of the Borrower's knowledge, threatened challenge,
suspension, cancellation or revocation.

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<PAGE>

(e) COMPLIANCE WITH LAW. The Borrower and its Subsidiaries and
Unincorporated Ventures are in compliance in all respects with all Applicable
Laws, except where the failure to so comply would not have a Material Adverse
Effect.

(f) TITLE TO PROPERTIES. The Borrower and its Subsidiaries and
Unincorporated Ventures have good and indefeasible title to, or a valid
leasehold interest in, all of their material assets. None of their assets are
subject to any Liens, except Permitted Liens and other Liens permitted pursuant
to clause (ii) of Section 4.16 of the Master Covenant Agreement. No effective
financing statement or other Lien filing (except relating to Permitted Liens) is
on file in any state or jurisdiction that names the Borrower or any of its
Subsidiaries or Unincorporated Ventures as debtor or covers (or purports to
cover) any assets of the Borrower or any of its Subsidiaries or Unincorporated
Ventures. The Borrower and its Subsidiaries and Unincorporated Ventures have
not signed any such financing statement or filing, nor any security agreement
authorizing any Person to file any such financing statement or filing.

(g) LITIGATION. Except as reflected on SCHEDULE 2 hereto, there is no
action, suit or proceeding pending against, or, to the best of the Borrower's
knowledge, threatened against the Borrower, or in any other manner relating
directly and adversely to the Borrower or any of its Subsidiaries or
Unincorporated Ventures, or any of their properties, in any court or before any
arbitrator of any kind or before or by any governmental body in which the amount
claimed (in excess of applicable insurance) exceeds a Material Amount.

(h) TAXES. All federal, state and other tax returns of the Borrower and
its Subsidiaries and Unincorporated Ventures required by law to be filed have
been duly filed and all federal, state and other taxes, assessments and other
governmental charges or levies upon the Borrower, its Subsidiaries or
Unincorporated Ventures or any of their respective properties, income, profits
and assets, which are due and payable, have been paid, unless the same are being
diligently contested in good faith by appropriate proceedings, with adequate
reserves established therefor, and no Lien (other than a Permitted Lien) has
attached and no foreclosure, distraint, sale or similar proceedings have been
commenced. The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries and Unincorporated Ventures in respect of their respective
taxes are, in the judgment of the Borrower, adequate.

(i) FINANCIAL STATEMENTS; MATERIAL LIABILITIES. The Borrower has
furnished or caused to be furnished to the Lenders copies of its December 31,
1992 financial statements, which present fairly in accordance with GAAP the
financial position of the Borrower and its Subsidiaries and Unincorporated
Ventures as at such dates and the results of operations for the periods then
ended. The Borrower and its Subsidiaries and Unincorporated Ventures taken as a
whole have no material liabilities, contingent or otherwise, nor material
losses, except (i) as set forth in the December 31, 1992 financial statements
and (ii) in respect of the Senior Subordinated Notes.

(j) NO ADVERSE CHANGE. Since December 31, 1992, no event or circumstances
has occurred or arisen that could have a Material Adverse Effect.

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<PAGE>

(k) ERISA. None of the Borrower or its Controlled Group maintains or
contributes to any Plan other than those disclosed to the Administrative Lender
in writing. Each such Plan (other than any Multiemployer Plan) is in compliance
in all material respects with the applicable provisions of ERISA, the Code, and
any other applicable Federal or state law, rule or regulation. With respect to
each Plan (other than any Multiemployer Plan) of the Borrower and each member of
its Controlled Group, all reports required under ERISA or any other Applicable
Law to be filed with any governmental authority, the failure of which to file
could reasonably result in liability of the Borrower or any member of its
Controlled Group in excess of a Material Amount, have been duly filed. All such
reports are true and correct in all material respects as of the date given. No
Plan of the Borrower or any member of its Controlled Group has been terminated
under Section 4041(c) of ERISA nor has any accumulated funding deficiency (as
defined in Section 412(a) of the Code) been incurred (without regard to any
waiver granted under Section 412 of the Code), nor has any funding waiver from
the Internal Revenue Service been received or requested the result of which
could reasonably be expected to have Material Adverse Effect. None of the
Borrower or any member of its Controlled Group has failed to make any
contribution or pay any amount due or owing as required under the terms of any
such Plan, or by Section 412 of the Code or Section 302 of ERISA by the due date
under Section 412 of the Code and Section 302 of ERISA the result of which could
reasonably be expected to have Material Adverse Effect. There has been no ERISA
Event or any event requiring disclosure under Section 4041(c)(3)(C) or 4063(a)
of ERISA with respect to any Plan or its related trust of the Borrower or any
member of its Controlled Group since the effective date of ERISA. The present
value of the benefit liabilities, as defined in Title IV of ERISA, of each Plan
subject to Title IV of ERISA (other than a Multiemployer Plan) of the Borrower
and each member of its Controlled Group does not exceed by more than $4,000,000
the present value of the assets of each such Plan as of the most recent
valuation date using each such Plan's actuarial assumptions at such date. There
are no pending, or to the best of the Borrower's knowledge threatened, claims,
lawsuits or actions (other than routine claims for benefits in the ordinary
course) asserted or instituted against, and neither the Borrower nor any member
of its Controlled Group has knowledge of any threatened litigation or claims
against, the assets of any Plan or its related trust or against any fiduciary of
a Plan with respect to the operation of such Plan the result of which could
reasonably be expected to have Material Adverse Effect. None of the Borrower
or, to the best of the Borrower's knowledge, any member of its Controlled Group
has engaged in any prohibited transactions, within the meaning of Section 406 of
ERISA or Section 4975 of the Code, in connection with any Plan the result of
which could reasonably be expected to have Material Adverse Effect. None of the
Borrower or any member of its Controlled Group has withdrawn from any
Multiemployer Plan, nor has incurred or reasonably expects to incur (A) any
liability under Title IV of ERISA (other than premiums due under Section 4007 of
ERISA to the PBGC), (B) any withdrawal liability (and no event has occurred
which with the giving of notice under Section 4219 of ERISA would result in such
liability) under Section 4201 of ERISA as a result of a complete or partial
withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from a
Multiemployer Plan, or (C) any liability under Section 4062 of ERISA to the PBGC
or to a trustee appointed under Section 4042 of ERISA. None of the Borrower,
any member of its Controlled Group, or any organization to which the Borrower or
any member of its Controlled Group is a successor or parent corporation within
the meaning of

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ERISA Section 4069(b), has engaged in a transaction within the meaning of ERISA
Section 4069 the result of which could reasonably be expected to have Material
Adverse Effect. None of the Borrower or any member of its Controlled Group
maintains or has established any Plan, which is a material welfare benefit plan
within the meaning of Section 3(1) of ERISA and which provides for continuing
benefits or coverage for any participant or any beneficiary of any participant
after such participant's termination of employment, except as may be required by
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA")
and the regulations thereunder. Each of Borrower and its Controlled Group which
maintains a Plan which is a welfare benefit plan within the meaning of Section
3(1) of ERISA has complied in all material respects with any applicable notice
and continuation requirements of COBRA and the regulations thereunder, except to
the extent that the failure to so comply could not reasonably be expected to
have a Material Adverse Effect. None of the Borrower or any member of its
Controlled Group maintains, has established, or has ever participated in a
multiemployer welfare benefit arrangement within the meaning of Section 3(40)(A)
of ERISA.

(l) COMPLIANCE WITH REGULATIONS G, T, U AND X. The Borrower is not
engaged principally or as one of its important activities in the business of
extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System, and no part of the proceeds of the Advances or any
Letters of Credit will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. No assets of the Borrower and its Subsidiaries and Unincorporated
Ventures are margin stock. None of the Borrower and its Subsidiaries nor any
agent acting on their behalf, have taken or will knowingly take any action which
might cause this Agreement or any other Loan Papers to violate any regulation of
the Board of Governors of the Federal Reserve System or to violate the
Securities Exchange Act of 1934, in each case as in effect now or as the same
may hereafter be in effect.

(m) GOVERNMENTAL REGULATION. The Borrower and its Subsidiaries and
Unincorporated Ventures are not required to obtain any Necessary Authorization
that has not already been obtained from, or effect any material filing or
registration that has not already been effected with, any federal, state or
local regulatory authority in connection with the execution and delivery of this
Agreement or any other Loan Paper, or the performance thereof (other than
(a) any enforcement of remedies by the Administrative Lender on behalf of the
Lenders and (b) filings of certain Collateral Documents under the UCC and
appropriate real estate records), in accordance with their respective terms,
including any borrowings hereunder.

(n) ABSENCE OF DEFAULT. The Borrower and its Subsidiaries and
Unincorporated Ventures are in compliance in all respects with all of the
provisions of their articles of incorporation, by-laws, articles of partnership,
partnership agreement or other governing documents, and no event has occurred or
failed to occur, which has not been remedied or waived, the occurrence or
non-occurrence of which constitutes, or which with the passage of time or giving
of notice or both would constitute, (i) an Event of Default or (ii) a default by
the Borrower or any of its Subsidiaries or Unincorporated Ventures under any
material indenture,

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agreement or other instrument, or any judgment, decree or order to which the
Borrower or any of its Subsidiaries or Unincorporated Ventures or by which they
or any of their material properties is bound.

(o) INVESTMENT COMPANY ACT. The Borrower is not required to register
under the provisions of the Investment Company Act of 1940, as amended. Neither
the entering into or performance by the Borrower of this Agreement nor the
issuance of the Notes violates any provision of such act or requires any
consent, approval, or authorization of, or registration with, the Securities and
Exchange Commission or any other governmental or public body of authority
pursuant to any provisions of such act.

(p) ENVIRONMENTAL MATTERS. Neither the Borrower nor any Subsidiary or
Unincorporated Venture has any actual knowledge or reason to believe that any
substance deemed hazardous by any Applicable Environmental Law, has been
installed on any real property now owned by the Borrower or any of its
Subsidiaries or Unincorporated Ventures which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect. The Borrower
and its Subsidiaries and Unincorporated Ventures have complied in all respects
with all Applicable Environmental Laws except to the extent that the failure to
so comply, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. The Borrower and its Subsidiaries and
Unincorporated Ventures are not in violation in any respects of or subject to
any existing, pending or, to the best of the Borrower's knowledge, threatened
investigation or inquiry by any governmental authority or to any material
remedial obligations under any Applicable Environmental Laws, except to the
extent that the results of such investigation, inquiry or remedial obligation
would not, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect, and this representation and warranty would continue to
be true and correct following disclosure to the applicable governmental
authorities of all relevant facts, conditions and circumstances, if any,
pertaining to any real property of the Borrower and its Subsidiaries and
Unincorporated Ventures. The Borrower and its Subsidiaries and Unincorporated
Ventures have obtained all material permits, licenses or similar authorizations
necessary to construct, occupy, operate or use any buildings, improvements,
fixtures, and equipment forming a part of any real property of the Borrower or
any Subsidiary or Unincorporated Venture by reason of any Applicable
Environmental Laws, except where the failure to obtain such authorization would
not, individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. The Borrower and its Subsidiaries and Unincorporated Ventures
undertook, at the time of acquisition of any real property, reasonable inquiry
into the previous ownership and uses of such real property consistent with good
commercial or customary practice as applied and used in the real estate industry
at the time of each such acquisition. The Borrower and its Subsidiaries and
Unincorporated Ventures have taken all reasonable steps to determine, and the
Borrower and its Subsidiaries and Unincorporated Ventures have no actual
knowledge or reason to believe, after reasonable investigation, that any
hazardous substances or solid wastes have been disposed of or otherwise released
on or to the real property of the Borrower or any of its Subsidiaries or
Unincorporated Ventures, within the meaning of the Applicable Environmental
Laws, except to the extent that

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the failure to so depose or release, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.

(q) CERTAIN FEES. No broker's, finder's or other fee or commission will
be payable by the Borrower (other than to the Lenders hereunder) with respect to
the making of the Commitments or the Advances or the issuance of the Letters of
Credit hereunder. The Borrower agrees to indemnify and hold harmless the
Administrative Lender and each Lender from and against any claims, demand,
liability, proceedings, costs or expenses asserted with respect to or arising in
connection with any such fees or commissions.

(r) NECESSARY AUTHORIZATIONS. No event has occurred which permits (or
with the passage of time would permit) the revocation or termination of any
Necessary Authorization, or which could result in the imposition of any
restriction thereon, of such a nature that could reasonably be expected to have
a Material Adverse Effect.

(s) PATENTS, ETC. Except for the Borrower's new logo for which a
trademark application is pending as of the Agreement Date, the Borrower and its
Subsidiaries and Unincorporated Ventures have obtained all patents, trademarks,
service-marks, trade names, copyrights, licenses and other rights, free from
burdensome restrictions, that are necessary for the operation of their business
as presently conducted and as proposed to be conducted. Nothing has come to the
attention of the Borrower or any of its Subsidiaries or Unincorporated Ventures
to the effect that (i) any process, method, part or other material presently
contemplated to be employed by the Borrower or any Subsidiary or Unincorporated
Venture may infringe any patent, trademark, service-mark, trade name, copyright,
license or other right owned by any other Person, or (ii) there is pending or
overtly threatened any claim or litigation against or affecting the Borrower or
any Subsidiary or Unincorporated Venture contesting its right to sell or use any
such process, method, part or other material, provided with respect to clauses
(i) and (ii) that such events are limited to those which could reasonably be
expected to have a Material Adverse Effect.

(t) DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement which has been furnished to any Lender by or on behalf
of the Borrower or any Subsidiary or Unincorporated Venture in connection
herewith contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statement contained herein and
therein not misleading at the time it was furnished. There is no fact known to
the Borrower and not known to the public generally that could reasonably be
expected to materially adversely affect the assets or business of the Borrower
and its Subsidiaries and Unincorporated Ventures, or in the future could
reasonably be expected (so far as the Borrower can now foresee) to have a
Material Adverse Effect, which has not been set forth in this Agreement or in
the documents, certificates and statements furnished to the Lenders by or on
behalf of the Borrower prior to the date hereof in connection with the
transaction contemplated hereby.

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<PAGE>

(u) SOLVENCY. The Borrower is, and Borrower and its Subsidiaries and
Unincorporated Ventures on a consolidated basis are, Solvent.

Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties made under this Agreement and the other Loan
Papers shall be deemed to be made at and as of the Agreement Date and at and as
of the date of each Advance and issuance of each Letter of Credit, and each
shall be true and correct when made, except to the extent (a) previously
fulfilled in accordance with the terms hereof, (b) applicable to a specific date
or otherwise subsequently inapplicable or modified to give effect to the
transactions expressly permitted hereby, or (c) previously waived in writing by
the Determining Lenders with respect to any particular factual circumstance.
All such representations and warranties shall survive, and not be waived by, the
execution hereof by any Lender, any investigation or inquiry by any Lender, or
by the making of any Advance or the issuance of any Letter of Credit under this
Agreement.

ARTICLE 5

GENERAL COVENANTS

So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):

Section 5.1 FACILITIES. At any time and from time to time (a) prior to
the occurrence of a Default or Event of Default but in no event more than once
every thirty-six months (or such other more frequent intervals as may be
required by any governmental or regulatory authority) or (b) after the
occurrence of a Default or Event of Default, the Determining Lenders shall have
the right to obtain, or cause the Borrower to obtain, in their reasonable
discretion, title insurance (provided, however, notwithstanding the above, title
insurance shall only be required to be obtained one time during the term of this
Agreement), environmental reviews (provided, however, the environmental reviews
will be initially limited to Phase I environmental audits and site assessments
and will not be expanded to include additional audits and assessments unless the
Determining Lenders reasonably determine that the results of such Phase I review
indicate a potential environmental condition that cannot be properly analyzed or
assessed without an additional audit and assessment), current surveys and
appraisals on all or any of the Facilities. The Borrower agrees to pay all
reasonable and customary fees, expenses and costs related to such title
insurance, environmental reviews and appraisals. If as a result of obtaining
any title insurance, environmental reviews, current surveys or appraisals, the
Determining Lenders determine that there exists (a) to the extent not covered by
title insurance, a defect in title to a Facility or any part thereof (including
without limitation any liens, charges, easements or encumbrances (other than
Permitted Collateral Liens) against a Facility or any part thereof or failure of
the Borrower to have legal title to a Facility or any part thereof) (a "Title
Defect"), (b) to the extent not covered by title insurance, a defect in the lien
in a Facility or any part thereof granted pursuant to the Deeds of Trust as a
result of an incorrect legal description or the

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failure of any Deed of Trust to effectively grant a first lien (subject to
Permitted Collateral Liens) in a Facility or any part thereof (a "LIEN DEFECT")
or (c) an environmental condition with respect to a Facility or any part thereof
(an "ENVIRONMENTAL DEFECT"), the result of which with respect to clauses (a),
(b) and (c) above collectively when taken together with all Title Defects, Lien
Defects and Environmental Defects with respect to the other Facilities, causes a
reduction in the aggregate collateral value of the Facilities of at least
$8,000,000 (a "COLLATERAL DEFICIENCY"), the Borrower shall, at its option,
within 60 days after receipt of written notice from the Administrative Lender to
the Borrower of such Collateral Deficiency either (A) substitute additional
collateral ("ADDITIONAL COLLATERAL") having a value (determined by the
Administrative Lender using a common method of valuation for property with the
Collateral Deficiency and the Additional Collateral) of at least the value of
the Facility being replaced without giving effect to the Collateral Deficiency,
(B) eliminate the Collateral Deficiency in whole by curing such Title Defect or
Lien Defect to the satisfaction of the Determining Lenders or (C) commence and
continue procedures to eliminate the Collateral Deficiency in whole by curing
such Environmental Condition to the satisfaction of the Determining Lenders,
unless in the opinion of the Determining Lenders such Environmental Condition is
not capable of being cured within one year, in which case the Borrower shall
provide the Additional Collateral as set forth in clause (A) above. Knowledge
of any Lender on the Agreement Date of any Title Defect, Lien Defect or
Environmental Defect shall not prejudice or affect any Lender's rights
hereunder.

Section 5.2 USE OF PROCEEDS. The Borrower shall use the proceeds of
(a) Revolving Credit Commitment for working capital and general corporate
purposes and (b) the Term Loan Commitment, to (i) purchase partnership interests
in the Unincorporated Ventures set forth on SCHEDULE 6 hereto, (ii) refinance
outstanding Debt (other than Subordinated Debt) of the Borrower, (iii) complete
the Acquisition and (iv) pay off all obligations owed to AEtna.

Section 5.3 INDEMNITY.

(a) The Borrower agrees to defend, protect, indemnify and hold harmless
the Administrative Lender, each Lender, each of their respective Affiliates, and
each of their respective (including such Affiliates') officers, directors,
employees, agents, attorneys, shareholders and consultants (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth herein) of each of the foregoing
(collectively, "INDEMNITEES") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the fees and disbursements of counsel for such Indemnitees
in connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto), imposed
on, incurred by, or asserted against such Indemnitees (whether direct, indirect
or consequential and whether based on any federal, state, or local laws and
regulations, under common law or at equitable cause, or on contract, tort or
otherwise, arising from or connected with the past, present or future operations
of the Borrower or its predecessors in interest, or the past, present or future
environmental condition of property of the Borrower), in any manner relating to
or

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arising out of this Agreement, the Loan Papers, or any act, event or transaction
or alleged act, event or transaction relating or attendant thereto, the making
of any participations in the Advances, the Letters of Credit or the Bond Letters
of Credit and the management of the Advances, the Letters of Credit or the Bond
Letters of Credit, including in connection with, or as a result, in whole or in
part, of any negligence of Administrative Lender or any Lender (other than those
matters raised exclusively by a participant against the Administrative Lender or
any Lender and not the Borrower), or the use or intended use of the proceeds of
the Advances or the Letters of Credit hereunder, or in connection with any
investigation of any potential matter covered hereby, but excluding (i) any
claim or liability that arises as the result of the gross negligence or willful
misconduct of any Indemnitee, as finally judicially determined by a court of
competent jurisdiction, and (ii) matters raised by one Lender against another
Lender or by any shareholders of a Lender against a Lender or its management
(collectively, "INDEMNIFIED MATTERS"). To the extent that any Indemnified
Matter involves one or more Indemnitees, such Indemnitees shall use the same
legal counsel unless any Indemnitee in its reasonable discretion determines that
conflicts exist or may arise in connection with such representation.

(b) In addition, the Borrower shall periodically, upon request, reimburse
each Indemnitee for its reasonable legal and other actual expenses (including
the cost of any investigation and preparation) incurred in connection with any
Indemnified Matter. If for any reason the foregoing indemnification is
unavailable to any Indemnitee or insufficient to hold any Indemnitee harmless
with respect to Indemnified Matters, then the Borrower shall contribute to the
amount paid or payable by such Indemnitee as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the Borrower and the Borrower's stockholders on
the one hand and such Indemnitee on the other hand but also the relative fault
of the Borrower and such Indemnitee, as well as any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations under
this Section shall be in addition to any liability which the Borrower may
otherwise have, shall extend upon the same terms and conditions to each
Indemnitee, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Borrower, the
Administrative Lender, the Lenders and all other Indemnitees. This Section
shall survive any termination of this Agreement and payment of the Obligations.

ARTICLE 6

DEFAULT

Section 6.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
non-governmental body:

(a) The Borrower fails to make any payment of principal on any Note,
Reimbursement Obligation or obligation in respect of any Bond Letter of Credit
on the date such payment is due;

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(b) The Borrower fails to make any payment of interest on any Note,
Reimbursement Obligation or any other costs, fees, expenses or other amounts
payable hereunder or under the other Loan Papers within one Business Day after
the date such payment is due;

(c) The Borrower or any Subsidiary or Unincorporated Venture fails to
perform or observe any other covenant in this Agreement or any other Loan Paper
(other than the Master Covenant Agreement) to be performed or observed by it and
such failure continues for a period of 30 days after any Lender has given
written notice specifying such failure to the Borrower;

(d) Any material warranty or representation by or on behalf of the
Borrower or any Subsidiary or Unincorporated Venture contained in this Agreement
or any other Loan Paper is false or misleading in any material respect;

(e) The Borrower or any Subsidiary or Unincorporated Venture fails to make
any payment due on any other Debt in an aggregate amount of at least $1,000,000
beyond any applicable grace period, including any extension thereof, or the
Company, or any Subsidiary fails to perform or observe any other provision
contained in any such Debt or any agreement securing or relating to such Debt if
and only if the effect of such failure to make such payment or to perform or
observe such other provision is to cause or permit the holder of such Debt or
any Person acting on such holder's behalf to cause such Debt to become due prior
to its stated maturity;

(f) The Borrower or any Significant Subsidiary or Unincorporated Venture
(other than Insolvent Unincorporated Ventures)(i) shall become insolvent, (ii)
shall fail to pay its debts generally as they become due, (iii) shall make a
general assignment for the benefit of creditors, (iv) shall voluntarily seek,
consent to, or acquiesce in the benefit of any Debtor Relief Law, (v) shall
become a party to or is made the subject of any proceeding provided for by any
Debtor Relief Law, other than as a creditor or claimant (unless, in the event
such proceeding is involuntary, the petition instituting same is dismissed
within 60 days after its filing), or (vi) take any corporate or other action for
the purpose of effecting any of the foregoing;

(g) The Borrower or any Subsidiary or Unincorporated Venture fails to have
discharged, within a period of 45 days after the expiration of all rights of
appeal, any judgment, warrant of attachment, sequestration, or similar
proceeding against any of its respective assets with a value, individually or
collectively, in excess of a Material Amount;

(h) The Borrower or any Subsidiary or Unincorporated Venture shall fail to
perform or observe, beyond any grace period provided with respect thereto and
provided that the Borrower has been given a notice of default with respect to,
any covenant contained in that certain Master Covenant Agreement;

(i) Any material provision of any Loan Paper after delivery
thereof hereunder shall for any reason cease to be valid and binding on the
Person (other than any Lender) executing such Loan Paper, or the Borrower or
such Person shall so state in writing;

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(j) Collateral Documents after delivery thereof hereunder shall
for any reason (other than pursuant to the terms thereof) cease to create a
valid and perfected first priority Lien (subject to Permitted Collateral Liens)
in Collateral having an aggregate fair market value in excess of a Material
Amount;

(k) The aggregate value of the Collateral shall be reduced
(whether by damage, destruction, condemnation, execution or other process of law
or otherwise) by at least $4,000,000, after taking into account all repairs
thereto and replacements and substitutions thereof by the Borrower within 90
days of the event that resulted in such reduction of value;

(l) The Borrower abandons all or any portion of the Collateral
having a fair market value, in the aggregate, in excess of a Material Amount
without acquiring Collateral of equal or greater value and use to the
Collateral so abandoned within 90 days of such abandonment;

(m) A final judgment or judgments for the payment of money shall
be entered by a court or courts against the Borrower or any Subsidiary or
Unincorporated Venture and such judgment or judgments remain unstayed or
undischarged for a period of 30 days from the date of entry thereof and the
aggregate amount of all such judgments exceeds a Material Amount (net of actual
insurance coverage if the Lenders receive evidence satisfactory to them that
coverage exists);

(n) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other
party-in-interest or disqualified person shall engage in transactions which in
the aggregate would reasonably result in a direct or indirect liability to the
Borrower or any member of its Controlled Group in excess of $100,000 under
Section 409 or 502 of ERISA or Section 4975 of the Code; (ii) the Borrower or
any member of its Controlled Group shall incur any accumulated funding
deficiency, as defined in Section 412 of the Code, in the aggregate in excess of
$100,000, or request a funding waiver from the Internal Revenue Service for
contributions in the aggregate in excess of $100,000; (iii) the Borrower or any
member of its Controlled Group shall incur any withdrawal liability in the
aggregate in excess of $100,000 as a result of a complete or partial withdrawal
within the meaning of Section 4203 or 4205 of ERISA, or any other liability with
respect to a Plan in excess of $100,000, unless the amount of such liability has
been funded within the Plan or pursuant to one or more insurance contracts; (iv)
the Borrower or any member of its Controlled Group shall fail to make a required
contribution by the due date under Section 412 of the Code or Section 302 of
ERISA which would result in the imposition of a lien under Section 412 of the
Code or Section 302 of ERISA; (v) the Borrower, any member of its Controlled
Group or any Plan sponsor shall notify the PBGC of an intent to terminate, or
the PBGC shall institute proceedings to terminate, or the PBGC shall institute
proceedings to terminate, any Plan subject to Title IV of ERISA; (vi) a
Reportable Event shall occur with respect to a Plan subject to Title IV of
ERISA, and within 15 days after the reporting of such Reportable Event to the
Administrative Lender, the Administrative Lender shall have notified the
Borrower in writing that the Determining Lenders have made a determination that,
on the basis of such Reportable Event, there are reasonable grounds for the
termination of such Plan by the PBGC or for the

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appointment by the appropriate United States District Court of a trustee to
administer such Plan and as a result thereof an Event of Default shall have
occurred hereunder; (vii) a trustee shall be appointed by a court of competent
jurisdiction to administer any Plan or the assets thereof; (viii) the benefits
of any Plan shall be increased, or the Borrower or any member of its Controlled
Group shall begin to maintain, or begin to contribute to, any Plan, without the
prior written consent of the Determining Lenders; or (ix) any ERISA Event with
respect to a Plan subject to Title IV of ERISA shall have occurred, and 30 days
thereafter (A) such ERISA Event, other than such event described in clause (f)
of the definition of ERISA Event herein, (if correctable) shall not have been
corrected and (B) the then present value of such Plan's benefit liabilities, as
defined in Title IV of ERISA, shall exceed the then current value of assets
accumulated in such Plan; provided, however, that the events listed in
subsections (v) through (ix) shall constitute Events of Default only if, as of
the date thereof or any subsequent date, the amount of liability that the
Borrower or any member of its Controlled Group reasonably is likely to incur in
the aggregate under Section 4062, 4063, 4064, 4219 or 4023 of ERISA or any other
provision of law with respect to all such Plans, computed by the actuary of the
Plan taking into account any applicable rules and regulations of the PBGC at
such time, and based on the actuarial assumptions used by the Plan, resulting
from or otherwise associated with such event exceeds $100,000; or

(o) A Change of Control shall have occurred.

Section 6.2 REMEDIES. If an Event of Default shall have
occurred and shall be continuing:

(a) With the exception of an Event of Default specified in
Section 6.1(f) hereof, the Administrative Lender shall, upon the direction of
the Determining Lenders, terminate the Commitments and/or declare the principal
of and interest on the Advances and all Obligations and other amounts owed under
the Loan Papers to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Papers to the contrary notwithstanding.

(b) Upon the occurrence of an Event of Default specified in
Section 6.1(f) hereof, such principal, interest and other amounts shall
thereupon and concurrently therewith become due and payable and the Commitments
shall automatically forthwith terminate, all without any action by the
Administrative Lender, any Lender or any holders of the Notes and without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in the Loan Papers to the contrary notwithstanding.

(c) If any Letter of Credit shall be then outstanding, the
Administrative Lender may demand upon the Borrower to, and forthwith upon such
demand, the Borrower shall, pay to the Administrative Lender in same day funds
at the office of the Administrative Lender in such demand for deposit in the L/C
Cash Collateral Account, an amount equal to 102% of the maximum amount available
to be drawn under the Letters of Credit then outstanding.

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(d) The Administrative Lender, and the Lenders may exercise all
of the post-default rights granted to them under the Loan Papers or under
Applicable Law.

(e) The rights and remedies of the Administrative Lender and the
Lenders hereunder shall be cumulative, and not exclusive.

ARTICLE 7

CHANGES IN CIRCUMSTANCES

Section 7.1 LIBOR BASIS OR CD BASIS DETERMINATION INADEQUATE.
If with respect to any proposed LIBOR Advance or CD Advance for any Interest
Period, any Lender determines that (i) deposits in dollars (in the applicable
amount) are not being offered to that Lender in the relevant market for such
Interest Period or (ii) the LIBOR Basis for such proposed LIBOR Advance or the
CD Basis for such proposed CD Advance does not adequately cover the cost to such
Lender of making and maintaining such proposed LIBOR Advance or CD Advance for
such Interest Period, such Lender shall forthwith give notice thereof to the
Borrower, whereupon until such Lender notifies the Borrower that the
circumstances giving rise to such situation no longer exist, the obligation of
such Lender to make LIBOR Advances or CD Advances, as appropriate, shall be
suspended.

Section 7.2 ILLEGALITY. If any applicable law, rule or
regulation, or any change therein or adoption thereof, or interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its LIBOR Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency, shall make it unlawful or impossible for such Lender (or its
LIBOR Lending Office) to make, maintain or fund its LIBOR Advances or CD
Advances, such Lender shall so notify the Borrower and the Administrative
Lender. Before giving any notice to the Borrower pursuant to this Section, the
notifying Lender shall designate a different LIBOR Lending Office or other
lending office if such designation will avoid the need for giving such notice
and will not, in the sole judgment of the Lender, be materially disadvantageous
to the Lender. Upon receipt of such notice, notwithstanding anything contained
in Article 2 hereof, the Borrower shall repay in full the then outstanding
principal amount of each LIBOR Advance or CD Advance, as appropriate, owing to
the notifying Lender, together with accrued interest thereon, on either (a) the
last day of the Interest Period applicable to such Advance, if the Lender may
lawfully continue to maintain and fund such Advance to such day, or (b)
immediately, if the Lender may not lawfully continue to fund and maintain such
Advance to such day. Concurrently with repaying each affected LIBOR Advance or
CD Advance, as appropriate, owing to such Lender, notwithstanding anything
contained in Article 2 hereof, the Borrower shall borrow a Prime Rate Advance
from such Lender, and such Lender shall make such Prime Rate Advance, in an
amount such that the outstanding principal amount of the Advances owing to such
Lender shall

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equal the outstanding principal amount of the Advances owing immediately prior
to such repayment.

Section 7.3 INCREASED COSTS.

(a) If any applicable law, rule or regulation, or any change in or
adoption of any law, rule or regulation, or any interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof or compliance by any Lender
(or its LIBOR Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or compatible
agency:

(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax
(net of any tax benefit engendered thereby) with respect to its LIBOR
Advances or its obligation to make such Advances, or shall change the basis
of taxation of payments to a Lender (or to its LIBOR Lending Office) of the
principal of or interest on its LIBOR Advances or in respect of any other
amounts due under this Agreement, as the case may be, or its obligation to
make such Advances (except for changes in the rate of tax on the overall
net income, net worth or capital of the Lender and franchise taxes, doing
business taxes or minimum taxes imposed upon such Lender); or

(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's
LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending
Office) or on the United States market for certificates of deposit or the
London interbank market any other condition affecting its LIBOR Advances or
its obligation to make such Advances;

and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any CD Advances or LIBOR
Advances, or to reduce the amount of any sum received or receivable by a Lender
(or its LIBOR Lending Office) with respect thereto, by an amount deemed by a
Lender to be material ("INCREASED ADVANCE COSTS"), then, within 15 days after
demand by a Lender, the Borrower agrees to pay to such Lender such additional
amount as will compensate such Lender for such increased costs or reduced
amounts, subject to Section 9.9 hereof. The affected Lender will as soon as
practicable notify the Borrower of any event of which it has knowledge,
occurring after the date hereof, which will entitle such Lender to compensation
pursuant to this Section and will designate a different LIBOR Lending Office or
other lending office if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole judgment of the affected
Lender made in good faith, be materially disadvantageous to such Lender.
Notwithstanding the foregoing, any Lender's demand for Increased Advance Costs
shall not include any Increased Advance Costs with respect to any period more
than 180 days prior to the date that such Lender gives notice to the Borrower of
such Increased Advance Costs unless the effective date of the condition which
results in the right to receive Increased Advance Costs is retroactive (the

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"INCREASED ADVANCE COSTS RETROACTIVE EFFECTIVE DATE"). If any Increased Advance
Costs has an Increased Advance Costs Retroactive Effective Date and any Lender
demands compensation within 180 days after the date setting the Increased
Advance Costs Retroactive Effective Date (the "INCREASED ADVANCE COSTS SET
DATE"), such Lender shall have the right to receive such Increased Advance Costs
from the Increased Advance Costs Retroactive Effective Date. If a Lender does
not demand such Increased Advance Costs within 180 days after the Increased
Advance Costs Set Date, such Lender may not receive payment of Increased Advance
Costs with respect to any period more than 180 days prior to such demand.

(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder and
calculations therefor shall be conclusive in the absence of manifest error. In
determining such amount, a Lender may use any reasonable averaging and
attribution methods. If a Lender demands compensation under this Section, the
Borrower may at any time, upon at least five Business Days' prior notice to the
Lender, after reimbursement to the Lender by the Borrower in accordance with
this Section of all costs incurred, prepay in full the then outstanding LIBOR
Advances or CD Advances, as appropriate, of the Lender, together with accrued
interest thereon to the date of prepayment, along with any reimbursement
required under Section 2.9 hereof. Concurrently with prepaying such LIBOR
Advances or CD Advances, as appropriate, the Borrower shall borrow a Prime Rate
Advance from the Lender, and the Lender shall make such Prime Rate Advance, in
an amount such that the outstanding principal amount of the Advances owing to
such Lender shall equal the outstanding principal amount of the Advances owing
immediately prior to such prepayment.

Section 7.4 EFFECT ON PRIME RATE ADVANCES. If notice has been given
pursuant to Section 7.1, 7.2 or 7.3 hereof suspending the obligation of a Lender
to make LIBOR Advances or CD Advances, or requiring LIBOR Advances or CD
Advances of a Lender to be repaid or prepaid, then, unless and until the Lender
notifies the Borrower that the circumstances giving rise to such repayment no
longer apply, all Advances which would otherwise be made by such Lender as LIBOR
Advances or CD Advances shall be made instead as Prime Rate Advances.

Section 7.5 CAPITAL ADEQUACY. If either (a) the introduction of or any
change in or in the interpretation of any law, rule or regulation or (b)
compliance by a Lender with any law, rule or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's Commitment or Advances hereunder
and other commitments or advances of such Lender of this type, then, upon demand
by such Lender, subject to Section 9.9, the Borrower shall immediately pay to
such Lender, from time to time as specified by such Lender, additional amounts
sufficient to compensate such Lender with respect to such circumstances
(collectively, "ADDITIONAL COSTS"), to the extent that such Lender reasonably
determines in good faith such increase in capital to be allocable to the
existence of such Lender's Commitment hereunder. Notwithstanding the foregoing,
any Lender's demand for Additional

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Costs shall not include any Additional Costs with respect to any period more
than 180 days prior to the date that such Lender gives notice to the Borrower of
such Additional Costs unless the effective date of the Regulatory Modification
which results in the right to receive Additional Costs is retroactive (the
"REGULATORY MODIFICATION RETROACTIVE EFFECTIVE DATE"). If any Regulatory
Modification has a Regulatory Modification Retroactive Effective Date and any
Lender demands compensation within 180 days after the date setting the
Regulatory Modification Retroactive Effective Date (the "Regulatory Modification
Set Date"), such Lender shall have the right to receive such Additional Costs
from the Regulatory Modification Retroactive Effective Date. If a Lender does
not demand such Additional Costs within 180 days after the Regulatory
Modification Set Date, such Lender may not receive payment of Additional Costs
with respect to any period more than 180 days prior to such demand. A
certificate as to such amounts submitted to the Borrower by a Lender hereunder,
shall, in the absence of manifest error, be conclusive and binding for all
purposes.

ARTICLE 8

AGREEMENT AMONG LENDERS

Section 8.1 AGREEMENT AMONG LENDERS. The Lenders agree among themselves
that:

(a) ADMINISTRATIVE LENDER. Each Lender hereby appoints the Administrative
Lender as its nominee in its name and on its behalf, to receive all documents
and items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Papers; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, unless and until the Administrative Lender shall have received
such requests, the Administrative Lender may take such administrative action, or
refrain from taking such administrative action, as it may deem advisable and in
the best interests of the Lenders; to arrange the means whereby the proceeds of
the Advances of the Lenders are to be made available to the Borrower; to
distribute promptly to each Lender information, requests and documents received
from the Borrower, and each payment (in like funds received) with respect to any
of such Lender's Advances, fee or other amount; and to deliver to the Borrower
requests, demands, approvals and consents received from the Lenders.
Administrative Lender agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and payments
received from the Borrower.

(b) REPLACEMENT OF ADMINISTRATIVE LENDER. Should the Administrative
Lender or any successor Administrative Lender ever cease to be a Lender
hereunder, or should the Administrative Lender or any successor Administrative
Lender ever resign as Administrative Lender, or should the Administrative Lender
or any successor Administrative Lender ever be removed with cause by the
Determining Lenders, then the Lender appointed by the other Lenders shall
forthwith become the Administrative Lender, and the Borrower and the Lenders
shall execute such documents as any Lender may reasonably request to reflect
such change. Any resignation or removal of the Administrative Lender or any
successor Administrative Lender

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shall become effective upon the appointment by the Lenders of a successor
Administrative Lender; provided, however, that if the Lenders fail for any
reason to appoint a successor within 60 days after such removal or resignation,
the Administrative Lender or any successor Administrative Lender (as the case
may be) shall thereafter have no obligation to act as Administrative Lender
hereunder.

(c) EXPENSES. Each Lender shall pay its pro rata share, based on its
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Papers if Administrative Lender
does not receive reimbursement therefor from other sources within 60 days after
the date incurred, unless payment of such fees is being diligently disputed by
such Lender or the Borrower in good faith. Any amount so paid by the Lenders to
the Administrative Lender shall be returned by the Administrative Lender pro
rata to each paying Lender to the extent later paid by the Borrower or any other
Person on the Borrower's behalf to the Administrative Lender.

(d) DELEGATION OF DUTIES. The Administrative Lender may execute any of
its duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.

(e) RELIANCE BY ADMINISTRATIVE LENDER. The Administrative Lender and its
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected the Administrative Lender. The Administrative Lender may, in
its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.

(f) LIMITATION OF ADMINISTRATIVE LENDER'S LIABILITY. Neither the
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Papers or be responsible
for the consequences of any error of judgment, except for its or their own gross
negligence or wilful misconduct. Except as aforesaid, the Administrative Lender
shall be under no duty to enforce any rights with respect to any of the
Advances, or any security therefor. The Administrative Lender shall not be
compelled to do any act hereunder or to take any action towards the execution or
enforcement of the powers hereby created or to prosecute or defend any suit in
respect hereof, unless indemnified to its satisfaction against loss, cost,
liability and expense. The Administrative Lender shall not be responsible in
any manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Papers, or for any representation,
warranty, document, certificate, report or statement made herein or furnished in
connection with any Loan Papers, or be under any obligation to any Lender to
ascertain or to inquire as to the performance or observation of any of the
terms,

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covenants or conditions of any Loan Papers on the part of the Borrower. To the
extent not reimbursed by the Borrower, each Lender hereby jointly and severally
indemnifies and holds harmless the Administrative Lender, pro rata according to
its Specified Percentage, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and/or
disbursements of any kind or nature whatsoever which may be imposed on, asserted
against, or incurred by the Administrative Lender in any way with respect to any
Loan Papers or any action taken or omitted by the Administrative Lender under
the Loan Papers (including any negligent action of the Administrative Lender),
except to the extent the same result from gross negligence or wilful misconduct
by the Administrative Lender.

(g) LIABILITY AMONG LENDERS. No Lender shall incur any liability (other
than the sharing of expenses and other matters specifically set forth herein and
in the other Loan Papers) to any other Lender, except for acts or omissions in
bad faith.

(h) RIGHTS AS LENDER. With respect to its commitment hereunder, the
Advances made by it and Note issued to it, the Administrative Lender shall have
the same rights as a Lender and may exercise the same as though it were not the
Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder and without
any duty to account therefor to the Lenders.

Section 8.2 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Lender or any
other Lender and based upon the financial statements delivered to such Lender by
the Borrower, and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Lender or any other Lender and based
upon such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Papers.

Section 8.3 BENEFITS OF ARTICLE. None of the provisions of this Article
shall inure to the benefit of any Person other than Lenders; consequently, no
Person shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of the Administrative Lender or any Lender to comply
with such provisions.

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ARTICLE 9

MISCELLANEOUS

Section 9.1 NOTICES.

(a) All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been given on the date personally delivered
or sent by telecopy (answerback received), or three days after deposit in the
mail, designated as certified mail, return receipt requested, postage-prepaid,
or one day after being entrusted to a reputable commercial overnight delivery
service, or one day after being delivered to the telegraph office or sent out by
telex addressed to the party to which such notice is directed at its address
determined as provided in this Section. All notices and other communications
under this Agreement shall be given to the parties hereto at the following
addresses:

(i) If to the Borrower, at:

La Quinta Inns, Inc.
112 E. Pecan Street
San Antonio, Texas 78205
Attn: Dewey Chambers, Treasurer

(ii) If to the Administrative Lender, at:

NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Douglas E. Hutt, Senior Vice President

(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.

(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.

Section 9.2 EXPENSES. The Borrower shall promptly pay:

(a) all reasonable out-of-pocket expenses of the Administrative Lender in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Papers, the transactions contemplated hereunder and
thereunder, and the making of Advances hereunder, including without limitation
the reasonable fees and disbursements of Special Counsel;

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(b) all reasonable out-of-pocket expenses and attorneys' fees of the
Administrative Lender in connection with the administration of the transactions
contemplated in this Agreement and the other Loan Papers and the preparation,
negotiation, execution and delivery of any waiver, amendment or consent by the
Lenders relating to this Agreement or the other Loan Papers; and

(c) all costs, out-of-pocket expenses and attorneys' fees of the
Administrative Lender and each Lender incurred for enforcement, collection,
restructuring, refinancing and "work-out", or otherwise incurred in obtaining
performance under the Loan Papers, and all costs and out-of-pocket expenses of
collection if default is made in the payment of the Notes, which in each case
shall include without limitation fees and expenses of consultants, counsel for
the Administrative Lender and any Lender, and administrative fees for the
Administrative Lender.

Section 9.3 WAIVERS. The rights and remedies of the Lenders under this
Agreement and the other Loan Papers shall be cumulative and not exclusive of any
rights or remedies which they would otherwise have. No failure or delay by the
Administrative Lender or any Lender in exercising any right shall operate as a
waiver of such right. The Lenders expressly reserve the right to require strict
compliance with the terms of this Agreement in connection with any funding of a
request for an Advance or the issuance of any Letter of Credit. In the event
that any Lender decides to fund an Advance or the Issuing Bank decides to issue
a Letter of Credit at a time when the Borrower is not in strict compliance with
the terms of this Agreement, such decision by such Lender shall not be deemed to
constitute an undertaking by the Lender to fund any further requests for
Advances or the Issuing Bank to honor any further requests for Letters of Credit
or preclude the Lenders from exercising any rights available under the Loan
Papers or at law or equity. Any waiver or indulgence granted by the Lenders
shall not constitute a modification of this Agreement, except to the extent
expressly provided in such waiver or indulgence, or constitute a course of
dealing by the Lenders at variance with the terms of the Agreement such as to
require further notice by the Lenders of the Lenders' intent to require strict
adherence to the terms of the Agreement in the future. Any such actions shall
not in any way affect the ability of the Administrative Lender or the Lenders,
in their discretion, to exercise any rights available to them under this
Agreement or under any other agreement, whether or not the Administrative Lender
or any of the Lenders are a party thereto, relating to the Borrower.

Section 9.4 DETERMINATION BY THE LENDERS CONCLUSIVE AND BINDING. Any
material determination required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent manifest
error, be conclusive and binding on all parties.

Section 9.5 SET-OFF. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, each Lender and any subsequent holder of any
Note, and any assignee or participant in any Note is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or any
other Person, any such notice being hereby expressly waived, to

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set-off, appropriate and apply any deposits (general or special (except trust
and escrow accounts), time or demand, including without limitation Debt
evidenced by certificates of deposit, in each case whether matured or unmatured)
and any other Debt at any time held or owing by such Lender or holder to or for
the credit or the account of the Borrower, against and on account of the
Obligations and other liabilities of the Borrower to such Lender or holder,
irrespective of whether or not (a) the Lender or holder shall have made any
demand hereunder, or (b) the Lender or holder shall have declared the principal
of and interest on the Advances and other amounts due hereunder to be due and
payable as permitted by Section 6.2 and although such obligations and
liabilities, or any of them, shall be contingent or unmatured. Any sums
obtained by any Lender or by any assignee, participant or subsequent holder of
any Note shall be subject to pro rata treatment of all Obligations and other
liabilities hereunder.

Section 9.6 ASSIGNMENT.

(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Papers without the prior written
consent of the Lenders.

(b) No Lender shall be entitled to assign its interest in this Agreement,
its Notes or its Advances, except as hereinafter set forth.

(c) With the prior written consent of the Borrower (which consent may be
withheld for any reason or for no reason), a Lender may at any time sell
participations in all or any part of its Advances, its Total Commitment, and all
other interests of such Lender under this Agreement and the other Loan Papers,
including but not limited to the Letters of Credit, the Reimbursement
Obligations and the Bond Letters of Credit (collectively, "PARTICIPATIONS") to
any banks or other financial institutions ("PARTICIPANTS") provided that such
Participation shall not confer on any Person (other than the parties hereto) any
right to vote on, approve or sign amendments or waivers, or any other
independent benefit or any legal or equitable right, remedy or other claim under
this Agreement or any other Loan Papers, other than the right to vote on,
approve, or sign amendments or waivers or consents with respect to items that
would result in (i) any increase in the commitment of any Participant; or
(ii)(A) the extension of the date of maturity of, or (B) the extension of the
due date for any payment of principal, interest or fees respecting, or (C) the
reduction of the amount of any installment of principal or interest on or the
change or reduction of any mandatory reduction required hereunder, or (D) a
reduction of the rate of interest on, the Advances, the Letters of Credit, the
Bond Letters of Credit or the Reimbursement Obligations, or change in Applicable
Revolving Margin or the Applicable Term Margin; or (iii) the release of
security for the Obligations having a value in excess of a Material Amount,
including without limitation any guarantee; or (iv) the reduction of any fees
payable hereunder. Notwithstanding the foregoing, the Borrower agrees that the
Participants shall be entitled to the benefits of Article 7 and Section 9.5
hereof as though they were Lenders and the Lenders may provide copies of all
financial information received from the Borrower to such Participants. To the
fullest extent it may effectively do so under Applicable Law, the Borrower
agrees that any Participant may exercise any and all rights of banker's lien,
set-off and counterclaim with respect to this Participation as fully as if such
Participant were the holder of

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the Advances in the amount of its Participation. Notwithstanding anything in
this Section 9.6(c) to the contrary, a Lender may sell Participations to its
affiliates without the prior written consent of the Borrower.

(d) Each Lender may assign to one or more financial institutions or funds
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country,
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business (each, an "ASSIGNEE") its rights
and obligations under this Agreement and the other Loan Papers; PROVIDED,
HOWEVER, that (i) except as otherwise provided herein, each such assignment
shall be subject to the prior written consent of the Administrative Lender and
the Borrower (which consent shall not be unreasonably withheld), (ii) each such
assignment shall be of a constant, and not a varying, percentage of the Lender's
rights and obligations under this Agreement, (iii) the amount of the Total
Commitment and Advances being assigned pursuant to each such assignment
(determined as of the date of the assignment with respect to such assignment)
shall in no event be less than $10,000,000, (iv) the applicable Lender,
Administrative Lender and applicable Assignee shall execute and deliver to the
Administrative Lender an Assignment and Acceptance Agreement (an "ASSIGNMENT
AGREEMENT") in substantially the form of EXHIBIT E hereto, together with the
Notes subject to such assignment, (v) the Assignee or the Lender executing the
Assignment as the case may be, shall deliver to the Administrative Lender a
processing fee of $2,500, and (vi) the Administrative Lender shall give the
Borrower notice of any proposed assignment no later than 5 days prior to any
assignment by any Lender. Upon such execution, delivery and acceptance from and
after the effective date specified in each Assignment, which effective date
shall be at least three Business Days after the execution thereof, (A) the
Assignee thereunder shall be party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment, have
the rights and obligations of a Lender hereunder and (B) the assigning Lender
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment, relinquish such rights and be released from such
obligations under this Agreement. Notwithstanding anything in this clause (d)
to the contrary, Texas Commerce Bank National Association may assign its rights
and obligations under this Agreement to Chemical Bank without the prior written
consent of the Administrative Lender and the Borrower, but otherwise subject to
the restrictions set forth herein.

(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.

(f) Upon its receipt of an Assignment Agreement executed by a Lender and
an Assignee, and any Note or Notes subject to such assignment, the Borrower
shall, within three Business Days after its receipt of such Assignment
Agreement, at its own expense, execute and deliver to the Administrative Lender
in exchange for the surrendered Notes new Notes to the

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order of such Assignee in an amount equal to the portion of the Advances and
Total Commitment assigned to it pursuant to such Assignment Agreement and new
Notes to the order of the assigning Lender in an amount equal to the portion of
the Advances and Total Commitment retained by it hereunder. Such new Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Notes, shall be dated the effective date of such
Assignment Agreement and shall otherwise be in substantially the form of
EXHIBITS A AND B hereto.

(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 9.6, disclose to
the assignee or Participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower.

(h) Except as specifically set forth in this Section 9.6, nothing in this
Agreement or any other Loan Papers, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Papers.

(i) Notwithstanding anything in this Section 9.6 to the contrary, no
Assignee or Participant shall be entitled to receive any greater payment under
Section 2.15 or Section 7.3 than such assigning or participating Lender would
have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.

Section 9.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.

Section 9.8 SEVERABILITY. Any provision of this Agreement which is for
any reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.

Section 9.9 INTEREST AND CHARGES. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Papers, no Lender shall ever be entitled to receive, collect or apply, as
interest on the Obligations, any amount in excess of the Maximum Amount. If any
Lender or participant ever receives, collects or applies, as interest, any such
excess, such amount which would be excessive interest shall be deemed a partial
repayment of principal and treated hereunder as such; and if principal is paid
in full, any remaining excess shall be paid to the Borrower. In determining
whether or not the interest paid or payable, under any specific contingency,
exceeds the Maximum Amount, the Borrower and the Lenders shall, to the maximum
extent permitted under Applicable Law, (a) characterize any nonprincipal payment
as

-68-
<PAGE>

an expense, fee or premium rather than as interest, (b) exclude voluntary
prepayments and the effect thereof, and (c) amortize, prorate, allocate and
spread in equal parts, the total amount of interest throughout the entire
contemplated term of the Obligations so that the interest rate is uniform
throughout the entire term of the Obligations; provided, however, that if the
Obligations are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Amount, the Lenders shall refund to the
Borrower the amount of such excess or credit the amount of such excess against
the total principal amount of the Obligations owing, and, in such event, the
Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging or receiving interest in excess of the Maximum Amount.
This Section shall control every other provision of all agreements pertaining to
the transactions contemplated by or contained in the Loan Papers.

Section 9.10 CONFIDENTIALITY. Each Lender and the Administrative Lender
agrees (on behalf of itself and each of its affiliates, directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant to
this Agreement which is identified by the Borrower as being confidential at the
time the same is delivered to the Lenders or the Administrative Lender, provided
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel for any Lender or the Administrative Lender, (c) to bank examiners,
auditors or accountants of any Lender, (d) to the Administrative Lender or any
other Lender, (e) in connection with any litigation to which any one or more of
Lenders is a party, provided, further, that, unless specifically prohibited by
Applicable Law or court order, each Lender shall, prior to disclosure thereof,
notify the Borrower of any request for disclosure of any such non-public
information (i) by any governmental agency or representative thereof (other than
any such request in connection with an examination of such Lender's financial
condition by such governmental agency) or (ii) pursuant to legal process, or (f)
to any assignee or participant (or prospective assignee or participant) so long
as such assignee or participant (or prospective assignee or participant) first
executes and delivers to the respective Lender an agreement (a "CONFIDENTIALITY
AGREEMENT") in substantially the form of EXHIBIT F hereto; and provided finally
that in no event shall any Lender or the Administrative Lender by obligated or
required to return any materials furnished by the Borrower.

Section 9.11 HEADINGS. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation of
any provision hereof.

Section 9.12 AMENDMENT AND WAIVER. The provisions of this Agreement may
not be amended, modified or waived except by the written agreement of the
Borrower and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend the date of maturity of, extend the due date for any payment of
principal or interest on, reduce the amount of any installment of principal or
interest

-69-
<PAGE>

on, or reduce the rate of interest on, any Advance, the Reimbursement
Obligations or other amount owing under any Loan Papers, or (iii) release any
security for or guaranty of the Obligations (except pursuant to this Agreement),
or (iv) reduce the fees payable hereunder, or (v) revise this Section 9.12, or
(vi) waive the date for payment of any of the Obligations, or (vii) amend the
definition of Determining Lenders; or (b) without the consent of the
Administrative Lender, if it would alter the rights, duties or obligations of
the Administrative Lender. Neither this Agreement nor any term hereof may be
amended orally, nor may any provision hereof be waived orally but only by an
instrument in writing signed by the Administrative Lender and, in the case of an
amendment, by the Borrower.

Section 9.13 EXCEPTION TO COVENANTS. Neither the Borrower nor any
Subsidiary shall be deemed to be permitted to take any action or fail to take
any action which is permitted as an exception to any of the covenants contained
herein or which is within the permissible limits of any of the covenants
contained herein if such action or omission would result in the breach of any
other covenant contained herein.

Section 9.14 NO LIABILITY OF ISSUING BANK. The Borrower assumes all
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any Lender nor any of their respective officers or directors shall be
liable or responsible for: (a) the use that may be made of any Letter of Credit
or any acts or omissions of any beneficiary or transferee in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing
Bank against presentation of documents that do not comply with the terms of a
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit, except for any payment made upon the
Issuing Bank's gross negligence or willful misconduct; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, EXCEPT that the Borrower shall have a claim against the Issuing Bank,
and the Issuing Bank shall be liable to the Borrower, to the extent of any
direct, but not consequential, damages suffered by the Borrower that the
Borrower proves were caused by (i) the Issuing Bank's willful misconduct or
gross negligence in determining whether documents presented under any Letter of
Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's
willful failure to make lawful payment under a Letter of Credit after the
presentation to it of a draft and certificates strictly complying with the terms
and conditions of the Letter of Credit. In furtherance and not in limitation of
the foregoing, the Issuing Bank may accept documents that appear on their face
to be in order, without responsibility for further investigation, regardless of
any notice or information to the contrary.

SECTION 9.15 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN PAPERS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79,
REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE
PROVISIONS OF CHAPTER

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<PAGE>

15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY
TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN PAPERS. WITHOUT EXCLUDING
ANY OTHER JURISDICTION, THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF
TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN PAPERS.

SECTION 9.16 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER
ENTERING INTO THIS AGREEMENT AND MAKING ANY ADVANCES HEREUNDER.

SECTION 9.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.

IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
set forth above.

BORROWER: LA QUINTA INNS, INC.

By /s/
------------------------------------
Title: Michael A. Depatie, SVP

ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender

By /s/
------------------------------------
Douglas E. Hutt,
Senior Vice President

-71-

<PAGE>

LENDERS: NATIONSBANK OF TEXAS, N.A.,
as a Lender
Specified Percentage:
22.6778%

By /s/ Douglas E. Hutt
------------------------------------
Douglas E. Hutt,
Senior Vice President

901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Douglas E. Hutt,
Senior Vice President

CITICORP USA, INC.
Specified Percentage:
18.6070%

By /s/ Barbara A. Cohen
------------------------------------
Title: Barbara A. Cohen
Vice President

2001 Ross Avenue
Trammell Crow Center
Dallas, Texas 75201
Attn: Jim Babcock

THE FROST NATIONAL BANK
Specified Percentage:
9.5102%

By: /s/ Suzanne Houser
------------------------------------
Title: Vice President

100 West Houston Street
San Antonio, Texas 78205
Attn: Suzanne Houser

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<PAGE>

TEXAS COMMERCE BANK NATIONAL
Specified Percentage: ASSOCIATION (successor to Texas
9.5102% Commerce Bank-San Antonio, N.A.
through merger with and into Texas
Commerce Bank National Association)

By: /s/ Dan M. Danelo
------------------------------------
Title:

1020 N. E. Loop 410
San Antonio, Texas 78209
Attn: Dan M. Danelo

BANK OF SCOTLAND
Specified Percentage:
9.5102%

By: /s/ Catherine M. Onifrey
------------------------------------
Title: Catherine M. Onifrey
Vice President

380 Madison Avenue
New York, New York 10017
Attention: Cathy Oniffrey

Copy to: Citicorp Center
1200 Smith Street, Suite 2660
Houston, Texas 77002
Attn: Janna Blanter

CONTINENTAL BANK N.A.
Specified Percentage:
9.5102%

By: /s/ MaryJo Han
------------------------------------
Title: Vice President

231 South La Salle Street
Chicago, Illinois 60697
Attention: Peter Gates

-73-
<PAGE>

BANK ONE, TEXAS, N.A.
Specified Percentage:
8.2698%

By: /s/ Alan L. Miller
------------------------------------
Title: Vice President

1717 Main Street, 4th Floor
Dallas, Texas 75201
Attention: Alan Miller

FIRST INTERSTATE BANK
Specified Percentage: OF TEXAS, N.A.
6.2023%

By: /s/ John R. Peloubet
------------------------------------
Title: Vice President

700 N. St. Mary's Street, Suite 300
San Antonio, Texas 78205
Attn: John R. Peloubet

U.S. BANK OF WASHINGTON, NATIONAL
Specified Percentage: ASSOCIATION
6.2023%

By: /s/ Blake R. Howells
------------------------------------
Title: Blake R. Howells
Vice President

309 Southwest 6th Avenue
Portland, Oregon 97204
Attention: Blake R. Howells

-74-
<PAGE>

SCHEDULE 1

LIBOR LENDING OFFICES

NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202

CITICORP USA, INC.
2001 Ross Avenue
Trammell Crow Center
Dallas, Texas 75201

THE FROST NATIONAL BANK
100 West Houston Street
San Antonio, Texas 78205

TEXAS COMMERCE BANK NATIONAL ASSOCIATION
1020 N. E. Loop 410
San Antonio, Texas 78209

BANK OF SCOTLAND
380 Madison Avenue
New York, New York 10017

CONTINENTAL BANK N.A.
231 South La Salle Street
Chicago, Illinois 60697

BANK ONE, TEXAS, N.A.
1717 Main Street, 4th Floor
Dallas, Texas 75201

FIRST INTERSTATE BANK OF TEXAS, N.A.
700 N. St. Mary's Street, Suite 300
San Antonio, Texas 78205

U.S. BANK OF WASHINGTON NATIONAL ASSOCIATION
309 Southwest 6th Avenue
Portland, Oregon 97204

<PAGE>

SCHEDULE TWO
LA QUINTA INNS, INC.
EXISTING LITIGATION
AS OF JANUARY 14, 1994

Josie Betancourt, et al No Specials to Date;
(Unspecified Demand) $8,000 Insurance Reserves;
#148 San Antonio, TX Assault/Robbery

Walter Biegler v. La Quinta Breach of Contract/Employment Dispute
($7,500,000 Demand) in connection with a Reduction in Force
Corporate Office-Finance

Karen Brown v. La Quinta $14,974.41 Specials;
($125,000 latest demand) $65,000 Insurance Reserves;
#544 Abilene, TX P/I; Slip & Fall on Icy Sidewalk

Thelma Courtney v. La Quinta $1,098.75 Specials;
(Unspecified Demand) $50,000 Insurance Reserves;
#477 Corpus Christ, TX P/I; Slip & Fall on Handicap Ramp

Imelda Garza v. La Quinta No Specials to Date;
(Unspecified Demand) Insurance Reserves No Set;
#2522 Austin, TX P/I; Fall on Handicap Ramp

Ella Gomgocz v. La Quinta No Specials to Date;
($100,000 latest demand) $5,000 Insurance Reserves;
#583 Virginia Beach, VA P/I; Slip & Fall in Puddle of Water;
Back and Leg Injuries

Labib Hamide and Maher $2,425 Specials;
Gindy vs. La Quinta $12,500 Insurance Reserves;
(Unspecified Demand) P/I; Vehicle Accident
#2508 New Orleans, LA

Henry Lowrance v. La Quinta No Specials to Date;
(Unspecified Demand) $8,000 Insurance Reserves;
#632 Oklahoma City, OK P/I; Slip & Fall

Motzny, Kenneth v. La Quinta No Specials to Date;
(Unspecified Demand) $2,600 Insurance Reserves;
#2508 New Orleans, LA P/I; Slipped Getting Off Tour Bus

<PAGE>

Anselmo Pellolio v. La Quinta No Specials to Date;
(Unspecified Demand) Insurance Reserves No Set
#647 Chula Vista, CA P/I; Assault/Robbery

N. Burt Peters, Individually $26,487.21 Specials
and as Administrator of the $275,000 Insurance Reserves;
Estate of Martha Peters, P/I; Slip & Fall in Parking Lot;
Deceased v. La Quinta Broken Hip, Surgery Required;
(Unspecified Demand) Claimant Deceased due to complications
#2522 Austin, TX from Surgery

Prince, Cari v. La Quinta $3,694.27 Specials;
(Unspecified Demand) $37,500 Insurance Reserves
#457 Tyler, TX P/I; Ice Machine Fell on Guest in
Wheel Chair

Richard Roeben v. La Quinta Age Discrimination in connection with a
(Unspecified Demand) Reduction In Force
Corporate Office-Purchasing

Walter Richard v. La Quinta No Specials To Date;
(250,000 latest demand) Insurance Reserves Not Set;
#583 Virginia Beach, VA P/I;Slip & Fall in Shower

Theodore Sitarz v. La Quinta No Specials To Date;
($150,000 latest demand) $75,000 Insurance Reserves;
#2597 Tampa, FL Assault/Robbery

Fred Smith v. La Quinta $18,000 Specials;
(Unspecified Demand) $57,500 Insurance Reserves;
#3684 Tampa, FL P/I; Slip & Fall on Driveway

Beatrice Solomon, et at v. No Specials To Date;
La Quinta $7,500 Insurance Reserves;
(Unspecified Demand) Theft of Purse
#2667 Miami, FL

Lewis Tate, et ux v. La Quinta No Specials To Date;
(Unspecified Demand) $45,000 Insurance Reserves;
#2516 Wichita Falls, TX P/I; Slip & Fall In Parking Lot

Sandra Turner vs. La Quinta No Specials To Date;
($161,000 latest demand) $9,000 Insurance Reserves;
#560 Lexington KY Theft of Jewelry

<PAGE>

Tony Uribe, et al v. La Quinta No Specials To Date;
(Unspecified Demand) $13,000 Insurance Reserves;
#533 Texas City, TX P/I; Stabbing At Denny's

William Waechter v. La Quinta Age Discrimination in connection with a
(Unspecified Demand) Reduction In Force
Corporate Office-Accounting

Todd Webb v. La Quinta $20,790.85 Specials;
($150,000 latest demand) $130,000 Insurance Reserves;
#4587 Baytown, TX Gunshot Wound

Jackie Woodard v. La Quinta No Specials To Date;
(Unspecified Demand) Insurance Reserves Not Set;
#695 Las Cruces, NM P/I; Bedbug Bites

<PAGE>

SCHEDULE 3
LA QUINTA INNS, INC.
SUBSIDIARIES AND UNINCORPORATED VENTURES

STATE OF
NAME INCORPORATION OR PERCENTAGE OF
ORGANIZATION OWNERSHIP

La Quinta Realty Corp. Texas 100
La Quinta Plaza Inc. Texas 100
La Quinta Financial Corporation Texas 100
La Quinta Investments, Inc. Delaware 100
LQI Acquisition Corporation Delaware 100
LQI Merger Corporation Delaware 100
LQ-Big Apple Joint Venture Delaware 100
LQ-East Irvine Joint Venture California 100
La Quinta-Houston I.H. 10, Ltd. Texas 50
La QuintaSan Antonio-South Joint Venture Texas 50
La Quinta Austin Motor Hotel, Ltd. Texas 66.67
La Quinta-Dallas Central Expressway, Ltd. Texas 62.96
LQ Motor Inn Venture-Austin No. 530* Texas 50
La Quinta-Wichita, Kansas, No. 532, Ltd. Texas 50
LQ-Baton Rouge Joint Venture* Texas 80
LQ-West Bank Joint Venture* Texas 60
San Antonio Main Avenue Motel, Ltd. Texas 66.67
LQ-LNL Joint Venture Texas 100
LQ CIGNA I* Texas 1
LQ CIGNA II* Texas 1
La Quinta Development Partners, L.P.* Delaware 40

*Indicates Joint Venture Agreements with a buy/sell provision.

<PAGE>

Schedule 4

Bond Letters of Credit

1. Letter of Credit No. L111099 in the original stated amount of
$4,311,593.75, issued June 27, 1991, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
Village of Schaumburg, Cook and DuPage Counties, Illinois Industrial
Development Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project)
Series 1991.

2. Letter of Credit No. L111100 in the original stated amount of
$3,119,895.83, issued June 27, 1991, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
Savannah Economic Development Authority Revenue Refunding Bonds (La Quinta
Motor Inns, Inc. Project) Series 1991.

3. Letter of Credit No. L112005 in the original stated amount of
$2,393,635.00, issued July 30, 1991, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
Texarkana, Texas Industrial Development Corporation Industrial Development
Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project) Series 1991.

4. Letter of Credit No. L112006 in the original stated amount of
$2,905,083.33, issued July 30, 1991, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
Economic Development Corporation of the City of Kalamazoo Economic
Development Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project)
Series 1991.

5. Letter of Credit No. L113898 in the original stated amount of
$1,483,229.17, issued October 11, 1991, in favor of The First National Bank
of Chicago in its capacity as Trustee for the benefit of the holders of the
Industrial Development Board of the Parish of Bossier, Louisiana, Inc.
Refunding Revenue Bonds (La Quinta Motor Inns, Inc. Project) Series 1991.

6. Letter of Credit No. L114893 in the original stated amount of
$2,690,270.83, issued November 19, 1991, in favor of The First National
Bank of Chicago in its capacity as Trustee for the benefit of the holders
of the City of El Paso Industrial Development Authority, Incorporated
Industrial Development Revenue Refunding Bonds (La Quinta Motor Inns, Inc.
Project) Series 1991.

7. Letter of Credit No. L114952 in the original stated amount of
$2,148,125.00, issued November 19, 1991, in favor of The First National
Bank of Chicago in its capacity as Trustee for the benefit of the holders
of the Maverick County Industrial Development Corporation Industrial
Development Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project)
Series 1991.

<PAGE>

8. Letter of Credit No. L115358 in the original stated amount of
$3,273,333.33, issued December 13, 1991, in favor of The First National
Bank of Chicago in its capacity as Trustee for the benefit of the holders
of the Wheat Ridge, Colorado Industrial Development Revenue Refunding Bonds
(La Quinta Motor Inns, Inc. Project) Series 1991.

9. Letter of Credit No. L115359 in the original stated amount of
$2,710,729.17, issued December 20, 1991, in favor of The First National
Bank of Chicago in its capacity as Trustee for the benefit of the holders
of the City of Aurora Industrial Development Revenue Refunding Bonds (La
Quinta Motor Inns, Inc. Project) Series 1991.

10. Letter of Credit No. L116072 in the original stated amount of
$6,725,677.08, issued January 22, 1992, in favor of The First National Bank
of Chicago in its capacity as Trustee for the benefit of the holders of the
City of San Bernardino, California Industrial Development Revenue Refunding
Bonds (La Quinta Motor Inns, Inc. Project) Series 1992.

11. Letter of Credit No. L119962 in the original stated amount of
$4,120,558.90, issued June 3, 1992, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
Industrial Development Board of the Parish of East Baton Rouge, Louisiana,
Inc. Industrial Development Revenue Refunding Bonds (La Quinta Motor Inns,
Inc. Project) Series 1992.

12. Letter of Credit No. L119963 in the original stated amount of
$3,273,333.33, issued June 8, 1992, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
Peninsula Ports Authority of Virginia Floating Rate Monthly Demand
Industrial Development Revenue Bonds, Series 1984 (La Quinta Motor Inns,
Inc. Project).

13. Letter of Credit No. L119964 in the original stated amount of
$4,120,558.90, issued June 8, 1992, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
Village of Elk Grove Village, Cook and DuPage Counties, Illinois Floating
Rate Monthly Demand Industrial Development Revenue Bonds, Series 1984 (La
Quinta Motor Inns, Inc. Project).

14. Letter of Credit No. L124447 in the original stated amount of
$2,726,054.92, issued November 17, 1992, in favor of The First National
Bank of Chicago in its capacity as Trustee for the benefit of the holders
of the Nacogdoches Industrial Development Authority, Inc. Industrial
Development Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project)
Series 1992.

15. Letter of Credit No. L129091 in the original stated amount of
$3,938,229.17, issued May 18, 1993, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
City of Oakbrook Terrace, DuPage County, Illinois Industrial Development
Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project) Series 1993.

<PAGE>

16. Letter of Credit No. L129092 in the original stated amount of
$3,835,937.50, issued May 18, 1993, in favor of The First National Bank of
Chicago in its capacity as Trustee for the benefit of the holders of the
City of Stockton, California Industrial Development Revenue Refunding Bonds
(La Quinta Motor Inns, Inc. Project) Series 1993.

17. Letter of Credit No. L133285 in the original stated amount of $3,068,750.00
issued October 13, 1993 in favor of The First National Bank of Chicago in
its capacity as Trustee for the benefit of the holders of the City of
Virginia Beach Development Authority Industrial Development Revenue
Refunding Bonds (La Quinta Inns, Inc. Project) Series 1993.

<PAGE>

SCHEDULE 5
LA QUINTA INNS, INC.
FACILITIES

PROPERTY NO. LOCATION PROPERTY NO. LOCATION
- ----------- -------- ------------ ---------

165 El Paso, TX 593 Atlanta East, GA
451 Ft. Worth West, TX 594 Augusta, GA
452 El Paso Lomaland, TX 595 Tulsa, OK
453 Odessa, TX 632 Del City, OK
454 Amarillo, TX 644 Denver Westm, CO
455 Midland, TX 2647 Chula Vista, CA
456 Rock Springs, WY 2650 Fresno, CA
457 Tyler, TX 651 Knoxville, TN
458 Farmington, NM 653 Denver, CO
476 Longview, TX 654 Houston Woodlands, TX
477 Corpus Christi, TX 655 Ventura, CA
478 Austin, TX 656 Charlotte, NC
501 San Antonio, TX 661 Memphis, TN
505 Houston, TX 663 Irvine, CA
506 Laredo, TX 672 San Angelo, TX
2509 Albuquerque, NM 673 Moline, IL
2511 Waco, TX 679 Arlington Heights, IL
2516 Wichita Falls, TX 685 Tacoma, WA
517 Tulsa, OK 686 Layton, UT
2521 Lubbock, TX 687 Galveston, TX
2522 Austin, TX 692 Arlington, TX
2527 Killeen, TX 695 Las Cruces, NM
529 Houston, TX 2707 Little Rock, AR
531 Houston, TX 2708 Jackson, MS
533 Texas City, TX 2710 San Antonio, TX
2535 Atlanta, GA 2714 St. Louis, MO
537 Beaumont, TX 802 Nashville Metro, TN
2539 College Station, TX 2806 Little Rock, AR
2450 Memphis, TN 807 OK City South, OK
542 Denton, TX 2809 Cheyenne, WY
2543 Columbia, SC 2811 Omaha, NE
544 Abilene, TX 812 Charleston, SC
2546 Dallas, TX 2813 Greenville, SC
547 Farmers Branch, TX 2814 Indianapolis East, IN
550 Columbus, OH 915 Del Rio, TX
552 Dallas, TX 1106 Fort Worth, TX
553 Champaign, IL
556 San Antonio, TX
2558 Harlingen, TX
567 San Antonio, TX
577 Victoria, TX
571 Little Rock, AR
581 Lufkin, TX
582 Temple, TX
586 Lewisville, TX

<PAGE>

SCHEDULE 6
LA QUINTA INNS, INC.
UNINCORPORATED VENTURES TO BE PURCHASED

La Quinta-Houston I.H. 10, Ltd.
La Quinta-San Antonio South Joint Venture
La Quinta Austin Motor Hotel, Ltd.
LQ Motor Inn Venture-Austin No. 530
LQ Quinta-Dallas Central Expressway, Ltd.
La Quinta-Wichita, Kansas, No. 532, Ltd.
LQ-Baton Rouge Joint Venture
LQ-West Bank Joint Venture
La Quinta Development Partners, L.P.
San Antonio Main Avenue Motel, Ltd.
<PAGE>

SCHEDULE 7
LA QUINTA INNS, INC.
BENEFIT AGREEMENT
NOVEMBER 30, 1993

TITLE OF BENEFIT PLAN AMOUNT
- --------------------- ------

Deferred Compensation for Sam Barshop $148,148
The Lion's Pleasant Dreams Benefit Plan 241,861
<PAGE>

SCHEDULE 8
LA QUINTA INNS, INC.
INSOLVENT UNINCORPORATED VENTURES

LQ-Baton Rouge Joint Venture
<PAGE>
EXHIBIT A

REVOLVING CREDIT NOTE

Dallas, Texas $_____________ January 25, 1994

LA QUINTA INNS, INC., a Texas corporation (the "Borrower"), for value
received, promises to pay to the order of____________________________________
("Lender"), at the principal office f________________________________________
________, in lawful money of the United States of America, the principal sum
of____________________________________ DOLLARS ($ ______________), or such
lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement described below.

Principal of and interest on the unpaid principal balance of Revolving
Credit Advances under this Revolving Credit Note from time to time outstanding
shall be due and payable as set forth in the Credit Agreement.

This Revolving Credit Note is issued pursuant to and evidences Revolving
Credit Advances under an Amended and Restated Credit Agreement, dated as of
January 25, 1994, among the Borrower, NationsBank of Texas, N.A., as
Administrative Lender, and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time, "Credit
Agreement"), to which reference is made for a statement of the rights and
obligations of the Lender and the duties and obligations of the Borrower in
relation thereto; but neither this reference to the Credit Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Revolving Credit Note when due.

[This Revolving Credit Note modifies, renews, extends and replaces that
certain Revolving Credit Note of the Borrower dated as of June 15, 1993 in the
principal amount of $_________________ (the "Prior Note") payable to the order
of the Lender issued pursuant to that certain Credit Agreement, dated as of
June 15, 1993, among the Borrower, the Lender and certain other lenders, and
NationsBank of Texas, N.A., as Administrative Lender (the "Original Credit
Agreement"), which Original Credit Agreement was amended and restated in its
entirety by the Credit Agreement. This Revolving Credit Note (i) does not
extinguish the debt evidenced by the Prior Note, (ii) is not intended as, and
shall not be construed as, a novation of the debt evidenced by the Prior Note
and (iii) is secured by, among other things, all liens and security interests
securing the Prior Note.]

The Borrower and all endorsers, sureties and guarantors of this Revolving
Credit Note hereby severally waive demand, presentment for payment, protest,
notice of protest, notice of acceleration, notice of intention to accelerate the
maturity of this Revolving Credit Note, and all other notices of any kind,
diligence in collecting, the bringing of any suit against any party and any
notice of or defense on account of any extensions, renewals, partial payments or
changes

<PAGE>

in any manner of or in this Revolving Credit Note or in any of its terms,
provisions and covenants, or any releases or substitutions of any security, or
any delay, indulgence or other act of any trustee or any holder hereof, whether
before or after maturity.

THIS REVOLVING CREDIT NOTE, TOGETHER WITH THE OTHER LOAN PAPERS, REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

LA QUINTA INNS, INC.

By_________________________

Title:

-2-

<PAGE>

EXHIBIT B

TERM LOAN NOTE

Dallas, Texas $______________ January 25, 1994

LA QUINTA INNS, INC., a Texas corporation (the "Borrower"), for value
received, promises to pay to the order of_______________________________
("Lender"), at the principal office of _________________________________
_____, in lawful money of the United States of America, the principal sum of
___________________________ DOLLARS ($___________________________), or such
lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement described below.

Principal of and interest on the unpaid principal balance of Term Loan
Advances under this Term Loan Note from time to time outstanding shall be due
and payable as set forth in the Credit Agreement.

This Term Loan Note is issued pursuant to and evidences Term Loan Advances
under an Amended and Restated Credit Agreement, dated as of January 25, 1994,
among the Borrower, NationsBank of Texas, N.A., as Administrative Lender, and
the lenders parties thereto (as amended, restated, supplemented, renewed,
extended or otherwise modified from time to time, "Credit Agreement"), to which
reference is made for a statement of the rights and obligations of the Lender
and the duties and obligations of the Borrower in relation thereto; but neither
this reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal sum of and interest on this Term Loan Note when due.

[This Term Loan Note modifies, renews, extends and replaces that certain
Term Loan Note of the Borrower dated as of June 15, 1993 in the principal amount
of $_________________ (the "Prior Note") payable to the order of the Lender
issued pursuant to that certain Credit Agreement, dated as of June 15, 1993,
among the Borrower, the Lender and certain other lenders, and NationsBank of
Texas, N.A., as Administrative Lender (the "Original Credit Agreement"), which
Original Credit Agreement was amended and restated in its entirety by the Credit
Agreement. This Term Loan Note (i) does not extinguish the debt evidenced by
the Prior Note, (ii) is not intended as, and shall not be construed as, a
novation of the debt evidenced by the Prior Note and (iii) is secured by, among
other things, all liens and security interests securing the Prior Note.]

The Borrower and all endorsers, sureties and guarantors of this Term Loan
Note hereby severally waive demand, presentment for payment, protest, notice of
protest, notice of acceleration, notice of intention to accelerate the maturity
of this Term Loan Note, and all other notices of any kind, diligence in
collecting, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any
<PAGE>

manner of or in this Term Loan Note or in any of its terms, provisions and
covenants, or any releases or substitutions of any security, or any delay,
indulgence or other act of any trustee or any holder hereof, whether before or
after maturity.

THIS TERM LOAN NOTE, TOGETHER WITH THE OTHER LOAN PAPERS, REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

LA QUINTA INNS, INC.

By ___________________________________
Title:

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<PAGE>

EXHIBIT C

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT

STATE OF TEXAS Section
Section KNOW ALL PERSONS BY THESE PRESENTS:
COUNTY OF *[Taylor]*[Potter][Travis]*[Jefferson]*[Brazos]*[Dallas]*[Dallas]
*[Val Verde]*[Denton]*[Dallas]*[Galveston]*[Cameron]*[Harris]*[Harris]*[Bell]*
*[Denton]*[Lubbock]*[Angelina]*[Midland]*[Ector]*[Bexar]*[Bell]*[Galveston]*
*[Smith]*[McLennan]*[Wichita]*[Tarrant]*[Bexar]*[Gregg]*[Nueces]*[Travis]
Section

THAT, LA QUINTA INNS, INC. (formerly known as La Quinta Motor Inns, Inc.),
a Texas corporation ("GRANTOR"), in order to secure the payment of the
indebtedness hereinafter referred to and the performance of the obligations,
covenants, agreements and undertakings of Grantor hereinafter described, does
hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET OVER to MICHAEL F.
HORD, Trustee, of 901 Main Street, 68th Floor, Dallas, Dallas County, Texas
("TRUSTEE") for the benefit of NATIONSBANK OF TEXAS, N.A., a national banking
association ("NATIONSBANK TEXAS"), having its principal office at 901 Main
Street, 67th Floor, Dallas, Texas 75202, as the administrative lender (in such
capacity NationsBank Texas is called "ADMINISTRATIVE LENDER") on behalf of
NationsBank Texas, The Frost National Bank, Texas Commerce Bank National
Association (successor to Texas Commerce Bank-San Antonio, N.A. through merger
with and into Texas Commerce Bank National Association), First Interstate Bank
of Texas, N.A., Bank of Scotland, Citicorp USA, Inc., Continental Bank N.A.,
Bank One, Texas, N.A. and U.S. Bank of Washington, National Association and each
other lender which is hereafter a party to the Credit Agreement (as defined
below) (collectively, "LENDERS" and singly, a "LENDER"), all of the real estate
situated in the County of *[Taylor]*[Potter]*[Travis]*[Jefferson]*[Brazos]*
*[Dallas]*[Dallas]*[ValVerde]*[Denton]*[Dallas]*[Galveston]*[Cameron]*[Harris]*
*[Harris]*[Harris]*[Bell]*[Denton]*[Lubbock]*[Angelina]*[Midland]*[Ector]*
*[Bextar]*[Bell]*[Galveston]*[Smith]*[McLennan]*[Wichita]*[Tarrant]*[Bexar]*
*[Gregg]*[Nueces]*[Travis] and State of Texas described in EXHIBIT A attached
hereto and made a part hereof (the "LAND"), together with (i) all the buildings
and other improvements now on or that may be hereafter placed on the Land; (ii)
Grantor's interest in all materials, equipment, fixtures or other property
whatsoever, now or hereafter attached to, installed in, or used in connection
with the buildings and other improvements now erected or hereafter to be erected
on the Land, including, but not limited to, all heating, plumbing, lighting,
water heating, cooking, laundry, refrigerating, incinerating, ventilating and
air conditioning equipment, cable and satellite and earth-receiving systems for
the reception and distribution of audio, video and data transmissions (whether
owned individually or jointly with others), disposals, dishwashers,
refrigerators and ranges, utility lines and equipment (whether owned
individually or jointly with others), sprinkler systems, fire extinguishing
apparatus and equipment, water tanks, engines, machines, elevators, motors,
cabinets, shades, blinds, partitions, window screens, screen doors, storm
windows, awnings, drapes, and rugs and other floor coverings, and all fixtures,
accessions and appurtenances thereto, and all renewals or replacements of or
substitutions for any of the foregoing, all of which property and things are
hereby declared to be permanent fixtures and accessions to the freehold and part
of the realty conveyed herein as security for the indebtedness herein mentioned;
(iii) Grantor's interest in all easements and rights of way now or hereafter
used in connection with any of the foregoing real estate or as a means of
ingress to or egress from said real estate; (iv) Grantor's interest, now or
hereafter acquired, in and to any streets, ways, alleys and/or strips and gores
of land adjoining the Land or any part thereof; and (v) all rights, estates,
hereditaments, powers and privileges appurtenant or incident to the foregoing.

TO HAVE AND TO HOLD the foregoing property (the "MORTGAGED PROPERTY") unto
Trustee and his successors or substitutes in this trust and to his or their
successors and assigns, IN TRUST, however, upon the terms, provisions and
conditions herein set forth.

<PAGE>

In order to secure the payment of the indebtedness described in this Deed
of Trust, Assignment of Leases and Rents, Security Agreement and Financing
Statement ("DEED OF TRUST") and the performance of the obligations, covenants,
agreements and undertakings of Grantor described in this Deed of Trust, Grantor
further grants to Administrative Lender a security interest and lien in
Grantor's right, title and interest in and to all present and future (i) goods,
inventory, equipment, furnishings, fixtures, furniture, chattels owned by
Grantor now or hereafter attached or affixed to or used in or about the building
or buildings now erected or hereafter to be erected on the Mortgaged Property,
or otherwise located on the Mortgaged Property, (ii) fixtures, accessions and
appurtenances to any of the foregoing or following, (iii) renewals or
replacements of or substitutions for any of the foregoing or following,
(iv) building materials and equipment now or hereafter delivered to such
premises and intended to be installed therein, (v) occupancy agreements, leases,
rents (including security and other deposits and advance rentals under occupancy
agreements and lease agreements now or at any time hereafter covering or
affecting any of the Mortgaged Property and all property described in this
PARAGRAPH and held by or for the benefit of Grantor), fees, royalties, bonuses,
issues, room rents, deposits for lodging, profits, revenues or other income or
benefits of whatever nature received or due in connection with the Mortgaged
Property and all property described in this PARAGRAPH, (vi) monetary deposits
which Grantor has been required to give to any public or private utility with
respect to utility services furnished to the Mortgaged Property, (vii) money,
funds, deposit accounts, instrument, documents, and general intangibles arising
from or related to the Mortgaged Property, (viii) notes or chattel paper arising
from or by virtue of any transactions related to the Mortgaged Property and all
property described in this PARAGRAPH, (ix) permits, licenses, franchises,
certificates, and agreements relating to the foregoing, and all other rights and
privileges obtained in connection with the Mortgaged Property and all property
described in this PARAGRAPH, (x) plans, specifications, maps, surveys, reports,
operating and management contracts, architectural, engineering, construction and
development contracts, books of account, insurance policies, guarantees,
warranties and other documents, of whatever kind or character, relating to the
ownership, use, construction upon, occupancy, leasing, sale or operation of the
Mortgaged Property and all property described in this PARAGRAPH, (xi) oil, gas
and other hydrocarbons and other minerals produced from or allocated to the
Mortgaged Property and all products processed or obtained therefrom, the
proceeds thereof, and all accounts and general intangibles under which such
proceeds may arise, (xii) all proceeds from the taking of any of the Mortgaged
Property and any property described in this PARAGRAPH or any rights appurtenant
thereto by right of eminent domain or by private or other purchase IN LIEU
thereof, (xiii) all proceeds (including premium refunds) of each policy of
insurance relating to the Mortgaged Property and any property described in this
PARAGRAPH, (xiv) all guarantees, sureties and other agreements assuring
performance of any obligation of any tenant, licensee or other occupant of the
Mortgaged Property or any part thereof and all property described in this
PARAGRAPH, and (xv) all proceeds arising from or by virtue of the sale, lease or
other disposition of the Mortgaged Property and any property described in this
PARAGRAPH (all of the property described in this PARAGRAPH hereinafter
collectively called the "PERSONAL PROPERTY") and all proceeds and products of
the Personal Property. (The Mortgaged Property and the Personal Property are
hereinafter sometimes collectively called the "PROPERTY").

ARTICLE I.

SECURED INDEBTEDNESS

1.1. SECURED INDEBTEDNESS. This Deed of Trust is made to secure and
enforce the payment of the following agreements, documents, obligations,
indebtedness and liabilities: (a) all present and future obligations,
indebtedness and liabilities, and all modifications, renewals and extensions of
all or any part thereof of Grantor to Administrative Lender and Lenders arising
from, by virtue of, or pursuant to the Amended and Restated Credit Agreement
dated as of January 25, 1994 among Grantor, Administrative Lender and Lenders
(the Credit Agreement, as amended, modified, renewed, extended or restated from
time to time, the "CREDIT AGREEMENT"), the Notes (as defined in the Credit
Agreement), the L/C Related Documents (as defined in the Credit Agreement) and
the other Loan Papers (as defined below) and (b) all

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<PAGE>

indebtedness and obligations incurred or arising pursuant to the provisions of
this Deed of Trust; PROVIDED, this Deed of Trust shall not secure any
indebtedness or obligations arising under any Bond Document (as defined in the
Credit Agreement). It is contemplated that Grantor may hereafter become
indebted to Administrative Lender and Lenders pursuant to the Credit Agreement.
The indebtedness referred to in this SECTION 1.1 is hereinafter sometimes called
the "SECURED INDEBTEDNESS". This Deed of Trust, the Credit Agreement, the Notes
and all other instruments, certificates, affidavits or documents evidencing,
governing, securing, guaranteeing, or relating to the Secured Indebtedness, all
as amended, modified, renewed, extended or restated from time to time, are
hereinafter called the "LOAN PAPERS".

ARTICLE II.

REPRESENTATIONS AND WARRANTIES

2.1. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants to
Trustee, Administrative Lender and Lenders as follows:

(a) TITLE AND AUTHORITY. Grantor is the lawful owner of good and
indefeasible fee simple title to the Property, subject only to the matters
described in EXHIBIT B attached hereto and made a part hereof (the
"PERMITTED ENCUMBRANCES") and has good right and authority to grant,
bargain, sell, transfer, assign and mortgage the Mortgaged Property and to
grant a security interest in the Personal Property.

(b) COMPLIANCE WITH COVENANTS AND LAWS. The construction, occupancy,
operation and use of the Property and the intended use thereof by Grantor
(subject to the provisions of ARTICLE V) complies with all laws, statutes,
ordinances, rules, regulations, orders and determinations of any
governmental authority and any board of fire underwriters (or any body
exercising similar functions) and any restrictive covenants or deed
restrictions (whether recorded or otherwise), including, without
limitation, all applicable zoning, subdivision, platting, licensing,
building, flood disaster, statutes, ordinances, rules, regulations, orders
and determinations of any governmental authority that pertain to the
ownership of the Property and the conduct of business thereon by Grantor
(hereinafter sometimes collectively called "APPLICABLE LAWS"), except where
the failure to so comply could not impair the validity, enforceability or
priority of this Deed of Trust or the liens and security interests granted
hereunder or have a material adverse effect on (i) the consolidated
financial condition or prospects of Grantor and any of its subsidiaries
taken as a whole, (ii) the value of the Property taken as a whole, or (iii)
Grantor's use of, and business operations of, the Property taken as a whole
(hereinafter collectively called "MATERIAL ADVERSE EFFECT"). The Property
and Grantor's operation of the Property comply with the Americans with
Disabilities Act of 1990, 42 U.S.C. Section 12101, ET SEQ., and the
regulations related thereto. Grantor has obtained all requisite zoning,
utility, building, health, operating and occupancy permits from the
governmental authorities having jurisdiction over the Property, except
where the failure to obtain such zoning and permits would not have a
Material Adverse Effect.

(c) NO SUITS. There are no judicial or administrative actions,
suits, arbitrations or proceedings pending or, to the best of Grantor's
conscious actual knowledge threatened, affecting the Property which, if
adversely determined, would be reasonably likely to have a Material Adverse
Effect, or involving the validity, enforceability or priority of this Deed
of Trust.

(d) PERMITTED ENCUMBRANCES. The Property is free and clear from all
liens, security interests and encumbrances except the lien and security
interest evidenced hereby and the encumbrances and other matters set forth
in EXHIBIT B. The Secured Indebtedness constitutes, in part, a renewal and
modification of certain existing indebtedness of Grantor to Administrative
Lender and Lenders, which existing

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<PAGE>

indebtedness is secured by certain deeds of trust, mortgages, assignments,
security agreements, financing statements and/or other security documents
heretofore executed and delivered by Grantor to, or for the benefit of,
Administrative Lender and/or Lenders, including, without limitation, any of
such security documents as are described in EXHIBIT B attached hereto
(collectively, the "EXISTING COLLATERAL DOCUMENTS"). Notwithstanding the
execution and delivery by Grantor of this Deed of Trust, the Existing
Collateral Documents are each hereby ratified and confirmed by Grantor, and
same shall continue in full force and effect, as additional security for
the Secured Indebtedness.

(e) CONDITION OF PROPERTY. The Mortgaged Property is served by
electric, gas, storm and sanitary sewers, sanitary water supply, telephone
and other utilities required for the Grantor's current use thereof on the
date hereof at or within the boundary lines of the Mortgaged Property. All
streets, alleys and easements (including without limitation easements for
ingress and egress, easements for vehicular traffic and parking and for
pedestrian traffic, easements for utilities, and easements for reciprocal
uses) necessary to serve Grantor's current use of the Mortgaged Property
have been completed and are serviceable, such streets, alleys and easements
have been dedicated and accepted by applicable governmental entities,
and/or all agreements creating such easements have been filed of record in
the real property records of *[Taylor]*[Potter]*[Travis]*[Jefferson]*
*[Dallas]*[Dallas]*[Val Verde]*[Denton]*[Dallas]*[Galveston]*[Cameron]*
*[Harris]*[Harris]*[Bell]*[Denton]*[Lubbock]*[Angelina]*[Midland]*
*[Ector]*[Bexar]*[Bell]*[Galveston]*[Smith]*[McLennan]*[Wichita]*[Tarrant]*
*[Bexar]*[Gregg]*[Nueces]*[Travis] County, Texas. The Mortgaged Property
is in reasonably good condition and repair and proper working order, and is
free from damage caused by fire or other casualty. Grantor has no actual
knowledge of any latent or patent structural or other significant defect or
deficiency in the Mortgaged Property that (i) would materially and
adversely affect Grantor's intended use of the Mortgaged Property or (ii)
have a Material Adverse Effect. None of the Mortgaged Property is within a
flood plain. None of the improvements on the Mortgaged Property create an
encroachment over, across or upon any of the Mortgaged Property boundary
lines, rights of way or easements, and no buildings or other improvements
on adjoining land create such an encroachment, except as disclosed on the
survey of the Land delivered to Administrative Lender. There is, to the
actual knowledge of Grantor, no condemnation proceeding pending or
threatened that would affect the Mortgaged Property.

(f) WARRANTY. Grantor will warrant and forever defend the title to
the Mortgaged Property against the claims of all persons whomsoever
claiming or to claim the same or any part thereof, subject to the Permitted
Encumbrances.

2.2. COVENANTS AND AGREEMENTS. So long as the Secured Indebtedness or any
part thereof remains unpaid, Grantor covenants and agrees with Trustee,
Administrative Lender and Lenders as follows:

(a) TAXES ON LIEN.

In the event of the existence, at any time, of any law of the State
of Texas or of any other governmental entity deducting from the value of
property for the purpose of taxation any lien or security interest thereon,
or imposing upon Trustee, Administrative Lender or any Lender the payment
of the whole or any part of the taxes (other than taxes imposed on the
overall income of Lenders, Trustee or Administrative Lender) or assessments
or charges or liens herein required to be paid by Grantor, or relating to
the taxation of deeds of trust or mortgages or security agreements or debts
secured by deeds of trust or mortgages or security agreements or the
interest of the trustee or beneficiary or mortgagee or secured party in the
property covered thereby, or the manner of collection of such taxes, so as
to affect this Deed of Trust or any of the Secured Indebtedness or Trustee,
Administrative Lender or any Lender, then, and in any such event, Grantor,
upon demand by Trustee, Administrative Lender or any Lender, shall to

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<PAGE>

the extent not prohibited by Applicable Law, pay such taxes, assessments,
charges or liens, or reimburse Trustee, Administrative Lender or such
Lender therefor.

(b) AD VALOREM TAXES. Grantor will cause to be paid prior to
delinquency all taxes and assessments heretofore or hereafter levied or
assessed against the Property, or any part thereof, and upon request of
Administrative Lender will furnish Administrative Lender with receipts
showing payment of such taxes and assessments prior to the applicable
delinquency date therefor; except that Grantor in good faith may contest,
by appropriate proceedings, the validity, applicability or amount of any
asserted tax or assessment, and, pending such contest, Grantor shall not be
deemed in Default hereunder if, prior to delinquency of the asserted tax or
assessment, Grantor establishes an escrow, or provides security reasonably
acceptable to Administrative Lender, or reserves have been established
adequate to cover the payment of such tax or assessment with costs,
interest and penalties and a reasonable additional sum to cover possible
costs, interest and penalties (which escrow and/or security shall be
returned to Grantor upon payment of all such taxes, assessments, costs,
interest and penalties), and if Grantor promptly causes to be paid any
amount adjudged by a court of competent jurisdiction to be due, with all
costs, interest and penalties thereon, promptly after such judgment becomes
final; PROVIDED, HOWEVER, that in any event each such contest shall be
concluded and the tax assessment, costs, interest and penalties shall be
paid prior to the date any writ or order is issued under which the Property
may be sold. No reserve (or security required in SECTION 2.2(d)) is
required until such time that the aggregate of alleged unpaid ad valorem
taxes on all properties of Grantor which secure the Secured Indebtedness
and all unpaid debts described in SECTION 2.2(d) shall exceed $100,000.

(c) OPERATION OF PROPERTY. Grantor will operate, and will cause the
operation of, the Property in a reasonably good and workmanlike manner and
in accordance with all Applicable Laws and will pay all fees or charges of
any kind in connection therewith, except where the failure to so operate
and pay such fees or charges would not have a Material Adverse Effect.
Grantor will keep, and will cause the keeping of, the Property occupied to
the extent necessary not to impair the insurance carried thereon. Grantor
will not use or occupy, or allow the use or occupancy of, the Property in
any manner which violates any Applicable Law, or except where the failure
to so occupy would not have a Material Adverse Effect, which constitutes a
public or private nuisance or which makes void, voidable or cancelable, any
insurance then in force with respect thereto. Grantor will not, without
the prior written consent of Administrative Lender, initiate or permit any
zoning reclassification of the Property or seek any variance under existing
zoning ordinances applicable to the Property or use or permit the use of
the Property in such a manner as would result in such use becoming a
nonconforming use under applicable zoning ordinances or other Applicable
Laws. Grantor will not, without the prior written consent of
Administrative Lender, impose any restrictive covenants or encumbrances
upon the Property which does not constitute a Permitted Encumbrance,
execute or file any subdivision plat affecting the Property or consent to
the annexation of the Property to any municipality. Grantor shall not
cause or permit any drilling or exploration for, or extraction, removal or
production of, minerals from the surface or subsurface of the Property.
Grantor will not do or permit anything to cause the value of the Property
to be materially lessened. If Grantor receives a written notice or claim
from any federal, state or other governmental entity pertaining to the
Property, including specifically but without limitation a notice that the
Property is not in compliance with any Applicable Law, Grantor promptly
will furnish a copy of such notice or claim to Administrative Lender.

(d) DEBTS FOR CONSTRUCTION. Grantor will cause all debts and
liabilities of any character, including without limitation all debts and
liabilities for labor, material and equipment and all debts and charges for
utilities servicing the Property, incurred in the construction,
maintenance, operation and development of the Property, to be paid before
the same become delinquent. Notwithstanding the foregoing, Grantor in good
faith may contest, by appropriate proceedings, the validity, applicability
or amount of any asserted

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<PAGE>

mechanics' or materialmen's liens, and, pending such contest, Grantor shall
not be deemed in Default hereunder if Grantor provides Administrative
Lender with security reasonably satisfactory to Administrative Lender and
if Grantor promptly causes to be paid any amount adjudged by a court of
competent jurisdiction to be due, with all costs and interest thereon,
promptly after such judgment becomes final; PROVIDED, HOWEVER, that in any
event each such contest shall be concluded and the lien, interest and costs
shall be paid, bonded around or otherwise removed prior to the date any
writ or order is issued under which the Property may be sold. No security
(or reserve required in SECTION 2.2(b) above) is required until such time
that the aggregate of alleged unpaid ad valorem taxes on all properties of
Grantor which secure the Secured Indebtedness and all unpaid debts
described in this SECTION 2.2(d) shall exceed $100,000.

(e) REPAIR AND MAINTENANCE. Grantor will keep the Property
reasonably in good order, repair, operating condition and appearance,
causing all reasonably necessary repairs, renewals, replacements, additions
and improvements promptly to be made, and will not allow any of the
Property to be misused, abused or wasted or to deteriorate, normal wear and
tear and casualty excepted. Grantor promptly will replace all worn-out or
obsolete fixtures or personal property covered by this Deed of Trust that
are reasonably necessary in the operation of the Property with fixtures or
personal property comparable to the replaced fixtures or personal property,
and will repaint the Property when reasonably needed. Notwithstanding the
foregoing, Grantor will not, without the prior written consent of
Administrative Lender, do or permit to be done anything to the Property
that materially may impair its value, including but not limited to
(i) removing from the Property any fixtures or personal property covered by
this Deed of Trust (but not including any personal property in which
Grantor is the lessee thereof) which are necessary or desirable in the
operation of the Property, except such as is replaced by Grantor by an
article of equal suitability and value, owned by Grantor, free and clear of
any lien or security interest (except that (A) created by this Deed of
Trust or any other Loan Paper, (B) otherwise permitted in the Loan Papers
or (C) in respect of capitalized leases) or such as is permitted to be
removed by a tenant pursuant to such tenant's lease or (ii) making any
structural or other alteration to the Property that materially impairs the
value thereof. Nothing contained herein will prevent tenants of the
Property from making alterations and improvements expressly permitted under
their leases. Upon request of Administrative Lender, Grantor will deliver
to Administrative Lender an inventory describing and showing the make,
model, serial number and location of all fixtures and personal property
used in the management, maintenance and operation of the Property, with a
certification by Grantor that said inventory is a true and complete
schedule of all such fixtures and personal property used in the management,
maintenance and operation of the Property, that such items specified in the
inventory constitute all of the fixtures and personal property required in
the management, maintenance and operation of the Property, and that all
such items are owned by Grantor free and clear of any lien or security
interest (except the Permitted Encumbrances).

(f) INSURANCE AND CASUALTY. Grantor will keep the Property insured
against loss or damage by fire, explosion, windstorm, hail, flood (as to
any portion of the Property which shall at any time be located in an
identified "flood prone" area in which flood insurance has been made
available pursuant to the Flood Disaster Protection Act of 1973, and then
in the amount of the outstanding balance of the Notes or the maximum amount
of coverage available, whichever is less), tornado and such other hazards
as required by Administrative Lender and consistent with industry
standards. Notwithstanding the foregoing, Debtor further covenants and
agrees to keep the property insured by policies of fire, extended coverage
and other insurance in such company or companies, rated by Best "A" or
better and upon such terms and provisions, and with such endorsements, all
as reasonably may be acceptable to Administrative Lender and consistent
with industry standards. Grantor further agrees that Grantor will deliver
to Administrative Lender certified copies of all such policies, receipts
evidencing the payment of all premiums, and certificates of insurance
addressed to Administrative Lender, evidencing renewals of all such
policies of insurance before any such insurance

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shall expire, and otherwise evidencing compliance with the insurance
requirements set forth herein. All insurance policies required pursuant to
this SECTION 2.2(f) shall contain a prohibition against cancellation,
material endorsement, material alteration or reissuance of such policy
effecting a change in coverage thereunder unless such insurer first shall
have given Administrative Lender 30 days prior written notice thereof. All
fire, extended and other insurance coverage insurance policies required
hereunder shall be on a replacement cost basis in an amount not less than
that necessary to comply with any co-insurance percentage stipulated in the
policy, but not less than 100% of the Property's insurable value, and shall
be subject to deductibles, if any, not to exceed the lesser of 1% of the
face amount of the policy or $100,000. Without limiting the discretion of
Administrative Lender with respect to required endorsements to insurance
policies, Grantor further agrees that all insurance policies shall provide
that proceeds thereunder will be jointly payable to Administrative Lender
and Grantor, for the benefit of Grantor and Administrative Lender (for the
benefit of Lenders) as their interests may appear pursuant and subject to a
mortgagee clause (without contribution) of standard form attached to or
otherwise made a part of the applicable policy. In the event of
foreclosure of this Deed of Trust, or other transfer of title to the
Property in extinguishment in whole or in part of the Secured Indebtedness,
all right, title and interest of Grantor in and to such policies then in
force concerning the Property and all proceeds payable thereunder (to the
extent of, but not to exceed, the Mortgaged Indebtedness) shall vest in the
purchaser at such foreclosure or other transferee in the event of such
other transfer of title. In the event any of the Property covered by such
insurance is destroyed or damaged by fire, explosion, windstorm, hail or by
any other casualty against which insurance shall have been required
hereunder, (i) Administrative Lender may, but shall not be obligated to,
make proof of loss if not made promptly by Grantor, (ii) each insurance
company concerned is hereby authorized and directed to make payment for
such loss jointly to Administrative Lender and Grantor, and
(iii) Administrative Lender shall apply the insurance proceeds as follows:

(A) FIRST, to reimburse Administrative Lender or Trustee for all
reasonable and necessary costs and expenses, including reasonable
attorneys' fees, incurred in connection with the collection of such
proceeds;

(B) SECOND, if a Default has not occurred, proceeds of insurance
from losses shall be used at Grantor's option by Grantor (i) for
repair or replacement of Property (to the extent necessary not to
cause an Event of Default pursuant to SECTION 6.1(k) of the Credit
Agreement) and Grantor shall provide Administrative Lender with
evidence satisfactory to Administrative Lender of such use or (ii) to
be applied to Secured Indebtedness (which shall permanently reduce the
Total Commitment, as defined in the Credit Agreement); PROVIDED, the
order of application of such proceeds to the Secured Indebtedness
shall be at the discretion of Determining Lenders; and

(C) THIRD, if a Default has occurred, proceeds of insurance from
losses shall at Determining Lenders' (as defined in the Credit
Agreement) option be applied to Secured Indebtedness (which shall
permanently reduce the Total Commitment, as defined in the Credit
Agreement, by such amount) or to repair or replacement of Property;
PROVIDED, the order of application of such proceeds to the Secured
Indebtedness shall be at the discretion of Determining Lenders.

In any event, the unpaid portion of the Secured Indebtedness shall remain
in full force and effect and Grantor shall not be excused in the payment
thereof. If any act or occurrence of any kind or nature (including any
casualty on which insurance was not obtained or obtainable) shall result in
material damage to or material loss or destruction of the Property, Grantor
shall give immediate notice thereof to Administrative Lender and, if
Grantor elects to restore the Property to its prior condition (pursuant to
SECTION 2.2(f)(iii)(B)), Grantor, at Grantor's sole cost and expense and
regardless of whether the insurance proceeds, if any, shall be sufficient
for the purpose, promptly shall

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restore, repair, replace and rebuild the Property as nearly as possible to
its value, condition and character immediately prior to such damage, loss
or destruction in accordance with plans and specifications submitted to and
reasonably and promptly approved by Administrative Lender. Grantor hereby
irrevocably appoints Administrative Lender Grantor's attorney-in-fact, with
full authority in place and stead of Grantor and in the name of Grantor or
otherwise, after the occurrence of any Default and the continuance of same
to obtain any insurance required to be obtained pursuant to this SECTION
2.2(f) and which is not so obtained and to receive, indorse, and collect
any drafts or other instruments, documents and chattel paper, in connection
therewith. The appointment of Administrative Lender as Grantor's
attorney-in-fact is coupled with an interest and is irrevocable prior to
final payment in full of the Secured Indebtedness.

(g) LIABILITY AND OTHER INSURANCE. Grantor shall maintain
comprehensive general liability insurance against claims for bodily injury
or death and property damage occurring in or upon or resulting from the
Property, in standard form and with such insurance company or companies and
policy coverage limits and terms as reasonably may be acceptable to
Administrative Lender, and such other insurance as Administrative Lender
from time to time reasonably may require, with companies rated by Best as
"A" or better, upon such terms and provisions, in such amounts, and with
such endorsements, all as reasonably are approved by Administrative Lender.
Grantor shall maintain with respect to each policy or agreement evidencing
such comprehensive general liability insurance such endorsements as
reasonably may be required by Administrative Lender consistent with
accepted industry practice and shall at all times deliver and maintain with
Administrative Lender certified copies of all such policies, receipts
evidencing the payment of all premiums, and certificates of insurance
addressed to Administrative Lender, evidencing renewals of all such
policies of insurance 30 days before any such insurance shall expire, and
otherwise evidencing compliance with the insurance requirements set forth
herein. All insurance policies required pursuant to this SECTION 2.2(g)
shall contain a prohibition against cancellation, material endorsement,
material alteration or reissuance of such policy effecting a change in
coverage thereunder unless such insurer first shall have given
Administrative Lender 30 days prior written notice thereof. Without
limiting the discretion of Administrative Lender with respect to required
endorsements to insurance policies, Grantor further agrees that all
insurance policies described in this SECTION 2.2(g) shall name
Administrative Lender, for the benefit of Lenders, as an additional insured
party, as their interests may appear.

(h) CONDEMNATION. Promptly upon obtaining actual knowledge of the
institution of any proceedings for the condemnation of the Property or any
portion thereof, or any other proceedings arising out of injury or damage
to the Property, or any portion thereof, Grantor will notify Administrative
Lender of the pendency of such proceedings. Administrative Lender may
participate in any such proceedings if in the reasonable opinion of
Administrative Lender such participation is necessary to protect the rights
or interests of Administrative Lender or Trustee, and Grantor shall from
time to time deliver to Administrative Lender all instruments reasonably
requested by it to permit such participation. Grantor shall, at its
expense, diligently prosecute any such proceedings, and shall consult with
Administrative Lender, its attorneys and experts, and cooperate with them
in the carrying on or defense of any such proceedings. All proceeds of
condemnation awards or proceeds of sale IN LIEU of condemnation with
respect to the Property and all judgments, decrees and awards for injury or
damage to the Property shall be paid to Administrative Lender and shall be
applied as follows:

(i) FIRST, to reimburse Grantor, Administrative Lender or
Trustee for all reasonable and necessary costs and expenses, including
reasonable attorneys' fees, incurred in connection with collection of
such proceeds;

(ii) SECOND, if a Default has not occurred, at Grantor's option,
(a) for replacement of Property (to the extent necessary not to cause
an Event of Default pursuant to SECTION 6.1(k) of the Credit
Agreement) and Grantor shall provide

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<PAGE>

Administrative Lender with evidence satisfactory to Administrative
Lender of such use or (b) to the payment of Secured Indebtedness
(which shall permanently reduce the Total Commitment, as defined in
the Credit Agreement, by such amount); PROVIDED, the order of
application of such proceeds to the Secured Indebtedness shall be at
the discretion of Determining Lenders;

(iii) THIRD, if a Default has occurred, to the payment of
Secured Indebtedness (which shall permanently reduce the Total
Commitment, as defined in the Credit Agreement, by such amount);
PROVIDED, the order of application of such proceeds to the Secured
Indebtedness shall be at the discretion of Determining Lenders; and

(iv) FOURTH, to the extent of the balance (if any) of such
proceeds, to Grantor or other party legally entitled thereto.

Grantor hereby assigns and transfers all such proceeds, judgments, decrees
and awards to Administrative Lender, for the benefit of Lenders, and agrees
to execute such further assignments of all such proceeds, judgments,
decrees and awards as Administrative Lender may reasonably request;
PROVIDED, HOWEVER, the disbursement of such proceeds, judgments, decrees
and awards shall be applied as provided above in this SECTION 2.2(h).
Administrative Lender is hereby authorized, in the name of Grantor, to
execute and deliver valid acquittances for, and to appeal from, any such
judgment, decree or award if in the reasonable judgment of Administrative
Lender the failure of Grantor to timely perform such acts could reasonably
be expected to have a Material Adverse Effect. Neither Administrative
Lender nor any Lender shall be, in any event or circumstances, liable or
responsible for failure to collect, or for failure to exercise diligence in
the collection of, any such proceeds, judgments, decrees and/or awards.

(i) PROTECTION AND DEFENSE OF LIEN. If the validity or priority of
this Deed of Trust or of any rights, titles, liens or security interests
created or evidenced hereby with respect to the Property or any part
thereof shall be attacked directly or indirectly or if any legal
proceedings are instituted against Grantor with respect thereto, Grantor
will give prompt written notice thereof to Administrative Lender and at
Grantor's own cost and expense diligently will endeavor to cure any defect
that may be developed or claimed, and will take all necessary and proper
steps for the defense of such legal proceedings, including but not limited
to the employment of counsel, the prosecution or defense of litigation and
the release or discharge of all adverse claims, and Trustee and
Administrative Lender, or either of them (whether or not named as parties
to legal proceedings with respect thereto) are hereby authorized and
empowered to take such additional steps as in their judgment and discretion
reasonably may be necessary or proper for the defense of any such legal
proceedings or the protection of the validity or priority of this Deed of
Trust and the rights, titles, liens and security interests created or
evidenced hereby, including but not limited to the employment of counsel,
the prosecution or defense of litigation, the compromise or discharge of
any adverse claims made with respect to the Property, the purchase of any
tax title and the removal of prior liens or security interests which do not
constitute Permitted Encumbrances, and all reasonable expenses so incurred
of every kind and character shall be a demand obligation owing by Grantor,
and the party incurring such expenses shall be subrogated to all rights of
the person receiving such payment. Should Trustee or Administrative Lender
intend to take any such action described in the immediately preceding
sentence, Trustee or Administrative Lender, as appropriate, shall, subject
to the immediately succeeding PROVISO, prior to taking any such action
notify Grantor of such intention and give Grantor a reasonable opportunity
to provide such defense or protection; PROVIDED, HOWEVER, if in the
reasonable opinion of Trustee or Administrative Lender the giving of such
notice and opportunity to provide such defense or protection would impair
or hinder such defense or protection or would otherwise be disadvantageous
to rights or interests of Trustee or Administrative Lender hereunder or the
rights, title, liens or security interests created or

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<PAGE>

evidenced hereby, Trustee and Administrative Lender shall have no
obligation to give such notice and opportunity to provide such defense or
protection.

(j) PERMITTED ENCUMBRANCES. Grantor will comply with and will
perform all of the covenants, agreements and obligations imposed upon it or
the Property in the Permitted Encumbrances in accordance with their
respective terms and provisions. Grantor will not modify or permit any
modification of any Permitted Encumbrance the result of which would have a
Material Adverse Effect without the prior written consent of Administrative
Lender.

(k) BOOKS AND RECORDS. Grantor will permit all contracts,
statements, invoices, bills and claims for labor, materials and services
supplied for the construction and operation of the improvements forming a
part of the Property to be inspected and copied by Administrative Lender
and its representatives at all times during reasonable business hours.

(l) LEASES. Grantor may not lease or enter into any other occupancy
agreement (other than agreements related to hotel and motel room occupancy
entered into in the normal course of Grantor's operation of the Property)
covering any of the Property without the prior written consent of
Administrative Lender.

(m) FEES AND EXPENSES; INDEMNIFICATION. Grantor will pay all
appraisal fees, filing and recording fees, inspection fees, survey fees,
taxes, brokerage fees and commissions, abstract fees, title policy fees,
uniform commercial code search fees, escrow fees, attorney's fees, and all
other costs and expenses of every character reasonably and properly
incurred by Grantor, Trustee, Administrative Lender or Lenders in
connection with this Deed of Trust, either at the closing thereof or at any
time during the term thereof, or otherwise attributable or chargeable to
Grantor as owner of the Property, and will reimburse Trustee,
Administrative Lender and Lenders for all such costs and expenses incurred
by each of them. Grantor shall pay all reasonable and proper expenses and
reimburse Trustee, Administrative Lender and Lenders for any reasonable and
necessary expenditures, including reasonable attorney's fees and legal
expenses, incurred or expended in connection with (i) the breach, by
Grantor of any covenant herein or (ii) Trustee's or Administrative Lender's
or Lender's reasonable exercise of any of the rights and remedies hereunder
or Trustee's or Administrative Lender's or Lenders' reasonable protection
of the Property and the lien and security interest therein. Grantor will
indemnify and hold harmless Trustee, Administrative Lender and Lenders (for
purposes of this SECTION 2.2(m), the terms "ADMINISTRATIVE LENDER" and
"LENDERS" shall include the directors, officers, employees and agents of
Administrative Lender and Lenders and any persons or entities owned or
controlled by or affiliated with Administrative Lender and Lenders) from
and against, and reimburse them for, all claims, demands, liabilities,
losses, damages, judgments, penalties, costs and expenses (including,
without limitation, reasonable attorney's fees) which may be imposed upon,
asserted against or incurred or paid by them by reason of, on account of or
in connection with any bodily injury or death or property damage occurring
in or upon or in the vicinity of the Property through any cause whatsoever,
or asserted against them on account of any act performed or omitted to be
performed hereunder or on account of any transaction arising out of or in
any way connected with the Property or with this Deed of Trust. The
foregoing indemnities shall not apply with respect to matters caused by or
arising out of the gross negligence or willful misconduct of Administrative
Lender, Lenders and/or Trustee. Grantor agrees, however, that it expressly
intends to indemnify Administrative Lender, Lenders and Trustee from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses arising out of their ordinary negligence. The
foregoing indemnities, however, shall not apply with respect to any losses,
liabilities, claims, damages or expenses incurred by Administrative Lender,
Lenders or Trustee in any action or proceeding by Grantor against
Administrative Lender, Lenders or Trustee unless Administrative Lender,
Lenders or Trustee prevail in such action or proceeding. The foregoing
indemnities shall not terminate upon release,

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<PAGE>

foreclosure or other termination of this Deed of Trust but will survive
foreclosure of this Deed of Trust or conveyance IN LIEU of foreclosure and
the repayment of the Secured Indebtedness and the discharge and release of
this Deed of Trust and the other Loan Papers. Any amount to be paid
hereunder by Grantor to Administrative Lender, Lenders and/or Trustee shall
be a demand obligation owing by Grantor to Administrative Lender, Lenders
and/or Trustee and shall be subject to and governed by the provisions of
SECTION 2.3 hereof.

(n) ESTOPPEL CERTIFICATE. Grantor shall at any time and from time to
time furnish promptly upon request a written statement in such form as may
be reasonably required by Administrative Lender stating that this Deed of
Trust is a valid and binding obligation of Grantor, enforceable against
Grantor in accordance with its terms, subject to Debtor Relief Laws (as
such term is defined in the Credit Agreement); that this Deed of Trust has
not been released, subordinated or modified; and that to the best of
Grantor's knowledge there are no offsets or defenses against the
enforcement of this Deed of Trust, or if any of the foregoing statements
are untrue, specifying the reasons therefor.

(o) COMPLIANCE WITH LAWS. Grantor shall, and shall use reasonable
efforts to cause any tenant, licensee or occupant of the Property to,
comply with all applicable restrictive covenants and all Applicable Laws
with respect to which the failure to so comply would have a Material
Adverse Effect.

(p) TAX AND INSURANCE ESCROW. In order to secure the performance and
discharge of Grantor's obligations under SECTION 2.2(b), (f) and (g), but
not IN LIEU of such obligations, Grantor will upon written request of
Administrative Lender, deposit with Administrative Lender upon the
occurrence and continuance of a Default, a sum equal to ad valorem taxes,
assessments and charges (which charges for the purpose of this SECTION
2.2(p) shall include without limitation ground rents and water and sewer
rents and any other recurring charge which could create or result in a lien
against the Property) against the Property for the then current year and
the premiums for such policies of insurance for the then current year, all
as estimated by Administrative Lender and prorated to the end of the
calendar month following the month during which such Default occurred, and
thereafter will deposit with Administrative Lender, on the last day of each
month, sufficient funds (as estimated from time to time by Administrative
Lender) to permit Administrative Lender to pay, at least 15 days prior to
the delinquency date thereof, the next maturing ad valorem taxes,
assessments and charges and premiums for such policies of insurance.
Administrative Lender shall have the right to rely upon tax information
furnished by applicable taxing authorities in the payment of such taxes or
assessments and shall have no obligation to make any protest of any such
taxes or assessments. Any excess over the amounts required for such
purposes shall be held by Administrative Lender for future use, applied to
any Secured Indebtedness, or refunded to Grantor, at Administrative
Lender's option; and any deficiency in such funds so deposited shall be
made up by Grantor upon demand of Administrative Lender. All such funds so
deposited shall bear interest at the normal interest rate for money market
deposits at NationsBank Texas, may be mingled with the general funds of
Administrative Lender and shall be applied by Administrative Lender toward
the payment of such taxes, assessments, charges and premiums when
statements therefor are presented to Administrative Lender by Grantor
(which statements shall be presented by Grantor to Administrative Lender a
reasonable time before the applicable amount is due); PROVIDED, HOWEVER,
that if Administrative Lender has made demand for payment of all of the
Secured Indebtedness, such funds may at Administrative Lender's option be
applied to the payment of the Secured Indebtedness in the order determined
by Administrative Lender and that Administrative Lender may at any time, in
its discretion, apply all or any part of such funds toward the payment of
any such taxes, assessments, charges or premiums which are past due,
together with any penalties or late charges with respect thereto. The
conveyance or transfer of Grantor's interest in the Property for any reason
(including without limitation the foreclosure of a subordinate lien or
security interest or

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<PAGE>

a transfer by operation of law) shall constitute an assignment or transfer of
Grantor's interest in and rights to such funds held by Administrative Lender
under this SECTION 2.2(p) but subject to the rights of Administrative Lender
hereunder.

(q) FURTHER ASSURANCES. Grantor will, on request of Administrative
Lender, (i) promptly correct any defect or error which may be discovered
in the contents of this Deed of Trust or in any other instrument executed
in connection herewith or in the execution or acknowledgment thereof;
(ii) execute, acknowledge, deliver and record or file such further
instruments (including without limitation further deeds of trust, security
agreements, financing statements, continuation statements and assignments
of rents or leases) and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purposes of this Deed of Trust
and such other instruments and to subject to the liens and security
interests hereof and thereof any property intended by the terms hereof and
thereof to be covered hereby and thereby including specifically, but
without limitation, any renewals, additions, substitutions, replacements,
or appurtenances to the Property; (iii) execute, acknowledge, deliver,
procure and record or file any document or instrument (including
specifically any financing statement) deemed advisable by Administrative
Lender to protect the lien or the security interest hereunder against the
rights or interests of third persons, and Grantor will pay all reasonable
costs connected with any of the foregoing; (iv) use reasonable efforts to
cause any tenant under any lease agreement of any of the Property to
furnish any instrument or perform any act deemed advisable by
Administrative Lender to protect the lien or the security interest
hereunder; and (v) provide such certificates, documents, reports,
information, affidavits and other instruments and do such further acts as
may be reasonably necessary or proper in the reasonable determination of
Administrative Lender to enable Administrative Lender to comply with the
requirements or requests of any agency having jurisdiction over
Administrative Lender or Lenders or any examiners of such agencies with
respect to the Secured Indebtedness, Grantor or the Property.

2.3. RIGHT OF ADMINISTRATIVE LENDER TO PERFORM. Grantor agrees that, if
Grantor fails to perform any act or to take any action which hereunder Grantor
is required to perform or take, or to pay any money which hereunder Grantor is
required to pay, Administrative Lender, in Grantor's name or in its own name and
after the giving of any required notice and expiration of any applicable cure
period, may but shall not be obligated to perform or cause to be performed such
act or take such action or pay such money, and any reasonable expenses so
incurred by Administrative Lender, and any money so paid by Administrative
Lender, shall be a demand obligation owing by Grantor to Administrative Lender
and Administrative Lender, upon making such payment, shall be subrogated to all
of the rights of the person or entity receiving such payment. Any amounts due
and owing by Grantor to Administrative Lender pursuant to this Deed of Trust
shall bear interest from the date such amount becomes due until paid at a rate
of interest per annum equal to the lesser of (i) the prime rate of NationsBank
Texas as announced or published by NationsBank Texas from time to time, plus 3%,
and (ii) the highest lawful rate, and shall be a part of the Secured
Indebtedness and shall be secured by this Deed of Trust and by any other Loan
Paper. Should Administrative Lender intend to perform or cause to be performed
such act or take such action or pay such money, Administrative Lender shall,
subject to the immediately succeeding PROVISO, prior to taking any such action
notify Grantor of such intention and give Grantor a reasonable opportunity to
take such action; PROVIDED, HOWEVER, if in the reasonable opinion of
Administrative Lender the giving of such notice and opportunity to take action
would impair the validity or priority of this Deed of Trust, the rights or
interests of Trustee or Administrative Lender hereunder or any rights, titles,
liens or security interests created or evidenced hereby, Administrative Lender
shall have no obligation to give such notice and opportunity to take action.

ARTICLE III.

REMEDIES IN EVENT OF DEFAULT

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3.1. DEFAULTS. The term "DEFAULT" as used in this Deed of Trust shall mean
the occurrence and continuance of an "Event of Default" as defined in the Credit
Agreement.

3.2. ACCELERATION. Upon the occurrence of a Default, Administrative Lender
shall have the option of declaring all Secured Indebtedness in its entirety to
be immediately due and payable, and the liens and security interests evidenced
hereby shall be subject to foreclosure in any manner provided for herein or
provided for by law as Administrative Lender may elect.

3.3. POSSESSION. Upon the occurrence of a Default, Administrative Lender
is authorized prior or subsequent to the institution of any foreclosure
proceedings to enter upon the Property, or any part thereof, and to take
possession of the Property and of all books, records and accounts relating
thereto and to exercise without interference from Grantor any and all rights
which Grantor has with respect to the management, possession, operation,
protection or preservation of the Property, including the right to rent the same
for the account of Grantor and to deduct from such rents all reasonable costs,
expenses and liabilities of every character incurred by Administrative Lender in
collecting such rents and in managing, operating, maintaining, protecting or
preserving the Property and to apply the remainder of such rents on the Secured
Indebtedness in such manner as Administrative Lender may elect. All such costs,
expenses and liabilities incurred by Administrative Lender in collecting such
rents and in managing, operating, maintaining, protecting or preserving the
Property, if not paid out of rents as hereinabove provided, shall constitute a
demand obligation owing by Grantor and shall bear interest from the date of
expenditure until paid at a rate of interest per annum equal to the lesser of
(i) the prime rate of NationsBank Texas, as announced or published by
NationsBank Texas from time to time, plus 3%, and (ii) the highest lawful rate,
all of which shall constitute a portion of the Secured Indebtedness. If
necessary to obtain the possession provided for above, Administrative Lender may
invoke any and all legal remedies to dispossess Grantor, including specifically
one or more actions for forcible entry and detainer, trespass to try title and
restitution. In connection with any action taken by Administrative Lender
pursuant to this SECTION 3.3, Administrative Lender shall not be liable for any
loss sustained by Grantor resulting from any failure to let the Property, or any
part thereof, or from any other act or omission of Administrative Lender in
managing the Property, including without limitation, the negligence of
Administrative Lender, unless such loss is caused by the gross negligence or
willful misconduct of Administrative Lender, and Administrative Lender shall not
be obligated to perform or discharge any obligation, duty or liability under any
lease agreement covering the Property or any part thereof or under or by reason
of this instrument or the exercise of rights or remedies hereunder. Should
Administrative Lender incur any such liability, the amount thereof, including
reasonable costs, expenses and reasonable attorneys' fees, shall be secured
hereby, and Grantor shall reimburse Administrative Lender therefor immediately
upon demand. Nothing in this SECTION 3.3 shall impose any duty, obligation or
responsibility upon Administrative Lender for the control, care, management or
repair of the Property, or shall operate to make Administrative Lender
responsible or liable for any waste committed on the Property or by any other
parties or for any dangerous or defective condition of the Property, or for any
negligence in the management, upkeep, operation, repair or control of the
Property resulting in loss or injury or death to any tenant, licensee, employee
or stranger, unless such waste, dangerous or defective condition or injury or
death is directly a result of gross negligence or willful misconduct by
Administrative Lender, and not just Administrative Lender's own ordinary
negligence. Grantor hereby assents to, ratifies and confirms any and all
actions of Administrative Lender with respect to the Property taken under this
SECTION 3.3.

3.4. FORECLOSURE. Upon the occurrence of a Default, Trustee or his or her
successor or substitute is authorized and empowered and it shall be his or her
special duty at the request of Administrative Lender to sell the Mortgaged
Property or any part thereof situated in the State of Texas at the courthouse of
any county in the State of Texas in which any part of the Mortgaged Property is
situated, at public vendue to the highest bidder for cash at any hour designated
between the hours of 10:00 o'clock a.m. and 4:00 o'clock p.m. on the first
Tuesday in any month after having given notice of such sale in accordance with
the statutes of the State of Texas then in force governing sales of real estate
under powers conferred by deed of trust. Any sale made by Trustee hereunder may
be as an entirety or in such parcels as Administrative

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Lender may request, and any sale may be adjourned by announcement at the time
and place appointed for such sale without further notice except as may be
required by law. The sale by Trustee of less than the whole of the Mortgaged
Property shall not exhaust the power of sale herein granted, and Trustee is
specifically empowered to make successive sale or sales under such power until
the whole of the Mortgaged Property shall be sold; and, if the proceeds of such
sale of less than the whole of the Mortgaged Property shall be less than the
aggregate of the Secured Indebtedness and the expense of executing this trust as
provided herein, this Deed of Trust and the lien hereof shall remain in full
force and effect as to the unsold portion of the Mortgaged Property just as
though no sale had been made; PROVIDED, HOWEVER, that Grantor shall never have
any right to require the sale of less than the whole of the Mortgaged Property
but Administrative Lender shall have the right, at its sole election, to request
Trustee to sell less than the whole of the Mortgaged Property. After each sale,
Trustee shall make to the purchaser or purchasers at such sale good and
sufficient conveyances in the name of Grantor, conveying the Property so sold to
the purchaser or purchasers in fee simple with general warranty of title subject
to Permitted Encumbrances, and shall receive the proceeds of said sale or sales
and apply the same as herein provided. Payment of the purchase price to Trustee
shall satisfy the obligation of purchaser at such sale therefor, and such
purchaser shall not be responsible for the application thereof. The power of
sale granted herein shall not be exhausted by any sale held hereunder by Trustee
or his or her substitute or successor, and such power of sale may be exercised
from time to time and as many times as Administrative Lender may deem necessary
until all of the Mortgaged Property has been duly sold and all Secured
Indebtedness has been fully paid. In the event any sale hereunder is not
completed or is defective in the opinion of Administrative Lender, such sale
shall not exhaust the power of sale hereunder and Administrative Lender shall
have the right to cause a subsequent sale or sales to be made hereunder. Any
and all statements of fact or other recitals made in any deed or deeds given by
Trustee or any successor or substitute appointed hereunder as to nonpayment of
the Secured Indebtedness, or as to the occurrence of any Default, or as to
Administrative Lender having declared all of such indebtedness to be due and
payable, or as to the request to sell, or as to notice of time, place and terms
of sale and of the properties to be sold having been duly given, or as to the
refusal, failure or inability to act of Trustee or any substitute or successor,
or as to the appointment of any substitute or successor trustee, or as to any
other act or thing having been duly done by Administrative Lender or by such
Trustee, substitute or successor, shall be taken as prima facie evidence of the
truth of the facts so stated and recited. Trustee or his or her successor or
substitute may appoint or delegate any one or more persons as agent to perform
any act or acts necessary or incident to any sale held by Trustee, including the
posting of notices and the conduct of sale, but in the name and on behalf of
Trustee or his or her successor or substitute.

3.5. JUDICIAL FORECLOSURE. This instrument shall be effective as a
mortgage as well as a deed of trust and upon the occurrence of a Default may be
foreclosed as to any of the Property in any manner permitted by the laws of the
State of Texas or of any other state in which any part of the Property is
situated, and any foreclosure suit may be brought by Trustee or by
Administrative Lender. In the event a foreclosure hereunder shall be commenced
by Trustee or his or her substitute or successor, Administrative Lender may at
any time before the sale of the Property direct Trustee to abandon the sale, and
may then institute suit for the collection of the Notes and the other Secured
Indebtedness, and for the foreclosure of this Deed of Trust. It is agreed that
if Administrative Lender should institute a suit for the collection of the Notes
or any other Secured Indebtedness and for the foreclosure of this Deed of Trust,
Administrative Lender may at any time before the entry of a final judgment in
said suit dismiss the same, and require Trustee or his or her substitute or
successor to sell the Property in accordance with the provisions of this Deed of
Trust.

3.6. RECEIVER. In addition to all other remedies herein provided for,
Grantor agrees that upon the occurrence of a Default, Administrative Lender
shall as a matter of right be entitled to seek the appointment of a receiver or
receivers for all or any part of the Property, whether such receivership be
incident to a proposed sale of such Property or otherwise, and without regard to
the value of the Property or the solvency of any person or persons liable for
the payment of the Secured Indebtedness, and Grantor does hereby consent to
Administrative

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Lender's seeking the appointment of such receiver or receivers, but nothing
herein is to be construed to deprive Administrative Lender of any other right,
remedy or privilege it may now or hereafter have under the law to have a
receiver appointed; PROVIDED, HOWEVER, that the appointment of such receiver,
trustee or other appointee by virtue of any court order, statute or regulation
shall not impair or in any manner prejudice the rights of Administrative Lender
to receive payment of the rents, room rents, deposits for lodging and income
from the Property. Any money advanced by Administrative Lender in connection
with any such receivership shall be a demand obligation owing by Grantor to
Administrative Lender and shall bear interest from the date of making such
advancement by Administrative Lender until paid at a rate of interest per annum
equal to the lesser of (i) the prime rate of NationsBank Texas, as announced or
published by NationsBank Texas from time to time, plus 3%, and (ii) the highest
lawful rate, and shall be secured by this Deed of Trust and by any other
instrument securing the Secured Indebtedness.

3.7. PROCEEDS OF SALE. The proceeds of any sale held by Trustee or any
receiver or public officer in foreclosure of the liens evidenced hereby shall be
applied:

FIRST, to the payment of all necessary costs and expenses incident to
such foreclosure sale, including but not limited to all court costs and
charges of every character in the event foreclosed by suit, and a
reasonable fee to Trustee acting under the provisions of SECTION 3.4 if
foreclosed by power of sale as provided in Section 3.4;

SECOND, to the payment in full of the Secured Indebtedness; PROVIDED,
the order of application of such proceeds to the Secured Indebtedness shall
be at the discretion of Determining Lenders; and

THIRD, the remainder, if any, shall be paid to Grantor or other party
legally entitled thereto.

3.8. ADMINISTRATIVE LENDER AS PURCHASER. Administrative Lender shall have
the right to become the purchaser at any sale held by any Trustee or substitute
or successor or by any receiver or public officer, and Administrative Lender
purchasing at such sale shall have the right to credit upon the amount of the
bid made therefor, to the extent necessary to satisfy such bid, the Secured
Indebtedness owing to Administrative Lender and/or Lenders for the equal and
ratable benefit of Lenders.

3.9. UNIFORM COMMERCIAL CODE.

(a) Upon the occurrence of a Default, Administrative Lender may
exercise its rights of enforcement with respect to the Personal Property
under the Texas Business and Commerce Code, as amended, and in conjunction
with, in addition to or in substitution for those rights and remedies, and
all rights and remedies granted to Administrative Lender or Lenders under
any Loan Paper executed by Grantor governing security interests in personal
property of Grantor.

(b) Any sale made pursuant to the provisions of this SECTION 3.9
shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held contemporaneously with the sale of the Mortgaged
Property under power of sale as provided herein upon giving the same notice
with respect to the sale of the Personal Property hereunder as is required
for such sale of the Mortgaged Property under power of sale.

(c) Any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of the Secured Indebtedness, or as to the
occurrence of any Default, or as to Administrative Lender and/or Lenders
having declared all of such indebtedness to be due and payable, or as to
notice of time, place and terms of sale and of the properties to be sold
having been duly given, or as to any other act or thing having been duly
done

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by Administrative Lender and/or Lenders, shall be taken as prima facie
evidence of the truth of the facts so stated and recited.

(d) Administrative Lender may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any
sale held by Administrative Lender, including the sending of notices and
the conduct of the sale, but in the name and on behalf of Administrative
Lender.

3.10. PARTIAL FORECLOSURE. In the event of a default in the payment of
any part of the Secured Indebtedness, Administrative Lender shall have the right
to proceed with foreclosure of the liens and security interests evidenced hereby
without declaring the entire Secured Indebtedness due, and in such event any
such foreclosure sale may be made subject to the unmatured part of the Secured
Indebtedness; and any such sale shall not in any manner affect the unmatured
part of the Secured Indebtedness, but as to such unmatured part this Deed of
Trust shall remain in full force and effect just as though no sale had been
made. The proceeds of any such sale shall be applied as provided in SECTION 3.7
except that the amount paid under PARAGRAPH SECOND thereof shall be only the
matured portion of the Secured Indebtedness and any proceeds of such sale in
excess of those provided for in subparagraphs first and second (modified as
provided above) shall be applied to installments of principal of and interest on
the Notes in the inverse order of maturity. Several sales may be made hereunder
without exhausting the right of sale for any unmatured part of the Secured
Indebtedness.

3.11. REMEDIES CUMULATIVE. All remedies herein expressly provided for are
cumulative of any and all other remedies existing at law or in equity and are
cumulative of any and all other remedies provided for in any other instrument
securing the payment of the Secured Indebtedness, or any part thereof, or
otherwise benefiting Trustee, Administrative Lender and Lenders, and Trustee,
Administrative Lender and Lenders shall, in addition to the remedies herein
provided, be entitled to avail themselves of all such other remedies as may now
or hereafter exist at law or in equity for the collection of the Secured
Indebtedness and the enforcement of the covenants herein and the foreclosure of
the liens and security interests evidenced hereby, and the resort to any remedy
provided for hereunder or under any such other instrument or provided for by law
shall not prevent the concurrent or subsequent employment of any other
appropriate remedy or remedies.

3.12. RESORT TO ANY SECURITY. Administrative Lender may resort to any
security given by this Deed of Trust or to any other security now existing or
hereafter given to secure the payment of the Secured Indebtedness, in whole or
in part, and in such portions and in such order as may seem best to
Administrative Lender in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits, liens or security interests evidenced by this Deed of Trust.

3.13. WAIVER. To the full extent Grantor may do so, Grantor agrees that
Grantor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force pertaining to the rights and
remedies of sureties or providing for any appraisement, valuation, stay,
extension or redemption, and Grantor, for Grantor and Grantor's representatives,
successors and assigns, and for any and all persons ever claiming any interest
in the Property, to the extent permitted by law, hereby waives and releases all
rights of redemption, valuation, appraisement, stay of execution, notice of
intention to mature or declare due the whole of the Secured Indebtedness and all
rights to a marshaling of the assets of Grantor, including the Property, or to a
sale in inverse order of alienation in the event of foreclosure of the liens and
security interests hereby created. Grantor shall not have or assert any right
under any statute or rule of law pertaining to the marshaling of assets, sale in
inverse order of alienation, the exemption of homestead, the administration of
estates of decedents or other matters whatever to defeat, reduce or affect the
rights of Trustee or Administrative Lender under the terms of this Deed of Trust
to a sale of the Property for the collection of the Secured Indebtedness without
any prior or different resort for collection, or the rights of Trustee or
Administrative Lender under the terms of this Deed of Trust to the payment of
such indebtedness out of the proceeds of sale of the Property in preference to
every other claimant whatever. If

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the Property is sold for an amount less than the Secured Indebtedness, the
deficiency shall be determined by the purchase price at the sale or sales. To
the extent permitted by law, Grantor waives all rights and claims with respect
to Administrative Lender's or any Lender's ability to obtain a deficiency
judgment under Section 51.003 of the Texas Property Code. If any law referred
to in this SECTION 3.13 and now in force, of which Grantor or Grantor's
successors and assigns and such other persons claiming any interest in the
Property might take advantage despite this SECTION 3.13 shall hereafter be
repealed or cease to be in force, such law shall not thereafter be deemed to
preclude the application of this SECTION 3.13.

3.14. DELIVERY OF POSSESSION AFTER FORECLOSURE. In the event there is a
foreclosure sale hereunder and at the time of such sale Grantor or Grantor's
successors or assigns or any other persons claiming any interest in the Property
by, through or under Grantor are occupying or using the Property, or any part
thereof, each and all shall immediately become the tenant of the purchaser at
such sale, which tenancy shall be a tenancy from day-to-day, terminable at the
will of either landlord or tenant, at a reasonable rental per day based upon the
value of the property occupied, such rental to be due daily to the purchaser.
In the event the tenant fails to surrender possession of said property upon
demand, the purchaser shall be entitled to institute and maintain an action for
forcible entry and detainer of said property in the Justice of the Peace Court
in the Justice Precinct in which such property, or any part thereof, is
situated.

3.15. TENDER AFTER ACCELERATION. If, following the occurrence of a
Default and the acceleration of the Secured Indebtedness but prior to the
foreclosure of this Deed of Trust against the Property, Grantor shall tender to
Administrative Lender and/or Lenders payment of an amount sufficient to pay the
entire Secured Indebtedness, such tender shall be deemed to be a voluntary
prepayment and, consequently, Grantor shall also pay to Lenders on the date of
such tender such charges as may be required under the Credit Agreement for
prepayment of a LIBOR Advance or CD Advance ; PROVIDED, HOWEVER, that in no
event shall any amount payable under this SECTION 3.15, when added to the
interest otherwise payable on the Secured Indebtedness, exceed the maximum
interest permitted under applicable law.

3.16. INSURANCE PREMIUMS. Upon any foreclosure of the Mortgaged Property
pursuant to this Deed of Trust, Administrative Lender shall have the right to
cancel any policy of insurance covering all or any part of the Mortgaged
Property and shall be entitled to receive any unearned premiums from such
policy. The unearned premiums received by Administrative Lender shall be
applied in the same manner as provided in SECTION 3.7 above regarding the
application of proceeds of sale of the Mortgaged Property.

ARTICLE IV.

ASSIGNMENT OF RENTS, ROOM RENTS,
DEPOSITS FOR LODGING, PROFITS, INCOME,
CONTRACTS AND BONDS

4.1. ASSIGNMENT. Grantor does hereby absolutely and unconditionally
assign, transfer and set over to Administrative Lender all rents, room rents,
deposits for lodging, income, profits and proceeds to be derived from the
Property, including without limitation the immediate and continuing right to
collect and receive all of the rents, room rents, deposits for lodging, income,
receipts, revenues, issues, profits and other sums of money that may now or at
any time hereafter become due and payable to Grantor under the terms of any
present or future leases, licenses or other agreements now or hereafter covering
the Property, or any part thereof, including but not limited to minimum rents,
additional rents, percentage rents, deficiency rents and liquidated damages
following default, all proceeds payable under any policy of insurance covering
the loss of rents resulting from untenantability caused by destruction or damage
to the Property, and liens and rights, whether constitutional, statutory,
contractual or otherwise, in favor of Grantor as the lessor of any of the
Property, and all of Grantor's rights to recover monetary amounts from any
lessee, licensee or occupant in bankruptcy including, without limitation, rights
of recovery for use and occupancy and damage claims arising out of lease

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defaults, including rejections, under any bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application relating to or
affecting the enforcement of the rights of creditors generally, together with
any sums of money that may now or at any time hereafter become due and payable
to Grantor by virtue of any and all royalties, overriding royalties, bonuses,
delay rentals and any other amount of any kind or character arising under any
and all present and future oil, gas and mining leases covering the Property or
any part thereof; and all proceeds and other amounts paid or owing to Grantor
under or pursuant to any and all contracts and bonds relating to the
construction, erection or renovation of the Property; subject however to a
license hereby granted by Administrative Lender to Grantor to collect and
receive and expend all of the foregoing, subject to the terms and conditions
hereof. Upon the occurrence and continuance of any Default, Administrative
Lender shall have the right, power and privilege (but shall be under no duty) to
terminate such license whereupon Administrative Lender shall have the right and
authority, whether or not it takes possession of the Property, to seek
enforcement of any such lease, contract or bond and to demand, collect, receive,
sue for and recover in its own name any and all of the above described amounts
assigned hereby and to apply the sum(s) collected, first to the payment of
reasonable expenses incident to the collection of the same as outlined in this
Deed of Trust, second to the payment of the Secured Indebtedness, and the
balance, if any, to Grantor or other party legally entitled thereto; PROVIDED,
HOWEVER, that Administrative Lender shall not be deemed to have taken possession
of the Property except on the exercise of its option to do so, evidenced by its
demand and overt act for such purpose. Grantor shall make no assignment or
other disposition of the above described amounts assigned hereby, nor, unless
permitted under the Credit Agreement, shall Grantor cancel or amend any such
lease, contract, bond or any other instrument under which such amounts are to be
paid or waive, excuse, condone, discount, set off, compromise or in any manner
release any obligation thereunder, nor shall Grantor receive or collect any such
amount thus assigned for a period of more than one month in advance of the date
on which payment thereof is due and Grantor shall duly and punctually observe
and perform every obligation to be performed by it under each such lease,
contract, bond or other instrument and shall not do or permit to be done
anything to impair the security thereof and shall enforce, to the extent such
enforcement would be reasonably prudent under the circumstances, every
obligation of each other party thereto. The assignment contained in this
SECTION 4.1 shall become null and void upon the release of this Deed of Trust.
It shall never be necessary for Administrative Lender to institute legal
proceedings of any kind whatsoever to enforce the provisions of this SECTION
4.1. It is agreed that room deposits received more than one month in advance
shall not be deemed to violate this provision.

ARTICLE V.

HAZARDOUS MATERIALS

5.1. DEFINITIONS. For the purpose of this Deed of Trust, the following
terms shall have the following meanings:

(a) "HAZARDOUS MATERIALS" means (a) any "hazardous waste" as defined
by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section
6901 ET SEQ.), as amended from time to time, and regulations promulgated
thereunder; (b) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
Section 9601 ET SEQ.) ("CERCLA"), as amended from time to time, and
regulations promulgated thereunder; (c) asbestos; (d) polychlorinated
biphenyls; (e) underground storage tanks, whether empty, filled or
partially filled with any substance, (f) any substance the presence of
which on the Mortgaged Property is prohibited by any Governmental
Requirements (as defined below); and (g) any other substance which by any
Governmental Requirements requires special handling or notification of any
federal, state or local governmental entity in its collection, storage,
treatment, or disposal.

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(b) "HAZARDOUS MATERIALS CONTAMINATION" means the contamination
(whether presently existing or hereafter occurring) of the buildings,
facilities, soil, groundwater, air or other elements on or of the Mortgaged
Property by Hazardous Materials, or the contamination of the buildings,
facilities, soil, groundwater, air or other elements on or of any other
property as a result of Hazardous Materials at any time (whether before or
after the date of this Deed of Trust) emanating from the Mortgaged
Property.

(c) "GOVERNMENTAL REQUIREMENTS" means all laws, ordinances, rules,
and regulations of any Governmental Authority (as defined below) applicable
to Grantor or the Mortgaged Property.

(d) "GOVERNMENTAL AUTHORITY" means the United States, the state,
county, city, or any other political subdivision in which the Mortgaged
Property is located, and any other political subdivision, agency, or
instrumentality exercising jurisdiction over Grantor or the Mortgaged
Property.

5.2. GRANTOR'S WARRANTIES. Grantor hereby represents and warrants that:

(a) No Hazardous Materials have been collected, stored, treated or
disposed of in a manner which violates Applicable Law and no Hazardous
Materials which would have a Material Adverse Effect are now located on the
Mortgaged Property, and neither Grantor nor, to the best of Grantor's
actual knowledge and belief, any other person has ever caused or permitted
any Hazardous Materials which would have a Material Adverse Effect to be
placed, held, located or disposed on, under or at the Mortgaged Property or
any part thereof;

(b) No part of the Mortgaged Property is being used nor, to the best
of Grantor's actual knowledge and belief, has been used at any previous
time for the disposal, storage, treatment, processing or other handling of
Hazardous Materials, nor is any part of the Mortgaged Property affected by
any Hazardous Materials Contamination which would have a Material Adverse
Effect; and

(c) To the best of Grantor's actual knowledge and belief, no property
adjoining the Mortgaged Property is being used, or has ever been used at
any previous time for the disposal, storage, treatment, processing or other
handling of Hazardous Materials which would have a Material Adverse Effect
nor is any other property adjoining the Mortgaged Property affected by
Hazardous Materials Contamination which would have a Material Adverse
Effect.

5.3. GRANTOR'S COVENANTS. Grantor agrees to (a) give notice to
Administrative Lender immediately upon Grantor's acquiring knowledge of the
presence of any Hazardous Materials on the Property or any adjoining property
which would have a Material Adverse Effect or of any Hazardous Materials
Contamination which would have a Material Adverse Effect with a full description
thereof; (b) promptly comply with any Governmental Requirements requiring the
removal, treatment or disposal of such Hazardous Materials or Hazardous
Materials Contamination and provide Administrative Lender with reasonably
satisfactory evidence of such compliance; and (c) provide Administrative Lender
within 30 days after demand by Administrative Lender, with a bond, letter of
credit or similar financial assurance evidencing to Administrative Lender's
reasonable satisfaction that the necessary funds are available to pay the cost
of removing, treating and disposing of such Hazardous Materials or Hazardous
Materials Contamination and discharging any assessments which may be established
on the Mortgaged Property as a result thereof.

5.4. SITE ASSESSMENTS. Grantor will permit Administrative Lender (by its
officers, employees and agents) (a) at any time and from time to time prior to
the occurrence of a Default or Event of Default but in no event more than once
every thirty-six months (or such other more frequent intervals as may be
required by any governmental or regulatory authority) or (b) at any time and
from time to time after the occurrence of a Default or Event of Default, to
contract for

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the services of persons (the "SITE REVIEWERS") to perform environmental site
assessments (the "SITE ASSESSMENTS") on any of the Mortgaged Property for the
purpose of determining whether there exists on the Mortgaged Property any
environmental condition which could reasonably be expected to result in any
liability, cost or expense to the owner, occupier or operator of such Mortgaged
Property arising under any Governmental Requirements relating to Hazardous
Materials. Subject to the immediately preceding sentence, the Site Assessments
may be performed at any time or times, upon reasonable notice, and under
reasonable conditions established by Grantor which do not impede the performance
of the Site Assessments. The Site Reviewers are hereby authorized to enter upon
any Mortgaged Property for such purposes. The Site Reviewers are further
authorized to perform both above and below the ground testing for environmental
damage or the presence of Hazardous Materials on any Mortgaged Property and such
other tests on any Mortgaged Property as may be necessary to conduct the Site
Assessments in the reasonable opinion of the Site Reviewers. Grantor will
supply to the Site Reviewers such historical and operational information
regarding any of the Mortgaged Property as may be reasonably requested by the
Site Reviewers to facilitate the Site Assessments and will make available for
meeting with the Site Reviewers appropriate personnel having knowledge of such
matters. The reasonable cost of performing such Site Assessments shall be paid
by Grantor upon demand of Administrative Lender and any such expenses borne by
Administrative Lender and not immediately reimbursed by Grantor shall be secured
by this Deed of Trust.

5.5. INDEMNIFICATION. Regardless of whether any Site Assessments are
conducted hereunder, if any Default or Event of Default shall have occurred and
be continuing or any remedies in respect of any of the Property are exercised by
Administrative Lender or any Lender, Grantor shall defend, indemnify and hold
harmless Administrative Lender, Trustee and Lenders from any and all liabilities
(including strict liability), actions, demands, penalties, losses, costs or
expenses (including, without limitation, attorneys' fees and expenses, and
remedial costs), suits, costs of any settlement or judgment and claims of any
and every kind whatsoever which may now or in the future (whether before or
after the release of this Deed of Trust) be paid, incurred or suffered by or
asserted against Administrative Lender, Trustee or Lenders by any person or
entity or governmental agency for, with respect to, or as a direct or indirect
result of, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission or release from any of the Property of any Hazardous
Materials or any Hazardous Materials Contamination or arise out of or result
from the environmental condition of any of the Property or the applicability of
any Governmental Requirements relating to Hazardous Materials (including,
without limitation, CERCLA or any federal, state or local so-called "superfund"
or "superlien" laws, or any code, rule, regulation, order or decree promulgated
thereunder); PROVIDED, HOWEVER, the indemnity provided above shall not apply to
any liabilities, actions, demands, penalties, losses, costs or expenses, suits,
costs of any settlement or judgment and claims of any and every kind whatsoever
which are determined in a final, non-appealable judgment by a court of competent
jurisdiction to have been (a) caused by or within the control of Administrative
Lender and/or Lenders as a result of actions in their capacities as
beneficiaries of this Deed of Trust and not as a result of any determination in
such judgment or otherwise that any covenants, conditions or provisions in any
of the Loan Papers give or purport to give control over Grantor or any of the
Property or (b) the result of an event that occurs after foreclosure of the
Property (or any portion thereof) or the taking of a deed IN LIEU of foreclosure
covering the Property (or any portion thereof), unless such event occurs as a
result of or arises out of a Hazardous Materials Contamination or an
environmental condition of the Property that occurred or existed prior to such
foreclosure or such taking of a deed IN LIEU of foreclosure. The covenants,
warranties and indemnifications contained in this SECTION 5.5 shall survive the
release of this Deed of Trust and termination of the Credit Agreement. For the
purposes of this SECTION 5.5, the term "ADMINISTRATIVE LENDER", "TRUSTEE" and
"LENDERS" shall include all subsequent owners or holders of any obligations
secured by this Deed of Trust, all directors, officers, employees and agents of
such entity and any persons or entities owned or controlled by or affiliated
with Administrative Lender, Trustee or any Lender, and their respective
directors, officers, employees and agents.

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ARTICLE VI.

MISCELLANEOUS

6.1. RELEASE. If all of the Secured Indebtedness be finally and fully
paid, the Property shall become wholly clear of the liens, security interests,
conveyances and assignments evidenced hereby, which shall be released by
Administrative Lender at Grantor's cost.

6.2. SUCCESSOR TRUSTEE. Trustee may resign by an instrument in writing
addressed to Administrative Lender, or Trustee may be removed at any time with
or without cause by an instrument in writing executed by Administrative Lender.
In case of the death, resignation, removal or disqualification of Trustee or if
for any reason Administrative Lender shall deem it desirable to appoint a
substitute or successor trustee to act instead of the herein named trustee or
any substitute or successor trustee, then Administrative Lender shall have the
right and hereby is authorized and empowered to appoint a successor trustee, or
a substitute trustee, without other formality than appointment and designation
in writing executed by Administrative Lender and the authority hereby conferred
shall extend to the appointment of other successor and substitute trustees
successively until the Secured Indebtedness finally has been paid in full or
until the Property is sold hereunder. If Administrative Lender is a corporation
or banking association and such appointment is executed in its behalf by an
officer of such corporation, such appointment shall be conclusively presumed to
be executed with authority and shall be valid and sufficient without proof of
any action by the board of directors or any superior officer of the corporation
or banking association. Upon the making of any such appointment and
designation, all of the estate and title of Trustee in the Property shall vest
in the named successor or substitute trustee and thereupon he shall succeed to
and shall hold, possess and execute all the rights, powers, privileges,
immunities and duties herein conferred upon Trustee; but, nevertheless, upon the
written request of Administrative Lender or of the successor or substitute
Trustee, the Trustee ceasing to act shall execute and deliver an instrument
transferring to such successor or substitute Trustee all of the estate and title
in the Property of Trustee so ceasing to act, together with all the rights,
powers, privileges, immunities and duties herein conferred upon Trustee, and
shall assign, transfer and deliver any of the properties and moneys held by said
Trustee hereunder to said successor or substitute Trustee. All references
herein to Trustee shall be deemed to refer to Trustee (including any successor
or substitute appointed and designated as herein provided) from time to time
acting hereunder. Grantor hereby ratifies and confirms any and all acts which
the herein named Trustee or his successor or successors, substitute or
substitutes, in this trust, lawfully shall do by virtue hereof.

6.3. LIABILITY AND INDEMNIFICATION OF TRUSTEE. Trustee shall not be liable
for any error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever, except for
Trustee's gross negligence or willful misconduct. Trustee shall have the right
to rely on any instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by him or her hereunder, believed by him or
her in good faith to be genuine. All moneys received by Trustee, until used or
applied as herein provided, shall be held in trust for the purposes for which
they were received, but need not be segregated in any manner from any other
moneys (except to the extent required by law), and Trustee shall be under no
liability for interest on any monies received by him or her hereunder. Grantor
will reimburse Trustee for, and indemnify and save harmless him or her against,
any and all liability and expenses which reasonably may be incurred by him or
her in the performance of his or her duties hereunder. The foregoing indemnity
shall not terminate upon release, foreclosure or other termination of this Deed
of Trust.

6.4. WAIVER BY ADMINISTRATIVE LENDER OR LENDERS. Administrative Lender or
Lenders may at any time and from time to time in writing (a) waive compliance by
Grantor with any covenant herein made by Grantor to the extent and in the manner
specified in such writing; (b) consent to Grantor doing any act which Grantor
hereunder is prohibited from doing, or consent to Grantor failing to do any act
which Grantor hereunder is required to do, to the extent and in the manner
specified in such writing; (c) release any part of the Property, or any interest
therein, from the lien and security interest of this Deed of Trust without the
joinder of Trustee,

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or (d) release any party liable, either directly or indirectly, for the Secured
Indebtedness or for any covenant herein or in any other instrument now or
hereafter securing the payment of the Secured Indebtedness, without impairing or
releasing the liability of any other party. No such act shall in any way impair
the rights of Administrative Lender hereunder except to the extent specifically
agreed to by Administrative Lender in such writing.

6.5. ACTIONS BY ADMINISTRATIVE LENDER OR LENDERS. The lien, security
interest and other security rights of Administrative Lender and Lenders
hereunder shall not be impaired by any indulgence, moratorium or release granted
by Administrative Lender or Lenders, including but not limited to (a) any
renewal, extension, increase or modification which Administrative Lender or any
Lender may grant with respect to any Secured Indebtedness, (b) any surrender,
compromise, release, renewal, extension, exchange or substitution which
Administrative Lender or any Lender may grant in respect of the Property, or any
part thereof or any interest therein (except to the extent specifically
surrendered, compromised, released, renewed, extended, exchanged or
substituted), or (c) any release or indulgence granted to any endorser,
guarantor or surety of any Secured Indebtedness. The taking of additional
security by Administrative Lender or any Lender shall not release or impair the
lien, security interest or other security rights of Administrative Lender
hereunder or affect the liability of Grantor or of any endorser or guarantor or
other surety or improve the right of any permitted junior lienholder in the
Property.

6.6. RIGHTS OF ADMINISTRATIVE LENDER OR LENDERS. Administrative Lender or
Lenders may waive any Default or other default without waiving any other prior
or subsequent Default or other default. Administrative Lender or Lenders may
remedy any Default or other default without waiving the Default or other default
remedied. Neither the failure by Administrative Lender or Lenders to exercise,
nor the delay by Administrative Lender or Lenders in exercising, any right,
power or remedy upon any Default or other default shall be construed as a waiver
of such Default or other default or as a waiver of the right to exercise any
such right, power or remedy at a later date. No single or partial exercise by
Administrative Lender of any right, power or remedy hereunder shall exhaust the
same or shall preclude any other or further exercise thereof, and every such
right, power or remedy hereunder may be exercised at any time and from time to
time. No modification or waiver of any provision hereof or consent to any
departure by Grantor therefrom shall in any event be effective unless the same
shall be in writing and signed by Administrative Lender, and then such waiver or
consent shall be effective only in the specific instances, for the purpose for
which given and to the extent therein specified. No notice to or demand on
Grantor in any case shall of itself entitle Grantor to any other or further
notice or demand in similar or other circumstances. Acceptance by
Administrative Lender or any Lender of any payment in an amount less than the
amount then due on any Secured Indebtedness shall be deemed an acceptance on
account only and shall not in any way affect the existence of a Default or other
default hereunder.

6.7. REPRODUCTION AS FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Deed of Trust or of any financing statement relating to
this Deed of Trust shall be sufficient as a financing statement.

6.8. FIXTURE FILING. This Deed of Trust shall be effective as a financing
statement filed as a fixture filing with respect to all fixtures included within
the Property and is to be filed for record in the real property records of the
county where the Property (including said fixtures) is situated. This Deed of
Trust shall also be effective as a financing statement covering minerals or the
like (including oil and gas) and accounts subject to Section 9.103(e) of the
Texas Business and Commerce Code, as amended, and is to be filed for record in
the real property records of the county where the Property is situated. The
mailing address of Grantor is set forth below the signature of Grantor to this
Deed of Trust and the address of Administrative Lender from which information
concerning the security interest may be obtained is 901 Main Street, 67th Floor,
Dallas, Texas 75202. Grantor does have an interest of record in the Mortgaged
Property.

6.9. FILING AND RECORDATION. Grantor will cause this Deed of Trust and all
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation

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<PAGE>

statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Trustee or Administrative Lender shall
reasonably request, and will pay all such recording, filing, re-recording and
refiling taxes, fees and other charges.

6.10. DEALING WITH SUCCESSOR. In the event the ownership of the Property
or any part thereof becomes vested in a person other than Grantor,
Administrative Lender may, without notice to Grantor, deal with such successor
or successors in interest with reference to this Deed of Trust and to the
Secured Indebtedness in the same manner as with Grantor, without in any way
vitiating or discharging Grantor's liability hereunder or for the payment of the
Secured Indebtedness. No sale of the Property, no forbearance on the part of
Administrative Lender or any Lender and no extension of the time for the payment
of any of the Secured Indebtedness given by Administrative Lender or any Lender
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of Grantor hereunder or for the payment of the Secured
Indebtedness or the liability of any other person hereunder or for the payment
of the Secured Indebtedness, except to the extent proceeds of any such sale are
applied as provided in SECTION 3.7.

6.11. PLACE OF PAYMENT. All Secured Indebtedness which may be owing
hereunder at any time by Grantor shall be payable at the place designated in the
Loan Papers, or if no such designation is made, at the office of Administrative
Lender at the address indicated in this Deed of Trust, or at such other place in
the continental United States as Administrative Lender may designate in writing.

6.12. SUBROGATION. To the extent that proceeds of the Secured
Indebtedness are used to pay indebtedness secured by any outstanding lien,
security interest, charge or prior encumbrance against the Property, such
proceeds have been advanced by Lenders at Grantor's request and Administrative
Lender shall be subrogated to any and all rights, security interests and liens
owned or held by any owner or holder of such outstanding liens, security
interests, charges or encumbrances, irrespective of whether said liens, security
interests, charges or encumbrances are released; PROVIDED, HOWEVER, that the
terms and provisions of this Deed of Trust shall govern the rights and remedies
of Administrative Lender and shall supersede the terms, provisions, rights and
remedies under and pursuant to the instruments creating the lien or liens to
which Administrative Lender are subrogated hereunder.

6.13. APPLICATION OF INDEBTEDNESS. If any part of the Secured
Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of
the Property cannot be lawfully subject to the lien and security interest hereof
to the full extent of such indebtedness, then all payments made shall be applied
on said indebtedness first in discharge of that portion thereof which is
unsecured by this Deed of Trust.

6.14. USURY. It is the intent of Administrative Lender, Lenders and
Grantor in the execution of the Credit Agreement, this Deed of Trust, the other
Loan Papers and all other instruments now or hereafter securing the Secured
Indebtedness or executed in connection therewith or under any other written or
oral agreement by Grantor in favor of Administrative Lender and/or Lenders to
contract in strict compliance with applicable usury law. In furtherance
thereof, Administrative Lender, Lenders and Grantor stipulate and agree that
none of the terms and provisions contained in the Credit Agreement, this Deed of
Trust, the other Loan Papers or any other instrument securing the Notes or
executed in connection herewith, or in any other written or oral agreement by
Grantor in favor of Lenders and/or Administrative Lender, shall ever be
construed to create a contract to pay for the use, forbearance or detention of
money, or charging of interest at a rate in excess of the maximum interest rate
permitted to be charged by applicable law. Neither Grantor nor any guarantors,
endorsers, sureties or other parties now or hereafter becoming liable for the
Secured Indebtedness or any part thereof shall ever be required to pay interest
on secured indebtedness or arising under any instrument securing the Secured
Indebtedness or under any of the other Loan Papers, or in any other written or
oral agreement by Grantor in favor of Lenders and/or Administrative Lender, at a
rate in excess of the maximum interest that may be lawfully charged under
applicable law, and the provisions of this SECTION 6.14 shall control over all
other provisions of the Credit Agreement, this Deed of

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Trust, the other Loan Papers and any other instruments now or hereafter securing
the Secured Indebtedness or executed in connection herewith or any other oral or
written agreements which may be in apparent conflict herewith. All interest
paid or agreed to be paid to Lenders and/or Administrative Lender shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full period until payment in full of the principal of the Secured
Indebtedness so that the interest thereon for such full period shall not exceed
the maximum amount permitted by applicable law. Lenders and/or Administrative
Lender expressly disavow any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of the Secured
Indebtedness is accelerated. If the maturity of the Secured Indebtedness shall
be accelerated for any reason or if the principal of the Secured Indebtedness is
paid prior to the end of the term of the Secured Indebtedness, and as a result
thereof the interest received for the actual period of existence of the loan
evidenced by the Secured Indebtedness exceeds the applicable maximum lawful
rate, Lenders and/or Administrative Lender shall refund to Grantor the amount of
such excess or shall credit the amount of such excess against the principal
balance of the Secured Indebtedness then outstanding. In the event that Lenders
and/or Administrative Lender shall collect monies and/or any other thing of
value which are deemed to constitute interest which would increase the effective
interest rate on the Secured Indebtedness to a rate in excess of that permitted
to be charged by applicable law, an amount equal to interest in excess of the
lawful rate shall, upon such determination, at the option of Lenders and/or
Administrative Lender, be either immediately returned to Grantor or credited
against the principal balance of the other Secured Indebtedness, without further
penalty to such holder. By execution of this Deed of Trust, Grantor
acknowledges that it believes the loan to be non-usurious and agrees that if, at
any time, Grantor should have reason to believe that such loan is in fact
usurious, it will give Lenders and/or Administrative Lender notice of such
condition, and Grantor agrees that Lenders and/or Administrative Lender shall
have 90 days after receipt of such notice in which to make appropriate refund or
other adjustment in order to correct such condition if in fact such condition
exists. As used in this SECTION 6.14, "interest" means any sum that must be
treated as interest under applicable law in determining whether a loan is
usurious. THE TERM "APPLICABLE LAW" AS USED IN THIS SECTION 6.14 SHALL MEAN THE
LAWS OF THE STATE OF TEXAS OR THE LAWS OF THE UNITED STATES, WHICHEVER LAWS
ALLOW THE GREATER RATE OF INTEREST, AS SUCH LAWS NOW EXIST OR MAY BE CHANGED OR
AMENDED OR COME INTO EFFECT IN THE FUTURE.

6.15. ADDITIONAL MORTGAGED PROPERTY. At any time and from time to time
(a) prior to the occurrence of a Default or Event of Default but in no event
more than once every thirty-six months (or such other more frequent intervals
as may be required by any governmental or regulatory authority) or (b) after the
occurrence of a Default or Event of Default, during the term of this Deed of
Trust, Administrative Lender shall have the right to obtain title insurance,
(provided, however, notwithstanding the above, title insurance shall only be
required to be obtained one time during the term of the Credit Agreement), Site
Assessments (provided, however, the Site Assessments will be initially limited
to Phase I Site Assessments and will not be expanded to include additional Site
Assessments unless the Determining Lenders determine that the results of such
Phase I Site Assessment indicate a potential environmental condition that cannot
be properly analyzed or assessed without a Phase II Site Assessment), current
surveys and appraisals on the Mortgaged Property and on all or any of the real
property collateral covered by any other Deeds of Trust (as defined in the
Credit Agreement). Grantor agrees to pay all reasonable fees, expenses and costs
related to such title insurance, environmental reviews and appraisals. If (i)
as a result of obtaining any title insurance, Site Assessments, current surveys
or appraisals, Administrative Lender determines that there exists (A) to the
extent not covered by title insurance, a defect in title to the Mortgaged
Property (including without limitation, any liens, charges, easements or
encumbrances against the Mortgaged Property or failure of Grantor to have legal
title to the Mortgaged Property or any part thereof) other than Permitted
Encumbrances (a "TITLE DEFECT"), (B) to the extent not covered by title
insurance, a defect in the lien in the Mortgaged Property granted pursuant to
this Deed of Trust as a result of an incorrect legal description or the failure
of this Deed of Trust to effectively grant a first lien other than Permitted
Encumbrances in the Mortgaged Property (a "LIEN DEFECT") or (C) an environmental
condition with respect to the Mortgaged Property or any part thereof (an

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"ENVIRONMENTAL DEFECT") or (ii) any representation and warranty contained in
SECTION 2.1 is false in any material respect (a "REPRESENTATION DEFAULT") or
(iii) any covenant and agreement contained in SECTION 2.2 is not performed or
complied with (a "COVENANT DEFAULT"), the result of which with respect to
CLAUSES (i), (ii) or (iii) above collectively (1) causes a reduction in the
collateral value of the Mortgaged Property by at least $250,000 or (2) when
taken together with all Title Defects, Lien Defects, Environmental Defects,
Representation Defaults and Covenant Defaults with respect to all the property
covered by the Deeds of Trust, causes a reduction in the aggregate collateral
value of such properties of at least $8,000,000 (CLAUSE (1) or (2) being
referred to as a "COLLATERAL DEFICIENCY"), Grantor shall, at its option, within
60 days after receipt of written notice from Administrative Lender to Grantor of
such Collateral Deficiency either (a) substitute additional collateral
("ADDITIONAL COLLATERAL") having a value (determined by Administrative Lender
using a common method of valuation for property with the Collateral Deficiency
and the Additional Collateral) of at least the value of property being replaced
without giving effect to the Collateral Deficiency, (b) eliminate the Collateral
Deficiency in whole by curing such Title Defect, Lien Defect, Representation
Default or Covenant Default to the reasonable satisfaction of Administrative
Lender or (3) commence and continue procedures to eliminate the Collateral
Deficiency in whole by curing such Environmental Defect to the reasonable
satisfaction of Administrative Lender, unless in the reasonable opinion of
Administrative Lender such Environmental Defect is not capable of being cured
within one year, in which case Grantor shall provide the Additional Collateral
as set forth in CLAUSE (a) above. Knowledge of Administrative Lender or any
Lender on January 25, 1994 or any date thereafter of any Title Defect, Lien
Defect or Environmental Defect shall not prejudice or affect rights of
Administrative Lender or any Lender hereunder.

6.16. NOTICE. Any notice, request, demand or other communication required
or permitted hereunder, or under the Loan Papers, or under any other instrument
securing the payment of the Loan Papers (unless otherwise expressly provided
therein) shall be given in writing by (a) personal delivery, or (b) expedited
delivery service with proof of delivery, or (c) United States Mail, postage
prepaid, registered or certified mail, return receipt requested, or (d) prepaid
telegram, telex or telecopy, sent to the intended addressee at the address shown
on the signature page of this Deed of Trust (if to Grantor) or at the address in
SECTION 6.8 (if to Administrative Lender), or to such different address as the
addressee shall have designated by written notice sent in accordance herewith,
and shall (except as otherwise provided herein) be deemed to have been given and
received either at the time of personal delivery or, in the case of delivery
service or mail, on the earlier of actual receipt or 3 days after being mailed
as provided herein at the address and in the manner provided herein, or in the
case of telegram, telex or telecopy, upon receipt, provided that service of a
notice required by Texas Property Code Section 51.002 shall be considered
complete when the requirements of that statute are met.

6.17. SUCCESSORS AND ASSIGNS. The terms, provisions, covenants and
conditions hereof shall be binding upon Grantor, and the representatives,
successors and assigns of Grantor including all successors in interest of
Grantor in and to all or any part of the Property, and shall inure to the
benefit of Trustee and Administrative Lender and their respective heirs,
successors, substitutes and assigns and shall constitute covenants running with
the land. All references in this Deed of Trust to Grantor, Trustee or
Administrative Lender shall be deemed to include all such heirs, devisees,
representatives, successors, substitutes and assigns.

6.18. SEVERABILITY. A determination that any provision of this Deed of
Trust is unenforceable or invalid shall not affect the enforceability or
validity of any other provision and any determination that the application of
any provision of this Deed of Trust to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to any other persons or circumstances.

6.19. GENDER AND NUMBER. Within this Deed of Trust, words of any gender
shall be held and construed to include any other gender, and words in the
singular and plural number shall be held and construed to include the other
number, unless the context otherwise requires.

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6.20. COUNTERPARTS. This Deed of Trust may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall
constitute one instrument.

6.21. REPORTING REQUIREMENTS. Grantor agrees to comply with any and all
reporting requirements applicable to the transaction secured by this Deed of
Trust which are set forth in any law, statute, ordinance, rule, regulation,
order or determination of any governmental authority, and further agrees upon
request of Administrative Lender to furnish Administrative Lender with evidence
of such compliance.

6.22. HEADINGS. The section headings contained in this Deed of Trust are
for convenience only and shall in no way enlarge or limit the scope or meaning
of the various and several sections hereof.

6.23. CONSENT OF ADMINISTRATIVE LENDER. Except where otherwise provided
herein, in any instance hereunder where the approval, consent or the exercise of
judgment of Administrative Lender is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of Administrative Lender, and Administrative Lender shall not, for
any reason or to any extent, be required to grant such approval or consent or
exercise such judgment in any particular manner, regardless of the
reasonableness of either the request or Administrative Lender's judgment.

6.24. MODIFICATION OR TERMINATION. The Loan Papers may only be modified
or terminated by a written instrument or instruments executed by the party
against whom enforcement of the modification or termination is asserted. Any
alleged modification or termination which is not so documented shall not be
effective as to any party.

6.25. ENTIRE AGREEMENT. THIS DEED OF TRUST, TOGETHER WITH THE CREDIT
AGREEMENT, AND ALL OTHER LOAN PAPERS (ALL AS IN EFFECT ON THE DATE HEREOF AND AS
THE SAME MAY BE HEREAFTER FROM TIME TO TIME) REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

6.26. GOVERNING LAW. THIS DEED OF TRUST SHALL BE CONSTRUED, INTERPRETED,
ENFORCED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
(WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW) AND THE LAWS OF THE UNITED
STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE.

6.27. REVOLVING CREDIT LOAN. This Deed of Trust is given to secure,
among other things, a revolving credit loan and shall secure not only presently
existing indebtedness but also future advances, whether such advances are
obligatory or to be made at the option of Administrative Lender or any Lender or
otherwise, to the same extent as if such future advances were made on the date
of the execution of this Deed of Trust, although there may be no advance made at
the time of execution of this Deed of Trust and although there may be no
indebtedness hereby secured outstanding at the time any advance is made. The
lien of this Deed of Trust shall be valid as to all indebtedness hereby secured,
including future advances, from the time of its filing for record in the
recorder's or registrar's office of the county in which the Mortgaged Property
is located.

6.28. MULTISITE REAL ESTATE TRANSACTION. Grantor acknowledges that this
Deed of Trust is one of several deeds of trust, mortgages and other security
documents (the aforesaid being together called "OTHER SECURITY DOCUMENTS") which
secure the Secured Indebtedness. The lien hereof shall not be impaired by any
acceptance by Administrative Lender, any Lender, Trustee or any other trustee
acting for their benefit of any security for or guarantors upon any of the
indebtedness hereby secured, or by any failure, neglect or omission on the part
of Administrative Lender,

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any Lender, Trustee or any trustee acting for their benefit to realize upon or
protect any of the indebtedness hereby secured or any security therefor
including the Other Security Documents. The lien hereof shall not in any manner
be impaired or affect by any release (except as to the property released), sale,
pledge, surrender, compromise, settlement, renewal, extension, indulgence,
alteration, change in, modification or disposition of any of the indebtedness
hereby secured or of any of the collateral security therefor, including without
limitation, the Other Security Documents or of any guarantee thereof, and
Administrative Lender, each Lender, Trustee and any other trustee acting for
their benefit may at its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Other Security
Documents without first exercising or enforcing any of its rights and remedies
hereunder. Such exercise of Administrative Lender's, any Lender's, Trustee's
and any other trustee's rights and remedies under any or all of the Other
Security Documents shall not in any manner impair the indebtedness hereby
secured, except to the extent of payment, or the lien of this Deed of Trust and
any exercise of the rights or remedies of Administrative Lender or Trustee
hereunder shall not impair the lien of any of the Other Security Documents or
any of Administrative Lender's or Trustee's rights and remedies hereunder.
Grantor specifically consents and agrees that Administrative Lender and Trustee
may each exercise its rights and remedies hereunder and Administrative Lender,
each Lender, Trustee and each other trustee may exercise their rights under the
Other Security Documents separately or concurrently and in any order that it or
they may deem appropriate.

IN WITNESS WHEREOF, Grantor has executed this Deed of Trust, Assignment of
Leases and Rents, Security Agreement and Financing Statement on and effective as
of this 25th day of January, 1994.

LA QUINTA INNS, INC.,
a Texas corporation

By: ______________________________
Name: ____________________________
Title: ___________________________

Address: 112 E. Pecan Street
San Antonio, Texas 78205

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<PAGE>

STATE OF TEXAS )
)
COUNTY OF DALLAS )

This instrument was acknowledged before me on the 25th day of January,
1994, by ________________________________, ________________ of La Quinta Inns,
Inc., a Texas corporation, on behalf of said corporation.

----------------------------------
Notary Public, State of Texas

My Commission Expires: ----------------------------------
- ------------------- Print name of Notary here

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<PAGE>

EXHIBIT A

REAL PROPERTY DESCRIPTION

Property description, property number 544, Taylor County, Texas
Property description, property number 454, Potter County, Texas
Property description, property number 2522 Travis County, Texas
Property description, property number 537, Jefferson County, Texas
Property description, property number 2539 Brazos County, Texas
Property description, property number 552, Dallas County, Texas
Property description, property number 915, Val Verde County, Texas
Property description, property number 542, Denton County, Texas
Property description, property number 547, Dallas County, Texas
Property description, property number 687, Galveston County, Texas
Property description, property number 2558 Cameron County, Texas
Property description, property number 531, Harris County, Texas
Property description, property number 529, Harris County, Texas
Property description, property number 2527 Bell County, Texas
Property description, property number 586, Denton County, Texas
Property description, property number 2521 Lubbock County, Texas
Property description, property number 581, Angelina County, Texas
Property description, property number 455, Midland County, Texas
Property description, property number 453, Ector County, Texas
Property description, property number Bexar County, Texas
Property description, property number 582, Bell County, Texas
Property description, property number 533, Galveston County, Texas
Property description, property number 457, Smith County, Texas
Property description, property number 2511 McLennan County, Texas
Property description, property number 1106, Tarrant County, Texas
Property description, property number 556, Bexar County, Texas
Property description, property number 476 Gregg County, Texas
Property description, property number 477, Nueces County, Texas
Property description, property number 478, Travis Couty, Texas

INSERT PROPERTY DESCRIPTION TO BE PROVIDED BY LA QUINTA.

===============================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.
===============================================================================

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<PAGE>

Taylor County, Texas, Property number 544
Potter County, Texas, Property number 454
Jefferson County, Texas, Property number 537
Brazos County, Texas, Property number 2539
Dallas County, Texas, Property number 2546
Dallas County, Texas, Property number 552
Val Verde County, Texas, Property number 915
Denton County, Texas, Property number 542
Dallas County, Texas, Property number 547
Galveston County, Texas, Property number 687
Cameron County, Texas, Property number 2558
Harris County, Texas, Property number 531
Harris County, Texas, Property number 529
Bell County, Texas, Property number 2527
Denton County, Texas, Property number 586
Lubbock County, Texas, Property number 2521
Angelina County, Texas, Property number 581
Midland County, Texas, Property number 455
Ector County, Texas, Property number 453
Bexar County, Texas, Property number 2710
Bell County, Texas, Property number 582
Galveston County, Texas, Property number 533
Smith County, Texas, Property number 457
McLenan County, Texas, Property number 2511
Wichita County, Texas, Property number 2516
Property description, property number _____, Tarrant County, Texas
Property description, property number 556, Bexar County, Texas
Property description, property number 476, Gregg County, Texas
Property description, property number 477, Nueces County, Texas
Property description, property number 478, Travis County, Texas

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<PAGE>

EXHIBIT B

PERMITTED ENCUMBRANCES

INSERT EXCEPTIONS TO BE PROVIDED FROM TITLE COMMITMENT.

1. (a) Liens on real estate for real estate taxes not yet delinquent, (b)
liens created by lease agreements to secure the payments of rental amounts
and other sums not yet due thereunder, (c) liens on leasehold interests
created by the lessor in favor of any mortgagee of the leased premises, and
(d) liens for taxes, assessments, governmental charges, levies or claims
that are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on
the books of La Quinta Inns, Inc., but only so long as no foreclosure,
restraint, sale or similar proceedings have been commenced with respect
thereto.

2. Liens of carriers, warehousemen, mechanics, laborers and materialmen and
other similar liens incurred in the ordinary course of business for sums
not yet due or being contested in good faith, if such reserve or
appropriate provision, if any, as shall be required by GAAP shall have been
made therefor by La Quinta Inns, Inc.

3. Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation.

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<PAGE>
EXHIBIT D

GUARANTY

This Guaranty, dated as of January 25, 1994 (this "GUARANTY"), is made by
La Quinta Realty Corp., a Texas corporation, La Quinta Plaza, Inc., a Texas
corporation, La Quinta Financial Corporation, a Texas corporation, La Quinta
Investments, Inc., a Delaware corporation, LQI Acquisition Corporation, a
Delaware corporation, and La Quinta Motor Inns Limited Partnership, a Delaware
limited partnership ("LQM") (all such Persons being collectively called the
"GUARANTORS").

BACKGROUND.

1. La Quinta Inns, Inc., a Texas corporation ("COMPANY"), NationsBank of
Texas, N.A., as Administrative Lender ("ADMINISTRATIVE LENDER") on behalf of
NationsBank of Texas, N.A. and each other lender, and each other lender (singly,
a "LENDER" and collectively, the "LENDERS") have entered into the Amended and
Restated Credit Agreement, dated as of January 25, 1994 (as hereafter amended or
otherwise modified from time to time, the "CREDIT AGREEMENT"). The capitalized
terms not otherwise defined herein have the meanings specified in the Credit
Agreement.

2. Pursuant to the Credit Agreement, Company may, subject to the terms of
the Credit Agreement and the other Loan Papers, request that Lenders make
Advances and issue, or participate in the issuance of, Letters of Credit and
Bond Letters of Credit.

3. It is a condition precedent to the obligation of Lenders to make such
Advances and issue, or participate in the issuance of, Letters of Credit and
Bond Letters of Credit that Guarantors guarantee repayment thereof upon the
terms and conditions set forth herein.

4. The Board of Directors of each Guarantor (other than LQM) and the
Board of Directors of La Quinta Realty Corp. and the sole General Partner of LQM
have determined that the execution, delivery, and performance of this Guaranty
is necessary and convenient to the conduct, promotion, and attainment of such
Guarantor's business and that such Guaranty may reasonably be expected to
benefit, directly or indirectly, such Guarantor.

5. Guarantors desire to induce Lender to make such Advances and issue, or
participate in the issuance of, Letters of Credit and Bond Letters of Credit.

AGREEMENT.

Now, therefore, in consideration of the premises and in order to induce
Lenders to make Advances and issue, or participate in the issuance of, Letters
of Credit and Bond Letters of Credit under the Credit Agreement, Guarantors
agree as follows:

<PAGE>

1. GUARANTY.

(a) Each Guarantor, jointly or severally, hereby unconditionally and
irrevocably guarantees the punctual payment of, and promises to pay, when
due, whether at stated maturity, by mandatory prepayment, by acceleration
or otherwise, all obligations, indebtedness and liabilities, and all
rearrangements, renewals and extensions of all or any part thereof, of
Company or any other Obligor now or hereafter arising from, by virtue of or
pursuant to the Credit Agreement, the Notes, any other Loan Paper, and any
and all renewals and extensions thereof, or any part thereof, or future
amendments thereto, whether for principal, interest (including, without
limitation, interest, fees and other charges that would accrue or become
owing both prior to and subsequent to and but for the commencement of any
proceeding against or with respect to Company or any other Obligor under
any chapter of the Bankruptcy Code of 1978, 11 U.S.C. Section 101 ET SEQ.
whether or not a claim is allowed for the same in any such proceeding),
premium, fees, commissions, expenses or otherwise (such obligations being
the "OBLIGATION"), and agrees to pay any and all reasonable expenses
(including reasonable counsel fees and expenses) incurred in enforcement or
collection of all or any part thereof, whether such obligations,
indebtedness and liabilities are direct, indirect, fixed, contingent,
joint, several or joint and several, and any rights under this Guaranty.

(b) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of each Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that
would not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the
United States Code or any applicable provisions of comparable state law
(collectively, the "FRAUDULENT TRANSFER LAWS"), in each case after giving
effect to all other liabilities of Guarantor, contingent or otherwise, that
are relevant under the Fraudulent Transfer Laws (specifically excluding,
however, any liabilities of such Guarantor in respect of intercompany
indebtedness to Company, other Affiliates of Company or other Obligors to
the extent that such indebtedness would be discharged in an amount equal to
the amount paid by such Guarantor hereunder) and after giving effect as
assets, subject to PARAGRAPH 4(a) hereof, to the value (as determined under
the applicable provisions of Fraudulent Transfer Laws) of any rights to
subrogation or contribution of such Guarantor pursuant to (i) Applicable
Law or (ii) any agreement providing for an equitable allocation among such
Guarantor and other Obligors of obligations arising under guaranties by
such parties.

2. GUARANTY ABSOLUTE. Each Guarantor guarantees that the Obligation will
be paid strictly in accordance with the terms of the Credit Agreement, the
Notes, and the other Loan Papers, regardless of any Applicable Law, regulation
or order now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of Administrative Lender or any Lender with respect thereto;
PROVIDED, HOWEVER, nothing contained in this Guaranty shall require any
Guarantor to make any payment under this Guaranty in violation of any Applicable
Law, regulation or order now or hereafter in effect. The obligations and
liabilities of each Guarantor

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<PAGE>
hereunder are independent of the obligations of Company under the Credit
Agreement and of the obligations of each other Obligor under each other Loan
Paper and any Applicable Law. The liability of each Guarantor under this
Guaranty shall be absolute and unconditional irrespective of:

(a) the taking or accepting of any other security or guaranty for any
or all of the Obligation;

(b) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligation, including any reduction or
termination of the Commitments;

(c) any lack of validity or enforceability of the Credit Agreement,
the Notes, or any other Loan Paper or other agreement or instrument
relating thereto, including but not limited by the unenforceability of all
or any part of the Obligation by reason of the fact that (i) the
Obligation, and/or the interest paid or payable with respect thereto,
exceeds the amount permitted by Applicable Law, (ii) the act of creating
the Obligation, or any part thereof, is ULTRA VIRES, (iii) the officers
creating same acted in excess of their authority, or (iv) for any other
reason;

(d) any lack of corporate, partnership or other power of Company, any
Obligor or any other Person;

(e) any Debtor Relief Law involving Company, any Guarantor, any
Obligor or any other Person;

(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or Administrative
Lender to Company, any Guarantor or any other Obligor; or any other
modification, amendment, or waiver of or any consent to departure from the
Credit Agreement, the Notes, or any other Loan Paper or other agreement or
instrument relating thereto without notification of any Guarantor (the
right to such notification being herein specifically waived by each
Guarantor);

(g) any exchange, release, sale, subordination, or non-perfection of
any collateral or Lien thereon or any lack of validity or enforceability or
change in priority, destruction, reduction, or loss or impairment of value
of any collateral or Lien thereon;

(h) any release or amendment or waiver of or consent to departure
from any other guaranty for all or any of the Obligation;

(i) the failure by any Lender or Administrative Lender to make any
demand upon or to bring any legal, equitable, or other action against
Company or any other

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Person (including without limitation any Guarantor or any other Obligor), or the
failure or delay by any Lender or Administrative Lender to, or the manner in
which any Lender or Administrative Lender shall, proceed to exhaust rights
against any direct or indirect security for the Obligation;

(j) the existence of any claim, defense, set-off, or other rights
which Company or Guarantor may have at any time against Company, any
Lender, Administrative Lender, any Guarantor or any other Obligor, or any
other Person, whether in connection with this Guaranty, the Loan Papers,
the transactions contemplated thereby, or any other transaction;

(k) any failure of any Lender or Administrative Lender to notify any
Guarantor of any renewal, extension, or assignment of the Obligation or any
part thereof, or the release of any security, or of any other action taken
or refrained from being taken by any Lender or Administrative Lender, it
being understood that Lenders and Administrative Lender shall not be
required to give any Guarantor any notice of any kind under any
circumstances whatsoever with respect to or in connection with the
Obligation;

(l) any payment by Company to any Lender or Administrative Lender is
held to constitute a preference under any Debtor Relief Law or if for any
other reason any Lender or Administrative Lender is required to refund such
payment or pay the amount thereof to another Person; or

(m) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Company, any Guarantor or any other
Obligor, including without limitation any defense by reason of any
disability or other defense of Company, or the cessation from any cause
whatsoever of the liability of Company, or any claim that Guarantor's
obligations hereunder exceed or are more burdensome than those of Company
or any other Obligor.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of Company, any Guarantor, any other Obligor or
otherwise, all as though such payment had not been made.

3. WAIVER. To the extent not prohibited by Applicable Law, each
Guarantor hereby waives: (a) promptness, protest, diligence, presentments,
acceptance, performance, demands for performance, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty
and notices of the existence, creation or incurrence of new or additional
indebtedness, and any of the events described in Section 2 and of any other
occurrence or matter with respect to any of the Obligation, this Guaranty or any
of the other Loan Papers; (b) any requirement that Administrative Lender or any
Lender protect, secure, perfect, or insure any Lien or security interest or any
property subject thereto or exhaust any right or take any action against
Company, any Guarantor, any other Obligor or any other Person or any collateral

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or pursue any other remedy in Administrative Lender's or any Lender's power
whatsoever; (c) any right to assert against Administrative Lender or any Lender
as a counterclaim, set-off or cross-claim, any counterclaim, set-off or claim
which it may now or hereafter have against Administrative Lender, any Lender,
Company, any Guarantor or any other Obligor; (d) any right to seek or enforce
any remedy or right that Administrative Lender or any Lender now has or may
hereafter have against Company, any Guarantor, any other Obligor or any other
Person (to the extent permitted by Applicable Law); (e) any right to participate
in any collateral or any right benefiting Administrative Lender or Lenders in
respect of the Obligation; and (f) any right by which it might be entitled to
require suit on an accrued right of action in respect of any of the Obligation
or require suit against Company, any Guarantor, any other Obligor or any other
Person, whether arising pursuant to Section 34.02 of the Texas Business and
Commerce Code, as amended, Section 17.001 of the Texas Civil Practice and
Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as
amended, or otherwise.

4. SUBROGATION AND SUBORDINATION.

(a) Notwithstanding any reference to subrogation contained herein to the
contrary, each Guarantor hereby irrevocably waives any claim or other rights
which it may have or hereafter acquire against Company or any other Obligor that
arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under this Guaranty, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution, indemnification,
any right to participate in any claim or remedy of any Lender or Administrative
Lender against Company, any Guarantor or any other Obligor or any collateral
which any Lender or Administrative Lender now has or hereafter acquires, whether
or not such claim, remedy or right arises in equity, or under contract, statutes
or common law, including without limitation, the right to take or receive from
Company, any Guarantor or any other Obligor, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security on
account of such claim or other rights. If any amount shall be paid to any
Guarantor in violation of the preceding sentence and the Obligation shall not
have been paid in full, such amount shall be deemed to have been paid to such
Guarantor for the benefit of, and held in trust for the benefit of, Lenders, and
shall forthwith be paid to Administrative Lender to be credited and applied upon
the Obligation, whether matured or unmatured, in accordance with the terms of
the Credit Agreement. Each Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated by the Credit
Agreement and that the waiver set forth in this PARAGRAPH 4(a) is knowingly made
in contemplation of such benefits.

(b) If any Guarantor becomes the holder of any indebtedness payable by
Company, any Guarantor or any other Obligor, such Guarantor hereby subordinates
all indebtedness owing to it from Company, any Guarantor and each other Obligor
to all indebtedness of Company, any Guarantor and each other Obligor to Lenders
and Administrative Lender, and agrees that upon the occurrence and continuance
of a Default or an Event of Default, it shall not accept any payment on the same
until final payment in full of the obligations of Company under the Credit
Agreement, the Notes and all other Loan Papers, and shall in no circumstance
whatsoever

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attempt to set-off or reduce any obligations hereunder because of such
indebtedness. If any amount shall nevertheless be paid to such Guarantor by
Company, any Guarantor or any other Obligor prior to payment in full of the
Obligation, such amount shall be held in trust for the benefit of Lenders and
Administrative Lender and shall forthwith be paid to Administrative Lender to be
credited and applied to the Obligation, whether matured or unmatured.

5. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents and
warrants that all representations and warranties as they apply to such Guarantor
only set forth in Article 4 of the Credit Agreement (each of which is hereby
incorporated by reference) are true and correct.

6. COVENANTS. Each Guarantor hereby expressly assumes, confirms, and
agrees to perform, observe, and be bound by all conditions and covenants set
forth in the Credit Agreement, to the extent applicable to it, as if it were a
signatory thereto. Each Guarantor further covenants and agrees (a) punctually
and properly to perform all of such Guarantor's covenants and duties under all
other Loan Papers; (b) from time to time promptly to furnish Administrative
Lender with any information or writings which Administrative Lender may request
concerning this Guaranty; and (c) promptly to notify Administrative Lender of
any claim, action, or proceeding affecting this Guaranty.

7. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by any Guarantor therefrom shall in any
event be effective unless the same shall be in writing and signed by such
Guarantor, Administrative Lender, and, either all Lenders or Determining
Lenders, as appropriate, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.

8. ADDRESSES FOR NOTICES. Unless otherwise provided herein, all notices,
requests, consents and demands shall be in writing and shall be delivered by
hand or overnight courier service, mailed or sent by telecopy to the respective
addresses specified herein, or, as to any party, to such other addresses as may
be designated by it in written notice to all other parties. All notices,
requests, consents and demands hereunder shall be deemed to have been given on
the date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or if mailed, effective on the earlier of actual receipt or three days
after being mailed by certified mail, return receipt requested, postage prepaid,
addressed as aforesaid.

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<PAGE>

Guarantor, any other Obligor or any other Person liable on any of the
Obligation, or (c) seek to enforce or resort to any remedies with respect to any
Liens granted to (or benefiting, directly or indirectly) Administrative Lender
or any Lender by Company, any Guarantor, any other Obligor or any other Person.
Neither Administrative Lender nor any Lender shall have any obligation to
protect, secure or insure any of the Liens or the properties or interests in
properties subject thereto. The remedies herein provided are cumulative and not
exclusive of any remedies provided by Applicable Law.

10. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of
any Event of Default, each Lender and Administrative Lender is hereby authorized
at any time and from time to time, to the fullest extent permitted by Law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender or Administrative Lender to or for the credit or the account of
any Guarantor against any and all of the obligations of such Guarantor now or
hereafter existing under this Guaranty, irrespective of whether or not such
Lender or Administrative Lender shall have made any demand under this Guaranty.
Each Lender and Administrative Lender agrees promptly to notify such Guarantor
after any such set-off and application, provided that the failure to give such
notice shall not affect the validity of such set-off and application or provide
a defense to such Guarantor's obligations under this Guaranty. The rights of
each Lender and Administrative Lender under this SECTION 10 are in addition to
other rights and remedies (including, without limitation, other rights of set-
off) which such Lender and Administrative Lender may have.

11. LIENS. To the extent not prohibited by Applicable Law, each Guarantor
agrees that Administrative Lender or any Lender, in its discretion, without
notice or demand and without affecting either the liability of such Guarantor,
Company, any other Guarantor or any other Obligor, or any security interest or
other Lien, may foreclose any deed of trust or mortgage or similar Lien covering
interests in real or personal property, and the interests in real or personal
property secured thereby, by nonjudicial sale. Each Guarantor waives any
defense to the recovery by Administrative Lender or any Lender hereunder against
Company, such Guarantor or any collateral of any deficiency after a nonjudicial
sale and each Guarantor expressly waives any defense or benefits that may be
derived from Chapter 34 of the Texas Business and Commerce Code, Section 51.003
of the Texas Property Code, or any similar statute in effect in any other
jurisdiction. Without limiting the foregoing, each Guarantor waives, to the
extent not prohibited by Applicable Law, any defense arising out of any such
nonjudicial sale even though such sale operates to impair or extinguish any
right of reimbursement or subrogation or any other right or remedy of such
Guarantor against Company, any other Guarantor or any other Person or any
Collateral or any other collateral. Each Guarantor agrees that such Guarantor
is liable, subject to the limitations of SECTION 1 hereof, for any part of the
Obligation remaining unpaid after any foreclosure.

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under this Guaranty, (b) be binding upon each Guarantor, its successors and
assigns, and (c) inure to the benefit of and be enforceable by Lender and
Administrative Lender and their successors, transferees and assigns. Without
limiting the generality of the foregoing CLAUSE (c), to the extent permitted by
the Credit Agreement, each Lender may assign or otherwise transfer its rights
under the Credit Agreement, the Notes or any of the Loan Papers or any interest
therein to any other Person, and such other Person shall thereupon become vested
with all the rights or any interest therein, as appropriate, in respect thereof
granted to such Lender herein or otherwise.

13. INFORMATION. Each Guarantor acknowledges and agrees that it shall
have the sole responsibility for obtaining from Company and each other Obligor
such information concerning Company's and each Obligor's financial condition or
business operations as such Guarantor may require, and that neither
Administrative Lender nor any Lender has any duty at any time to disclose to
Guarantor any information relating to the business operations or financial
conditions of Company or any Obligor.

14. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, EACH GUARANTOR AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS
LOCATED IN DALLAS, TEXAS, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION
HEREWITH. THIS GUARANTY IS PERFORMABLE IN DALLAS COUNTY, TEXAS.

15. WAIVER OF JURY TRIAL. EACH GUARANTOR, ADMINISTRATIVE LENDER, AND
LENDERS HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS GUARANTY OR ANY OF THE
LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER ENTERING INTO THE CREDIT AGREEMENT.

16. RATABLE BENEFIT. This Guaranty is for the ratable benefit of Lenders
and Administrative Lender, each of which shall share any proceeds of this
Guaranty pursuant to the terms of the Credit Agreement.

17. GUARANTOR INSOLVENCY. Should any Guarantor become insolvent, fail to
pay its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Law or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Law (other
than as a creditor or claimant) that could suspend or otherwise adversely affect
the rights of any Lender or Administrative Lender granted hereunder, then, the
obligations of such Guarantor under this Guaranty shall be, as between such
Guarantor and such Lender and Administrative Lender, a fully-matured, due, and
payable obligation of such Guarantor to such Lender and Administrative Lender
(without regard to

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whether Company or any other Obligor is then in default under the Credit
Agreement or any other Loan Paper or whether any part of the Obligation is then
due and owing by Company or any other Obligor to such Lender or Administrative
Lender), payable in full by such Guarantor to such Lender or Administrative
Lender upon demand, which shall be the estimated amount owing in respect of the
contingent claim created hereunder.

18. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN PAPERS,
REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.

LA QUINTA REALTY CORP.

By: _______________________________________
Name:
Title:

LA QUINTA PLAZA, INC.

By: _______________________________________
Name:
Title:
Address for all Guarantors:

112 East Pecan Street LA QUINTA FINANCIAL CORPORATION
San Antonio, Texas 78205

By: _______________________________________
Name:
Title:

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LA QUINTA INVESTMENTS, INC.

By: _______________________________________
Name:
Title:

LQI ACQUISITION CORPORATION

By: _______________________________________
Name:
Title:

LA QUINTA MOTOR INNS LIMITED PARTNERSHIP

By La Quinta Realty Corp., its General Partner

By:--------------------------------------------
Name:
Title:

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<PAGE>
EXHIBIT E

ASSIGNMENT AND ACCEPTANCE

Dated _______________, 199__

Reference is made to the Amended and Restated Credit Agreement dated as of
January 25, 1994 (the "Credit Agreement") among La Quinta Inns, Inc., a Texas
corporation ("Borrower"), NationsBank of Texas, N.A. as Administrative Lender
("Administrative Lender"), and the lenders parties thereto. Terms defined in
the Credit Agreement are used herein with the same meaning.

______________________________ ("Assignor") and _________________________
("Assignee") agree as follows:

1. Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, a ______% interest in and to all of
Assignor's rights and obligations under the Credit Agreement as of the Effective
Date (as defined below), with respect to such percentage interest in Assignor's
Total Commitment as in effect on the Effective Date, the principal amount of
Advances owing to Assignor on the Effective Date, and the Revolving Credit Note
and the Term Loan Note held by Assignor, and Assignor's participation in any
Letters of Credit and Reimbursement Obligations and Bond Letters of Credit
outstanding on the Effective Date, subject to the terms and conditions of this
Assignment and Acceptance.

2. Assignor (a) represents and warrants that (i) as of the date hereof
its Revolving Credit Commitment (without giving effect to assignments thereof
which have not yet become effective) is $____________ and, as of the date
hereof, the outstanding principal amount of the Revolving Credit Advances owing
to it (without giving effect to assignments thereof which have not yet become
effective) is $________, (ii) as of the date hereof its Term Loan Commitment
(without giving effect to assignments thereof which have not yet become
effective) is $________ and, as of the date hereof, the outstanding principal
amount of the Term Loan Advances owing to it (without giving effect to
assignments thereof which have not yet become effective) is $_______, (iii) as
of the date hereof its Bond Letter of Credit Commitment is $_____________ and
(iv) it is the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse claim; (b)
makes no representation or warranty and assumes no responsibility with respect
to (i) any statements, warranties, or representations made in or in connection
with the Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency, or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto or (ii) the financial
condition of the Borrower or the performance or observance by the Borrower of
any of its obligations under the Credit Agreement or any other instrument or
document furnished pursuant thereto; (c) attaches the Revolving Credit Note
referred to in Paragraph 1 above to exchange such Revolving Credit Note for new
Revolving Credit Notes as follows: a Revolving Credit Note dated _____________,
199___, in the principal amount of $__________________ payable to the order of
Assignee, and a Revolving Credit Note dated ______________, 199___, in the
principal amount of $____________________ payable to the order of Assignor; and
(d) attaches the Term Loan Note referred to in Paragraph 1 above to exchange

<PAGE>

such Term Loan Note for new Term Loan Notes as follows: a Term Loan Note dated
______________, 199___, in the principal amount of $_____________ payable to the
order of Assignee, and a Term Loan Note dated __________________, 199___, in the
principal amount of $_____________ payable to the order of Assignor.

3. Assignee (a) confirms that it has received a copy of the Credit
Agreement and the other Loan Papers, together with copies of the financial
statements referred to in Sections 5.1(A) and 5.1(B) of the Master Covenant
Agreement and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Acceptance; (b) agrees that it will, independently and without reliance upon the
Administrative Lender, Assignor, or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement and the other Loan Papers; (c) appoints and authorizes the
Administrative Lender to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement, the other Loan Papers, and this
Assignment and Acceptance as are delegated to the Administrative Lender by the
terms thereof and hereof, together with such powers as are reasonably incidental
thereto and hereto; (d) agrees that it will perform in accordance with its terms
all of the obligations which by the terms of the Credit Agreement, the other
Loan Papers, and this Assignment and Acceptance are required to be performed by
it as a Lender; [and] (e) specifies the addresses set forth in Schedule I
attached hereto as its address for the receipt of notices and as its initial
LIBOR Lender Office, respectively[; and (f) attaches the forms prescribed by the
IRS certifying as to Assignee's status for purposes of determining exception
from United States withholding taxes with respect to all payments to be made to
Assignee under the Credit Agreement, the other Loan Papers, and this Assignment
and Acceptance or such other documents as are necessary to indicate that all
such payments are subject to such taxes at a rate reduced by an applicable tax
treaty].

4. The effective date for this Assignment and Acceptance shall be
_______________, 199___ (the "Effective Date").

5. Upon such acceptance as of the Effective Date and upon the remittance
of a $2,500 processing fee to the Administrative Lender, (a) Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (b)
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.

6. Upon such acceptance from and after the Effective Date, whenever the
Administrative Lender shall receive a payment, or whenever the Administrative
Lender shall make an application of funds, in respect of any aggregate
outstanding principal amount of the Revolving Credit Advances or in respect of
any aggregate amount of interest accrued on the Advances, or in respect of the
commitment fee (other than a payment or an application of funds in respect of
any amount due and owing to any Lender or the Administrative Lender under
Sections 2.9, 5.3, 7.3, 7.5, or 9.2 of the Credit Agreement), the Administrative
Lender shall

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pay over to each of the Lenders an amount equal to (i) such Lender's Pro Rata
Share (as defined below) of such aggregate amount of principal, (ii) such
Lender's Pro Rata Share of such aggregate amount of interest, and (iii) such
Lender's Pro Rata Share of such aggregate amount of the commitment fee.

The "Pro Rata Share" of any aggregate amount means, with respect to such
Lender, the amount equal to the product obtained by multiplying (i) such
aggregate amount and (ii) a fraction, the numerator of which is such Lender's
Total Commitment, or after the Advances have been made, the principal amount of
the Advances owing to such Lender and the denominator of which is the sum of the
Commitments of all of the Lenders, or after the Advances have been made, the
aggregate principal amount of the Advances owing to all of the Lenders.

7. In the event that, after the Administrative Lender has paid to any
Lender its Pro Rata Share of any such payment received by the Administrative
Lender or any such application made by the Administrative Lender, such payment
or application is rescinded or must otherwise be returned or must be paid over
by the Administrative Lender for any reason, such Lender shall, upon notice by
the Administrative Lender, forthwith pay back to the Administrative Lender such
Lender's Pro Rata Share of the amount so rescinded or so returned or paid over.

8. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas and the United States of America.
Without excluding any other jurisdiction, Assignee agrees that the courts of
Texas will have jurisdiction over proceedings in connection herewith.

9. Assignee's Specified Percentage shall be ______%.

10. This Assignment and Acceptance may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.

[NAME OF ASSIGNOR]

By:_________________________________________
____________________,____________________
(Print Name) (Print Title)

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[NAME OF ASSIGNEE]

By:_________________________________________
____________________,____________________
(Print Name) (Print Title)

Accepted this ___ day of ____________, 199___

NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender

By:__________________________________________
____________________,_____________________
(Print Name) (Print Title)

LA QUINTA INNS, INC.

By:__________________________________________
____________________,_____________________
(Print Name) (Print Title)

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Schedule I

ASSIGNEE'S ADDRESS

1. ADDRESS FOR THE ADVANCES AND RECEIPT OF NOTICES

2. INITIAL LIBOR LENDING OFFICE

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EXHIBIT F

[Form of Confidentiality Agreement]

CONFIDENTIALITY AGREEMENT

[Date]

[Insert Name and Address
of Prospective Participant
or Assignee]

Re: Amended and Restated Credit Agreement dated as of January 25, 1994,
among La Quinta Inns, Inc. (the "Borrower"), the Lenders a party
thereto, and NationsBank of Texas, N.A., as Administrative Lender.

Dear ______________:

As a Bank party to the above-referenced Credit Agreement (the "CREDIT
AGREEMENT"; capitalized terms used herein shall have the same meaning given to
them in the Credit Agreement), we have agreed with the Borrower pursuant to
Section 9.10 of the Credit Agreement to use reasonable precautions to keep
confidential, except as otherwise provided therein, all non-public information
identified by the Borrower as being confidential at the time the same is
delivered to us pursuant to the Credit Agreement.

As provided in said Section 9.10, we are permitted to provide you, as a
prospective [PARTICIPANT] [ASSIGNEE], with certain of such non-public
information subject to the execution and delivery by you, prior to receiving
such non-public information, of a Confidentiality Agreement in this form. Such
information will not be made available to you until your execution and return to
us of this Confidentiality Agreement.

Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed [PARTICIPATION] [ASSIGNMENT] mentioned above and
(B) you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound banking practices, to keep such information confidential, provided that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to your
counsel or to counsel for any of the Lenders or the Administrative Lender, (iii)
to bank examiners, auditors or accountants of any of the Lenders, (iv) to the
Administrative Lender, or any other Lender, (v) in connection with any
litigation to which you or any one or more of the Lenders are a party; provided,
further, that, unless specifically prohibited by Applicable Law or court order,
you agree, prior to disclosure thereof, to notify the Borrower of any request
for disclosure of any such non-public information (x) by any governmental agency
or representative thereof (other than any such request in connection

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________, 199__
Page 2

with an examination of your financial condition by such governmental agency) or
(y) pursuant to legal process; and provided, finally, that in no event shall you
be obligated to return any materials furnished to you pursuant to this
Confidentiality Agreement.

Would you please indicate your agreement to the foregoing by signing at the
place provided below the enclosed copy of this Confidentiality Agreement.

Very truly yours,

__________________________________

By:_______________________________
Title:____________________________

THE FOREGOING IS AGREED TO AS
OF THE DATE OF THIS LETTER.

__________________________________

By:_______________________________
Title:____________________________

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EXHIBIT G

NATIONSBANK OF TEXAS, N.A.
901 Main Street
Dallas, Texas 75202

January 25, 1994

[Participant]
____________________
____________________
____________________
____________________

RE: PARTICIPATION IN LA QUINTA INNS, INC.

Ladies and Gentlemen:

We refer to the following Reimbursement Agreements:

1. Reimbursement Agreement, dated as of June 1, 1991, between La Quinta
Motor Inns, Inc., a Texas corporation ("LQMI") and us pursuant to
which we have issued a certain irrevocable letter of credit in the
original stated amount of $4,925,344, in favor of The First National
Bank of Chicago in its capacity as Trustee (the "TRUSTEE") for the
benefit of the holders of the Village of Schaumburg, Cook and DuPage
Counties, Illinois Industrial Development Revenue Refunding Bonds (La
Quinta Motor Inns, Inc. Project) Series 1991;

2. Reimbursement Agreement, dated as of June 1, 1991, between LQMI and us
pursuant to which we have issued a certain irrevocable letter of
credit in the original stated amount of $3,631,355, in favor of the
Trustee for the benefit of the holders of the Savannah Economic
Development Authority Revenue Refunding Bonds (La Quinta Motor Inns,
Inc. Project) Series 1991;

3. Reimbursement Agreement, dated as of July 1, 1991, between LQMI and us
pursuant to which we have issued a certain irrevocable letter of
credit in the original stated amount of $3,314,250, in favor of the
Trustee for the benefit of the holders of the Texarkana, Texas
Industrial Development Corporation Industrial Development Revenue
Refunding Bonds (La Quinta Motor Inns, Inc. Project) Series 1991;

4. Reimbursement Agreement, dated as of July 1, 1991, between LQMI and us
pursuant to which we have issued a certain irrevocable letter of
credit in the original stated amount of $2,802,792, in favor of the
Trustee for the benefit of

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the holders of the Economic Development Corporation of the City of
Kalamazoo Economic Development Revenue Refunding Bonds (La Quinta
Motor Inns, Inc. Project) Series 1991;

5. Reimbursement Agreement, dated as of September 1, 1991, between LQMI
and us pursuant to which we have issued a certain irrevocable letter
of credit in the original stated amount of $2,301,562.50, in favor of
the Trustee for the benefit of the holders of the Industrial
Development Board of the Parish of Bossier, Louisiana, Inc. Refunding
Revenue Bonds (La Quinta Motor Inns, Inc. Project) Series 1991;

6. Reimbursement Agreement, dated as of November 1, 1991, between LQMI
and us pursuant to which we have issued a certain irrevocable letter
of credit in the original stated amount of $2,587,979.17, in favor of
the Trustee for the benefit of the holders of the City of El Paso
Industrial Development Authority, Incorporated Industrial Development
Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project) Series
1991;

7. Reimbursement Agreement, dated as of November 1, 1991, between LQMI
and us pursuant to which we have issued a certain irrevocable letter
of credit in the original stated amount of $3,099,437.55, in favor of
the Trustee for the benefit of the holders of the Maverick County
Industrial Development Corporation Industrial Development Revenue
Refunding Bonds (La Quinta Motor Inns, Inc. Project) Series 1991;

8. Reimbursement Agreement, dated as of November 1, 1991, between LQMI
and us pursuant to which we have issued a certain irrevocable letter
of credit in the original stated amount of $3,263,104.17, in favor of
the Trustee for the benefit of the holders of the Wheat Ridge,
Colorado Industrial Development Revenue Refunding Bonds (La Quinta
Motor Inns, Inc. Project) Series 1991;

9. Reimbursement Agreement, dated as of December 1, 1991, between LQMI
and us pursuant to which we have issued a certain irrevocable letter
of credit in the original stated amount of $3,687,614.58, in favor of
the Trustee for the benefit of the holders of the City of Aurora
Industrial Development Revenue Refunding Bonds (La Quinta Motor Inns,
Inc. Project) Series 1991;

10. Reimbursement Agreement, dated as of January 1, 1992, between LQMI and
us pursuant to which we have issued a certain irrevocable letter of
credit in the original stated amount of $6,822,854.17, in favor of the
Trustee for the benefit of the holders of the City of San Bernardino,
California Industrial Development Revenue Refunding Bonds (La Quinta
Motor Inns, Inc. Project) Series 1992;

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11. Reimbursement Agreement, dated as of June 1, 1992, between LQ-Baton
Rouge Joint Venture, a Texas joint venture ("LQBR") and us pursuant to
which we have issued a certain irrevocable letter of credit in the
original stated amount of $3,554,635.42, in favor of the Trustee for
the benefit of the holders of the Industrial Development Board of the
Parish of East Baton Rouge, Louisiana, Inc. Industrial Development
Revenue Refunding Bonds (La Quinta Motor Inns, Inc. Project) Series
1992;

12. Reimbursement Agreement, dated as of June 1, 1992, between LQMI and us
pursuant to which we have issued a certain irrevocable letter of
credit in the original stated amount of $4,531,655, in favor of the
Trustee for the benefit of the holders of the Peninsula Ports
Authority of Virginia Floating Rate Monthly Demand Industrial
Development Revenue Bonds, Series 1984 (La Quinta Motor Inns, Inc.
Project);

13. Reimbursement Agreement, dated as of June 1, 1992, between LQMI and us
pursuant to which we have issued a certain irrevocable letter of
credit in the original stated amount of $4,531,655, in favor of the
Trustee for the benefit of the holders of the Village of Elk Grove
Village, Cook and DuPage Counties, Illinois Floating Rate Monthly
Demand Industrial Development Revenue Bonds, Series 1984 (La Quinta
Motor Inns, Inc. Project);

14. Reimbursement Agreement, dated as of November 1, 1992, between LQMI
and us pursuant to which we have issued a certain irrevocable letter
of credit in the original stated amount of $2,828,364.58, in favor of
the Trustee for the benefit of the holders of the Nacogdoches
Industrial Development Authority, Inc. Industrial Development Revenue
Refunding Bonds (La Quinta Motor Inns, Inc. Project) Series 1992;

15. Reimbursement Agreement, dated as of May 1, 1993, between LQMI and us
pursuant to which we have issued a certain irrevocable letter of
credit in the original stated amount of $4,091,666.67 in favor of the
Trustee for the benefit of the holders of the City of Oakbrook
Terrace, Illinois Industrial Development Revenue Refunding Bonds (La
Quinta Motor Inns, Inc. Project) Series 1993; and

16. Reimbursement Agreement, dated as of May 1, 1993, among La Quinta
Development Partners, a Delaware limited partnership ("LQDP"), LQMI,
and us pursuant to which we have issued a certain irrevocable letter
of credit in the original stated amount of $4,296,250, in favor of the
Trustee for the benefit of the holders of the City of Stockton,
California Industrial Development Revenue Refunding Bonds (La Quinta
Motor Inns, Inc. Project) Series 1993.

17. Reimbursement Agreement, dated as of October 1, 1993, between La
Quinta Inns, Inc., a Texas corporation formerly known as LQMI ("LQI"),
and us

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pursuant to which we have issued a certain irrevocable
letter of credit in the original stated amount of
$3,068,750.00 in favor of the Trustee for the benefit of the
holders of the City of Virginia Beach Development Authority
Industrial Development Revenue Refunding Bonds (La Quinta
Inns, Inc. Project) Series 1993.

Each of LQMI, LQI, LQBR, and LQDP is a "COMPANY" and they are collectively the
"COMPANIES". Each Reimbursement Agreement is an "AGREEMENT" and they are
collectively the "AGREEMENTS"; terms defined in any Agreement and not otherwise
defined herein shall have the same meanings when used herein as in such
Agreement. Each of the letters of credit is a "LETTER OF CREDIT" and they are
collectively the "LETTERS OF CREDIT".

You hereby acknowledge receipt of a copy of each Agreement and any of the
Related Documents which you have requested.

This Participation Agreement sets forth the terms agreed upon by you and us
with respect to our grant to you and your purchase from us of an undivided
________% (your "PERCENTAGE") interest (provided that your participation shall
not exceed in the aggregate $_______________________, "YOUR PARTICIPATION") and
participation in and to (i) the Letters of Credit and all payments to be made
thereunder (such payments, "L/C PAYMENTS") through the Expiration Date of each
Letter of Credit (subject to the provisions of paragraph 4(c) hereof), (ii) the
Obligations of each Company under the Agreements and the Related Documents and
(iii) all of our rights under the Related Documents and any collateral security
for the Obligations, the items set forth in clauses (i), (ii), and (iii)
immediately preceding being herein collectively referred to as the "PARTICIPATED
OBLIGATIONS".

1. (a) Immediately upon your execution and delivery of this
Participation Agreement, you shall irrevocably and unconditionally have
purchased, accepted and received from us without recourse to us and, without any
other action by either of us, an undivided interest and participation to the
extent of your Percentage in and to the Participated Obligations, on the terms
set forth herein; provided, however, that you shall have no interest in, and
shall be entitled to receive no part of, any fee or charge paid to us pursuant
to Section 4(a)(ii), 4(b), or 4(c) of any Agreement, or any amount paid to us
for our own account pursuant to Section 4(d) or Section 13 of any Agreement or
any amount paid to us pursuant to Section 15 of any Agreement (except if such
amounts pursuant to Section 15 correspond to amounts paid by you pursuant to
paragraph 9 hereof).

(b) You acknowledge and agree that (i) your obligation to acquire
your participation in our liability in respect of the Participated Obligations
and (ii) your obligation to make the payments specified in paragraph 3 hereof,
and our right to receive the same, in the manner specified herein, are absolute,
irrevocable and unconditional and shall not be affected by any circumstance
whatsoever, including without limitation, the occurrence and continuance of any
Event of Default or Default under any Agreement or any default under any of the
Related

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Documents. Each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.

(c) It is the express intention of the parties hereto that (i) we
neither are nor shall be a fiduciary to, nor otherwise have a trust relationship
with you in connection with this Participation Agreement; (ii) the relationship
between you and us is and at all times hereafter shall be that of a purchaser
and a seller of a property interest (i.e., undivided participation interests in
the Participated Obligations) and not that of a creditor and debtor or joint
venturers; and (iii) we shall owe you no duty except as specifically set forth
in this Participation Agreement. With respect to your decision to purchase your
participation, you unconditionally assume all risk of loss in connection with
your participation hereunder as if you had provided your Percentage of the L/C
Payments directly to the Trustee, for the benefit of the Companies.

(d) You acknowledge and agree that we may (but shall have no
obligation to) purchase from time to time all or any part of your participation
for an amount equal to all amounts, if any, due and owing to you under this
Participation Agreement as a result of your participation on the date of our
purchase thereof.

2. At the time of each payment of letter of credit fee made by any
Company pursuant to Section 4(a)(i) of any Agreement, we shall remit to you, so
long as you have paid in full to us all amounts payable by you hereunder, a
share of such letter of credit fee computed by multiplying (x) the amount of
such payment by (y) the product of your Percentage. Payment to you pursuant to
this paragraph 2 shall be made on the date such letter of credit fee is actually
received by us pursuant to such Agreement if the same is received by us prior to
12:00 Noon, Dallas, Texas time, on a Business Day or if received after such
time, by 12:00 Noon, Dallas, Texas time, on the next succeeding Business Day.

3. (a) We shall give prompt notice to you by telephone, telecopier or
telex at the numbers provided below your signature (which notice, if made by
telephone, will be confirmed in writing) of the date and amount of each L/C
Payment made under any Letter of Credit with respect to which we are not
reimbursed in full, in cash, by any Company on the date that such reimbursement
is due pursuant to the terms of such Agreement. If we so notify you at or prior
to 12:00 Noon, Dallas, Texas time, on a Business Day, you shall pay to us not
later than our close of business on the same Business Day, the amount of your
participation in such L/C Payment (such amount being equal to your Percentage
times the total amount of such unreimbursed L/C Payment) by transferring the
same to us, in lawful money of the United States of America and in immediately
available funds, to the account number set forth below our signature at our
office set forth above or as we may otherwise direct. If we so notify you after
12:00 Noon, Dallas, Texas time, on a Business Day, you shall pay to us such
amount by 12:00 Noon, Dallas, Texas time on the next succeeding Business Day.

(b) If you fail to pay any amount required to be paid hereunder when
due, such amount shall bear interest payable to us on demand (i) from such due
date through the second Business Day thereafter at the Federal Funds Rate from
time to time in effect and (ii) after such second Business Day until paid in
full at the Prime Rate from time to time in effect; PROVIDED, HOWEVER, at no
time shall interest be contracted for, charged or received in excess of

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the highest lawful rate. For the purposes hereof, "FEDERAL FUNDS RATE" shall
mean, for any day, the rate per annum equal to the rate (rounded off to the
nearest 1/100 of 1%) obtained by dividing (I) the Federal funds "Effective Rate"
as quoted for such day (or, if such day is not a Business Day in Dallas, Texas,
for the next preceding Business Day in Dallas, Texas) by the Federal Reserve
Bank of Dallas in its publication "Composite Closing Quotations for U.S.
Government Securities" or in such other subsequent publication of said Federal
Reserve Bank which shall quote the weighted average of the rates on overnight
Federal funds transactions arranged by Federal funds brokers, or as quoted to us
by the appropriate official at said Federal Reserve Bank, or in the absence of
such quote, from any other source which may be available to us, by (II) a
percentage equal to 100% minus the stated maximum reserve requirement percentage
as specified by the Board of Governors of the Federal Reserve System that we
determine would be applicable on such day to such Federal funds transactions
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves required by applicable law).

(c) If we fail to pay any amount required to be paid hereunder when
due, such amount shall bear interest payable to you on demand (i) from such due
date through the second Business Day thereafter at the Federal Funds Rate from
time to time in effect and (ii) after such second Business Day until paid in
full at the Prime Rate from time to time in effect; PROVIDED, HOWEVER, at no
time shall interest be contracted for, charged or received in excess of the
highest lawful rate.

4. (a) Whenever we receive a payment of or on account of principal or
interest on any of the Participated Obligations (whether voluntarily from the
Company, by enforcement of security or otherwise) as to which you have paid us
the amount of your participation pursuant to paragraph 3 hereof, we will
promptly credit to the account set forth below your signature or as you may
direct, in the kind of funds so received, an amount equal to your Percentage
thereof by the close of business on the same Business Day. Notwithstanding the
foregoing, if we receive such a payment after 12:00 Noon, Dallas, Texas time, on
a Business Day, we will credit your account as provided in the preceding
sentence by 12:00 Noon Dallas, Texas time on the next succeeding Business Day in
an amount equal to your Percentage of such payment.

(b) All payments required to be made to you by us in respect of the
Participated Obligations will be made if and to the extent actually received by
us.

(c) If any payment received by us with respect to any of the
Participated Obligations pursuant to any Agreement or any Related Document is
rescinded or otherwise required to be disgorged or returned by us for any reason
at any time you will upon notice from us immediately pay over to us your
Percentage share of the amount so disgorged or returned. Notwithstanding
anything in this Participation Agreement to the contrary, (i) if we are required
to make payment under any Letter of Credit after the expiry date thereof or (ii)
any amount we received as reimbursement for L/C Payments covered by this
Participation Agreement from any Company is required to be disgorged or returned
by us at any time for any reason, your obligation to participate in such payment
or amount shall survive and shall continue in full force and effect. The
provisions of this paragraph 4(c) and paragraph 9 shall survive the termination
hereof.

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5. (a) We shall have the same rights with respect to the administration
and enforcement of the Agreements and the Related Documents as though we were
the sole issuer and holder thereof, except as provided in paragraph 6 hereof.
It is understood that we will exercise and give the same care and attention to
the Letters of Credit as we give to our letters of credit in which no
participation is granted, and that our sole obligation to you, except as is
otherwise specifically provided in this Participation Agreement, shall be to
distribute promptly, as and when received by us, as stated in paragraphs 2, 4(a)
and 4(b) hereof, your pro rata share of payments to which your participation is
entitled.

(b) We shall provide you upon request an accounting, in reasonable
detail, with respect to all monies or other property received by us in
connection with the Participated Obligations.

6. We shall handle all matters arising under the Agreements and the
Related Documents and the transactions contemplated thereby in accordance with
our usual practice in managing credits of a similar nature held for our own
account. Without your prior written consent, we may (1) agree to any amendment,
modification or waiver of the terms of any Agreement (which incorporates by
reference the covenants, terms and provisions of the Master Covenant Agreement)
or the Related Documents, (2) consent to any action or failure to act by any
Company or (3) exercise or refrain from exercising any remedies which we may
have under any Agreement or the Related Documents; PROVIDED, HOWEVER, your
consent shall always be required to exercise any such rights which would (i)
change the principal amount of the Participated Obligations (other than
reinstatement of the original stated amount of the Letters of Credit as provided
herein), (ii) extend the maturity date of any of the Participated Obligations or
extend the Expiration Date of any Letter of Credit, (iii) reduce or postpone the
payment of, interest on any of the Participated Obligations, (iv) reduce or
postpone the amount of, or timing of the payment of any fees or other sums
payable to you hereunder or (v) release any of the collateral supporting the L/C
Payments and other Obligations given under or pursuant to any Agreement or any
Related Document. Notwithstanding the foregoing, your consent shall not be
required to reinstate the amount of any Letter of Credit pursuant to its terms.
We will make available to you copies of any amendments, consents, or waivers
with respect to any Agreement and any Related Document and will use reasonable
effort to give you notice of the occurrence of any Event of Default or Default
with respect to the Participated Obligations of which our officer having account
responsibility for the Companies shall have actual knowledge, but no failure to
provide any such copies or give any such notice shall result in any liability to
us.

7. Neither we nor any of our officers, directors, employees or agents
shall have any liability (express or implied) for any error of judgment or under
or in connection with any action taken or omitted by us hereunder or in
connection herewith or under or in connection with any Agreement or any Related
Document or the transactions contemplated hereby or thereby or for the failure
or delay in exercising any right or power possessed by us under the Related
Documents, unless caused by our or their gross negligence or willful misconduct.
Without in any way limiting the foregoing, we shall be entitled to rely, and
shall be fully protected in relying, upon any writing, consent, resolution,
notice, statement, draft, certificate, telex or telecopier message, cablegram,
radiogram, order or other document, conversation or telephone message, believed
by us in good faith to be genuine and correct and to have been signed, sent

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or made by the proper person or entity, and, with respect to all legal matters
pertaining to this Participation Agreement, any Agreement or the Related
Documents and our duties hereunder and thereunder, upon advice of counsel
selected by us (including counsel for the Companies) and with respect to other
matters, upon independent public accountants, appraisers and any other experts
selected by us.

8. Independently and without reliance upon us, you have made and shall
continue to make (i) your own independent investigation of the financial
conditions and affairs of the Companies, in connection with this Participation
Agreement, and (ii) your own appraisal of the creditworthiness of the Companies
and, except as expressly provided herein, we shall have no duty or
responsibility, either initially or on a continuing basis, to provide you with
any credit or other information with respect thereto, whether coming into our
possession before the issuance of the Letters of Credit or at any time or times
thereafter. We make no representation or warranty, and we shall not be
responsible to you for any recitals, statements, information, representations or
warranties in any Agreement or any of the Related Documents or for the
execution, effectiveness, perfection or sufficiency of, or the filing, recording
or taking of any other action with respect to, any of the Related Documents or
any collateral security given therefor or the financial condition of any
Company, or the collectability of any amount payable under any Agreement or any
Related Document, or the preservation of any collateral or loss, depreciation or
release thereof, or the misapplication or non-application of the L/C Payments,
or the authenticity, validity, accuracy or completeness of any notice, financial
statement or other document or information received by us in connection with or
otherwise referred to in any Agreement or any Related Document. We shall not be
liable for any undertaking of any Company or the Trustee.

9. (a) You hereby indemnify us against and shall reimburse us, promptly
on demand, in an amount equal to your Percentage thereof, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including,
without limitation, disbursements necessary, in our judgment, to preserve or
protect any collateral) for which we are not promptly reimbursed at any time by
or on behalf of the Companies which may be imposed on, incurred by, or asserted
against us in any way relating to or arising under any Agreement or the Related
Documents or the transactions contemplated thereby and hereby, or any action
taken or omitted by us under or in connection with any of the foregoing;
PROVIDED, HOWEVER, that the foregoing indemnity shall not apply with respect to
and you shall not be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from our gross negligence or willful misconduct. Your
obligations under this paragraph 9 shall survive the termination of this
Participation Agreement, the Agreements and the Related Documents and the
payment by the Companies of all obligations thereunder. To the extent that you
have made any payments to us under this paragraph 9 for which we are
subsequently reimbursed by the Companies, we will promptly pay to you the amount
of such payments.

(b) You represent and warrant to us as follows:

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(i) your purchase of the Participated Obligations is a legal
investment pursuant to the laws under which you are organized and
operating;

(ii) your execution, delivery of and performance under this
Participation Agreement are within your corporate powers, have been
duly authorized by all necessary corporate action and do and shall not
contravene: (a) your charter, bylaws or other constitutional documents
or (b) any law, regulation, order or contractual obligation binding
upon you or any of your assets;

(iii) this Participation Agreement is a legal, valid and
binding obligation of yours, enforceable against you in accordance
with its terms, subject only to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights
of creditors generally and general principles of equity;

(iv) you are entering into this Participation Agreement and
are purchasing your Participated Obligations for your own account in
the ordinary course of your commercial banking business and not with a
view to or for sale in connection with any distribution of any
evidence of indebtedness received by you; and

(v) you have previously entered into similar participation
agreements and have made investments of the type, kind and nature
specified in this Participation Agreement, and are aware of and are
able to bear the economic risks involved.

(i) we have the right, power and authority to sell you your
participation hereunder and such participation is free and clear of
all liens;

(ii) our execution, delivery of and performance under this
Participation Agreement are within our corporate powers, have been
duly authorized by all necessary corporate action and do and shall not
contravene: (a) our charter, bylaws or other constitutional documents
or (b) any law, regulation, order or contractual obligation binding
upon us or any of our assets; and

(iii) this Participation Agreement is a legal, valid and
binding obligation of ours, enforceable against us in accordance with
its terms, subject only to bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the rights of creditors
generally and general principles of equity.

10. You shall have no interest in any property taken as security for any
other credit facility made to the Company or any of its affiliates or any other
Person by us, or in any property now or hereafter in our possession or control
which may be or become security for the Agreement by reason of the general
description contained in any general loan and collateral agreement or collateral
note held by us or by reason of the right of setoff, counterclaim,

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banker's lien or otherwise, except that if such property or the proceeds thereof
shall be applied in reduction of amounts outstanding, if you have funded all of
the amounts due hereunder, under the Agreement covered by this Participation
Agreement then you shall be entitled to share ratably in such application.
Notwithstanding the foregoing, we shall have no obligation to assert any claim
or lien upon any property or claim held by us or assert any offset thereagainst
except as specifically required by paragraph 6 hereof. You agree that if you
should receive any amount (whether by setoff or otherwise) in respect of your
participation acquired hereunder (other than from or directed by us pursuant to
this Participation Agreement), you will cause such payment to be shared ratably
with us, if we have performed our obligations hereunder; provided that if all or
any portion of such payment is thereafter recovered from you, such shared
payment shall be repaid to the extent of such recovery (but without interest).

11. We, our branches, agencies, representative offices and affiliates and
you may accept deposits and credit balances from, make loans or otherwise extend
credit to, and generally engage in any kind of banking or trust business with,
the Companies or any of their affiliates or any other Person and receive payment
on such loans or extensions of credit, accept fees and other consideration for
services in connection therewith and otherwise act with respect thereto freely
and without accountability in the same manner as if this Participation Agreement
and the transactions contemplated hereby were not in effect.

12. You agree that you will not sell, assign, transfer, subparticipate or
otherwise dispose of any portion of your participation or grant any
participation therein without our prior written consent.

13. This Participation Agreement may not be amended orally but only by an
instrument in writing executed by the parties hereto. This Participation
Agreement and the respective rights and obligations of the parties hereunder
shall be construed in accordance with, and be governed by, the law of the State
of Texas.

14. Unless otherwise specified herein, all notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopied or telexed communication) and shall be telecopied,
telegraphed, telexed, mailed (certified mail, return receipt requested, postage
prepaid) or delivered to each party hereto by the other at its address or number
set forth below your signature or at such other address or number as shall be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this paragraph 14. All such notices and other
communications when given in accordance with this paragraph 14 shall be
effective (a) if telegraphed, telecopied or telexed, when delivered to you, when
confirmed at the confirmation number given or when answerback is telexed,
respectively; (b) if mailed, upon deposit in the mail; or (c) if delivered, upon
delivery.

15. The invalidity or unenforceability of any term or provision of this
Participation Agreement shall not affect the validity or enforceability of the
remaining terms or provisions hereof, which provisions shall remain in full
force and effect.

16. This Participation Agreement constitutes the entire agreement between
the parties hereto as of the date hereof with respect to the subject matter
contained herein and may not be

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<PAGE>

contradicted by evidence of any prior or contemporaneous agreement. The parties
further intend that this Participation Agreement shall constitute the complete
and exclusive statement of its terms and that no extrinsic evidence whatsoever
may be introduced in any judicial proceeding involving this Participation
Agreement. This Participation Agreement may be executed in any number of
counterparts, each of which when so executed shall be one and the same
instrument.

If the foregoing correctly sets forth the arrangement between us, please
indicate your confirmation thereof and your acceptance to the participation
hereby offered by signing and returning to us the enclosed copy of this
Participation Agreement, whereupon the same shall become a binding agreement
between us.

NATIONSBANK OF TEXAS, N.A.

By:_______________________________________
Title:
901 Main Street
Dallas, Texas 75202
Attn: Corporate Banking Department

Telephone: (214) 508-0957
Telex: 6829317
Answbck: NATIONSBK
Telecopier: (214) 508-0980

Confirmed and Accepted as of
January 25, 1994:

[Participant]

By:__________________________________
Title:

_____________________________
_____________________________
_____________________________
_____________________________

Telephone: (___) ______________
Telecopier: (___) ______________

<PAGE>
EXHIBIT H

GUARANTY

This Guaranty, dated as of January 25, 1994 (this "GUARANTY"), is made by
LQM Operating Partners, L.P., a Delaware limited partnership ("GUARANTOR").

BACKGROUND.

3. It is a condition precedent to the obligation of Lenders to make such
Advances and issue, or participate in the issuance of, Letters of Credit and
Bond Letters of Credit that Guarantor guarantee repayment thereof upon the terms
and conditions set forth herein.

4. The Board of Directors of La Quinta Realty Corp., a Delaware
corporation and the sole General Partner of Guarantor, has determined that the
execution, delivery, and performance of this Guaranty is necessary and
convenient to the conduct, promotion, and attainment of Guarantor's business.

5. Guarantor desires to induce Lender to make such Advances and issue, or
participate in the issuance of, Letters of Credit and Bond Letters of Credit,
which may reasonably be expected to benefit, directly or indirectly, Guarantor.

AGREEMENT.

1. GUARANTY.

(a) Guarantor unconditionally and irrevocably guarantees the punctual
payment of, and promises to pay, when due, whether at stated maturity, by
mandatory prepayment, by acceleration or otherwise, all obligations,
indebtedness and liabilities, and all rearrangements, renewals and
extensions of all or any part thereof, of Company or

<PAGE>

any other Obligor now or hereafter arising from, by virtue of or pursuant to the
Credit Agreement, the Notes, any other Loan Paper, and any and all renewals and
extensions thereof, or any part thereof, or future amendments thereto, whether
for principal, interest (including, without limitation, interest, fees and other
charges that would accrue or become owing both prior to and subsequent to and
but for the commencement of any proceeding against or with respect to Company or
any other Obligor under any chapter of the Bankruptcy Code of 1978, 11 U.S.C.
Section 101 ET SEQ. whether or not a claim is allowed for the same in any such
proceeding), premium, fees, commissions, expenses or otherwise (such obligations
being the "OBLIGATION"), and agrees to pay any and all reasonable expenses
(including reasonable counsel fees and expenses) incurred in enforcement or
collection of all or any part thereof, whether such obligations, indebtedness
and liabilities are direct, indirect, fixed, contingent, joint, several or joint
and several, and any rights under this Guaranty.

(b) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of Guarantor hereunder shall be limited to
a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States
Code or any applicable provisions of comparable state law (collectively,
the "FRAUDULENT TRANSFER LAWS"), in each case after giving effect to all
other liabilities of Guarantor, contingent or otherwise, that are relevant
under the Fraudulent Transfer Laws (specifically excluding, however, any
liabilities of Guarantor in respect of intercompany indebtedness to
Company, other Affiliates of Company or other Obligors to the extent that
such indebtedness would be discharged in an amount equal to the amount paid
by Guarantor hereunder) and after giving effect as assets, subject to
PARAGRAPH 4(A) hereof, to the value (as determined under the applicable
provisions of Fraudulent Transfer Laws) of any rights to subrogation or
contribution of Guarantor pursuant to (i) Applicable Law or (ii) any
agreement providing for an equitable allocation among Guarantor and other
Obligors of obligations arising under guaranties by such parties.

2. GUARANTY ABSOLUTE. Guarantor guarantees that the Obligation will be
paid strictly in accordance with the terms of the Credit Agreement, the Notes,
and the other Loan Papers, regardless of any Applicable Law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of Administrative Lender or any Lender with respect thereto;
PROVIDED, HOWEVER, nothing contained in this Guaranty shall require Guarantor to
make any payment under this Guaranty in violation of any Applicable Law,
regulation or order now or hereafter in effect. The obligations and liabilities
of Guarantor hereunder are independent of the obligations of Company under the
Credit Agreement and of the obligations of each other Obligor under each other
Loan Paper and any Applicable Law. The liability of Guarantor under this
Guaranty shall be absolute and unconditional irrespective of:

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<PAGE>

(a) the taking or accepting of any other security or guaranty for any
or all of the Obligation;

(b) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligation, including any reduction or
termination of the Commitments;

(d) any lack of corporate, partnership or other power of Company or
any other Obligor;

(e) any Debtor Relief Law involving Company, Guarantor or any other
Obligor;

(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or Administrative
Lender to Company or any other Obligor; or any other modification,
amendment, or waiver of or any consent to departure from the Credit
Agreement, the Notes, or any other Loan Paper or other agreement or
instrument relating thereto without notification of Guarantor (the right to
such notification being herein specifically waived by Guarantor);

(h) any release or amendment or waiver of or consent to departure
from any other guaranty for all or any of the Obligation;

(i) the failure by any Lender or Administrative Lender to make any
demand upon or to bring any legal, equitable, or other action against
Company or any other Person (including without limitation any other
Obligor), or the failure or delay by any Lender or Administrative Lender
to, or the manner in which any Lender or Administrative Lender shall,
proceed to exhaust rights against any direct or indirect security for the
Obligation;

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<PAGE>

(j) the existence of any claim, defense, set-off, or other rights
which Company or Guarantor may have at any time against Company, any
Lender, Administrative Lender or any Obligor, or any other Person, whether
in connection with this Guaranty, the Loan Papers, the transactions
contemplated thereby, or any other transaction;

(k) any failure of any Lender or Administrative Lender to notify
Guarantor of any renewal, extension, or assignment of the Obligation or any
part thereof, or the release of any security, or of any other action taken
or refrained from being taken by any Lender or Administrative Lender, it
being understood that Lenders and Administrative Lender shall not be
required to give Guarantor any notice of any kind under any circumstances
whatsoever with respect to or in connection with the Obligation;

(m) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Company, Guarantor or any other Obligor,
including without limitation any defense by reason of any disability or
other defense of Company, or the cessation from any cause whatsoever of the
liability of Company, or any claim that Guarantor's obligations hereunder
exceed or are more burdensome than those of Company or any other Obligor.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of Company, any other Obligor or otherwise, all as
though such payment had not been made.

3. WAIVER. To the extent not prohibited by Applicable Law, Guarantor
hereby waives: (a) promptness, protest, diligence, presentments, acceptance,
performance, demands for performance, notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty and notices
of the existence, creation or incurrence of new or additional indebtedness, and
any of the events described in SECTION 2 and of any other occurrence or matter
with respect to any of the Obligation, this Guaranty or any of the other Loan
Papers; (b) any requirement that Administrative Lender or any Lender protect,
secure, perfect, or insure any Lien or security interest or any property subject
thereto or exhaust any right or take any action against Company or any other
Person or any collateral or pursue any other remedy in Administrative Lender's
or any Lender's power whatsoever; (c) any right to assert against Administrative
Lender or any Lender as a counterclaim, set-off or cross-claim, any
counterclaim, set-off or claim which it may now or hereafter have against
Administrative Lender, any Lender, Company or other Obligor; (d) any right to
seek or enforce any remedy or right that Administrative Lender or any Lender now
has or may hereafter have against

-4-

<PAGE>

Company, any other Obligor or any other Person (to the extent permitted by
Applicable Law); (e) any right to participate in any collateral or any right
benefiting Administrative Lender or Lenders in respect of the Obligation; and
(f) any right by which it might be entitled to require suit on an accrued right
of action in respect of any of the Obligation or require suit against Company or
any other Person, whether arising pursuant to Section 34.02 of the Texas
Business and Commerce Code, as amended, Section 17.001 of the Texas Civil
Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil
Procedure, as amended, or otherwise.

4. SUBROGATION AND SUBORDINATION.

(a) Notwithstanding any reference to subrogation contained herein to the
contrary, Guarantor hereby irrevocably waives any claim or other rights which it
may have or hereafter acquire against Company or any other Obligor that arise
from the existence, payment, performance or enforcement of Guarantor's
obligations under this Guaranty, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, any
right to participate in any claim or remedy of any Lender or Administrative
Lender against Company or any other Obligor or any collateral which any Lender
or Administrative Lender now has or hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statutes or common
law, including without limitation, the right to take or receive from Company or
any other Obligor, directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security on account of such claim or
other rights. If any amount shall be paid to Guarantor in violation of the
preceding sentence and the Obligation shall not have been paid in full, such
amount shall be deemed to have been paid to Guarantor for the benefit of, and
held in trust for the benefit of, Lenders, and shall forthwith be paid to
Administrative Lender to be credited and applied upon the Obligation, whether
matured or unmatured, in accordance with the terms of the Credit Agreement.
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by the Credit Agreement and that the
waiver set forth in this PARAGRAPH 4(a) is knowingly made in contemplation of
such benefits.

(b) If Guarantor becomes the holder of any indebtedness payable by Company
or any other Obligor, Guarantor hereby subordinates all indebtedness owing to it
from Company and each other Obligor to all indebtedness of Company and each
other Obligor to Lenders and Administrative Lender, and agrees that upon the
occurrence and continuance of a Default or an Event of Default, it shall not
accept any payment on the same until final payment in full of the obligations of
Company under the Credit Agreement, the Notes and all other Loan Papers, and
shall in no circumstance whatsoever attempt to set-off or reduce any obligations
hereunder because of such indebtedness. If any amount shall nevertheless be
paid to Guarantor by Company or any other Obligor prior to payment in full of
the Obligation, such amount shall be held in trust for the benefit of Lenders
and Administrative Lender and shall forthwith be paid to Administrative Lender
to be credited and applied to the Obligation, whether matured or unmatured.

-5-

<PAGE>

5. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and
warrants that all representations and warranties as they apply to Guarantor only
set forth in ARTICLE 4 of the Credit Agreement (each of which is hereby
incorporated by reference) are true and correct.

6. COVENANTS. Guarantor hereby expressly assumes, confirms, and agrees
to perform, observe, and be bound by all conditions and covenants set forth in
the Credit Agreement, to the extent applicable to it, as if it were a signatory
thereto. Guarantor further covenants and agrees (a) punctually and properly to
perform all of Guarantor's covenants and duties under all other Loan Papers; (b)
from time to time promptly to furnish Administrative Lender with any information
or writings which Administrative Lender may request concerning this Guaranty;
and (c) promptly to notify Administrative Lender of any claim, action, or
proceeding affecting this Guaranty.

7. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by Guarantor therefrom shall in any event
be effective unless the same shall be in writing and signed by Guarantor,
Administrative Lender, and, either all Lenders or Determining Lenders, as
appropriate, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

9. NO WAIVER; REMEDIES. No failure on the part of Administrative Lender
or any Lender to exercise, and no delay in exercising, any right hereunder or
under any of the Loan Papers shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder or under any of the Loan
Papers preclude any other or further exercise thereof or the exercise of any
other right. Neither Administrative Lender nor any Lender shall be required to
(a) prosecute collection or seek to enforce or resort to any remedies against
Company, any other Obligor or any other Person, (b) join Company, any other
Obligor or any other Person in any action in which Administrative Lender or any
Lender prosecutes collection or seeks to enforce or resort to any remedies
against Company, any other Obligor or any other Person liable on any of the
Obligation, or (c) seek to enforce or resort to any remedies with respect to any
Liens granted to (or benefiting, directly or indirectly) Administrative Lender
or any Lender by Company, any other Obligor or any other Person. Neither
Administrative Lender nor any Lender shall have any obligation to protect,
secure or insure any of the Liens or the properties or interests in properties
subject thereto. The remedies herein provided are cumulative and not exclusive
of any remedies provided by Applicable Law.

-6-

<PAGE>

10. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of
any Event of Default, each Lender and Administrative Lender is hereby authorized
at any time and from time to time, to the fullest extent permitted by Law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender or Administrative Lender to or for the credit or the account of
Guarantor against any and all of the obligations of Guarantor now or hereafter
existing under this Guaranty, irrespective of whether or not such Lender or
Administrative Lender shall have made any demand under this Guaranty. Each
Lender and Administrative Lender agrees promptly to notify Guarantor after any
such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application or provide a
defense to Guarantor's obligations under this Guaranty. The rights of each
Lender and Administrative Lender under this SECTION 10 are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which such Lender and Administrative Lender may have.

11. LIENS. To the extent not prohibited by Applicable Law, Guarantor
agrees that Administrative Lender or any Lender, in its discretion, without
notice or demand and without affecting either the liability of Guarantor,
Company or any other Obligor, or any security interest or other Lien, may
foreclose any deed of trust or mortgage or similar Lien covering interests in
real or personal property, and the interests in real or personal property
secured thereby, by nonjudicial sale. Guarantor waives any defense to the
recovery by Administrative Lender or any Lender hereunder against Company,
Guarantor or any collateral of any deficiency after a nonjudicial sale and
Guarantor expressly waives any defense or benefits that may be derived from
Chapter 34 of the Texas Business and Commerce Code, Section 51.003 of the Texas
Property Code, or any similar statute in effect in any other jurisdiction.
Without limiting the foregoing, Guarantor waives, to the extent not prohibited
by Applicable Law, any defense arising out of any such nonjudicial sale even
though such sale operates to impair or extinguish any right of reimbursement or
subrogation or any other right or remedy of Guarantor against Company or any
other Person or any Collateral or any other collateral. Guarantor agrees that
Guarantor is liable, subject to the limitations of SECTION 1 hereof, for any
part of the Obligation remaining unpaid after any foreclosure.

12. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is an
irrevocable continuing guaranty of payment and shall (a) remain in full force
and effect until final payment in full (after the Term Loan Maturity Date) of
the Obligation and all other amounts payable under this Guaranty, (b) be binding
upon Guarantor, its successors and assigns, and (c) inure to the benefit of and
be enforceable by Lender and Administrative Lender and their successors,
transferees and assigns. Without limiting the generality of the foregoing
CLAUSE (c), to the extent permitted by the Credit Agreement, each Lender may
assign or otherwise transfer its rights under the Credit Agreement, the Notes or
any of the Loan Papers or any interest therein to any other Person, and such
other Person shall thereupon become vested with all the rights or any interest
therein, as appropriate, in respect thereof granted to such Lender herein or
otherwise.

13. INFORMATION. Guarantor acknowledges and agrees that it shall have the
sole responsibility for obtaining from Company and each other Obligor such
information concerning

-7-

<PAGE>

Company's and each Obligor's financial condition or business operations as
Guarantor may require, and that neither Administrative Lender nor any Lender has
any duty at any time to disclose to Guarantor any information relating to the
business operations or financial conditions of Company or any Obligor.

14. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, GUARANTOR AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS
LOCATED IN DALLAS, TEXAS, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION
HEREWITH. THIS GUARANTY IS PERFORMABLE IN DALLAS COUNTY, TEXAS.

15. WAIVER OF JURY TRIAL. GUARANTOR, ADMINISTRATIVE LENDER, AND LENDERS
HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS GUARANTY OR ANY OF THE
LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER ENTERING INTO THE CREDIT AGREEMENT.

17. GUARANTOR INSOLVENCY. Should Guarantor become insolvent, fail to pay
its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Law or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Law (other
than as a creditor or claimant) that could suspend or otherwise adversely affect
the rights of any Lender or Administrative Lender granted hereunder, then, the
obligations of Guarantor under this Guaranty shall be, as between Guarantor and
such Lender and Administrative Lender, a fully-matured, due, and payable
obligation of Guarantor to such Lender and Administrative Lender (without regard
to whether Company or any other Obligor is then in default under the Credit
Agreement or any other Loan Paper or whether any part of the Obligation is then
due and owing by Company or any other Obligor to such Lender or Administrative
Lender), payable in full by Guarantor to such Lender or Administrative Lender
upon demand, which shall be the estimated amount owing in respect of the
contingent claim created hereunder.

-8-

<PAGE>

HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.

LQM OPERATING PARTNERS, L.P.

By La Quinta Realty Corp., its General Partner
Address for Guarantor:

112 East Pecan
San Antonio, Texas 78205
By:____________________________________________
Name:
Title:

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<PAGE>

EXHIBIT I

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PLEDGE AGREEMENT

dated as of January 25, 1994

Between

LA QUINTA REALTY CORP.
as Pledgor

and

NATIONSBANK OF TEXAS, N.A.
as Administrative Lender

- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS

PAGE

ARTICLE I. PLEDGE.

1.01. PLEDGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. DESCRIPTION OF OBLIGATIONS. . . . . . . . . . . . . . . . . . 2

ARTICLE II. REPRESENTATIONS AND WARRANTIES.

2.01. REPRESENTATIONS AND WARRANTIES CONCERNING PLEDGOR . . . . . . 2
2.02. REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL. . . . . 2

ARTICLE III. COVENANTS.

3.01. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 3
3.02. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 3
3.03. RIGHTS TO DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . 4
3.04. RIGHT OF ADMINISTRATIVE LENDER TO NOTIFY ISSUERS. . . . . . . 4
3.05. DELIVERY OF RECEIPTS TO ADMINISTRATIVE LENDER . . . . . . . . 5
3.06. VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 5
3.07. RECORDS OF COLLATERAL . . . . . . . . . . . . . . . . . . . . 5
3.08. INFORMATION AND INSPECTION. . . . . . . . . . . . . . . . . . 5
3.09. DISPOSITION OF COLLATERAL . . . . . . . . . . . . . . . . . . 5
3.10. ADMINISTRATIVE LENDER'S COSTS . . . . . . . . . . . . . . . . 5
3.11. ADDITIONAL DOCUMENTS. . . . . . . . . . . . . . . . . . . . . 6
3.12. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . 6
3.13. WAIVERS BY PLEDGOR. . . . . . . . . . . . . . . . . . . . . . 6
3.14. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . 7
3.15. OTHER PARTIES AND OTHER COLLATERAL. . . . . . . . . . . . . . 7
3.16. ADDITIONAL COLLATERAL . . . . . . . . . . . . . . . . . . . . 7

ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER.

4.01. REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . . . . 7
4.02. REALIZATION UPON COLLATERAL . . . . . . . . . . . . . . . . . 8
4.03. SECURITIES AND RELATED LAWS . . . . . . . . . . . . . . . . . 9
4.04. CONVERTIBLE SECURITIES. . . . . . . . . . . . . . . . . . . . 9
4.05. PARTNERSHIP LIABILITIES . . . . . . . . . . . . . . . . . . . 9

ARTICLE V. MISCELLANEOUS.

5.01. CUMULATIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . 10
5.02. ADMINISTRATIVE LENDER'S DUTIES. . . . . . . . . . . . . . . . 10
5.03. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

<PAGE>

5.04. RELEASE OF COLLATERAL AND LIENS; TERMINATION. . . . . . . . . 10
5.05. RATE PROVISION. . . . . . . . . . . . . . . . . . . . . . . . 11
5.06. PARTIES BOUND . . . . . . . . . . . . . . . . . . . . . . . . 11
5.07. NOTICES AND DELIVERIES. . . . . . . . . . . . . . . . . . . . 11
(A) MANNER OF DELIVERY . . . . . . . . . . . . . . . . . . . 11
(B) ADDRESSES. . . . . . . . . . . . . . . . . . . . . . . . 11
(C) EFFECTIVENESS. . . . . . . . . . . . . . . . . . . . . . 12
5.08. MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . 12
5.09. FINANCING STATEMENT . . . . . . . . . . . . . . . . . . . . . 12
5.11. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13. GOVERNING LAW; TERMS. . . . . . . . . . . . . . . . . . . . . 13
5.14. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . 13
5.15. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 13

<PAGE>

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT is dated as of January 25, 1994, and made by La
Quinta Realty Corp., a Texas corporation ("PLEDGOR"), in favor of NationsBank of
Texas, N.A., a national banking association, as Administrative Lender
("ADMINISTRATIVE LENDER"), for NationsBank of Texas, N.A., and each other lender
a party to the Credit Agreement described below (singly, a "SECURED PARTY" and
collectively, the "SECURED PARTIES").

RECITALS:

(1) La Quinta Inns, Inc., a Texas corporation ("BORROWER"), Secured
Parties and Administrative Lender have entered into a Credit Agreement, dated as
of January 25, 1994 (as the same may be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT").

(2) Pledgor owns all of the general partnership interests of La Quinta
Motor Inns Limited Partnership, a Delaware limited partnership (the
"PARTNERSHIP").

(3) It is a requirement to the effectiveness of the Credit Agreement that
the parties execute and deliver this Agreement.

(4) It is the intention of the parties hereto that this Agreement create a
first priority security interest securing the payment of the obligations set
forth in SECTION 1.02 hereof.

AGREEMENT.

NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and under the terms of the Credit Agreement, Pledgor hereby
agrees with Administrative Lender for its benefit and the ratable benefit of
Secured Parties as follows:

ARTICLE I. PLEDGE.

1.01. PLEDGE. Upon the terms hereof, for value received, Pledgor
hereby pledges, assigns, hypothecates, and transfers to Administrative Lender,
for the ratable benefit of Administrative Lender and Secured Parties, a first
and prior pledge and security interest in (a) all partnership interests now or
hereafter owned beneficially or of record by Pledgor in the Partnership; (b) all
distributions, dividends, cash, instruments, and other property from time to
time distributed in respect thereof; (c) all rights of Pledgor in, to and under
any and all agreements related to the Partnership; and (d) all proceeds and
products of the foregoing (collectively, "COLLATERAL"), to secure the payment
and performance of the Obligations (as

<PAGE>

defined below). Unless otherwise defined in this Agreement, terms used herein
shall have the meanings set forth in the Credit Agreement.

1.02. DESCRIPTION OF OBLIGATIONS. The security interest granted by
Pledgor shall secure the payment and performance of any and all obligations now
or hereafter existing of each Borrower, each other Obligor and any other Person
under the Credit Agreement and the Loan Papers, including any extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, premium, expenses, indemnification or otherwise (all
such obligations being the "OBLIGATIONS"). Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Obligations and would be owed by Borrower, each other
Obligor and any other Person to Administrative Lender or Secured Parties under
any Loan Paper, but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving Pledgor, Borrower, any other Obligor or any other Person (including
all such amounts which would become due but for the operation of any Debtor
Relief Law).

ARTICLE II. REPRESENTATIONS AND WARRANTIES.

2.01. REPRESENTATIONS AND WARRANTIES CONCERNING PLEDGOR. Pledgor
represents and warrants that (a) the chief place of business and chief executive
office of Pledgor and the office where Pledgor keeps all of its records is
located at 112 East Pecan Street, San Antonio, Texas 75205; (b) no consent of
any other Person and no authorization, approval or other action by, and no
notice to or filing with, any Tribunal, regulatory body, or Tribunal is required
(i) for the pledge by Pledgor of the Collateral pledged by it hereunder, for the
grant by Pledgor of the security interest granted hereby or for the execution,
delivery or performance of this Agreement by Pledgor, (ii) for the perfection or
maintenance of the pledge, assignment and security interest created hereby
(including the first priority nature of such pledge, assignment and security
interest), or (iii) for the exercise by Administrative Lender of the Rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement; and (c) Pledgor possesses all licenses and permits
required for the operations of its business. Pledgor represents and warrants
that the value of the consideration received and to be received by Pledgor as a
result of the transactions contemplated hereby is reasonably worth at least as
much as the liability and obligation of Pledgor hereunder and the undertaking of
such liability and obligation has benefitted and may reasonably be expected to
benefit Pledgor directly or indirectly.

2.02. REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL. Pledgor
represents and warrants that (a) Pledgor is the legal and beneficial owner of
the Collateral pledged by Pledgor free and clear of any Lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement; (b) SCHEDULE 1 is a complete and correct description of all
interest of Pledgor in the Partnership, including each certificate, class of
interest and number of units owned by Pledgor; (c) all interest of the
Partnership owned by Pledgor are represented by the certificates described on
SCHEDULE 1 and no other instrument; (d) none of the Collateral is subject to any
buy-sell, preferential right to purchase, transfer

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<PAGE>

restriction or similar agreement (except as set forth in the partnership
agreement); (e) no effective financing statement or other similar document used
to perfect and preserve a security interest under the Laws of any jurisdiction
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed in favor of Administrative Lender relating to
this Agreement; (f) the partnership interests pledged hereunder are duly
authorized, validly issued, fully paid, and non-assessable (except for capital
calls and other obligations set forth in the partnership agreement); (g) the
pledge, assignment, and delivery of the Collateral hereunder, and filing of an
appropriate financing statement, create a valid first and prior perfected
security interest in the Collateral, securing the Obligations; (h) no unpaid
capital call or dispute exists with respect to any of the Collateral; and (i)
the Collateral owned by Pledgor represents 100% of the authorized, issued and
outstanding general partnership interests of the Partnership. The delivery at
any time by Pledgor to Administrative Lender of Collateral shall constitute a
representation and warranty by Pledgor under this Agreement that, with respect
to such Collateral, Pledgor is the sole legal and beneficial owner of the
Collateral, and that the matters set forth in this SECTION 2.02 are true and
correct with respect to such Collateral.

ARTICLE III. COVENANTS.

3.01. AFFIRMATIVE COVENANTS. Pledgor covenants and agrees (a) promptly
to deliver to Administrative Lender all instruments, certificates, documents, or
agreements evidencing any of the Collateral; (b) promptly to notify
Administrative Lender of any change in any fact or circumstances warranted or
represented by Pledgor in this Agreement or in any other writings furnished by
Pledgor to Administrative Lender in connection with the Collateral; (c) promptly
to notify Administrative Lender of any claim, action, or proceeding affecting
Pledgor's title to the Collateral, or any part thereof, or the security interest
therein granted hereunder, and, at the request of Administrative Lender, appear
in and defend, at Pledgor's expense, any such action or proceeding; and (d)
promptly to pay to Administrative Lender and Secured Parties the amount of all
court costs and attorney's fees incurred by Administrative Lender and Secured
Parties hereunder.

3.02. NEGATIVE COVENANTS. Pledgor covenants and agrees that it shall
not (a) create any other security interest or pledge in, mortgage or otherwise
encumber the Collateral or any part thereof, or permit the same to be or become
subject to any Lien, attachment, execution, sequestration, other legal or
equitable process, or any encumbrance of any kind or character, or grant any
option, warrant, or other Rights in the Collateral in favor of any Person other
than Administrative Lender; (b) cause or permit any issuer or other obligor of
any Collateral to authorize and issue any additional limited or general
partnership interests, or take any other action that would otherwise dilute any
of the Collateral; (c) approve any amendment to the partnership agreement or any
amendment, restatement or cancellation to or of any of the other Collateral
without the prior written consent of Determining Lenders; or (d) permit the
dissolution of the Partnership.

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3.03. RIGHTS TO DIVIDENDS AND DISTRIBUTIONS. With respect to any
certificates, bonds, or other instruments or securities constituting a part of
the Collateral, Administrative Lender shall have authority during the
continuance of an Event of Default, without notice to Pledgor, either to have
the same registered in Administrative Lender's name or in the name of a nominee,
and, with or without such registration, to demand of the issuer thereof, and to
receive and receipt for, any and all principal, interest, fee, premium and other
payment or distributions of property in respect of any Collateral
("DISTRIBUTIONS") and any and all Dividends (including any stock or similar
dividend or distribution) payable in respect thereof, whether they be ordinary
or extraordinary. If, while this Agreement is in effect, Pledgor shall become
entitled to receive or shall receive any certificate or instrument (including,
without limitation, any certificate representing a Dividend or a Distribution in
connection with any reclassification, increase, or reduction of capital, or
issued in connection with any reorganization), or any option or Rights arising
from or relating to any of the Collateral, whether as an addition to, in
substitution of, as a conversion of, or in exchange for any of the Collateral,
or otherwise, Pledgor agrees to accept the same as Administrative Lender's agent
and to hold the same in trust on behalf of and for the benefit of Administrative
Lender, and to deliver the same forthwith to Administrative Lender in the exact
form received, with appropriate undated stock powers, duly executed in blank,
and endorsements, to be held by Administrative Lender, subject to the terms
hereof, as Collateral. Unless an Event of Default is in existence, Pledgor
shall be entitled to receive all cash Dividends and Distributions paid in
respect of any of the Collateral (subject to the restrictions of any other Loan
Paper). During the continuance of an Event of Default, Administrative Lender
shall be entitled to all Dividends and Distributions, and to any sums paid upon
or in respect of any Collateral upon the liquidation, dissolution, or
reorganization of the issuer or maker thereof which shall be paid to
Administrative Lender to be held by it as additional collateral security for the
Obligations and application to the Obligations at the discretion of
Administrative Lender. In case any Dividend or Distribution shall be made on or
in respect of the Collateral pursuant to the reorganization, liquidation, or
dissolution of an issuer or maker, or any amendment, restatement, redemption or
exchange of any Collateral, the property so distributed shall be delivered to
Administrative Lender to be held by it as Collateral; PROVIDED, HOWEVER, that if
such Dividend or Distribution does not constitute an instrument or a certificate
evidencing Collateral, and if no Event of Default is in existence, the Dividend
or Distribution shall be delivered to Pledgor, subject to all Liens created
under and all covenants of the Loan Papers. All Dividends and Distributions
paid or distributed in respect of the Collateral which are received by Pledgor
in violation of this Agreement shall, until paid or delivered to Administrative
Lender, be held by Pledgor in trust as additional Collateral for the
Obligations.

3.04. RIGHT OF ADMINISTRATIVE LENDER TO NOTIFY ISSUERS. At any time
during the continuance of an Event of Default, Administrative Lender may notify
issuers and makers of the Collateral to make payments of all Dividends and
Distributions directly to Administrative Lender and Administrative Lender may
take control of all proceeds of any Collateral. Until Administrative Lender
elects to exercise such Rights, during the continuance of an Event of Default,
Pledgor, as agent of Administrative Lender, shall collect all Dividends and
Distributions and other amounts paid or distributed with respect to the
Collateral.

<PAGE>

3.05. DELIVERY OF RECEIPTS TO ADMINISTRATIVE LENDER. Upon
Administrative Lender's demand during the continuance of an Event of Default,
Pledgor shall deposit, upon receipt and in the form received, with any necessary
endorsement, all payments received as proceeds of or otherwise in connection
with the Collateral, in a special bank account in a bank of Administrative
Lender's choice over which Administrative Lender alone shall have power of
withdrawal. The funds in said account shall secure the Obligations.
Administrative Lender is authorized, and is hereby appointed attorney-in-fact,
to make any endorsement in Pledgor's name and behalf. Pending such deposit,
Pledgor shall not mingle any such payments with any of Pledgor's other funds or
property, but shall hold them separate and upon an express trust for
Administrative Lender. During the continuance of an Event of Default,
Administrative Lender may from time to time apply the whole or any part of the
funds in the special account against the Obligations.

3.06. VOTING RIGHTS. It is expressly understood and agreed that
Pledgor shall retain all voting rights to the Collateral unless an Event of
Default shall exist, at which time such voting rights shall transfer to or be
exercised as directed by Administrative Lender (subject to any requirements of
applicable Law and Licenses), at its sole discretion; PROVIDED, HOWEVER, that no
voting or management rights shall be exercised, vote cast, consent, waiver, or
ratification given, or action taken by Pledgor which would be inconsistent with
or violate any provision of this Agreement or any other Loan Papers.

3.07. RECORDS OF COLLATERAL. Pledgor at all times shall maintain
accurate books and records concerning the Collateral. Pledgor shall cause all
issuers and makers of the Collateral to mark immediately all books and records
of issue, registration, and transfer relating to the Collateral, with an entry
showing the collateral assignment of the Collateral to Administrative Lender.

3.08. INFORMATION AND INSPECTION. Pledgor shall, and shall cause each
issuer and maker of the Collateral to, (a) upon one Business Day's notice, allow
Administrative Lender and any Secured Party to inspect and copy, or at the
option of Administrative Lender or any Secured Party, furnish copies of, all
records relating to the Collateral and the Obligations; PROVIDED, HOWEVER, that
neither Administrative Lender nor any Secured Party need give any notice to
Pledgor if a Default has occurred; and (b) furnish Administrative Lender or any
Secured Party such information as it may request with respect to the Collateral,
any Dividends and Distributions thereon, and any proceeds thereof, at the time
and in the form requested by Administrative Lender or any Secured Party.

3.09. DISPOSITION OF COLLATERAL. No Collateral may be sold, leased, or
otherwise disposed of by Pledgor in any manner.

3.10. ADMINISTRATIVE LENDER'S COSTS. Pledgor shall pay all costs
necessary to obtain, preserve, perfect, defend, and enforce this Agreement and
the security interest granted hereby with respect to the Collateral, collect the
Obligations, and preserve, defend, enforce, dispose of, and collect the
Collateral, including without limitation Taxes, assessments, reasonable
attorneys'

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<PAGE>

fees and legal expenses, and expenses of sale. Whether Collateral is or is not
in Administrative Lender's possession, and without any obligation to do so and
without waiving any Event of Default caused by Pledgor's failure to make any
such payment, Administrative Lender at its option may pay any such costs and
expenses, and discharge Liens on the Collateral. Any payments so made shall be
a part of the Obligations, shall be payable upon demand, and shall bear interest
prior to the existence of an Event of Default, at the Prime Rate Basis, and
during the existence of an Event of Default, at the Highest Lawful Rate.

3.11. ADDITIONAL DOCUMENTS. Pledgor, at its expense, shall take all
action, and execute and deliver such further instruments, agreements, blank
stock powers, and assignments as Administrative Lender shall deem necessary or
appropriate to obtain, maintain, and perfect the security interest hereunder,
including the security interest in after-acquired Collateral granted herein, and
to enable Administrative Lender to comply with all applicable federal or state
Law, in order to obtain or perfect Administrative Lender's interest in the
Collateral, to effect its Rights hereunder, or to obtain Dividends,
Distributions and other proceeds of the Collateral as provided herein.

3.12. POWER OF ATTORNEY. If an Event of Default shall have occurred
and be continuing, Administrative Lender may vote any Collateral or otherwise
exercise any rights with respect to the Collateral as though it were the sole
owner thereof. PLEDGOR HEREBY IRREVOCABLY GRANTS TO ADMINISTRATIVE LENDER
PLEDGOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT WHICH IS CONTINUING) TO VOTE ANY COLLATERAL AND APPOINTS ADMINISTRATIVE
LENDER PLEDGOR'S ATTORNEY-IN-FACT TO PERFORM ALL OBLIGATIONS OF PLEDGOR UNDER
THIS AGREEMENT AND TO EXERCISE ALL OF ADMINISTRATIVE LENDER'S RIGHTS HEREUNDER.
THE PROXY AND POWER OF ATTORNEY HEREIN GRANTED, AND EACH STOCK POWER AND SIMILAR
POWER NOW OR THEREAFTER GRANTED (INCLUDING ANY EVIDENCED BY A SEPARATE WRITING),
ARE COUPLED WITH AN INTEREST AND ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL
OF THE OBLIGATIONS.

3.13. WAIVERS BY PLEDGOR. Pledgor waives notice of the creation,
advance, increase, existence, extension, or renewal of, or of any indulgence
with respect to, the Obligations; waives presentment, demand, notice of
dishonor, and protest; waives notice of the amount of the Obligations
outstanding at any time, notice of any change in financial condition of any
Obligor, notice of any Event of Default, and all other notices respecting the
Obligations; and agrees that maturity of the Obligations and any part thereof
may be accelerated, extended, or renewed one or more times by any of Secured
Parties, in its or their discretion, without notice to Pledgor. Pledgor waives
(a) any claim that, as to any part of the Collateral, a public sale, should
Administrative Lender elect so to proceed, is, in and of itself, not a
commercially reasonable method of sale for such Collateral, (b) except as
otherwise provided in this Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE OR JUDICIAL HEARING IN CONNECTION WITH ADMINISTRATIVE LENDER'S
DISPOSITION OF

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<PAGE>

ANY OF THE COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT PLEDGOR WOULD OTHERWISE
HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE,
AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER
REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF ADMINISTRATIVE LENDER'S RIGHTS
HEREUNDER and (c) all rights of redemption, appraisal or valuation.

3.14. WAIVER OF JURY TRIAL. ADMINISTRATIVE LENDER, EACH SECURED PARTY
AND PLEDGOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER.

3.15. OTHER PARTIES AND OTHER COLLATERAL. No renewal, increase, or
extension of or any other indulgence with respect to, the Obligations or any
part thereof, no amendment or modification or addition or supplement to any Loan
Paper, no release, exchange, or taking of any security, no release of any
Obligor (including any maker, endorser, guarantor, or surety), no delay in
enforcement of payment, no delay or omission or lack of diligence or care in
exercising any Right or power with respect to the Obligations or any security
therefor or guaranty thereof or under this Agreement, and no other circumstance
or event which might constitute a defense available to or discharge of Pledgor
or any other Person, shall in any manner impair or affect the Rights of
Administrative Lender or any Secured Party hereunder, under any other Loan
Papers, at Law, or in equity. Neither Administrative Lender nor any Secured
Party need file suit or assert a claim for personal judgment against any Person
for any part of the Obligations or seek to realize upon any other security for
the Obligations, before foreclosing upon the Collateral for the purpose of
paying the Obligations. Pledgor waives any Right to the benefit of or to
require or control application of any other security or proceeds thereof, and
agrees that Administrative Lender and Secured Parties shall have no duty or
obligation to Pledgor to apply any such other security or proceeds thereof to
the Obligations.

3.16. ADDITIONAL COLLATERAL. Upon acquisition by Pledgor of any
additional partnership interest of any Borrower, Pledgor shall be deemed to
grant hereunder, and shall cause to be granted, Liens on such partnership
interest to Administrative Lender, as security for the Obligations. Pledgor
agrees to take, and to cause to be taken, at its own cost and expense, such
actions as Administrative Lender shall deem necessary or appropriate to create,
evidence, and perfect such Liens.

ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER.

4.01. REMEDIES UPON DEFAULT. Administrative Lender, during the
continuance of an Event of Default and without liability to Pledgor, may without
notice or demand: obtain from

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<PAGE>

any Person information regarding Pledgor, any issuer of the Collateral, or any
of their businesses, which information any such Person also may furnish without
liability to Pledgor; require Pledgor to give possession or control of any of
the Collateral to Administrative Lender; endorse as Pledgor's agent or
attorney-in-fact any instruments or documents representing Collateral or
proceeds of the Collateral; unless earlier permitted hereunder, take control of
funds generated by the Collateral and any other proceeds, and exercise all other
Rights which an owner of such Collateral may exercise; at any time transfer any
of the Collateral or evidence thereof into its own name or that of its nominee;
and demand, collect, convert, redeem, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize upon the Collateral, in its own name for the
benefit of Administrative Lender and Secured Parties, or in the name of Pledgor,
as Administrative Lender may determine. Administrative Lender shall not be
liable for failure to collect any Dividend, Distribution or other proceeds, or
for any act or omission on the part of Administrative Lender, its officers,
agents, employees, or other representatives, except willful misconduct. The
foregoing Rights of Administrative Lender shall be in addition to, and not a
limitation upon, any Rights of Administrative Lender given by Law, elsewhere in
this Agreement or any other Loan Papers, or otherwise.

4.02. REALIZATION UPON COLLATERAL. During the continuance of an Event
of Default, Administrative Lender, without notice or demand, but subject to any
limitations or restrictions imposed by applicable Law, may exercise any Rights
of a secured party under the Uniform Commercial Code of Texas or any other
applicable jurisdiction ("UCC"), this Agreement, any other Loan Papers, or
otherwise and also may require Pledgor to, and Pledgor hereby agrees that it
will at its expense and upon request of Administrative Lender forthwith,
assemble all or part of the Collateral as directed by Administrative Lender and
make it available to Administrative Lender at a place to be designated by
Administrative Lender which is reasonably convenient to both parties at public
or private sale, at any of Administrative Lender's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as
Administrative Lender may deem commercially reasonable. Unless the Collateral
is of a type customarily sold on a recognized market, Administrative Lender
shall give Pledgor reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or other intended
disposition thereof is to be made. Pledgor agrees that 10 days advance notice
thereof shall constitute reasonable notice. Administrative Lender shall not be
obligated to make any sale of Collateral, regardless of notice of sale having
been given. Administrative Lender may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Expenses of retaking, holding, preparing for sale, selling, or the
like shall include Administrative Lender's reasonable attorneys' fees and legal
expenses, and constitute a portion of the Obligations. Administrative Lender
shall be entitled to immediate possession of all books and records maintained by
Pledgor with respect to the Collateral, and shall have the authority to enter
upon any premises upon which any of the same may be situated and remove the same
therefrom without liability. Upon disposition of Collateral during an Event of
Default, Pledgor shall be entitled to any surplus with respect to the Collateral
following payment in full of the Obligations and termination hereof, and shall
be liable to Administrative Lender for any deficiency with respect thereto. The
proceeds of any disposition of Collateral available to satisfy

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the Obligations shall be applied to the Obligations in such order and in such
manner consistent with applicable Law as Administrative Lender in its discretion
shall decide.

4.03. SECURITIES AND RELATED LAWS. Because of the Securities Act of
1933, as amended ("SECURITIES ACT"), the Communications Act of 1934, and other
Laws, including without limitation state blue sky Laws, there may be legal
restrictions or limitations affecting Administrative Lender in any attempts to
dispose of the Collateral in the enforcement of its Rights hereunder. For these
reasons, Administrative Lender is hereby authorized by Pledgor, but not
obligated, during the continuance of any Event of Default, to sell or otherwise
dispose of any of the Collateral at private sale, subject to an investment
letter, or in any other manner which will not require the Collateral, or any
part thereof, to be registered in accordance with the Securities Act, or the
rules and regulations promulgated thereunder, or any other Law. Administrative
Lender is also hereby authorized by Pledgor, but not obligated, to take such
actions, give such notices, obtain such consents, and do such other things as
Administrative Lender may deem required or appropriate under the Securities Act
or other securities Laws in the event of a sale or disposition of any
Collateral. Pledgor clearly understands that Administrative Lender may in its
discretion approach a restricted number of potential purchasers and that a sale
under such circumstances may yield a lower price for the Collateral than would
otherwise be obtainable if same were registered and sold in the open market. No
sale so made in good faith by Administrative Lender shall be deemed to be not
"commercially reasonable" because so made. Pledgor agrees that in the event
Administrative Lender shall, during the continuance of an Event of Default, sell
the Collateral or any portion thereof at any private sale or sales,
Administrative Lender shall have the Right to rely upon the advice and opinion
of appraisers of partnership interests in companies whose principal assets
consist of assets similar to those owned and/or operated by the issuer of the
Collateral, which appraisers are acceptable to Administrative Lender, as to the
best price reasonably obtainable upon such a private sale thereof. In the
absence of fraud, such reliance shall be conclusive evidence that Administrative
Lender handled such matter in a commercially reasonable manner under applicable
Law.

4.04. CONVERTIBLE SECURITIES. During the continuance of an Event of
Default, Administrative Lender may present for conversion any Collateral which
is convertible into any other instrument, investment security, or cash.
Administrative Lender shall not have any duty, however, to present for
conversion any of the Collateral, unless it shall have received from Pledgor
detailed written instructions to that effect at a time reasonably far in advance
of the final conversion date to make such conversion possible and such
conversion does not violate any provisions of any Loan Papers.

4.05. PARTNERSHIP LIABILITIES. By taking a security interest in the
Collateral pursuant to this Agreement, Administrative Lender and Secured Parties
do not assume, accept, or become liable with respect to any debts, liabilities,
or obligations of any issuer of any Collateral.

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ARTICLE V. MISCELLANEOUS.

5.01. CUMULATIVE RIGHTS. All Rights of Administrative Lender and
Secured Parties under the Loan Papers are cumulative of each other and of every
other Right which Administrative Lender and each Secured Party may otherwise
have at Law or in equity or under any other contract or other writing for the
enforcement of the security interest herein or the collection of the
Obligations. The exercise of one or more Rights shall not prejudice or impair
the concurrent or subsequent exercise of other Rights.

5.02. ADMINISTRATIVE LENDER'S DUTIES. The Secured Parties hereby
appoint NationsBank of Texas, N.A. as Administrative Lender hereunder to act as
their agent as provided herein. The powers conferred on Administrative Lender
hereunder are solely to protect Secured Parties' interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. Except for the
safe custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Administrative Lender shall have no duty as
to any Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not Administrative Lender or any Secured Party has or is
deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which Administrative Lender accords its own property. Administrative Lender
shall not have any duty or liability to protect or preserve any Collateral or to
preserve rights pertaining thereto. Nothing contained in this Agreement shall
be construed as requiring or obligating Administrative Lender, and
Administrative Lender shall not be required or obligated, to (a) present or file
any claim or notice or take any action, with respect to any Collateral or in
connection therewith or (b) notify Pledgor of any decline in the value of any
Collateral.

5.03. WAIVER. Should any part of the Obligations be payable in
installments, the acceptance by Administrative Lender or any Secured Party at
any time and from time to time of partial payment of the aggregate amount of all
installments then matured shall not be deemed as a waiver of any Event of
Default then existing. No waiver of any Event of Default shall be deemed to be
a waiver of any other subsequent Event of Default, nor shall any such waiver be
deemed to be a continuing waiver. No delay or omission by Administrative Lender
or any Secured Party in exercising any Right hereunder, or under any other Loan
Papers, shall impair any such Right or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or partial exercise of any such Right
preclude other or further exercise thereof, or the exercise of any other Right
of Administrative Lender or any Secured Party hereunder or under such other
writings.

5.04. RELEASE OF COLLATERAL AND LIENS; TERMINATION. In connection with
the disposition of any Collateral permitted under the Credit Agreement or
termination hereof, Administrative Lender shall, upon Pledgor's request and at
its expense, (a) deliver to Pledgor any documents, instruments, certificates, or
agreements evidencing such Collateral, and all stock powers relating

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to such Collateral, that are in the possession of Administrative Lender; and (b)
execute and deliver to Pledgor such documents and instruments as Pledgor shall
reasonably request to evidence the release of the Lien of Administrative Lender
in such Collateral. This Agreement constitutes a continuing security interest
in the Collateral, and shall remain in full force and effect until payment and
performance in full of the Obligations, and termination of the Commitments and
the other Loan Papers.

5.05. RATE PROVISION. It is not the intention of any party to any Loan
Papers to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall Pledgor be obligated to pay any amount in
excess of the maximum amount of interest permitted under applicable Law. If
from any circumstances Administrative Lender shall ever receive anything of
value deemed excess interest under applicable Law, an amount equal to such
excess shall be applied to the reduction of the outstanding balance of the
Obligations and any remainder shall be promptly refunded to the payor.

5.06. PARTIES BOUND. This Agreement shall be binding on Pledgor and
its successors, assigns, and other legal representatives, and shall inure to the
benefit of Administrative Lender, Secured Parties, and their successors and
assigns; PROVIDED, HOWEVER, that Pledgor may not assign its Rights or
obligations hereunder without the prior written consent of Administrative
Lender. The Rights, powers, and interests held by Administrative Lender
hereunder may be transferred or assigned, in whole or in part, in accordance
with the Credit Agreement, without the consent of Pledgor.

5.07. NOTICES AND DELIVERIES.

(a) MANNER OF DELIVERY. All notices, communications and materials to
be given or delivered pursuant to this Agreement shall, except in those cases
where giving notice by telephone is expressly permitted, be given or delivered
in writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender or Pledgor has acted in reliance on such telephonic
notice.

(b) ADDRESSES. All notices, communications and materials to be given
or delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:

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<PAGE>

(i) if to Pledgor, to it at:

La Quinta Realty Corp.
112 East Pecan Street
San Antonio, Texas 78205

Attention: President

(ii) if to Administrative Lender, to it at:

NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202

Attention: Mr. Douglas E. Hutt

or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address."

c) EFFECTIVENESS. Each notice, communication and any material to be
given or delivered to Administrative Lender or Pledgor pursuant to this
Agreement shall be effective or deemed delivered or furnished (i) if sent by
mail, on the third Business Day after such notice, communication or material is
deposited in the mail, addressed as above provided, (ii) if sent by telecopier,
when such notice, communication or material is transmitted to the appropriate
number determined as above provided in this SECTION 5.07 and the appropriate
receipt is received or otherwise acknowledged, (iii) if sent by hand delivery or
overnight courier, when left at the address of the addressee addressed as above
provided, and (iv) if given by telephone, when communicated to the individual or
any member of the department specified as the individual or department to whose
attention notices, communications and materials are to be given or delivered
except that notices of a change of address, telecopier or telephone number or
individual or department to whose attention notices, communications and
materials are to be given or delivered shall not be effective until received.

5.08. MODIFICATIONS. No provision hereof shall be modified, waived, or
limited except by a written agreement expressly referring hereto and to the
provisions so modified or limited and signed by Administrative Lender (with the
consent of Determining Lenders) or all Secured Parties, as required by the
Credit Agreement, nor by course of conduct, usage of trade, or mercantile Law.

5.09. FINANCING STATEMENT. A carbon, photographic, or other
reproduction of this Agreement or any financing statement covering the
Collateral shall be sufficient as a financing statement. Pledgor hereby
authorizes Administrative Lender to file one or more financing or

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<PAGE>

continuation statements, and amendments thereto, relating to any Collateral,
without the signature of Pledgor where permitted by Law.

5.11. SEVERABILITY. If any provision of any Loan Paper is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.

5.12. COUNTERPARTS. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.

5.13. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS OTHERWISE DEFINED
HEREIN OR IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED
HEREIN AS THEREIN DEFINED.

5.14. WAIVER OF SUBROGATION. Pledgor shall not assert, enforce, or
otherwise exercise (a) any right of subrogation to any of the Rights or Liens of
Administrative Lender or any Secured Party or any other Person against any
Borrower or any other Obligor on all or any part of the Obligations or any
collateral or other security, or (b) any right of recourse, reimbursement,
contribution, indemnification, or similar Right against any Borrower or any
other Obligor on all or any part of the Obligations or any collateral or any
security, and Pledgor hereby waives any and all of the foregoing Rights and the
benefit of, and any Right to participate in, any collateral or other security
given to Administrative Lender or any Secured Party or any other Person to
secure payment of the Obligations, however any such Rights arise, whether
hereunder or any other Loan Paper or by operation of Law. The provisions of
this SECTION 5.14 shall survive the termination of this Agreement, and any
satisfaction and discharge of any Borrower and each other Obligor by virtue of
any payment, court order, or Law.

5.15. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE

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<PAGE>

PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

IN WITNESS WHEREOF, Pledgor and Administrative Lender have executed this
Pledge Agreement as of the date first set forth above.

LA QUINTA REALTY CORP.

By: _____________________________________
Title:_______________________________

NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender

By:______________________________________
__________________,___________________
(Print Name) (Print Title)

<PAGE>

Schedule 1
to
Pledge Agreement

CERTIFICATE NUMBER AND
ISSUER NUMBER(S) CLASS OF INTERESTS

La Quinta Motor Inns Limited ____ limited partnership units
Partnership

==================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.
==================================================

<PAGE>

EXHIBIT J

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PLEDGE AGREEMENT

dated as of January 25, 1994

Between

LQI ACQUISITION CORPORATION
as Pledgor

and

NATIONSBANK OF TEXAS, N.A.
as Administrative Lender

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS

PAGE

ARTICLE I. PLEDGE.

1.01. PLEDGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. DESCRIPTION OF OBLIGATIONS. . . . . . . . . . . . . . . . . . 2

ARTICLE II. REPRESENTATIONS AND WARRANTIES.

2.01. REPRESENTATIONS AND WARRANTIES CONCERNING PLEDGOR . . . . . . 2
2.02. REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL. . . . . 2

ARTICLE III. COVENANTS.

ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER.

ARTICLE V. MISCELLANEOUS.

<PAGE>

5.04. RELEASE OF COLLATERAL AND LIENS; TERMINATION. . . . . . . . . 10
5.05. RATE PROVISION. . . . . . . . . . . . . . . . . . . . . . . . 11
5.06. PARTIES BOUND . . . . . . . . . . . . . . . . . . . . . . . . 11
5.07. NOTICES AND DELIVERIES. . . . . . . . . . . . . . . . . . . . 11
(a) MANNER OF DELIVERY . . . . . . . . . . . . . . . . . . . 11
(b) ADDRESSES. . . . . . . . . . . . . . . . . . . . . . . . 11
(c) EFFECTIVENESS. . . . . . . . . . . . . . . . . . . . . . 12
5.08. MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . 12
5.09. FINANCING STATEMENT . . . . . . . . . . . . . . . . . . . . . 12
5.11. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13. GOVERNING LAW; TERMS. . . . . . . . . . . . . . . . . . . . . 13
5.14. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . 13
5.15. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 13

<PAGE>

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT is dated as of January 25, 1994, and made by LQI
Acquisition Corporation, a Delaware corporation ("PLEDGOR"), in favor of
NationsBank of Texas, N.A., a national banking association, as Administrative
Lender ("ADMINISTRATIVE LENDER"), for NationsBank of Texas, N.A., and each other
lender a party to the Credit Agreement described below (singly, a "SECURED
PARTY" and collectively, the "SECURED PARTIES").

RECITALS:

(2) Pledgor owns all of the limited partnership interests of La Quinta
Motor Inns Limited Partnership, a Delaware limited partnership (the
"PARTNERSHIP").

(3) It is a requirement to the effectiveness of the Credit Agreement that
the parties execute and deliver this Agreement.

(4) It is the intention of the parties hereto that this Agreement create a
first priority security interest securing the payment of the obligations set
forth in SECTION 1.02 hereof.

AGREEMENT.

ARTICLE I. PLEDGE.

<PAGE>

defined below). Unless otherwise defined in this Agreement, terms used herein
shall have the meanings set forth in the Credit Agreement.

ARTICLE II. REPRESENTATIONS AND WARRANTIES.

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<PAGE>

restriction or similar agreement (except as set forth in the partnership
agreement); (e) no effective financing statement or other similar document used
to perfect and preserve a security interest under the Laws of any jurisdiction
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed in favor of Administrative Lender relating to
this Agreement; (f) the partnership interests pledged hereunder are duly
authorized, validly issued, fully paid, and non-assessable (except for capital
calls and other obligations set forth in the partnership agreement); (g) the
pledge, assignment, and delivery of the Collateral hereunder, and filing of an
appropriate financing statement, create a valid first and prior perfected
security interest in the Collateral, securing the Obligations; (h) no unpaid
capital call or dispute exists with respect to any of the Collateral; and (i)
the Collateral owned by Pledgor represents 100% of the authorized, issued and
outstanding limited partnership interests of the Partnership. The delivery at
any time by Pledgor to Administrative Lender of Collateral shall constitute a
representation and warranty by Pledgor under this Agreement that, with respect
to such Collateral, Pledgor is the sole legal and beneficial owner of the
Collateral, and that the matters set forth in this SECTION 2.02 are true and
correct with respect to such Collateral.

ARTICLE III. COVENANTS.

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<PAGE>

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<PAGE>

3.09. DISPOSITION OF COLLATERAL. No Collateral may be sold, leased, or
otherwise disposed of by Pledgor in any manner.

-5-

<PAGE>

-6-

<PAGE>

ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER.

4.01. REMEDIES UPON DEFAULT. Administrative Lender, during the
continuance of an Event of Default and without liability to Pledgor, may without
notice or demand: obtain from

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<PAGE>

-8-

<PAGE>

the Obligations shall be applied to the Obligations in such order and in such
manner consistent with applicable Law as Administrative Lender in its discretion
shall decide.

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<PAGE>

ARTICLE V. MISCELLANEOUS.

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<PAGE>

5.07. NOTICES AND DELIVERIES.

-11-

<PAGE>

(i) if to Pledgor, to it at:

LQI Acquisition Corporation
112 East Pecan Street
San Antonio, Texas 78205

Attention: President

(ii) if to Administrative Lender, to it at:

NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202

Attention: Mr. Douglas E. Hutt

(c) EFFECTIVENESS. Each notice, communication and any material to be
given or delivered to Administrative Lender or Pledgor pursuant to this
Agreement shall be effective or deemed delivered or furnished (i) if sent by
mail, on the third Business Day after such notice, communication or material is
deposited in the mail, addressed as above provided, (ii) if sent by telecopier,
when such notice, communication or material is transmitted to the appropriate
number determined as above provided in this SECTION 5.07 and the appropriate
receipt is received or otherwise acknowledged, (iii) if sent by hand delivery or
overnight courier, when left at the address of the addressee addressed as above
provided, and (iv) if given by telephone, when communicated to the individual or
any member of the department specified as the individual or department to whose
attention notices, communications and materials are to be given or delivered
except that notices of a change of address, telecopier or telephone number or
individual or department to whose attention notices, communications and
materials are to be given or delivered shall not be effective until received.

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<PAGE>

continuation statements, and amendments thereto, relating to any Collateral,
without the signature of Pledgor where permitted by Law.

-13-

<PAGE>

PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

IN WITNESS WHEREOF, Pledgor and Administrative Lender have executed this
Pledge Agreement as of the date first set forth above.

LQI ACQUISITION CORPORATION

By: _____________________________________
Title:_______________________________

NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender

By:______________________________________
__________________,___________________
(Print Name) (Print Title)

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<PAGE>

Schedule 1
to
Pledge Agreement

CERTIFICATE NUMBER AND
ISSUER NUMBER(S) CLASS OF INTERESTS
------ ----------- ------------------
La Quinta Motor Inns Limited ____ limited partnership units
Partnership

==================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.
==================================================

<PAGE>
EXHIBIT K

GUARANTY

This Guaranty, dated as of January 25, 1994 (this "GUARANTY"), is made by
LQ-Big Apple Joint Venture, a Texas joint venture ("GUARANTOR").

BACKGROUND.

3. It is a condition precedent to the obligation of Lenders to make such
Advances and issue, or participate in the issuance of, Letters of Credit and
Bond Letters of Credit that Guarantor guarantee repayment thereof upon the terms
and conditions set forth herein.

4. The Board of Directors of Company, the sole managing general partner
of Guarantor, has determined that the execution, delivery, and performance of
this Guaranty is necessary and convenient to the conduct, promotion, and
attainment of Guarantor's business.

AGREEMENT.

1. GUARANTY.

<PAGE>

Agreement, the Notes, any other Loan Paper, and any and all renewals and
extensions thereof, or any part thereof, or future amendments thereto, whether
for principal, interest (including, without limitation, interest, fees and other
charges that would accrue or become owing both prior to and subsequent to and
but for the commencement of any proceeding against or with respect to Company or
any other Obligor under any chapter of the Bankruptcy Code of 1978, 11 U.S.C.
Section 101 ET SEQ. whether or not a claim is allowed for the same in any such
proceeding), premium, fees, commissions, expenses or otherwise (such obligations
being the "OBLIGATION"), and agrees to pay any and all reasonable expenses
(including reasonable counsel fees and expenses) incurred in enforcement or
collection of all or any part thereof, whether such obligations, indebtedness
and liabilities are direct, indirect, fixed, contingent, joint, several or joint
and several, and any rights under this Guaranty.

(b) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of Guarantor hereunder shall be limited to
a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States
Code or any applicable provisions of comparable state law (collectively,
the "FRAUDULENT TRANSFER LAWS"), in each case after giving effect to all
other liabilities of Guarantor, contingent or otherwise, that are relevant
under the Fraudulent Transfer Laws (specifically excluding, however, any
liabilities of Guarantor in respect of intercompany indebtedness to
Company, other Affiliates of Company or other Obligors to the extent that
such indebtedness would be discharged in an amount equal to the amount paid
by Guarantor hereunder) and after giving effect as assets, subject to
PARAGRAPH 4(a) hereof, to the value (as determined under the applicable
provisions of Fraudulent Transfer Laws) of any rights to subrogation or
contribution of Guarantor pursuant to (i) Applicable Law or (ii) any
agreement providing for an equitable allocation among Guarantor and other
Obligors of obligations arising under guaranties by such parties.

(a) the taking or accepting of any other security or guaranty for any
or all of the Obligation;

-2-

<PAGE>

(b) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligation, including any reduction or
termination of the Commitments;

(d) any lack of corporate, partnership or other power of Company or
any other Obligor;

(e) any Debtor Relief Law involving Company, Guarantor or any other
Obligor;

(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or Administrative
Lender to Company or any other Obligor; or any other modification,
amendment, or waiver of or any consent to departure from the Credit
Agreement, the Notes, or any other Loan Paper or other agreement or
instrument relating thereto without notification of Guarantor (the right to
such notification being herein specifically waived by Guarantor);

(h) any release or amendment or waiver of or consent to departure
from any other guaranty for all or any of the Obligation;

-3-

<PAGE>

this Guaranty, the Loan Papers, the transactions contemplated thereby, or
any other transaction;

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of Company, any other Obligor or otherwise, all as
though such payment had not been made.

3. WAIVER. To the extent not prohibited by Applicable Law, Guarantor
hereby waives: (a) promptness, protest, diligence, presentments, acceptance,
performance, demands for performance, notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation or incurrence of new or additional indebtedness, and any of
the events described in SECTION 2 and of any other occurrence or matter with
respect to any of the Obligation, this Guaranty or any of the other Loan Papers;
(b) any requirement that Administrative Lender or any Lender protect, secure,
perfect, or insure any Lien or security interest or any property subject thereto
or exhaust any right or take any action against Company or any other Person or
any collateral or pursue any other remedy in Administrative Lender's or any
Lender's power whatsoever; (c) any right to assert against Administrative Lender
or any Lender as a counterclaim, set-off or cross-claim, any counterclaim,
set-off or claim which it may now or hereafter have against Administrative
Lender, any Lender, Company or other Obligor; (d) any right to seek or enforce
any remedy or right that Administrative Lender or any Lender now has or may
hereafter have against Company, any other Obligor or any other Person (to the
extent permitted by Applicable Law); (e) any right to participate in any
collateral or any right benefiting Administrative Lender or Lenders in respect
of the Obligation; and (f) any right by which it might be entitled to require

-4-

<PAGE>

suit on an accrued right of action in respect of any of the Obligation or
require suit against Company or any other Person, whether arising pursuant to
Section 34.02 of the Texas Business and Commerce Code, as amended, Section
17.001 of the Texas Civil Practice and Remedies Code, as amended, Rule 31 of the
Texas Rules of Civil Procedure, as amended, or otherwise.

4. SUBROGATION AND SUBORDINATION.

-5-

<PAGE>

-6-

<PAGE>

at any time owing by such Lender or Administrative Lender to or for the credit
or the account of Guarantor against any and all of the obligations of Guarantor
now or hereafter existing under this Guaranty, irrespective of whether or not
such Lender or Administrative Lender shall have made any demand under this
Guaranty. Each Lender and Administrative Lender agrees promptly to notify
Guarantor after any such set-off and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application
or provide a defense to Guarantor's obligations under this Guaranty. The rights
of each Lender and Administrative Lender under this SECTION 10 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) which such Lender and Administrative Lender may have.

13. INFORMATION. Guarantor acknowledges and agrees that it shall have the
sole responsibility for obtaining from Company and each other Obligor such
information concerning Company's and each Obligor's financial condition or
business operations as Guarantor may require, and that neither Administrative
Lender nor any Lender has any duty at any time to disclose to Guarantor any
information relating to the business operations or financial conditions of
Company or any Obligor.

-7-

<PAGE>

15. WAIVER OF JURY TRIAL. GUARANTOR, ADMINISTRATIVE LENDER, AND LENDERS
HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS GUARANTY OR ANY OF THE
Loan Papers OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER ENTERING INTO THE CREDIT AGREEMENT.

-8-

<PAGE>

IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.

LQ-BIG APPLE JOINT VENTURE

By La Quinta Inns, Inc., its Partner
Address for Guarantor:

112 East Pecan
San Antonio, Texas 78205
By:_________________________________________
Name:____________________________________
Title:___________________________________

By La Quinta Investments, Inc., its Partner

By:_________________________________________
Name:____________________________________
Title:___________________________________

-9-
<PAGE>
EXHIBIT L

GUARANTY

This Guaranty, dated as of January 25, 1994 (this "GUARANTY"), is made by
LQ-LNL Limited Partnership, a Texas limited partnership ("GUARANTOR").

BACKGROUND.

3. It is a condition precedent to the obligation of Lenders to make such
Advances and issue, or participate in the issuance of, Letters of Credit and
Bond Letters of Credit that Guarantor guarantee repayment thereof upon the terms
and conditions set forth herein.

AGREEMENT.

1. GUARANTY.

<PAGE>

Agreement, the Notes, any other Loan Paper, and any and all renewals and
extensions thereof, or any part thereof, or future amendments thereto,
whether for principal, interest (including, without limitation, interest,
fees and other charges that would accrue or become owing both prior to and
subsequent to and but for the commencement of any proceeding against or
with respect to Company or any other Obligor under any chapter of the
Bankruptcy Code of 1978, 11 U.S.C. Section 101 ET SEQ. whether or not a
claim is allowed for the same in any such proceeding), premium, fees,
commissions, expenses or otherwise (such obligations being the
"OBLIGATION"), and agrees to pay any and all reasonable expenses (including
reasonable counsel fees and expenses) incurred in enforcement or collection
of all or any part thereof, whether such obligations, indebtedness and
liabilities are direct, indirect, fixed, contingent, joint, several or
joint and several, and any rights under this Guaranty.

(b) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of Guarantor hereunder shall be limited to
a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States
Code or any applicable provisions of comparable state law (collectively,
the "FRAUDULENT TRANSFER LAWS"), in each case after giving effect to all
other liabilities of Guarantor, contingent or otherwise, that are relevant
under the Fraudulent Transfer Laws (specifically excluding, however, any
liabilities of Guarantor in respect of intercompany indebtedness to
Company, other Affiliates of Company or other Obligors to the extent that
such indebtedness would be discharged in an amount equal to the amount paid
by Guarantor hereunder) and after giving effect as assets, subject to
PARAGRAPH 4(a) hereof, to the value (as determined under the applicable
provisions of Fraudulent Transfer Laws) of any rights to subrogation or
contribution of Guarantor pursuant to (i) Applicable Law or (ii) any
agreement providing for an equitable allocation among Guarantor and other
Obligors of obligations arising under guaranties by such parties.

(a) the taking or accepting of any other security or guaranty for any
or all of the Obligation;

-2-

<PAGE>

(b) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligation, including any reduction or
termination of the Commitments;

(d) any lack of corporate, partnership or other power of Company or
any other Obligor;

(e) any Debtor Relief Law involving Company, Guarantor or any other
Obligor;

(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or Administrative
Lender to Company or any other Obligor; or any other modification,
amendment, or waiver of or any consent to departure from the Credit
Agreement, the Notes, or any other Loan Paper or other agreement or
instrument relating thereto without notification of Guarantor (the right to
such notification being herein specifically waived by Guarantor);

(h) any release or amendment or waiver of or consent to departure
from any other guaranty for all or any of the Obligation;

-3-

<PAGE>

this Guaranty, the Loan Papers, the transactions contemplated thereby, or any
other transaction;

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of Company, any other Obligor or otherwise, all as
though such payment had not been made.

3. WAIVER. To the extent not prohibited by Applicable Law, Guarantor
hereby waives: (a) promptness, protest, diligence, presentments, acceptance,
performance, demands for performance, notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation or incurrence of new or additional indebtedness, and any of
the events described in SECTION 2 and of any other occurrence or matter with
respect to any of the Obligation, this Guaranty or any of the other Loan Papers;
(b) any requirement that Administrative Lender or any Lender protect, secure,
perfect, or insure any Lien or security interest or any property subject thereto
or exhaust any right or take any action against Company or any other Person or
any collateral or pursue any other remedy in Administrative Lender's or any
Lender's power whatsoever; (c) any right to assert against Administrative Lender
or any Lender as a counterclaim, set-off or cross-claim, any counterclaim,
set-off or claim which it may now or hereafter have against Administrative
Lender, any Lender, Company or other Obligor; (d) any right to seek or enforce
any remedy or right that Administrative Lender or any Lender now has or may
hereafter have against Company, any other Obligor or any other Person (to the
extent permitted by Applicable Law); (e) any right to participate in any
collateral or any right benefiting Administrative Lender or Lenders in respect
of the Obligation; and (f) any right by which it might be entitled to require

-4-

<PAGE>

4. SUBROGATION AND SUBORDINATION.

-5-

<PAGE>
6. COVENANTS. Guarantor hereby expressly assumes, confirms, and agrees
to perform, observe, and be bound by all conditions and covenants set forth in
the Credit Agreement, to the extent applicable to it, as if it were a signatory
thereto. Guarantor further covenants and agrees (a) punctually and properly to
perform all of Guarantor's covenants and duties under all other Loan Papers; (b)
from time to time promptly to furnish Administrative Lender with any information
or writings which Administrative Lender may request concerning this Guaranty;
and (c) promptly to notify Administrative Lender of any claim, action, or
proceeding affecting this Guaranty.

-6-

<PAGE>

-7-

<PAGE>

15. WAIVER OF JURY TRIAL. GUARANTOR, ADMINISTRATIVE LENDER, AND LENDERS
HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS GUARANTY OR ANY OF THE
Loan PaperS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER ENTERING INTO THE CREDIT AGREEMENT.

-8-

<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.

LQ-LNL LIMITED PARTNERSHIP

By La Quinta Inns, Inc., its Managing General Partner
Address for Guarantor:

112 East Pecan
San Antonio, Texas 78205
By:_______________________________________________
Name:
Title:

-9-
<PAGE>
EXHIBIT M

INITIAL COMMITMENT AMOUNT

LENDER AMOUNT
------ ------

NATIONSBANK OF TEXAS, N.A. Greater than or equal
to $50,000,000

CITICORP USA, INC. Greater than or equal
to $50,000,000

THE FROST NATIONAL BANK Greater than or equal
to $25,000,000 but
less than $50,000,000

TEXAS COMMERCE BANK NATIONAL ASSOCIATION Greater than or equal
to $25,000,000 but
less than $50,000,000

BANK OF SCOTLAND Greater than or equal
to $25,000,000 but
less than $50,000,000

CONTINENTAL BANK N.A. Greater than or equal
to $25,000,000 but
less than $50,000,000

BANK ONE, TEXAS, N.A. Greater than or equal
to $25,000,000 but
less than $50,000,000

U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION Greater than or equal
to $25,000,000 but
less than $50,000,000

FIRST INTERSTATE BANK OF TEXAS, N.A. Greater than $5,000,000
but less than $25,000,000

<PAGE>

EXHIBIT N

GUARANTY

This Guaranty, dated as of January 25, 1994 (this "GUARANTY"), is made by
LQ-East Irvine Joint Venture, a California general partnership ("GUARANTOR").

BACKGROUND.

3. It is a condition precedent to the obligation of Lenders to make such
Advances and issue, or participate in the issuance of, Letters of Credit and
Bond Letters of Credit that Guarantor guarantee repayment thereof upon the terms
and conditions set forth herein.

AGREEMENT.

1. GUARANTY.

<PAGE>

Agreement, the Notes, any other Loan Paper, and any and all renewals and
extensions thereof, or any part thereof, or future amendments thereto,
whether for principal, interest (including, without limitation, interest,
fees and other charges that would accrue or become owing both prior to and
subsequent to and but for the commencement of any proceeding against or
with respect to Company or any other Obligor under any chapter of the
Bankruptcy Code of 1978, 11 U.S.C. Section 101 ET SEQ. whether or not a
claim is allowed for the same in any such proceeding), premium, fees,
commissions, expenses or otherwise (such obligations being the
"OBLIGATION"), and agrees to pay any and all reasonable expenses (including
reasonable counsel fees and expenses) incurred in enforcement or collection
of all or any part thereof, whether such obligations, indebtedness and
liabilities are direct, indirect, fixed, contingent, joint, several or
joint and several, and any rights under this Guaranty.

(b) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of Guarantor hereunder shall be limited to
a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States
Code or any applicable provisions of comparable state law (collectively,
the "FRAUDULENT TRANSFER LAWS"), in each case after giving effect to all
other liabilities of Guarantor, contingent or otherwise, that are relevant
under the Fraudulent Transfer Laws (specifically excluding, however, any
liabilities of Guarantor in respect of intercompany indebtedness to
Company, other Affiliates of Company or other Obligors to the extent that
such indebtedness would be discharged in an amount equal to the amount paid
by Guarantor hereunder) and after giving effect as assets, subject to
PARAGRAPH 4(a) hereof, to the value (as determined under the applicable
provisions of Fraudulent Transfer Laws) of any rights to subrogation or
contribution of Guarantor pursuant to (i) Applicable Law or (ii) any
agreement providing for an equitable allocation among Guarantor and other
Obligors of obligations arising under guaranties by such parties.

(a) the taking or accepting of any other security or guaranty for any
or all of the Obligation;

-2-

<PAGE>

(b) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligation, including any reduction or
termination of the Commitments;

(d) any lack of corporate, partnership or other power of Company or
any other Obligor;

(e) any Debtor Relief Law involving Company, Guarantor or any other
Obligor;

(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or Administrative
Lender to Company or any other Obligor; or any other modification,
amendment, or waiver of or any consent to departure from the Credit
Agreement, the Notes, or any other Loan Paper or other agreement or
instrument relating thereto without notification of Guarantor (the right to
such notification being herein specifically waived by Guarantor);

(h) any release or amendment or waiver of or consent to departure
from any other guaranty for all or any of the Obligation;

-3-

<PAGE>

this Guaranty, the Loan Papers, the transactions contemplated thereby, or
any other transaction;

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of Company, any other Obligor or otherwise, all as
though such payment had not been made.

3. WAIVER. To the extent not prohibited by Applicable Law, Guarantor
hereby waives: (a) promptness, protest, diligence, presentments, acceptance,
performance, demands for performance, notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation or incurrence of new or additional indebtedness, and any of
the events described in SECTION 2 and of any other occurrence or matter with
respect to any of the Obligation, this Guaranty or any of the other Loan Papers;
(b) any requirement that Administrative Lender or any Lender protect, secure,
perfect, or insure any Lien or security interest or any property subject thereto
or exhaust any right or take any action against Company or any other Person or
any collateral or pursue any other remedy in Administrative Lender's or any
Lender's power whatsoever; (c) any right to assert against Administrative Lender
or any Lender as a counterclaim, set-off or cross-claim, any counterclaim,
set-off or claim which it may now or hereafter have against Administrative
Lender, any Lender, Company or other Obligor; (d) any right to seek or enforce
any remedy or right that Administrative Lender or any Lender now has or may
hereafter have against Company, any other Obligor or any other Person (to the
extent permitted by Applicable Law); (e) any right to participate in any
collateral or any right benefiting Administrative Lender or Lenders in respect
of the Obligation; and (f) any right by which it might be entitled to require

-4-

<PAGE>

4. SUBROGATION AND SUBORDINATION.

-5-

<PAGE>

-6-

<PAGE>

-7-

<PAGE>

-8-

<PAGE>

IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.

LQ-EAST IRVINE JOINT VENTURE

By La Quinta Inns, Inc., its Partner
Address for Guarantor:

112 East Pecan
San Antonio, Texas 78205
By:_________________________________________
Name: __________________________________
Title: __________________________________

By La Quinta Investments, Inc., its Partner

By:_________________________________________
Name:____________________________________
Title:___________________________________

-9-

<PAGE>

Schedule 1
to
Pledge Agreement

CERTIFICATE NUMBER AND
ISSUER NUMBER(S) CLASS OF INTERESTS

La Quinta Motor Inns Limited _____general partnership units
Partnership

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.]

<PAGE>

- -------------------------------------------------------------------------------

THIRD AMENDED AND RESTATED

MASTER COVENANT AGREEMENT

Dated as of

January 25, 1994

among

LA QUINTA INNS, INC.

and

THE BANKS LISTED HEREIN

- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS

Page

Section 1. Parties 1

Section 2. Background 1

Section 3. Definitions 1

Section 4. Business Covenants of La Quinta 12
4.1 MAINTENANCE OF PROPERTY, INSURANCE, ACCOUNTING PRACTICES,
CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 INSPECTION OF PROPERTIES AND BOOKS . . . . . . . . . . . . . . . . 12
4.3 RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 MERGER AND SALE OF ASSETS. . . . . . . . . . . . . . . . . . . . . 13
4.5 SENIOR DEBT TO CAPITALIZATION RATIO. . . . . . . . . . . . . . . . 14
4.6 CONTINGENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 14
4.7 INCURRENCE AND RETENTION OF DEBT . . . . . . . . . . . . . . . . . 15
4.8 INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.9 NOTICE OF LITIGATION . . . . . . . . . . . . . . . . . . . . . . . 15
4.10 TOTAL DEBT RATIO . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.11 CASH FLOW RATIO. . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.12 FIXED CHARGE COVERAGE RATIO. . . . . . . . . . . . . . . . . . . . 16
4.13 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . 16
4.14 OPERATING LEASES . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.15 LAND HELD FOR DEVELOPMENT AND LAND HELD FOR SALE . . . . . . . . . 17
4.16 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.17 ACCOUNTING CHANGES . . . . . . . . . . . . . . . . . . . . . . . . 17
4.18 AMENDMENT AND MODIFICATION OF SUBORDINATED DEBT DOCUMENTS. . . . . 18
4.19 LEASE-BACKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.20 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . 18
4.21 ERISA COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.22 BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.23 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.24 BANK DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.25 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . 20

Section 5. Information as to La Quinta 20
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS BY LA QUINTA. . . . . . . . 20
5.2 OFFICER'S CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . 22

Section 6. Default 23

<PAGE>

Section 7. Miscellaneous 23
7.1 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2 AMENDMENT, WAIVER, CONSENTS AND APPROVALS. . . . . . . . . . . . . 25
7.3 NOTICE OF DEFAULT ON BANK DEBT . . . . . . . . . . . . . . . . . . 25
7.4 CONFLICTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.5 PAYMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . 25
7.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.7 BINDING UPON SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . 25
7.8 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.9 TERMINATION AND EFFECTIVENESS OF THIS AGREEMENT. . . . . . . . . . 26
7.10 ADJUSTMENT OF PERCENTAGES. . . . . . . . . . . . . . . . . . . . . 26
7.11 EXCEPTIONS TO COVENANTS. . . . . . . . . . . . . . . . . . . . . . 26
7.12 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.13 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Exhibit A: Bank Debt
Exhibit B: Existing Investments
Exhibit C: Subsidiaries and Unincorporated Ventures Investments
Exhibit D: Existing Liens
Exhibit E: Guarantees and Contingent Obligations
Exhibit F: Confidentiality Agreement
Exhibit G: Significant Investments
Exhibit H: Investment Policy

<PAGE>
THIRD AMENDED AND RESTATED

LA QUINTA INNS, INC.

MASTER COVENANT AGREEMENT

SECTION 1. PARTIES.

This Third Amended and Restated Master Covenant Agreement ("Agreement") is
by and among La Quinta Inns, Inc., a Texas corporation ("La Quinta"),
NationsBank of Texas, N.A., The Frost National Bank, First Interstate Bank of
Texas, N.A., Citicorp USA, Inc., Texas Commerce Bank National Association
(successor to Texas Commerce Bank-San Antonio, N.A. through merger with and into
Texas Commerce Bank National Association), Bank of Scotland, Continental Bank
N.A., Bank One, Texas, N.A., and U.S. Bank of Washington, National Association,
and the other banks from time to time a party hereto pursuant to Section 7.13
(individually, a "Bank", collectively, the "Banks").

SECTION 2. BACKGROUND.

La Quinta and certain of the Banks are parties to a Second Amended and
Restated Master Covenant Agreement, dated as of June 15, 1993 (the "Prior Master
Covenant Agreement"), the effect of which is to incorporate the definitions,
provisions and covenants set forth therein into certain credit facilities that
La Quinta has with certain of the Banks.

La Quinta and the Banks desire to enter into this Agreement in order to
amend certain terms of, and restate in its entirety, the Prior Master Covenant
Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, La Quinta and the Banks agree as
follows:

SECTION 3. DEFINITIONS.

For purposes hereof, the terms defined in this Section 3 shall have the
following meanings, and the singular shall include the plural, and vice versa,
unless otherwise specifically required by the context (capitalized terms used
herein and not otherwise defined herein shall have the meaning given to such
terms in the Credit Agreement hereinafter defined):

"ADJUSTED CASH FLOW" means, for any period, determined in accordance with
GAAP on a Parent Company basis, the sum of (i) Adjusted EBITDA, minus (ii)
federal and state income tax expense, minus (iii) Net Interest Expense, minus
(iv) Maintenance Capital Expenditures, minus (v) Restricted Payments, in each
case for the four consecutive fiscal quarters preceding the date of
determination, minus (vi) Current Maturities determined for the four consecutive
fiscal quarters succeeding the date of determination.

<PAGE>

"ADJUSTED EBITDA" means, for any period, determined in accordance with GAAP
and computed on a Parent Company basis for La Quinta and its Subsidiaries, the
sum of (without duplication) (i) EBITDA, plus (ii) Net Cash Distributions.

"AFFILIATE" means, as applied to any Person, (i) any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person or (ii) any other Person that owns or controls 10% or more of any class
of equity securities of that Person or any of its Affiliates. For purposes of
this definition, "CONTROL" (including with correlative meanings, the terms
"CONTROLLING," "CONTROLLED BY," and UNDER COMMON CONTROL WITH"), as applied to
any Persons, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities or by contract or otherwise.

"AGREEMENT DATE" means the date of this Agreement.

"AUTHORIZED OFFICER" means any of the following officers of La Quinta:
President, Senior Vice President-Accounting & Administration, Senior Vice
President-Finance, Vice President & General Counsel or Vice President-Treasurer.

"BANK DEBT" means all obligations, indebtedness and liabilities, direct,
contingent or otherwise (including through participations), whether funded or
unfunded, of La Quinta to any Bank listed on Exhibit A attached hereto and made
a part hereof (or any Assignee a party hereto pursuant to Section 7.13), arising
under and otherwise in connection with the loans and/or credit facilities
briefly described in EXHIBIT A, as modified to indicate adjustments of
percentages (and related amounts) from time to time as provided for in Sections
5.1(A)(2), 5.1(B)(3), 7.10 and 7.13 hereof, and all interest accruing on all or
any part thereof and attorneys' fees incurred in the enforcement or the
collection of all or any part thereof.

"CAPITAL EXPENDITURES" means, expenditures for the purchase of tangible
assets of long-term use which are capitalized in accordance with GAAP.

"CAPITAL LEASES" mean all capital leases and subleases, as defined in the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 13, dated November 1976, as amended.

"CAPITAL STOCK" means, with respect to any Person, any capital stock,
partnership or joint venture interests of such Person and shares, interests,
participations or other ownership interests (however designated) of any Person
and any rights (other than debt securities convertible into corporate stock),
warrants or options to purchase any of the foregoing.

"COMBINED" includes, with respect to financial statements and the
calculations of the covenants herein and the definitions related thereto, the
combined accounts of La Quinta and its Subsidiaries and Unincorporated Ventures
which are included in La Quinta's Annual Report

<PAGE>

to Shareholders and in La Quinta's Form 10-K filed with the S.E.C. (the
"COMBINED FINANCIAL STATEMENTS").

"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of June
15, 1993, among La Quinta, the Banks and NationsBank of Texas, N.A., as
Administrative Lender, as amended, supplemented, modified or restated from time
to time.

"CURRENT MATURITIES" means, with respect to any Person, the principal
portion payable by such Person on Long Term Debt during the twelve-month period
immediately succeeding the date of determination.

"DEBT" of any Person means, at any date, without duplication, all
obligations, contingent or otherwise, (i) of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (ii) of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services (other
than accounts payable or other obligations arising in the ordinary course of
business), if and to the extent any of the foregoing described in clauses (i),
(ii) and (iii) would appear as a liability on the balance sheet of such Person,
(iv) of such Person in respect of bankers' acceptances, letters of credit or
other similar instruments (or reimbursement obligations with respect thereto),
(v) of such Person under Capital Leases, (vi) all liabilities secured by a Lien
on any asset of such Person to the extent of the value of such asset, whether or
not such liability is an obligation of such Person, (vii) all liability of
others guaranteed by such Person (but only to the extent of such guarantees),
(viii) to the extent not otherwise included, obligations of such Person under
currency risk-hedging agreements and Interest Rate Agreements, (ix) the
liquidation preference and any mandatory redemption payment obligations (without
duplication) of such Person's Subsidiaries in respect of preferred stock issued
by any such Subsidiary, (x) in the case of such Person, the liquidation
preference and any mandatory redemption payment obligations (without
duplication) in respect of Disqualified Capital Stock and (xi) unfunded vested
benefits under any Plan to the extent in excess of minimum funding requirements
under Applicable Law. "Debt" shall exclude on a Parent Company basis, but shall
include on a Combined basis, (i) any obligation of an Unincorporated Venture of
such Person and (ii) any obligation of such Person arising solely by virtue of
such Person being a general partner or venturer of any Unincorporated Venture.

"DEFAULT" means any default with respect to any Bank Debt which would
permit the acceleration of such Bank Debt, whether or not there has been
satisfied any requirement in connection with such event for the giving of
notice, or the lapse of time, or the happening of any further condition, event
or act.

"DISQUALIFIED CAPITAL STOCK" means with respect to any Person any series or
class of Capital Stock of such Person which is or may be required to be
redeemed, in whole or in part, or may be put to such Person or any of its
Subsidiaries, in whole or in part, at the option of the holder thereof, on or
prior to the final maturity of the Senior Subordinated Notes, or is or may be
convertible or exchangeable into or exercisable for such Capital Stock on or
prior to the final

<PAGE>

maturity of the Senior Subordinated Notes; PROVIDED, that Capital Stock will not
be deemed to be Disqualified Capital Stock if it may only be so redeemed or put
solely in consideration of Qualified Capital Stock.

"EBIT" means, for any period, determined in accordance with GAAP and
computed on both a Parent Company basis and on a Combined basis, with respect to
La Quinta, its Subsidiaries and Unincorporated Ventures, as appropriate, the sum
of (i) Operating Income, plus (ii) nonrecurring, non-cash charges which decrease
Operating Income minus (iii) nonrecurring credits which are included in
Operating Income.

"EBITDA" means, for any period, determined in accordance with GAAP and
computed on both a Parent Company basis and on a Combined basis for La Quinta,
its Subsidiaries and Unincorporated Ventures, as appropriate, the sum of (i)
EBIT plus (ii) depreciation, amortization and non-cash fixed asset retirements.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"EVENT OF DEFAULT" means any default with respect to any Bank Debt which
would permit the acceleration of such Bank Debt, provided there has been
satisfied any requirement in connection with such event for the giving of
notice, or the lapse of time, or the happening of any further condition, event
or act.

"EXISTING INVESTMENTS" means those Investments described on EXHIBIT B
hereto.

"GAAP" means generally accepted accounting principles , set forth in the
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the Financial Accounting
Standards Board, which are applicable in the circumstances as of the date in
question and which shall be applied by the independent accounting firm which
certifies La Quinta's Combined Financial Statements and Parent Company financial
statements, and the requisite that such principles be applied on a consistent
basis shall mean that the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding period,
other than as a result of changes required by modifications to GAAP. Unless
otherwise indicated herein, all accounting terms will be defined according to
GAAP. Notwithstanding the foregoing, all determinations and computations with
respect to financial covenants and ratios provided for in this Agreement shall
be made in accordance with GAAP as in effect on the date hereof.

"INTEREST EXPENSE" of any Person means, for any period, the aggregate
interest expense in respect of Debt (including amortization of original issue
discount and non-cash interest payments or accruals, and dividends on
Disqualified Capital Stock, but excluding amortization of Debt issuance costs)
of such Person and all commissions, discounts, other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and costs
associated with currency and Interest Rate Agreements, all in accordance with
GAAP; PROVIDED, that interest expense attributable to that portion of the Debt
of another Person that is a direct or indirect,

<PAGE>

contingent or primary, recourse obligation of such Person subsequent to the
Agreement Date shall be added thereto.

"INTEREST RATE AGREEMENTS" means any obligation of any Person under
interest rate exchange, collar, cap, swap or similar agreements providing
interest rate protection.

"INVESTMENT" means, in one or a series of related transactions, any direct
or indirect acquisition of all or substantially all assets of any Person, or any
direct or indirect purchase or other acquisition of, or beneficial interest in,
capital stock or other securities of any other Person, or any direct or indirect
loan, advance (other than advances to employees for moving and travel expenses,
drawing accounts and similar expenditures in the ordinary course of business) or
capital contribution or transfer of property, assets or value to, or investment
in, any other Person, including, without limitation the incurrence or sufferance
of Debt or the purchase of accounts receivable by any other Person that are not
current assets or do not arise in the ordinary course of business.

"INVESTMENT POLICY" shall mean that certain Amended and Restated La Quinta
Inns, Inc. Statement of Investment Policy as of October 1989 in effect on the
date of this Agreement as set forth as EXHIBIT H hereto.

"LAND HELD FOR DEVELOPMENT" means that certain land of La Quinta, its
Subsidiaries and Unincorporated Ventures which is held for the future
development of inns and related facilities and which is identified on the Parent
Company financial statements as "Land Held for Development."

"LAND HELD FOR SALE" means that certain land of La Quinta, its Subsidiaries
and Unincorporated Ventures which is held for sale and which is identified on
the Parent Company financial statements as "Land Held for Sale."

"LIEN" means, with respect to any property, any mortgage, lien, pledge,
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.

"LONG TERM DEBT" means any obligation which is due one year or more from
the date of creation thereof which under GAAP is shown as a liability, plus
(without duplication) amounts equal to the aggregate net rentals (after making
allowances for any interest, taxes or other expenses included therein) payable
more than one year from the date of creation thereof under Capital Leases.

"MAINTENANCE CAPITAL EXPENDITURES" means, computed on both a Parent Company
basis and a Combined basis, an amount equal to the product of room revenues (as
disclosed in the Parent Company financial statements and the Combined Financial
Statements) of La Quinta, its

<PAGE>

Subsidiaries and Unincorporated Ventures, as appropriate, multiplied by 5%,
calculated for the four consecutive fiscal quarters immediately preceding the
date of such determination.

"MATERIAL ADVERSE EFFECT" shall have the meaning given to such term in the
Credit Agreement.

"MATERIAL AMOUNT" shall have the meaning given to such term in the Credit
Agreement.

"MORTGAGE DEBT" means, with respect to any Person, Debt of such Person
which is secured, directly or indirectly, by a Lien on real property of such
Person, which Debt is incurred solely for the purpose of financing the
acquisition of such real property and incurred at the time of acquisition.

"NET CASH DISTRIBUTIONS" means, for any period for La Quinta and its
Subsidiaries on a Parent Company basis, the lesser of (i) equity of La Quinta in
the aggregate earnings and losses of Unincorporated Ventures and (ii) capital
distributions from Unincorporated Ventures to La Quinta and its Subsidiaries.

"NET CASH PROCEEDS" means the aggregate amount of cash received by La
Quinta on a Parent Company basis in respect of (i) any sale, lease or other
disposition of an asset, less the sum of (a) all fees, commissions and other
expenses incurred in connection with such sale, including the amount (estimated
in good faith by La Quinta) of income, franchise, sales and other applicable
taxes required to be paid by La Quinta in connection with such sale and (b) the
aggregate amount of cash so received which is used to retire any existing Debt
of La Quinta which is required to be repaid in connection with such sale, and
(ii) any payments received in respect of any notes receivable listed on EXHIBIT
B hereto.

"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, as determined in accordance with
GAAP.

"NET INTEREST EXPENSE" means, with respect to any Person for any period,
the sum of (i) Interest Expense of such Persons for such period minus (ii)
interest income of such Person for such period.

"NET WORTH" means (i) on a Combined Basis, an amount equal to the sum of
(a) the Capital Stock and additional paid-in-capital plus retained earnings (or
minus accumulated deficit) of La Quinta and its Subsidiaries and (b) Partners'
Capital, less amounts attributable to the extent included, (1) to any write-up
in book value of assets resulting from a revaluation thereof subsequent to
December 31, 1992, (2) to Disqualified Capital Stock, and (3) to treasury stock,
all in accordance with GAAP and (ii) on a Parent Company Basis, an amount equal
to the Capital Stock and additional paid-in-capital plus retained earnings (or
minus accumulated deficit) of La Quinta and its Subsidiaries, less amounts
attributable to the extent included, (a) to any write-up in book value of assets
resulting from a revaluation thereof subsequent to December 31, 1992, (2) to
Disqualified Capital Stock, all in accordance with GAAP and (3) to treasury
stock.

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"OFFICER'S CERTIFICATE" means a certificate signed in the name of La Quinta
by an Authorized Officer.

"OPERATING INCOME" means, with respect to any Person for any period, the
operating income (loss) of such Person, as determined in accordance with GAAP.

"OPERATING LEASE" means any operating lease, as defined in the Financial
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.

"PARENT COMPANY" includes, with respect to financial statements and the
calculations of the covenants herein and the definitions related thereto, the
uncombined, consolidated financial statements of La Quinta and its Subsidiaries,
including equity method investments, as defined by GAAP, in Unincorporated
Ventures, and designated "La Quinta Inns, Inc. (Parent Company and Wholly-Owned
Subsidiaries)" on La Quinta's audit report.

"PARTNERS' CAPITAL" means the equity in the net assets of Unincorporated
Ventures of all the partners or venturers (other than La Quinta or a Subsidiary)
of such Unincorporated Ventures, or minority interest holders, as determined in
accordance with GAAP.

"PERMITTED COLLATERAL LIENS" shall mean only those Liens described in
clauses (i), (ii), (iii), (iv), (v), (ix), (x), (xi) and (xii) of the definition
of "Permitted Liens".

"PERMITTED INVESTMENT" means Investments in (i) wholly-owned Subsidiaries
(a) that are subject to the provisions of this Agreement, (b) that concurrently
therewith unconditionally guarantee the performance of La Quinta's obligations
under the Bank Debt and (c) that concurrently deliver to the Banks (1) an
opinion acceptable to the Banks with respect to the validity and enforceability
of such guarantee and (2) such other documents, such as corporate resolutions,
certificates of incumbency, by-laws and articles of incorporation, as the Banks
shall reasonably require, (ii) Investments in any Person other than a wholly-
owned Subsidiary in any one or a series of related transactions with a fair
market value not in excess of $15,000,000, (iii) Investments for the purpose of
satisfying La Quinta's or any Subsidiary's guarantee obligations with respect to
the Debt of any Person in which La Quinta or any Subsidiary owned any interest
and which obligation was in existence as of the Agreement Date, provided, that
any such Investment pursuant to this clause (iii) shall be deducted from the
amount described in clause (ii) of Section 4.3 hereof; (iv) Investments in
Subsidiaries and Unincorporated Ventures made in the ordinary course of
business, consistent with past practices for the purpose of providing for the
day to day operating requirements of such Subsidiary or Unincorporated Venture,
PROVIDED, that such Investments shall (a) not be used for acquisition or
conversion of any inns and (b) be evidenced by a note or other evidence of
indebtedness and (c) not at any time exceed $10,000,000 in aggregate principal
amount, (v) Investments permitted by Sections II.B., II.C. (provided that,
notwithstanding Section II.C.3. of the Investment Policy, Banks shall be
required to have at least $150,000,000 in capital and surplus), II.E. and II.H.
of the Investment Policy, (vi) loans or advances to employees as compensation
for services in the

<PAGE>

ordinary course of business not in excess of $2,000,000 aggregate principal
amount, (vii) Investments in the ordinary course of business, consistent with
past practice, in La Quinta Inns' National Advertising Fund, (viii) Investments
in notes payable by La Quinta Development Partners, L.P., a limited partnership
between La Quinta and AEW Partners, L.P., to the order of La Quinta in an
aggregate principal amount not in excess of $8,000,000 for the purpose of
refinancing three inns which are financed, as of the Agreement Date, by CIGNA
Investments, Inc., provided that La Quinta shall obtain and continue to hold a
perfected first Lien on (subject to Permitted Liens) such three inns, (ix)
Existing Investments, (x) Investments in Capital Stock of Subsidiaries and
Unincorporated Ventures listed on EXHIBIT C hereto for the purpose of acquiring
no less than 100% of the capital stock or partnership interests, as appropriate,
of such Subsidiaries and Unincorporated Ventures, (xi) Investments in notes
payable to La Quinta as a result of the sale of inns in an aggregate principal
amount not in excess of $10,000,000, provided that La Quinta shall obtain and
continue to hold a perfected first Lien (subject to Permitted Liens) in such
inns, and (xii) Investments in any Person if at the time of such Investment La
Quinta (a) designates such Investment as being pursuant to this clause (xii) and
(b) could make a Restricted Payment pursuant to Section 4.3 hereof and the
Investment is not in excess of the amount La Quinta could then pay as a
Restricted Payment. For purposes of the calculation of the amount of any
Investments permitted hereunder, Investments will be calculated at all times at
the amount of the original Investment with no reduction for write-offs or write-
downs. No Investment which is a Permitted Investment other than pursuant to
clause (ii) of the definition of "Permitted Investments" shall reduce the amount
of Investments permitted pursuant to such clause (ii).

"PERMITTED LIENS" shall mean, as applied to any Person:

(i) any Lien in favor of any Bank or a trustee on its behalf to
secure the Bank Debt;

(ii) (a) Liens on real estate for real estate taxes not yet
delinquent, (b) Liens created by lease agreements to secure the payments of
rental amounts and other sums not yet due thereunder, (c) Liens on leasehold
interests created by the lessor in favor of any mortgagee of the leased
premises, and (d) Liens for taxes, assessments, governmental charges, levies or
claims that are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on such
Person's books, but only so long as no foreclosure, restraint, sale or similar
proceedings have been commenced with respect thereto;

(iii) Liens of carriers, warehousemen, mechanics, laborers and
materialmen and other similar Liens incurred in the ordinary course of business
for sums not yet due or being contested in good faith, if such reserve or
appropriate provision, if any, as shall be required by GAAP shall have been made
therefor;

(iv) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or similar legislation;

<PAGE>

(v) Easements, rights-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person;

(vi) Liens created to secure the purchase price of fixed assets
acquired by such Person, which is incurred solely for the purpose of financing
the acquisition of such assets and incurred at the time of acquisition, so long
as each such Lien shall at all times be confined solely to the asset or assets
so acquired (and proceeds thereof), and refinancings thereof so long as any such
Lien remains solely on the asset or assets acquired and the amount of Debt
related thereto is not increased;

(vii) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (a) such Person shall have established adequate reserves for such
judgments or awards, (b) such judgments or awards shall be fully insured and the
insurer shall not have denied coverage, or (c) such judgments or awards shall
have been bonded to the satisfaction of the Banks;

(viii) Any Liens existing on the Agreement Date which are described on
EXHIBIT D hereto, and Liens resulting from the refinancing of the related Debt,
provided that the Debt secured thereby shall not be increased and the Liens
shall not cover additional assets of the Borrower;

(ix) any obligations or duties, affecting any property, to any
municipality or public authority with respect to any franchise, grant, license
or permit which do not materially impair the use of any material property for
the purposes for which such property is held by such Person;

(x) zoning laws or ordinances and municipal regulations which do not
materially impair the use of any material property for the purposes for which
such property is held by such Person;

(xi) Liens, minor irregularities in or deficiencies of title on any
property which do not materially impair the use of any material property for the
purposes for which such property is held by such Person; and

(xii) Liens otherwise permitted or contemplated by the Loan Papers.

"PERSON" means and includes an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, and a government or any
department, tribunal, agency or political subdivision thereof.

"PBGC" means the Pension Benefit Guaranty Corporation, and any successor to
all or any of the Pension Benefit Guaranty Corporation's functions under ERISA.

<PAGE>

"PLAN" means any plan subject to Title IV of ERISA and maintained by La
Quinta or any Subsidiary, or any such plan to which La Quinta or any Subsidiary
or any Unincorporated Venture is required to contribute on behalf of all or any
of its employees; PROVIDED, HOWEVER, "Plan" shall not include those agreements
with former employees described on Schedule 7 of the Credit Agreement, the
obligations pursuant to which do not exceed $450,000 in aggregate amount.

"PURCHASE MONEY DEBT" means, with respect to any Person, Debt of such
Person which is secured, directly or indirectly, by a Lien on fixed assets of
such Person, which Debt is secured solely for the purpose of financing the
acquisition of such fixed assets and incurred at the time of acquisition.

"QUALIFIED CAPITAL STOCK" means any Capital Stock of La Quinta that is not
Disqualified Capital Stock.

"REPORTABLE EVENT" shall have the meaning specified in Title IV of ERISA.

"RESTRICTED PAYMENT" means, with respect to La Quinta, (i) any dividend or
other distribution on shares of Capital Stock of La Quinta, (ii) any payment
(including, without limitation, the setting aside of assets or the deposit of
funds therefor) on account of the purchase, redemption or other acquisition or
retirement for value of (y) any shares of Capital Stock of La Quinta or (z) any
option, warrant or other right to acquire shares of such Capital Stock,
(iii) any payment or prepayment of principal, premium or penalty on any
Subordinated Debt or any defeasance, redemption, repurchase or other acquisition
or retirement for value, in whole or in part, of any Subordinated Debt of La
Quinta (including, without limitation, the setting aside of assets or the
deposit of funds therefor), (iv) any prepayment of interest on any Subordinated
Debt, and (v) a Permitted Investment pursuant to clause (xii) of the definition
of "Permitted Investments"; provided, however, that the term "Restricted
Payment" does not include (i) any dividend, distribution or other payment on
shares of Capital Stock of La Quinta solely in shares of Qualified Capital
Stock, or (ii) any defeasance, redemption, repurchase or other acquisition or
retirement for value, in whole or in part, of any Subordinated Debt of La Quinta
payable solely in shares of Qualified Capital Stock or Subordinated Debt of La
Quinta.

"S.E.C." means the United States Securities and Exchange Commission.

"SENIOR DEBT" means Total Debt of La Quinta, its Subsidiaries and
Unincorporated Ventures, as appropriate, other than (i) Subordinated Debt and
(ii) the aggregate face amount of Bond Letters of Credit outstanding.

"SENIOR DEBT TO CAPITALIZATION RATIO" means, at any time, determined in
accordance with GAAP and computed on both on a Parent Company basis and a
Combined basis with respect to La Quinta, its Subsidiaries and Unincorporated
Ventures, as appropriate, the ratio of (i) Senior Debt to (ii) the sum of (a)
Senior Debt, plus (b) Subordinated Debt, plus (c) Net Worth.

<PAGE>

"SENIOR SECURED DEBT" means, at any time, determined in accordance with
GAAP and computed on both a Parent Company basis and a Combined basis, Senior
Debt of La Quinta, its Subsidiaries and Unincorporated Ventures (other than the
aggregate outstanding principal amounts of the Term Loan Notes and the Revolving
Credit Notes), as appropriate, which is secured, directly or indirectly, by a
Lien.

"SENIOR SUBORDINATED NOTE" shall have the meaning given to such term in the
Credit Agreement.

"SIGNIFICANT INVESTMENTS" means those investments of La Quinta in the joint
ventures or partnerships set forth on EXHIBIT G hereto.

"SUBORDINATED DEBT" means any debt, obligation or liability (whether
primary, contingent or otherwise) of La Quinta, a Subsidiary or an
Unincorporated Venture which by its terms is subordinate in right of payment to
the Bank Debt, provided that the Banks approve the terms thereof prior to or at
the time of the issuance thereof.

"SUBSIDIARY" with respect to any Person, means a corporation at least a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person.

"SUBSIDIARY GUARANTY" shall have the meaning given to such term in the
Credit Agreement.

"TOTAL DEBT" means, with respect to any Person, determined on a Parent
Company or Combined basis, as appropriate, the sum, without duplication, of
(a) all Debt of such Person minus (b) all Debt of such Person of the type
described in (1) clauses (vi) and (vii) of the definition of "Debt" herein which
are set forth in EXHIBIT E hereto and (2) clauses (viii) and (ix) of the
definition of "Debt" herein, but excluding the aggregate face amount of all
outstanding Letters of Credit and Bond Letters of Credit (as each term is
defined in the Credit Agreement).

"TRIBUNAL" means any state, commonwealth, federal, foreign territorial, or
other court or governmental department, commission, board, bureau, agency or
instrumentality.

"UNINCORPORATED VENTURE" means any Person (other than a corporation) in
which La Quinta or a Subsidiary (i) has, directly or indirectly, an ownership
interest of at least 40% but less than 100% and (ii) exercises legal, financial
and operational control, and which is combined in La Quinta's Combined Financial
Statements.

"WEIGHTED AVERAGE LIFE OF MATURITY" means, as of the date of determination,
with respect to any security or instrument, the quotient obtained by dividing
(i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive

<PAGE>

scheduled principal payment of such debt instrument multiplied by the amount of
such principal payment by (ii) the sum of all such principal payments.

SECTION 4. BUSINESS COVENANTS OF LA QUINTA.

4.1 MAINTENANCE OF PROPERTY, INSURANCE, ACCOUNTING PRACTICES, CORPORATE
EXISTENCE. La Quinta covenants and agrees to, and will cause each Subsidiary
and Unincorporated Venture to:

(A) Maintain its material property in good condition and make all
necessary renewals, replacements, additions, betterments and improvements
thereto, consistent with sound business practice and as is customary in the case
of corporations or other entities of established reputation engaged in the same
or a similar business and similarly situated;

(B) Maintain, with financially sound and reputable insurers, or through
its own program of self-insurance, insurance with respect to its material
properties and business against such casualties and contingencies, of such
types, and in such amounts as is customary in the case of corporations or other
entities of established reputation engaged in the same or a similar business and
similarly situated;

(C) Keep books of record and accounts in which entries will be made of all
of its business transactions, and will reflect in it financial statements
adequate accruals and appropriations to reserves, all in accordance with GAAP;

(D) Do or cause to be done all things necessary to preserve and keep in
full force and effect its material rights;

(E) Do or cause to be done all things necessary to preserve and keep in
full force and effect its existence (except as may be specifically permitted by
this Agreement); and

(F) Cause to be paid and discharged all lawful taxes assessments and
governmental charges imposed from the income or profits of La Quinta, its
Subsidiaries and Unincorporated Ventures or upon any property belonging to La
Quinta, any Subsidiary or any Unincorporated Venture and (ii) all lawful claims,
whether for labor, materials, supplies, services or anything else, which have
become due and payable and which by law have or may become a Lien upon the
property of La Quinta or any of its Subsidiaries; or Unincorporated Ventures;
PROVIDED, HOWEVER, that La Quinta, its Subsidiaries and Unincorporated Ventures
shall not be required to cause to be paid or discharged any such tax assessment,
charge or claim so long as the amount, applicability or validity thereof shall
be contested in good faith by appropriate proceedings, and adequate book
reserves shall have been established to the extent required by GAAP with respect
thereto.

4.2 INSPECTION OF PROPERTIES AND BOOKS. La Quinta covenants and agrees
that it will permit, and will cause each Subsidiary and Unincorporated Venture
to permit, any Bank, upon

<PAGE>

(i) reasonable request, if such request is prior to the occurrence of a Default
or an Event of Default or (ii) request, if such request is after the occurrence
of a Default or an Event of Default, to any Authorized Officer, to visit and
inspect any of the properties of, to examine the books of account and records of
La Quinta, any Subsidiary or Unincorporated Venture and to take extracts
therefrom and to discuss the affairs, finances or accounts of La Quinta, any
Subsidiary or Unincorporated Venture, and to be advised as to the same by the
officers of La Quinta, at all such times during normal business hours, in such
detail and through such agents and representatives as such Bank may reasonably
desire.

4.3 RESTRICTED PAYMENTS. La Quinta covenants and agrees that it will not,
directly or indirectly, make any Restricted Payment, if, after giving effect
thereto on a pro forma basis, (i) a breach of any covenant hereunder (or event
or condition that, after notice or lapse of time or both, would result in a
breach of any covenant hereunder) would occur and be continuing, or (ii) the
aggregate amount of all Restricted Payments made by La Quinta, including such
proposed Restricted Payment (if not made in cash, then the fair market value of
any property used therefor, as determined in good faith by the Board of
Directors), from and after the Agreement Date, shall exceed the greater of (a)
$15,000,000 or (b) an amount equal to the sum of (1) 50% of Net Income of La
Quinta and its Subsidiaries on a Combined Basis accrued from January 1, 1994 to
and including the last day of the first fiscal quarter ended immediately prior
to the date of each calculation (or, in the event Net Income is deficit, then
minus 100% of such deficit), minus 100% of the amount of any write-downs, write-
offs, other negative evaluations and other negative extraordinary charges not
otherwise reflected in Net Income during such period, minus (2) the aggregate
amount of Permitted Investments made pursuant to clause (xii) of the definition
of Permitted Investments, plus (3) the aggregate Net Cash Proceeds received by
La Quinta during each fiscal year from the issuance or sale during such same
fiscal year (other than to a Subsidiary or an Unincorporated Venture) of its
Qualified Capital Stock from and after the Agreement Date, less the aggregate
amount of such Net Cash Proceeds designated for additional Capital Expenditures
pursuant to Section 4.13 hereof.

4.4 MERGER AND SALE OF ASSETS. (A) La Quinta covenants and agrees that it
will not, and will cause each Subsidiary and Unincorporated Venture to not,
directly or indirectly sell, transfer or otherwise dispose of any of its assets
(whether now owned or hereafter acquired, and including any interest in a joint
venture or partnership) except (i) sales of inventory or equipment in the
ordinary course of business, (ii) sales or disposition of assets (including the
sale or disposition of any ownership interest in a joint venture or partnership
but excluding the sale of inns otherwise permitted to be sold or disposed of
pursuant to clause (iii) immediately succeeding), during any fiscal year in an
aggregate amount for La Quinta, its Subsidiaries and Unincorporated Ventures
combined not to exceed $10,000,000 (determined at the greater of book or fair
market value), (iii) for La Quinta, its Subsidiaries and Unincorporated
Ventures combined, sales of no more than six (6) inns during each fiscal year,
(iv) sales or dispositions by La Quinta, its Subsidiaries or Unincorporated
Ventures of assets (including interests in partnerships and joint ventures)
pursuant to buy-sell rights contained in written agreements in existence on the
date of this Agreement in respect of any Significant Investments, and
(v) Existing Investments; and

<PAGE>

(B) La Quinta covenants and agrees that it will not, and will cause each
Subsidiary and Unincorporated Venture to not, merge into or consolidate with any
other Person; provided, however, if after giving effect to any such merger or
consolidation, (i) the business of La Quinta or any Subsidiary or Unincorporated
Venture, as appropriate, will not be materially changed and (ii) La Quinta or
any Subsidiary or Unincorporated Venture, as appropriate, will not be in default
in respect of any of the covenants contained in any material agreement,
including, without limitation, this Agreement, to which La Quinta or any
Subsidiary or Unincorporated Venture is a party or by which its property may be
bound,

(1) Any corporation, partnership or joint venture may merge or consolidate
with La Quinta, provided that La Quinta shall be the continuing and surviving
corporation,

(2) Any Subsidiary may merge with or consolidate with any corporation,
partnership or joint venture, provided that, unless such merger or consolidation
shall be with La Quinta, such Subsidiary shall be the continuing and surviving
corporation, and

(3) Any Unincorporated Venture may merge with or consolidate with any
corporation, partnership or joint venture, provided that, unless such merger or
consolidation shall be with La Quinta or a Subsidiary, such Unincorporated
Venture shall be the continuing and surviving person.

4.5 SENIOR DEBT TO CAPITALIZATION RATIO. La Quinta covenants and agrees
that the Senior Debt to Capitalization Ratio, on both a Parent Company basis and
a Combined basis, shall not be greater than (i) 0.55 to 1 at the end of any
fiscal quarter during the period from and including March 31, 1994 through and
including September 30, 1995 and (ii) .50 to 1 at the end of any fiscal quarter
thereafter.

4.6 CONTINGENT LIABILITIES. La Quinta covenants and agrees that it will
not, and will cause each Subsidiary and Unincorporated Venture to not,
guarantee, endorse, contingently agree to purchase, or otherwise become liable,
directly or indirectly, upon the obligation of or in connection with the
earnings, the assets, the stock, or the dividends of any other Person (other
than La Quinta or any Subsidiary), including obligations of La Quinta, each
Subsidiary and Unincorporated Venture arising solely by virtue of any of them
being a general partner or venturer of any Unincorporated Venture, except (i)
the obligations in respect of the written agreements described in Section
4.4(iv) hereof, (ii) the guarantees and other contingent obligations set forth
on EXHIBIT E hereto, (iii) endorsements in the ordinary course of business of
negotiable instruments for deposit or collection, (iv) guarantees of loans to
any employee; PROVIDED, THAT any such guaranty of an employee loan shall not
exceed the amount of $100,000 per employee, and the amount of such guaranties of
employee loans, together with the amount of Investments permitted pursuant to
clause (vi) of the definition of "Permitted Investments," shall not exceed, in
the aggregate, more than $2,000,000, and (v) guarantees and contingent
obligations incurred after the date of this Agreement not to exceed $1,000,000
in aggregate principal amount.

<PAGE>

4.7 INCURRENCE AND RETENTION OF DEBT. La Quinta covenants and agrees that
it will not, and will cause each Subsidiary and Unincorporated Venture to not,
incur, create, assume, or suffer to exist any Debt (other than Debt existing on
the Agreement Date) unless, immediately prior to, and after the incurrence of,
such Debt, La Quinta, its Subsidiaries and Unincorporated Ventures are and will
be in compliance with all covenants hereunder.

4.8 INVESTMENTS. La Quinta will not, and will cause each Subsidiary and
Unincorporated Venture to not, make or permit to remain any Investment other
than a Permitted Investment.

4.9 NOTICE OF LITIGATION. La Quinta covenants and agrees that it will,
and will cause each Subsidiary and Unincorporated Venture to, promptly give
notice in writing to its Banks (i) of any litigation to which La Quinta, any
Subsidiary or Unincorporated Venture becomes a party, if (A) the amount in
controversy exceeds $500,000 and (B) La Quinta's insurance carrier does not
acknowledge coverage with respect to such litigation, and (ii) of all
proceedings before any governmental or regulatory agencies (A) affecting or
potentially affecting the business or property of La Quinta, any Subsidiary or
Unincorporated Venture in an amount in excess of $500,000 or (B) materially
affecting the ability of La Quinta, any Subsidiary or Unincorporated Venture to
perform their respective covenants and obligations hereunder or under any Bank
Debt.

4.10 TOTAL DEBT RATIO. La Quinta covenants and agrees that it will not
allow, on a Parent Company basis, the ratio of (i) Total Debt to Adjusted EBITDA
minus Maintenance Capital Expenditures, in each case for the four consecutive
fiscal quarters immediately preceding the date of determination, to be greater
than (a) 5.25 to 1 at the end of any fiscal quarter through and including
September 30, 1994, (b) 5.00 to 1 at the end of any fiscal quarter during the
period from and including December 31, 1994 through and including September 30,
1995 and (c) 4.50 to 1 at the end of any fiscal quarter thereafter. La Quinta
covenants and agrees that it will not allow, on a Combined basis, the ratio of
(i) Total Debt to (ii) EBITDA minus Maintenance Capital Expenditures, in each
case for the four consecutive fiscal quarters immediately preceding the date of
determination, to be greater than (a) 4.75 to 1 at the end of any fiscal quarter
through and including December 31, 1994 and (b) 4.50 to 1 at the end of any
fiscal quarter thereafter. For purposes of this Section 4.10, with respect to
assets not owned at all times during the four consecutive quarters immediately
preceding the date of determination of EBITDA, there shall be (i) included in
EBITDA (without duplication) the EBITDA of any assets acquired during any such
four consecutive fiscal quarters immediately preceding the date of determination
and (ii) excluded from EBITDA the EBITDA of any asset disposed of during any
such four consecutive fiscal quarters immediately preceding the date of
determination.

4.11 CASH FLOW RATIO. La Quinta covenants and agrees that it will not
allow, on both a Parent Company basis and a Combined basis, the ratio of
(i) (a) Adjusted EBITDA (on a Parent Company basis) or EBITDA (on a Combined
basis), plus (b) lease expense pursuant to Operating Leases, minus
(c) Maintenance Capital Expenditures to (ii) (a) Net Interest, plus (b) lease
expense pursuant to Operating Leases, plus (c) Current Maturities (provided that
there

<PAGE>

shall be excluded from the determination of Current Maturities for the purpose
of this Section 4.11 and only for the fiscal quarters up to but not including
the fiscal quarter ending June 30, 1994 or any fiscal quarter thereafter
$65,878,000 of the Debt owed by La Quinta Motor Inns Limited Partnership to
AEtna Life Insurance Company), in each case other than Current Maturities
(which, with respect to Current Maturities, shall be for the four consecutive
fiscal quarters immediately succeeding the date of determination) for the four
consecutive fiscal quarters immediately preceding the date of determination, to
be less than (y) 1.35 to 1 at the end of any fiscal quarter prior to and
including September 30, 1995 and (z) 1.50 to 1 at the end of any fiscal quarter
thereafter.

4.12 FIXED CHARGE COVERAGE RATIO. La Quinta covenants and agrees that it
will not allow, on both a Parent Company basis and a Combined basis, the ratio
of EBIT to Net Interest Expense, in each case for the four consecutive fiscal
quarters immediately preceding the date of determination, to be less than
(i) 1.90 to 1 at the end of any fiscal quarter through and including
December 31, 1994, (ii) 2.25 to 1 at the end of any fiscal quarter during the
period from and including March 31, 1995 through and including December 31, 1995
and (iii) 2.50 to 1 at the end of any fiscal quarter thereafter.

4.13 CAPITAL EXPENDITURES. La Quinta covenants and agrees that it will not
make, and will not permit any of its Subsidiaries or Unincorporated Ventures
(excluding La Quinta Development Partners, L.P.), directly or indirectly, any
Capital Expenditures in an aggregate amount in excess of (i) for 1993, the sum
of (a) an amount equal to the product of inn revenues (as disclosed in the
Combined financial statements, but excluding revenues from La Quinta Development
Partners, L.P.) for 1992 multiplied by 5%, plus (b) $45,000,00 plus (c) Mortgage
Debt created in 1993, plus (d) Purchase Money Debt created in 1993, plus
(e) Subordinated Debt created in 1993, other than the Senior Subordinated Notes,
plus (f) Net Cash Proceeds received during 1993 from the disposition of assets
and the collection of notes receivable in existence on the Agreement Date, plus
(g) Net Cash Proceeds received during 1993 from the sale of Qualified Capital
Stock (provided that such proceeds are designated in writing to the Banks within
30 days from the date of any sale of such Qualified Capital Stock as an addition
to the Capital Expenditure limitation set forth in this Section 4.13), (ii) for
1994, the sum of (a) an amount equal to the product of inn revenues (as
disclosed in the Combined financial statements, but excluding revenues from La
Quinta Development Partners, L.P.) for 1993 multiplied by 5% plus
(b) $45,000,000 minus the amount that the aggregate amount of Capital
Expenditures made in 1993 exceeded the aggregate amount of Capital Expenditures
permitted to be made or accrued in 1993 pursuant to subclauses (a), (c), (d),
(e), (f) and (g) of clause (i) above, plus (c) Mortgage Debt created in 1994,
plus (d) Purchase Money Debt created in 1994, plus (e) Subordinated Debt created
in 1994, plus (f) Net Cash Proceeds received during 1994 from the disposition of
assets and the collection of notes receivable in existence on the Agreement
Date, plus (g) Net Cash Proceeds received during 1994 from the sale of Qualified
Capital Stock (provided that such proceeds are designated in writing to the
Banks within 30 days from the date of any sale of such Qualified Capital Stock
as an addition to the Capital Expenditure limitation set forth in this Section
4.13), plus (h) the unused portion of the Revolving Credit Commitment (as
defined in the Credit Agreement) as of December 31, 1993, and (iii) for each
fiscal year

<PAGE>

thereafter, the sum of (a) an amount equal to the product of inn revenues (as
disclosed in the Combined financial statements, but excluding revenues from La
Quinta Development Partners, L.P.) for the immediately preceding fiscal year
multiplied by 5%, plus (b) 85% of Adjusted Cash Flow for the immediately
preceding fiscal year, plus (c) Mortgage Debt created in such year, plus (d)
Purchase Money Debt created in such year, plus (e) Subordinated Debt created in
such year, plus (f) Net Cash Proceeds received during such year, plus (g) Net
Cash Proceeds received during such year from the sale of Qualified Capital Stock
(provided that such proceeds are designated in writing by La Quinta to the Banks
within 30 days from the date of any sale of such Qualified Capital Stock as an
addition to Capital Expenditure limitation set forth in this Section 4.13), plus
(h) the unused portion of the Revolving Credit Commitment (as defined in the
Credit Agreement) as of the prior fiscal year-end; provided, however, there
shall not be included as Capital Expenditures for purposes of this Section 4.13
any assets of La Quinta Motor Inns Limited Partnership or of any Subsidiaries or
Unincorporated Ventures listed on EXHIBIT C hereto and acquired as permitted
pursuant to clause (x) of the definition of Permitted Investments.

4.14 OPERATING LEASES. La Quinta covenants and agrees that it will not,
make or accrue, and will not permit any of its Subsidiaries or Unincorporated
Ventures to make or accrue, directly or indirectly, payments with respect to
Operating Leases in the aggregate in any one fiscal year in excess of
$8,000,000.

4.15 LAND HELD FOR DEVELOPMENT AND LAND HELD FOR SALE. La Quinta covenants
and agrees that it will not allow Land Held for Development and Land Held for
Sale to exceed $10,000,000 in the aggregate at any time, calculated at all times
(i) with respect to Land Held for Development and Land Held for Sale as of the
date hereof, at current book value as of the date hereof with no reduction for
write-downs, write-offs or losses in disposition after the date hereof, and
(ii) with respect to Land Held for Development and Land Held for Sale which is
acquired after the date hereof, at original cost with no reduction for write-
downs, write-offs or losses in disposition.

4.16 LIENS. La Quinta covenants and agrees that it will not create, assume
or suffer to exist, or permit any Subsidiary or Unincorporated Venture to
create, assume or suffer to exist, any Lien on any asset now owned or hereafter
acquired by it except (i) Permitted Liens and (ii) other Liens, provided that
after giving effect to any such other Lien the ratio of (a) Senior Secured Debt
to (b) the sum of (1) Senior Debt, plus (2) Subordinated Debt, plus (3) Net
Worth does not exceed .50 to 1, incurred to secure Debt which has a Weighted
Average Life to Maturity of at least five years and which is in an amount at
least equal to 50% of the value of the property (such value to be determined by
the Banks using a common method of valuation for such property) subject to such
Lien.

4.17 ACCOUNTING CHANGES. La Quinta covenants and agrees that it will not,
and will not permit an of its Subsidiaries or Unincorporated Ventures to, make
any change in its accounting treatment or financial reporting practices, except
as permitted or required by GAAP

<PAGE>

in effect from time to time. La Quinta will not change its fiscal year or the
calculation of its fiscal quarter ends.

4.18 AMENDMENT AND MODIFICATION OF SUBORDINATED DEBT DOCUMENTS. La Quinta
covenants and agrees that it will not, and it will not permit any Subsidiary or
Unincorporated Venture to, directly or indirectly, amend, modify, supplement,
waive compliance with, or assent to noncompliance with, any term, provision or
condition of any of the documents governing or evidencing the Subordinated Debt,
which (i) the Banks deem material (including, without limitation, relating to
events of default, acceleration rights, interest rates, tenor, maturity date,
subordination, covenants, prohibition against amending any documents related to
the Bank Debt and definitions with respect thereto (including, without
limitation, the definition of "Senior Debt")) or (ii) places any further
restrictions on La Quinta, its Subsidiaries or Unincorporated Ventures or
increases the obligations of La Quinta, its Subsidiaries or Unincorporated
Ventures thereunder or confers on the holders thereof any additional rights.

4.19 LEASE-BACKS. La Quinta covenants and agrees that it will not, and
will not permit any Subsidiary or Unincorporated Venture to, enter into any
arrangements, directly or indirectly, with any Person, whereby La Quinta, any
Subsidiary or Unincorporated Venture shall sell or transfer any property,
whether now owned or hereafter acquired, used or useful in its business, in
connection with the rental or lease of the property so sold or transferred.

4.20 ENVIRONMENTAL MATTERS. (a) La Quinta covenants and agrees that it
will not, and will not permit any of its Subsidiaries or Unincorporated Ventures
to, use, generate, manufacture, produce, store, release, discharge or dispose of
on, under or about any real property owned or leased by La Quinta or any of its
Subsidiaries or Unincorporated Ventures (such owned or leased real property, the
"PROPERTY"), or transport to or from the Property, any Hazardous Substance (as
defined below), or (to the extent within La Quinta's or such Subsidiary's or
Unincorporated Venture's control) permit any other Person to do so, where such
could reasonably be expected to have a Material Adverse Effect.

(b) La Quinta shall keep and maintain and shall cause each Subsidiary and
Unincorporated Venture to keep and maintain, the Property in compliance with any
Environmental Law (as defined below) where the failure to do so could reasonably
be expected to have a Material Adverse Effect.

(c) In the event that any investigation, site monitoring, containment,
cleanup, removal, restoration or other remedial work of any kind or nature (the
"REMEDIAL WORK") with respect to the Property is required to be performed by La
Quinta or any of its Subsidiaries or Unincorporated Ventures under any
applicable local, state or federal law or regulation, any judicial order, or by
any governmental entity because of, or in connection with, the current or future
presence, suspected presence, release or suspected release of a Hazardous
Substance in or into the air, soil, groundwater or surface water at, on, under
or within the Property (or any portion thereof), La Quinta or such Subsidiary or
Unincorporated Venture shall within thirty (30) days after written demand for
performance thereof by the Banks (or such shorter period of time

<PAGE>

as may be required under any applicable law, regulation, order or agreement),
commence and thereafter diligently prosecute to completion, all such Remedial
Work.

(d) La Quinta will defend, indemnify and hold harmless the Banks, and
their respective employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of, noncompliance with
or liability under any Environmental Law applicable to the operations of La
Quinta or any Subsidiary or Unincorporated Venture or the Property, or any
orders, requirements or demands of Tribunal related thereto, including, without
limitation, attorneys' and consultants' fees, investigation and laboratory fees,
response costs, court costs and litigation expenses, except to the extent that
any of the foregoing arise out of the gross negligence or willful misconduct of
the party seeking indemnification therefor. This indemnity shall continue in
full force and effect regardless of the termination of this Agreement.

(e) As used herein, (i) "ENVIRONMENTAL LAW" means any federal, state or
local law, statute, ordinance, or regulation now or hereafter in effect
pertaining to health, industrial hygiene, or the environmental conditions on,
under or about the Property, and (ii) the term "HAZARDOUS SUBSTANCE" means those
substances included within the definitions of "HAZARDOUS SUBSTANCES", "HAZARDOUS
MATERIALS", "TOXIC SUBSTANCES", or "SOLID WASTE" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section Section 9601 ET SEQ., the Resource Conservation and Recovery Act
of 1976, 42 U.S.C. Section Section 6901 ET SEQ. and the Hazardous Materials
Transportation Act, 49 U.S.C. Section Section 1801 ET SEQ., and in the
regulations promulgated pursuant to said laws, and such other substances,
materials and wastes which are or become regulated under applicable local, state
or federal law, or which are classified as hazardous or toxic under federal,
state, or local laws or regulations.

4.21 ERISA COMPLIANCE. La Quinta covenants and agrees that it shall, and
shall cause each Subsidiary and Unincorporated Venture to (i) at all times, make
prompt payment of all contributions required under all Plans and required to
meet the minimum funding standard set forth in ERISA with respect to its Plans,
(ii) after the discovery by an Authorized Officer, notify Banks immediately of
any fact, including, but not limited to, any Reportable Event arising in
connection with any of its Plans, which might constitute grounds for termination
thereof by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such Plan, together with a statement,
if requested by any Bank, as to the reason therefor and the action, if any,
proposed to be taken with respect thereto, and (iii) not permit any Plan to be
subject to any involuntary termination proceedings.

4.22 BUSINESS. La Quinta covenants and agrees that it will not, and will
not permit any Subsidiary or Unincorporated Venture to, engage in, directly or
through other Persons, any business other than the businesses now carried on and
other businesses directly related thereto.

4.23 Debt. La Quinta covenants and agrees that it will not, and will cause
each Subsidiary and Unincorporated Venture to not, (i) default, beyond any
notice, grace or cure

19
<PAGE>

period, in any payment equal to or exceeding the aggregate amount of $1,000,000
of principal of or interest on any Debt with respect to which recourse may be
made against La Quinta or any Subsidiary or Unincorporated Venture beyond any
period of grace provided with respect thereto, or (ii) default, beyond any
notice, grace or cure period, in the performance of any other agreement, term,
covenant or condition contained in any agreement or instrument under or by which
any such Debt, the unpaid principal amount of which then equals or exceeds
$1,000,000 is created, evidenced or secured if the effect of such default is to
cause such Debt to become due before its stated maturity.

4.24 BANK DEBT. La Quinta covenants and agrees that it will not, and will
cause each Subsidiary to not, (i) default in any payment of principal of or
interest on any Bank Debt beyond any grace period with respect thereto, or (ii)
default, beyond any notice, grace or cure period, in the performance of any
other covenant or agreement contained in any Bank Debt or made by La Quinta
under or in connection with any Bank Debt, if the effect of such default is to
cause such Bank Debt to become due before its stated maturity.

4.25 TRANSACTIONS WITH AFFILIATES. La Quinta covenants and agrees that it
will not, and will not permit any Subsidiary or Unincorporated Venture to,
directly or indirectly, enter into any transaction (including, but not limited
to, the sale or exchange of property or the rendering of service) with any of
its Affiliates, other than in the ordinary course of business and upon fair and
reasonable terms no less favorable than La Quinta or any Subsidiary or
Unincorporated Venture could obtain or could become entitled to in an arm's-
length transaction with a Person which was not an Affiliate.

SECTION 5. INFORMATION AS TO LA QUINTA.

5.1 FINANCIAL STATEMENTS AND OTHER REPORTS BY LA QUINTA. La Quinta will
deliver to each Bank which has Bank Debt:

(A) As soon as practicable after the end of each of the first three
quarterly fiscal periods in each fiscal year of La Quinta, and in any
event within 45 days thereafter with respect to Combined financial
statements and within 60 days thereafter with respect to Parent
Company financial statements, duplicate copies of

(1) Combined and Parent Company balance sheets, statements of
earnings, shareholders' equity and cash flows for the portion of
the fiscal year ending with such quarter; all in reasonable
detail and accompanied by an Officer's Certificate certifying
that the aforementioned financial statements present fairly the
financial position of La Quinta (Combined and Parent Company) at
the end of such quarter and the results of operations and the
changes in financial position for the portion of the fiscal year
ending with such quarter, determined in accordance with GAAP;

<PAGE>

(2) An Officer's Certificate certifying to the amount of Bank Debt
outstanding at the end of the fiscal quarter identified on an
EXHIBIT A attached thereto, which for the purpose of this
Agreement shall become EXHIBIT A hereto; and

(3) An Officer's Certificate (with calculations and a new EXHIBIT E
attached thereto) certifying (i) as to any increases or
reductions in interest in the Significant Investments, and (ii)
compliance with Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.10, 4.11,
4.12, 4.13, 4.14, 4.15 and 4.16.

(B) As soon as practicable after the end of each fiscal year of La Quinta,
and in any event within 120 days thereafter, duplicate copies of:

(1) Combined and Parent Company balance sheets, statements of
earnings, shareholders' equity and cash flows of La Quinta for
such year; all in reasonable detail, prepared on a basis
consistent with the financial statements delivered to all Banks
in prior periods and accompanied by an unqualified opinion and
report of KPMG Peat Marwick, or other independent certified
accountants of recognized standing selected by La Quinta and
reasonably consented to by Banks, which report with respect to
the Parent Company financial statements shall state that no
default under this Agreement and no condition or event which
after notice or lapse of time or both would constitute a default
under this Agreement has come to the knowledge of such
accountants or, if such is not the case, the details of such
default or such condition or event;

(2) Operating statements for such year and the preceding four years
with respect to all properties pledged to any Bank to secure Bank
Debt;

(3) An Officer's Certificate certifying to the amount of Bank Debt
outstanding at the last day of such year identified on an EXHIBIT
A attached thereto, which for the purpose of this Agreement shall
become EXHIBIT A hereto; and

(4) An Officer's Certificate (with calculations and a new EXHIBIT E
attached thereto) certifying (i) as to any increases or
reductions in interest in the Significant Investments, and (i)
compliance with Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.10, 4.11,
4.12, 4.13, 4.14, 4.15 and 4.16.

(C) As soon as practicable after La Quinta or any Subsidiary files with
the S.E.C. any of the following documents and in any event within 10
days thereafter, a copy of:

(1) Any final Registration Statement filed for the registration of
any securities under the Securities Act of 1933, as amended
(except a Registration

<PAGE>

Statement on Form S-8 for the registration of stock to be issued
in connection with any Stock Plan);

(2) Each Annual and Periodic Report filed under Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended;

(3) Each definitive Proxy Statement filed pursuant to the Securities
Exchange Act of 1934, as amended; and

together with any other document filed with the S.E.C. or the New York
Stock Exchange, Inc., as may be requested by any Bank.

(D) Upon request by any Bank, copies of the following:

(1) Each annual report/return, as well as all schedules and
attachments required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the
regulations promulgated thereunder, in connection with each of
its Plans for each Plan year; and

(2) Such additional information concerning any of its Plans as may be
reasonably requested.

(E) Notice to each Bank which has Bank Debt that any warranty or
representation made by La Quinta contained in any instrument or
document delivered pursuant to the Bank Debt shall have been incorrect
in any material respect when made not later than one business day
after the discovery or awareness thereof by an Authorized Officer.

(F) Promptly, notice to each Bank which has Bank Debt of the breach of any
covenant contained in Section 4.23 hereof.

(G) With reasonable promptness, such other data and information as from
time to time may be reasonably requested by any Bank.

5.2 OFFICER'S CERTIFICATE. Each set of financial statements delivered
pursuant to Subsection 5.1 (A) and (B) shall be accompanied by an Officer's
Certificate stating whether there exists on the date of such certificate any
condition or event which then constitutes, or which after notice or lapse of
time or both, would constitute, a breach of any covenant herein, and if any such
condition or event then exists, specifying the nature and period of existence
thereof and the action La Quinta is taking or proposes to take with respect
thereto.

<PAGE>
SECTION 6. DEFAULT.

La Quinta hereby covenants, acknowledges and agrees that the failure of La
Quinta, any Subsidiary or Unincorporated Venture to perform or observe (i) any
covenant contained in Sections 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.23, 4.24 or 4.25 of this Agreement
or (ii) any covenant contained in Sections 4.1, 4.2, 4.9, 4.20, 4.21 or 4.22 of
this Agreement and such default continues for 10 days after either (A) the
failure to perform or observe any such covenant has become known to an
Authorized Officer or (B) written notice thereof shall have been given by any
Bank to La Quinta or (iii) any other covenant contained in this Agreement to be
performed or observed by it and such failure continues for a period of 30 days
after any Bank has given written notice specifying such failure to La Quinta,
shall be deemed, subject to the waiver provisions of Section 7.2 hereof, to be a
default or event of default (however designated) under any Bank Debt,
notwithstanding the specific enumeration of the specific defaults or events of
default with respect to such Bank Debt, and any Bank may perform all rights and
remedies granted such Bank under the Bank Debt owing to such as if a default or
event of default specifically enumerated in such Bank Debt had occurred. La
Quinta further acknowledges and agrees that the covenants set forth in this
Agreement and the effect of the failure to perform such covenants as set forth
in this Section 6 shall be deemed to be incorporated by reference in such Bank
Debt, MUTATIS MUTANDIS. The grace periods provided for in this Section 6 are in
lieu of and not in addition to any grace periods provided with respect to any
Bank Debt.

SECTION 7. MISCELLANEOUS.

7.1 NOTICE. All notices, requests, consents and demands shall be in
writing and shall be delivered by hand or overnight courier service, mailed or
sent by telecopy, to the respective addresses specified below, or, as to any
party, to such other address as may be designated by it in written notice to all
other parties. All notices, requests, consents and demands hereunder shall be
deemed to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by telecopy, or if mailed, on the earlier of
actual receipt or three (3) days after being mailed by certified mail, return
receipt requested, postage prepaid, addressed as aforesaid.

La Quinta Inns, Inc.
112 E. Pecan Street
San Antonio, Texas 78205
Attention: Vice President - Treasurer

with a copy to:

La Quinta Inns, Inc.
112 E. Pecan Street
San Antonio, Texas 78205
Attention: Office of General Counsel

<PAGE>

The Frost National Bank
100 West Houston Street
San Antonio, TX 78205
Attention: Suzanne Houser

Texas Commerce Bank National Association
1020 NE Loop 410
P.0. Box 47531 78265
San Antonio TX 78209
Attention: Dan M. Danelo

NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street, 67th Floor
Dallas, TX 75202
Attention: Douglas E. Hutt

First Interstate Bank of Texas, N.A.
700 N. St. Mary's
San Antonio, TX 78205
Attention: John R. Peloubet

Citicorp USA, Inc.
2001 Ross Avenue
1400 Trammel Crow Center
Dallas, TX 75201
Attention: Jim Babcock

Bank of Scotland
2660 Citicorp Center
Houston, Texas 77002
Attention: Janna Blanter

Continental Bank N.A.
231 South La Salle Street
Chicago, Illinois 60697
Attention: Peter Gates

Bank One, Texas, N.A.
1717 Main Street, 4th Floor
Dallas, Texas 75201
Attention: Alan Miller

<PAGE>

U.S. Bank of Washington, National Association
309 Southwest 6th Avenue
Portland, Oregon 97204
Attention: Blake R. Howells

7.2 AMENDMENT, WAIVER, CONSENTS AND APPROVALS. This Agreement may be
amended, and the observance of any provision of this Agreement may be waived and
consent or approval to any action described in this Agreement may be granted,
only with the written consent of La Quinta and Banks holding in aggregate at
least 66-2/3% in principal amount of the Bank Debt as of the last day of the
month preceding the month in which such written amendment, waiver, approval or
consent is requested; provided, however, that no such amendment, waiver,
approval or consent, without the written consent of all of the Banks, shall (i)
change this Section 7.2 or (ii) waive, modify or otherwise affect compliance
with Section 4.24 hereof. All Banks shall receive in writing the request for
any waivers, modifications, amendments, approvals or consents of any of the
provisions hereof.

7.3 NOTICE OF DEFAULT ON BANK DEBT. Each Bank agrees to give prompt
notice to each other Bank of (i) any default in the payment of principal of or
interest on any Bank Debt beyond any period of grace with respect thereto, (ii)
any default in the performance of any other agreement, term, covenant or
condition contained in any Bank Debt beyond any period of grace provided with
respect thereto and (iii) any default in the performance of any covenant of La
Quinta set forth in this Agreement. Each Bank agrees to simultaneously deliver
to each other Bank a copy of any notice delivered to La Quinta pursuant to
Section 6 hereof. Each Bank shall use its best efforts to deliver the notices
provided for in this Section 7.3; however, no Bank shall have any liability to
any other Bank for failing to comply with this Section 7.3.

7.4 CONFLICTS. In the event of any conflict between the terms of this
Agreement and the terms of any Bank Debt with respect to the subject matter
contained herein, the terms and provisions of this Agreement shall control and
prevail.

7.5 PAYMENT OF EXPENSES. La Quinta will pay all reasonable expenses of
the Banks, including, without limitation, the reasonable fees, expenses and
disbursement of counsel, incurred in connection with the transactions
contemplated by this Agreement.

7.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and the laws of the United
States.

7.7 BINDING UPON SUCCESSORS. This Agreement shall be binding upon La
Quinta so long as any Bank Debt is outstanding, and each of the Banks and their
respective successors and assigns, and shall inure to the benefit of La Quinta
and the Banks and successors and assigns of the Banks, except that La Quinta
shall not have the right to assign any of its rights or obligations hereunder
without the written consent of all the Banks.

<PAGE>

7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, but in making proof of this Agreement, it shall not be necessary to
produce or account for more than one such counterpart. It is not necessary that
each Bank execute the same counterpart, so long as counterparts are executed by
La Quinta and each Bank.

7.9 TERMINATION AND EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall
remain in full force and effect so long as there is any Bank Debt outstanding.
At such time as there is no longer any Bank Debt outstanding, this Agreement
shall terminate and be of no further force and effect. This Agreement shall be
effective upon the execution hereof by the Banks required to amend the Prior
Master Covenant Agreement pursuant to Section 7.2 thereof.

7.10 ADJUSTMENT OF PERCENTAGES. The percentages of each Bank set forth on
EXHIBIT A hereto shall be automatically adjusted subsequent to the date of this
Agreement as a result of (i) any payment or prepayment of any Bank Debt, (ii)
any renewals, extensions, or refinancings of Bank Debt among the Banks or (iii)
participations in Bank Debt sold by one Bank to another Bank or any purchase or
assumption of Bank Debt between or among Banks or (iv) assignments of Bank Debt
pursuant to Section 7.13 hereof; otherwise, there shall be no adjustments to the
percentages set forth on EXHIBIT A. Further, except as set forth in
Section 7.13 hereof, no other Person may become a party to this Agreement
without the prior written consent of the Banks.

7.11 EXCEPTIONS TO COVENANTS. La Quinta shall not be deemed to be
permitted to take any action or fail to take any action which is permitted as an
exception to any of the covenants contained herein or which is within the
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein.

7.12 CONFIDENTIALITY. Each Bank agrees (on behalf of itself and each of
its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by La Quinta pursuant to this Agreement which is identified by La
Quinta as being confidential at the time the same is delivered to the Banks,
provided that nothing herein shall limit the disclosure of any such information
(i) to the extent required by statute, rule, regulation or judicial process,
(ii) to counsel for any of the Banks, (iii) to bank examiners, auditors or
accountants of any Bank, (iv) any other Bank, (v) in connection with any
litigation to which any one or more of the Banks is a party, provided, further,
that unless specifically prohibited by applicable laws or court order, each Bank
agrees, prior to disclosure thereof, to notify La Quinta of any request for
disclosure of any such non-public information (x) by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of La Quinta or any Subsidiary or
Unincorporated Venture or (y) pursuant to legal process, or (vi) to any
participant (or prospective participant) of any Bank Debt so long as such
participant (or prospective participant) first executes and delivers to the
respective Bank an agreement (a "CONFIDENTIALITY AGREEMENT") in substantially
the form of EXHIBIT F hereto; and

<PAGE>

provided finally that in no event shall any Bank be obligated or required to
return any materials furnished by the Company. The obligations of each Bank
under this Section 7.12 shall supersede and replace the obligations of such Bank
under any confidentiality letter in respect of any Bank Debt initially signed
and delivered by such Bank to La Quinta prior to the date hereof.

7.13 ASSIGNMENT. Each Bank may assign to one or more financial
institutions or funds organized under the laws of the United States, or any
state thereof, or under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development, or a political
subdivision of any such country, which is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
(each, an "Assignee") its rights and obligations under the Bank Debt owned by
such Bank and its rights under this Agreement subject, to the extent applicable,
to the terms and provisions of Section 9.6 of the Credit Agreement. Upon the
effectiveness of such assignment, (i) the assignee Bank shall be party hereto
and, to the extent that rights hereunder have been assigned to it, have the
rights of a Bank hereunder and (ii) the assigning Bank shall, to the extent that
rights hereunder have been assigned by it, relinquish such rights under this
Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of January 25, 1994

LA QUINTA INNS, INC.

By: /s/ Michael A. Depatie
--------------------------------
Its: Senior Vice President

The following Subsidiaries of La Quinta
hereby acknowledge and agree to the covenants
and restrictions set forth herein by signing
below:

LA QUINTA REALTY CORP.

By: /s/ John F. Schmutz
--------------------------------
Its: Vice President

<PAGE>

LA QUINTA PLAZA, INC.

By: /s/ Michael A. Depatie
--------------------------------
Its: Vice President

LA QUINTA FINANCIAL CORPORATION

By: /s/ Michael A. Depatie
--------------------------------
Its: President

LA QUINTA INVESTMENTS, INC.

By: /s/ Michael A. Depatie
---------------------------------
Its: Vice President

LQI ACQUISITION CORP.

By: /s/ Roland Bliss
--------------------------------
Its: President

LQM OPERATING PARTNERS, L.P.

By: LA QUINTA REALTY CORP.

By: /s/ John F. Schmutz
-----------------------------
Its: Vice President

<PAGE>

LA QUINTA MOTOR INNS, LIMITED PARTNERSHIP

By: LA QUINTA REALTY CORP.

By: /s/ John F. Schmutz
--------------------------------
Its: Vice President

NATIONSBANK OF TEXAS, N.A.

By: /s/Douglas E. Hutt

-------------------------------
Its: Senior Vice President

THE FROST NATIONAL BANK

By: /s/ Suzanne Houser
-------------------------------
Its: Vice President

FIRST INTERSTATE BANK OF TEXAS, N.A.

By: /s/ John R. Peloubet
--------------------------------
Its: Vice President

CITICORP USA, INC.

By: /s/ Barbara A. Cohen
--------------------------------
Its: Vice President

<PAGE>
TEXAS COMMERCE BANK NATIONAL ASSOCIATION (successor to
Texas Commerce Bank-San Antonio, N.A. through merger
with and into Texas Commerce Bank National Association)

By: /s/ Dan M. Danelo
--------------------------------
Its:________________________________

BANK OF SCOTLAND

By: /s/ Catherine M. Oniffrey
--------------------------------
Its: Vice President

CONTINENTAL BANK N.A.

By: /s/ Mary Jo Hoch
--------------------------------
Its: Vice President

BANK ONE, TEXAS, N.A.

By: /s/ Alan L. Miller
--------------------------------
Its: Vice President

U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION

By: /s/ Blake R. Howells
--------------------------------
Its: Vice President

<PAGE>

EXHIBIT A
LA QUINTA INNS, INC.
MASTER COVENANT AGREEMENT
SCHEDULE OF BANK DEBT
DECEMBER 31, 1993
DOLLARS IN THOUSANDS

FIRST NATIONS TEXAS CITIBANK BANK OF BANK U. S.
INTERSTATE BANK COMMERCE FROST CITICORP SCOTLAND ONE CONTINENTAL NATIONAL TOTAL
---------- ------- -------- ----- -------- -------- ---- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRE-EXISTING CREDIT FACILITIES
IRB BONDS
- ---------
578 North Little Rock, AR $ 1,303 $ 1,303
579 Gretna. LA 2,106 2,106
580 New Orleans (Veterans), LA 1,731 1,731
592 Monroe, LA 1,864 1,864
721 New Orleans (Bullard), LA 2,507 2,507

MORTGAGES
- ---------
901 Denver-Central, CO $ 1,257 1,257
902 Casper, WY 1,476 1,476
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
TOTAL PRE-EXISTING CREDIT
FACILITIES $ 9,511 $ 2,733 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 12,244
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ -------

CURRENT CREDIT FACILITIES

LETTERS OF CREDIT
557 Aurora, CO $ 203 $ 742 $ 311 $ 311 $ 609 $ 311 $ 271 $ 311 $ 203 $ 3,273
561 Kalamazoo, MI 149 543 228 228 445 228 198 228 149 2,394
562 Schaumburg, IL 267 978 410 410 802 410 357 410 267 4,311
563 Texarkana, TX 180 659 276 276 541 276 240 276 180 2,905
565 Savannah, GA 194 708 297 297 581 297 258 297 194 3,120
568 Bossier City, LA 92 336 141 141 276 141 123 141 92 1,483
569 Eagle Pass, TX 167 610 256 256 501 256 223 256 167 2,690
570 San Bernadino, CA 417 1,525 640 640 1,251 640 556 640 417 6,726
574 Baton Rouge, LA 203 742 311 311 609 311 271 311 203 3,273
576 Nacogdoches, TX 169 618 259 259 507 259 225 259 169 2,726
583 Virginia Beach 190 696 292 292 571 292 254 292 190 3,069
584 Oakbrook Terrace, IL 238 870 365 365 714 365 317 365 238 3,836
596 El Paso, TX 133 487 204 204 400 204 178 204 133 2,148
4625 Stockton, CA 244 893 375 375 733 375 326 375 244 3,938
633 Hampton, VA 256 934 392 392 767 392 341 392 256 4,121
634 Elk Grove, IL 256 934 392 392 767 392 341 392 256 4,121
636 Wheatridge, CO 168 615 258 258 504 258 224 258 168 2,711
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
TOTAL LETTERS OF CREDIT $ 3,526 $12,891 $ 5,406 $ 5,406 $10,577 $ 5,406 $4,701 $ 5,406 $ 3,526 $ 56,845
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
REVOLVING CREDIT COMMITMENT $ 2,481 $ 9,071 $ 3,804 $ 3,804 $ 7,443 $ 3,804 $3,308 $ 3,804 $ 2,481 $ 40,000

TERM LOAN COMMITMENT 8,993 32,883 13,790 13,790 26,980 13,790 11,991 13,790 8,993 145,000
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
TOTAL CURRENT CREDIT FACILITIES $11,474 $41,954 $17,594 $17,594 $34,423 $17,594 $15,299 $17,594 $11,474 $185,000
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
GRAND TOTAL $24,511 $57,578 $23,000 $23,000 $45,000 $23,000 $20,000 $23,000 $15,000 $254,089
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
</TABLE>

<PAGE>

EXHIBIT B
LA QUINTA INNS, INC.
EXISTING INVESTMENTS
NOVEMBER 30, 1993

AMOUNT
------
(Dollars in thousands)

INVESTMENTS; AT COST:

<S> <C>
State of Israel Bonds $ 160
Cash Surrender Value of Life Policies 246
SERP Restricted Cash 738
Hotel Industry Switch 75
Harlingen Industrial Revenue Bond 1,245
------
TOTAL $2,464
------
------

LAND HELD FOR FUTURE DEVELOPMENT; AT CURRENT VALUE:

Bexar County $1,470
------
------

LAND HELD FOR SALE; AT CURRENT VALUE:

San Antonio $ 368
Houston 368
Arlington 365
Maitland 603
Mesquite 337
Greensboro 344
St. Louis 397
Ft. Lauderdale 618
------
TOTAL $3,400
------
------
</TABLE>

<PAGE>

EXHIBIT B
LA QUINTA INNS, INC.
EXISTING INVESTMENTS
NOVEMBER 30, 1993
(CON'T)

NOTES RECEIVABLE:

LA QUINTA INNS, INC. COMBINED

DEBTOR CREDITOR AMOUNT COLLATERAL

<S> <C> <C> <C>
James Hu/S.A. Main Ave Motel, Ltd San Antonio Main Ave., Ltd. $ 2,448,517 First lien on real estate
Jai Ambay, Inc. La Quinta Inns, Inc. 755,397 First lien on real estate
R & Y La Belle La Quinta Inns, Inc. 53,000 Second lien on real estate
Willow Tree #4 La Quinta Inns, Inc. 976,980 Third lien on real estate
Jer-Wei Inc. La Quinta Inns, Inc. 1,720,689 First lien on real estate
Katy Hospitality Co. La Quinta Inns, Inc. 2,144,118 First lien on real estate
Great Southeastern Restaurants, Inc. La Qunita Inns, Inc. 195,000 Unsecured
Great Southeastern Restaurants, Inc. La Quinta Development Partners, L.P. 65,000 Unsecured
Great Southeastern Restaurants, Inc. LQM Operating Partners, L.P. 80,000 Unsecured
Ranjit Hans--Ishmer-Amar Holdings La Quinta Inns, Inc. 11,201 Unsecured
Sunbelt Motor Inn Ventures La Quinta Inns, Inc. 1,330,000 First lien on real estate
THISCO La Quinta Inns, Inc. 70,000 Unsecured
Miscellaneous debtors La Quinta Inns, Inc. 642,818 Unsecured
Sportsplex of America La Quinta Inns, Inc. 400,300 Unsecured
Wytex La Quinta Inns, Inc. 105,746 Unsecured
Shoney's La Quinta Development Partners, L.P. 157,636 Unsecured
I 20 South Collins, Ltd. La Qunita Inns, Inc. 300,000 First lien on real estate
Anthony Koutsoukos La Qunita Inns, Inc. 5,000 Unsecured
-----------
$11,461,402
-----------
-----------
</TABLE>

<PAGE>

EXHIBIT C
LA QUINTA INNS, INC.
SUBSIDIARIES & UNINCORPORATED
VENTURE INVESTMENTS
JANUARY 25, 1994

LQ
DATE OF INITIAL NUMBER OF OWNERSHIP
NAME AGREEMENT INNS %
---- --------------- -------- ---

<S> <C> <C> <C>
La Quinta-Houston I.H. 10, Ltd. 1972 1 50
La Quinta-San Antonio South Joint Venture 1969 1 50
La Quinta Austin Motor Hotel, Ltd. 1970 1 66.667
La Quinta-Dallas Central Expressway, Ltd. 1970 1 62.96
LQ Motor Inn Venture-Austin No. 530 1975 1 50
La Quinta-Wichita, Kansas, No. 532, Ltd. 1976 1 50
LQ-Baton Rouge Joint Venture 1982 1 80
LQ-West Bank Joint Venture 1982 1 60
La Quinta Development Partners, L.P. 1990 37 40
San Antonio Main Avenue Motel, Ltd. 1967 N/A 66.67
LQ-LNL Joint Venture 1981 2 100
LQ-CIGNA I 1987 4 1
LQ-CIGNA II 1987 5 1
La Quinta Realty Corporation 1986 N/A 100
La Quinta Financial Corporation 1983 N/A 100
La Quinta Plaza, Inc. 1987 N/A 100
La Quinta Investments, Inc. 1993 N/A 100
LQI Acquisition Corporation 1993 N/A 100
LQI Merger Corporation 1993 N/A 100
LQM Operating Partners, L.P. 1986 N/A 100
LQ-Big Apple Joint Venture 1993 3 100
LQ-East Irvine Joint Venture 1985 1 100
La Quinta Motor Inns Limited Partnership 1986 31 100
---
TOTAL 91
---
---
</TABLE>

<PAGE>

Exhibit D
Existing Liens
La Qunita Inns, Inc. and Unicorporated Joint Ventures
November 30, 1993

PROPERTY
OWNERSHIP NO. LOCATION BALANCE DESCRIPTION
- ---------------------------- -------- ------------------------------------ ---------- -----------

<S> <C> <C> <C> <C>
La Quinta Inns, Inc. 518 Denver-South $651,434 Mortgage
La Quinta Inns, Inc. 519 Dallas-D/FW-Irving 398,460 Mortgage
La Quinta Investments, Inc. 520 Denver-Airport 496,811 Mortgage
La Quinta Inns, Inc. 523 San Antonio-Lackland 3,188,662 Mortgage
La Quinta Inns, Inc. 524 Dallas-Regal Row 3,052,923 Mortgage
La Quinta Inns, Inc. 531 Houston-Intercontinental Airport 947,308 Mortgage
La Quinta - Wichita, Kansas. 532 Wichita-Town East Square 543,416 Mortgage
No. 532, LTD.
La Quinta Inns, Inc. 534 Indianapolis-Airport 1,646,065 Mortgage
La Quinta Inns, Inc. 537 Beaumont 857,852 Mortgage
La Quinta Inns, Inc. 549 Columbus-Fort Benning 1,141,974 Mortgage
La Quinta Inns, Inc. 551 Jacksonville-Orange Park 1,221,484 Mortgage
La Quinta Inns, Inc. 552 Dallas-Grand Prairie (Six Flags) 1,343,024 Mortgage
La Quinta Inns, Inc. 553 Champaign-Market Place Mall 1,897,310 Mortgage
La Quinta Inns, Inc. 556 San Antonio-Windsor Park 2,019,701 Mortgage
La Quinta Inns, Inc. 559 Nashville-South 1,973,060 Mortgage
La Quinta Inns, Inc. 560 Lexington 1,118,053 Mortgage
La Quinta Inns, Inc. 575 Memphis-Airport 1,676,893 Mortgage
La Quinta Inns, Inc. 588 Sulphur/Lake Charles 3,170,000 IRB
La Quinta Inns, Inc. 599 Houston-La Porte 1,770,000 IRB
La Quinta Inns, Inc. 626 Birmingham 1,705,000 IRB
La Quinta Inns, Inc. 627 Pittsburgh-International Airport 2,055,000 IRB
La Quinta Inns, Inc. 628 Albuquerque-North 3,170,786 Mortgage
La Quinta Inns, Inc. 629 Charlotte-Airport 2,942,952 Mortgage
La Quinta Inns, Inc. 630 Colorado Springs 2,357,742 Mortgage
La Quinta Inns, Inc. 637 Jacksonville-North 318,336 Mortgage
La Quinta Inns, Inc. 637 Jacksonville-North 1,543,137 Mortgage
La Quinta Inns, Inc. 637 Jacksonville-North 520,158 Mortgage
La Quinta Inns, Inc. 639 Amarillo-Medical Center 2,482,829 Mortgage
La Quinta Inns, Inc. 643 San Diego-Vista 2,937,433 Mortgage
La Quinta Inns, Inc. 645 Atlanta-Peachtree Industrial 201,821 Mortgage
La Quinta Inns, Inc. 645 Atlanta-Peachtree Industrial 2,444,744 Mortgage
La Quinta Inns, Inc. 646 Bakersfield 3,496,944 Mortgage
La Quinta Inns, Inc. 658 Deerfield Beach 3,077,310 Mortgage
La Quinta Inns, Inc. 666 Maitland (held for sale) 2,729 Mortgage
La Quinta Inns, Inc. 688 Tampa-Clearwater Airport 3,806,145 Mortgage
La Quinta Inns, Inc. 803 Salt Lake City-Midvale 2,083,879 Mortgage
La Quinta Development 4536 Las Vegas 881,023 Mortgage
Partners. L. P.
La Quinta Development 4541 Orange County-Costa Mesa 3,934,910 Mortgage
Partners. L. P.
</TABLE>

Page 1

<PAGE>

Exhibit D
Existing Liens
La Qunita Inns, Inc. and Unicorporated Joint Ventures
November 30, 1993

PROPERTY
OWNERSHIP NO. LOCATION BALANCE DESCRIPTION
- ---------------------------- -------- ------------------------------------ ---------- -----------

<S> <C> <C> <C> <C>
La Quinta Development 4545 Reno-Airport 1,187,500 Mortgage
Partners. L. P.
La Quinta Development 4554 Dallas-D/FW-Euless 1,534,190 Mortgage
Partners. L. P.
La Quinta Development 4564 Tuscaloosa 1,811,034 Mortgage
Partners. L. P.
La Quinta Development 4566 Phoenix-Tempe Sky Harbor Airport 1,567,871 Mortgage
Partners. L. P.
La Quinta Development 4640 San Antonio-Toepperwein 2,622,708 Mortgage
Partners. L. P.
La Quinta Development 4642 Orlando-Airport 2,867,494 Mortgage
Partners. L. P.
La Quinta Development 4905 Round Rock 1,764,122 Mortgage
Partners. L. P.
La Quinta Inns, Inc. 9050 Prudential Note 14,298,019 Mortgage
La Quinta Inns, Inc. 9050 Prudential Note 1,406,286 Mortgage
La Quinta Inns, Inc. 9050 Prudential Note 28,536,216 Mortgage
-------------

Total $126,672,746
-------------
-------------
</TABLE>

Page 2
<PAGE>

EXHIBIT E
LA QUINTA INNS, INC.
GUARANTEES AND CONTINGENT OBLIGATIONS
NOVEMBER 30, 1993

Long Term Debt With Amount Advanced at
Partnership or Entity Recourse To La Quinta November 30
- --------------------- --------------------- ------------------
<S> <C> <C>
LQ Motor Inn Venture- Austin No. 530 $ -- $ 460,000
La Quinta-Wichita Kansas, No. 532, Ltd. 543,416 --
LQ-Baton Rouge Joint Venture 3,200,000 3,695,000
LQ-West Bank Joint Venture 2,106,440 --
LQ-CIGNA I 2,402,987
La Quinta Development Partners, L. P.:
La Quinta Inns, Inc. Guarantees 17,307,699 --
La Quinta Inns, Inc. General Partner Obligations 4,381,023 --
-----------
$29,941,565 $4,155,000
-----------
-----------
</TABLE>

<PAGE>

EXHIBIT F

[Form of Confidentiality Agreement]

CONFIDENTIALITY AGREEMENT

[Date]

[Insert Name and Address
of Prospective Participant]

Re: Amended and Restated Master Covenant Agreement dated as of January 25,
1994, between La Quinta Inns, Inc. ("La Quinta"), and the banks
named therein (the "Banks").

Dear ______________:

As a Bank party to the above-referenced Amended and Restated Master
Covenant Agreement (the "COVENANT AGREEMENT"), we have agreed with La Quinta
("LA QUINTA") pursuant to Section 7.12 of the Covenant Agreement to use
reasonable precautions to keep confidential, except as otherwise provided
therein, all non-public information identified by La Quinta as being
confidential at the time the same is delivered to us pursuant to the Covenant
Agreement.

As provided in said Section 7.12, we are permitted to provide you, as a
prospective holder of a participation in the Bank Debt (as defined in the
Covenant Agreement), with certain of such non-public information subject to the
execution and delivery by you, prior to receiving such non-public information,
of a Confidentiality Agreement in this form. Such information will not be made
available to you until your execution and return to us of this Confidentiality
Agreement.

Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed participation mentioned above and (B) you shall use
reasonable precautions, in accordance with your customary procedures for
handling confidential information and in accordance with safe and sound banking
practices, to keep such information confidential, provided that nothing herein
shall limit the disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to your counsel or to
counsel for any of the Banks, (iii) to bank examiners, auditors or accountants
of any Bank, (iv) to any other Bank, (v) in connection with any litigation to
which you or any one or more of the Banks are a party; provided, further, that,
unless specifically prohibited by applicable law or court order, you agree,
prior to disclosure thereof, to notify La Quinta of any request for disclosure
of any such non-public information (x) by any governmental agency or
representative thereof (other than any such request in connection with an
examination of your financial condition by such governmental agency) or (y)
pursuant to legal process; and provided,

<PAGE>

[Date]
Page 2

finally, that in no event shall you be obligated to return any materials
furnished to you pursuant to this Confidentiality Agreement.

Would you please indicate your agreement to the foregoing by signing at the
place provided below the enclosed copy of this Confidentiality Agreement.

Very truly yours,

__________________________________

By:_______________________________
Title:____________________________

THE FOREGOING IS AGREED TO AS
OF THE DATE OF THIS LETTER.

[INSERT NAME OF PROSPECTIVE PARTICIPANT]

By:_______________________________
Title:____________________________

<PAGE>

EXHIBIT G
LA QUINTA INNS, INC.
SIGNIFICANT INVESTMENTS

STATE OF
INCORPORATION OR PERCENTAGE OF
NAME ORGANIZATION OWNERSHIP
---- ---------------- -------------

<S> <C> <C>
La Quinta-Houston I.H. 10, Ltd. Texas 50
La Quinta San Antonio-South Joint Venture Texas 50
La Quinta Austin Motor Hotel, Ltd. Texas 50
La Quinta-Dallas Central Expressway, Ltd. Texas 62.963
LQ Motor Inn Venture-Austin No. 530* Texas 50
La Quinta-Wichita, Kansas, No. 532, Ltd. Texas 50
LQ-Baton Rouge Joint Venture* Texas 80
LQ-West Bank Joint Venture* Texas 60
LQ-CIGNA I* Texas 1
LQ-CIGNA II* Texas 1
La Quinta Motor Inns Limited Partnership Delaware 100
La Quinta Development Partners, L.P.* Delaware 40

<FN>
*Indicates Joint Venture Agreements with a buy/sell provision.
</TABLE>

<PAGE>

EXHIBIT H

ID#3232B

INVESTMENT POLICY
- -------------------------------------------------------------------------------
RESOLVED: That the Company's Amended and Restated Investment Policy shall read
as follows:

AMENDED AND RESTATED
LA QUINTA MOTOR INNS, INC.
STATEMENT OF INVESTMENT POLICY
AS OF OCTOBER 1989

I. INVESTMENT OBJECTIVES

A. To assure safety of principal through minimization of default risk.

B. To retain liquidity to meet projected cash needs.

C. To realize the best available yield, while assuming a minimum of market
risk.

II. APPROVED INVESTMENTS AND RELATED RESTRICTIONS

A. Investments, loans and advances to the Company's subsidiaries or
unincorporated ventures and pursuant to any management or operating
agreement to which the Company is a party.

B. Investments with maturities of less than one year in direct or indirect
obligations of the United States of America.

Approved agencies include the following:

Student Loan Marketing Association
Federal National Mortgage Association
Farm Credit Agency
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
World Bank

<PAGE>

Farm Credit Agency
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
World Bank

C. Domestic bank financial obligations

1. Investments shall not exceed $20,000,000 per bank or bank holding
company,

2. Maturities shall be less than one year,

3. Bank shall have a capital and surplus in excess of $50,000,000 and

4. At the time of purchase, the publicly outstanding debt of a bank or
bank holding company shall be rated A- or higher by Standard and
Poor's Corporation or the short term bank deposits shall be rated a
minimum of P-1 by Moody's Investors Service, Inc.

5. An investment in a FDIC All Insured Certificate of Deposit program
of a bank holding company which meets or exceeds these guidelines is
allowed even though some of the participating banks may not meet all
the guidelines.

D. Permitted exceptions for domestic bank financial obligations

1. Funds held by a bank acting as a trustee in connection with any
Industrial Development Bond, other financing or required reserve may
be invested in the trustee's own financial obligations. Investments
shall not exceed $3,000,000 per bank or bank holding company and
maturities shall be less than one year.

2. A maximum of $6,000,000 may be invested in financial obligations of
Frost National Bank of San Antonio for the purpose of more efficient
management of daily cash requirements including daylight overdrafts.
Maturities shall be less than one year.

E. Commercial Paper

1. At the time of purchase, Commercial Paper shall carry one of the
following minimum ratings:

Standard and Poor's Corporation A-1
Moody's Investors Service, Inc. P-1

-2-

<PAGE>

2. Investment shall not exceed $7,500,000 per lender or affiliated
persons of such lender, taken together.

F. Investments may be purchased through the following brokerage companies
with a safekeeping limit of $12,500,000 per company:

Merrill Lynch
Goldman Sachs
Salomon Brothers
First Boston

Investments exceeding $12,500,000 through any one brokerage firm shall
be delivered for safekeeping to a bank designated by the Company.

G. Securities which are exempt from federal taxation and are general
obligation bonds backed by the taxing authority of the issuer; provided,
however, that

1. The total aggregate amount of any such securities held by the
Company shall not at any time exceed 2% of the average adjusted tax
basis of total assets of the Company (each August the Tax Department
will provide the Treasury Department the maximum investment allowed
for the current year) and that

2. If the securities are rated by Standard and Poor's Corporation and
Moody's Investors Service, they shall be rated at least "A" by both
agencies. If they are rated by only one agency, that rating shall
be at least "A". No non-rated securities will be purchased.

H. Registered Investment Company Shares

1. Redeemable securities issued by diversified, open-end management
investment companies which are organized under the laws of the
United States of America or its constituent states and which are
registered with the Securities and Exchange Commission pursuant to
the Investment Company Act of 1940.

2. Said investment companies' prospectuses shall reflect (i) investment
objectives consistent with the objectives set forth above; and (ii)
a portfolio made up of high quality, fixed income instruments.

3. Investments are limited to the following approved investment
companies:

a. Fidelity Money Market Trust
Fidelity Investments
Boston, Massachusetts

-3-

<PAGE>

b. Institutional Liquid Assets (ILA)
Goldman, Sachs & Co.
Chicago, Illinois

c. Prudential Institutional Liquidity Portfolio Series
Prudential Mutual Fund Services
New Brunswick, NJ

d. USAA Money Market Funds
USAA
San Antonio, TX

e. Merrill Lynch Ready Assets
Merrill Lynch
Princeton, New Jersey

I. Any investment specifically authorized by the Executive Committee up to
an aggregate at any one time of $4,000,000.

J. Any other investments specifically authorized by the Board of Directors.

and be it further,

RESOLVED: That the President, Executive Vice President-Chief Operating Officer,
Senior Vice President-Finance, Senior Vice President-Administration and
Treasurer, and Senior Vide President-Development Programs and General Counsel
("Authorized Officers"), of this Company is, and each of them hereby is,
authorized, subject to restrictions in the Company's Investment Policy, to
establish and maintain one or more accounts with such investment companies,
banks, broker-dealers or like depositories which they, in their sole discretion,
believe necessary and appropriate for the purpose of purchasing, investing in,
or otherwise acquiring, possessing, selling, transferring, exchanging or
otherwise disposing of, and generally dealing in any and all forms of securities
as prescribed by the Company's Investment Policy; and be it further,

RESOLVED: That to assure that an individual does not direct an investment
company, bank, broker-dealer or other depository to wire or otherwise transfer
funds to a personal or non-Company account, upon opening accounts with such
investment companies, banks, broker-dealers or other depositories, instructions
will be given requiring such persons to only wire or transfer funds to a
designated Company account, which designation shall be made by any two
Authorized Officers; and be it further,

RESOLVED: That accounts shall not be opened for the purpose of trading or
otherwise dealing with securities on margin, effecting short sales or trading in
commodity futures contracts and related options; and be it further,

-4-

<PAGE>

RESOLVED: That any two Authorized Officers may appoint in writing any other
person or persons to, with the exception of establishing accounts, do any things
which any of the said officers is hereby empowered to do, and to take all action
necessary or desirable in connection with accounts with investment companies,
banks, broker-dealers and other depositories; and be it further,

RESOLVED: That, subject to restrictions set forth in the Company's Investment
Policy and limitations with respect to accounts, the fullest authority at all
times with respect to any commitment or transaction deemed by any of the
Authorized Officers, or other persons appointed by said Authorized Officers, to
be proper is hereby conferred - including, without limitation, authority to
give written or oral instructions to investment companies, banks,
broker-dealers or other depositories with respect to any of said transactions;
to enter and carry out any contract, arrangement, or transaction in connection
with any such account; to pay in cash or by checks and/or drafts drawn upon
the funds of the Company such sums as may be necessary in connection with any
such account; to deliver securities to, and deposit funds with said investment
companies, banks, broker-dealers or other depositories; to endorse, on behalf
of the Company, any securities in order to pass title thereto; to sign for the
Company all documents in connection with any such account, and to agree to any
conditions to control any such account; and be it further,

RESOLVED: That the establishment and maintenance by the Company of one or more
accounts with such investment companies, banks, broker-dealer or other
depositories prior to the date of which these resolutions shall continue to be
effective, and the opening of such accounts is hereby ratified and confirmed in
all respects; and be it further,

RESOLVED: That such investment companies, banks, broker-dealers or other
depositories may deal with any and all of the persons holding the offices of the
Authorized Officers as though they were dealing with the Corporation directly;
and be it further,

FURTHER RESOLVED: That the Secretary of the Company is hereby directed to
certify and deliver under seal of the Corporation to such investment companies,
banks, broker-dealers or other depositories:

(a) a true copy of these resolutions, including the Investment Policy;

(b) specimen signatures of each and every person designated to provide
instructions to such investment companies, banks, broker-dealers or
other depositories;

-5-

<PAGE>

(c) a certificate that the Company is duly organized and existing, that its
charter and By-Laws authorize it to effect the transactions contemplated
by the Investment Policy and these resolutions, and that no limitation
has been otherwise imposed upon such authority;

and be it further,

RESOLVED: That such investment companies, banks, broker-dealers or other
depositories may rely upon any certification given in accordance with these
resolutions until written notice of a change in, or the recission of such
authority is provided (transmitted by mail, wire or otherwise); and be it
further,

RESOLVED: That, in the event of any change in the office or powers of persons
hereby authorized, the Secretary or any Assistant Secretary shall certify such
changes to such investment companies, banks, broker-dealers or other
depositories in writing in the manner hereinabove provided, which notification,
when received, shall be adequate both to terminate the authorization of the
persons theretofore authorized, and to authorize the persons thereby
substituted.

-6-

<PAGE>

EXHIBIT 11

EARNINGS PER SHARE
FOR FISCAL YEARS ENDED

Years Ended December 31,
----------------------------------
1993 1992 1991
------ ------- --------
<S> <C> <C> <C>
Earnings (loss) before income taxes,
extraordinary items and cumulative effect
of accounting change............................................................... $31,836,000 $(7,270,000) $ 2,185,000
Income taxes......................................................................... 12,416,000 526,000 787,000
----------- ----------- ----------
Earnings (loss) before extraordinary items
and cumulative effect of accounting change......................................... 19,420,000 (7,796,000) 1,398,000
Extraordinary items, net of income taxes............................................. (619,000) (958,000) (1,269,000)
Cumulative effect of accounting change............................................. 1,500,000 - -
------------ ----------- -----------
Net earnings (loss)................................................................. $20,301,000 $(8,754,000) $ 129,000
------------ ----------- -----------
------------ ----------- -----------
Weighted average common and common
equivalent shares................................................................. 31,537,000 30,201,000 29,704,000
------------ ----------- -----------
------------ ----------- -----------
Earnings (loss) per common and common
equivalent share:
Earnings (loss) before extraordinary items...................................... $ .61 $ (.26) $ .05
Extraordinary items, net of income taxes........................................ (.02) (.03) (.05)
Cumulative effect of accounting change.......................................... .05 - -
------------ ----------- -----------
Net earnings (loss)............................................................. $ .64 $ (.29) $ -
------------ ------------ -----------
------------ ------------ -----------

Weighted average common shares - assuming
full dilution...................................................................... 31,653,000 30,251,000 29,741,000
------------ ----------- ------------
------------ ----------- ------------
Earnings (loss) before extraordinary items and
cumulative effect of accounting change.......................................... $ .61 $ (.26) $ .05
Extraordinary items, net of income taxes.......................................... (.02) (.03) (.05)
Cumulative effect of accounting change............................................ .05 - -
------------ ----------- ------------
Net earnings (loss)............................................................... $ .64 $ (.29) $ -
------------ ----------- ------------
------------ ----------- ------------
</TABLE>

<PAGE>

Exhibit 22

SUBSIDIARIES OF LA QUINTA INNS, INC.
("THE COMPANY")
AS OF MARCH 3, 1994

The Company has four (4) active wholly-owned corporate subsidiaries which are:

1. La Quinta Financial Corporation, a Texas corporation;
2. La Quinta Realty Corp., a Texas corporation;
3. La Quinta Investments, Inc., a Delaware corporation; and
4. LQI Acquisition Corporation, a Delaware corporation.

The following are unincorporated partnerships and joint ventures (general and
limited partnerships) of the Company as of March 3, 1994.

Percentage of
Ownership of
Entity the Company
------ -------------
<S> <C>
La Quinta Development Partners, L.P. 40.0%
LQ CIGNA I 1.0%
LQ CIGNA II 1.0%
La Quinta-Dallas Central Expressway, Ltd. 64.8%
La Quinta-Austin Motor Hotel, Ltd. 66.7%
La Quinta-Houston I.H. 10, Ltd. 50.0%
La Quinta-San Antonio South Joint Venture 50.0%
LQ Motor Inn Venture-Austin No. 530 50.0%
La Quinta-Wichita, Kansas No. 532, Ltd. 50.0%
LQ-West Bank Joint Venture-1982 60.0%
LQ-Baton Rouge Joint Venture 80.0%
San Antonio Main Avenue Motel, Ltd. 66.7%
LQ-LNL Limited Partnership 100%
LQM Operating Partners, L.P. 100%
La Quinta Denver-Peoria Street, Ltd. 100%
LQ-Big Apple Joint Venture 100%
LQ-East Irvine Joint Venture 100%
La Quinta Motor Inns Limited Partnership 100%

</TABLE>

The Company is the sole general partner or managing partner of all of the
partnerships listed above.

<PAGE>

EXHIBIT 24

The Board of Directors
La Quinta Inns, Inc.:

We consent to incorporation by reference in the registration statements (No.
33-26470, No. 2-97266, No. 2-67606, No. 2-65645, No. 2-55102, and No. 22-588666)
on Form S-8 and (No. 2-65645) on Form S-16 of La Quinta Inns, Inc. of our report
dated January 31, 1994, except as to the first paragraph of note 5 which is as
of February 9, 1994, relating to the combined balance sheets of La Quinta Inns,
Inc. as of December 31, 1993 and 1992, and the related combined statements of
operations, shareholders' equity, and cash flows and related schedules for each
of the years in the three-year period ended December 31, 1993 which report
appears in the December 31, 1993 annual report on Form 10-K of La Quinta Inns,
Inc.

Our report refers to the adoption of Statement of Financial Accounting Standards
No. 109 in 1993.

KPMG PEAT MARWICK

San Antonio, Texas
March 23, 1994

<PAGE>

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

____________________________
Joseph F. Azrack