LA QUINTA INNS INC, S-3/A, 1995-09-07

LA QUINTA INNS INC
S-3/A, 1995-09-07
HOTELS & MOTELS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 1995.

REGISTRATION NO. 33-61755

AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

TEXAS 74-1724417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
(210) 302-6000

(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
JOHN F. SCHMUTZ
VICE PRESIDENT -- GENERAL COUNSEL
LA QUINTA INNS, INC.
WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
(210) 302-6000

(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:

John M. Newell Bruce K. Dallas
Latham & Watkins Davis Polk & Wardwell
633 West Fifth Street, Suite 4000 450 Lexington Avenue
Los Angeles, California 90071-2007 New York, New York 10017
(213) 485-1234 (212) 450-4000

--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to a dividend or interest reinvestment plans, check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
investment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

PROSPECTUS (SUBJECT TO COMPLETION, ISSUED SEPTEMBER 7, 1995)

$100,000,000
LA QUINTA INNS, INC.
% SENIOR NOTES DUE 2005
-----------------

INTEREST PAYABLE AND
-------------------

THE SENIOR NOTES MAY NOT BE REDEEMED PRIOR TO MATURITY. THE SENIOR NOTES WILL BE
REPRESENTED BY GLOBAL NOTES REGISTERED IN THE NAME OF A NOMINEE OF THE
DEPOSITORY TRUST COMPANY, AS DEPOSITARY. BENEFICIAL INTERESTS IN THE
SENIOR NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED
ONLY THROUGH, RECORDS MAINTAINED BY THE DEPOSITARY (WITH RESPECT TO
PARTICIPANTS' INTERESTS) AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED
IN THIS PROSPECTUS, SENIOR NOTES IN CERTIFICATED FORM WILL NOT
BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTES.

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

SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE SENIOR NOTES OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------

PRICE % AND ACCRUED INTEREST
-------------------

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC (1) AND COMMISSIONS (2) COMPANY (1)(3)
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
PER SENIOR NOTE....................... % % %
TOTAL................................. $ $ $
</TABLE>

- ---------

(1) PLUS ACCRUED INTEREST FROM , 1995.

(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."

(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .

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

THE SENIOR NOTES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF
ACCEPTED BY THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN
LEGAL MATTERS BY DAVIS POLK & WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT DELIVERY OF THE SENIOR NOTES WILL BE MADE ON OR ABOUT
, 1995 THROUGH THE BOOK-ENTRY FACILITIES OF THE DEPOSITORY
TRUST COMPANY, AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------

MORGAN STANLEY & CO.
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC CAPITAL MARKETS, INC.

, 1995
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY (THE
"OFFERING") TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SENIOR NOTES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.......................................................................... 3
Risk Factors................................................................................ 10
Use of Proceeds............................................................................. 11
Capitalization.............................................................................. 12
Selected Financial Data..................................................................... 13
Pro Forma Financial Data.................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations....... 18
Business.................................................................................... 27
Description of Senior Notes................................................................. 34
Underwriters................................................................................ 45
Legal Matters............................................................................... 45
Experts..................................................................................... 46
Available Information....................................................................... 46
Incorporation of Certain Information by Reference........................................... 46
</TABLE>

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
OFFERED HEREBY OR THE COMPANY'S 9 1/4% SENIOR SUBORDINATED NOTES DUE 2003 AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE, OR
INCORPORATED BY REFERENCE, IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE "COMPANY" OR "LA QUINTA" REFERS TO LA QUINTA INNS, INC., TOGETHER
WITH ITS COMBINED SUBSIDIARIES, AND UNINCORPORATED JOINT VENTURES AND
PARTNERSHIPS. LA QUINTA-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF LA
QUINTA INNS, INC.

THE COMPANY

La Quinta is the second largest owner/operator of hotels in the United
States, with 236 inns and more than 30,000 rooms. La Quinta, which operates
primarily in the mid-priced segment of the lodging industry, achieved an average
occupancy percentage of 70.1% and an average daily room rate ("ADR") of $47.65
for the year ended December 31, 1994. Founded in 1968, the Company has inns
located in 29 states, with strategic concentrations in Texas, Florida and
California. La Quinta currently owns a 100% interest in 228 of its inns and a
50% or greater interest in an additional seven inns. La Quinta operates all of
its inns other than one licensed inn. La Quinta's business strategy is to
continue to expand its successful core business as an owner/operator in the
mid-priced segment of the lodging industry.

OWNERSHIP AND MANAGEMENT CONTROL

Unlike most major chains in the lodging industry, La Quinta owns and manages
all but one of the inns that carry its brand. The Company believes that much of
its success is attributable to this operating control, which allows the Company
to achieve a higher level of consistency in both product quality and service
than its competitors. In addition, its operating control gives La Quinta the
ability to offer new services, determine expansion strategies, set pricing and
make other marketing decisions on a system-wide or local basis as conditions
dictate, without consulting third-party owners, management companies or
franchisees as required of most other lodging chains.

BRAND IMAGE

La Quinta has taken major steps to assure uniform high quality at its inns.
In 1993 and 1994, the Company invested approximately $65 million in a
comprehensive chainwide image enhancement program designed to give all of its
inns a new, fresh appearance while preserving their unique character. The
program, which was substantially completed in mid-1994, featured new signage
displaying a distinctive new logo, along with exterior and lobby upgrades
including brighter colors, more extensive lighting, additional landscaping,
enhanced guest entry and a full lobby renovation with contemporary furnishings
and seating areas for continental breakfast.

As a result of its ability to provide consistently high-quality, convenient
accommodations and excellent value, the Company believes that it has established
La Quinta as a strong, well-regarded mid-priced brand. The Company believes that
its brand recognition and reputation have enhanced the performance of its
existing inns and should provide an advantage for inns added in the future.

FOCUSED GROWTH STRATEGY

La Quinta attributes its strong operating performance in large part to the
successful implementation of the strategic plan formulated by the Company's
senior management team after their arrival at the Company in 1992. Under this
plan, management has (i) substantially restructured the Company, purchasing its
partners' interests in 19 unincorporated joint ventures and partnerships since
1993, refinancing a majority of its outstanding debt, and instituting corporate
and operating-level cost controls, (ii) reimaged all La Quinta inns through the
system-wide image enhancement program, and (iii) demonstrated its ability to
grow the number of inns -- acquiring 11 inns in 1993, 15 inns in 1994 and nine
inns in the first six months of 1995 -- while increasing profitability.

3
<PAGE>
twelve months ended June 30, 1995, the Company generated $79.6 million of cash
flow after required interest payments, maintenance capital expenditures (assumed
to be 5% of room revenues), dividends, taxes and partner distributions,
providing an internal source of funding to support its growth plan.

FACILITIES AND SERVICES

The typical La Quinta inn contains approximately 130 spacious, quiet and
comfortably furnished guest rooms averaging 300 square feet in size. Guests at a
La Quinta inn are offered a wide range of amenities and services, including
complimentary continental breakfast, free unlimited local telephone calls,
remote-control televisions with a premium movie channel, a swimming pool,
same-day laundry and dry cleaning, fax services, 24-hour front desk and message
service, smoking/non-smoking rooms and free parking. La Quinta guests typically
have convenient access to food service at adjacent free-standing restaurants,
including national chains such as Cracker Barrel, IHOP, Denny's and Perkins. La
Quinta has an ownership interest in 126 of these adjacent restaurant buildings,
which it leases to restaurant operators.

La Quinta inns appeal to guests who desire high-quality rooms, convenient
locations and attractive prices, but who do not require banquet and convention
facilities, in-house restaurants, cocktail lounges or room service. By
eliminating the costs of these management-intensive facilities and services, La
Quinta believes it offers its customers exceptional value by providing rooms
that are comparable in quality to full-service hotels at lower prices.

CUSTOMER BASE AND MARKETING

La Quinta's combination of consistent, high-quality accommodations and good
value is attractive to business customers, who account for more than 50% of
rooms rented. These core customers typically visit a given area several times a
year, and include salespersons covering a specific territory, government and
military personnel and technicians. The Company also targets both vacation
travelers and senior citizens. For the convenience of these targeted customer
groups, inns are generally located near suburban office parks, major traffic
arteries or destination areas such as airports and convention centers.

La Quinta has developed a strong following among its customers; internal
customer surveys show that the average customer spends 16 nights per year in a
La Quinta inn. The Company focuses a number of its marketing programs on
maintaining a high number of repeat customers. For example, La Quinta promotes a
"Returns-Registered Trademark- Club" offering members preferred status and rates
at La Quinta inns, along with rewards for frequent stays. The Returns Club had
approximately 235,000 members as of June 30, 1995.

The Company markets directly to companies and other organizations through
its direct sales force of 40 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. The Company also provides a central
reservation system, "teLQuik-Registered Trademark-," which currently accounts
for advance reservations for approximately 27% of room nights. The teLQuik
system allows customers to make reservations by dialing 1-800-531-5900 toll
free, or from special reservations phones placed in all La Quinta inns. In
addition, approximately 47% of room nights reflect advance reservations made
directly with individual inns and forwarded to the central reservation system.
In total, advance reservations account for approximately 74% of room nights.

FINANCIAL PERFORMANCE

La Quinta's financial results reflect both the successful implementation of
its business strategy and improvements in the lodging industry in recent years.
During the five-year period from 1990 through 1994, the Company's revenue per
available room ("REVPAR," which is the product of occupancy percentage and ADR)
increased from $27.01 per night to $33.39 per night, a compound annual growth
rate of 5.4%; revenue increased from $226.8 million to $362.2 million, a
compound annual growth rate of 12.4%; EBITDA (as defined in footnote 4 under
"Summary Combined Financial Data") increased from $79.3 million to $148.7
million, a compound annual growth rate of 17.0%; and net income increased from
$2.2 million to $37.8 million. During this same period, the Company reduced its
annual corporate overhead expense from $21.6 million in 1990 to $18.6 million in
1994, a decrease of 13.9%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

4
<PAGE>

La Quinta's operating results in the first six months of 1995 versus the
first six months of 1994 continued this positive trend: REVPAR increased 12.8%,
revenues increased 21.1%, EBITDA increased 37.8% and net income increased 65.0%.
These results illustrate the operating leverage inherent in the lodging industry
during these periods. As occupancy and ADR increase, a high percentage of the
additional revenue translates into net income due to the low marginal costs of
increasing occupancy and ADR. The operating leverage is also reflected in the
Company's EBITDA margin, which rose from 40.0% in the first six months of 1994
to 45.6% in the first six months of 1995.

AEW TRANSACTION

In March 1990, the Company formed a limited partnership, La Quinta
Development Partners, L.P. ("LQDP"), with AEW Partners, L.P. ("AEW") pursuant to
the LQDP Partnership Agreement. LQDP was established for the purpose of
acquiring competitors' inns and converting them to the La
Quinta-Registered Trademark- brand. La Quinta managed the inns owned by LQDP.
Prior to the transaction described below, La Quinta, the general partner of
LQDP, owned a 40% interest and AEW, the limited partner, owned a 60% interest in
LQDP. La Quinta contributed property with a fair value of approximately $44
million and $4 million in cash to LQDP, and AEW contributed cash of $3 million
and an additional $69 million in the form of a promissory note which was
subsequently funded. At June 30, 1995, LQDP owned 47 inns and 16 adjacent
restaurant buildings.

Under the terms of the LQDP Partnership Agreement, AEW had a right to
require that any inns proposed to be acquired by the Company instead be acquired
by LQDP. This right expired by its terms in March 1995. In addition, in
connection with the formation of LQDP in 1990, AEW paid $3 million for an
option, subject to certain vesting and other conditions, to convert two-thirds
of its ownership interest in LQDP into a specified number of shares of the
Company's Common Stock (adjusted for stock splits, cash dividends, and
distributions from LQDP to AEW).

On June 15, 1995, AEW notified the Company that it would exercise, subject
to certain conditions, its option to convert two-thirds of its ownership
interest in LQDP into 5,299,821 shares of the Company's Common Stock. AEW also
agreed to sell the remaining one-third of its ownership interest in LQDP to the
Company for a negotiated price of $48.2 million in cash (collectively, with the
conversion, the "AEW Transaction"). The AEW Transaction was consummated on July
3, 1995. The Company financed the cash portion of the AEW Transaction through
borrowings under its and LQDP's bank credit facilities. The shares issued upon
conversion were registered pursuant to a registration rights agreement and all
of such shares, together with 20,250 shares of Common Stock previously owned by
AEW, were sold in a public offering that was consummated in August 1995. AEW
bore all of the costs related to the registration and sale of the shares in such
public offering.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Securities Offered................ $100,000,000 principal amount of % Senior Notes due
2005 (the "Senior Notes").
Maturity Date..................... , 2005.
Interest Payment Dates............ and , commencing , 1996.
Redemption........................ The Senior Notes may not be redeemed prior to maturity.
Mandatory Sinking Fund............ None.
Ranking........................... The Senior Notes will be senior unsecured obligations of
the Company and will rank PARI PASSU with the Amended
Bank Credit Facility (as defined under "Use of
Proceeds"). Neither the Senior Notes nor the Amended
Bank Credit Facility are secured by any of the Company's
assets. The Senior Notes are effectively subordinated to
the repayment of indebtedness of the Company's sub-
sidiaries, of which $20.3 million was outstanding at
June 30, 1995, as adjusted for this Offering. See
"Description of Senior Notes -- General."
Certain Covenants................. The indenture (the "Indenture") governing the Senior
Notes will contain certain covenants that, among other
things, will limit the ability of the Company and its
subsidiaries to create liens, enter into sale and
leaseback transactions, and, with respect to the
Company, engage in mergers and consolidations or
transfer substantially all of the Company's assets. The
Indenture does not contain any restriction on the
payment of dividends or any financial covenants. The
Indenture does not contain provisions which would afford
Holders of the Senior Notes protection in the event of a
transfer of assets to a subsidiary and incurrence of
unsecured debt by such subsidiary, or in the event of a
decline in the Company's credit quality resulting from
highly leveraged or other similar transactions involving
the Company. See "Description of Senior Notes --
General" and "-- Certain Covenants."
Use of Proceeds................... The net proceeds from the sale of the Senior Notes will
be used to repay outstanding indebtedness. See "Use of
Proceeds."
</TABLE>

6
<PAGE>
SUMMARY COMBINED FINANCIAL DATA

The following table sets forth certain combined financial information of the
Company, its wholly-owned subsidiaries and its combined unincorporated
partnerships and joint ventures and is qualified in its entirety by, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements, the
notes thereto, and other financial, pro forma and statistical information
included or incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues.................. $ 206,778 $ 170,806 $ 362,242 $ 271,850 $ 254,122 $ 240,888 $ 226,830
Direct and corporate operating
costs and expenses (1)......... 112,520 102,405 213,508 168,021 156,529 154,846 147,560
Depreciation, amortization and
fixed asset retirements........ 20,630 17,772 37,977 24,055 24,793 35,201 34,660
Performance stock option (2).... -- -- -- 4,407 -- -- --
Non-recurring cash and non-cash
charges (1).................... -- -- -- -- 38,225 7,952 503
Operating income................ 73,628 50,629 110,757 75,367 34,575 42,889 44,107
Net interest expense............ 19,804 17,530 37,439 26,219 27,046 30,271 32,304
Partners' equity (1)............ 8,976 5,522 11,406 12,965 15,081 9,421 8,408
Net (gain) loss on property
transactions................... -- -- (79) 4,347 (282) 1,012 (3)
Income tax expense.............. 17,087 10,755 24,176 12,416 526 787 1,223
Net earnings (loss) (1) (3)..... 27,761 16,822 37,815 20,301 (8,754) 129 2,175
OTHER DATA
EBITDA (4)...................... $ 94,258 $ 68,401 $ 148,734 $ 103,829 $ 97,593 $ 86,042 $ 79,270
EBITDA margin (5)............... 45.6% 40.0% 41.1% 38.2% 38.4% 35.7% 34.9 %
Capital expenditures (6)........ $ 16,417 $ 55,435 $ 75,248 $ 32,623 $ 15,529 $ 13,803 $ 17,696
Purchase and conversion of inns
(7)............................ 40,292 20,989 34,690 38,858 4,060 15,487 18,574
Purchase of partners' equity
(8)............................ -- 9,622 53,255 78,169 -- 3,546 --
Ratio of EBITDA to net interest
expense........................ 4.8x 3.9x 4.0x 4.0x 3.6x 2.8x 2.5 x
Ratio of earnings to fixed
charges (9).................... 3.5x 2.6x 2.8x 2.4x 1.2x 1.3x 1.3 x
OPERATING DATA
Number of inns (10)............. 236 224 228 221 212 212 210
Occupancy percentage (11)....... 72.3% 70.0% 70.1% 65.1% 65.6% 64.8% 66.0 %
ADR (12)........................ $50.87 $46.62 $47.65 $46.36 $44.33 $43.11 $40.93
REVPAR (13)..................... 36.79 32.61 33.39 30.20 29.06 27.92 27.01
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1995
-------------------
<S> <C>
BALANCE SHEET DATA
Total assets............................................................................... $ 885,082
Current installments of long-term debt..................................................... 15,242
Long-term debt, excluding current installments............................................. 465,997
Partners' capital.......................................................................... 100,105
Shareholders' equity....................................................................... 222,583
</TABLE>

7
<PAGE>
<TABLE>
<S> <C>
<FN>
- --------------------------
(1) 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. Results for the year ended December 31, 1992 were
impacted by an additional charge of $1,214,000 to partners' equity in
earnings and losses related to the reallocation of losses of a combined
unincorporated joint venture to the Company.
(2) Performance stock option relates to the costs of stock options which became
exercisable when the average price of the Company's Common Stock reached
$30 per share (pre-split) for twenty consecutive days. In 1993, performance
stock option expense and certain other options were accelerated as a result
of this condition being met. Currently, the Company has no options
outstanding that require recognition of additional compensation expense.
(3) 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 the use of the asset and liability method
of accounting for deferred income taxes. The Company recorded the impact of
SFAS 109's implementation, an increase in net income of $1,500,000, as the
cumulative effect of an accounting change in the combined statement of
operations for the year ended December 31, 1993. Prior years' financial
statements were not restated to apply the provisions of SFAS 109.
(4) EBITDA, as defined by the covenants in the Company's 9 1/4% Senior
Subordinated Notes due 2003, 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. This definition differs from the traditional EBITDA
definition which does not include adjustments for 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
as follows:
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------- -------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Extraordinary items.................. $ -- $ -- $ -- $ 619 $ 958 $1,269 $ --
Partners' equity in earnings and
losses............................. 8,976 5,522 11,406 12,965 15,081 9,421 8,408
(Gain) loss on property
transactions....................... -- -- (79) 4,347 (282) 1,012 (3)
Non-recurring cash and non-cash
charges and performance stock
option............................. -- -- -- 4,407 38,225 7,952 503
<FN>
EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with generally accepted accounting principals
("GAAP"). EBITDA, as defined above, is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt.
(5) EBITDA margin represents EBITDA divided by total revenues.
(6) Represents capital expenditures other than those for purchase and
conversion of inns. Capital expenditures for the six months ended June 30,
1995 and 1994 and the years ended December 31, 1994 and 1993, include costs
related to the Company's image enhancement program.
(7) Included in the six months ended June 30, 1995 and 1994 and the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 were conversion costs of
$5,624,000, $5,806,000, $8,891,000, $7,231,000, $4,060,000, $3,977,000 and
$4,788,000, respectively.
(8) Purchase of partners' equity in the six months ended June 30, 1994 and the
years ended December 31, 1994 and 1993 includes approximately $9,322,000,
$9,322,000 and $42,091,000, respectively, related to the acquisition of the
La Quinta Motor Inns Limited Partnership ("LQP").
(9) For purposes of calculating this ratio, earnings include net earnings
(loss) before income taxes, extraordinary items, and the cumulative effect
of accounting change, partners' equity in earnings and losses of combined
unincorporated ventures that have fixed charges, fixed charges net of
interest capitalized, and amortization of capitalized interest. Fixed
charges include interest expense on long-term debt (before capitalized
interest) and the portion of rental expense allocated to interest.
(10) Number of inns includes 40 managed inns and inns licensed to others in the
years ended December 31, 1992, 1991 and 1990 and includes nine managed inns
and inns licensed to others in the six months ended June 30, 1994 and the
year ended December 31, 1993, the results of which are not included in the
combined financial statements.
(11) The occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of La Quinta
rooms available for rent multiplied by the number of days in the reported
period.
(12) ADR represents total room revenues divided by the total number of rooms
occupied.
(13) REVPAR represents the product of occupancy percentage and ADR.
</TABLE>

8
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA

The unaudited summary pro forma combined condensed statement of operations
and balance sheet data presented below reflect the statement of operations and
balance sheet data as reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 and Quarterly Report on Form 10-Q for the six
months ended June 30, 1995, adjusted to give effect to (i) the AEW Transaction
as if the transaction had occurred at the beginning of the periods presented or
at the balance sheet date, respectively, and (ii) the sale of the Senior Notes
and the anticipated application of the estimated net proceeds therefrom. See
"Use of Proceeds." The following table is qualified in its entirety by, and
should be read in conjunction with, "Pro Forma Financial Data" and the combined
financial statements, the notes thereto, and other financial, pro forma and
statistical information included or incorporated by reference in this
Prospectus.

<TABLE>
<CAPTION>
PRO FORMA FOR THE PRO FORMA FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995(1) 1994(1)
------------------- ------------------------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
STATEMENT OF OPERATIONS
Total revenues.................................................... $ 206,778 $ 362,242
-------- --------
Operating costs and expenses:
Direct and corporate............................................ 112,520 213,508
Depreciation, amortization, and fixed asset retirements......... 21,178 39,073
-------- --------
Total operating costs......................................... 133,698 252,581
-------- --------
Operating income.............................................. 73,080 109,661
-------- --------
Other (income) expenses:
Net interest expense............................................ 21,824 41,549
Partners' equity................................................ 1,400 2,128
Net gain on property transactions............................... -- (79)
-------- --------
Earnings before income taxes.................................... 49,856 66,063
Income tax expense.............................................. 18,995 25,500
-------- --------
Net earnings.................................................. $ 30,861 $ 40,563
-------- --------
-------- --------
Ratio of earnings to fixed charges................................ 3.2x 2.5x
-------- --------
-------- --------
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
AT
JUNE 30, 1995
------------------------
<S> <C>
BALANCE SHEET DATA
Total assets............................................................................ $ 937,163
Short-term borrowings and current installments of long-term debt........................ 15,242
Long-term debt, excluding current installments.......................................... 515,197
Partners' capital....................................................................... 6,586
Shareholders' equity.................................................................... 318,983
<FN>
- ------------------------
(1) Pro forma condensed statement of operations does not reflect a
non-recurring, non-cash item directly attributable to the AEW Transaction.
See "Pro Forma Financial Data."
</TABLE>

9
<PAGE>
RISK FACTORS

RISKS OF THE LODGING INDUSTRY

The Company's business is subject to all of the risks inherent in the
lodging industry. These risks include, among other things, adverse effects of
general and local economic conditions (particularly in geographic areas where
the Company has a high concentration of inns), changes in local market
conditions, oversupply of hotel space, a reduction in local demand for hotel
rooms, changes in travel patterns, changes in governmental regulations that
influence or determine wages, prices or construction costs, changes in interest
rates, the availability of credit and changes in real estate taxes and other
operating expenses. The Company's ownership of real property, including inns, is
substantial. Real estate values are sensitive to changes in local market and
economic conditions and to fluctuations in the economy as a whole. Due in part
to the strong correlation between the lodging industry's performance and
economic conditions, the lodging industry is subject to cyclical changes in
revenues and profits.

COMPETITION
The lodging industry is highly competitive. During the 1980's, construction
of lodging facilities in the United States at historically high levels resulted
in an excess supply of available rooms. This oversupply had an adverse effect on
occupancy levels and room rates in the industry. The oversupply has now largely
been absorbed, with growth in demand exceeding growth in supply in each of the
last three years. However, there can be no assurance that an oversupply will not
exist again in the future. Competitive factors in the industry include
reasonableness of room rates, quality of accommodations, brand recognition,
service levels and convenience of locations. The Company's inns generally
operate in areas that contain numerous other competitors, certain of which have
substantially greater financial resources than the Company. There can be no
assurance that demographic, geographic or other changes in markets will not
adversely affect the convenience or desirability of the locations of the
Company's inns. Furthermore, there can be no assurance that, in the markets in
which the Company's inns operate, competing hotels will not pose greater
competition for guests than presently exists, or that new hotels will not enter
such markets. See "Business -- Competition."

ACQUISITION AND DEVELOPMENT RISKS
The Company's growth strategy of acquiring inns for conversion and selective
development of new inns will subject the Company to pre-opening and conversion
costs. As the Company opens additional Company-owned inns, such costs may
adversely affect the Company's operating results. Newly opened inns historically
begin with lower occupancy and room rates that improve over time. While the
Company has in the past successfully opened or converted new inns, there can be
no assurance that the Company will be able to achieve its growth strategy.
Construction, acquisition and conversion of inns involves certain risks,
including the possibility of construction cost overruns and delays, site
acquisition cost and availability, uncertainties as to market potential, market
deterioration after acquisition or conversion, possible unavailability of
financing on favorable terms and the emergence of market competition from
unanticipated sources. Although the Company seeks to manage its construction,
acquisition and conversion activities so as to minimize such risks, there can be
no assurance that new inns will perform in accordance with the Company's
expectations.

SEASONALITY
The lodging industry is seasonal in nature. Generally, the Company's inn
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues, profit margins and net earnings of the Company.

ABSENCE OF A TRADING MARKET FOR THE SENIOR NOTES
The Senior Notes are a new issue of securities that have no established
trading market and may not be widely distributed. The Company has no present
plan to list any of the Senior Notes on a national securities exchange or to
seek the admission thereof to trading in the National Association of Securities
Dealers Automated Quotation System. The Underwriters have advised the Company
that they currently intend to make a market in the Senior Notes, but they are
not obligated to do so and may discontinue any such market making at any time
without notice. There can be no assurance that an active trading market will
develop for the Senior Notes or of the price at which the holders would be able
to sell their Senior Notes. The Senior Notes could trade at prices that may be
higher or lower than the initial offering price thereof depending upon many
factors including prevailing interest rates, the Company's operating results and
the market for similar securities.

10
<PAGE>

CERTAIN COVENANTS

The Indenture governing the Senior Notes does not contain any restriction on
the payment of dividends or any financial covenants. The Indenture does not
contain provisions which would afford Holders of the Senior Notes protection in
the event of a transfer of assets to a subsidiary and incurrence of unsecured
debt by such subsidiary, or in the event of a decline in the Company's credit
quality resulting from highly leveraged or other similar transactions involving
the Company. See "Description of Senior Notes -- General" and "-- Certain
Covenants."

USE OF PROCEEDS

The net proceeds from the sale of the Senior Notes in the Offering are
estimated to be approximately $99 million. The Company intends to use the net
proceeds of the Offering to repay indebtedness under the Company Bank Credit
Facility (as defined below) and the unsecured lines of credit of the Company's
wholly-owned limited partnership, LQDP. Both the Company Bank Credit Facility
and the LQDP Lines of Credit (as defined below) are with a syndicate of banks
and NationsBank of Texas, N.A., as administrative agent for the banks
thereunder.

The Company's current credit facility (the "Company Bank Credit Facility")
consists of a $75 million secured line of credit and a $141.5 million secured
term credit facility with maturities of May 1999 and May 1997-May 2002,
respectively, bearing interest at either LIBOR, the prime rate or the
certificate of deposit rate plus an applicable margin as defined in the related
credit agreement. As of September 6, 1995, the Company had borrowings under the
secured line of credit and the secured term credit facility in the aggregate
amounts of $32.2 million and $141.5 million, respectively, at average interest
rates of 6.77% and 7.00%, respectively.

The Company, through LQDP, also has a credit facility (the "LQDP Lines of
Credit") consisting of a $35 million unsecured line of credit and a $30 million
364-day unsecured line of credit with maturities of May 1997 and April 1996,
respectively, bearing interest at either LIBOR, the prime rate or the
certificate of deposit rate plus an applicable margin as defined in the related
credit agreement. As of September 6, 1995, LQDP had borrowings under the $35
million unsecured line of credit and the $30 million 364-day unsecured line of
credit in the aggregate amounts of $30 million and $30 million, respectively, at
average interest rates of 6.52% and 6.50%, respectively.

During the twelve month period ended June 30, 1995, borrowings under the
Company Bank Credit Facility and the LQDP Lines of Credit have been made (i) to
fund working capital needs in the ordinary course of business, (ii) in the
amount of $91.8 million for the acquisition of partnership interests, including
the AEW Transaction and (iii) in the amount of $45.3 million for the acquisition
of existing inns for conversion to the La Quinta brand.

Simultaneously with the closing of this Offering, the Company Bank Credit
Facility, along with the LQDP Lines of Credit, are expected to be amended and
combined as an amended and restated credit facility of the Company (the "Amended
Bank Credit Facility") consisting of a $200 million unsecured line of credit and
a $50 million 364-day unsecured line of credit of the Company, with maturities
of August 2000 and August 1996, respectively, bearing interest at LIBOR, the
prime rate or the certificate of deposit rate plus an applicable margin as
defined in the Amended Bank Credit Facility. The Company is currently seeking
commitments from lenders with respect to the Amended Bank Credit Facility.

11
<PAGE>
CAPITALIZATION

The following table sets forth cash and cash equivalents, short-term
borrowings and current installments of long-term debt and the capitalization of
the Company as of June 30, 1995, and (i) as adjusted to give effect to the AEW
Transaction as if the AEW Transaction occurred on June 30, 1995, and (ii) Pro
Forma to reflect the AEW Transaction and the sale of the Senior Notes and the
anticipated application of the estimated net proceeds therefrom as if such
transactions occurred on June 30, 1995. For additional information, see "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the combined financial statements, the notes thereto,
and other financial, pro forma and statistical information included or
incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------------------------
ADJUSTED FOR
THE
ACTUAL AEW TRANSACTION PRO FORMA
-------- --------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents....................................................... $ 6,694 $ 6,694 $ 6,694
-------- --------------- -----------
-------- --------------- -----------
Short-term borrowings and current installments of long-term debt................ $ 15,242 $ 45,242(1) $ 15,242(3)
-------- --------------- -----------
-------- --------------- -----------
Long-term debt, excluding current installments
Mortgage loans, maturing 1995-2016............................................ $ 88,355 $ 88,355 $ 88,355
Industrial development revenue bonds, maturing 1995-2012...................... 57,142 57,142 57,142
% Senior Notes due 2005..................................................... -- -- 100,000(3)
Bank secured term credit facility, maturing May 30, 1997-May 30, 2002......... 141,500 141,500 -- (3)
Bank secured line of credit, maturing May 31, 1999............................ 34,000 42,200(1) -- (3)
Bank unsecured line of credit, maturing May 31, 1997.......................... 25,000 35,000(1) -- (3)
Bank unsecured line of credit, maturing May 31, 2000.......................... -- -- 149,700(3)
9 1/4% Senior Subordinated Notes due 2003..................................... 120,000 120,000 120,000
-------- --------------- -----------
Total long-term debt, excluding current installments........................ 465,997 484,197 515,197
-------- --------------- -----------
Partners' capital............................................................... 100,105 6,586(1)(2) 6,586
Shareholders' equity............................................................ 222,583 318,983(2) 318,983
-------- --------------- -----------
Total capitalization........................................................ $788,685 $809,766 $840,766
-------- --------------- -----------
-------- --------------- -----------
<FN>
- ------------------------
(1) Adjusted to reflect borrowings of $48.2 million for the Company's
acquisition of one-third of AEW's interest in LQDP. Approximately $30
million of the $48.2 million purchase price was drawn on LQDP's 364-day
unsecured line of credit and is therefore reflected as short-term
borrowings. The remainder of the purchase price was borrowed under the
Company's and LQDP's bank credit facilities.

(2) Adjusted to reflect the conversion of two-thirds of AEW's interest in LQDP
and the credit to shareholders' equity for the fair market value of the
assets acquired ($96.4 million).

(3) Adjusted to reflect the issuance of the Senior Notes, the repayment of
existing indebtedness under the Company Bank Credit Facility and the LQDP
Lines of Credit, and the replacement of the Company Bank Credit Facility
and the LQDP Lines of Credit with the Amended Bank Credit Facility.
</TABLE>

12
<PAGE>
SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues..................................... $ 206,778 $ 170,806 $ 362,242 $ 271,850 $ 254,122 $ 240,888 $ 226,830
Direct and corporate operating costs and expenses
(1)............................................... 112,520 102,405 213,508 168,021 156,529 154,846 147,560
Depreciation, amortization and fixed asset
retirements....................................... 20,630 17,772 37,977 24,055 24,793 35,201 34,660
Performance stock option (2)....................... -- -- -- 4,407 -- -- --
Non-recurring cash and non-cash charges (1)........ -- -- -- -- 38,225 7,952 503
Operating income................................... 73,628 50,629 110,757 75,367 34,575 42,889 44,107
Net interest expense............................... 19,804 17,530 37,439 26,219 27,046 30,271 32,304
Partners' equity (1)............................... 8,976 5,522 11,406 12,965 15,081 9,421 8,408
Net (gain) loss on property transactions........... -- -- (79) 4,347 (282) 1,012 (3)
Income tax expense................................. 17,087 10,755 24,176 12,416 526 787 1,223
Earnings (loss) before extraordinary items and
cumulative effect of accounting change............ 27,761 16,822 37,815 19,420 (7,796) 1,398 2,175
Net earnings (loss) (1)(3)......................... 27,761 16,822 37,815 20,301 (8,754) 129 2,175
Earnings (loss) per share before extraordinary
items and cumulative effect of accounting
change............................................ 0.56 0.35 0.78 0.41 (0.17) 0.03 0.05
Net earnings (loss) per share (3)(4)............... 0.56 0.35 0.78 0.43 (0.19) -- 0.05
OTHER DATA
EBITDA (5)......................................... $ 94,258 $ 68,401 $ 148,734 $ 103,829 $ 97,593 $ 86,042 $ 79,270
EBITDA margin (6).................................. 45.6% 40.0% 41.1% 38.2% 38.4% 35.7% 34.9%
Capital expenditures (7)........................... $ 16,417 $ 55,435 $ 75,248 $ 32,623 $ 15,529 $ 13,803 $ 17,696
Purchase and conversion of inns (8)................ 40,292 20,989 34,690 38,858 4,060 15,487 18,574
Purchase of partners' equity (9)................... -- 9,622 53,255 78,169 -- 3,546 --
Ratio of EBITDA to net interest expense............ 4.8x 3.9x 4.0x 4.0x 3.6x 2.8x 2.5x
Ratio of earnings to fixed charges (10)............ 3.5x 2.6x 2.8x 2.4x 1.2x 1.3x 1.3x
Cash dividends declared per common share........... 0.05 0.05 0.10 0.05 -- -- --
OPERATING DATA
Inns owned 100%.................................... 181 167 176 166 89 89 83
Inns owned 40-82%.................................. 54 46 50 45 80 79 81
Inns managed (11).................................. -- 10 -- 9 40 40 40
Inns licensed (11)................................. 1 1 2 1 3 4 6
--------- --------- --------- --------- --------- --------- ---------
Number of inns..................................... 236 224 228 221 212 212 210
Occupancy percentage (12).......................... 72.3% 70.0% 70.1% 65.1% 65.6% 64.8% 66.0%
ADR (13)........................................... $ 50.87 $ 46.62 $ 47.65 $ 46.36 $ 44.33 $ 43.11 $ 40.93
REVPAR (14)........................................ 36.79 32.61 33.39 30.20 29.06 27.92 27.01
BALANCE SHEET DATA
Total assets....................................... 885,082 786,037 845,781 749,495 539,183 574,687 586,969
Current installments of long-term debt............. 15,242 32,620 39,976 22,491 21,711 22,116 24,002
Long-term debt, excluding current installments..... 465,997 427,366 448,258 414,004 274,824 316,014 341,902
Partners' capital.................................. 100,105 86,861 92,099 85,976 62,060 50,471 37,270
Shareholders' equity............................... 222,583 164,857 189,231 149,057 124,321 130,175 129,167
</TABLE>

13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
<FN>
- ------------------------------
(1) 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. Results for the year ended December 31, 1992 were
impacted by an additional charge of $1,214,000 to partners' equity in
earnings and losses related to the reallocation of losses of a combined
unincorporated joint venture to the Company.

(2) Performance stock option relates to the costs of stock options which became
exercisable when the average price of the Company's Common Stock reached
$30 per share (pre-split) for twenty consecutive days. In 1993, performance
stock option expense and certain other options were accelerated as a result
of this condition being met. Currently, the Company has no options
outstanding that require recognition of additional compensation expense.

(3) Effective January 1, 1993, the Company adopted the provisions of SFAS 109.
SFAS 109 requires the use of the asset and liability method of accounting
for deferred income taxes. The Company recorded the impact of SFAS 109's
implementation, an increase in net income of $1,500,000, as the cumulative
effect of an accounting change in the combined statement of operations for
the year ended December 31, 1993. Prior years' financial statements were
not restated to apply the provisions of SFAS 109.

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

(5) EBITDA, as defined by the covenants in the Company's 9 1/4% Senior
Subordinated Notes due 2003, 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. This definition differs from the traditional EBITDA
definition which does not include adjustments for 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
as follows:
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Extraordinary items................................... $ -- $ -- $ -- $ 619 $ 958 $ 1,269 $ --
Partners' equity in earnings and losses............... 8,976 5,522 11,406 12,965 15,081 9,421 8,408
(Gain) loss on property transactions.................. -- -- (79) 4,347 (282) 1,012 (3)
Non-recurring cash and non-cash
charges and performance stock
option............................................... -- -- -- 4,407 38,225 7,952 503

<FN>

EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with GAAP. EBITDA, as defined above, is included
herein because management believes that certain investors find it to be a
useful tool for measuring the ability to service debt.

(6) EBITDA margin represents EBITDA divided by total revenues.

(7) Represents capital expenditures other than those for purchase and
conversion of inns. Capital expenditures for the six months ended June 30,
1995 and the years ended December 31, 1994 and 1993, include costs related
to the Company's image enhancement program.

(8) Included in the six months ended June 30, 1995 and 1994 and the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 were conversion costs of
$5,624,000, $5,806,000, $8,891,000, $7,231,000, $4,060,000, $3,977,000 and
$4,788,000, respectively.

(9) Purchase of partners' equity in the six months ended June 30, 1994 and the
years ended December 31, 1994 and 1993 includes approximately $9,322,000,
$9,322,000 and $42,091,000, respectively, related to the acquisition of
LQP.

(10) For purposes of calculating this ratio, earnings include net earnings
(loss) before income taxes, extraordinary items, and the cumulative effect
of accounting change, partners' equity in earnings and losses of combined
unincorporated ventures that have fixed charges, fixed charges net of
interest capitalized, and amortization of capitalized interest. Fixed
charges include interest expense on long-term debt (before capitalized
interest) and the portion of rental expense allocated to interest.

(11) The operating results of managed inns and licensed inns are not included in
the combined financial statements.

(12) The occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of La Quinta
rooms available for rent multiplied by the number of days in the reported
period.

(13) ADR represents total room revenues divided by the total number of rooms
occupied.

(14) REVPAR represents the product of occupancy percentage and ADR.
</TABLE>

14
<PAGE>
PRO FORMA FINANCIAL DATA

The following tables are qualified in their entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements, the
notes thereto, and other financial, pro forma and statistical information
included or incorporated by reference in this Prospectus.

The unaudited pro forma combined condensed statement of operations presented
below includes the statement of operations as reported in the Company's
Quarterly Report on Form 10-Q for the six months ended June 30, 1995, and as
adjusted to reflect (i) the AEW Transaction, and (ii) the sale of the Senior
Notes and the anticipated application of the estimated net proceeds therefrom,
as if such transactions occurred on January 1, 1995.

<TABLE>
<CAPTION>
AEW SENIOR NOTES PRO FORMA
SIX MONTHS PRO FORMA PRO FORMA SIX MONTHS
ENDED ADJUSTMENTS ADJUSTMENTS ENDED
JUNE 30, -------------------------- -------------------------- JUNE 30,
1995 DEBIT CREDIT DEBIT CREDIT 1995(H)
----------- ------------ ------------ ------------ ------------ -----------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Total Revenues........................... $ 206,778 $ 206,778
----------- -----------
Operating costs and expenses:
Direct and corporate................... 112,520 112,520
Depreciation, amortization, and fixed
asset retirements..................... 20,630 $ 548(A) 21,178
----------- -----------
Total operating costs................ 133,150 133,698
----------- -----------
Operating income..................... 73,628 73,080
----------- -----------
Other (income) expense:
Net interest expense................... 19,804 1,658(B) $ 4,050(F) $ 3,688(G) 21,824
Partners' equity....................... 8,976 $ 7,576(C) 1,400
----------- -----------
Earnings before income taxes........... 44,848 49,856
Income tax expense..................... 17,087 2,046(D) 138(D) 18,995
----------- ------ ------ ------ ------ -----------
Net earnings........................... $ 27,761 $ 4,252 $ 7,576 $ 4,050 $ 3,826 $ 30,861
----------- ------ ------ ------ ------ -----------
----------- ------ ------ ------ ------ -----------
Earnings per common and common equivalent
share:
Net earnings........................... $ 0.56 $ 0.57
----------- -----------
----------- -----------
Weighted average number of common and
common equivalent shares outstanding.... 49,256 5,300(E) 54,556
----------- ------ -----------
----------- ------ -----------
Ratio of earnings to fixed charges....... 3.5x 3.2x
----------- -----------
----------- -----------

The accompanying notes form a part of the unaudited pro forma combined condensed statement of operations.
<FN>
- ------------------------------
(A) Records additional depreciation expense on the addition of $37.3 million of
depreciable assets. The depreciation expense was calculated using the
straight line method based on a 34 year remaining life.
(B) Represents the interest expense on additional debt of $48.2 million
relating to the acquisition of AEW's interest in LQDP at the effective
weighted average interest rate under the Company's and LQDP's credit
facilities of 6.88% per annum.
(C) Represents the elimination of AEW's equity in earnings.
(D) Reflects income tax effect of pro forma adjustments assuming an effective
income tax rate of 38.1%.
(E) Reflects the increase in weighted average shares outstanding.
(F) Reflects interest expense due to the issuance of $100 million in Senior
Notes.
(G) Reflects interest expense eliminated due to the repayment of approximately
$99 million of existing indebtedness under the Company Bank Credit Facility
and the LQDP Lines of Credit.
(H) In the third quarter of 1995, the Company will record $46.4 million
associated with the exercise of AEW's conversion option as a deduction
presented below net earnings in the Statement of Operations (Conversion of
Partner's Interest into Common Stock) in arriving at net earnings available
to common shareholders. This non-recurring, non-cash item is directly
attributable to the AEW Transaction and is not reflected in the pro forma
condensed statement of operations above.
</TABLE>

15
<PAGE>
The unaudited pro forma combined condensed balance sheet of the Company
presented below includes the balance sheet as reported in the Company's
Quarterly Report on Form 10-Q for the six months ended June 30, 1995, and as
adjusted to reflect (i) the AEW Transaction, and (ii) the sale of the Senior
Notes and the anticipated application of the net proceeds therefrom, as if such
transactions occurred on June 30, 1995.

<TABLE>
<CAPTION>
AEW SENIOR NOTES
AT PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
JUNE 30, -------------------------- -------------------------- AT JUNE 30,
1995 DEBIT CREDIT DEBIT CREDIT 1995
--------- ------------ ------------ ------------ ------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets......................... $ 38,569 $ 38,569
Other non-current assets............... 24,983 $ 1,000(C) 25,983
Net property and equipment............. 821,530 $ 17,027(A) 872,611
34,054(B)
--------- ------------ ------------ -----------
$ 885,082 $ 51,081 $ 1,000 $ 937,163
--------- ------------ ------------ -----------
--------- ------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities.................... $ 75,058 $ 30,000(A) $ 30,000(C) $ 75,058
Long-term debt, excluding current
installments.......................... 465,997 18,200(A) $ 31,000(C) 515,197
Deferred income taxes and other........ 21,339 21,339
Partners' capital...................... 100,105 $ 31,173(A) 6,586
62,346(B)
Shareholders' equity (net of treasury
stock)................................ 222,583 96,400(B) 318,983
--------- ------------ ------------ ------------ ------------ -----------
$ 885,082 $ 93,519 $ 144,600 $ 30,000 $ 31,000 $ 937,163
--------- ------------ ------------ ------------ ------------ -----------
--------- ------------ ------------ ------------ ------------ -----------

The accompanying notes form a part of the unaudited pro forma combined condensed balance sheet.
<FN>
- ------------------------------
(A) Records the purchase of one-third of AEW's interest in LQDP using proceeds
from the Company's and LQDP's credit facilities and the related elimination
of one-third of AEW's partner's capital. Approximately $30 million of the
$48.2 million purchase price was drawn on LQDP's 364-day unsecured line of
credit and therefore is included in current liabilities.

(B) Reflects the purchase of the assets and the related elimination of
two-thirds of AEW's partner's capital. Also, reflects the net of the $142.8
million of Common Stock issued in the AEW Transaction and the $46.4 million
which represents the non-recurring, non-cash item which will be recorded as
a deduction presented below net earnings in the Statement of Operations
(Conversion of Partner's Interest into Common Stock) in arriving at net
earnings available to common shareholders in the third quarter of 1995.

(C) Reflects the issuance of the Senior Notes, the repayment of existing
indebtedness under the Company Bank Credit Facility and the LQDP Lines of
Credit, and the replacement of the Company Bank Credit Facility and the
LQDP Lines of Credit with the Amended Bank Credit Facility.
</TABLE>

16
<PAGE>
The unaudited pro forma combined condensed statement of operations presented
below includes the statement of operations as reported in the Company's Form
10-K for the year ended December 31, 1994, and as adjusted to reflect (i) the
AEW Transaction and (ii) the sale of the Senior Notes and the anticipated
application of the estimated net proceeds therefrom as if such transactions
occurred on January 1, 1994.

<TABLE>
<CAPTION>
AEW SENIOR NOTES
PRO FORMA PRO FORMA PRO FORMA
YEAR ENDED ADJUSTMENTS ADJUSTMENTS YEAR ENDED
DECEMBER 31, -------------------------- -------------------------- DECEMBER 31,
1994 DEBIT CREDIT DEBIT CREDIT 1994(H)
------------- ------------ ------------ ------------ ------------ -------------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Total revenues....................... $ 362,242 $ 362,242
------------- -------------
Operating costs and expenses:
Direct and corporate............... 213,508 213,508
Depreciation, amortization, and
fixed asset retirements........... 37,977 $ 1,096(A) 39,073
------------- -------------
Total operating costs............ 251,485 252,581
------------- -------------
Operating income................. 110,757 109,661
------------- -------------
Other (income) expense:
Net interest expense............... 37,439 3,316(B) $ 8,100(F) $ 7,306(G) 41,549
Partners' equity................... 11,406 $ 9,278(C) 2,128
Net gain on property
transactions...................... (79) (79)
------------- -------------
Earnings before income taxes....... 61,991 66,063
Income tax expense................. 24,176 1,631(D) 307(D) 25,500
------------- ------ ------ ------ ------ -------------
Net earnings....................... $ 37,815 $ 6,043 $ 9,278 $ 8,100 $ 7,613 $ 40,563
------------- ------ ------ ------ ------ -------------
------------- ------ ------ ------ ------ -------------
Earnings per common and common
equivalent share:
Net earnings....................... $ 0.78 $ 0.75
------------- -------------
------------- -------------
Weighted average number of common and
common equivalent shares
outstanding......................... 48,624 5,290(E) 53,914
------------- ------ -------------
------------- ------ -------------
Ratio of earnings to fixed charges... 2.8x 2.5x
------------- -------------
------------- -------------

(B) Represents the interest expense on additional debt of $48.2 million
relating to the acquisition of AEW's interest in LQDP at the effective
weighted average interest rate under the Company's and LQDP's credit
facilities of 6.88% per annum.

(D) Reflects income tax effect of pro forma adjustments assuming an effective
income tax rate of 38.6%.

(E) Reflects the increase in weighted average shares outstanding.

(F) Reflects interest expense due to the issuance of $100 million in Senior
Notes.

(G) Reflects interest expense eliminated due to the repayment of approximately
$99 million of existing indebtedness under the Company Bank Credit Facility
and the LQDP Lines of Credit.

(H) In the third quarter of 1995, the Company will record $46.4 million
associated with the exercise of AEW's conversion option as a deduction
presented below net earnings in the Statement of Operations (Conversion of
Partner's Interest into Common Stock) in arriving at net earnings available
to common shareholders. This non-recurring, non-cash item is directly
attributable to the AEW Transaction and is not reflected in the pro forma
condensed statement of operations above.
</TABLE>

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis addresses the results of operations
for the six month periods ended June 30, 1995 (the "1995 Six Months") and June
30, 1994 (the "1994 Six Months") and the years ended December 31, 1994, 1993 and
1992.

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% ownership interest and over which it
exercises substantial legal, financial and operational control. 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.

On June 15, 1995, AEW notified the Company that it would exercise, subject
to certain conditions, its option to convert two-thirds of its ownership
interest in LQDP into 5,299,821 shares of the Company's Common Stock. AEW also
agreed to sell the remaining one-third of its ownership interest in LQDP to the
Company for a negotiated price of $48.2 million in cash. The AEW Transaction was
consummated on July 3, 1995. Upon conversion of the partnership interest into La
Quinta Common Stock, the Company issued 5,299,821 shares of the Company's Common
Stock having a fair market value of $142.8 million based on the July 3, 1995 New
York Stock Exchange closing price. During the third quarter of 1995, the Company
will record net assets acquired at their fair market value of $96.4 million and
a non-cash, non-recurring item of $46.4 million associated with the exercise of
AEW's conversion option as a deduction presented below net earnings in the
Statement of Operations (Conversion of Partner's Interest into Common Stock) in
arriving at net earnings available to common shareholders. This non-recurring,
non-cash item is directly attributable to the AEW Transaction.

During the second quarter of 1994, the Company purchased the limited
partner's interest in one of its combined unincorporated joint ventures which
owned one inn. On July 1, 1994, the Company purchased nine inns which it managed
and which were previously held in two unincorporated joint ventures with CIGNA
Investments, Inc. (the "CIGNA partnerships"). The Company has continued to
operate these properties as La Quinta inns. Also during 1995 and 1994, La Quinta
acquired nine and six additional inns, respectively, for conversion to the La
Quinta-Registered Trademark- brand.

During 1994, the Company entered into agreements with several Mexican
investor groups (the "Development Accord") for the purpose of developing 22 La
Quinta inns in 15 cities in Mexico. Each of the inns will be developed and 100%
owned by a Mexican investor group and managed by the Company under long-term
management agreements (pursuant to which the Company will receive management and
licensing fees). On December 20, 1994, the Mexican government allowed the peso
to trade freely against the U.S. dollar. As a result, the peso suffered a
significant, immediate devaluation against the U.S. dollar. This resulted in
economic conditions that have delayed commencement of construction of La Quinta
inns under the Development Accord. The construction of the first La Quinta inn
under the Development Accord is anticipated to begin when economic conditions in
Mexico stabilize.

The following chart shows certain historical operating statistics and
revenue data. References to occupancy percentages and ADR refer to Company Inns
(inns owned by the Company or by unincorporated partnerships and joint ventures
in which the Company owns at least a 40% interest). Managed Inns and the La
Quinta licensed inns are excluded from occupancy and ADR statistics for all
periods for purposes of comparability. All financial data is related to Company
Inns unless otherwise specified.

<TABLE>
<CAPTION>
COMPARATIVE OPERATING STATISTICS AND REVENUE DATA
----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT ADR)
<S> <C> <C> <C> <C> <C>
Inn revenue.......................................... $ 202,661 $ 166,003 $ 353,348 $ 258,529 $ 239,826
Restaurant rental and other.......................... 4,017 3,796 7,675 6,464 7,208
Management services.................................. 100 1,007 1,219 6,857 7,088
---------- ---------- ---------- ---------- ----------
Total revenues....................................... $ 206,778 $ 170,806 $ 362,242 $ 271,850 $ 254,122
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Occupancy percentage................................. 72.3% 70.0% 70.1% 65.1% 65.6%
ADR.................................................. $ 50.87 $ 46.62 $ 47.65 $ 46.36 $ 44.33
Available rooms (1).................................. 5,305 4,900 10,188 8,226 7,916
<FN>
- ------------------------------
(1) Available rooms represent the number of rooms available for sale multiplied
by the number of days in the period reported.
</TABLE>

18
<PAGE>
THE 1995 SIX MONTHS COMPARED TO THE 1994 SIX MONTHS

TOTAL REVENUES increased to $206,778,000 in the 1995 Six Months from
$170,806,000 in the 1994 Six Months, an increase of $35,972,000, or 21.1%. Of
the total revenues reported in the 1995 Six Months, 98.0% were revenues from
inns and 2.0% were revenues from restaurant rentals and other revenues.

INN REVENUES are derived from room rentals and other sources such as charges
to guests for long-distance telephone service, fax machine use, vending
commissions, banquet revenues and laundry services. Inn revenues improved to
$202,661,000 in the 1995 Six Months from $166,003,000 in the 1994 Six Months, an
increase of $36,658,000, or 22.1%. The improvement in inn revenues was related
to an increase in occupancy percentage and ADR along with the revenues
associated with the acquisition of nine inns in the 1995 Six Months, the CIGNA
partnerships in July 1994 and six inns in the last half of 1994. Occupancy
percentage increased to 72.3% in the 1995 Six Months from 70.0% in the 1994 Six
Months. ADR increased to $50.87 in the 1995 Six Months from $46.62 in the 1994
Six Months. Improvements in both ADR and occupancy percentage are due, in part,
to the substantial completion of the Company's image enhancement program in
mid-1994, as well as general improvements in the hotel industry. In the 1994 Six
Months, the image enhancement program had only been partially completed.

RESTAURANT RENTAL AND OTHER REVENUES include rental payments from restaurant
buildings owned by La Quinta and leased to and operated by third parties.
Restaurant rental and other revenues increased to $4,017,000 in the 1995 Six
Months from $3,796,000 in the 1994 Six Months, an increase of $221,000, or 5.8%.
The increase is primarily the result of the additional restaurant buildings
owned by the Company through the acquisition of the CIGNA partnerships.

MANAGEMENT SERVICES REVENUE is primarily related to fees earned by the
Company for services rendered in conjunction with Managed Inns. Management
services revenue decreased to $100,000 in the 1995 Six Months from $1,007,000 in
the 1994 Six Months. The decrease is due to the acquisition of the CIGNA
partnerships in July 1994, eliminating the related management fees earned by the
Company.

DIRECT EXPENSES include costs directly associated with the operation of
Company Inns. In the 1995 Six Months approximately 42.2% of direct expenses were
represented by salaries, wages and related costs. Other major categories of
direct expenses include utilities, property taxes, repairs and maintenance and
room supplies. Direct expenses increased to $103,128,000 ($26.88 per occupied
room) in the 1995 Six Months from $93,149,000 ($27.18 per occupied room) in the
1994 Six Months. The increase in direct expenses period over period is primarily
attributable to the growth in number of inns and increase in occupancy. The
improvement in direct expenses per occupied room was primarily due to
efficiencies the Company achieved in labor costs, repairs and maintenance and
utilities expense and was partially offset by rising labor costs in regions with
low unemployment, increased credit card discounts resulting from a higher
percentage of guests paying with credit cards and increased property taxes.

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
increased to $9,392,000 ($1.77 per available room) in the 1995 Six Months from
$9,256,000 ($1.81 per available room, including Managed Inns) in the 1994 Six
Months, an increase of $136,000, or 1.5%. The decrease in corporate expenses on
a per available room basis is the result of the Company's efforts to control
fixed costs, while executing its growth plan in order to increase operating
profit.

DEPRECIATION, AMORTIZATION AND FIXED ASSET RETIREMENTS increased to
$20,630,000 in the 1995 Six Months from $17,772,000 in the 1994 Six Months, an
increase of $2,858,000, or 16.1%. This is due primarily to the increase in fixed
assets resulting from the acquisition of inns, including the CIGNA partnerships,
and additions from the image enhancement program. Depreciation, amortization and
fixed asset retirements also include retirements associated with the image
enhancement program and other capital improvements.

As a result of the above, OPERATING INCOME increased to $73,628,000 in the
1995 Six Months from $50,629,000 in the 1994 Six Months, an increase of
$22,999,000, or 45.4%. Additionally, operating margins were up 6.0 percentage
points, to 35.6% from 29.6%.

19
<PAGE>
INTEREST INCOME is primarily related to earnings on notes receivable and on
short-term investments of Company funds in money market instruments prior to
their use in operations or the acquisition of inns. Interest income decreased to
$579,000 in the 1995 Six Months from $1,069,000 in the 1994 Six Months, a
decrease of $490,000.

INTEREST ON LONG-TERM DEBT increased to $20,383,000 in the 1995 Six Months
from $18,599,000 in the 1994 Six Months, an increase of $1,784,000, or 9.6%. The
increase is primarily attributable to the increase in the outstanding balance on
the Company's credit facilities as a result of the acquisition of the CIGNA
partnerships and 15 inns since June 1994.

PARTNERS' EQUITY IN EARNINGS AND LOSSES reflects the interest 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 increased to $8,976,000 in the 1995 Six Months from
$5,522,000 in the 1994 Six Months. The increase is attributable to improvements
in operating performance of the inns and the increase in the number of inns in
LQDP. Occupancy for the LQDP inns increased 4.8 percentage points and ADR
increased by $3.78 in the 1995 Six Months compared to the 1994 Six Months. As of
June 30, 1995, LQDP owned and operated 47 inns, compared to 37 inns at June 30,
1994.

INCOME TAXES for the 1995 Six Months were calculated using an effective
income tax rate of 38.1%, compared to an effective income tax rate of 39.0% for
the 1994 Six Months. The effective income tax rate decrease reflects the
estimated impact of the difference between aggregate recorded cost and tax basis
of acquired assets from the AEW Transaction and a reduction of estimated state
income tax expense.

For the reasons discussed above, the Company reported NET EARNINGS of
$27,761,000, or $0.56 per share, in the 1995 Six Months compared to $16,822,000,
or $0.35 per share, in the 1994 Six Months, an increase in net earnings of
$10,939,000, or 65.0%.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

TOTAL REVENUES increased to $362,242,000 in 1994 from $271,850,000 in 1993,
an increase of $90,392,000, or 33.3%. Of the total revenues reported in 1994,
97.6% were revenues from inns, 2.1% were revenues from restaurant rentals and
other revenues and 0.3% were revenues from management services.

INN REVENUES increased to $353,348,000 in 1994 from $258,529,000 in 1993, an
increase of $94,819,000, or 36.7%. The increase in inn revenues was due
primarily to the acquisitions of La Quinta Motor Inns Limited Partnership
("LQP") and the CIGNA partnerships, an increase in ADR and occupancy percentage
and an increase in the number of available rooms. ADR increased to $47.65 in
1994 from $46.36 in 1993, an increase of $1.29, or 2.8%, while occupancy
increased 5.0 percentage points. The substantial completion of the Company's
image enhancement program contributed to the increases in ADR and occupancy.
Available rooms for 1994 were 10,188,000 as compared to 8,226,000 for 1993, an
increase of 1,962,000 available rooms, or 23.9%. The increase in the number of
available rooms was due to the acquisitions of five inns, the CIGNA partnerships
during 1994 and LQP in December of 1993.

RESTAURANT RENTAL AND OTHER REVENUES also include the Company's interest in
the earnings (accounted for using the equity method) of LQP through 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 increased to $7,675,000 in 1994 from
$6,464,000 in 1993, an increase of $1,211,000, or 18.7%. This increase is
primarily the result of an increase in the number of wholly-owned restaurant
buildings leased to and operated by third parties due to the acquisition of LQP.

MANAGEMENT SERVICES REVENUE decreased to $1,219,000 in 1994 from $6,857,000
in 1993. Management fees decreased due to the consolidation of LQP in December
1993 and the acquisition of the CIGNA partnerships in July 1994, eliminating the
related management fees earned by the Company.

In 1994, approximately 41.9% of DIRECT EXPENSES were represented by
salaries, wages, and related costs. Other major categories of direct expenses
include utilities, property taxes, repairs and maintenance and room supplies.
Direct expenses increased to $194,894,000 ($27.30 per occupied room) in 1994
compared to $148,571,000 ($27.72 per occupied room) in 1993, an increase of
$46,323,000, or 31.2%. Direct expenses

20
<PAGE>
decreased to 53.8% in 1994 from 54.7% in 1993 as a percentage of total revenue,
primarily from a decrease in salaries and related benefit costs and property
taxes. The acquisitions of LQP and the CIGNA partnerships caused the increase of
direct expenses in total year over year.

CORPORATE EXPENSES decreased to $18,614,000 ($1.79 per available room,
including Managed Inns) in 1994 from $19,450,000 ($1.96 per available room,
including Managed Inns) in 1993, a decrease of $836,000, or 4.3%. As a percent
of total revenues, corporate expenses decreased to 5.1% in 1994 from 7.2% in
1993.

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. In 1993, performance stock option
expense and certain other options were accelerated as a result of this condition
being met (See note 5 of Notes to Combined Financial Statements). Currently, the
Company has no options outstanding that require recognition of additional
compensation expense.

DEPRECIATION, AMORTIZATION AND FIXED ASSET RETIREMENTS increased to
$37,977,000 in 1994 from $24,055,000 in 1993, an increase of $13,922,000, or
57.9%. The increase in depreciation, amortization and fixed asset retirements is
primarily due to the increase in depreciable assets resulting from the
acquisitions of LQP, the CIGNA partnerships, five inns in 1994 and 11 inns in
the latter part of 1993, and the Company's image enhancement program.

As a result of the above, OPERATING INCOME increased to $110,757,000 in 1994
from $75,367,000 in 1993, an increase of $35,390,000, or 47.0%.

INTEREST INCOME decreased to $1,421,000 in 1994 from $5,147,000 in 1993, a
decrease of $3,726,000, or 72.4%. The decrease in interest income is primarily
attributable to a decrease in interest earned on a note receivable from AEW (the
"AEW Note") due to the collection of the entire principal balance in December
1993.

INTEREST ON LONG-TERM DEBT increased to $38,860,000 in 1994 from $31,366,000
in 1993, an increase of $7,494,000, or 23.9%. The increase in interest expense
is attributable to the debt incurred to acquire LQP, the CIGNA partnerships and
certain of the limited partners' interests and debt assumed in connection with
the acquisition of LQP.

PARTNERS' EQUITY IN EARNINGS AND LOSSES decreased to $11,406,000 in 1994
from $12,965,000 in 1993, a decrease of $1,559,000, or 12.0%. The decrease in
partners' equity in earnings and losses is attributable to the acquisition of
various limited partners' interests in unincorporated partnerships and joint
ventures, partially offset by increases in the earnings of LQDP. As of December
31, 1994, LQDP owned and operated 42 inns compared to 37 inns as of December 31,
1993.

NET (GAIN) LOSS ON PROPERTY TRANSACTIONS increased to a gain of ($79,000) in
1994 from a loss of $4,347,000 in 1993. The loss in 1993 includes a $4,900,000
loss related to the Company's conveyance to the mortgagee of title to the
property on which the Company's headquarters were located.

INCOME TAXES for 1994 were calculated using an estimated effective income
tax rate of 39%.

For the reasons discussed above, the Company reported EARNINGS BEFORE
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE of $37,815,000 in
1994 compared with $19,420,000 in 1993, an increase of $18,395,000, or 94.7%.

The Company reported EXTRAORDINARY ITEMS, NET OF INCOME TAXES of ($619,000)
in 1993. The 1993 extraordinary loss consisted of ($6,007,000), ($3,664,000) 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 on which the Company's headquarters were located.

The CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES of
$1,500,000, or $0.03 per share in 1993, was the result of the implementation of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."

21
<PAGE>
For the reasons discussed above, the Company reported NET EARNINGS of
$37,815,000 in 1994 compared with $20,301,000 in 1993, an increase of
$17,514,000, or 86.3%.

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 revenues and 2.5% were revenues from management 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 ADR, an increase in the number of available rooms and the
acquisition of LQP. ADR increased to $46.36 in 1993 from $44.33 in 1992, an
increase of $2.03, or 4.6%, while occupancy declined 0.5 percentage points. As
anticipated, the Company's image enhancement program caused temporary
construction-related disruption in normal business operations and occupancies at
inns undergoing the process. Also, management's decision to discontinue a coupon
promotion used in 1992 had a positive impact on ADR, but 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 acquisition of 11 inns
during the year ended December 31, 1993 and the acquisition of LQP in December
of 1993.

RESTAURANT RENTAL AND OTHER REVENUES 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 decreased to $6,857,000 in 1993 from $7,088,000
in 1992, a decrease of $231,000, or 3.2%. Management fees decreased due to there
being two less licensees and the consolidation of LQP in December 1993,
eliminating the related management fees charged by the Company to LQP for that
month.

DIRECT EXPENSES increased to $148,571,000 ($27.72 per occupied room) in 1993
compared to $135,474,000 ($26.11 per occupied room) in 1992, an increase of
$13,097,000, or 9.7%. In 1993, approximately 42.4% of direct expenses consisted
of salaries, wages, and related costs. As a percentage of total revenues, direct
expenses increased to 54.7% in 1993 from 53.3% 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). The Company acquired 11 inns during 1993 and did not acquire or
convert any inns during 1992.

CORPORATE EXPENSES decreased to $19,450,000 ($1.96 per available room,
including Managed Inns) in 1993 from $23,961,000 ($2.46 per available room,
including Managed Inns) in 1992, a decrease of $4,511,000, or 18.8%. As a
percent of total revenues, corporate expenses decreased to 7.2% in 1993 from
9.4% in 1992. The 1992 corporate expenses included non-recurring charges of
$2,696,000 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 $210,000 related
to other corporate expense items. The 1992 corporate expenses also include a
provision related to the settlement of certain litigation of $775,000. The 1992
corporate expenses, before non-recurring charges, were $21,055,000 ($2.16 per
available room, including Managed Inns). As a percent of total revenues,
corporate expenses in 1992, before non-recurring charges, were 8.3%.

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 (see Note 8 of Notes to Combined Financial Statements).

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.

22
<PAGE>
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 of Notes to Combined Financial Statements).

DEPRECIATION, AMORTIZATION AND FIXED ASSET RETIREMENTS decreased to
$24,055,000 in 1993 from $24,793,000 in 1992, a decrease of $738,000, or 3.0%.
The decrease in depreciation, amortization and fixed 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.

As a result of the above, OPERATING INCOME increased to $75,367,000 in 1993
from $34,575,000 in 1992, an increase of $40,792,000, or 118.0%. 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 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 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 Company's 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 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 LQDP. As of December
31, 1993, LQDP operated 37 inns compared to 28 inns as of December 31, 1992.

NET (GAIN) LOSS ON PROPERTY 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 title to
the property on which the Company's headquarters were located.

INCOME TAXES for 1993 were calculated using an estimated effective income
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 a loss of ($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), ($3,664,000) 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 on which the
Company's headquarters were located. The 1992 extraordinary loss was primarily a
result of the refinancing of three industrial revenue bond issues totaling
$12,910,000 in principal amount. In addition, the Company retired its 10%
Convertible Subordinated Debentures due 2002.

The CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES of
$1,500,000, or $0.03 per share, in 1993 was the result of the implementation of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."

23
<PAGE>
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.

CAPITAL RESOURCES AND LIQUIDITY

In general, 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 six months ended
June 30, 1995 and June 30, 1994 and the years ended December 31, 1994 and 1993,
the Company funded a majority of its development program through LQDP. Most of
the Company's inns and adjacent restaurant land and buildings are 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 June 30, 1995, the Company had $6,694,000 of cash and cash equivalents,
an increase of $4,105,000 from December 31, 1994. At June 30, 1995, the Company
had $74,650,000 available on its credit facilities.

In April 1995, the Company completed negotiations (i) to amend the Company's
then existing credit facilities and (ii) on behalf of LQDP, to amend LQDP's then
existing unsecured line of credit and to enter into a new unsecured line of
credit. As a result, the Company entered into the Company Bank Credit Facility
and the LQDP Lines of Credit. The Company expects to complete by mid-September
1995 negotiations to amend and combine the Company Bank Credit Facility and the
LQDP Lines of Credit into the Amended Bank Credit Facility. The Amended Bank
Credit Facility is expected to consist of a $200 million unsecured line of
credit and a $50 million 364-day unsecured line of credit with maturities of
August 2000 and August 1996, respectively. See "Use of Proceeds."

In July 1995, the Company financed the $48.2 million acquisition of
one-third of AEW's interest in LQDP by borrowing $30 million under LQDP's $30
million 364-day unsecured line of credit, and by borrowing the balance under the
Company Bank Credit Facility and LQDP's $35 million unsecured line of credit. As
of June 30, 1995, the Company would have had $93.9 million available under the
Amended Bank Credit Facility, after giving effect to the AEW Transaction and
this Offering.

On January 23, 1992, with the approval of the Company's Board of Directors,
the Company entered into two interest rate swap agreements (the "Agreements")
which exchanged the Company's variable rate interest payments for the fixed rate
interest payments of a major financial institution (the "Counterparty"). The
debt ("Notional Amount") underlying the Agreements is $16,890,000 and
$44,420,000. Under the Agreements, the Company effectively pays a fixed rate of
interest at 6.50% and 5.26% and the Counterparty pays a percentage of prime
interest rate and the variable rate demand note interest rate ("VRDN"). In the
event the VRDN rate exceeds the fixed interest rate of 5.26% or the percentage
of prime interest rate exceeds 6.5%, the Counterparty pays to the Company that
difference times the Notional Amount, on a monthly basis. Should the fixed
interest rate of 5.26% exceed the VRDN interest rate or the fixed interest rate
of 6.5% exceed the percentage of prime interest rate, the Company pays the
difference times the Notional Amount to the Counterparty, on a monthly basis.
These Agreements resulted in net payments to the Counterparty of $213,000,
$630,000, $1,040,000, $1,427,000 and $1,184,000 in the six months ended June 30,
1995 and 1994 and the years ended December 31, 1994, 1993 and 1992,
respectively. The Agreements expire on February 1, 1997, and the Notional
Amounts are reduced over the life of the Agreements by scheduled amortization
payments. At June 30, 1995, the Notional Amounts of debt remaining under the
Agreements are $10,657,000 and $35,400,000, which bear interest at a weighted
average variable interest rate of 6.63% and 3.93%, respectively. The VRDN rate
decreased from 4.32% at December 31, 1994 to 3.87% at June 30, 1995.

The Company is exposed to market risk associated with fluctuations in
interest rates. By entering into the interest rate swap agreements described
above, the Company reduced its exposure to rising interest rates on the
aforementioned variable interest rate debt and has effectively fixed the rate on
such debt at a level acceptable to the Company given the length of the
Agreements and the risk of interest rate changes. The

24
<PAGE>
Company is exposed to credit risk to the extent that the Counterparty fails to
perform under the Agreements. The Company has mitigated its credit risk by
entering into the Agreements with a major financial institution, which has
received an "A" rating from Standard and Poor's Corporation and an "A2" rating
from Moody's Investors Service on senior unsecured debt. The Company regularly
monitors the credit ratings of the Counterparty and considers the risk of
default remote.

Net cash provided by operating activities improved to $66,566,000 in the
1995 Six Months from $41,400,000 in the 1994 Six Months, an increase of
$25,166,000, or 60.8%. The increase was the result of the improvement in inn
revenue and operating margins. Net cash provided by operating activities
increased to $94,233,000 in 1994 from $78,043,000 in 1993, an increase of
$16,190,000, or 20.7%. The increase was primarily due to increased inn revenues
and an increase in accrued expenses due to the timing of payment. Net cash
provided by operating activities increased to $78,043,000 in 1993 from
$60,853,000 in 1992, an increase of $17,190,000, or 28.2%. The majority of the
increase was due to an increase in inn revenues as a result of increased
occupancy percentage and ADR.

Net cash used by investing activities decreased to ($55,233,000) in the 1995
Six Months from ($82,772,000) in the 1994 Six Months, a decrease of $27,539,000,
or 33.3%. The 1995 and 1994 capital expenditures include the purchase of nine
inns and six inns, respectively. The 1994 capital expenditures also include
expenditures of approximately $40,103,000 related to the Company's image
enhancement program and the purchase of the remaining units of La Quinta Motor
Inns Limited Partnership. Net cash used by investing activities increased to
$156,492,000 in 1994 from $145,027,000 in 1993, an increase of $11,465,000, or
7.9%. The increase was related to capital expenditures related to the image
enhancement program, purchase and conversion of inns, the purchase of units of
LQP and the acquisition of the CIGNA partnerships. 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 82% of
LQP, the acquisition of the partners' interest in 14 unincorporated joint
ventures and partnerships, the acquisition of 11 inns and capital expenditures
related to the Company's image enhancement program.

Net cash used by financing activities was ($7,228,000) in the 1995 Six
Months compared to net cash provided by financing activities of $18,998,000 in
the 1994 Six Months. Payments on the Company's credit facilities, an increase in
dividends to shareholders and a reduction in the proceeds received on the
Company's credit facilities and long-term borrowings contributed to the increase
in cash used by financing activities. Net cash provided by financing activities
was $41,000,000 in 1994 compared to $77,971,000 in 1993. The decrease in cash
provided by financing activities was the result of the payments on the secured
line of credit and long-term borrowings, dividends to shareholders and purchase
of treasury stock. Net cash provided by financing activities in 1993 was
$77,971,000 compared to net cash used by financing activities of ($40,781,000)
in 1992. The increase was a 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 by payments on long-term debt.

During 1994, the Company repurchased a total of 373,000 shares (post-split)
of its Common Stock for approximately $7,115,000 under a plan approved by the
Board of Directors to repurchase up to $10,000,000 of its Common Stock.
Additional purchases will be made from time to time in the open market as deemed
appropriate by the Company.

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 joint ventures. Three unincorporated
partnerships and joint ventures executed promissory notes in which the Company
guaranteed to fund amounts not to exceed $650,000 in the aggregate. As of June
30, 1995, the Company had no advances outstanding to the unincorporated
partnerships and joint ventures.

The estimated additional cost to complete the conversion and renovation of
inns for which commitments have been made is $9,716,000 at June 30, 1995. The
Company broke ground for the new construction

25
<PAGE>
of one inn in June 1995 and one inn in July 1995. The Company is committed to
approximately $12,773,000 for the completion of these inns. Funds on hand,
committed and anticipated from cash flow are sufficient to complete these
projects.

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 June 30,
1995 and June 30, 1994, the Company had reserved the full amount.

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 under the
Company Bank Credit Facility and the LQDP Lines of Credit, or the Amended Bank
Credit Facility, are sufficient to fund operating expenses, debt service and
other capital requirements through at least the second quarter of 1996. The
Company will evaluate from time to time the necessity of other financing
alternatives.

SEASONALITY

The lodging industry is seasonal in nature. Generally, the Company's inn
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues, profit margins and net earnings of the Company.

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.

ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement,
which is effective for fiscal years beginning after December 15, 1995, requires
that an entity evaluate long-lived assets and certain other identifiable
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
Impairment loss meeting the recognition criteria is to be measured as the amount
by which the carrying amount for financial reporting purposes exceeds the fair
value of the asset. The Company plans to adopt this statement in 1996 and does
not expect adoption of the statement to have a material effect, if any, on the
Company's financial position or results of operations.

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.

26
<PAGE>
BUSINESS

La Quinta is the second largest owner/operator of hotels in the United
States, with 236 inns and more than 30,000 rooms. La Quinta operates primarily
in the mid-priced segment of the lodging industry. La Quinta achieved an average
occupancy percentage of 70.1% and an ADR of $47.65 for the year ended December
31, 1994. Founded in 1968, the Company has inns located in 29 states, with
strategic concentrations in Texas, Florida and California. La Quinta currently
owns a 100% interest in 228 of its inns and a 50% or greater interest in an
additional seven inns. La Quinta operates all of its inns other than one
licensed inn. La Quinta's business strategy is to continue to expand its
successful core business as an owner/operator in the mid-priced segment of the
lodging industry.

The Company was founded in San Antonio, Texas in 1968. La Quinta was
originally incorporated and became a publicly traded entity in 1972 and is
incorporated under the laws of the State of Texas. The principal executive
offices are located at Weston Centre, 112 E. Pecan Street, San Antonio, Texas
78299-2636, telephone (210) 302-6000.

OWNERSHIP AND MANAGEMENT CONTROL

BRAND IMAGE

FOCUSED GROWTH STRATEGY; OWNERSHIP OF INNS

La Quinta attributes its strong operating performance in large part to the
successful implementation of a three-part strategic plan formulated by the
Company's senior management team after their arrival at the Company in 1992.
First, management substantially restructured the Company, which historically had
financed a large part of its development through partnerships and joint ventures
with financial institutions, by purchasing its partners' interests in 19
unincorporated joint ventures and partnerships since 1993. The Company also
refinanced a majority of its outstanding debt, and instituted corporate and
operating-level cost controls. Second, management reimaged all La Quinta inns
through the system-wide image enhancement program. Third, the Company
demonstrated its ability to grow the number of inns -- acquiring 11 inns in
1993, 15 inns in 1994 and nine inns in the first six months of 1995 -- while
increasing profitability.

The Company intends to focus both on INTERNAL GROWTH -- enhancing revenues,
cash flow and profitability at its current portfolio of inns, and EXTERNAL
GROWTH -- adding new inns through opportunistic acquisitions and conversions of
existing properties and selective new construction. The Company's external
growth strategy is to reinforce its presence in existing markets and expand
selectively into new markets. At current prices, acquisition and conversion of
existing properties is generally more cost effective than new construction. The
Company estimates that its current average cost of aquiring and converting an
inn to the La Quinta

27
<PAGE>
brand is approximately $40,000 to $45,000 per room. The Company plans to
construct new inns in those strategic markets where acquisition and conversion
of existing inns at a discount to replacement cost is not available. The Company
estimates that the average cost to construct a new inn will be approximately
$50,000 to $55,000 per room. For the twelve months ended June 30, 1995, the
Company generated $79.6 million of cash flow after required interest payments,
maintenance capital expenditures (assumed to be 5% of room revenues), dividends,
taxes and partner distributions, providing an internal source of funding to
support its growth plan.

The following table describes the composition of inns in the La Quinta chain
at June 30, 1995 and as adjusted for the AEW Transaction, and at December 31,
1992:

<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1992
----------------------------------------------------- -------------------------
AS ADJUSTED ACTUAL ACTUAL
------------------------- ------------------------- -------------------------
LA QUINTA LA QUINTA LA QUINTA
TOTAL EQUIVALENT TOTAL EQUIVALENT TOTAL EQUIVALENT
INNS ROOMS ROOMS (1) INNS ROOMS ROOMS (1) INNS ROOMS ROOMS (1)
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned 100%.............................. 228 29,352 29,352 181 22,927 22,927 89 11,456 11,456
Owned 40-80%............................ 7 836 467 54 7,261 3,037 80 10,218 4,919
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
Total Company owned and operated........ 235 30,188 29,819 235 30,188 25,964 169 21,674 16,375
Managed inns............................ -- -- -- -- -- -- 40(2) 4,978 75
Licensed inns........................... 1 120 -- 1 120 -- 3 366 --
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
236 30,308 29,819 236 30,308 25,964 212 27,018 16,450
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
<FN>
- ------------------------------
(1) Represents the Company's proportionate ownership interest in total rooms.
(2) Managed inns represent inns in LQP and the CIGNA partnerships, which were
subsequently acquired by the Company.
</TABLE>

FACILITIES AND SERVICES

To maintain the overall quality of La Quinta's inns, 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 the six months ended June 30, 1995 and
1994 and each of the years ended December 31, 1994, 1993 and 1992, the Company
spent approximately $16.4 million, $55.4 million, $75.2 million, $32.6 million
and $15.5 million, respectively, on capital improvements to existing inns. The
amounts for the six months ended June 30, 1995 and 1994 and the years ended
December 31, 1994 and 1993 include expenditures related to the Company's image
enhancement program. 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
inns that is more consistent than other national mid-priced hotel chains.

28
<PAGE>
CUSTOMER BASE AND MARKETING

La Quinta's combination of consistent, high-quality accommodations and good
value is attractive to business customers, who account for more than 50% of
rooms rented. These core customers typically visit a given area several times a
year, and include salespersons covering a specific 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, who has a middle
management, white collar occupation or upper level blue collar occupation. The
Company also targets both vacation travelers and senior citizens. For the
convenience of these targeted customer groups, inns are generally located near
suburban office parks, major traffic arteries or destination areas such as
airports and convention centers.

The Company focuses on reaching its target markets by utilizing advertising,
direct sales, repeat traveler incentive programs and other marketing programs
targeted at specific customer segments. The Company advertises primarily through
network and local radio, television networks and print advertisements which
focus on quality and 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 provides a central reservation system,
"teLQuik-Registered Trademark-," which currently accounts for advance
reservations for approximately 27% of room nights. The teLQuik system allows
customers to make reservations by dialing 1-800-531-5900 toll free, or from
special reservations phones placed in 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 addition, approximately 47% of room nights reflect
advance reservations made directly with individual inns and forwarded to the
central reservation system. In total, advance reservations account for
approximately 74% of room nights. 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.

29
<PAGE>

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, financing, accounting and reporting, purchasing, quality
control, development, legal, reservations and training.

Inn operations are currently organized into Eastern, Western and Central
divisions with each division headed by a Divisional Vice President. Regional
Managers report to the Divisional Vice Presidents and are each responsible for
approximately 12 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, each inn manager will supervise
one housekeeping supervisor, eight room attendants, two laundry workers, two
general maintenance persons and three front desk service representatives.

At June 30, 1995, La Quinta employed approximately 7,400 persons, of whom
approximately 90% were compensated on an hourly basis. Approximately 280
individuals were employed at corporate and 7,120 were employed as inn managers
and employees. The Company's employees are not currently represented by labor
unions. Management believes its ongoing labor relations are good.

30
<PAGE>
PROPERTIES

At June 30, 1995, there were 236 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:

ALABAMA
Birmingham
Huntsville (2)
Mobile
Montgomery
Tuscaloosa

ARIZONA
Phoenix (3)
Tucson (2)

ARKANSAS
Little Rock (5)

CALIFORNIA
Bakersfield
Costa Mesa
Fresno
Irvine
La Palma
Redding
Sacramento (2)
San Bernardino
San Diego (3)
San Francisco
Stockton
Ventura

COLORADO
Colorado Springs
Denver (7)

FLORIDA
Coral Springs
Daytona Beach
Deerfield Beach
Ft. Myers
Gainesville
Jacksonville (3)
Miami
Orlando (3)
Pensacola
Tallahassee (2)
Tampa (5)

GEORGIA
Atlanta (7)
Augusta
Columbus
Savannah (2)

ILLINOIS
Champaign
Chicago Metro Area (5)
Moline

INDIANA
Indianapolis (2)
Merrillville

KANSAS
Lenexa
Wichita

KENTUCKY
Lexington

LOUISIANA
Baton Rouge
Bossier City
Kenner
Lafayette
Monroe
New Orleans (5)
Slidell
Sulphur

MICHIGAN
Kalamazoo

MISSISSIPPI
Jackson (2)
MISSOURI
St. Louis

NEBRASKA
Omaha

NEVADA
Las Vegas (2)
Reno

NEW MEXICO
Albuquerque (3)
Farmington
Las Cruces
Santa Fe

NORTH CAROLINA
Charlotte (2)

OHIO
Columbus

OKLAHOMA
Oklahoma City (3)
Tulsa (3)

PENNSYLVANIA
Pittsburgh

SOUTH CAROLINA
Anderson
Charleston
Columbia
Greenville

TENNESSEE
Chattanooga
Kingsport
Knoxville (2)
Memphis (3)
Nashville (3)

TEXAS
Abilene
Amarillo (2)
Arlington
Austin (5)
Beaumont
Bedford
Brownsville
Clute
College Station
Corpus Christi (2)
Dallas Metro Area (12)
Del Rio
Denton
Eagle Pass
El Paso (3)
Fort Stockton
Fort Worth (2)
Galveston
Georgetown
Harlingen
Houston Metro Area (17)
Killeen
Laredo
Longview
Lubbock (2)
Lufkin
TEXAS (CONTINUED)
Midland
Nacogdoches
Odessa
Round Rock
San Angelo
San Antonio (11)
San Marcos
Temple
Texarkana
Tyler
Victoria
Waco
Wichita Falls

UTAH
Layton
Salt Lake City

VIRGINIA
Bristol
Hampton
Richmond
Virginia Beach

WASHINGTON
Seattle (2)
Tacoma

WYOMING
Casper
Cheyenne
Rock Springs

LICENSED
LA QUINTA INNS

TEXAS
McAllen

OTHER
OWNED INNS
(operated under other brands)

GEORGIA
Columbus

TEXAS
El Paso
La Marque
San Antonio

31
<PAGE>
Typically, food service for La Quinta guests is provided by adjacent, free
standing restaurants. At June 30, 1995, the Company had an ownership interest in
126 restaurant buildings adjacent to its inns. These 126 restaurant buildings
are owned by the Company or its partnerships and joint ventures, which own the
related inn. These restaurant buildings 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. The Company's ownership interests in such restaurant buildings are as
follows, after giving effect to the AEW Transaction:

<TABLE>
<CAPTION>
RESTAURANT BUILDINGS
-----------------------
<S> <C>
Owned 100%..................................................... 121
Owned 50-67%................................................... 5
---
126
---
---
</TABLE>

One hundred and sixty-five of the Company's inns, including associated
restaurants, were pledged, at June 30, 1995, to secure long-term debt maturing
in various years from 1995 to 2015. (See note 2 of Notes to Combined Financial
Statements.) Following the execution of the Amended Bank Credit Facility, 75
inns, including associated restaurants, will be pledged as collateral to secure
long-term debt.

COMPETITION

Each La Quinta inn competes in its market area with numerous full service
lodging brands, especially in the mid-priced segment, and with numerous other
hotels, motels and other lodging establishments. Chains such as Hampton Inns,
Courtyard by Marriott, Fairfield Inns and Drury Inns are direct competitors of
La Quinta. Other well-known competitors include Holiday Inns, Ramada Inns, Red
Roof Inns and Comfort Inns. 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.

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 lodging
establishments in the area. See "Risk Factors -- Risks of the Lodging Industry"
and "-- Competition."

LICENSING

The Company selectively licensed the name "La Quinta-Registered Trademark-"
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 licensing agreement.

"La Quinta-Registered Trademark-," "teLQuik-Registered Trademark-" and
"Returns-Registered Trademark- Club" have been registered as service marks by La
Quinta with the U.S. Patent and Trademark Office and variously in Mexico,
Canada, the United Kingdom and the Netherland Antilles.

EMPLOYMENT AND OTHER GOVERNMENT REGULATION

The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverage (such as health and liquor license laws) and building and
zoning requirements. Also, the Company is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. An increase in the minimum wage
rate, employee benefit costs or other costs associated with

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employees, could adversely affect the Company. Both at the federal and state
level from time to time, there are proposals under consideration to increase the
minimum wage. Under the Americans with Disabilities Act of 1990 (the "ADA"), all
public accommodations are required to meet certain federal requirements related
to access and use by disabled persons. Although the Company has taken actions to
comply with the ADA, no assurance can be given that a material ADA claim will
not be asserted against the Company. These and other initiatives could adversely
affect the Company as well as the lodging industry in general.

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials ("ACMs") into the air, and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with exposure to released ACMs. Environmental laws also may impose
restrictions on the manner in which property may be used or business may be
operated, and these restrictions may require expenditures. In connection with
the ownership or operation of hotels and adjacent restaurant land and buildings,
the Company may be potentially liable for any such costs or liabilities.
Although the Company is currently not aware of any material environmental claims
pending or threatened against it, no assurance can be given that a material
environmental claim will not be asserted against the Company. The cost of
defending against claims of liability or of remediating a contaminated property
could have a material adverse affect on the results of operations of the
Company.

LEGAL PROCEEDINGS

In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies (the "La
Quinta Defendants"). The suit, entitled WALTER J. BIEGLER V. LA QUINTA MOTOR
INNS, INC., ET AL., is pending in the U.S. District Court for the Western
District of Texas, San Antonio Division. 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. Compensatory damages of $2,500,000 and
exemplary damages of $5,000,000 are sought in the action. The court has pending
before it the La Quinta Defendants' motion for summary judgment. The parties
subsequently filed a required, joint Pre-Trial Order, in which the plaintiff has
conceded a number of his claims. As yet, no trial date has been set for this
action. The Company is vigorously defending 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 proceedings and the
matter 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 for commercial general liability
insurance, automobile liability insurance and workers' compensation and
employer's liability insurance. In addition to the Paid Loss Program, the
Company has purchased excess umbrella liability policies and extended coverage
property insurance and such other insurance as is customarily obtained for
similar properties and which may be required by the terms of loan or similiar
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, $500,000
for workers' compensation and $250,000 for automobile coverage. All pro rata
expenses and premiums under the Paid Loss Program and such other insurance as is
customarily obtained 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. General liability is allocated pro rata based
on the number of rooms at each respective inn. Worker's compensation is
allocated based on the amount of payroll and auto liability is allocated based
on the number of vehicles at each respective inn.

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DESCRIPTION OF SENIOR NOTES

The Senior Notes will be issued under an Indenture (the "Indenture") to be
dated as of , 1995 between the Company and U.S. Trust Company
of Texas, N.A., as trustee (the "Trustee"). The following description of certain
provisions of the Indenture and the Senior Notes summarizes the material terms
thereof but does not purport to be complete, and such summaries are subject to
the detailed provisions of the Indenture to which reference is hereby made,
including the definition of certain terms used herein and those terms made a
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended, and for other information regarding the Senior Notes. The Indenture has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. Numerical references in parentheses below are to sections in the
Indenture. Wherever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by reference
as part of the statement made, and the statement is qualified in its entirety by
such reference.

GENERAL

The Indenture provides for issuance from time to time of debentures, notes
(including the Senior Notes) or other evidences of indebtedness by the Company
("Securities") in an unlimited amount. Additional Securities may be issued under
the Indenture from time to time.

The Senior Notes offered hereby constitute a series of notes under the
Indenture, which series is limited to $100,000,000 aggregate principal amount.
The Senior Notes will mature on , 2005.

Each Senior Note will bear interest from , 1995 at the
rate of % per annum, payable semi-annually (to holders of record at the close
of business on the or immediately preceding the
interest payment date) on and of each year
beginning , 1996.

The Senior Notes are not redeemable at the option of the Company prior to
maturity.

The Senior Notes will be issued in registered form only, without coupons.
The Senior Notes will be issuable in denominations of $1,000 or multiples
thereof. The Senior Notes will be issued as book-entry notes and will be subject
to the terms set forth below under "-- Global Securities." Securities not issued
as book-entry notes may be presented for registration, registration of transfer
or exchange at the office or agent of the Company which is currently located in
New York, New York. Subject to the limitations provided in the Indenture, such
services will be provided without charge, other than any tax or other
governmental charge payable in connection therewith. (SECTION 2.7).

The Indenture does not contain any restriction on the payment of dividends
or any financial covenants. The Indenture does not contain provisions which
would afford the Holders of the Senior Notes protection in the event of a
transfer of assets to a subsidiary and incurrence of unsecured debt by such
subsidiary, or in the event of a decline in the Company's credit quality
resulting from highly leveraged or other similar transactions involving the
Company.

The Senior Notes will be unsubordinated and unsecured obligations of the
Company ranking PARI PASSU with all existing and future unsubordinated and
unsecured obligations of the Company. As of June 30, 1995 after giving effect to
this Offering and the AEW Transaction, the Company had approximately $149.7
million of debt that is PARI PASSU with the Senior Notes, $140.4 million of
secured debt, $20.3 million of debt at subsidiaries and $120 million of debt
that is, by its terms, subordinated to the Senior Notes. Claims of Holders of
Senior Notes will be effectively subordinated to the claims of holders of the
debt of the Company's subsidiaries with respect to the assets of such
subsidiaries. In addition, claims of Holders of Senior Notes will be effectively
subordinated to the claims of holders of secured debt of the Company and its
subsidiaries with respect to the collateral securing such claims and claims of
the Company as the holder of general unsecured intercompany debt will be
similarly effectively subordinated to claims of holders of secured debt of its
subsidiaries.

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GLOBAL SECURITIES

Securities, including the Senior Notes, issued in the form of fully
registered global Securities (a "Registered Global Security") will be deposited
with The Depository Trust Company (the "Depositary") or a nominee thereof.
Unless and until it is exchanged in whole or in part for Securities in
definitive registered form, a Registered Global Security may not be transferred
except as a whole by the Depositary for such Registered Global Security to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by such Depositary or any such nominee
to a successor of such Depositary or a nominee of such successor. The Depositary
currently accepts only securities that are denominated in U.S. dollars.

Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the Depositary
for such Registered Global Security will credit, on its book-entry registration
and transfer system, the participants' accounts with the respective principal
amounts of the Securities represented by such Registered Global Security
beneficially owned by such participants. The accounts to be credited will be
designated by any dealers, underwriters or agents participating in the
distribution of such Securities. Ownership of beneficial interests in such
Registered Global Security will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
for such Registered Global Security (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to own, transfer or
pledge beneficial interests in Registered Global Securities.

So long as the Depositary for a Registered Global Security, or its nominee,
is the owner of record of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Securities represented by such Registered Global Security for all purposes
under the Indenture. Except as set forth below, owners of beneficial interests
in a Registered Global Security will not be entitled to have the Securities
represented by such Registered Global Security registered in their names, and
will not receive or be entitled to receive physical delivery of such Securities
in definitive form and will not be considered the owners or holders thereof
under the Indenture. Accordingly, each person owning a beneficial interest in a
Registered Global Security must rely on the procedures of the Depositary for
such Registered Global Security and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder of record under the Indenture. The Company
understands that under existing industry practices, if the Company requests any
action of holders or if any owner of a beneficial interest in a Registered
Global Security desires to give or take any action which a holder is entitled to
give or take under the Indenture, the Depositary for such Registered Global
Security would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instruction of beneficial owners holding through
them.

Payments of principal of, premium, if any, and interest on Securities
represented by a Registered Global Security registered in the name of the
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Registered Global Security. None of
the Company, the Trustee or any other agent of the Company or agent of the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
such Registered Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.

The Company expects that the Depositary for any Securities represented by a
Registered Global Security, upon receipt of any payment of principal, premium,
if any, or interest in respect of such Registered Global Security, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in such Registered Global Security as
shown on the records of such Depositary. The Company also expects that payments
by participants to owners of beneficial interests in such

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Registered Global Security held through such participants will be governed by
standing customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.

If the Depositary for Securities represented by a Registered Global Security
notifies the Company that it is at any time unwilling or unable to continue as
Depositary or ceases to be eligible under applicable law, and a successor
Depositary eligible under applicable law is not appointed by the Company within
90 days, the Company will issue such Securities in definitive form in exchange
for such Registered Global Security. In addition, the Company may at any time
and in its sole discretion determine not to have any of the Securities of a
series represented by one or more Registered Global Securities and, in such
event, will issue Securities of such series in definitive form in exchange for
all of the Registered Global Security or Registered Global Securities
representing such Securities. Any Securities issued in definitive form in
exchange for a Registered Global Security will be registered in such name or
names as the Depositary shall instruct the Trustee. It is expected that such
instructions will be based upon directions received by the Depositary from
participants with respect to ownership of beneficial interests in such
Registered Global Security.

SAME-DAY SETTLEMENT IN RESPECT OF GLOBAL NOTES

So long as any Senior Notes are represented by Global Securities registered
in the name of the Depositary or its nominee, such Senior Notes will trade in
the Depositary's Same-Day Funds Settlement System, and secondary market trading
activity in such Senior Notes will therefore be required by the Depositary to
settle in immediately available funds. No assurance can be given as to the
effect, if any, of settlement in immediately available funds on trading activity
in the Senior Notes.

CERTAIN COVENANTS

The following covenants apply to all series of Securities, including the
Senior Notes.

RESTRICTIONS ON LIENS. The Indenture provides that the Company will not,
and will not permit any Restricted Subsidiary (as defined herein) to, create or
incur any Lien (as defined herein) on any shares of stock, indebtedness or other
obligations of a Restricted Subsidiary (as defined herein) or any Principal
Property (as defined herein) of the Company or a Restricted Subsidiary, whether
such shares of stock, indebtedness or other obligations of a Restricted
Subsidiary or Principal Property are owned at the date of the Indenture or
thereafter acquired, unless the Company secures or causes such Restricted
Subsidiary to secure the outstanding Securities equally and ratably with all
indebtedness secured by such Lien, so long as such indebtedness shall be so
secured. This covenant shall not apply in the case of: (i) the creation of any
Lien on any shares of stock, indebtedness or other obligations of a Subsidiary
or any Principal Property acquired after the date of the Indenture (including
acquisitions by way of merger or consolidation) by the Company or a Restricted
Subsidiary contemporaneously with such acquisition, or within 180 days
thereafter, to secure or provide for the payment or financing of any part of the
purchase price thereof, or the assumption of any Lien upon any shares of stock,
indebtedness or other obligations of a Subsidiary or any Principal Property
acquired after the date of the Indenture existing at the time of such
acquisition, or the acquisition of any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property subject to any Lien
without the assumption thereof, provided that every such Lien referred to in
this clause (i) shall attach only to the shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property so acquired and fixed
improvements thereon; (ii) any Lien on any shares of stock, indebtedness or
other obligations of a Subsidiary or any Principal Property existing at the date
of the Indenture; (iii) any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property in favor of the Company or
any Restricted Subsidiary; (iv) any Lien on any Principal Property being
constructed or improved securing loans to finance such construction or
improvements; (v) any Lien on shares of stock, indebtedness or other obligations
of a Subsidiary or any Principal Property incurred in connection with the
issuance of tax-exempt governmental obligations (including, without limitation,
industrial revenue bonds and similar financings); (vi) any mechanics',
materialmen's, carriers' or other similar Liens arising in the ordinary course
of business with respect to obligations which are not yet due or which are being
contested in good faith; (vii) any Lien on any shares of stock, indebtedness or
other obligations of a Subsidiary or any Principal Property for taxes,
assessments or governmental charges or levies not yet delinquent, or already

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<PAGE>

delinquent but the validity of which is being contested in good faith; (viii)
any Lien on any shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property arising in connection with legal
proceedings being contested in good faith, including any judgment Lien so long
as execution thereon is stayed; (ix) any landlord's Lien on fixtures located on
premises leased by the Company or a Restricted Subsidiary in the ordinary course
of business, and tenants' rights under leases, easements and similar Liens not
materially impairing the use or value of the property involved; (x) any Lien
arising by reason of deposits necessary to qualify the Company or any Restricted
Subsidiary to conduct business, maintain self-insurance, or obtain the benefit
of, or comply with, any law; and (xi) any renewal of or substitution for any
Lien permitted by any of the preceding clauses (i) through (x), provided, in the
case of a Lien permitted under clause (i), (ii) or (iv), the indebtedness
secured is not increased nor the Lien extended to any additional assets.
(SECTION 4.3(A)) Notwithstanding the foregoing, the Company or any Restricted
Subsidiary may create or assume Liens in addition to those permitted by the
preceding sentence of this paragraph, and renew, extend or replace such Liens,
provided that at the time of such creation, assumption, renewal, extension or
replacement, and after giving effect thereto, Exempted Debt (as defined herein)
does not exceed 15% of Combined Net Worth (as defined herein). (SECTION 4.3(B)).

RESTRICTIONS ON SALE AND LEASE-BACK TRANSACTIONS. The Indenture provides
that the Company will not, and will not permit any Restricted Subsidiary to,
sell or transfer, directly or indirectly, except to the Company or a Restricted
Subsidiary, any Principal Property as an entirety, or any substantial portion
thereof, with the intention of taking back a lease of such property, except a
lease for a period of three years or less at the end of which it is intended
that the use of such property by the lessee will be discontinued; PROVIDED that,
notwithstanding the foregoing, the Company or any Restricted Subsidiary may sell
any such Principal Property and lease it back for a longer period (i) if the
Company or such Restricted Subsidiary would be entitled, pursuant to the
provisions of Section 4.3(a) described above under "-- Restrictions on Liens",
to create a Lien on the property to be leased securing Funded Debt (as defined
herein) in an amount equal to the Attributable Debt (as defined herein) with
respect to such sale and lease-back transaction without equally and ratably
securing the outstanding Securities or (ii) if (A) the Company promptly informs
the Trustee of such transaction, and (B) the Company causes an amount equal to
the fair value (as determined by Board Resolution of the Company) of such
property to be applied: (1) to the purchase of other property that will
constitute Principal Property having a fair value at least equal to the fair
value of the property sold, or (2) to the retirement within 120 days after
receipt of such proceeds, of Funded Debt incurred or assumed by the Company or a
Restricted Subsidiary (including the Securities); PROVIDED further that, in lieu
of applying all of or any part of such net proceeds to such retirement, the
Company may, within 75 days after such sale, deliver or cause to be delivered to
the applicable Trustee for cancellation either debentures or notes evidencing
Funded Debt of the Company (which may include the Securities) or of a Restricted
Subsidiary previously authenticated and delivered by the applicable Trustee, and
not theretofore tendered for sinking fund purposes or called for a sinking fund
or otherwise applied as a credit against an obligation to redeem or retire such
notes or debentures, and a certificate of an officer of the Company (which shall
be delivered to the Trustee) stating that the Company elects to deliver or cause
to be delivered such debentures or notes in lieu of retiring Funded Debt as
hereinabove provided. If the Company shall so deliver debentures or notes to the
applicable Trustee and the Company shall duly deliver such officer's
certificate, the amount of cash which the Company shall be required to apply to
the retirement of Funded Debt under this provision of the Indenture shall be
reduced by an amount equal to the aggregate of the then applicable optional
redemption prices (not including any optional sinking fund redemption prices) of
such debentures or notes, or, if there are no such redemption prices, the
principal amount of such debentures or notes; PROVIDED, that in the case of
debentures or notes which provide for an amount less than the principal amount
thereof to be due and payable upon a declaration of the maturity thereof, such
amount of cash shall be reduced by the amount of principal of such debentures or
notes that would be due and payable as of the date of such application upon a
declaration of acceleration of the maturity thereof pursuant to the terms of the
indenture pursuant to which such debentures or notes were issued. (SECTION
4.4(A)) Notwithstanding the foregoing, the Company or any Restricted Subsidiary
may enter into sale and lease-back transactions in addition to those

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permitted by this paragraph without any obligation to retire any outstanding
Securities or other Funded Debt, PROVIDED that at the time of entering into such
sale and lease-back transactions and after giving effect thereto, Exempted Debt
does not exceed 15% of Combined Net Worth. (SECTION 4.4(B)).

CERTAIN DEFINITIONS

The term "Attributable Debt" as defined in the Indenture means when used in
connection with a sale and lease-back transaction referred to above under "--
Restrictions on Sale and Lease-back Transactions", on any date as of which the
amount thereof is to be determined, the product of (a) the net proceeds from
such sale and lease-back transaction multiplied by (b) a fraction, the numerator
of which is the number of full years of the term of the lease relating to the
property involved in such sale and lease-back transaction (without regard to any
options to renew or extend such term) remaining on the date of the making of
such computation and the denominator of which is the number of full years of the
term of such lease measured from the first day of such term.

The term "Combined Net Worth" as defined in the Indenture means, at any date
of determination, the combined shareholders' equity of the Company, as set forth
on the then most recently available combined balance sheet of the Company and
its combined subsidiaries and joint ventures.

The term "Exempted Debt" as defined in the Indenture means the sum, without
duplication, of the following items outstanding as of the date Exempted Debt is
being determined: (i) indebtedness of the Company and its Restricted
Subsidiaries incurred after the date of the Indenture and secured by liens
created or assumed or permitted to exist pursuant to Section 4.3(b) of the
Indenture described above under "-- Restrictions on Liens" and (ii) Attributable
Debt of the Company and its Restricted Subsidiaries in respect of all sale and
lease-back transactions with regard to any Principal Property entered into
pursuant to Section 4.4(b) of the Indenture described above under "--
Restrictions on Sale and Lease-back Transactions."

The term "Funded Debt" as defined in the Indenture means all indebtedness
for money borrowed, including purchase money indebtedness, having a maturity of
more than one year from the date of its creation or having a maturity of less
than one year but by its terms being renewable or extendible, at the option of
the obligor in respect thereof, beyond one year from the date of its creation.

The terms "Holder" or "Securityholder" as defined in the Indenture mean the
registered holder of any Security with respect to registered Securities and the
bearer of any unregistered Security or any coupon appertaining thereto, as the
case may be.

The term "Lien" as defined in the Indenture means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind, or any other type of preferential arrangement that has the practical
effect of creating a security interest, in respect of such asset. For the
purposes of the Indenture, the Company or any Subsidiary shall be deemed to own
subject to a Lien any asset that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.

The term "Original Issue Discount Security" as defined in the Indenture
means any Security that provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the maturity
thereof pursuant to Section 6.2 of the Indenture.

The term "Principal Property" as defined in the Indenture means land, land
improvements, buildings and associated equipment owned or leased pursuant to a
capital lease and used by the Company or a Restricted Subsidiary primarily in
the hotel business, but shall not include any such property financed through the
issuance of tax exempt governmental obligations (including, without limitation,
industrial revenue bonds and similar financings).

The term "Restricted Subsidiary" as defined in the Indenture means any
Subsidiary organized and existing under the laws of the United States of America
and the principal business of which is carried on within the United States of
America which owns or is a lessee pursuant to a capital lease of any Principal
Property other than:

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(i) each Subsidiary the major part of whose business consists of
finance, banking, credit, leasing, insurance, financial services or other
similar operations, or any combination thereof;

(ii) each Subsidiary formed or acquired after the date hereof for the
purpose of acquiring the business or assets of another Person and which does
not acquire all or any substantial part of the business or assets of the
Company or any Restricted Subsidiary; and

(iii) the following unincorporated partnerships and joint ventures, each
of which currently owns one inn: La Quinta -- Houston I.H. 10, Ltd.; La
Quinta San Antonio -- South Joint Venture; La Quinta Austin Motor Hotel,
Ltd.; La Quinta -- Dallas Central Expressway, Ltd.; LQ Motor Inn Venture --
Austin No. 530; La Quinta -- Wichita, Kansas, No. 532, Ltd.; and LQ -- West
Bank Joint Venture;

PROVIDED, HOWEVER, that any Subsidiary may be declared a Restricted Subsidiary
by Board Resolution, effective as of the date such Board Resolution is adopted;
PROVIDED FURTHER, that any such declaration may be rescinded by further Board
Resolution, effective as of the date such further Board Resolution is adopted.

The term "Subsidiary" as defined in the Indenture means with respect to any
Person, any corporation, association or other business entity of which more than
50% of the outstanding Voting Stock (as defined in the Indenture) is owned
directly or indirectly, by such Person and one or more other Subsidiaries of
such Person.

RESTRICTIONS ON MERGERS AND SALES OF ASSETS

Under the Indenture, the Company shall not consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially as
an entirety in one transaction or a series of related transactions) to, any
Person (other than a consolidation with or merger with or into a Subsidiary or a
sale, conveyance, transfer, lease or other disposition to a Subsidiary) or
permit any Person to merge with or into the Company unless: (a) either (i) the
Company shall be the continuing Person or (ii) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquired or leased such property and assets of the Company shall be a
corporation organized and validly existing under the laws of the United States
of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of the
obligations of the Company on all of the Securities and under the Indenture and
the Company shall have delivered to the Trustee an opinion of counsel stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for in
the Indenture relating to such transaction have been complied with and that such
supplemental indenture constitutes the legal, valid and binding obligation of
the Company or such successor enforceable against such entity in accordance with
its terms, subject to customary exceptions; and (b) an officers' certificate to
the effect that immediately after giving effect to such transaction, no Default
(as defined in the Indenture) shall have occurred and be continuing and an
opinion of counsel as to the matters set forth in clause (a) shall have been
delivered to the Trustee. (SECTION 5.1). The meaning of the term "all or
substantially all of the assets" has not been definitely established and is
likely to be interpreted by reference to applicable state law if and at the time
the issue arises, and will be dependent on the facts and circumstances existing
at the time. Accordingly, there may be uncertainty as to whether a Holder of
Senior Notes can determine whether a sale of "all or substantially all of the
assets" has occurred and exercise any remedies
such Holder may have as a result thereof.

EVENTS OF DEFAULT

Events of Default defined in the Indenture with respect to the Securities of
any series are: (a) the Company defaults in the payment of the principal of any
Security of such series when the same becomes due and payable at maturity, upon
acceleration, redemption or mandatory repurchase, including as a sinking fund
installment, or otherwise; (b) the Company defaults in the payment of interest
on any Security of such series when the same becomes due and payable, and such
default continues for a period of 30 days; (c)(i) default by the Company or any
Restricted Subsidiary in the payment when due at maturity of any Funded Debt
(other than Funded Debt that is non-recourse to the Company and its Restricted
Subsidiaries) in excess of $15,000,000, whether such Funded Debt is outstanding
at the date of the Indenture or is

39
<PAGE>
thereafter outstanding, and the continuation of such default for the greater of
any period of grace applicable thereto or ten days from the date of such default
or (ii) an event of default, as defined in any indenture, agreement or
instrument evidencing or under which the Company and/or any Restricted
Subsidiary has at the date of the Indenture or shall thereafter have outstanding
at least $15,000,000 aggregate principal amount of Funded Debt, shall happen and
be continuing and such Funded Debt shall have been accelerated so that the same
shall be or become due and payable prior to the date on which the same would
otherwise have become due and payable, and such acceleration shall not be
rescinded or annulled or such indebtedness shall not be discharged, within ten
days; (d) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture with respect to any
Security of such series or in the Securities of such series and such default or
breach continues for a period of 30 consecutive days after written notice to the
Company by the Trustee or to the Company and the Trustee by the Holders of 25%
or more in aggregate principal amount of the Securities of all series affected
thereby; (e) an involuntary case or other proceeding shall be commenced against
the Company or any Restricted Subsidiary with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Company
or any Restricted Subsidiary under the federal bankruptcy laws as now or
hereafter in effect; (f) the Company or any Restricted Subsidiary (i) commences
a voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for relief
in an involuntary case under any such law, (ii) consents to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Restricted Subsidiary or
for all or substantially all of the property and assets of the Company or any
Restricted Subsidiary or (iii) effects any general assignment for the benefit of
creditors; or (g) any other Event of Default established with respect to any
series of Securities issued pursuant to the Indenture occurs. (SECTION 6.1)

The Indenture provides that if an Event of Default described in clauses (a)
or (b) of the immediately preceding paragraph with respect to the Securities of
any series then outstanding occurs and is continuing, then, and in each and
every such case, except for any series of Securities the principal of which
shall have already become due and payable, either the Trustee or the Holders of
not less than 25% in aggregate principal amount of the Securities of any such
affected series then outstanding under the Indenture (each such series treated
as a separate class) by notice in writing to the Company (and to the Trustee if
given by Securityholders), may declare the entire principal (or, if the
Securities of any such series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of such series
established pursuant to the Indenture) of all Securities of such affected
series, and the interest accrued thereon, if any, to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable. If an Event of Default described in clauses (c), (d) or (g) of the
immediately preceding paragraph with respect to the Securities of one or more
but not all series then outstanding or with respect to the Securities of all
series then outstanding occurs and is continuing, then, and in each and every
such case, except for any series of Securities the principal of which shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount (or, if the Securities of any such series
are Original Issue Discount Securities, the amount thereof accelerable as
described in this paragraph) of the Securities of all such affected series then
outstanding under the Indenture (treated as a single class) by notice in writing
to the Company (and to the Trustee if given by Securityholders), may declare the
entire principal (or, if the Securities of any such series are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of such series established pursuant to the Indenture) of all
Securities of all such affected series, and the interest accrued thereof, if
any, to be due and payable immediately, and upon any such declaration the same
shall become immediately due and payable. If an Event of Default described in
clause (e) or (f) of the immediately preceding paragraph occurs and is
continuing, then the principal amount (or, if any Securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof established pursuant to the Indenture) of all the Securities then
outstanding and interest accrued thereon, if any, shall be and become
immediately due and payable, without any notice or other action by any Holder or
the Trustee to

40
<PAGE>
the full extent permitted by applicable law. Upon certain conditions such
declarations may be rescinded and annulled and past defaults may be waived by
the Holders of a majority in principal of the then outstanding Securities of all
such series that have been accelerated (voting as a single class). (SECTION 6.2)

The Indenture contains a provision under which, subject to the duty of the
Trustee during a default to act with the required standard of care, (i) the
Trustee may rely and shall be protected in acting or refraining from acting upon
any resolution, certificate, officers' certificate, opinion of counsel (or
both), statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence or indebtedness or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper person or persons and the Trustee need not investigate
any fact or matter stated in the document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit; (ii) before the Trustee acts or refrains from acting, it may
require an officers' certificate and/or an opinion of counsel, which shall
conform to the requirements of the Indenture and the Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion; subject to the terms of the Indenture, whenever in the
administration of the trusts of the Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
suffering or omitting any action under the Indenture, such matter (unless other
evidence in respect thereof be specifically prescribed in the Indenture) may, in
the absence of negligence or bad faith on the part of the Trustee, be deemed to
be conclusively proved and established by an officers' certificate delivered to
the Trustee, and such certificate, in the absence of negligence or bad faith on
the part of the Trustee, shall be full warrant to the Trustee for any action
taken, suffered or omitted by it under the provisions of the Indenture upon the
faith thereof; (iii) the Trustee may act through its attorneys and agents not
regularly in its employ and shall not be responsible for the misconduct or
negligence of any agent or attorney appointed with due care by it under the
Indenture; (iv) any request, direction, order or demand of the Company mentioned
in the Indenture shall be sufficiently evidenced by an officers' certificate
(unless other evidence in respect thereof be specifically prescribed in the
Indenture); and any Board Resolution may be evidenced to the Trustee by a copy
thereof certified by the Secretary or an Assistant Secretary of the Company; (v)
the Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by the Indenture at the request, order or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction; (vi) the Trustee
shall not be liable for any action it takes or omits to take in good faith that
it believes to be authorized or within its rights or powers or for any action it
takes or omits to take in accordance with the direction of the Holders in
accordance with the Indenture relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under the Indenture; (vii) the
Trustee may consult with counsel and the written advice of such counsel or any
opinion of counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it under the Indenture in
good faith and in reliance thereon; and (viii) prior to the occurrence of an
Event of Default under the Indenture and after the curing or waiving of all
Events of Default, the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, officers'
certificate, opinion of counsel, Board Resolution, statement, instrument,
opinion, report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document. (SECTION 7.2)

Subject to such provisions in the Indenture for the indemnification of the
Trustee and certain other limitations, the Holders of at least a majority in
aggregate principal amount (or, if any Securities are Original Issue Discount
Securities, such portion of the principal as is then accelerable under the
Indenture) of the outstanding Securities of all series affected (voting as a
single class), may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Securities of such series by
the Indenture; PROVIDED, that the Trustee may refuse to follow any direction
that conflicts with law of the Indenture, that may involve the Trustee in
personal liability, or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders not joining in the giving of such
direction; and PROVIDED FURTHER, that the Trustee may take any other action it
deems proper that is not inconsistent with any directions received from Holders
of Securities pursuant to this paragraph. (SECTION 6.5)

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<PAGE>

Subject to various provisions in the Indenture, the Holders of at least a
majority in principal amount (or, if the Securities are Original Issue Discount
Securities, such potion of the principal as is then accelerable under the
Indenture) of the outstanding Securities of all series affected (voting as a
single class) by notice to the Trustee, may waive, on behalf of the Holders of
all the Securities of such series, an existing Default or Event of Default with
respect to the securities of such series and its consequences, except a Default
in the payment of principal of or interest on any Security as specified in
clauses (a) or (b) of Section 6.1 of the Indenture or in respect of a covenant
or provision of the Indenture which cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default with respect
to the Securities of such series arising therefrom shall be deemed to have been
cured, for every purpose of the Indenture; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereto. (SECTION 6.4)

The Indenture provides that no Holder of any Securities of any series may
institute any proceeding, judicial or otherwise, with respect to the Indenture
or the Securities of such series, or for the appointment of a receiver or
trustee, or for any other remedy under the Indenture, unless: (i) such Holder
has previously given to the Trustee written notice a continuing Event of Default
with respect to the Securities of such series; (ii) the Holders of at least 25%
in aggregate principal amount of outstanding Securities of all such series
affected shall have made written request to the Trustee to institute proceedings
in respect of such Event of Default in its own name as Trustee under the
Indenture; (iii) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to the Trustee against any costs, liabilities or
expenses to be incurred in compliance with such request; (iv) the Trustee for 60
days after its receipt of such notice, request and offer of indemnity has failed
to institute any such proceeding; and (v) during such 60-day period, the Holders
of a majority in aggregate principal amount of the outstanding Securities of all
such affected series have not given the Trustee a direction that is inconsistent
with such written request. A Holder may not use the Indenture to prejudice the
rights of another Holder or to obtain a preference or priority over such other
Holder. (SECTION 6.6)

The Indenture contains a covenant that the Company will file with the
Trustee, within 15 days after the Company is required to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act. (SECTION 4.6)

DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE

The Indenture provides with respect to each series of Securities that,
except as otherwise provided in this paragraph, the Company may terminate its
obligations under the Securities of a series and the Indenture with respect to
Securities of such series if: (i) all Securities of such series previously
authenticated and delivered, with certain exceptions, have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by it under
the Indenture; or (ii)(A) the Securities of such series mature within one year
or all of them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the notice of redemption,
(B) the Company irrevocably deposits in trust with the Trustee, as trust funds
solely for the benefit of the Holders of such Securities, for that purpose,
money or U.S. Government Obligations or a combination thereof sufficient (unless
such funds consist solely of money, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee), without consideration of any reinvestment, to
pay principal of and interest on the Securities of such series to maturity or
redemption, as the case may be, and to pay all other sums payable by it under
the Indenture, and (C) the Company delivers to the Trustee an officers'
certificate and an opinion of counsel, in each case stating that all conditions
precedent provided for in the Indenture relating to the satisfaction and
discharge of the Indenture with respect to the Securities of such series have
been complied with. With respect to the foregoing clause (i), only the Company's
obligations to compensate and indemnity the trustee under the Indenture shall
survive. With respect to the foregoing clause (ii), only the Company's
obligations to execute and deliver Securities of such series for authentication,
to set the terms of the Securities of such series, to maintain an office or
agency in respect of the Securities of such series, to have moneys held for
payment in trust, to register the transfer or exchange of Securities of such
series, to deliver Securities of such series for replacement or to be canceled,
to compensate and

42
<PAGE>
indemnify the Trustee and to appoint a successor trustee, and its right to
recover excess money held by the Trustee shall survive until such Securities are
no longer outstanding. Thereafter, only the Company's obligations to compensate
and indemnify the Trustee, and its right to recover excess money held by the
Trustee shall survive. (SECTION 8.1)

The Indenture provides that, except as otherwise provided in this paragraph,
the Company (i) will be deemed to have paid and will be discharged from any and
all obligations in respect of the Securities of any series, and the provisions
of the Indenture will no longer be in effect with respect to the Securities of
such series ("legal defeasance") and (ii) may omit to comply with any term,
provision or condition of the Indenture described above under "-- Certain
Covenants" (or any other specific covenant relating to such series provided for
in a Board Resolution or supplemental indenture which may by its terms be
defeased pursuant to the Indenture), and such omission shall be deemed not to be
an Event of Default under clauses (c), (d) or (g) of the first paragraph of "--
Events of Default" with respect to the outstanding Securities of a series
("covenant defeasance"); PROVIDED that the following conditions shall have been
satisfied: (A) the Company has irrevocably deposited in trust with the Trustee
as trust funds solely for the benefit of the Holders of the Securities of such
series, for payment of the principal of and interest on the Securities of such
series, money or U.S. Government Obligations or a combination thereof sufficient
(unless such funds consist solely of money, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof deliver to the Trustee) without consideration of any
reinvestment and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, to pay and
discharge the principal of and accrued interest on the outstanding Securities of
such series to maturity or earlier redemption (irrevocably provided for under
arrangements satisfactory to the Trustee), as the case may be; (B) such deposit
will not result in a breach or violation of, or constitute a default under, the
Indenture or any other material agreement or instrument to which the Company is
a party or by which it is bound; (C) no Default with respect to such Securities
of such series shall have occurred and be continuing on the date of such
deposit; (D) the Company shall have delivered to the Trustee an opinion of
counsel that (1) the Holders of the Securities of such series will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this provision of the Indenture and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (which opinion, in the case of a legal defeasance, shall be based
upon a change in law) and (2) the Holders of the Securities of such series have
a valid security interest in the trust funds subject to no prior liens under the
Uniform Commercial Code, and (E) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel, in each case stating that all
conditions precedent provided for in the Indenture relating to the defeasance
contemplated have been complied with. In the case of legal defeasance under
clause (i) above, the opinion of counsel referred to in clause (D)(1) above may
be replaced by a ruling directed to the Trustee received from the Internal
Revenue Service to the same effect. Subsequent to legal defeasance under clause
(i) above, the Company's obligations to execute and deliver Securities of such
series for authentication, to set the terms of the Securities of such series, to
maintain an office or agency in respect of the Securities of such series, to
have moneys held for payment in trust, to register the transfer or exchange of
Securities of such series, to deliver Securities of such series for replacement
or to be canceled, to compensate and indemnify the Trustee and to appoint a
successor trustee, and its right to recover excess money held by the Trustee
shall survive until such Securities are no longer outstanding. After such
Securities are no longer outstanding, in the case of legal defeasance under
clause (i) above, only the Company's obligations to compensate and indemnify the
Trustee and its right to recover excess money held by the Trustee shall survive.
(SECTIONS 8.2 AND 8.3)

MODIFICATION OF THE INDENTURE

The Indenture provides that the Company and the Trustee may amend or
supplement the Indenture or the Securities of any series without notice to or
the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency in
the Indenture; PROVIDED that such amendments or supplements shall not materially
and adversely affect the interests of the Holders; (2) to comply with Article 5
(which relates to the covenant regarding "-- Restrictions on Mergers and Sales
of Assets") of the Indenture; (3) to comply with any requirements of the
Securities and Exchange Commission in connection with the qualification of the

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<PAGE>

Indenture under the Trust Indenture Act; (4) to evidence and provide for the
acceptance of appointment under the Indenture with respect to the Securities of
any or all series by a successor Trustee; (5) to establish the form or forms or
terms of Securities of any series or of the coupons appertaining to such
Securities as permitted under the Indenture; (6) to provide for uncertificated
or unregistered Securities and to make all appropriate changes for such purpose;
(7) to change or eliminate any provisions of the Indenture with respect to all
or any series of the Securities not then outstanding (and, if such change is
applicable to fewer than all such series of the Securities, specifying the
series to which such change is applicable), and to specify the rights and
remedies of the Trustee and the Holders of such Securities in connection
therewith; and (8) to make any change that does not materially and adversely
affect the rights of any Holder. (SECTION 9.1)

The Indenture also contains provisions whereby the Company and the Trustee,
subject to certain conditions, without prior notice to any Holders, may amend
the Indenture and the outstanding Securities of any series with the written
consent of the Holders of a majority in principal amount of the Securities then
outstanding of all series affected by such supplemental indenture (all such
series voting as one class), and the Holders of a majority in principal amount
of the outstanding Securities of all series affected thereby (all such series
voting as one class) by written notice to the Trustee may waive future
compliance by the Company with any provision of the Indenture or the Securities
of such series. Notwithstanding the foregoing provisions, without the consent of
each Holder affected thereby, an amendment or waiver, including a waiver
pursuant to Section 6.4 of the Indenture, may not: (i) extend the stated
maturity of the principal of, or any sinking fund obligation or any installment
of interest on, such Holder's Security, or reduce the principal amount thereof
or the rate of interest thereon (including any amount in respect of original
issue discount), or any premium payable with respect thereto, or adversely
affect the rights of such Holder under any mandatory redemption or repurchase
provision or any right of redemption or repurchase at the option of such Holder,
or reduce the amount of the principal of an Original Issue Discount Security
that would be due and payable upon the acceleration of the maturity thereof or
the amount thereof provable in bankruptcy, or change any place of payment where,
or the currency in which, any Security or any premium or the interest thereof is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the due date therefor; (ii) reduce the percentage in
principal amount of outstanding Securities of the relevant series the consent of
whose Holders is required for any such supplemental indenture, for any waiver of
compliance with certain provisions of the Indenture; (iii) waive a Default in
the payment of principal of or interest on any Security of such Holder; or (iv)
modify any of the provisions of this section of the Indenture, except to
increase any such percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of each
outstanding Security affected thereby. A supplemental indenture which changes or
eliminates any covenant or other provision of the Indenture which has expressly
been included solely for the benefit of one or more particular series of
Securities, or which modifies the rights of Holders of Securities of such series
with respect to such covenant or provision, shall be deemed not to affect the
rights under the Indenture of the Holders of Securities of any other series or
of the coupons appertaining to such Securities. It shall not be necessary for
the consent of any Holder under this section of the Indenture to approve the
particular form of any proposed amendment, supplement or waiver, but it shall be
sufficient if such consent approves the substance thereof. After an amendment,
supplement or waiver under this section of the Indenture becomes effective, the
Company or, at the request of the Company, the Trustee shall give to the Holders
affected thereby a notice briefly describing the amendment, supplement or
waiver. The Company or, at the request of the Company, the Trustee will mail
supplemental indentures to Holders upon request. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture or waiver. (SECTION
9.2)

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<PAGE>
UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amounts of Senior Notes set forth opposite the names of
such Underwriters below:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF SENIOR NOTES
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated...............................................................
Donaldson, Lufkin & Jenrette Securities Corporation.............................................
NationsBanc Capital Markets, Inc................................................................
----------------
Total......................................................................................... $ 100,000,000
----------------
----------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Senior Notes are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the Senior
Notes if any are taken.

The Underwriters initially propose to offer part of the Senior Notes
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of % of the principal amount of the Senior Notes. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of % of
the principal amount of the Senior Notes to other Underwriters or to certain
other dealers. After the initial offering of the Senior Notes, the offering
price and other selling terms may from time to time be varied by the
Underwriters.

The Company does not intend to apply for listing of the Senior Notes on a
national securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Senior Notes, as permitted by
applicable laws and regulations. The Underwriters are not obligated, however, to
make a market in the Senior Notes and any such market making may be discontinued
at any time at the sole discretion of the Underwriters. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
Senior Notes.

When more than 10% of the proceeds of a public offering of debt securities
that meet certain ratings criteria are to be paid to a member of the National
Association of Securities Dealers, Inc. (the "NASD") participating in such
public offering or to an affiliate of such a member, Section 44 (c)(8) of the
NASD's Rules of Fair Practice requires disclosure of such fact. NationsBanc
Capital Markets, Inc., one of the Underwriters, is a member of the NASD and is
an affiliate of NationsBank of Texas, N.A. ("NationsBank"), the administrative
agent and one of the lenders under the Company Bank Credit Facility, the LQDP
Lines of Credit and the Company's unsecured line of credit. NationsBank will
receive more than 10% of the net proceeds from the public offering of Senior
Notes as a result of the use of such proceeds to repay loans made under the
Company Bank Credit Facility and the LQDP Lines of Credit. See "Use of
Proceeds."

From time to time, Morgan Stanley & Co. Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation have provided, and continue to provide,
investment banking services to the Company. NationsBanc Capital Markets, Inc.
and its affiliates have periodically provided and may in the future provide
banking and investment banking services to the Company.

The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.

LEGAL MATTERS

Certain legal matters with respect to the Senior Notes offered hereby will
be passed upon for the Company by John F. Schmutz, Vice President -- General
Counsel of the Company and Latham & Watkins, Los Angeles, California and for the
Underwriters by Davis Polk & Wardwell.

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<PAGE>
EXPERTS

The combined balance sheets of La Quinta Inns, Inc., as of December 31, 1994
and 1993, 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, 1994 incorporated by reference herein and elsewhere in the
Registration Statement (as defined under "Available Information"), have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
refers to the adoption of Statement of Financial Accounting Standards No. 109 in
1993.

With respect to the unaudited interim financial information for the
three-month periods ended March 31, 1995 and 1994 and three and six-month
periods ended June 30, 1995 and 1994, incorporated by reference herein, KPMG
Peat Marwick LLP has reported that they applied limited procedures in accordance
with professional standards for a review of such information. However, their
separate reports included in the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1995 and June 30, 1995, and incorporated by
reference herein, state that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of Section 11 of the Securities Act of 1933
for their reports on the unaudited interim financial information because neither
of those reports is a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of the Securities Act of 1933.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (together with all amendments, the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended ("Securities Act") with respect to the Senior Notes offered hereby. This
Prospectus, filed as a part of that Registration Statement, does not contain all
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. In addition, certain documents filed by the Company with the
Commission have been incorporated herein by reference. See "Incorporation of
Certain Information by Reference." For further information regarding La Quinta
and the Senior Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto and the documents
incorporated herein by reference. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; and
at the regional offices of the Commission at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock of the Company is listed on the New York Stock Exchange. Reports, proxy
statements and other information concerning the Company can also be inspected
and copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Company's Annual Report on Form 10-K (Commission file No. 1-7790) for
the fiscal year ended December 31, 1994 (filed with the Commission on March 15,
1995), the Company's Quarterly Report on Form 10-Q for the three month period
ended March 31, 1995 (filed with the Commission on May 15, 1995), the Company's
Current Report on Form 8-K (filed with the Commission on June 16, 1995) and the
Company's Quarterly Report on Form 10-Q for the six month period ended June 30,
1995 (filed with the Commission on July 26, 1995), are hereby incorporated by
reference.

46
<PAGE>
All documents filed by the Company pursuant to Sections 13(a),13(c),14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the securities offered by this Prospectus, shall
be deemed to be incorporated by reference in this Prospectus and be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified,
to constitute a part of this Prospectus.

The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any or all of the documents incorporated by reference
herein, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to: La
Quinta Inns, Inc., 112 East Pecan Street, San Antonio, Texas 78205, Attention:
Investor Relations, telephone (210) 302-6000.

47
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Set forth below is an estimate of the fees and expenses, other than
underwriting discounts and commissions, payable or reimbursable by the Company
in connection with the issuance and distribution of the Senior Notes:

<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 34,483
Printing and Engraving Expenses.................................... *
Blue Sky Fees and Expenses......................................... *
Trustee and Registrar Fees......................................... *
Legal Fees and Expenses............................................ *
Accounting Fees.................................................... *
Miscellaneous Expenses............................................. *
---------
Total............................................................ $ *
---------
---------
<FN>
- ------------------------
* To be filed by amendment.
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article 2.02A(16) of the Texas Business Corporation Act, as amended (the
"TBCA"), empowers the Company to indemnify its directors, officers, employees
and agents in a variety of circumstances and to purchase and maintain liability
insurance for those persons, but only to the extent permitted by Article 2.02-1
of the TBCA.

Article 2.02-1 of the TBCA provides that a corporation may indemnify any
person who was, is or is threatened to be made a party to any suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative because the person is or was a director of the Company or is or
was serving at its request in the same or another capacity in another
corporation or business association against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred if it is determined: (i)
that the person conducted himself in good faith, (ii) that the person reasonably
believed his conduct, with respect to his official capacity, was in the best
interest of the Company, or, in all other cases, his conduct was at least not
opposed to the best interests of the Company, and (iii) in the case of any
criminal proceeding, that the person had no reasonable cause to believe his
conduct was unlawful.

Article Eleven of the Company's Restated Articles of Incorporation, as
amended (the "Articles"), and Article V of the Company's Amended and Restated
By-Laws, as amended (the "By-Laws"), provide for indemnification of directors,
officers, employees and agents of the Company in a variety of circumstances.
Article V of the By-Laws provides that the Company shall indemnify any person
who was, is, or is threatened to be made a named party or who is called as a
witness in any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, who is or
was a director or officer, to the fullest extent permitted by the TBCA, as now
existing or hereafter amended, including to the extent that any such action,
suit or proceeding may involve the negligence of a director or officer. In
addition, the Company has purchased and maintains insurance on behalf of
directors and officers of the Company against any liability asserted against
such persons and incurred by them in such capacity and arising out of their
status as directors or officers of the Company.

On November 15, 1990, the Board of Directors of the Company approved and
adopted the terms and provisions of two separate forms of indemnification
agreements (the "Agreements"), one for directors of the Company, including
subsidiaries, and the other for officers or key employees of the Company,
including its subsidiaries. The Agreements provide the Company's directors,
officers and key employees with a contractual right to indemnification for
actions taken by them in their respective roles or otherwise on behalf of the
Company. This contractual right insures that directors and officers will be
indemnified by the Company to

II-1
<PAGE>
the fullest extent permitted by Texas law even if subsequent events result in a
change in the control of the Company. There are two forms of the Agreement
because the TBCA limits a corporation's ability to indemnify its directors under
any circumstance, but allows a corporation to expand the statutory limits as to
indemnification of officers and employees.

The Agreements entered into between the Company and its directors beginning
in November 1990 and thereafter obligate the Company to indemnify a director who
was, is, or is threatened to be made a party or witness to any suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, because the person is or was a director of the Company against
judgments, penalties, fines, settlements, and reasonable attorneys' fees and
expenses actually incurred if it is determined: (i) that the director conducted
himself in good faith, (ii) that the director reasonably believed (a) with
respect to activities in his official capacity that his conduct was in the best
interests of the Company, (b) with respect with all other cases that his conduct
was at least not opposed to the best interests of the Company, and (iii) in the
case of any criminal proceeding, that the director had no reasonable cause to
believe that his conduct was unlawful. The Agreements entered into between the
Company and its officers beginning in November 1990 and thereafter do not
contain the foregoing limitations.

The Agreements also mandate the indemnification of directors or officers who
serve as witnesses in any proceeding (subject to certain limitations) and who
have been wholly successful as a party on the merits or otherwise in the defense
of any proceeding.

As to directors, the Agreements also limit indemnification to reasonable
attorneys' fees and expenses actually incurred if a director is found in a
proceeding to be liable to the Company or is found liable on the basis that he
received an improper benefit, and further absolutely prohibit any
indemnification of a director who has been found liable in a proceeding for
willful or intentional misconduct in the performance of his duties to the
Company.

Provisions authorizing indemnification or advancement of expenses contained
in the Company's Articles, By-Laws or the Agreements are valid only to the
extent that such provisions are consistent with provisions of Article 2.02-1 of
the TBCA. Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy expressed in the Act and is, therefore, unenforceable.

The Articles also contain a provision which eliminates certain potential
liability of directors of the Company for monetary damages to the full extent
permitted by the laws of the State of Texas as interpreted and applied by the
courts. The provision does not, however, eliminate the duty of care or the duty
of loyalty owed to the Company by its directors; instead, it only eliminates
monetary damage awards for actions or omissions by directors that breach the
duty of care owed to the Company and its shareholders. Moreover, this provision
does not in any way limit or eliminate the liability of directors of the Company
for (i) breaches of their duty of loyalty to the Company and its shareholders,
(ii) failing to act in good faith, intentional misconduct or knowing violations
of law, (iii) obtaining an improper personal benefit for themselves, (iv) any
liability expressly imposed by statute, or (v) an unlawful stock repurchase or
payment of dividends.

Furthermore, said limitation pertains solely to claims against a director
arising out of his role as a director and does not relieve a director, if he is
also an officer of the Company, from any liability arising from his role as an
officer. Finally, the provision does not apply to the responsibilities of
directors under any other law such as federal and state securities laws or
statutes expressly providing for liability of directors of corporations.

II-2
<PAGE>
ITEM 16. EXHIBITS.

The following exhibits are filed as part of the Registration Statement:

<TABLE>
<C> <S>
**1 Underwriting Agreement.
4(a) Form of Indenture between La Quinta Inns, Inc. and U.S. Trust Company of Texas,
N.A., as Trustee.
**4(b) Form of Senior Note of La Quinta Inns, Inc.
*5(a) Opinion of John F. Schmutz, Esq. as to certain aspects of the legality of the
securities being registered.
*5(b) Opinion of Latham & Watkins as to certain aspects of the legality of the
securities being registered.
10 Form of Amended Bank Credit Facility of La Quinta Inns, Inc.
**12 Computation of Ratio of Earnings to Fixed Charges.
**15 Awareness Letter of KPMG Peat Marwick LLP.
23(a) Consent of KPMG Peat Marwick LLP.
*23(b) Consent of John F. Schmutz, Esq. (included in Exhibit 5(a)).
*23(c) Consent of Latham & Watkins (included in Exhibit 5(b)).
**24 Powers of Attorney.
**25 Statement of Eligibility of Trustee on Form T-1.
<FN>
- ------------------------
* To be filed by amendment.
** Previously filed.
</TABLE>

ITEM 17. UNDERTAKINGS.

(b) La Quinta hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of La Quinta's annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(h) Certain arrangements indemnifying La Quinta, and officers, directors and
controlling persons of La Quinta are set forth in the Prospectus and in Item 15
above. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of La Quinta pursuant to the foregoing provisions, or otherwise, La
Quinta has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by La Quinta of expenses
incurred or paid by a director, officer or controlling person of La Quinta in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, La Quinta will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(i) La Quinta hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by La Quinta pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed part of this Registration Statement as of the
time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements on Form S-3 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Antonio, State of Texas, on the 7th day of September, 1995.

LA QUINTA INNS, INC.

BY: ___/s/__WILLIAM C. HAMMETT, JR.___

Name: William C. Hammett, Jr.
Title: Senior Vice President --
Accounting and
Administration

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

SIGNATURES TITLE DATE
- ------------------------- --------------------------------- ------------------

* President, Chief Executive
- ------------------------- Officer and Director (Principal September 7, 1995
(Gary L. Mead) Executive Officer)

*
- ------------------------- Senior Vice President -- Finance September 7, 1995
(Michael A. Depatie) (Principal Financial Officer)

/s/ WILLIAM C. HAMMETT,
JR. Senior Vice President Accounting
- ------------------------- and Administration (Principal September 7, 1995
(William C. Hammett, Jr.) Accounting Officer)

*
- ------------------------- Director September 7, 1995
(William H. Cunningham)

*
- ------------------------- Director September 7, 1995
(Donald J. McNamara)

*
- ------------------------- Director September 7, 1995
(Peter Sterling)

*
- ------------------------- Director September 7, 1995
(Thomas M. Taylor)

*By /s/ WILLIAM C.
HAMMETT, JR.
- -------------------------
William C. Hammett, Jr.
ATTORNEY-IN-FACT

II-4
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- -----------------

<S> <C> <C>
**1 Underwriting Agreement.
4(a) Form of Indenture between La Quinta Inns, Inc. and U.S. Trust Company of Texas, N.A., as
Trustee.
**4(b) Form of Senior Note of La Quinta Inns, Inc.
*5(a) Opinion of John F. Schmutz, Esq. as to certain aspects of the legality of the securities
being registered.
*5(b) Opinion of Latham & Watkins as to certain aspects of the legality of the securities being
registered.
10 Form of Amended Bank Credit Facility of La Quinta Inns, Inc.
**12 Computation of Ratio of Earnings to Fixed Charges.
**15 Awareness Letter of KPMG Peat Marwick LLP.
23(a) Consent of KPMG Peat Marwick LLP.
*23(b) Consent of John F. Schmutz, Esq. (included in Exhibit 5(a)).
*23(c) Consent of Latham & Watkins (included in Exhibit 5(b)).
**24 Powers of Attorney.
**25 Statement of Eligibility of Trustee on Form T-1.
<FN>
- ------------------------
* To be filed by amendment.
** Previously filed.
</TABLE>

<PAGE>

EXHIBIT 4(a)

===============================================================================

LA QUINTA INNS, INC.
as the Company

and

U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee

___________________________________

Indenture

Dated as of [Date of Indenture]

___________________________________

===============================================================================

<PAGE>

TABLE OF CONTENTS*

Page
----

RECITALS OF THE COMPANY

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 Definitions........................................ 1
SECTION 1.2 Other Definitions.................................. 8
SECTION 1.3 Incorporation by Reference of
Trust Indenture Act............................... 9
SECTION 1.4 Rules of Construction.............................. 9

ARTICLE 2

THE SECURITIES

SECTION 2.1 Form.............................................. 10
SECTION 2.2 Execution and Authentication...................... 10
SECTION 2.3 Amount Unlimited; Issuable in Series.............. 12
SECTION 2.4 Denomination and Date of Securities; Payments
of Interest...................................... 15
SECTION 2.5 Registrar and Paying Agent; Agents Generally...... 16
SECTION 2.6 Paying Agent to Hold Money in Trust............... 17
SECTION 2.7 Transfer and Exchange............................. 18
SECTION 2.8 Replacement Securities............................ 21
SECTION 2.9 Outstanding Securities............................ 22
SECTION 2.10 Temporary Securities.............................. 23
SECTION 2.11 Cancellation...................................... 23
SECTION 2.12 CUSIP Numbers..................................... 24
SECTION 2.13 Defaulted Interest................................ 24
SECTION 2.14 Series May Include Tranches....................... 24

ARTICLE 3

REDEMPTION

SECTION 3.1 Applicability of Article.......................... 25

- ----------------
*Note: The Table of Contents shall not for any
purposes be deemed to be a part of the
Indenture.

<PAGE>

Page
----

SECTION 3.2 Notice of Redemption; Partial Redemptions........ 25
SECTION 3.3 Payment of Securities Called for Redemption...... 27
SECTION 3.4 Exclusion of Certain Securities from Eligibility
for Selection for Redemption.................... 28
SECTION 3.5 Mandatory and Optional Sinking Funds............. 28

ARTICLE 4

COVENANTS

SECTION 4.1 Payment of Securities............................ 31
SECTION 4.2 Maintenance of Office or Agency.................. 33
SECTION 4.3 Negative Pledge.................................. 34
SECTION 4.4 Certain Sale and Lease-back Transactions......... 35
SECTION 4.5 Certificate to Trustee........................... 37
SECTION 4.6 Reports by the Company........................... 37

ARTICLE 5

SUCCESSOR CORPORATION

SECTION 5.1 When Company May Merge, Etc...................... 37
SECTION 5.2 Successor Substituted............................ 38

ARTICLE 6

DEFAULT AND REMEDIES

SECTION 6.1 Events of Default................................ 39
SECTION 6.2 Acceleration..................................... 40
SECTION 6.3 Other Remedies................................... 42
SECTION 6.4 Waiver of Past Defaults.......................... 43
SECTION 6.5 Control by Majority.............................. 43
SECTION 6.6 Limitation on Suits.............................. 43
SECTION 6.7 Rights of Holders to Receive Payment............. 44
SECTION 6.8 Collection Suit by Trustee....................... 44
SECTION 6.9 Trustee May File Proofs of Claim................. 45
SECTION 6.10 Application of Proceeds.......................... 45

<PAGE>

Page
----

SECTION 6.11 Restoration of Rights and Remedies............... 46
SECTION 6.12 Undertaking for Costs............................ 47
SECTION 6.13 Rights and Remedies Cumulative................... 47
SECTION 6.14 Delay or Omission Not Waiver..................... 47

ARTICLE 7

TRUSTEE

SECTION 7.1 General.......................................... 48
SECTION 7.2 Certain Rights of Trustee........................ 48
SECTION 7.3 Individual Rights of Trustee..................... 50
SECTION 7.4 Trustee's Disclaimer............................. 50
SECTION 7.5 Notice of Default................................ 51
SECTION 7.6 Reports by Trustee to Holders.................... 51
SECTION 7.7 Compensation and Indemnity....................... 51
SECTION 7.8 Replacement of Trustee........................... 52
SECTION 7.9 Successor Trustee by Merger, Etc................. 54
SECTION 7.10 Eligibility...................................... 54
SECTION 7.11 Money Held in Trust.............................. 54

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.1 Defeasance Within One Year of Payment............ 54
SECTION 8.2 Defeasance....................................... 55
SECTION 8.3 Covenant Defeasance.............................. 57
SECTION 8.4 Application of Trust Money....................... 58
SECTION 8.5 Repayment to Company............................. 58

ARTICLE 9

AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.1 Without Consent of Holders....................... 59
SECTION 9.2 With Consent of Holders.......................... 60
SECTION 9.3 Revocation and Effect of Consent................. 61
SECTION 9.4 Notation on or Exchange of Securities............ 62

iii

<PAGE>

Page
----

SECTION 9.5 Trustee to Sign Amendments, Etc................... 62
SECTION 9.6 Conformity with Trust Indenture Act............... 63

ARTICLE 10

MISCELLANEOUS

SECTION 10.1 Trust Indenture Act of 1939....................... 63
SECTION 10.2 Notices........................................... 63
SECTION 10.3 Certificate and Opinion as to
Conditions Precedent............................. 65
SECTION 10.4 Statements Required in Certificate or Opinion..... 65
SECTION 10.5 Evidence of Ownership............................. 66
SECTION 10.6 Rules by Trustee, Paying Agent or Registrar....... 67
SECTION 10.7 Payment Date Other Than a Business Day............ 67
SECTION 10.8 Governing Law..................................... 68
SECTION 10.9 No Adverse Interpretation of Other Agreements..... 68
SECTION 10.10 Successors........................................ 68
SECTION 10.11 Duplicate Originals............................... 68
SECTION 10.12 Separability...................................... 68
SECTION 10.13 Table of Contents, Headings, Etc.................. 68
SECTION 10.14 Incorporators, Shareholders, Officers and
Directors of Company Exempt from
Individual Liability............................. 68
SECTION 10.15 Judgment Currency................................. 69

SIGNATURES

<PAGE>

INDENTURE, dated as of [Date of Indenture],
between La Quinta Inns, Inc., a Texas corporation, as the
Company, and U.S. Trust Company of Texas, N.A., a national
banking association, as Trustee.

RECITALS OF THE COMPANY

WHEREAS, the Company has duly authorized the issue
from time to time of its debentures, notes or other
evidences of indebtedness to be issued in one or more series
(the "Securities") up to such principal amount or amounts as
may from time to time be authorized in accordance with the
terms of this Indenture and to provide, among other things,
for the authentication, delivery and administration thereof,
the Company has duly authorized the execution and delivery
of this Indenture; and

WHEREAS, all things necessary to make this Inden-
ture a valid indenture and agreement according to its terms
have been done;

NOW, THEREFORE:

In consideration of the premises and the purchases
of the Securities by the holders thereof, the Company and
the Trustee mutually covenant and agree for the equal and
proportionate benefit of the respective holders from time to
time of the Securities or of any and all series thereof and
of the coupons, if any, appertaining thereto as follows:

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 DEFINITIONS.

"Agent" means any Registrar, Paying Agent,
transfer agent or Authenticating Agent.

"Attributable Debt" means, when used in connection
with a sale and lease-back transaction referred to in
Section 4.4, on any date as of which the amount thereof is
to be determined, the product of (a) the net proceeds from
such sale and lease-back transaction multiplied by (b) a
fraction, the numerator of which is the number of full years
of the term of the lease relating to the property involved
in such sale and lease-back transaction (without regard to
any options to renew or extend such term) remaining on the
date of the making of such computation and the denominator

<PAGE>

of which is the number of full years of the term of such
lease measured from the first day of such term.

"Authorized Newspaper" means a newspaper (which,
in the case of The City of New York, will, if practicable,
be The Wall Street Journal (Eastern Edition) and in the case
of London, will, if practicable, be the Financial Times
(London Edition) and published in an official language of
the country of publication customarily published at least
once a day for at least five days in each calendar week and
of general circulation in The City of New York or London, as
applicable. If it shall be impractical in the opinion of
the Trustee to make any publication of any notice required
hereby in an Authorized Newspaper, any publication or other
notice in lieu thereof which is made or given with the
approval of the Trustee shall constitute a sufficient
publication of such notice.

"Board Resolution" means one or more resolutions
of the board of directors of the Company or any authorized
committee thereof, certified by the secretary or an
assistant secretary to have been duly adopted and to be in
full force and effect on the date of certification, and
delivered to the Trustee.

"Business Day" means any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a
day on which banking institutions are authorized or required
by law or regulation to close in The City of New York or in
the city in which the Corporate Trust Office is located,
with respect to any Security the interest on which is based
on the offered quotations in the interbank Eurodollar market
for dollar deposits in London, or with respect to Securities
denominated in a specified currency other than United States
dollars, in the principal financial center of the country of
the specified currency.

"Capital Stock" means, with respect to any Person,
any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-
voting) of such Person's capital stock or equity, including,
without limitation, all Common Stock and Preferred Stock.

"Commission" means the Securities and Exchange
Commission, as from time to time constituted, created under
the Exchange Act or, if at any time after the execution of
this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such
time.

<PAGE>

"Common Stock" means, with respect to any Person,
any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-
voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture,
including, without limitation, all series and classes of
such common stock.

"Company" means the party named as such in the
first paragraph of this Indenture until a successor replaces
it pursuant to Article 5 of this Indenture and thereafter
means the successor.

"Combined Net Worth" means, at any date of
determination, the combined stockholders' equity of the
Company, as set forth on the then most recently available
combined balance sheet of the Company and its combined
subsidiaries and joint ventures.

"Corporate Trust Office" means the office of the
Trustee at which the corporate trust business of the Trustee
shall, at any particular time, be principally administered,
which office is, at the date of this Indenture, located at
2001 Ross Avenue, Suite 2700, Dallas, Texas 75201-2936,
Attention: Corporate Trust Administration.

"Default" means any Event of Default as defined in
Section 6.1 and any event that is, or after notice or
passage of time or both would be, an Event of Default.

"Depositary" means, with respect to the Securities
of any series issuable or issued in the form of one or more
Registered Global Securities, the Person designated as Depo-
sitary by the Company pursuant to Section 2.3 until a
successor Depositary shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter
"Depositary" shall mean or include each Person who is then a
Depositary hereunder, and if at any time there is more than
one such Person, "Depositary" as used with respect to the
Securities of any such series shall mean the Depositary with
respect to the Registered Global Securities of that series.

"Exchange Act" means the Securities Exchange Act
of 1934, as amended.

"Exempted Debt" means the sum, without dupli-
cation, of the following items outstanding as of the date
Exempted Debt is being determined: (i) indebtedness of the
Company and its Restricted Subsidiaries incurred after the
date of this Indenture and secured by liens created or
assumed or permitted to exist pursuant to Section 4.3(b) and

<PAGE>

(ii) Attributable Debt of the Company and its Restricted
Subsidiaries in respect of all sale and lease-back transac-
tions with regard to any Principal Property entered into
pursuant to Section 4.4(b).

"Funded Debt" means all indebtedness for money
borrowed, including purchase money indebtedness, having a
maturity of more than one year from the date of its creation
or having a maturity of less than one year but by its terms
being renewable or extendible, at the option of the obligor
in respect thereof, beyond one year from the date of its
creation.

"GAAP" means generally accepted accounting
principles in the United States of America at the date of
any computation required or permitted hereunder.

"Holder" or "Securityholder" means the registered
holder of any Security with respect to Registered Securities
and the bearer of any Unregistered Security or any coupon
appertaining thereto, as the case may be.

"Indenture" means this Indenture as originally
executed or as it may be amended or supplemented from time
to time by one or more indentures supplemental to this
Indenture entered into pursuant to the applicable provisions
of this Indenture and shall include the forms and terms of
the Securities of each series established as contemplated
pursuant to Sections 2.1 and 2.3.

"Investment" means any investment in any Person,
whether by means of share purchase, capital contribution,
loan, time deposit or otherwise.

"Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, or any other type of preferential
arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the
purposes of this Indenture, the Company or any Subsidiary
shall be deemed to own subject to a Lien any asset that it
has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease
or other title retention agreement relating to such asset.

"Officer" means, with respect to the Company, the
chairman of the board of directors, the president or chief
executive officer, any vice president, the chief financial
officer, the treasurer or any assistant treasurer, or the
secretary or any assistant secretary.

<PAGE>

"Officers' Certificate" means a certificate signed
in the name of the Company (i) by the chairman of the board
of directors, the president or chief executive officer or a
vice president and (ii) by the chief financial officer, the
treasurer or any assistant treasurer, or the secretary or
any assistant secretary, complying with Section 10.4 and
delivered to the Trustee. Each such certificate shall
comply with Section 314 of the Trust Indenture Act and
include (except as otherwise expressly provided in this
Indenture) the statements provided in Section 10.4.

"Opinion of Counsel" means a written opinion
signed by legal counsel, who may be an employee of or
counsel to the Company, satisfactory to the Trustee and
complying with Section 10.4. Each such opinion shall comply
with Section 314 of the Trust Indenture Act and include the
statements provided in Section 10.4, if and to the extent
required thereby.

"original issue date" of any Security (or portion
thereof) means the earlier of (a) the date of authentication
of such Security or (b) the date of any Security (or portion
thereof) for which such Security was issued (directly or
indirectly) on registration of transfer, exchange or
substitution.

"Original Issue Discount Security" means any
Security that provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to Section
6.2.

"Periodic Offering" means an offering of Securi-
ties of a series from time to time, the specific terms of
which Securities, including, without limitation, the rate or
rates of interest, if any, thereon, the stated maturity or
maturities thereof and the redemption provisions, if any,
with respect thereto, are to be determined by the Company or
its agents upon the issuance of such Securities.

"Person" means an individual, a corporation, a
partnership, a limited liability company, an association, a
trust or any other entity or organization, including a
government or political subdivision or an agency or
instrumentality thereof.

"Preferred Stock" means, with respect to any
Person, any and all shares, interests, participations or
other equivalents (however designated, whether voting or
non-voting) of such Person's preferred or preference stock,
whether now outstanding or issued after the date of the

<PAGE>

Indenture, including, without limitation, all series and
classes of such preferred or preference stock.

"Principal" of a Security means the principal
amount of, and, unless the context indicates otherwise,
includes any premium payable on, the Security.

"Principal Property" means land, land improve-
ments, buildings and associated equipment owned or leased
pursuant to a capital lease and used by the Company or a
Restricted Subsidiary primarily in the hotel business, but
shall not include any such property financed through the
issuance of tax exempt governmental obligation (including,
without limitation, industrial revenue bonds and similar
financings).

"Registered Global Security" means a Security
evidencing all or a part of a series of Registered
Securities, issued to the Depositary for such series in
accordance with Section 2.2, and bearing the legend
prescribed in Section 2.2.

"Registered Security" means any Security
registered on the Security Register (as defined in Section
2.5).

"Responsible Officer" means, when used with
respect to the Trustee, any senior trust officer, any vice
president, any trust officer, any assistant trust officer,
or any other officer or assistant officer of the Trustee
customarily performing functions similar to those performed
by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is
referred because of his knowledge of and familiarity with
the particular subject.

"Restricted Subsidiary" means any Subsidiary
organized and existing under the laws of the United States
of America and the principal business of which is carried on
within the United States of America which owns or is a
lessee pursuant to a capital lease of any Principal Property
other than:

(i) each Subsidiary the major part of whose
business consists of finance, banking, credit,
leasing, insurance, financial services or other
similar operations, or any combination thereof;

(ii) each Subsidiary formed or acquired
after the date hereof for the purpose of acquiring
the business or assets of another Person and which

<PAGE>

does not acquire all or any substantial part of
the business or assets of the Company or any
Restricted Subsidiary; and

(iii) the following unincorporated partnerships
and joint ventures: La Quinta -- Houston I.H. 10,
Ltd.; La Quinta San Antonio -- South Joint Venture; La
Quinta Austin Motor Hotel, Ltd.; La Quinta -- Dallas
Central Expressway, Ltd.; LQ Motor Inn Venture --
Austin No. 530; La Quinta -- Wichita, Kansas, No. 532,
Ltd.; and LQ -- West Bank Joint Venture;

PROVIDED, HOWEVER, that any Subsidiary may be declared a
Restricted Subsidiary by Board Resolution, effective as of
the date such Board Resolution is adopted; PROVIDED further,
that any such declaration may be rescinded by further Board
Resolution, effective as of the date such further Board
Resolution is adopted.

"Securities" means any of the securities, as
defined in the first paragraph of the recitals hereof, that
are authenticated and delivered under this Indenture and,
unless the context indicates otherwise, shall include any
coupon appertaining thereto.

"Securities Act" means the Securities Act of 1933,
as amended.

"Subsidiary" means, with respect to any Person,
any corporation, association or other business entity of
which more than 50% of the outstanding Voting Stock is
owned, directly or indirectly, by such Person and one or
more other Subsidiaries of such Person.

"Trustee" means the party named as such in the
first paragraph of this Indenture until a successor replaces
it in accordance with the provisions of Article 7 and
thereafter means such successor.

"Trust Indenture Act" means the Trust Indenture Act
of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as
it may be amended from time to time.

"UCC" means the Uniform Commercial Code, as in
effect in each applicable jurisdiction.

"United States Bankruptcy Code" means the
Bankruptcy Reform Act of 1978, as amended and as codified in
Title 11 of the United States Code, as amended from time to
time hereafter, or any successor federal bankruptcy law.

<PAGE>

"Unregistered Security" means any Security other
than a Registered Security.

"U.S. Government Obligations" means securities
that are (i) direct obligations of the United States of
America for the payment of which its full faith and credit
is pledged or (ii) obligations of an agency or instrumental-
ity of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obli-
gation by the United States of America, and shall also
include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Govern-
ment Obligation or a specific payment of interest on or
principal of any such U.S. Government Obligation held by
such custodian for the account of the holder of a depository
receipt; PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by
such depository receipt.

"Voting Stock" means with respect to any Person,
Capital Stock of any class or kind ordinarily having the
power to vote for the election of directors, managers or
other voting members of the governing body of such Person.

"Yield to Maturity" means, as the context may
require, the yield to maturity (i) on a series of Securities
or (ii) if the Securities of a series are issuable from time
to time, on a Security of such series, calculated at the
time of issuance of such series in the case of clause (i) or
at the time of issuance of such Security of such series in
the case of clause (ii), or, if applicable, at the most
recent redetermination of interest on such series or on such
Security, and calculated in accordance with the constant
interest method or such other accepted financial practice as
is specified in the terms of such Security.

SECTION 1.2 OTHER DEFINITIONS. Each of the
following terms is defined in the section set forth opposite
such term:
Term Section
---- -------
Authenticating Agent 2.2
cash transaction 7.3
Dollars 4.2
Event of Default 6.1
Judgment Currency 10.15
mandatory sinking fund payment 3.5

<PAGE>

optional sinking fund payment 3.5
Paying Agent 2.5
record date 2.4
Registrar 2.5
Required Currency 10.15
Security Register 2.5
self-liquidating paper 7.3
sinking fund payment date 3.5
tranche 2.14

SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST
INDENTURE ACT. Whenever this Indenture refers to a prov-
ision of the Trust Indenture Act, the provision is incorpo-
rated by reference in and made a part of this Indenture.
The following terms used in this Indenture that are defined
by the Trust Indenture Act have the following meanings:

"indenture securities" means the Securities;

"indenture security holder" means a Holder or a
Securityholder;

"indenture to be qualified" means this Indenture;

"indenture trustee" or "institutional trustee"
means the Trustee; and

"obligor" on the indenture securities means the
Company or any other obligor on the Securities.

All other terms used in this Indenture that are
defined by the Trust Indenture Act, defined by reference in
the Trust Indenture Act to another statute or defined by a
rule of the Commission and not otherwise defined herein have
the meanings assigned to them therein.

SECTION 1.4 RULES OF CONSTRUCTION. Unless the
context otherwise requires:

(i) an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP;

(ii) words in the singular include the plural, and
words in the plural include the singular;

(iii) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision;

<PAGE>

(iv) all references to Sections or Articles refer
to Sections or Articles of this Indenture unless
otherwise indicated; and

(v) use of masculine, feminine or neuter pronouns
should not be deemed a limitation, and the use of any
such pronouns should be construed to include, where
appropriate, the other pronouns.

ARTICLE 2

THE SECURITIES

SECTION 2.1 FORM. The Securities of each
series shall be substantially in such form or forms (not
inconsistent with this Indenture) as shall be established by
or pursuant to one or more Board Resolutions or in one or
more indentures supplemental hereto, in each case with such
appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture
and may have imprinted or otherwise reproduced thereon such
legend or legends or endorsements, not inconsistent with the
provisions of this Indenture, as may be required to comply
with any law, or with any rules of any securities exchange
or usage, all as may be determined by the officers executing
such Securities as evidenced by their execution of the
Securities. Unless otherwise so established, Unregistered
Securities shall have coupons attached.

SECTION 2.2 EXECUTION AND AUTHENTICATION. Two
Officers shall execute the Securities (other than coupons)
for the Company by facsimile or manual signature in the name
and on behalf of the Company. The seal of the Company, if
any, shall be reproduced on the Securities. If an Officer
whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security
shall nevertheless be valid.

The Trustee, at the expense of the Company, may
appoint an authenticating agent (the "AUTHENTICATING AGENT")
to authenticate Securities (other than coupons). The
Authenticating Agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by
such Authenticating Agent.

A Security (other than coupons) shall not be valid
until the Trustee or Authenticating Agent manually signs the
certificate of authentication on the Security. The

<PAGE>

signature shall be conclusive evidence that the Security has
been authenticated under this Indenture.

At any time and from time to time after the
execution and delivery of this Indenture, the Company may
deliver Securities of any series having attached thereto
appropriate coupons, if any, executed by the Company to the
Trustee for authentication together with the applicable
documents referred to below in this Section, and the Trustee
shall thereupon authenticate and deliver such Securities to
or upon the written order of the Company. In authenticating
any Securities of a series, the Trustee shall be entitled to
receive prior to the first authentication of any Securities
of such series, and (subject to Article 7) shall be fully
protected in relying upon, unless and until such documents
have been superseded or revoked:

(1) any Board Resolution and/or executed
supplemental indenture referred to in Sections 2.1
and 2.3 by or pursuant to which the forms and
terms of the Securities of that series were
established;

(2) an Officers' Certificate setting forth
the form or forms and terms of the Securities,
stating that the form or forms and terms of the
Securities of such series have been, or will be
when established in accordance with such
procedures as shall be referred to therein,
established in compliance with this Indenture; and

(3) at the option of the Company, either an
Opinion of Counsel, or a letter addressed to the
Trustee permitting it to rely on an Opinion of
Counsel, substantially to the effect that the
Securities have been duly authorized and, if
executed and authenticated in accordance with the
provisions of the Indenture and delivered to and
duly paid for by the purchasers thereof on the
date of such opinion, would be entitled to the
benefits of the Indenture and would be valid and
binding obligations of the Company, enforceable
against the Company in accordance with their
respective terms, subject to bankruptcy,
insolvency, reorganization, receivership,
moratorium and other similar laws affecting
creditors' rights generally, general principles of
equity, and such other matters as shall be
specified therein.

<PAGE>

If the Company shall establish pursuant to Section
2.3 that the Securities of a series or a portion thereof are
to be issued in the form of one or more Registered Global
Securities, then the Company shall execute and the Trustee
shall authenticate and deliver one or more Registered Global
Securities that (i) shall represent and shall be denominated
in an amount equal to the aggregate principal amount of all
of the Securities of such series issued in such form and not
yet canceled, (ii) shall be registered in the name of the
Depositary for such Registered Global Security or Securities
or the nominee of such Depositary, (iii) shall be delivered
by the Trustee to such Depositary or its custodian or
pursuant to such Depositary's instructions and (iv) shall
bear a legend substantially to the following effect:
"Unless and until it is exchanged in whole or in part for
Securities in definitive registered form, this Security may
not be transferred except as a whole by the Depositary to
the nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor
Depositary."

SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN
SERIES. The aggregate principal amount of Securities which
may be authenticated and delivered under this Indenture is
unlimited.

The Securities may be issued in one or more series
and each such series shall rank equally and pari passu with
all other unsecured and unsubordinated debt of the Company.
There shall be established in or pursuant to Board
Resolution or one or more indentures supplemental hereto,
prior to the initial issuance of Securities of any series,
subject to the last sentence of this Section 2.3,

(1) the designation of the Securities of the
series, which shall distinguish the Securities of the
series from the Securities of all other series;

(2) any limit upon the aggregate principal amount
of the Securities of the series that may be authenti-
cated and delivered under this Indenture and any
limitation on the ability of the Company to increase
such aggregate principal amount after the initial
issuance of the Securities of that series (except for
Securities authenticated and delivered upon registra-
tion of transfer of, or in exchange for, or in lieu of,
or upon redemption of, other Securities of the series
pursuant hereto);

<PAGE>

(3) the date or dates on which the principal of
the Securities of the series is payable (which date or
dates may be fixed or extendible);

(4) the rate or rates (which may be fixed or
variable) per annum at which the Securities of the
series shall bear interest, if any, the date or dates
from which such interest shall accrue, on which such
interest shall be payable and (in the case of Regis-
tered Securities) on which a record shall be taken for
the determination of Holders to whom interest is paya-
ble and/or the method by which such rate or rates or
date or dates shall be determined;

(5) if other than as provided in Section 4.2, the
place or places where the principal of and any interest
on Securities of the series shall be payable, any
Registered Securities of the series may be surrendered
for exchange, notices, demands to or upon the Company
in respect of the Securities of the series and this
Indenture may be served and notice to Holders may be
published;

(6) the right, if any, of the Company to redeem
Securities of the series, in whole or in part, at its
option and the period or periods within which, the
price or prices at which and any terms and conditions
upon which Securities of the series may be so redeemed,
pursuant to any sinking fund or otherwise;

(7) the obligation, if any, of the Company to
redeem, purchase or repay Securities of the series
pursuant to any mandatory redemption, sinking fund or
analogous provisions or at the option of a Holder
thereof and the price or prices at which and the period
or periods within which and any of the terms and condi-
tions upon which Securities of the series shall be
redeemed, purchased or repaid, in whole or in part,
pursuant to such obligation;

(8) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which
Securities of the series shall be issuable;

(9) if other than the principal amount thereof,
the portion of the principal amount of Securities of
the series which shall be payable upon declaration of
acceleration of the maturity thereof;

(10) if other than the coin or currency in which
the Securities of the series are denominated, the coin

<PAGE>

or currency in which payment of the principal of or
interest on the Securities of the series shall be
payable or if the amount of payments of principal of
and/or interest on the Securities of the series may be
determined with reference to an index based on a coin
or currency other than that in which the Securities of
the series are denominated, the manner in which such
amounts shall be determined;

(11) if other than the currency of the United
States of America, the currency or currencies,
including composite currencies, in which payment of the
Principal of and interest on the Securities of the
series shall be payable, and the manner in which any
such currencies shall be valued against other
currencies in which any other Securities shall be
payable;

(12) whether the Securities of the series or any
portion thereof will be issuable as Registered
Securities (and if so, whether such Securities will be
issuable as Registered Global Securities) or
Unregistered Securities (with or without coupons), or
any combination of the foregoing, any restrictions
applicable to the offer, sale or delivery of
Unregistered Securities or the payment of interest
thereon and, if other than as provided herein, the
terms upon which Unregistered Securities of any series
may be exchanged for Registered Securities of such
series and vice versa;

(13) whether and under what circumstances the
Company will pay additional amounts on the Securities
of the series held by a person who is not a U.S. person
in respect of any tax, assessment or governmental
charge withheld or deducted and, if so, whether the
Company will have the option to redeem such Securities
rather than pay such additional amounts;

(14) if the Securities of the series are to be
issuable in definitive form (whether upon original
issue or upon exchange of a temporary Security of such
series) only upon receipt of certain certificates or
other documents or satisfaction of other conditions,
the form and terms of such certificates, documents or
conditions;

(15) any trustees, depositaries, authenticating or
paying agents, transfer agents or the registrar or any
other agents with respect to the Securities of the
series;

14
<PAGE>

(16) provisions, if any, for the defeasance of the
Securities of the series (including provisions
permitting defeasance of less than all Securities of
the series), which provisions may be in addition to, in
substitution for, or in modification of (or any
combination of the foregoing) the provisions of Article
8;

(17) if the Securities of the series are issuable
in whole or in part as one or more Registered Global
Securities, the identity of the Depositary for such
Registered Global Security or Securities (which
Depositary shall, at the time of its designation as
Depositary and at all times while it serves as
Depositary, be a clearing agency registered under the
Exchange Act and any other applicable statute or
regulation);

(18) any other events of default or covenants
with respect to the Securities of the series; and

(19) any other terms of the Securities of the
series (which terms shall not be inconsistent with the
provisions of this Indenture).

All Securities of any one series and coupons, if
any, appertaining thereto shall be substantially identical,
except in the case of Registered Securities as to date and
denomination, except in the case of any Periodic Offering
and except as may otherwise be provided by or pursuant to
the Board Resolution referred to above or as set forth in
any such indenture supplemental hereto. All Securities of
any one series need not be issued at the same time and may
be issued from time to time, consistent with the terms of
this Indenture, if so provided by or pursuant to such Board
Resolution or in any such indenture supplemental hereto and
any forms and terms of Securities to be issued from time to
time may be completed and established from time to time
prior to the issuance thereof by procedures described in
such Board Resolution or supplemental indenture.

SECTION 2.4 DENOMINATION AND DATE OF SECURI-
TIES; PAYMENTS OF INTEREST. The Securities of each series
shall be issuable as Registered Securities or Unregistered
Securities in denominations established as contemplated by
Section 2.3 or, if not so established with respect to
Securities of any series, in denominations of $1,000 and any
integral multiple thereof. The Securities of each series
shall be numbered, lettered or otherwise distinguished in
such manner or in accordance with such plan as the Officers

15
<PAGE>

of the Company executing the same may determine, as evi-
denced by their execution thereof.

Each Security shall be dated the date of its
authentication. The Securities of each series shall bear
interest, if any, from the date, and such interest and shall
be payable on the dates, established as contemplated by
Section 2.3.

The person in whose name any Registered Security
of any series is registered at the close of business on any
record date applicable to a particular series with respect
to any interest payment date for such series shall be enti-
tled to receive the interest, if any, payable on such
interest payment date notwithstanding any transfer or
exchange of such Registered Security subsequent to the
record date and prior to such interest payment date, except
if and to the extent the Company shall default in the
payment of the interest due on such interest payment date
for such series, in which case the provisions of Section
2.13 shall apply. The term "RECORD DATE" as used with
respect to any interest payment date (except a date for
payment of defaulted interest) for the Securities of any
series shall mean the date specified as such in the terms of
the Registered Securities of such series established as
contemplated by Section 2.3, or, if no such date is so
established, the fifteenth day next preceding such interest
payment date, whether or not such record date is a Business
Day.

SECTION 2.5 REGISTRAR AND PAYING AGENT; AGENTS
GENERALLY. The Company shall maintain an office or agency
where Securities may be presented for registration, regis-
tration of transfer or for exchange (the "REGISTRAR") and an
office or agency where Securities may be presented for
payment (the "PAYING AGENT"), which shall be in the Borough
of Manhattan, The City of New York. The Company shall cause
the Registrar to keep a register of the Registered Securi-
ties and of their registration, transfer and exchange (the
"SECURITY REGISTER"). The Company may have one or more
additional Paying Agents or transfer agents with respect to
any series.

The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture. The
agreement shall implement the provisions of this Indenture
and the Trust Indenture Act that relate to such Agent. The
Company shall give prompt written notice to the Trustee of
the name and address of any Agent and any change in the name
or address of an Agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such.

16
<PAGE>

The Company may remove any Agent upon written notice to such
Agent and the Trustee; PROVIDED that no such removal shall
become effective until (i) the acceptance of an appointment
by a successor Agent to such Agent as evidenced by an appro-
priate agency agreement entered into by the Company and such
successor Agent and delivered to the Trustee or (ii) notifi-
cation to the Trustee that the Trustee shall serve as such
Agent until the appointment of a successor Agent in accor-
dance with clause (i) of this proviso. The Company or any
affiliate of the Company may act as Paying Agent or Regis-
trar; PROVIDED that neither the Company nor an affiliate of
the Company shall act as Paying Agent in connection with the
defeasance of the Securities or the discharge of this Inden-
ture under Article 8.

The Company initially appoints the Trustee as
Registrar, Paying Agent and Authenticating Agent. If, at
any time, the Trustee is not the Registrar, the Registrar
shall make available to the Trustee ten days prior to each
interest payment date and at such other times as the Trustee
may reasonably request the names and addresses of the
Holders as they appear in the Security Register.

SECTION 2.6 PAYING AGENT TO HOLD MONEY IN
TRUST. Not later than 10:00 a.m. New York City time on each
due date of any Principal or interest on any Securities, the
Company shall deposit with the Paying Agent money in
immediately available funds sufficient to pay such Principal
or interest. The Company shall require each Paying Agent
other than the Trustee to agree in writing that such Paying
Agent shall hold in trust for the benefit of the Holders of
such Securities or the Trustee all money held by the Paying
Agent for the payment of Principal of and interest on such
Securities and shall promptly notify the Trustee of any
default by the Company in making any such payment. The
Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and account for any funds
disbursed, and the Trustee may at any time during the
continuance of any payment default, upon written request to
a Paying Agent, require such Paying Agent to pay all money
held by it to the Trustee and to account for any funds
disbursed. Upon doing so, the Paying Agent shall have no
further liability for the money so paid over to the Trustee.
If the Company or any affiliate of the Company acts as
Paying Agent, it will, on or before each due date of any
Principal of or interest on any Securities, segregate and
hold in a separate trust fund for the benefit of the Holders
thereof a sum of money sufficient to pay such Principal or
interest so becoming due until such sum of money shall be
paid to such Holders or otherwise disposed of as provided in
this Indenture, and will promptly notify the Trustee in

17
<PAGE>

writing of its action or failure to act as required by this
Section.

SECTION 2.7 TRANSFER AND EXCHANGE.
Unregistered Securities (except for any temporary global
Unregistered Securities) and coupons (except for coupons
attached to any temporary global Unregistered Securities)
shall be transferable by delivery.

At the option of the Holder thereof, Registered
Securities of any series (other than a Registered Global
Security, except as set forth below) may be exchanged for a
Registered Security or Registered Securities of such series
and tenor having authorized denominations and an equal
aggregate principal amount, upon surrender of such
Registered Securities to be exchanged at the agency of the
Company that shall be maintained for such purpose in
accordance with Section 2.5 and upon payment, if the Company
shall so require, of the charges hereinafter provided. If
the Securities of any series are issued in both registered
and unregistered form, except as otherwise established
pursuant to Section 2.3, at the option of the Holder
thereof, Unregistered Securities of any series may be
exchanged for Registered Securities of such series and tenor
having authorized denominations and an equal aggregate
principal amount, upon surrender of such Unregistered
Securities to be exchanged at the agency of the Company that
shall be maintained for such purpose in accordance with
Section 4.2, with, in the case of Unregistered Securities
that have coupons attached, all unmatured coupons and all
matured coupons in default thereto appertaining, and upon
payment, if the Company shall so require, of the charges
hereinafter provided. At the option of the Holder thereof,
if Unregistered Securities of any series, maturity date,
interest rate and original issue date are issued in more
than one authorized denomination, except as otherwise
established pursuant to Section 2.3, such Unregistered
Securities may be exchanged for Unregistered Securities of
such series and tenor having authorized denominations and an
equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the
Company that shall be maintained for such purpose in
accordance with Section 4.2, with, in the case of
Unregistered Securities that have coupons attached, all
unmatured coupons and all matured coupons in default thereto
appertaining, and upon payment, if the Company shall so
require, of the charges hereinafter provided. Registered
Securities of any series may not be exchanged for
Unregistered Securities of such series. Whenever any
Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and

<PAGE>

deliver, the Securities which the Holder making the exchange
is entitled to receive.

All Registered Securities presented for
registration of transfer, exchange, redemption or payment
shall be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory
to the Company and the Trustee duly executed by, the holder
or his attorney duly authorized in writing.

The Company may require payment of a sum
sufficient to cover any tax or other governmental charge
that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge
shall be made for any such transaction.

Notwithstanding any other provision of this
Section 2.7, unless and until it is exchanged in whole or in
part for Securities in definitive registered form, a
Registered Global Security representing all or a portion of
the Securities of a series may not be transferred except as
a whole by the Depositary for such series to a nominee of
such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor Depositary for
such series or a nominee of such successor Depositary.

If at any time the Depositary for any Registered
Global Securities of any series notifies the Company that it
is unwilling or unable to continue as Depositary for such
Registered Global Securities or if at any time the
Depositary for such Registered Global Securities shall no
longer be eligible under applicable law, the Company shall
appoint a successor Depositary eligible under applicable law
with respect to such Registered Global Securities. If a
successor Depositary eligible under applicable law for such
Registered Global Securities is not appointed by the Company
within 90 days after the Company receives such notice or
becomes aware of such ineligibility, the Company will
execute, and the Trustee, upon receipt of the Company's
order for the authentication and delivery of definitive
Registered Securities of such series and tenor, will
authenticate and deliver Registered Securities of such
series and tenor, in any authorized denominations, in an
aggregate principal amount equal to the principal amount of
such Registered Global Securities, in exchange for such
Registered Global Securities.

The Company may at any time and in its sole
discretion determine that any Registered Global Securities
of any series shall no longer be maintained in global form.

19
<PAGE>

In such event the Company will execute, and the Trustee,
upon receipt of the Company's order for the authentication
and delivery of definitive Registered Securities of such
series and tenor, will authenticate and deliver, Registered
Securities of such series and tenor in any authorized
denominations, in an aggregate principal amount equal to the
principal amount of such Registered Global Securities, in
exchange for such Registered Global Securities.

Any time the Registered Securities of any series
are not in the form of Registered Global Securities pursuant
to the preceding two paragraphs, the Company agrees to
supply the Trustee with a reasonable supply of certificated
Registered Securities without the legend required by Section
2.2 and the Trustee agrees to hold such Registered
Securities in safekeeping until authenticated and delivered
pursuant to the terms of this Indenture.

If established by the Company pursuant to Section
2.3 with respect to any Registered Global Security, the
Depositary for such Registered Global Security may surrender
such Registered Global Security in exchange in whole or in
part for Registered Securities of the same series and tenor
in definitive registered form on such terms as are
acceptable to the Company and such Depositary. Thereupon,
the Company shall execute, and the Trustee shall
authenticate and deliver, without service charge,

(i) to the Person specified by such
Depositary new Registered Securities of the same
series and tenor, of any authorized denominations
as requested by such Person, in an aggregate
principal amount equal to and in exchange for such
Person's beneficial interest in the Registered
Global Security; and

(ii) to such Depositary a new Registered
Global Security in a denomination equal to the
difference, if any, between the principal amount
of the surrendered Registered Global Security and
the aggregate principal amount of Registered
Securities authenticated and delivered pursuant to
clause (i) above.

Registered Securities issued in exchange for a
Registered Global Security pursuant to this Section 2.7
shall be registered in such names and in such authorized
denominations as the Depositary for such Registered Global
Security, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the
Trustee or an agent of the Company or the Trustee. The

<PAGE>

Trustee or such agent shall deliver such Securities to or as
directed by the Persons in whose names such Securities are
so registered.

All Securities issued upon any transfer or
exchange of Securities shall be valid obligations of the
Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Securities surrendered
upon such transfer or exchange.

Notwithstanding anything herein or in the forms or
terms of any Securities to the contrary, none of the
Company, the Trustee or any agent of the Company or the
Trustee shall be required to exchange any Unregistered
Security for a Registered Security if such exchange would
result in adverse Federal income tax consequences to the
Company (such as, for example, the inability of the Company
to deduct from its income, as computed for Federal income
tax purposes, the interest payable on the Unregistered
Securities) under then applicable United States Federal
income tax laws. The Trustee and any such agent shall be
entitled to rely on an Officers' Certificate or an Opinion
of Counsel in determining such result.

Neither the Registrar nor the Company shall be
required (i) to issue, authenticate, register the transfer
of or exchange Securities of any series for a period of 15
days before a selection of such Securities to be redeemed or
(ii) to register the transfer of or exchange any Security
selected for redemption in whole or in part.

SECTION 2.8 REPLACEMENT SECURITIES. If a
defaced or mutilated Security of any series is surrendered
to the Trustee or if a Holder claims that its Security of
any series has been lost, destroyed or wrongfully taken, the
Company shall, subject to the further provisions of this
Section 2.8, issue and the Trustee shall authenticate a
replacement Security of such series and tenor and principal
amount bearing a number not contemporaneously outstanding.
The Company may charge such Holder for any tax or other
governmental charge that may be imposed as a result of or in
connection with replacing a Security and for its expenses
and the expenses of the Trustee (including without
limitation attorneys' fees and expenses) in replacing a
Security. In case any such mutilated, defaced, lost,
destroyed or wrongfully taken Security has become or is
about to become due and payable, the Company in its
discretion may pay such Security instead of issuing a new
Security in replacement thereof. If required by the Trustee
or the Company, (i) an indemnity bond must be furnished that
is sufficient in the judgment of both the Trustee and the
Company to protect the Company, the Trustee and any Agent

<PAGE>

from any loss that any of them may suffer if a Security is
replaced or paid as provided in this Section 2.8 and (ii) in
the case of a lost, destroyed or wrongfully taken Security,
evidence must be furnished to the satisfaction of both the
Trustee and the Company of the loss, destruction or wrongful
taking of such Security. Notwithstanding the foregoing, the
Company and the Trustee shall have no obligation to replace
or pay a Security pursuant to this Section 2.8 if either the
Company or the Trustee has notice that such Security has
been acquired by a bona fide purchaser.

Every replacement Security is an additional
obligation of the Company and shall be entitled to the
benefits of this Indenture.

To the extent permitted by law, the foregoing
provisions of this Section are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or
wrongfully taken Securities.

SECTION 2.9 OUTSTANDING SECURITIES. Securities
outstanding at any time are all Securities that have been
authenticated and delivered by the Trustee except for those
canceled by it, those delivered to it for cancellation and
those described in this Section as not outstanding.

If a Security is replaced pursuant to Section 2.8,
it ceases to be outstanding unless and until the Trustee and
the Company receive proof satisfactory to them that the
replaced Security is held by a holder in due course.

If the Paying Agent (other than the Company or an
affiliate of the Company) holds on the maturity date or any
redemption date or date for repurchase of the Securities
money sufficient to pay Securities payable or to be redeemed
or repurchased on that date, then on and after that date
such Securities cease to be outstanding and interest on them
shall cease to accrue.

A Security does not cease to be outstanding
because the Company or one of its affiliates holds such
Security, PROVIDED, HOWEVER, that, in determining whether
the Holders of the requisite principal amount of the
outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company or any affiliate
of the Company shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only
Securities as to which a Responsible Officer of the Trustee

<PAGE>

has received written notice to be so owned shall be so
disregarded. Any Securities so owned which are pledged by
the Company, or by any affiliate of the Company, as security
for loans or other obligations, otherwise than to another
such affiliate of the Company, shall be deemed to be
outstanding, if the pledgee is entitled pursuant to the
terms of its pledge agreement and is free to exercise in its
or his discretion the right to vote such securities,
uncontrolled by the Company or by any such affiliate.

SECTION 2.10 TEMPORARY SECURITIES. Until
definitive Securities of any series are ready for delivery,
the Company may prepare and the Trustee shall authenticate
temporary Securities of such series. Temporary Securities
of any series shall be substantially in the form of
definitive Securities of such series but may have
insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the
temporary Securities, as evidenced by their execution of
such temporary Securities. If temporary Securities of any
series are issued, the Company will cause definitive
Securities of such series to be prepared without
unreasonable delay. After the preparation of definitive
Securities of any series, the temporary Securities of such
series shall be exchangeable for definitive Securities of
such series and tenor upon surrender of such temporary
Securities at the office or agency of the Company
designated for such purpose pursuant to Section 4.2, without
charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities of any series the
Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of
definitive Securities of such series and tenor and
authorized denominations. Until so exchanged, the
temporary Securities of any series shall be entitled to the
same benefits under this Indenture as definitive Securities
of such series.

SECTION 2.11 CANCELLATION. The Company at any
time may deliver to the Trustee for cancellation any
Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee for cancellation
any Securities previously authenticated hereunder which the
Company has not issued and sold. The Registrar, any
transfer agent and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer,
exchange or payment. The Trustee shall cancel and destroy
all Securities surrendered for transfer, exchange, payment
or cancellation and shall deliver a certificate of
destruction to the Company. The Company may not issue new

<PAGE>

Securities to replace Securities it has paid in full or
delivered to the Trustee for cancellation.

SECTION 2.12 CUSIP NUMBERS. The Company in
issuing the Securities may use "CUSIP" and "CINS" numbers
(if then generally in use), and the Trustee shall use CUSIP
numbers or CINS numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders and no
representation shall be made as to the correctness of such
numbers either as printed on the Securities or as contained
in any notice of redemption or exchange.

SECTION 2.13 DEFAULTED INTEREST. If the
Company defaults in a payment of interest on the
Securities, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to
pay, the defaulted interest plus (to the extent lawful) any
interest payable on the defaulted interest (as may be
specified in the terms thereof, established pursuant to
Section 2.3) to the Persons who are Holders on a subsequent
special record date, which shall mean the 15th day next
preceding the date fixed by the Company for the payment of
defaulted interest, whether or not such day is a Business
Day. At least 15 days before such special record date, the
Company shall mail to each Holder and to the Trustee a
notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.

SECTION 2.14 SERIES MAY INCLUDE TRANCHES. A
series of Securities may include one or more tranches (each
a "TRANCHE") of Securities, including Securities issued in a
Periodic Offering. The Securities of different tranches may
have one or more different terms, including authentication
dates and public offering prices, but all the Securities
within each such tranche shall have identical terms,
including authentication date and public offering price.
Notwithstanding any other provision of this Indenture, with
respect to Sections 2.2 (other than the fourth paragraph
thereof) through 2.4, 2.7, 2.8, 2.10, 3.1 through 3.5, 4.2,
6.1 through 6.14, 8.1 through 8.5 and 9.2, if any series of
Securities includes more than one tranche, all provisions of
such sections applicable to any series of Securities shall
be deemed equally applicable to each tranche of any series
of Securities in the same manner as though originally
designated a series unless otherwise provided with respect
to such series or tranche pursuant to Section 2.3. In
particular, and without limiting the scope of the next
preceding sentence, any of the provisions of such sections
which provide for or permit action to be taken with respect
to a series of Securities shall also be deemed to provide
for and permit such action to be taken instead only with

<PAGE>

respect to Securities of one or more tranches within that
series (and such provisions shall be deemed satisfied
thereby), even if no comparable action is taken with respect
to Securities in the remaining tranches of that series.

ARTICLE 3

REDEMPTION

SECTION 3.1 APPLICABILITY OF ARTICLE. The
provisions of this Article shall be applicable to the
Securities of any series which are redeemable before their
maturity or to any sinking fund for the retirement of
Securities of a series except as otherwise specified as
contemplated by Section 2.3 for Securities of such series.

SECTION 3.2 NOTICE OF REDEMPTION; PARTIAL
REDEMPTIONS. Notice of redemption to the Holders of
Registered Securities of any series to be redeemed as a
whole or in part at the option of the Company shall be given
by mailing notice of such redemption by first class mail,
postage prepaid, at least 30 days and not more than 60 days
prior to the date fixed for redemption to such Holders of
Registered Securities of such series at their last addresses
as they shall appear upon the Securities Register. Notice
of redemption to the Holders of Unregistered Securities of
any series to be redeemed as a whole or in part who have
filed their names and addresses with the Trustee pursuant to
Section 313(c)(2) of the Trust Indenture Act, shall be given
by mailing notice of such redemption, by first class mail,
postage prepaid, at least 30 days and not more than 60 days
prior to the date fixed for redemption, to such Holders at
such addresses as were so furnished to the Trustee (and, in
the case of any such notice given by the Company, the
Trustee shall make such information available to the Company
for such purpose). Notice of redemption to all other
Holders of Unregistered Securities of any series to be
redeemed as a whole or in part shall be published in an
Authorized Newspaper in The City of New York or with respect
to any Security the interest on which is based on the
offered quotations in the interbank Eurodollar market for
dollar deposits in an Authorized Newspaper in London, in
each case, once in each of three successive calendar weeks,
the first publication to be not less than 30 days nor more
than 60 days prior to the date fixed for redemption. Any
notice which is mailed or published in the manner herein
provided shall be conclusively presumed to have been duly
given, whether or not the Holder receives the notice.
Failure to give notice by mail, or any defect in the notice
to the Holder of any Security of a series designated for

25
<PAGE>

redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other
Security of such series.

The notice of redemption to each such Holder shall
specify (i) the principal amount of each Security of such
series held by such Holder to be redeemed, (ii) the CUSIP
numbers of the Securities to be redeemed, (iii) the date
fixed for redemption, (iv) the redemption price, (v) the
place or places of payment, (vi) that payment will be made
upon presentation and surrender of such Securities and, in
the case of Securities with coupons attached thereto, of all
coupons appertaining thereto maturing after the date fixed
for redemption, (vii) that such redemption is pursuant to
the mandatory or optional sinking fund, or both, if such be
the case, (viii) that interest accrued to the date fixed for
redemption will be paid as specified in such notice and that
on and after said date interest thereon or on the portions
thereof to be redeemed will cease to accrue. In case any
Security of a series is to be redeemed in part only, the
notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that
on and after the date fixed for redemption, upon surrender
of such Security, a new Security or Securities of such
series and tenor in principal amount equal to the unredeemed
portion thereof will be issued.

The notice of redemption of Securities of any
series to be redeemed at the option of the Company shall be
given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.

Not later than 10:00 a.m. New York City time on
the redemption date specified in the notice of redemption
given as provided in this Section, the Company will deposit
with the Trustee or with one or more Paying Agents (or, if
the Company is acting as its own Paying Agent, set aside,
segregate and hold in trust as provided in Section 2.6) an
amount of money in immediately available funds sufficient to
redeem on the redemption date all the Securities of such
series so called for redemption at the appropriate
redemption price, together with accrued interest to the date
fixed for redemption. If less than all the outstanding
Securities of a series are to be redeemed, the Company will
deliver to the Trustee at least 15 days prior to the last
date on which notice of redemption may be given to Holders
pursuant to the first paragraph of this Section 3.2 (or such
shorter period as shall be acceptable to the Trustee) an
Officers' Certificate (which need not contain the statements
required by Section 10.4) stating the aggregate principal
amount of such Securities to be redeemed. In case of a

<PAGE>

redemption at the election of the Company prior to the
expiration of any restriction on such redemption, the
Company shall deliver to the Trustee, prior to the giving of
any notice of redemption to Holders pursuant to this
Section, an Officers' Certificate stating that such
redemption is not prohibited by such restriction.

If less than all the Securities of a series are to
be redeemed, the Trustee shall select, pro rata, by lot or
in such manner as it shall deem appropriate and fair,
Securities of such series to be redeemed in whole or in
part. Securities may be redeemed in part in multiples equal
to the minimum authorized denomination for Securities of
such series or any multiple thereof. The Trustee shall
promptly notify the Company in writing of the Securities of
such series selected for redemption and, in the case of any
Securities of such series selected for partial redemption,
the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Security
redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is
to be redeemed.

SECTION 3.3 PAYMENT OF SECURITIES CALLED FOR
REDEMPTION. If notice of redemption has been given as above
provided, the Securities or portions of Securities specified
in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable
redemption price, together with interest accrued to the date
fixed for redemption, and on and after such date (unless the
Company shall default in the payment of such Securities at
the redemption price, together with interest accrued to such
date) interest on the Securities or portions of Securities
so called for redemption shall cease to accrue, and the
unmatured coupons, if any, appertaining thereto shall be
void and, except as provided in Sections 7.11 and 8.4, such
Securities shall cease from and after the date fixed for
redemption to be entitled to any benefit under this
Indenture, and the Holders thereof shall have no right in
respect of such Securities except the right to receive the
redemption price thereof and unpaid interest to the date
fixed for redemption. On presentation and surrender of such
Securities at a place of payment specified in said notice,
together with all coupons, if any, appertaining thereto
maturing after the date fixed for redemption, said
Securities or the specified portions thereof shall be paid
and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to the date
fixed for redemption; PROVIDED that payment of interest

<PAGE>

becoming due on or prior to the date fixed for redemption
shall be payable in the case of Securities with coupons
attached thereto, to the Holders of the coupons for such
interest upon surrender thereof, and in the case of
Registered Securities, to the Holders of such Registered
Securities registered as such on the relevant record date
subject to the terms and provisions of Sections 2.4 and 2.13
hereof.

If any Security called for redemption shall not be
so paid upon surrender thereof for redemption, the principal
shall, until paid or duly provided for, bear interest from
the date fixed for redemption at the rate of interest or
Yield to Maturity (in the case of an Original Issue Discount
Security) borne by such Security.

If any Security with coupons attached thereto is
surrendered for redemption and is not accompanied by all
appurtenant coupons maturing after the date fixed for
redemption, the surrender of such missing coupon or coupons
may be waived by the Company and the Trustee, if there be
furnished to each of them such security or indemnity as they
may require to save each of them harmless.

Upon presentation of any Security of any series
redeemed in part only, the Company shall execute and the
Trustee shall authenticate and deliver to or on the order of
the Holder thereof, at the expense of the Company, a new
Security or Securities of such series and tenor (with any
unmatured coupons attached), of authorized denominations, in
principal amount equal to the unredeemed portion of the
Security so presented.

SECTION 3.4 EXCLUSION OF CERTAIN SECURITIES
FROM ELIGIBILITY FOR SELECTION FOR REDEMPTION. Securities
shall be excluded from eligibility for selection for
redemption if they are identified by registration and
certificate number in a written statement signed by an
authorized officer of the Company and delivered to the
Trustee at least 40 days prior to the last date on which
notice of redemption may be given as being owned of record
and beneficially by, and not pledged or hypothecated by
either (a) the Company or (b) an entity specifically
identified in such written statement as directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Company.

SECTION 3.5 MANDATORY AND OPTIONAL SINKING
FUNDS. The minimum amount of any sinking fund payment
provided for by the terms of Securities of any series is
herein referred to as a "MANDATORY SINKING FUND PAYMENT",

<PAGE>

and any payment in excess of such minimum amount provided
for by the terms of the Securities of any series is herein
referred to as an "OPTIONAL SINKING FUND PAYMENT". The date
on which a sinking fund payment is to be made is herein
referred to as the "SINKING FUND PAYMENT DATE".

In lieu of making all or any part of any mandatory
sinking fund payment with respect to any series of
Securities in cash, the Company may at its option (a)
deliver to the Trustee Securities of such series theretofore
purchased or otherwise acquired (except through a mandatory
sinking fund payment) by the Company or receive credit for
Securities of such series (not previously so credited)
theretofore purchased or otherwise acquired (except as
aforesaid) by the Company and delivered to the Trustee for
cancellation pursuant to Section 2.11, (b) receive credit
for optional sinking fund payments (not previously so
credited) made pursuant to this Section, or (c) receive
credit for Securities of such series (not previously so
credited) redeemed by the Company through any optional
sinking fund payment. Securities so delivered or credited
shall be received or credited by the Trustee at the sinking
fund redemption price specified in such Securities.

On or before the sixtieth day next preceding each
sinking fund payment date for any series, or such shorter
period as shall be acceptable to the Trustee, the Company
will deliver to the Trustee an Officers' Certificate (a)
specifying the portion of the mandatory sinking fund payment
to be satisfied by payment of cash and the portion to be
satisfied by credit of specified Securities of such series
and the basis for such credit, (b) stating that none of the
specified Securities of such series has theretofore been so
credited, (c) stating that no defaults in the payment of
interest or Events of Default with respect to such series
have occurred (which have not been waived or cured) and are
continuing and (d) stating whether or not the Company
intends to exercise its right to make an optional sinking
fund payment with respect to such series and, if so,
specifying the amount of such optional sinking fund payment
which the Company intends to pay on or before the next
succeeding sinking fund payment date. Any Securities of
such series to be credited and required to be delivered to
the Trustee in order for the Company to be entitled to
credit therefor as aforesaid which have not theretofore been
delivered to the Trustee shall be delivered for cancellation
pursuant to Section 2.11 to the Trustee with such Officers'
Certificate (or reasonably promptly thereafter if acceptable
to the Trustee). Such Officers' Certificate shall be
irrevocable and upon its receipt by the Trustee the Company
shall become unconditionally obligated to make all the cash

<PAGE>

payments or delivery of securities therein referred to, if
any, on or before the next succeeding sinking fund payment
date. Failure of the Company, on or before any such
sixtieth day, to deliver such Officer's Certificate and
Securities specified in this paragraph, if any, shall not
constitute a default but shall constitute, on and as of such
date, the irrevocable election of the Company (i) that the
mandatory sinking fund payment for such series due on the
next succeeding sinking fund payment date shall be paid
entirely in cash without the option to deliver or credit
Securities of such series in respect thereof and (ii) that
the Company will make no optional sinking fund payment with
respect to such series as provided in this Section.

If the sinking fund payment or payments (mandatory
or optional or both) to be made in cash on the next
succeeding sinking fund payment date plus any unused balance
of any preceding sinking fund payments made in cash shall
exceed $50,000 (or a lesser sum if the Company shall so
request with respect to the Securities of any series), such
cash shall be applied on the next succeeding sinking fund
payment date to the redemption of Securities of such series
at the sinking fund redemption price thereof together with
accrued interest thereon to the date fixed for redemption.
If such amount shall be $50,000 (or such lesser sum) or less
and the Company makes no such request then it shall be
carried over until a sum in excess of $50,000 (or such
lesser sum) is available. The Trustee shall select, in the
manner provided in Section 3.2, for redemption on such
sinking fund payment date a sufficient principal amount of
Securities of such series to absorb said cash, as nearly as
may be, and shall inform the Company of the serial numbers
of the Securities of such series (or portions thereof) so
selected. Securities shall be excluded from eligibility for
redemption under this Section if they are identified by
registration and certificate number in an Officers'
Certificate delivered to the Trustee at least 60 days prior
to the sinking fund payment date as being owned of record
and beneficially by, and not pledged or hypothecated by
either (a) the Company or (b) an entity specifically
identified in such Officers' Certificate as directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Company. The Trustee, in
the name and at the expense of the Company (or the Company,
if it shall so request the Trustee in writing) shall cause
notice of redemption of the Securities of such series to be
given in substantially the manner provided in Section 3.2
(and with the effect provided in Section 3.3) for the
redemption of Securities of such series in part at the
option of the Company. The amount of any sinking fund
payments not so applied or allocated to the redemption of

30
<PAGE>

Securities of such series shall be added to the next cash
sinking fund payment for such series and, together with such
payment, shall be applied in accordance with the provisions
of this Section. Any and all sinking fund moneys held on
the stated maturity date of the Securities of any particular
series (or earlier, if such maturity is accelerated), which
are not held for the payment or redemption of particular
Securities of such series shall be applied, together with
other moneys, if necessary, sufficient for the purpose, to
the payment of the Principal of, and interest on, the
Securities of such series at maturity.

Not later than 10:00 a.m. New York City time on
each sinking fund payment date, the Company shall pay to the
Trustee in cash or shall otherwise provide for the payment
of all interest accrued to the date fixed for redemption on
Securities to be redeemed on the next following sinking fund
payment date.

The Trustee shall not redeem or cause to be
redeemed any Securities of a series with sinking fund moneys
or mail any notice of redemption of Securities of such
series by operation of the sinking fund during the
continuance of a Default in payment of interest on such
Securities or of any Event of Default except that, where the
mailing of notice of redemption of any Securities shall
theretofore have been made, the Trustee shall redeem or
cause to be redeemed such Securities, provided that it shall
have received from the Company a sum sufficient for such
redemption. Except as aforesaid, any moneys in the sinking
fund for such series at the time when any such Default or
Event of Default shall occur, and any moneys thereafter paid
into the sinking fund, shall, during the continuance of such
Default or Event of Default, be deemed to have been
collected under Article 6 and held for the payment of all
such Securities. In case such Event of Default shall have
been waived as provided in Section 6.4 or the Default cured
on or before the sixtieth day preceding the sinking fund
payment date in any year, such moneys shall thereafter be
applied on the next succeeding sinking fund payment date in
accordance with this Section to the redemption of such
Securities.

ARTICLE 4

COVENANTS

SECTION 4.1 PAYMENT OF SECURITIES. The Company
shall pay the Principal of and interest on the Securities on
the dates and in the manner provided in the Securities and

<PAGE>

this Indenture. The interest on Securities with coupons
attached (together with any additional amounts payable
pursuant to the terms of such Securities) shall be payable
only upon presentation and surrender of the several coupons
for such interest installments as are evidenced thereby as
they severally mature. The interest on any temporary
Unregistered Securities (together with any additional
amounts payable pursuant to the terms of such Securities)
shall be paid, as to the installments of interest evidenced
by coupons attached thereto, if any, only upon presentation
and surrender thereof, and, as to the other installments of
interest, if any, only upon presentation of such
Unregistered Securities for notation thereon of the payment
of such interest. The interest on Registered Securities
(together with any additional amounts payable pursuant to
the terms of such Securities) shall be payable only to the
Holders thereof and at the option of the Company may be paid
by mailing checks for such interest payable to or upon the
written order of such Holders at their last addresses as
they appear on the Security Register of the Company.

Notwithstanding any provisions of this Indenture
and the Securities of any series to the contrary, if the
Company and a Holder of any Registered Security so agree,
payments of interest on, and any portion of the Principal
of, such Holder's Registered Security (other than interest
payable at maturity or on any redemption or repayment date
or the final payment of Principal on such Security) shall be
made by the Paying Agent, upon receipt from the Company of
immediately available funds by 11:00 A.M., New York City
time (or such other time as may be agreed to between the
Company and the Paying Agent), directly to the Holder of
such Security (by Federal funds wire transfer or otherwise)
if the Holder has delivered written instructions to the
Trustee 15 days prior to such payment date requesting that
such payment will be so made and designating the bank
account to which such payments shall be so made and in the
case of payments of Principal surrenders the same to the
Trustee in exchange for a Security or Securities aggregating
the same principal amount as the unredeemed principal amount
of the Securities surrendered. The Trustee shall be
entitled to rely on the last instruction delivered by the
Holder pursuant to this Section 4.1 unless a new instruction
is delivered 15 days prior to a payment date. The Company
will indemnify and hold each of the Trustee and any Paying
Agent harmless against any loss, liability or expense
(including attorneys' fees) resulting from any act or
omission to act on the part of the Company or any such
Holder in connection with any such agreement or from making
any payment in accordance with any such agreement.

<PAGE>

The Company shall pay interest on overdue
Principal, and interest on overdue installments of interest,
to the extent lawful, at the rate per annum specified in the
Securities.

SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may
be surrendered for registration of transfer or exchange or
for presentation for payment and where notices and demands
to or upon the Company in respect of the Securities and this
Indenture may be served. The Company hereby initially
designates the Corporate Trust Office of the Trustee,
located in the Borough of Manhattan, The City of New York,
as such office or agency of the Company. The Company will
give prompt written notice to the Trustee of the location,
and any change in the location, of such office or agency.
If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 10.2.

The Company will maintain one or more agencies in
a city or cities located outside the United States
(including any city in which such an agency is required to
be maintained under the rules of any stock exchange on which
the Securities of any series are listed) where the
Unregistered Securities, if any, of each series and coupons,
if any, appertaining thereto may be presented for payment.
No payment on any Unregistered Security or coupon will be
made upon presentation of such Unregistered Security or
coupon at an agency of the Company within the United States
nor will any payment be made by transfer to an account in,
or by mail to an address in, the United States unless,
pursuant to applicable United States laws and regulations
then in effect, such payment can be made without adverse tax
consequences to the Company. Notwithstanding the foregoing,
if full payment in United States Dollars ("DOLLARS") at each
agency maintained by the Company outside the United States
for payment on such Unregistered Securities or coupons
appertaining thereto is illegal or effectively precluded by
exchange controls or other similar restrictions, payments in
Dollars of Unregistered Securities of any series and coupons
appertaining thereto which are payable in Dollars may be
made at an agency of the Company maintained in the Borough
of Manhattan, The City of New York.

The Company may also from time to time designate
one or more other offices or agencies where the Securities
of any series may be presented or surrendered for any or all

<PAGE>

such purposes and may from time to time rescind such
designations; PROVIDED that no such designation or
rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of
any such designation or rescission and of any change in the
location of any such other office or agency.

SECTION 4.3 NEGATIVE PLEDGE. (a) The Company
will not, and will not permit any Restricted Subsidiary to,
create or incur Lien on any shares of stock, indebtedness or
other obligations of a Restricted Subsidiary or any
Principal Property of the Company or a Restricted
Subsidiary, whether such shares of stock, indebtedness or
other obligations of a Restricted Subsidiary or Principal
Property are owned at the date of this Indenture or
hereafter acquired, unless the Company secures or causes
such Restricted Subsidiary to secure the outstanding
Securities equally and ratably with all indebtedness secured
by such Lien, so long as such indebtedness shall be so
secured; PROVIDED, however, that this covenant shall not
apply in the case of: (i) the creation of any Lien on any
shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property hereafter acquired
(including acquisitions by way of merger or consolidation)
by the Company or a Restricted Subsidiary contemporaneously
with such acquisition, or within 180 days thereafter, to
secure or provide for the payment or financing of any part
of the purchase price thereof, or the assumption of any Lien
upon any shares of stock, indebtedness or other obligations
of a Subsidiary or any Principal Property hereafter acquired
existing at the time of such acquisition, or the acquisition
of any shares of stock, indebtedness or other obligations of
a Subsidiary or any Principal Property subject to any Lien
without the assumption thereof, PROVIDED that every such
Lien referred to in this clause (i) shall attach only to the
shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property so acquired and fixed
improvements thereon; (ii) any Lien on any shares of stock,
indebtedness or other obligations of a Subsidiary or any
Principal Property existing at the date of this Indenture;
(iii) any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property in
favor of the Company or any Restricted Subsidiary; (iv) any
Lien on any Principal Property being constructed or improved
securing loans to finance such construction or improvements;
(v) any Lien on shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property
incurred in connection with the issuance of tax-exempt
governmental obligations (including, without limitation,

<PAGE>

industrial revenue bonds and similar financings); (vi) any
mechanics', materialmen's, carriers' or other similar Liens
arising in the ordinary course of business with respect to
obligations which are not yet due or that are being
contested in good faith, (vii) any Lien on any shares of
stock, indebtedness or other obligations of a Subsidiary or
any Principal Property for taxes, assessments or
governmental charges or levies not yet delinquent, or
already delinquent but the validity of which is being
contested in good faith, (viii) any Lien on any shares of
stock, indebtedness or other obligations of a Subsidiary or
any Principal Property arising in connection with legal
proceedings being contested in good faith, including any
judgment Lien so long as execution thereon is stayed, (ix)
any landlord's Lien on fixtures located on premises leased
by the Company or a Restricted Subsidiary in the ordinary
course of business, and tenants' rights under leases,
easements and similar Liens not materially impairing the use
or value of the property involved, (x) any Lien arising by
reason of deposits necessary to qualify the Company or any
Restricted Subsidiary to conduct business, maintain self-
insurance, or obtain the benefit of, or comply with, any
law, and (xi) any renewal of or substitution for any Lien
permitted by any of the preceding clauses (i) through (x),
provided, in the case of a Lien permitted under clause (i),
(ii) or (iv), the indebtedness secured is not increased nor
the Lien extended to any additional assets.

(b) Notwithstanding the provisions of paragraph
(a) of this Section, the Company or any Restricted
Subsidiary may create or assume Liens in addition to those
permitted by paragraph (a) of this Section, and renew,
extend or replace such liens, PROVIDED that at the time of
such creation, assumption, renewal, extension or
replacement, and after giving effect thereto, Exempted Debt
does not exceed 15% of Combined Net Worth.

SECTION 4.4 CERTAIN SALE AND LEASE-BACK
TRANSACTIONS. (a) The Company will not, and will not
permit any Restricted Subsidiary to, sell or transfer,
directly or indirectly, except to the Company or a
Restricted Subsidiary, any Principal Property as an
entirety, or any substantial portion thereof, with the
intention of taking back a lease of such property, except a
lease for a period of three years or less at the end of
which it is intended that the use of such property by the
lessee will be discontinued; PROVIDED that, notwithstanding
the foregoing, the Company or any Restricted Subsidiary may
sell any such Principal Property and lease it back for a
longer period (i) if the Company or such Restricted
Subsidiary would be entitled, pursuant to the provisions of

<PAGE>

Section 4.3(a), to create a Lien on the property to be
leased securing Funded Debt in an amount equal to the
Attributable Debt with respect to such sale and lease-back
transaction without equally and ratably securing the
outstanding Securities or (ii) if (A) the Company promptly
informs the Trustee of such transaction and (B) the Company
causes an amount equal to the fair value (as determined by
Board Resolution of the Company) of such property to be
applied (1) to the purchase of other property that will
constitute Principal Property having a fair value at least
equal to the fair value of the property sold or (2) to the
retirement, within 120 days after receipt of such proceeds,
of Funded Debt incurred or assumed by the Company or a
Restricted Subsidiary (including the Securities); PROVIDED
further that, in lieu of applying all of or any part of such
net proceeds to such retirement, the Company may, within 75
days after such sale, deliver or cause to be delivered to
the applicable trustee for cancellation either debentures or
notes evidencing Funded Debt of the Company (which may
include the Securities) or of a Restricted Subsidiary
previously authenticated and delivered by the applicable
trustee, and not theretofore tendered for sinking fund
purposes or called for a sinking fund or otherwise applied
as a credit against an obligation to redeem or retire such
notes or debentures, and an Officers' Certificate (which
shall be delivered to the Trustee and which need not contain
the statements prescribed by Section 10.4) stating that the
Company elects to deliver or cause to be delivered such
debentures or notes in lieu of retiring Funded Debt as
hereinabove provided. If the Company shall so deliver
debentures or notes to the applicable trustee and the
Company shall duly deliver such Officers' Certificate, the
amount of cash which the Company shall be required to apply
to the retirement of Funded Debt under this Section 4.4(a)
shall be reduced by an amount equal to the aggregate of the
then applicable optional redemption prices (not including
any optional sinking fund redemption prices) of such
debentures or notes, or, if there are no such redemption
prices, the principal amount of such debentures or notes;
PROVIDED, that in the case of debentures or notes which
provide for an amount less than the principal amount thereof
to be due and payable upon a declaration of the maturity
thereof, such amount of cash shall be reduced by the amount
of principal of such debentures or notes that would be due
and payable as of the date of such application upon a
declaration of acceleration of the maturity thereof pursuant
to the terms of the indenture pursuant to which such
debentures or notes were issued.

(b) Notwithstanding the provisions of paragraph
(a) of this Section 4.4, the Company or any Restricted

<PAGE>

Subsidiary may enter into sale and lease-back transactions
in addition to those permitted by paragraph (a) of this
Section 4.4 without any obligation to retire any outstanding
Securities or other Funded Debt, PROVIDED that at the time
of entering into such sale and lease-back transactions and
after giving effect thereto, Exempted Debt does not exceed
15% of Combined Net Worth.

SECTION 4.5 CERTIFICATE TO TRUSTEE. The
Company will furnish to the Trustee annually, on or before a
date not more than four months after the end of its fiscal
year (which, on the date hereof, is a calendar year), a
brief certificate (which need not contain the statements
required by Section 10.4) from its principal executive,
financial or accounting officer as to his or her knowledge
of the compliance of the Company with all conditions and
covenants under this Indenture (such compliance to be
determined without regard to any period of grace or
requirement of notice provided under this Indenture) which
certificate shall comply with the requirements of the Trust
Indenture Act.

SECTION 4.6 REPORTS BY THE COMPANY. The
Company covenants to file with the Trustee, within 15 days
after the Company is required to file the same with the
Commission, copies of the annual reports and of the
information, documents, and other reports which the Company
may be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Exchange Act.

ARTICLE 5

SUCCESSOR CORPORATION

SECTION 5.1 WHEN COMPANY MAY MERGE, ETC. The
Company shall not consolidate with, merge with or into, or
sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety
or substantially as an entirety in one transaction or a
series of related transactions) to, any Person (other than a
consolidation with or merger with or into a Subsidiary or a
sale, conveyance, transfer, lease or other disposition to a
Subsidiary) or permit any Person to merge with or into the
Company unless:

(i) either (x) the Company shall be the
continuing Person or (y) the Person (if other than the
Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such
property and assets of the Company shall be a

<PAGE>

corporation organized and validly existing under the
laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all
of the Securities and under this Indenture and the
Company shall have delivered to the Trustee an Opinion
of Counsel stating that such consolidation, merger or
transfer and such supplemental indenture complies with
this provision and that all conditions precedent
provided for herein relating to such transaction have
been complied with and that such supplemental indenture
constitutes the legal, valid and binding obligation of
the Company or such successor enforceable against such
entity in accordance with its terms, subject to
customary exceptions; and

(ii) an Officers' Certificate to the effect that
immediately after giving effect to such transaction, no
Default shall have occurred and be continuing and an
Opinion of Counsel as to the matters set forth in
Section 5.1(i) shall have been delivered to the
Trustee.

SECTION 5.2 SUCCESSOR SUBSTITUTED. Upon any
consolidation or merger, or any sale, conveyance, transfer,
lease or other disposition of all or substantially all of
the property and assets of the Company in accordance with
Section 5.1 of this Indenture, the successor Person formed
by such consolidation or into which the Company is merged or
to which such sale, conveyance, transfer, lease or other
disposition is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such
successor Person had been named as the Company herein. In
the event of any such sale, conveyance, transfer or other
disposition (other than by way of lease) the Company or any
successor Person that shall theretofore have become such in
the manner described in this Article shall be discharged
from all obligations and covenants under this Indenture and
the Securities and may be liquidated and dissolved.

<PAGE>

ARTICLE 6

DEFAULT AND REMEDIES

SECTION 6.1 EVENTS OF DEFAULT. An "EVENT OF
DEFAULT" shall occur with respect to the Securities of any
series if:

(a) the Company defaults in the payment of the
Principal of any Security of such series when the same
becomes due and payable at maturity, upon acceleration,
redemption or mandatory repurchase, including as a
sinking fund installment, or otherwise;

(b) the Company defaults in the payment of
interest on any Security of such series when the same
becomes due and payable, and such default continues for
a period of 30 days;

(c) (i) default by the Company or any Restricted
Subsidiary in the payment when due at maturity of any
Funded Debt (other than Funded Debt that is non-
recourse to the Company and its Restricted
Subsidiaries) in excess of $15,000,000, whether such
Funded Debt is outstanding at the date of this
Indenture or is hereafter outstanding, and the
continuation of such default for the greater of any
period of grace applicable thereto or ten days from the
date of such default or (ii) an event of default, as
defined in any indenture, agreement or instrument
evidencing or under which the Company and/or any
Restricted Subsidiary has at the date of this Indenture
or shall thereafter have outstanding at least
$15,000,000 aggregate principal amount of Funded Debt,
shall happen and be continuing and such Funded Debt
shall have been accelerated so that the same shall be
or become due and payable prior to the date on which
the same would otherwise have become due and payable,
and such acceleration shall not be rescinded or
annulled or such indebtedness shall not be discharged,
within ten days;

(d) the Company defaults in the performance of or
breaches any other covenant or agreement of the Company
in this Indenture with respect to any Security of such
series or in the Securities of such series and such
default or breach continues for a period of 30
consecutive days after written notice to the Company by
the Trustee or to the Company and the Trustee by the
Holders of 25% or more in aggregate principal amount of
the Securities of all series affected thereby;

<PAGE>

(e) an involuntary case or other proceeding shall
be commenced against the Company or any Restricted
Subsidiary with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its
property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of
60 days; or an order for relief shall be entered
against the Company or any Restricted Subsidiary under
the federal bankruptcy laws as now or hereafter in
effect;

(f) the Company or any Restricted Subsidiary (A)
commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such
law, (B) consents to the appointment of or taking
possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of
the Company or any Restricted Subsidiary or for all or
substantially all of the property and assets of the
Company or any Restricted Subsidiary or (C) effects any
general assignment for the benefit of creditors; or

(g) any other Event of Default established
pursuant to Section 2.3 with respect to the Securities
of such series occurs.

SECTION 6.2 ACCELERATION. (a) If an Event of
Default described in clauses (a) or (b) of Section 6.1 with
respect to the Securities of any series then outstanding
occurs and is continuing, then, and in each and every such
case, except for any series of Securities the principal of
which shall have already become due and payable, either the
Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities of any such affected
series then outstanding hereunder (each such series treated
as a separate class) by notice in writing to the Company
(and to the Trustee if given by Securityholders), may
declare the entire principal (or, if the Securities of any
such series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the
terms of such series established pursuant to Section 2.3) of
all Securities of such affected series, and the interest
accrued thereon, if any, to be due and payable immediately,
and upon any such declaration the same shall become
immediately due and payable.

<PAGE>

(b) If an Event of Default described in clauses
(c), (d) or (g) of Section 6.1 with respect to the
Securities of one or more but not all series then
outstanding, or with respect to the Securities of all series
then outstanding, occurs and is continuing, then, and in
each and every such case, except for any series of Securi-
ties the principal of which shall have already become due
and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount (or, if the
Securities of any such series are Original Issue Discount
Securities, the amount thereof accelerable under this
Section) of the Securities of all such affected series then
outstanding hereunder (treated as a single class) by notice
in writing to the Company (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if
the Securities of any such series are Original Issue
Discount Securities, such portion of the principal amount as
may be specified in the terms of such series established
pursuant to Section 2.3) of all Securities of all such
affected series, and the interest accrued thereon, if any,
to be due and payable immediately, and upon any such
declaration the same shall become immediately due and
payable.

(c) If an Event of Default described in clause
(d) or (e) of Section 6.1 occurs and is continuing, then the
principal amount (or, if any Securities are Original Issue
Discount Securities, such portion of the principal as may be
specified in the terms thereof established pursuant to
Section 2.3) of all the Securities then outstanding and
interest accrued thereon, if any, shall be and become
immediately due and payable, without any notice or other
action by any Holder or the Trustee, to the full extent
permitted by applicable law.

The foregoing provisions, however, are subject to
the condition that if, at any time after the principal (or,
if the Securities are Original Issue Discount Securities,
such portion of the principal as may be specified in the
terms thereof established pursuant to Section 2.3) of the
Securities of any series (or of all the Securities, as the
case may be) shall have been so declared due and payable,
and before any judgment or decree for the payment of the
moneys due shall have been obtained or entered as
hereinafter provided, the Company shall pay or shall deposit
with the Trustee a sum sufficient to pay all matured
installments of interest upon all the Securities of each
such series (or of all the Securities, as the case may be)
and the principal of any and all Securities of each such
series (or of all the Securities, as the case may be) which
shall have become due otherwise than by acceleration (with

<PAGE>

interest upon such principal and, to the extent that payment
of such interest is enforceable under applicable law, on
overdue installments of interest, at the same rate as the
rate of interest or Yield to Maturity (in the case of
Original Issue Discount Securities) specified in the
Securities of each such series to the date of such payment
or deposit) and such amount as shall be sufficient to cover
all amounts owing the Trustee under Section 7.7, and if any
and all Events of Default under the Indenture, other than
the non-payment of the principal of Securities which shall
have become due by acceleration, shall have been cured,
waived or otherwise remedied as provided herein, then and in
every such case the Holders of a majority in aggregate
principal amount of all the then outstanding Securities of
all such series that have been accelerated (voting as a
single class), by written notice to the Company and to the
Trustee, may waive all defaults with respect to all such
series (or with respect to all the Securities, as the case
may be) and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment
shall extend to or shall affect any subsequent default or
shall impair any right consequent thereon.

For all purposes under this Indenture, if a
portion of the principal of any Original Issue Discount
Securities shall have been accelerated and declared due and
payable pursuant to the provisions hereof, then, from and
after such declaration, unless such declaration has been
rescinded and annulled, the principal amount of such
Original Issue Discount Securities shall be deemed, for all
purposes hereunder, to be such portion of the principal
thereof as shall be due and payable as a result of such
acceleration, and payment of such portion of the principal
thereof as shall be due and payable as a result of such
acceleration, together with interest, if any, thereon and
all other amounts owing thereunder, shall constitute payment
in full of such Original Issue Discount Securities.

SECTION 6.3 OTHER REMEDIES. If a payment
default or an Event of Default with respect to the
Securities of any series occurs and is continuing, the
Trustee may pursue, in its own name or as trustee of an
express trust, any available remedy by proceeding at law or
in equity to collect the payment of principal of and
interest on the Securities of such series or to enforce the
performance of any provision of the Securities of such
series or this Indenture.

The Trustee may maintain a proceeding even if it
does not possess any of the Securities or does not produce
any of them in the proceeding.

<PAGE>

SECTION 6.4 WAIVER OF PAST DEFAULTS. Subject
to Sections 6.2, 6.7 and 9.2, the Holders of at least a
majority in principal amount (or, if the Securities are
Original Issue Discount Securities, such portion of the
principal as is then accelerable under Section 6.2) of the
outstanding Securities of all series affected (voting as a
single class), by notice to the Trustee, may waive, on
behalf of the Holders of all the Securities of such series,
an existing Default or Event of Default with respect to the
Securities of such series and its consequences, except a
Default in the payment of Principal of or interest on any
Security as specified in clauses (a) or (b) of Section 6.1
or in respect of a covenant or provision of this Indenture
which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected. Upon any
such waiver, such Default shall cease to exist, and any
Event of Default with respect to the Securities of such
series arising therefrom shall be deemed to have been cured,
for every purpose of this Indenture; but no such waiver
shall extend to any subsequent or other Default or Event of
Default or impair any right consequent thereto.

SECTION 6.5 CONTROL BY MAJORITY. Subject to
Sections 7.1 and 7.2(v), the Holders of at least a majority
in aggregate principal amount (or, if any Securities are
Original Issue Discount Securities, such portion of the
principal as is then accelerable under Section 6.2) of the
outstanding Securities of all series affected (voting as a
single class) may direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the
Trustee with respect to the Securities of such series by
this Indenture; PROVIDED, that the Trustee may refuse to
follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal
liability or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders not joining
in the giving of such direction; and PROVIDED FURTHER, that
the Trustee may take any other action it deems proper that
is not inconsistent with any directions received from
Holders of Securities pursuant to this Section 6.5.

SECTION 6.6 LIMITATION ON SUITS. No Holder of
any Security of any series may institute any proceeding,
judicial or otherwise, with respect to this Indenture or the
Securities of such series, or for the appointment of a
receiver or trustee, or for any other remedy hereunder,
unless:

<PAGE>

(i) such Holder has previously given to the
Trustee written notice of a continuing Event of Default
with respect to the Securities of such series;

(ii) the Holders of at least 25% in aggregate
principal amount of outstanding Securities of all such
series affected shall have made written request to the
Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;

(iii) such Holder or Holders have offered to the
Trustee indemnity reasonably satisfactory to the
Trustee against any costs, liabilities or expenses to
be incurred in compliance with such request;

(iv) the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed
to institute any such proceeding; and

(v) during such 60-day period, the Holders of a
majority in aggregate principal amount of the
outstanding Securities of all such affected series have
not given the Trustee a direction that is inconsistent
with such written request.

A Holder may not use this Indenture to prejudice
the rights of another Holder or to obtain a preference or
priority over such other Holder.

SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE
PAYMENT. Notwithstanding any other provision of this
Indenture, the right of any Holder of a Security to receive
payment of Principal of or interest, if any, on such
Holder's Security on or after the respective due dates
expressed on such Security, or to bring suit for the
enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent
of such Holder.

SECTION 6.8 COLLECTION SUIT BY TRUSTEE. If an
Event of Default with respect to the Securities of any
series in payment of Principal or interest specified in
clause (a) or (b) of Section 6.1 occurs and is continuing,
the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the
whole amount (or such portion thereof as specified in the
terms established pursuant to Section 2.3 of Original Issue
Discount Securities) of Principal of, and accrued interest
remaining unpaid on, together with interest on overdue
Principal of, and, to the extent that payment of such
interest is lawful, interest on overdue installments of

<PAGE>

interest on, the Securities of such series, in each case at
the rate or Yield to Maturity (in the case of Original Issue
Discount Securities) specified in such Securities, and such
further amount as shall be sufficient to cover all amounts
owing the Trustee under Section 7.7.

SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
In the case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding
relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other
obligor or their creditors, the Trustee may file such proofs
of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee
(including any claim for amounts due the Trustee under
Section 7.7) and the Holders allowed in any judicial
proceedings relative to the Company (or any other obligor on
the Securities), its creditors or its property and shall be
entitled and empowered to collect and receive any moneys,
securities or other property payable or deliverable upon
conversion or exchange of the Securities or upon any such
claims and to distribute the same, and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is
hereby authorized by each Holder to make such payments to
the Trustee and, in the event that the Trustee shall consent
to the making of such payments directly to the Holders, to
pay to the Trustee any amount due to it under Section 7.7.
Nothing herein contained shall be deemed to empower the
Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization,
arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.

SECTION 6.10 APPLICATION OF PROCEEDS. Any
moneys collected by the Trustee pursuant to this Article in
respect of the Securities of any series shall be applied in
the following order at the date or dates fixed by the
Trustee and, in case of the distribution of such moneys on
account of Principal or interest, upon presentation of the
several Securities and coupons appertaining to such
Securities in respect of which moneys have been collected
and noting thereon the payment, or issuing Securities of
such series and tenor in reduced principal amounts in
exchange for the presented Securities of such series and
tenor if only partially paid, or upon surrender thereof if
fully paid:

<PAGE>

FIRST: To the payment of all amounts due the
Trustee under Section 7.7 applicable to the Securities
of such series in respect of which moneys have been
collected;

SECOND: In case the principal of the Securities
of such series in respect of which moneys have been
collected shall not have become and be then due and
payable, to the payment of interest on the Securities
of such series in default in the order of the maturity
of the installments of such interest, with interest (to
the extent that such interest has been collected by the
Trustee) upon the overdue installments of interest at
the same rate as the rate of interest or Yield to
Maturity (in the case of Original Issue Discount
Securities) specified in such Securities, such payments
to be made ratably to the persons entitled thereto,
without discrimination or preference;

THIRD: In case the principal of the Securities of
such series in respect of which moneys have been col-
lected shall have become and shall be then due and
payable, to the payment of the whole amount then owing
and unpaid upon all the Securities of such series for
Principal and interest, with interest upon the overdue
Principal, and (to the extent that such interest has
been collected by the Trustee) upon overdue instal-
lments of interest at the same rate as the rate of
interest or Yield to Maturity (in the case of Original
Issue Discount Securities) specified in the Securities
of such series; and in case such moneys shall be insuf-
ficient to pay in full the whole amount so due and
unpaid upon the Securities of such series, then to the
payment of such Principal and interest or Yield to
Maturity, without preference or priority of Principal
over interest or Yield to Maturity, or of interest or
Yield to Maturity over Principal, or of any installment
of interest over any other installment of interest, or
of any Security of such series over any other Security
of such series, ratably to the aggregate of such
Principal and accrued and unpaid interest or Yield to
Maturity; and

FOURTH: To the payment of the remainder, if any,
to the Company or any other person lawfully entitled
thereto.

SECTION 6.11 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any

<PAGE>

reason, or has been determined adversely to the Trustee or
to such Holder, then, and in every such case, subject to any
determination in such proceeding, the Company, the Trustee
and the Holders shall be restored to their former positions
hereunder and thereafter all rights and remedies of the
Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.

SECTION 6.12 UNDERTAKING FOR COSTS. In any suit
for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action
taken or omitted by it as Trustee, in either case in respect
to the Securities of any series, a court may require any
party litigant in such suit (other than the Trustee) to file
an undertaking to pay the costs of the suit, and the court
may assess reasonable costs, including reasonable attorneys'
fees, against any party litigant (other than the Trustee) in
the suit having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This
Section 6.12 does not apply to a suit by a Holder pursuant
to Section 6.7 or a suit by Holders of more than 10% in
principal amount of the outstanding Securities of such
series.

SECTION 6.13 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or wrongfully taken
Securities in Section 2.8, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders
is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of
any right or remedy hereunder, or otherwise, shall not
prevent the concurrent assertion or employment of any other
appropriate right or remedy.

SECTION 6.14 DELAY OR OMISSION NOT WAIVER. No
delay or omission of the Trustee or of any Holder to
exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute
a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article 6 or
by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient,
by the Trustee or by the Holders, as the case may be.

<PAGE>

ARTICLE 7

TRUSTEE

SECTION 7.1 GENERAL. The duties and
responsibilities of the Trustee shall be as provided by the
Trust Indenture Act and as set forth herein.
Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, unless it receives
indemnity satisfactory to it against any loss, liability or
expense. Whether or not therein expressly so provided,
every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the
Trustee shall be subject to the provisions of this Article
7.

SECTION 7.2 CERTAIN RIGHTS OF TRUSTEE. Subject
to Trust Indenture Act Sections 315(a) through (d):

(i) the Trustee may rely and shall be protected
in acting or refraining from acting upon any
resolution, certificate, Officers' Certificate, Opinion
of Counsel (or both), statement, instrument, opinion,
report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness
or other paper or document believed by it to be genuine
and to have been signed or presented by the proper
person or persons. The Trustee need not investigate
any fact or matter stated in the document, but the
Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as
it may see fit;

(ii) before the Trustee acts or refrains from
acting, it may require an Officers' Certificate and/or
an Opinion of Counsel, which shall conform to Section
10.4. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on
such certificate or opinion. Subject to Sections 7.1
and 7.2, whenever in the administration of the trusts
of this Indenture the Trustee shall deem it necessary
or desirable that a matter be proved or established
prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may,
in the absence of negligence or bad faith on the part
of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to

<PAGE>

the Trustee, and such certificate, in the absence of
negligence or bad faith on the part of the Trustee,
shall be full warrant to the Trustee for any action
taken, suffered or omitted by it under the provisions
of this Indenture upon the faith thereof;

(iii) the Trustee may act through its attorneys and
agents not regularly in its employ and shall not be
responsible for the misconduct or negligence of any
agent or attorney appointed with due care by it
hereunder;

(iv) any request, direction, order or demand of
the Company mentioned herein shall be sufficiently
evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically
prescribed); and any Board Resolution may be evidenced
to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;

(v) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by
this Indenture at the request, order or direction of
any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that might
be incurred by it in compliance with such request or
direction;

(vi) the Trustee shall not be liable for any
action it takes or omits to take in good faith that it
believes to be authorized or within its rights or
powers or for any action it takes or omits to take in
accordance with the direction of the Holders in
accordance with Section 6.5 relating to the time,
method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this
Indenture;

(vii) the Trustee may consult with counsel and the
written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance
thereon; and

(viii) prior to the occurrence of an Event of
Default hereunder and after the curing or waiving of
all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters

<PAGE>

stated in any resolution, certificate, Officers'
Certificate, Opinion of Counsel, Board Resolution,
statement, instrument, opinion, report, notice,
request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or
document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or
investigation, it shall be entitled to examine, during
normal business hours and upon prior written notice,
the books, records and premises of the Company,
personally or by agent or attorney.

SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE. The
Trustee, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal
with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to
Trust Indenture Act Sections 310(b) and 311. For purposes
of Trust Indenture Act Section 311(b)(4) and (6), the
following terms shall mean:

(a) "CASH TRANSACTION" means any transaction in
which full payment for goods or securities sold is made
within seven days after delivery of the goods or securities
in currency or in checks or other orders drawn upon banks or
bankers and payable upon demand; and

(b) "SELF-LIQUIDATING PAPER" means any draft,
bill of exchange, acceptance or obligation which is made,
drawn, negotiated or incurred by the Company for the purpose
of financing the purchase, processing, manufacturing,
shipment, storage or sale of goods, wares or merchandise and
which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or
merchandise or the receivables or proceeds arising from the
sale of the goods, wares or merchandise previously
constituting the security, provided the security is received
by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the
making, drawing, negotiating or incurring of the draft, bill
of exchange, acceptance or obligation.

SECTION 7.4 TRUSTEE'S DISCLAIMER. The recitals
contained herein and in the Securities (except the Trustee's
certificate of authentication) shall be taken as statements
of the Company and not of the Trustee and the Trustee
assumes no responsibility for the correctness of the same.
Neither the Trustee nor any of its agents (i) makes any

<PAGE>

representation as to the validity or adequacy of this
Indenture or the Securities and (ii) shall be accountable
for the Company's use or application of the proceeds from
the Securities.

SECTION 7.5 NOTICE OF DEFAULT. If any Default
with respect to the Securities of any series occurs and is
continuing and if such Default is known to the actual
knowledge of a Responsible Officer with the Corporate Trust
Department of the Trustee, the Trustee shall give to each
Holder of Securities of such series notice of such Default
within 90 days after it occurs (i) if any Unregistered
Securities of such series are then outstanding, to the
Holders thereof, by publication at least once in an
Authorized Newspaper in the Borough of Manhattan, The City
of New York and at least once in an Authorized Newspaper in
London and (ii) to all Holders of Securities of such series
in the manner and to the extent provided in Section 313(c)
of the Trust Indenture Act, unless such Default shall have
been cured or waived before the mailing or publication of
such notice; PROVIDED, HOWEVER, that, except in the case of
a Default in the payment of the Principal of or interest on
any Security, the Trustee shall be protected in withholding
such notice if the Trustee in good faith determines that the
withholding of such notice is in the interests of the
Holders.

SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15, beginning with May 15,
1996, the Trustee shall mail to each Holder as and to the
extent provided in Trust Indenture Act Section 313(c) a
brief report dated as of such May 15, if required by Trust
Indenture Act Section 313(a).

SECTION 7.7 COMPENSATION AND INDEMNITY. The
Company shall pay to the Trustee such compensation as shall
be agreed upon in writing from time to time for its
services. The compensation of the Trustee shall not be
limited by any law on compensation of a Trustee of an
express trust. The Company agrees to pay or reimburse the
Trustee and each predecessor Trustee upon its request for
all reasonable expenses, disbursements and advances incurred
or made by or on behalf of it in accordance with any of the
provisions of this Indenture and the Securities or the
issuance of the Securities or any series thereof (including
the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other
persons not regularly in its employ) except to the extent
any such expense, disbursement or advance may arise from its
negligence or bad faith. The Company shall indemnify the
Trustee and each predecessor Trustee for, and to hold it

<PAGE>

harmless against, any loss, liability or expense arising out
of or in connection with the acceptance or administration of
this Indenture and the Securities or the issuance of the
Securities or any series thereof or the trusts hereunder and
the performance of its duties hereunder, including the costs
and expenses of defending itself against or investigating
any claim of liability in the premises, except to the extent
such loss liability or expense is due to the negligence or
bad faith of the Trustee or such predecessor Trustee. The
Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may
have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; PROVIDED, that
the Company will not be required to pay such fees and
expenses if it assumes the Trustee's defense and there is no
conflict of interest between the Company and the Trustee in
connection with such defense. The Company need not pay for
any settlement made without its written consent. The
Company need not reimburse any expense or indemnify against
any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.

To secure the Company's payment obligations in
this Section 7.7, the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the
Trustee, in its capacity as Trustee, except money or
property held in trust to pay Principal of, and interest on
particular Securities.

The obligations of the Company under this Section
to compensate and indemnify the Trustee and each predecessor
Trustee and to pay or reimburse the Trustee and each
predecessor Trustee for expenses, disbursements and advances
shall constitute additional indebtedness hereunder and shall
survive the satisfaction and discharge of this Indenture or
the rejection or termination of this Indenture under
bankruptcy law. Such additional indebtedness shall be a
senior claim to that of the Securities upon all property and
funds held or collected by the Trustee as such, except funds
held in trust for the benefit of the Holders of particular
Securities or coupons, and the Securities are hereby
subordinated to such senior claim. If the Trustee renders
services and incurs expenses following an Event of Default
under Section 6.1(e) or Section 6.1(f) hereof, the parties
hereto and the holders by their acceptance of the Securities
hereby agree that such expenses are intended to constitute
expenses of administration under any bankruptcy law.

<PAGE>

SECTION 7.8 REPLACEMENT OF TRUSTEE. A
resignation or removal of the Trustee as Trustee with
respect to the Securities of any series and appointment of a
successor Trustee as Trustee with respect to the Securities
of any series shall become effective only upon the successor
Trustee's acceptance of appointment as provided in this
Section 7.8.

The Trustee may resign as Trustee with respect to
the Securities of any series at any time by so notifying the
Company in writing. The Holders of a majority in principal
amount of the outstanding Securities of any series may
remove the Trustee as Trustee with respect to the Securities
of such series by so notifying the Trustee and the Company
in writing and may appoint a successor Trustee with respect
thereto with the consent of the Company. The Company may
remove the Trustee as Trustee with respect to the Securities
of any series if: (i) the Trustee is no longer eligible
under Section 7.10 of this Indenture; (ii) the Trustee is
adjudged a bankrupt or insolvent; (iii) a receiver or other
public officer takes charge of the Trustee or its property;
or (iv) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed as Trustee
with respect to the Securities of any series, or if a
vacancy exists in the office of Trustee with respect to the
Securities of any series for any reason, the Company shall
promptly appoint a successor Trustee with respect thereto.
Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the
outstanding Securities of such series may appoint a
successor Trustee in respect of such Securities to replace
the successor Trustee appointed by the Company. If the
successor Trustee with respect to the Securities of any
series does not deliver its written acceptance required by
the next succeeding paragraph of this Section 7.8 within 30
days after the retiring Trustee resigns or is removed, the
retiring Trustee, the Company or the Holders of a majority
in principal amount of the outstanding Securities of such
series may petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect thereto.

A successor Trustee with respect to the Securities
of any series shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company.
Immediately after the delivery of such written acceptance,
subject to the lien provided for in Section 7.7, (i) the
retiring Trustee shall transfer all property held by it as
Trustee in respect of the Securities of such series to the
successor Trustee, (ii) the resignation or removal of the
retiring Trustee in respect of the Securities of such series

<PAGE>

shall become effective and (iii) the successor Trustee shall
have all the rights, powers and duties of the Trustee in
respect of the Securities of such series under this
Indenture. A successor Trustee shall mail notice of its
succession to each Holder of Securities of such series.

Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor
Trustee all such rights, powers and trusts referred to in
the preceding paragraph.

The Company shall give notice of any resignation
and any removal of the Trustee with respect to the
Securities of any series and each appointment of a successor
Trustee in respect of the Securities of such series to all
Holders of Securities of such series. Each notice shall
include the name of the successor Trustee and the address of
its Corporate Trust Office.

Notwithstanding replacement of the Trustee with
respect to the Securities of any series pursuant to this
Section 7.8, the Company's obligations under Section 7.7
shall continue for the benefit of the retiring Trustee.

SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into,
or transfers all or substantially all of its corporate trust
business to, another corporation or national banking
association, the resulting, surviving or transferee
corporation or national banking association without any
further act shall be the successor Trustee with the same
effect as if the successor Trustee had been named as the
Trustee herein.

SECTION 7.10 ELIGIBILITY. This Indenture shall
always have a Trustee who satisfies the requirements of
Trust Indenture Act Section 310(a). The Trustee shall have
a combined capital and surplus of at least $10,000,000 as
set forth in its most recent published annual report of
condition, if any. The Trustee shall comply with Trust
Indenture Act Section 310(b). If at any time the Trustee
with respect to the Securities of any series shall cease
to be eligible in accordance with the provisions of this
Section, it shall resign immediately within the manner
and with the effect hereinafter specified in this Article.

SECTION 7.11 MONEY HELD IN TRUST. The Trustee
shall not be liable for interest on any money received by it
except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law and
except for money held in trust under Article 8 of this
Indenture.

54
<PAGE>

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.1 DEFEASANCE WITHIN ONE YEAR OF
PAYMENT. Except as otherwise provided in this Section 8.1,
the Company may terminate its obligations under the
Securities of any series and this Indenture with respect to
Securities of such series if:

(i) all Securities of such series previously
authenticated and delivered (other than destroyed, lost
or wrongfully taken Securities of such series that have
been replaced or Securities of such series that are
paid pursuant to Section 4.1 or Securities of such
series for whose payment money or securities have
theretofore been held in trust and thereafter repaid to
the Company, as provided in Section 8.5) have been
delivered to the Trustee for cancellation and the
Company has paid all sums payable by it hereunder; or

(ii) (A) the Securities of such series mature
within one year or all of them are to be called for
redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of
redemption, (B) the Company irrevocably deposits in
trust with the Trustee, as trust funds solely for the
benefit of the Holders of such Securities for that
purpose, money or U.S. Government Obligations or a
combination thereof sufficient (unless such funds
consist solely of money, in the opinion of a nationally
recognized firm of independent public accountants
expressed in a written certification thereof delivered
to the Trustee), without consideration of any
reinvestment, to pay Principal of and interest on the
Securities of such series to maturity or redemption, as
the case may be, and to pay all other sums payable by
it hereunder, and (C) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of
Counsel, in each case stating that all conditions
precedent provided for herein relating to the
satisfaction and discharge of this Indenture with
respect to the Securities of such series have been
complied with.

With respect to the foregoing clause (i), only the
Company's obligations under Sections 7.7 and 8.5 in respect
of the Securities of such series shall survive. With
respect to the foregoing clause (ii), only the Company's
obligations in Sections 2.2 through 2.12, 4.2, 7.7, 7.8 and
8.5 in respect of the Securities of such series shall

<PAGE>

survive until such Securities of such series are no longer
outstanding. Thereafter, only the Company's obligations in
Sections 7.7 and 8.5 in respect of the Securities of such
series shall survive. After any such irrevocable deposit,
the Trustee shall acknowledge in writing the discharge of
the Company's obligations under the Securities of such
series and this Indenture with respect to the Securities of
such series except for those surviving obligations specified
above.

SECTION 8.2 DEFEASANCE. Except as provided
below, the Company will be deemed to have paid and will be
discharged from any and all obligations in respect of the
Securities of any series and the provisions of this
Indenture will no longer be in effect with respect to the
Securities of such series (and the Trustee, at the expense
of the Company, shall execute proper instruments
acknowledging the same); PROVIDED that the following
conditions shall have been satisfied:

(A) the Company has irrevocably deposited in
trust with the Trustee as trust funds solely for the
benefit of the Holders of the Securities of such
series, for payment of the Principal of and interest on
the Securities of such series, money or U.S. Government
Obligations or a combination thereof sufficient (unless
such funds consist solely of money, in the opinion of a
nationally recognized firm of independent public
accountants expressed in a written certification
thereof delivered to the Trustee) without consideration
of any reinvestment and after payment of all federal,
state and local taxes or other charges and assessments
in respect thereof payable by the Trustee, to pay and
discharge the Principal of and accrued interest on the
outstanding Securities of such series to maturity or
earlier redemption (irrevocably provided for under
arrangements satisfactory to the Trustee), as the case
may be;

(B) such deposit will not result in a breach or
violation of, or constitute a default under, this
Indenture or any other material agreement or instrument
to which the Company is a party or by which it is
bound;

(C) no Default with respect to the Securities of
such series shall have occurred and be continuing on
the date of such deposit;

(D) the Company shall have delivered to the
Trustee (1) either (x) a ruling directed to the Trustee

<PAGE>

received from the Internal Revenue Service to the
effect that the Holders of the Securities of such
series will not recognize income, gain or loss for
federal income tax purposes as a result of the
Company's exercise of its option under this Section 8.2
and will be subject to federal income tax on the same
amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance
had not occurred or (y) an Opinion of Counsel to the
same effect as the ruling described in clause (x) above
and based upon a change in law and (2) an Opinion of
Counsel to the effect that the Holders of the
Securities of such series have a valid security
interest in the trust funds subject to no prior liens
under the UCC; and

(E) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in
each case stating that all conditions precedent
provided for herein relating to the defeasance
contemplated by this Section 8.2 of the Securities of
such series have been complied with.

The Company's obligations in Sections 2.2 through
2.12, 4.2, 7.7, 7.8 and 8.5 with respect to the Securities
of such series shall survive until such Securities are no
longer outstanding. Thereafter, only the Company's
obligations in Sections 7.7 and 8.5 shall survive.

SECTION 8.3 COVENANT DEFEASANCE. The Company
may omit to comply with any term, provision or condition set
forth in Sections 4.3 or 4.4 (or any other specific covenant
relating to such series provided for in a Board Resolution
or supplemental indenture pursuant to Section 2.3 which may
by its terms be defeased pursuant to this Section 8.3), and
such omission shall be deemed not to be an Event of Default
under clauses (c), (d) or (g) of Section 6.1, with respect
to the outstanding Securities of a series if:

(i) the Company has irrevocably deposited in
trust with the Trustee as trust funds solely for the
benefit of the Holders of the Securities of such
series, for payment of the Principal of and interest,
if any, on the Securities of such series, money or U.S.
Government Obligations or a combination thereof in an
amount sufficient (unless such funds consist solely of
money, in the opinion of a nationally recognized firm
of independent public accountants expressed in a
written certification thereof delivered to the Trustee)
without consideration of any reinvestment and after
payment of all federal, state and local taxes or other

57
<PAGE>

charges and assessments in respect thereof payable by
the Trustee, to pay and discharge the Principal of and
interest on the outstanding Securities of such series
to maturity or earlier redemption (irrevocably provided
for under arrangements satisfactory to the Trustee), as
the case may be;

(ii) such deposit will not result in a breach or
violation of, or constitute a default under, this
Indenture or any other material agreement or instrument
to which the Company is a party or by which it is
bound;

(iii) no Default with respect to the Securities
of such series shall have occurred and be continuing on
the date of such deposit;

(iv) the Company has delivered to the Trustee an
Opinion of Counsel to the effect that (A) the Holders
of the Securities of such series have a valid security
interest in the trust funds subject to no prior liens
under the UCC and (B) such Holders will not recognize
income, gain or loss for federal income tax purposes as
a result of such deposit and covenant defeasance and
will be subject to federal income tax on the same
amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance
had not occurred; and

(v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in
each case stating that all conditions precedent
provided for herein relating to the covenant defeasance
contemplated by this Section 8.3 of the Securities of
such series have been complied with.

SECTION 8.4 APPLICATION OF TRUST MONEY.
Subject to Section 8.5, the Trustee or Paying Agent shall
hold in trust money or U.S. Government Obligations deposited
with it pursuant to Section 8.1, 8.2 or 8.3, as the case may
be, in respect of the Securities of any series and shall
apply the deposited money and the proceeds from deposited
U.S. Government Obligations in accordance with the
Securities of such series and this Indenture to the payment
of Principal of and interest on the Securities of such
series; but such money need not be segregated from other
funds except to the extent required by law. The Company
shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 8.1,
8.2 or 8.3, as the case may be, or the principal and

<PAGE>

interest received in respect thereof, other than any such
tax, fee or other charge that by law is for the account of
the Holders.

SECTION 8.5 REPAYMENT TO COMPANY. Subject to
Sections 7.7, 8.1, 8.2 and 8.3, the Trustee and the Paying
Agent shall promptly pay to the Company upon request set
forth in an Officers' Certificate any money held by them at
any time and not required to make payments hereunder and
thereupon shall be relieved from all liability with respect
to such money. The Trustee and the Paying Agent shall pay
to the Company upon written request any money held by them
and required to make payments hereunder under this Indenture
that remains unclaimed for two years; PROVIDED that the
Trustee or such Paying Agent before being required to make
any payment may cause to be published at the expense of the
Company once in an Authorized Newspaper in The City of New
York or with respect to any Security the interest on which
is based on the offered quotations in the interbank
Eurodollar market for dollar deposits in an Authorized
Newspaper in London or mail to each Holder entitled to such
money at such Holder's address (as set forth in the Security
Register) notice that such money remains unclaimed and that
after a date specified therein (which shall be at least 30
days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be
repaid to the Company. After payment to the Company,
Holders entitled to such money must look to the Company for
payment as general creditors unless an applicable law
designates another Person, and all liability of the Trustee
and such Paying Agent with respect to such money shall
cease.

ARTICLE 9

AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.1 WITHOUT CONSENT OF HOLDERS. The
Company and the Trustee may amend or supplement this
Indenture or the Securities of any series without notice to
or the consent of any Holder:

(1) to cure any ambiguity, defect or
inconsistency in this Indenture; PROVIDED that such
amendments or supplements shall not materially and
adversely affect the interests of the Holders;

(2) to comply with Article 5;

<PAGE>

(3) to comply with any requirements of the
Commission in connection with the qualification of this
Indenture under the Trust Indenture Act;

(4) to evidence and provide for the acceptance of
appointment hereunder with respect to the Securities of
any or all series by a successor Trustee;

(5) to establish the form or forms or terms of
Securities of any series or of the coupons appertaining
to such Securities as permitted by Section 2.3;

(6) to provide for uncertificated or Unregistered
Securities and to make all appropriate changes for such
purpose;

(7) to change or eliminate any provisions of the
Indenture with respect to all or any series of the
Securities not then outstanding (and, if such change is
applicable to fewer than all such series of the
Securities, specifying the series to which such change
is applicable), and to specify the rights and remedies
of the Trustee and the holders of such Securities in
connection therewith; and

(8) to make any change that does not materially
and adversely affect the rights of any Holder.

SECTION 9.2 WITH CONSENT OF HOLDERS. Subject
to Sections 6.4 and 6.7, without prior notice to any
Holders, the Company and the Trustee may amend this
Indenture and the Securities of any series with the written
consent of the Holders of a majority in principal amount of
the outstanding Securities of all series affected by such
supplemental indenture (all such series voting as one
class), and the Holders of a majority in principal amount of
the outstanding Securities of all series affected thereby
(all such series voting as one class) by written notice to
the Trustee may waive future compliance by the Company with
any provision of this Indenture or the Securities of such
series.

Notwithstanding the provisions of this Section
9.2, without the consent of each Holder affected thereby, an
amendment or waiver, including a waiver pursuant to Section
6.4, may not:

(i) extend the stated maturity of the Principal
of, or any sinking fund obligation or any installment
of interest on, such Holder's Security, or reduce the
Principal amount thereof or the rate of interest

<PAGE>

thereon (including any amount in respect of original
issue discount), or any premium payable with respect
thereto, or adversely affect the rights of such Holder
under any mandatory redemption or repurchase provision
or any right of redemption or repurchase at the option
of such Holder, or reduce the amount of the Principal
of an Original Issue Discount Security that would be
due and payable upon an acceleration of the maturity
thereof pursuant to Section 6.2 or the amount thereof
provable in bankruptcy, or change any place of payment
where, or the currency in which, any Security or any
premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any
such payment on or after the due date therefor;

(ii) reduce the percentage in principal amount of
outstanding Securities of the relevant series the
consent of whose Holders is required for any such
supplemental indenture, for any waiver of compliance
with certain provisions of this Indenture or certain
Defaults and their consequences provided for in this
Indenture;

(iii) waive a Default in the payment of Principal
of or interest on any Security of such Holder; or

(iv) modify any of the provisions of this Section
9.2, except to increase any such percentage or to
provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the
Holder of each outstanding Security affected thereby.

A supplemental indenture which changes or
eliminates any covenant or other provision of this Indenture
which has expressly been included solely for the benefit of
one or more particular series of Securities, or which
modifies the rights of Holders of Securities of such series
with respect to such covenant or provision, shall be deemed
not to affect the rights under this Indenture of the Holders
of Securities of any other series or of the coupons
appertaining to such Securities.

It shall not be necessary for the consent of any
Holder under this Section 9.2 to approve the particular form
of any proposed amendment, supplement or waiver, but it
shall be sufficient if such consent approves the substance
thereof.

After an amendment, supplement or waiver under
this Section 9.2 becomes effective, the Company or, at the
Company's request, the Trustee shall give to the Holders

<PAGE>

affected thereby a notice briefly describing the amendment,
supplement or waiver. The Company or, at the Company's
request, the Trustee will mail supplemental indentures to
Holders upon request. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such
supplemental indenture or waiver.

SECTION 9.3 REVOCATION AND EFFECT OF CONSENT.
Until an amendment or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and
every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the Security of the
consenting Holder, even if notation of the consent is not
made on any Security. However, any such Holder or
subsequent Holder may revoke the consent as to its Security
or portion of its Security. Such revocation shall be
effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or
waiver becomes effective.

The Company may, but shall not be obligated to,
fix a record date (which may be not less than 10 nor more
than 60 days prior to the solicitation of consents) for the
purpose of determining the Holders of the Securities of any
series affected entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then,
notwithstanding the immediately preceding paragraph, those
Persons who were such Holders at such record date (or their
duly designated proxies) and only those Persons shall be
entitled to consent to such amendment, supplement or waiver
or to revoke any consent previously given, whether or not
such Persons continue to be such Holders after such record
date. No such consent shall be valid or effective for more
than 90 days after such record date.

After an amendment, supplement or waiver becomes
effective with respect to the Securities of any series
affected thereby, it shall bind every Holder of such
Securities theretofore or thereafter authenticated and
delivered hereunder unless it is of the type described in
any of clauses (i) through (iv) of Section 9.2. In case of
an amendment or waiver of the type described in clauses (i)
through (iv) of Section 9.2, the amendment or waiver shall
bind each such Holder who has consented to it and every
subsequent Holder of a Security that evidences the same
indebtedness as the Security of the consenting Holder.

SECTION 9.4 NOTATION ON OR EXCHANGE OF
SECURITIES. If an amendment, supplement or waiver changes
the terms of any Security, the Trustee may require the

<PAGE>

Holder thereof to deliver it to the Trustee. The Trustee
may place an appropriate notation on the Security about the
changed terms and return it to the Holder and the Trustee
may place an appropriate notation on any Security of such
series thereafter authenticated. Alternatively, if the
Company or the Trustee so determines, the Company in
exchange for the Security shall issue and the Trustee shall
authenticate a new Security of the same series and tenor
that reflects the changed terms.

SECTION 9.5 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating
that the execution of any amendment, supplement or waiver
authorized pursuant to this Article 9 is authorized or
permitted by this Indenture, stating that all requisite
consents have been obtained or that no consents are required
and stating that such supplemental indenture constitutes the
legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its
terms, subject to customary exceptions. Subject to the
preceding sentence, the Trustee shall sign such amendment,
supplement or waiver if the same does not adversely affect
the rights of the Trustee. The Trustee may, but shall not
be obligated to, execute any such amendment, supplement or
waiver that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

SECTION 9.6 CONFORMITY WITH TRUST INDENTURE
ACT. Every supplemental indenture executed pursuant to this
Article 9 shall conform to the requirements of the Trust
Indenture Act as then in effect.

ARTICLE 10

MISCELLANEOUS

SECTION 10.1 TRUST INDENTURE ACT OF 1939. This
Indenture shall incorporate and be governed by the
provisions of the Trust Indenture Act that are required to
be part of and to govern indentures qualified under the
Trust Indenture Act. If any provision of this Indenture
limits, qualifies or conflicts with the duties imposed by
operation of Section 318(c) of the Trust Indenture Act, the
imposed duties shall control.

SECTION 10.2 NOTICES. Any notice or
communication shall be sufficiently given if written and (a)
if delivered in person when received or (b) if mailed by
first class mail 5 days after mailing, or (c) as between the

<PAGE>

Company and the Trustee if sent by facsimile transmission,
when transmission is confirmed, in each case addressed as
follows:

IF TO THE COMPANY:

La Quinta Inns, Inc.
Weston Centre
112 E. Pecan Street
San Antonio, Texas 78299-2636
Telecopy: (210) 302-6100
Attention: General Counsel

IF TO THE TRUSTEE:

U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201-2936
Telecopy: (214) 754-1303
Attention: Corporate Trust Administration

The Company or the Trustee by written notice to
the other may designate additional or different addresses
for subsequent notices or communications.

Any notice or communication shall be sufficiently
given to Holders of any Unregistered Securities, by
publication at least once in an Authorized Newspaper in The
City of New York, or with respect to any Security the
interest on which is based on the offered quotations in the
interbank Eurodollar market for dollar deposits at least
once in an Authorized Newspaper in London, and by mailing to
the Holders thereof who have filed their names and addresses
with the Trustee pursuant to Section 313(c)(2) of the Trust
Indenture Act at such addresses as were so furnished to the
Trustee (and in the case of any notice given by the Company,
the Trustee shall make such information available to the
Company for such purpose) and to Holders of Registered
Securities by mailing to such Holders at their addresses as
they shall appear on the Security Register. Notice mailed
shall be sufficiently given if so mailed within the time
prescribed. Copies of any such communication or notice to a
Holder shall also be mailed to the Trustee and each Agent at
the same time.

Failure to mail a notice or communication to a
Holder or any defect in it shall not affect its sufficiency
with respect to other Holders. Except as otherwise provided
in this Indenture, if a notice or communication is mailed in

<PAGE>

the manner provided in this Section 10.2, it is duly given,
whether or not the addressee receives it.

Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the
event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance
upon such waiver.

In case it shall be impracticable to give notice
as herein contemplated, then such notification as shall be
made with the approval of the Trustee shall constitute a
sufficient notification for every purpose hereunder.

SECTION 10.3 CERTIFICATE AND OPINION AS TO
CONDITIONS PRECEDENT. Upon any request or application by
the Company to the Trustee to take any action under this
Indenture, the Company shall furnish to the Trustee:

(i) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if
any, provided for in this Indenture relating to the
proposed action have been complied with; and

(ii) an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent,
if any, have been complied with.

SECTION 10.4 STATEMENTS REQUIRED IN CERTIFICATE
OR OPINION. Each certificate or opinion with respect to
compliance with a condition or covenant provided for in this
Indenture shall include:

(i) a statement that each person signing such
certificate or opinion has read such covenant or
condition and the definitions herein relating thereto;

(ii) a brief statement as to the nature and scope
of the examination or investigation upon which the
statement or opinion contained in such certificate or
opinion is based;

(iii) a statement that, in the opinion of each
such person, he has made such examination or
investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant
or condition has been complied with; and

<PAGE>

(iv) a statement as to whether or not, in the
opinion of each such person, such condition or covenant
has been complied with; PROVIDED, HOWEVER, that, with
respect to matters of fact, an Opinion of Counsel may
rely on an Officers' Certificate or certificates of
public officials.

In any case where several matters are required to
be certified by, or covered by an opinion of, any specified
Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion
with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several
documents.

Any certificate, statement or opinion of an
officer of the Company may be based, insofar as it relates
to legal matters, upon a certificate or opinion of or
representations by counsel, unless such officer knows that
the certificate or opinion or representations with respect
to the matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the
exercise of reasonable care should know that the same are
erroneous. Any certificate, statement or opinion of counsel
may be based, insofar as it relates to factual matters or
information that is in the possession of the Company, upon
the certificate, statement or opinion of or representations
by an officer or officers of the Company, unless such
counsel knows that the certificate, statement or opinion or
representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid
are erroneous, or in the exercise of reasonable care should
know that the same are erroneous.

Any certificate, statement or opinion of an
officer of the Company or of counsel may be based, insofar
as it relates to accounting matters, upon a certificate or
opinion of or representations by an accountant or firm of
accountants unless such officer or counsel, as the case may
be, knows that the certificate or opinion or representations
with respect to the accounting matters upon which his
certificate, statement or opinion may be based as aforesaid
are erroneous, or in the exercise of reasonable care should
know that the same are erroneous. Any certificate or
opinion of any independent firm of public accountants filed
with the Trustee shall contain a statement that such firm is
independent.

<PAGE>

Where any Person is required to make, give or
execute two or more applications, requests, consents,
certificates, statements, opinions or other instruments
under this Indenture, they may, but need not, be
consolidated and form one instrument.

SECTION 10.5 EVIDENCE OF OWNERSHIP. The
Company, the Trustee and any agent of the Company or the
Trustee may deem and treat the Holder of any Unregistered
Security and the Holder of any coupon as the absolute owner
of such Unregistered Security or coupon (whether or not such
Unregistered Security or coupon shall be overdue) for the
purpose of receiving payment thereof or on account thereof
and for all other purposes, and neither the Company, the
Trustee, nor any agent of the Company or the Trustee shall
be affected by any notice to the contrary. The fact of the
holding by any Holder of an Unregistered Security, and the
identifying number of such Security and the date of his
holding the same, may be proved by the production of such
Security or by a certificate executed by any trust company,
bank, banker or recognized securities dealer wherever
situated satisfactory to the Trustee, if such certificate
shall be deemed by the Trustee to be satisfactory. Each
such certificate shall be dated and shall state that on the
date thereof a Security bearing a specified identifying
number was deposited with or exhibited to such trust
company, bank, banker or recognized securities dealer by the
person named in such certificate. Any such certificate may
be issued in respect of one or more Unregistered Securities
specified therein. The holding by the person named in any
such certificate of any Unregistered Securities specified
therein shall be presumed to continue for a period of one
year from the date of such certificate unless at the time of
any determination of such holding (1) another certificate
bearing a later date issued in respect of the same
Securities shall be produced or (2) the Security specified
in such certificate shall be produced by some other Person,
or (3) the Security specified in such certificate shall have
ceased to be outstanding. Subject to Article 7, the fact
and date of the execution of any such instrument and the
amount and numbers of Securities held by the Person so
executing such instrument may also be proven in accordance
with such reasonable rules and regulations as may be
prescribed by the Trustee or in any other manner which the
Trustee may deem sufficient.

The Company, the Trustee and any agent of the
Company or the Trustee may deem and treat the person in
whose name any Registered Security shall be registered upon
the Security Register for such series as the absolute owner
of such Registered Security (whether or not such Registered

<PAGE>

Security shall be overdue and notwithstanding any notation
of ownership or other writing thereon) for the purpose of
receiving payment of or on account of the Principal of and,
subject to the provisions of this Indenture, interest on
such Registered Security and for all other purposes; and
neither the Company nor the Trustee nor any agent of the
Company or the Trustee shall be affected by any notice to
the contrary.

SECTION 10.6 RULES BY TRUSTEE, PAYING AGENT OR
REGISTRAR. The Trustee may make reasonable rules for action
by or at a meeting of Holders. The Paying Agent or
Registrar may make reasonable rules for its functions.

SECTION 10.7 PAYMENT DATE OTHER THAN A BUSINESS
DAY. If any date for payment of Principal or interest on
any Security shall not be a Business Day at any place of
payment, then payment of Principal of or interest on such
Security, as the case may be, need not be made on such date,
but may be made on the next succeeding Business Day at any
place of payment with the same force and effect as if made
on such date and no interest shall accrue in respect of such
payment for the period from and after such date.

SECTION 10.8 GOVERNING LAW. THE LAWS OF THE
STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE
SECURITIES.

SECTION 10.9 NO ADVERSE INTERPRETATION OF OTHER
AGREEMENTS. This Indenture may not be used to interpret
another indenture or loan or debt agreement of the Company
or any Subsidiary of the Company. Any such indenture or
agreement may not be used to interpret this Indenture.

SECTION 10.10 SUCCESSORS. All agreements of the
Company in this Indenture and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture
shall bind its successors.

SECTION 10.11 DUPLICATE ORIGINALS. The parties
may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together
represent the same agreement.

SECTION 10.12 SEPARABILITY. In case any
provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

<PAGE>

SECTION 10.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents and headings of the Articles and
Sections of this Indenture have been inserted for
convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of
the terms and provisions hereof.

SECTION 10.14 INCORPORATORS, SHAREHOLDERS,
OFFICERS AND DIRECTORS OF COMPANY EXEMPT FROM INDIVIDUAL
LIABILITY. No recourse under or upon any obligation,
covenant or agreement contained in this Indenture or any
indenture supplemental hereto, or in any Security or any
coupons appertaining thereto, or because of any indebtedness
evidenced thereby, shall be had against any incorporator, as
such or against any past, present or future shareholder,
officer, director or employee, as such, of the Company or of
any successor, either directly or through the Company or any
successor, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the
acceptance of the Securities and the coupons appertaining
thereto by the holders thereof and as part of the
consideration for the issue of the Securities and the
coupons appertaining thereto.

SECTION 10.15 JUDGMENT CURRENCY. The Company
agrees, to the fullest extent that it may effectively do so
under applicable law, that (a) if for the purpose of
obtaining judgment in any court it is necessary to convert
the sum due in respect of the Principal of or interest on
the Securities of any series (the "REQUIRED CURRENCY") into
a currency in which a judgment will be rendered (the
"JUDGMENT CURRENCY"), the rate of exchange used shall be the
rate at which in accordance with normal banking procedures
the Trustee could purchase in The City of New York the
Required Currency with the Judgment Currency on the day on
which final unappealable judgment is entered, unless such
day is not a Business Day, then, to the extent permitted by
applicable law, the rate of exchange used shall be the rate
at which in accordance with normal banking procedures the
Trustee could purchase in The City of New York the Required
Currency with the Judgment Currency on the Business Day
preceding the day on which final unappealable judgment is
entered and (b) its obligations under this Indenture to make
payments in the Required Currency (i) shall not be
discharged or satisfied by any tender, or any recovery
pursuant to any judgment (whether or not entered in
accordance with subsection (a)), in any currency other than
the Required Currency, except to the extent that such tender
or recovery shall result in the actual receipt, by the

<PAGE>

payee, of the full amount of the Required Currency expressed
to be payable in respect of such payments, (ii) shall be
enforceable as an alternative or additional cause of action
for the purpose of recovering in the Required Currency the
amount, if any, by which such actual receipt shall fall
short of the full amount of the Required Currency so
expressed to be payable and (iii) shall not be affected by
judgment being obtained for any other sum due under this
Indenture.

<PAGE>

SIGNATURES

IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed, all as of the date first
written above.

(SEAL) LA QUINTA INNS, INC.
Attest: as the Company

__________________________
Name: John F. Schmutz
Title: Secretary

By: ______________________________
Name:
Title:

(SEAL) U.S. TRUST COMPANY OF
TEXAS, N.A.
Attest: as Trustee

__________________________
Name:
Title:

By: ______________________________
Name:
Title:

<PAGE>
STATE OF ________ )
)
COUNTY OF ________ )

BEFORE ME, the undersigned authority, on this ___
day of _______, 1995, personally appeared ________________,
__________________________________ of La Quinta Inns, Inc.,
a Texas corporation, known to me (or proved to me by
introduction upon the oath of a person known to me) to be
the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that he/she
executed the same as the act of such corporation for the
purposes and consideration herein expressed and in the
capacity therein stated.

GIVEN UNDER MY HAND AND SEAL THIS ___ DAY OF
__________, 1995.

(SEAL)

________________________________
NOTARY PUBLIC, STATE OF ________
Print Name:
Commission Expires:

STATE OF ________ )
)
COUNTY OF ________ )

BEFORE ME, the undersigned authority, on this ___
day of __________, 1995, personally appeared ______________,
_________________ of U.S. Trust Company of Texas, N.A., a
national banking association, known to me (or proved to me
by introduction upon the oath of a person known to me) to be
the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that he/she
executed the same as the act of such trust for the purposes
and consideration herein expressed and in the capacity
therein stated.

GIVEN UNDER MY HAND AND SEAL THIS ___ DAY OF
__________, 1995.

(SEAL)

________________________________
NOTARY PUBLIC, STATE OF ________
Print Name:
Commission Expires:

<PAGE>

EXHIBIT 10

==========================================================================

$200,000,000

AMENDED AND RESTATED CREDIT AGREEMENT
(Facility A)

AMONG

LA QUINTA INNS, INC.

CERTAIN LENDERS

AND

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

September ___, 1995

==========================================================================

<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
(a) REVOLVING CREDIT ADVANCES. . . . . . . . . 21
(b) THE SWING LINE LOANS . . . . . . . . . . . 21
(c) BID RATE ADVANCES . . . . . . . . . . . . 22
Section 2.2 MANNER OF BORROWING AND DISBURSEMENT . . . 22
Section 2.3 INTEREST . . . . . . . . . . . . . . . . . 26
(a) ON PRIME RATE ADVANCES . . . . . . . . . . 26
(b) ON LIBOR ADVANCES . . . . . . . . . . . . 26
(c) ON SWING LINE ADVANCES . . . . . . . . . . 27
(d) ON BID RATE ADVANCES . . . . . . . . . . . 27
(e) INTEREST IF NO NOTICE OF SELECTION OF
INTEREST RATE BASIS . . . . . . . . . . . 27
(f) INTEREST AFTER AN EVENT OF DEFAULT . . . . 27
Section 2.4 FEES . . . . . . . . . . . . . . . . . . . 28
(a) FACILITY FEE . . . . . . . . . . . . . . . 28
(b) CLOSING FEE . . . . . . . . . . . . . . . 29
(c) OTHER FEES. . . . . . . . . . . . . . . . 29
Section 2.5 PREPAYMENT . . . . . . . . . . . . . . . . 29
(a) VOLUNTARY PREPAYMENTS. . . . . . . . . . . 29
(b) MANDATORY PREPAYMENT.. . . . . . . . . . . 29
(c) PREPAYMENTS, GENERALLY . . . . . . . . . . 29
Section 2.6 REDUCTION OF COMMITMENT. . . . . . . . . . 30
(a) VOLUNTARY REDUCTION . . . . . . . . . . . 30
(b) MANDATORY REDUCTION . . . . . . . . . . . 30
(c) GENERAL REQUIREMENTS . . . . . . . . . . . 30
Section 2.7 NON-RECEIPT OF FUNDS BY THE
ADMINISTRATIVE LENDER. . . . . . . . . . . 30
Section 2.8 PAYMENT OF PRINCIPAL OF ADVANCES . . . . . 31
(a) END OF INTEREST PERIOD . . . . . . . . . . 31
(b) COMMITMENT REDUCTION. . . . . . . . . . . 31
(c) MATURITY DATE . . . . . . . . . . . . . . 31
Section 2.9 REIMBURSEMENT. . . . . . . . . . . . . . . 31

<PAGE>

Section 2.10 MANNER OF PAYMENT. . . . . . . . . . . . . 31
Section 2.11 LIBOR LENDING OFFICES. . . . . . . . . . . 32
Section 2.12 SHARING OF PAYMENTS. . . . . . . . . . . . 32
Section 2.13 CALCULATION OF RATES . . . . . . . . . . . 33
Section 2.14 BOOKING LOANS. . . . . . . . . . . . . . . 33
Section 2.15 TAXES. . . . . . . . . . . . . . . . . . . 33
Section 2.16 LETTERS OF CREDIT. . . . . . . . . . . . . 36
(a) THE LETTER OF CREDIT FACILITY. . . . . . . 36
(b) REQUEST FOR ISSUANCE . . . . . . . . . . . 37
(c) DRAWING AND REIMBURSEMENT . . . . . . . . 37
(d) INCREASED COSTS . . . . . . . . . . . . . 38
(e) OBLIGATIONS ABSOLUTE . . . . . . . . . . . 39
(f) COMPENSATION . . . . . . . . . . . . . . . 40
(g) L/C CASH COLLATERAL ACCOUNT. . . . . . . . 42

ARTICLE 3

CONDITIONS PRECEDENT

Section 3.1 CONDITIONS PRECEDENT TO THE INITIAL
REVOLVING CREDIT ADVANCES AND THE
INITIAL LETTERS OF CREDIT . . . . . . . . 44
Section 3.2 CONDITIONS PRECEDENT TO ALL REVOLVING
CREDIT ADVANCES AND LETTERS OF CREDIT. . . 45

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Section 4.1 REPRESENTATIONS AND WARRANTIES . . . . . . 46
(a) ORGANIZATION; POWER; QUALIFICATION . . . . 47
(b) AUTHORIZATION. . . . . . . . . . . . . . . 47
(c) COMPLIANCE WITH OTHER LOAN PAPERS AND
CONTEMPLATED TRANSACTIONS. . . . . . . . . 47
(d) LICENSES, ETC. . . . . . . . . . . . . . . 47
(e) COMPLIANCE WITH LAW. . . . . . . . . . . . 48
(f) TITLE TO PROPERTIES. . . . . . . . . . . . 48
(g) LITIGATION . . . . . . . . . . . . . . . . 48
(h) TAXES. . . . . . . . . . . . . . . . . . . 48
(i) FINANCIAL STATEMENTS; MATERIAL LIABILITIES 48
(j) NO ADVERSE CHANGE. . . . . . . . . . . . . 49
(k) ERISA. . . . . . . . . . . . . . . . . . . 49
(l) COMPLIANCE WITH REGULATIONS G, T, U AND X. 50
(m) GOVERNMENTAL REGULATION. . . . . . . . . . 50
(n) ABSENCE OF DEFAULT . . . . . . . . . . . . 50

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<PAGE>

(o) INVESTMENT COMPANY ACT . . . . . . . . . . 51
(p) ENVIRONMENTAL MATTERS. . . . . . . . . . . 51
(q) CERTAIN FEES . . . . . . . . . . . . . . . 52
(r) NECESSARY AUTHORIZATIONS . . . . . . . . . 52
(s) PATENTS, ETC.. . . . . . . . . . . . . . . 52
(t) DISCLOSURE . . . . . . . . . . . . . . . . 52
(u) SOLVENCY . . . . . . . . . . . . . . . . . 53
Section 4.2 SURVIVAL OF REPRESENTATIONS AND
WARRANTIES, ETC. . . . . . . . . . . . . . 53

ARTICLE 5

BUSINESS COVENANTS

Section 5.1 MAINTENANCE OF PROPERTY, INSURANCE,
ACCOUNTING PRACTICES, CORPORATE EXISTENCE. 53
Section 5.2 INSPECTION OF PROPERTIES AND BOOKS . . . . 54
Section 5.3 MERGER AND SALE OF ASSETS. . . . . . . . . 54
Section 5.4 NET WORTH. . . . . . . . . . . . . . . . . 55
Section 5.5 CONTINGENT LIABILITIES . . . . . . . . . . 55
Section 5.6 INCURRENCE AND RETENTION OF DEBT . . . . . 55
Section 5.7 INVESTMENTS. . . . . . . . . . . . . . . . 56
Section 5.8 NOTICE OF LITIGATION . . . . . . . . . . . 56
Section 5.9 TOTAL DEBT RATIO . . . . . . . . . . . . . 56
Section 5.10 CASH FLOW RATIO. . . . . . . . . . . . . . 56
Section 5.11 SENIOR DEBT RATIO. . . . . . . . . . . . . 56
Section 5.12 LIENS. . . . . . . . . . . . . . . . . . . 57
Section 5.13 ACCOUNTING CHANGES . . . . . . . . . . . . 57
Section 5.14 AMENDMENT AND MODIFICATION OF
SUBORDINATED DEBT DOCUMENTS. . . . . . . . 57
Section 5.15 LEASE-BACKS. . . . . . . . . . . . . . . . 57
Section 5.16 ENVIRONMENTAL MATTERS. . . . . . . . . . . 57
Section 5.17 ERISA COMPLIANCE . . . . . . . . . . . . . 58
Section 5.18 BUSINESS . . . . . . . . . . . . . . . . . 59
Section 5.19 DEBT . . . . . . . . . . . . . . . . . . . 59
Section 5.20 TRANSACTIONS WITH AFFILIATES . . . . . . . 59
Section 5.21 USE OF PROCEEDS. . . . . . . . . . . . . . 59
Section 5.22 INDEMNITY. . . . . . . . . . . . . . . . . 59

ARTICLE 6

INFORMATION

Section 6.1 FINANCIAL STATEMENTS AND OTHER REPORTS
BY THE BORROWER. . . . . . . . . . . . . . 61
Section 6.2 OFFICER'S CERTIFICATE. . . . . . . . . . . 63

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<PAGE>

ARTICLE 7

DEFAULT

Section 7.1 EVENTS OF DEFAULT. . . . . . . . . . . . . 63
Section 7.2 REMEDIES . . . . . . . . . . . . . . . . . 65

ARTICLE 8

CHANGES IN CIRCUMSTANCES

Section 8.1 LIBOR BASIS DETERMINATION INADEQUATE . . . 66
Section 8.2 ILLEGALITY . . . . . . . . . . . . . . . . 66
Section 8.3 INCREASED COSTS. . . . . . . . . . . . . . 67
Section 8.4 EFFECT ON PRIME RATE ADVANCES. . . . . . . 68
Section 8.5 CAPITAL ADEQUACY . . . . . . . . . . . . . 69

ARTICLE 9

AGREEMENT AMONG LENDERS

Section 9.1 AGREEMENT AMONG LENDERS. . . . . . . . . . 69
(a) ADMINISTRATIVE LENDER. . . . . . . . . . . 69
(b) REPLACEMENT OF ADMINISTRATIVE LENDER . . . 70
(c) EXPENSES . . . . . . . . . . . . . . . . . 70
(d) DELEGATION OF DUTIES . . . . . . . . . . . 70
(e) RELIANCE BY ADMINISTRATIVE LENDER. . . . . 70
(f) LIMITATION OF ADMINISTRATIVE LENDER'S
LIABILITY. . . . . . . . . . . . . . . . . 71
(g) LIABILITY AMONG LENDERS. . . . . . . . . . 71
(h) RIGHTS AS LENDER . . . . . . . . . . . . . 71
Section 9.2 LENDER CREDIT DECISION . . . . . . . . . . 71
Section 9.3 BENEFITS OF ARTICLE. . . . . . . . . . . . 72

ARTICLE 10

MISCELLANEOUS

Section 10.1 NOTICES. . . . . . . . . . . . . . . . . . 72
Section 10.2 EXPENSES . . . . . . . . . . . . . . . . . 73
Section 10.3 WAIVERS. . . . . . . . . . . . . . . . . . 73
Section 10.4 DETERMINATION BY THE LENDERS CONCLUSIVE
AND BINDING . . . . . . . . . . . . . . . 74
Section 10.5 SET-OFF. . . . . . . . . . . . . . . . . . 74
Section 10.6 ASSIGNMENT . . . . . . . . . . . . . . . . 74
Section 10.7 COUNTERPARTS . . . . . . . . . . . . . . . 76

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Section 10.8 SEVERABILITY . . . . . . . . . . . . . . . 76
Section 10.9 INTEREST AND CHARGES . . . . . . . . . . . 77
Section 10.10 CONFIDENTIALITY. . . . . . . . . . . . . . 77
Section 10.11 HEADINGS . . . . . . . . . . . . . . . . . 78
Section 10.12 AMENDMENT AND WAIVER . . . . . . . . . . . 78
Section 10.13 EXCEPTION TO COVENANTS . . . . . . . . . . 78
Section 10.14 NO LIABILITY OF ISSUING BANK . . . . . . . 78
Section 10.15 GOVERNING LAW. . . . . . . . . . . . . . . 79
Section 10.16 WAIVER OF JURY TRIAL . . . . . . . . . . . 79
Section 10.17 ENTIRE AGREEMENT . . . . . . . . . . . . . 79

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<PAGE>

SCHEDULES AND EXHIBITS

Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Litigation
Schedule 3: Subsidiaries and Unincorporated Ventures
Schedule 4: Existing Investments
Schedule 5: Investment Policy
Schedule 6: Unincorporated Ventures to be Purchased
Schedule 7: Benefit Agreements With Former Employees
Schedule 8: Insolvent Unincorporated Ventures
Schedule 9: Existing Letters of Credit
Schedule 10: Significant Investments
Schedule 11: Guaranteed Contingent Obligations
Schedule 12: Existing Liens

Exhibit A: Revolving Credit Note
Exhibit B: Bid Rate Note
Exhibit C: Swing Line Note
Exhibit D: Subsidiary Guaranty
Exhibit E: Assignment Agreement
Exhibit F: Confidentiality Agreement

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<PAGE>

AMENDED AND RESTATED CREDIT AGREEMENT
(Facility A)

THIS AMENDED AND RESTATED CREDIT AGREEMENT (Facility A) is
dated as of September ___, 1995, 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, Lenders and the Administrative Lender are
parties to that Credit Agreement dated as of January 25, 1994
(said Credit Agreement, as amended, the "Existing Credit
Agreement"). The Borrower has requested the Lenders amend and
restate the Existing Credit Agreement by making a credit facility
available to the Borrower in the maximum principal amount of
$200,000,000. 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 Existing
Credit Agreement is amended and restated in its entirety as
follows:

ARTICLE 1

DEFINITIONS

Section 1.1 DEFINED TERMS. For purposes of this Agreement:

"ADDITIONAL COSTS" has the meaning set forth in Section 9.5
hereof.

"ADJUSTMENT DATE" means, for purposes of the Applicable
Margin, the facility fees payable pursuant to Section 2.4(a)
hereof and the Letter of Credit fees payable pursuant to
Sections 2.16(f)(i) and 2.16(f)(ii) hereof, (i) when the
Applicable Margin and such fees are based on the Leverage Ratio,
the date of receipt by the Administrative Lender of the financial
statements required to be delivered pursuant to Section 6.1(a) or
6.1(b) hereof which results in a change in the Applicable Margin
and (ii) when the Applicable Margin and such fees are based on
the Index Debt Rating, the effective date of any issuance of, or
change in, the Index Debt Rating which results in a change in the
Applicable Margin.

"ADMINISTRATIVE LENDER" means NationsBank of Texas, N.A., a
national banking association, as administrative agent for
Lenders, or such successor administrative agent appointed
pursuant to Section 10.1(b) hereof.

<PAGE>

"ADVANCE" means a Revolving Credit Advance, a Swing Line
Advance or a Bid Rate Advance and "ADVANCES" means Revolving
Credit Advances, Swing Line Advances and Bid Rate Advances.

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

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

"AGREEMENT DATE" means the date of this Agreement.

"APPLICABLE ENVIRONMENTAL LAWS" means 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" means (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 Statutes of Texas, 1925, as
amended, shall not apply to Advances, this Agreement, the Notes
or any other Loan Papers.

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<PAGE>

"APPLICABLE MARGIN" means the following per annum
percentages, applicable in the following situations:

Prime LIBOR
APPLICABILITY Rate Basis
------------- Basis -----
-----

CATEGORY 1 - The Leverage Ratio is not less 0.00 0.70
than 3.50 to 1 or the Index Debt Rating is
any two of the following: BB by S&P, BB by
ARA or Ba2 by Moody's

CATEGORY 2 - The Leverage Ratio is less 0.00 0.55
than 3.50 to 1 but not less than 3.00 to 1
or the Index Debt Rating is any two of the
following: BB+ by S&P, BB+ by ARA or Ba1
by Moody's

CATEGORY 3 - The Leverage Ratio is less 0.00 0.45
than 3.00 to 1 but not less than 2.50 to 1
or the Index Debt Rating is any two of the
following BBB- by S&P, BBB- by ARA or Baa3
by Moody's

CATEGORY 4 - The Leverage Ratio is less 0.00 0.35
than 2.50 to 1 but not less than 2.0 to 1
or the Index Debt Rating is any two of the
following: BBB by S&P, BBB by ARA or Baa2
by Moody's

CATEGORY 5 - The Leverage Ratio is less 0.00 0.30
than 2.00 to 1 or the Index Debt Rating is
any two of the following: BBB+ or better
by S&P, BBB+ or better by ARA or Baa1 or
better by Moody's

The Applicable Margin payable by the Borrower on the Revolving
Credit Advances outstanding hereunder shall be adjusted on each
Adjustment Date if determined based on the (i) Leverage Ratio,
according to the performance of the Borrower for the most recent
fiscal quarter or (ii) the Index Debt Rating, according to the
most recent determination of the Index Debt Rating. For purposes
of the foregoing, (a) if the Index Debt Rating and the Leverage
Ratio are in different categories, the Applicable Margin shall be
determined on whichever of the Index Debt Rating or the Leverage
Ratio falls within the superior (or numerically higher) category,
(b) if the Applicable Margin is determined based on the Leverage
Ratio and the financial statements of the Borrower setting forth
the Leverage Ratio are not received by the Administrative Lender
by the date required pursuant to Section 6.1(a) or 6.1(b), the
Applicable Margin shall be determined as if the Leverage Ratio is
not less than 3.50 to 1, (c) if the Index Debt Rating established
by ARA shall fall within a different category than Moody's or
S&P, the Applicable Margin shall be determined by reference to
Moody's or S&P and (d) if the Index Debt Rating established by
Moody's and S&P shall fall within different categories, the
Applicable Margin shall be determined by reference to the
superior (or numerically higher) category, but not to exceed two
rating levels higher than the other rating agency. If the rating
system of Moody's, S&P or ARA shall change prior to the Maturity
Date, the Borrower and the Lenders shall negotiate in

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<PAGE>

good faith to amend the references to specific ratings in this
definition to reflect such changed rating system.

"ARA" means Duff & Phelps Credit Ratings Company or Fitch
Investor Services or any other nationally recognized rating
agency approved in writing by the Determining Lenders which shall
have a rating system identical to S&P.

"ART. 1.04" has the meaning specified in the definition of
"Applicable Law."

"ASSIGNEES" means any assignee of a Lender pursuant to an
Assignment Agreement and has the meaning specified in
Section 10.6 hereof.

"ASSIGNMENT AGREEMENT" has the meaning specified in
Section 10.6 hereof.

"AUTHORIZED OFFICER" means any of the following officers of
the Borrower: President, Senior Vice President-Accounting &
Administration, Senior Vice President-Finance, Vice President &
General Counsel or Vice President-Treasurer.

"AUTHORIZED SIGNATORY" means 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.

"BID RATE ADVANCE" means an Advance the interest rate on
which is determined by agreement between the Borrower and the
Lender making such Advance pursuant to Section 2.1(c) hereof.

"BID RATE NOTE" means each promissory note of the Borrower
evidencing Bid Rate Advances, substantially in the form of
EXHIBIT B hereto, together with any extension, renewal or
amendment thereof or substitution therefor.

"BOND LETTERS OF CREDIT" has the meaning specified in the
Existing Credit Agreement.

"BORROWER" means La Quinta Inns, Inc., a Texas corporation.

"BUSINESS DAY" means 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 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.

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<PAGE>

"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.

"CAPITALIZED LEASE OBLIGATIONS" means 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.

"CHANGE OF CONTROL" means (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, 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" means the Internal Revenue Code of 1986, as amended,
together with all regulations thereunder.

"COMBINED" means, 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" means $200,000,000, as reduced pursuant to
Section 2.6 hereof.

"CONFIDENTIALITY AGREEMENT" has the meaning specified in
Section 10.10 hereof.

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<PAGE>

"CONSOLIDATED NET INCOME" means, for any period, determined
in accordance with GAAP on a Combined basis, consolidated net
income for such period.

"CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" means
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 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.

"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, (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
Agreements, (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) in the case of such Person, unfunded vested benefits
under any Plan.

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<PAGE>

"DEBTOR RELIEF LAWS" means 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.

"DEFAULT" means an Event of Default and/or any of the events
specified in Section 7.1, 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" means 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" means, on any date of determination,
any combination of the Lenders having at least 51% of the
aggregate amount of the Revolving Credit Advances (which for
purpose of the calculation shall include for each Lender an
amount equal to the product of such Lender's Specified Percentage
multiplied by the aggregate principal amount of Swing Line Loans
outstanding) and advances under the Facility B Credit Agreement
then outstanding; provided, however, that if there are no
Revolving Credit Advances outstanding hereunder and no advances
outstanding under the Facility B Credit Agreement, "DETERMINING
LENDERS" shall mean any combination of Lenders whose Specified
Percentages hereunder and under the Facility B Credit Agreement
aggregate at least 51%.

"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 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.

"DOMESTIC SUBSIDIARY" means any Subsidiary of the Borrower
organized under the laws of any state within the United States.

"EBITDA" means, for any period, determined in accordance
with GAAP on a Combined basis, the sum of (a) Operating Income,
plus (b) nonrecurring, non-cash charges which decrease Operating
Income, plus (c) depreciation, amortization and non-cash fixed
asset retirements, minus (d) nonrecurring credits which are
included in Operating Income.

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

"ERISA EVENT" means, 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

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<PAGE>

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 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.

"EVENT OF DEFAULT" means any of the events specified in
Section 7.1, provided that any requirement for notice or lapse of
time has been satisfied.

"EXISTING CREDIT AGREEMENT" means that certain Amended and
Restated Credit Agreement, dated as of January 25, 1994, among
the Borrower, the lenders party thereto, and NationsBank of
Texas, N.A., as Administrative Lender, as amended, modified,
supplemented or restated from time to time.

"EXISTING INVESTMENTS" means those Investments described on
SCHEDULE 4 hereto.

"EXISTING LETTERS OF CREDIT" means those Letters of Credit
outstanding on the Agreement Date, as described on SCHEDULE 9
hereto.

"FACILITY B CREDIT AGREEMENT" means that certain Amended and
Restated Credit Agreement (Facility B), dated as of the Agreement
Date, among the Borrower, the lenders party thereto, and
NationsBank of Texas, N.A., as administrative lender, as amended,
restated, supplemented or otherwise modified from time to time.

"FEDERAL FUNDS RATE" means, 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" has the meaning specified in Section 2.4(c)
hereof.

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<PAGE>

"FINANCIAL LETTER OF CREDIT" means 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.

"FOREIGN SUBSIDIARY" means any Subsidiary that is not a
Domestic Subsidiary.

"GAAP" means 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, means and includes (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 foregoing, any reimbursement obligations
with respect to amounts which may be drawn by beneficiaries of
outstanding letters of credit.

"GUARANTY AGREEMENTS" means the Subsidiary Guaranty and any
other Guaranty executed by a Guarantor.

"GUARANTOR" means each Significant Subsidiary.

"HIGHEST LAWFUL RATE" means 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

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provisions of Sections (b)(1) and (2) of said Art. 1.04 shall
control for purposes of such determination, as applicable.

"INCREASED ADVANCE COSTS" has the meaning specified in
Section 8.3 hereof.

"INCREASED ADVANCE COSTS RETROACTIVE EFFECTIVE DATE" has the
meaning specified in Section 8.3 hereof.

"INCREASED ADVANCE COSTS SET DATE" has the meaning specified
in Section 8.3 hereof.

"INCREASED LETTER OF CREDIT COSTS" has the meaning specified
in Section 2.16(d) hereof.

"INCREASED LETTER OF CREDIT COSTS RETROACTIVE EFFECTIVE
DATE" has the meaning specified in Section 2.16(d) hereof.

"INCREASED LETTER OF CREDIT COSTS SET DATE" has the meaning
specified in Section 2.16(d) hereof.

"INDEMNIFIED MATTERS" has the meaning specified in
Section 5.23 hereof.

"INDEMNITEES" has the meaning specified in Section 5.23
hereof.

"INDEX DEBT RATING" means the rating applicable to the
Borrower's senior, unsecured, non-credit-enhanced long term
indebtedness for borrowed money ("Index Debt") or the implied
rating established by Moody's, S&P or ARA as if the Borrower had
outstanding Index Debt.

"INSOLVENT UNINCORPORATED VENTURES" means those
Unincorporated Ventures specified on SCHEDULE 8 hereto.

"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
Protection 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, contingent or
primary, recourse obligation of such Person subsequent to the
Agreement Date shall be added thereto.

"INTEREST PERIOD" means (a) for any Prime Rate Advance, the
period beginning on the day the Advance was made and ending on
the Maturity Date, and (b) for any LIBOR

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<PAGE>

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).

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

"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 of any other Person that are not current assets or do
not arise in the ordinary course of business.

"INVESTMENT POLICY" means that certain Amended and Restated
La Quinta Inns, Inc. Statement of Investment Policy as of October
1989 in effect on the Agreement Date as specified on SCHEDULE 5
hereto.

"ISSUING BANK" means NationsBank of Texas, N.A. in its
capacity as issuer of the Letters of Credit.

"LENDER" means 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 10.6 hereof.

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

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

"LETTERS OF CREDIT" means letters of credit under the Letter
of Credit Facility and letters of credit issued under the
Existing Credit Agreement and outstanding on the Agreement Date.

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

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

"LEVERAGE RATIO" means, for any date of determination, the
ratio of (i) Total Debt as of the fiscal quarter immediately
preceding the date of determination to (ii) EBITDA,

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in each case for the four consecutive fiscal quarters preceding the
date of determination. For purposes of calculation of 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 such four fiscal quarters.

"LIBOR ADVANCE" means a Revolving Credit 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" means, 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 Margin.

"LIBOR LENDING OFFICE" means, 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" means, 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 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" 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.

"LOAN PAPERS" means this Agreement, the Notes, the Guaranty
Agreements, the Fee Letter, 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" means the Borrower and each Guarantor.

"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.

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<PAGE>

"MAINTENANCE CAPITAL EXPENDITURES" means, for any date of
determination, an amount equal to the product of (a) 5%
multiplied by (b) room revenues (as disclosed in the Borrower's
Form 10-K and 10-Q) of the Borrower, its Subsidiaries and
Unincorporated Ventures, for the four consecutive fiscal quarters
preceding the date of determination.

"MASTER COVENANT AGREEMENT" means the Fifth Amended and
Restated Master Covenant Agreement dated as of the Agreement
Date, by and between the Borrower and NationsBank of Texas, N.A.,
as such agreement may be amended, restated, supplemented or
otherwise modified from time to time.

"MATERIAL ADVERSE CHANGE OR EFFECT" means 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 or (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.

"MATERIAL AMOUNT" means, as of the determination thereof, an
amount equal to the greater of (a) $1,000,000 or (b) the lesser
of (i) $4,000,000 or (ii) 1% of the consolidated revenues of the
Borrower and its Subsidiaries computed on a Combined basis for
the fiscal year preceding the date of determination.

"MATURITY DATE" means August 31, 2000, or the earlier date
of termination in whole of the Commitment pursuant to Section 2.6
or 7.2 hereof.

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

"MOODY'S" means Moody's Investors Service, Inc.

"MULTIEMPLOYER PLAN" means, 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" means 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.

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<PAGE>

"NET CASH PROCEEDS" means the aggregate amount of cash
received by the Borrower in respect of the sale of Capital Stock
of the Borrower, less the sum of all fees, commissions and other
expenses incurred in connection with such sale.

"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 an amount equal to the sum of the Capital
Stock and additional paid-in-capital plus retained earnings (or
minus accumulated deficit) of the Borrower and its Subsidiaries,
less (i) treasury stock and (ii) amounts attributable to the
extent included, (1) to any write-up in book value of assets
resulting from a revaluation thereof subsequent to June 30, 1995,
and (2) to Disqualified Capital Stock, all in accordance with
GAAP.

"NON-FINANCIAL LETTER OF CREDIT" means 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.

"NOTE" means any Revolving Credit Note, Swing Line Note or
Bid Rate Note and "Notes" means the Revolving Credit Notes, the
Swing Line Notes and the Bid Rate Notes.

"NOTICE OF ISSUANCE" means the meaning specified in
Section 2.16(b) hereof.

"OBLIGATIONS" means (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" means Borrower or each other Person liable for
performance of any of the Obligations or the property of which
secures any of the Obligations.

"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.

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<PAGE>

"OTHER TAXES" has the meaning specified in Section 2.15
hereof.

"PARENT COMPANY" means, 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" has the meaning specified in Section 10.6(c)
hereof.

"PARTICIPATION" has the meaning specified in Section 10.6(c)
hereof.

"PARTNERS' CAPITAL" means the equity in the net assets of
Unincorporated Ventures of all the partners or venturers (other
than the Borrower or a Subsidiary) of such Unincorporated
Ventures, or minority interest holders, as determined in
accordance with GAAP.

"PAYMENT DATE" means 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 INVESTMENT" means Investments in (i) wholly-owned
Domestic Subsidiaries (a) that are subject to the provisions of
this Agreement, (b) that concurrently therewith unconditionally
guarantee the performance of the Borrower's obligations under
this Agreement and (c) that concurrently deliver to the Lenders
(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 Lenders
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
$25,000,000 in the aggregate for all Investments in all such
Persons, (iii) Investments for the purpose of satisfying the
Borrower's or any Subsidiary's guarantee obligations with respect
to the Debt of any Person in which the Borrower or any Subsidiary
owned any interest and which obligation was in existence as of
the Agreement Date; (iv) Investments in Subsidiaries and
Unincorporated Ventures which do not guarantee the performance of
the Borrower's obligations under this Agreement 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

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Investment Policy, (vi) loans or advances to employees as
compensation for services in the 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 the Borrower's National Advertising Fund, (viii) Existing
Investments, (ix) Investments in Capital Stock of Subsidiaries and
Unincorporated Ventures listed on SCHEDULE 3 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, (x) Investments in notes payable to the Borrower as a
result of the sale of inns in an aggregate principal amount not in
excess of $10,000,000, provided that the Borrower shall obtain and
continue to hold a perfected first Lien (subject to Permitted
Liens) in such inns, and (xi) Investments in wholly-owned Foreign
Subsidiaries (a) that are subject to the provisions of this
Agreement and (b) not to exceed in aggregate amount $1,000,000 for
all Investments in all Foreign Subsidiaries. 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" means, as applied to any Person:

(i) any Lien in favor of the Administrative Lender or a
trustee on its behalf to secure the Obligations;

(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;

(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;

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<PAGE>

(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 the aggregate principal amount of Debt
secured by such Liens does not exceed, together with the
principal amount of Debt secured by Liens permitted pursuant to
clause (vii) below, $25,000,000, 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 existing on any property acquired by such
Person prior to the acquisition of such property by such Person,
provided (a) such Lien shall at all times be confined solely to
the property so acquired (and proceeds thereof) and (b) the
aggregate principal amount of Debt secured by such Liens does not
exceed, together with the principal amount of Debt secured by
Liens permitted pursuant to clause (vi) above, $25,000,000 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;

(viii) 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 Lenders;

(ix) Any Liens existing on the Agreement Date which are
described on SCHEDULE 12 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;

(x) 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;

(xi) 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;

(xii) 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

(xiii) Liens otherwise permitted or contemplated by the
Loan Papers.

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<PAGE>

"PERSON" means and includes an individual, corporation,
partnership, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.

"PLAN" means 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.

"PRIME RATE" means, 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" means a Revolving Credit 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" means, 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 Margin. 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.

"QUALIFIED CAPITAL STOCK" means any Capital Stock of the
Borrower that is not Disqualified Capital Stock.

"QUARTERLY DATE" means the last Business Day of each
February, May, August and November, beginning November 30, 1995.

"REIMBURSEMENT OBLIGATIONS" means, 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" means 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.

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"REGULATORY MODIFICATION RETROACTIVE EFFECTIVE DATE" has the
meaning specified in Section 8.5 hereof.

"REGULATORY MODIFICATION SET DATE" has the meaning specified
in Section 8.5 hereof.

"RELEASE DATE" means the date on which the Notes have been
paid, all other Obligations due and owing have been paid and
performed in full, and the Commitment has been terminated.

"REPORTABLE EVENT" has the meaning specified in Section
4043(b) of ERISA.

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

"REVOLVING CREDIT NOTE" means any Promissory 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" means rights, remedies, powers and privileges.

"S&P" means Standard & Poor's Ratings Group, a Division of
McGraw-Hill, Inc., a New York corporation.

"S.E.C." means the United States Securities and Exchange
Commission.

"SENIOR DEBT" means Total Debt of the Borrower, 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 NOTES" means the Borrower's $100,000,000 senior
unsecured notes due ___________________, __________.

"SENIOR SUBORDINATED NOTES" means 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" means the Indenture
pursuant to which the Senior Subordinated Notes may be issued, as
the same may be amended, supplemented or otherwise modified.

"SIGNIFICANT INVESTMENTS" means those investments of the
Borrower in the joint ventures or partnerships set forth on
SCHEDULE 10 hereto.

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"SIGNIFICANT SUBSIDIARY" means 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" means, 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 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" means the law firm of Donohoe, Jameson &
Carroll, P.C., or such other legal counsel as the Administrative
Lender may select.

"SPECIFIED PERCENTAGE" means, 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.

"SUBSIDIARY" with respect to any Persons, means (a) 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 or (b) a partnership, joint
venture or similar entity in which 100% of the ownership, capital
or interest profits 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" means the Guaranty executed by each
Significant Subsidiary 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.

"SUBORDINATED DEBT" means any debt, obligation or liability
(whether primary, contingent or otherwise) of the Borrower, a
Subsidiary or an Unincorporated Venture which by its terms is
subordinate in right of payment to the Obligations, provided that
the Banks approve the terms thereof prior to or at the time of
the issuance thereof.

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"SWING LINE ADVANCE" has the meaning specified in Section 2.1(b) hereof.

"SWING LINE BANK" means NationsBank of Texas, N.A. and any successor
thereto appointed in accordance with Section 9.1(b) hereof.

"SWING LINE FACILITY" has the meaning specified in Section 2.1(b) hereof.

"SWING LINE NOTE" means the Swing Line Note of the Borrower
payable to the order of the Swing Line Bank, substantially in the
form of EXHIBIT C hereto, together with any extension, renewal or
amendment thereof or substitution therefor.

"TAXES" has the meaning specified in Section 2.15 hereof.

"TOTAL DEBT" means, as of any date of determination, 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 on
SCHEDULE 11 hereto and (ii) clauses (h) and (k) of the definition of "DEBT"
herein.

"TRIBUNAL" means any state, commonwealth, federal, foreign territorial,
or other court or governmental department, commission, board, bureau,
agency or instrumentality.

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

"UNINCORPORATED VENTURES" means those Persons designated as
"Unincorporated Ventures" on SCHEDULE 3 hereto.

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.

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ARTICLE 2

ADVANCES

Section 2.1 THE ADVANCES.

(a) REVOLVING CREDIT ADVANCES. Each Lender severally agrees, upon the
terms and subject to the conditions of this Agreement, to make Revolving
Credit Advances to the Borrower from time to time up to and including the
Maturity Date in an aggregate amount not to exceed an amount equal to (i) its
Specified Percentage of the Commitment less (ii) 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 5.21 hereof. Notwithstanding the immediately
preceding sentence, at no time shall the sum of (i) the aggregate principal
amount of Revolving Credit Advances outstanding, plus (ii) the aggregate
principal amount of Swing Line Advances outstanding, plus (iii) the aggregate
principal amount of all Reimbursement Obligations, plus (iv) the aggregate
principal amount of Bid Rate Advances exceed the Commitment. Subject to
Section 2.9 hereof, Revolving Credit Advances may be repaid and then
reborrowed. Any Revolving Credit Advance shall, at the option of the
Borrower as provided in Section 2.2 hereof (and, in the case of LIBOR
Advances, subject to availability and to the provisions of Article 8 hereof),
be made as a Prime Rate Advance or a LIBOR Advance; provided that there shall
not be outstanding to any Lender, at any one time, more than six LIBOR
Advances. On the Maturity Date unless sooner paid as provided herein, the
outstanding Revolving Credit Advances shall be repaid in full.

(b) THE SWING LINE LOANS. The Borrower may request Swing Line Bank to
make, and Swing Line Bank may, if in its sole discretion it elects to do so,
make, on the terms and conditions hereinafter set forth, loans ("Swing Line
Loans") to Borrower from time to time on any Business Day during the period
from the date hereof until the Maturity Date in an aggregate amount not to
exceed at any time outstanding the lesser of (i) $10,000,000 and (ii) the sum
of (A) the Commitment, MINUS (B) the aggregate principal amount of Revolving
Credit Advances then outstanding MINUS (C) the aggregate principal amount of
all Reimbursement Obligations then outstanding (assuming compliance with all
conditions to drawing) (the "Swing Line Facility"). Each Swing Line Advance
shall be in an amount not less than $50,000. Within the limits of the Swing
Line Facility, so long as the Swing Line Bank, in its sole discretion, elects
to make Swing Line Advances, Swing Line Advances may be repaid and then
reborrowed.

(c) BID RATE ADVANCES. Each Lender may, in its sole discretion and on
the terms and conditions set forth in this Agreement and such other
agreements that such Lender may enter into with the Borrower, make Bid Rate
Advances to the Borrower from time to time in an aggregate amount not in
excess of the difference between (i) the Commitment minus (ii) the sum of (A)
the aggregate outstanding principal amount of all Revolving Credit Advances,
plus (B) the aggregate outstanding principal amount of all Bid Rate Advances,

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plus (C) the amount of all Reimbursement Obligations plus (D) the aggregate
outstanding principal amount of all Swing Line Advances. Each Bid Rate
Advance shall be for a period of not less than 7 days and not more than 90
days. The Lenders shall have no obligation hereunder to offer any Bid Rate
Advances.

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 Maturity
Date.

(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender at least three Business Days'
irrevocable written notice for LIBOR 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 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
shall in all cases be subject to availability and to Article 8 hereof. For
LIBOR 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, to be made by Lenders and the Interest Period selected by the
Borrower, provided that no such Interest Period shall extend past the
Maturity Date.

(c) In the case of Swing Line Advances, the Borrower, through an
Authorized Signatory, shall give the Swing Line Bank and the Administrative
Lender prior to 12:00 noon, Dallas, Texas time, on the date of any proposed
Swing Line 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
Swing Line Advance. Such notice of borrowing shall specify the requested
funding, which shall be a Business Day, and the amount of the proposed Swing
Line Advance.

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(d) Subject to Sections 2.1 and 2.9 hereof, at least three Business
Days prior to each Payment Date for a LIBOR 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 outstanding on the
Payment Date (i) is to be repaid and then reborrowed in whole or in part as a
Prime Rate Advance or a LIBOR Advance, 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 may only be reborrowed as a Prime Rate Advance. Upon such Payment
Date, such LIBOR Advance shall, subject to the provisions hereof, be so
repaid and, as applicable, reborrowed.

(e) 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,
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 (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.

(f) 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 Commitment. The
aggregate amount of LIBOR 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.

(g) The Administrative Lender shall promptly notify the Lenders of each
notice (other than with respect to a Swing Line Advance or a Bid Rate
Advance) 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 Revolving Credit 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 Revolving Credit 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 Revolving Credit
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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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 Revolving Credit Advances shall be made by each
Lender according to its Specified Percentage. No Lender shall be relieved of
its obligation to fund its Specified Percentage of any Revolving Credit
Advance notwithstanding the fact that at any time the aggregate outstanding
principal amount of all Bid Rate Advances made by such Lender exceed its
Specified Percentage of the Commitment.

(h) If, in its sole discretion, the Swing Line Bank elects to make the
requested Swing Line Advance, the Swing Line Bank shall, not later than 1:30
p.m., Dallas, Texas time, on the date of any Swing Line Advance, deliver to
the Administrative Lender at its address set forth herein, the amount of such
Swing Line 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 Swing Line Advance, the Administrative Lender shall,
subject to the conditions set forth in Article 3, disburse the amount made
available to the Administrative Lender by the Swing Line Bank by (i)
transferring such amounts by wire transfer pursuant to the Borrower's
instruction or (ii) in the absence of such instructions, crediting such
amounts to the account of the Borrower maintained with the Administrative
Lender. Forthwith upon demand by the Swing Line Bank and in any event upon
the making of the request or the granting of the consent specified by Section
7.2 to authorize the Administrative Lender to declare the Advances due and
payable pursuant to the provisions of Section 7.2, each Lender, including the
Swing Line Bank, notwithstanding the failure of the Borrower at such time to
satisfy each condition specified in Article 3, shall make by 12:00 noon
(Dallas, Texas time) on the first Business Day following receipt by such
Lender of notice from the Swing Line Bank, a Revolving Credit Advance which
is a Prime Rate Advance in an amount equal to the product of (i) the
Specified Percentage of such Lender times (ii) the aggregate outstanding
principal amount of the Swing Line Advances. The proceeds of such Revolving
Credit Advances shall be applied by the Administrative Lender to repay the
outstanding Swing Line Advance.

(i) BID RATE ADVANCES

(i) In the case of Bid Rate Advances, the Borrower,
through an Authorized Signatory, shall give the
Administrative Lender (which shall promptly notify the
Lenders) prior to 11:00 a.m., Dallas, Texas time, at least
one Business Day prior to the proposed borrowing,
irrevocable written notice of its intention to borrower a
Bid Rate Advance. Such notice of borrowing shall specify
(i) the requested funding date, which shall be a Business
Day, (ii) the aggregate amount of the proposed Bid Rate
Advances, (ii) the Interest Period selected by the Borrower,
provided that no Interest Period shall extend past the
Maturity Date and (iv) any other terms applicable thereto.

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Each Lender shall, if, in its sole discretion, it
elects to do so, irrevocably offer to make one or more Bid
Rate Advances to the Borrower as part of such proposed
borrowing at a rate or rates of interest specified by such
Lender in its sole discretion, by making a written quote to
the Administrative Lender (which shall give prompt notice
thereof to the Borrower) before 9:00 a.m., Dallas, Texas
time, on the date of such proposed borrowing, setting forth
the minimum amount and maximum amount of each Bid Rate
Advance which such Lender would be willing to make as part
of the proposed borrowing (which amounts may exceed such
Lender's Specified Percentage of the Commitment) and the
rate or rates of interest therefor. If NationsBank of
Texas, N.A. elects to offer to make one or more Bid Rate
Advances, it shall deliver its written quote with respect to
the proposed borrowing to the Borrower prior to the
Administrative Lender's receipt of any other Lender's
written quote for such proposed borrowing. The
Administrative Lender shall notify the Borrower of each
written quote provided by each Lender with respect to the
proposed borrowing before 9:30 a.m., Dallas, Texas, on the
date of such proposed borrowing. If any Lender shall elect
not to make such an offer, such Lender shall so notify the
Administrative Lender before 9:00 a.m., Dallas, Texas time,
on the date of such proposed borrowing, and such Lender
shall not make any Bid Rate Advance as part of such
borrowing. If any Lender shall fail to respond to the
Administrative Lender by such time, such Lender shall be
deemed to have elected not to make an offer.

(iii) The Borrower shall, in turn, before 10:30
a.m., Dallas, Texas time, on the date of such proposed
borrowing either

(A) cancel such proposed borrowing by giving the
Administrative Lender notice to that effect, or

(B) accept one or more of the offers made by any
Lender or Lenders pursuant to clause (ii) above, in its
sole discretion, by giving notice to the Administrative
Lender of the amount of each Bid Rate Advance (which
amount shall be equal to or greater than the minimum
amount, and equal to or less than the maximum amount,
for which notification was given to the Borrower by the
Administrative Lender on behalf of such Lender for such
Bid Rate Advance pursuant to clause (ii) above) to be
made by each Lender as part of such borrowing, and
reject any remaining offers made by the Lenders
pursuant to clause (ii) above by giving the
Administrative Lender notice to that effect.

(iv) If the Borrower notifies the Administrative Lender
that such proposed borrowing is cancelled pursuant to
clause (iii)(A) above, the Administrative Lender shall give
prompt notice thereof to the Lenders and such borrowing
shall not be made.

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(v) If the Borrower accepts one or more of the offers
made by any Lender or Lenders pursuant to clause (iii)(B)
above, the Administrative Lender shall in turn promptly
notify each Lender of the date, rate of interest, and amount
of each Bid Rate Advance and the Lender making such Advance.

(vi) Notwithstanding the provisions of Section 2.2(a)
hereof, if the offers made by the Lenders do not equal or
exceed in the aggregate the amount specified by the Borrower
pursuant to clause (i) above, the Administrative Lender
shall be deemed to have received notice pursuant to
Section 2.2(a) hereof of Prime Rate Advances in an amount
equal to that portion of the amount specified by the
Borrower for which offers were not made, unless the Borrower
specifies that such notice not be deemed to have been given.

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 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 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 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 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 Maturity Date.

(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.

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(ii) Subject to Section 11.9 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
Maturity Date; 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.

(i) The Borrower shall pay interest on the outstanding
principal amount of such Swing Line Advance, from the date
such Swing Line Advance is made until it is due (whether at
maturity, by reason of acceleration or otherwise) or repaid,
which shall be payable as set forth in Section 2.3(c)(ii)
hereof, equal to the Prime Rate in effect from time to time
minus 1/2%, but not higher than the Highest Lawful Rate.

(ii) Interest on each Swing Line 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 Maturity Date.

(d) ON BID RATE ADVANCES. The Borrower shall pay interest on the
outstanding unpaid principal amount of each Bid Rate Advance at a per annum
rate equal to the interest rate agreed to by the Borrower and the Lender
making such Bid Rate Advance pursuant to Section 2.2(i) hereof. Interest on
each Bid Rate Advance shall be computed and shall be payable at such times as
agreed upon between the Borrower and the Lender making such Advance pursuant
to Section 2.2(i) hereof.

(e) 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 an Interest Period for a LIBOR Advance, or if
for any reason a determination of a LIBOR Basis for any Advance is not timely
concluded due to the fault of the Borrower, the appropriate Prime Rate Basis
shall apply to such Advance.

(f) INTEREST AFTER AN EVENT OF DEFAULT. (i) After an Event of Default
(other than an Event of Default specified in Section 7.1(f) hereof) and
during any continuance thereof, at the option of Determining Lenders, and
(ii) after an Event of Default specified in Section 7.1(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 Maturity Date, 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,

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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.

FACILITY FEE. Subject to Section 10.9 hereof, the Borrower agrees
to pay to the Administrative Lender, for the ratable account of the Lenders,
a facility fee on the daily average amount of the Commitment at the following
per annum percentages, applicable in the following situations:

Applicability Percentage
------------- ----------

CATEGORY 1 - The Leverage Ratio is not less 0.30
than 3.50 to 1 or the Index Debt Rating is any
two of the following: BB by S&P, BB by ARA or
Ba2 by Moody's

CATEGORY 2 - The Leverage Ratio is less than 0.25
3.50 to 1 but not less than 3.0 to 1 or the
Index Debt Rating is any two of the following:
BB+ by S&P, BB+ by ARA or Ba1 by Moody's

CATEGORY 3 - The Leverage Ratio is less than 0.20
3.00 to 1 but not less than 2.0 to 1 or the
Index Debt Rating is any two of the following:
BBB- or better by S&P, BBB- or better by ARA or
Baa3 or better by Moody's

CATEGORY 4 - The Leverage Ratio is less than 0.15
2.00 to 1 or the Index Debt Rating is any two
of the following: BBB+ or better by S&P, BBB+
or better by ARA or Baa1 or better by Moody's

Such fee shall be payable (i) in arrears on each Quarterly Date and on the
Maturity Date, fully earned when due and, subject to Section 10.9 hereof,
nonrefundable when paid and (ii) computed on the basis of a year of 365 or
366 days, as applicable, for the actual number of days elapsed. (a) If the
Index Debt Rating and the Leverage Ratio are in difference categories, the
facility fee shall be determined on whichever of the Index Debt Rating or the
Leverage Ratio falls within the superior (or numerically higher) category,
(b) if the facility fee is determined based on the Leverage Ratio and the
financial statements of the Borrower setting the Leverage Ratio are not
received by the Administrative Lender by the date required pursuant to
Section 6.1(a) or 6.1(b) hereof, the facility fee shall be determined as if
the Leverage Ratio is not less than 3.50 to 1, (c) if the Index Debt Rating
established by ARA shall fall within a different category than Moody's or
S&P, the facility fee shall be determined by reference to Moody's or S&P, (d)
if the Index Debt Rating established by Moody's and S&P shall fall within
different categories, the facility fee shall be determined by reference to
the superior (or numerically higher) category, but not to exceed two rating
levels higher than the other rating agency and (e) such fee shall be adjusted
on each

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Adjustment Date if determined based on the (i) Leverage Ratio, according to
the performance of the Borrower for the most recent fiscal quarter or (ii)
the Index Debt Rating, according to the most recent determination of the
Index Debt Rating. If the rating system of Moody's, S&P or ARA shall change
prior to the Maturity Date, the Borrower and the Lenders shall negotiate in
good faith to amend the references to specific ratings to reflect such
changed rating system.

(b) CLOSING FEE. Subject to Section 10.9 hereof, the Borrower agrees
to pay to the Administrative Lender, for the account of the Lenders a closing
fee equal to 0.10% of each Lender's portion of the Commitment. Such fee
shall be payable on the Agreement Date, fully earned when due and, subject to
Section 10.9 hereof, nonrefundable when paid.

(c) OTHER FEES. Subject to Section 10.9 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 may be voluntarily prepaid upon notice as required for
repayments of LIBOR 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. The principal amount of any Swing Line Advance may
be prepaid in full or in part at any time, without penalty and without regard
to the Payment Date for such Advance. Any notice of prepayment shall be
irrevocable.

(b) MANDATORY PREPAYMENT. On or before the date of any reduction of
the Commitment, the Borrower shall prepay outstanding Advances in an amount
necessary to reduce the same to an amount less than or equal to the
Commitment as so reduced. The Borrower shall first prepay all Prime Rate
Advances, second prepay all Swing Line Advances and shall thereafter prepay
LIBOR Advances. To the extent that any prepayment requires that a LIBOR
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 and Reimbursement
Obligations exceed the 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. Any voluntary partial
prepayment of a Swing Line Advance

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shall be in a principal amount of $50,000 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 COMMITMENT.

(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 the Commitment) by an Authorized Signatory 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 the 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 the Commitment shall cause any LIBOR Advance to be
repaid prior to the last day of its Interest Period.

(b) MANDATORY REDUCTION. On the Maturity Date, the Commitment shall
automatically reduce to zero.

(c) GENERAL REQUIREMENTS. Upon any reduction of the 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 Commitment may not
be increased or reinstated.

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 Revolving Credit Advance (which notice shall be
effective upon receipt) that such Lender does not intend to make the proceeds
of such Revolving Credit 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

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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
Revolving Credit Advance. No Lender shall be liable for any other Lender's
failure to fund a Revolving Credit 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 (other than in respect of a Bid Rate Advance) may be made by means of
a Refinancing Advance.

(b) COMMITMENT REDUCTION. On the date of reduction of the Commitment
pursuant to Section 2.6 hereof, including the Maturity Date, the aggregate
amount of the 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 Advances, all accrued
interest and fees thereon, and all other Obligations related thereto, shall
be due and payable in full on the 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 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 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 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 10.9 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.

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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.

(e) Each payment by the Borrower in respect of obligations
relating to the Revolving Credit Advance and the Letters of
Credit (whether for principal, interest, fees or otherwise) shall
be made to the Administrative Lender for the account of the
Lenders pro rata in accordance with their respective Specified
Percentages. Each payment by the Borrower in respect of
obligations relating to Swing Line Advances (whether for
principal, interest, fees or otherwise) shall be made to the
Administrative Lender for the account of the Swing Line Bank.
Each payment by the Borrower in respect of obligations related to
Bid Rate Advances (whether for principal, interest, fees or
otherwise) shall be made to the Administrative Lender for the
account of each Lender holding such Bid Rate Advance.

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 of the Borrower for increased costs or
expenses resulting solely from

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such designation or transfer (except any such transfer which is
made by a Lender pursuant to Section 8.2 or 8.3 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 (other than pursuant
to Sections 2.15, 2.16(d), 8.3 or 8.5, amounts payable to the
Swing Line Bank in respect of Swing Line Advances, amounts
payable to Lenders in respect of Bid Rate Advances made by such
Lenders and amounts payable to the Issuing Bank in respect of
Letters of Credit) in excess of its Specified Percentage of all
payments made by the Borrower with respect to Advances, the
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 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 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 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

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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 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

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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 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 11.6 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

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(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;

(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

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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 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 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) $25,000,000 (the "Letter of Credit Facility") and
(ii) the sum of (A) the Commitment MINUS (B) the aggregate
principal amount of Advances then outstanding. No Letter of
Credit shall have an expiration date (including all rights of
renewal) later than the 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) such Lender's
Specified Percentage 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 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

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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
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 10.1 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

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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
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 10.9 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 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 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");

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<PAGE>

(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
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;

(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 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 10.9 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 Maturity Date) on the average

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daily amount available for drawing under all outstanding
Financial Letters of Credit at the following per annum
percentages, applicable in the following situations:

APPLICABILITY PERCENTAGE
------------- ----------

CATEGORY 1 - The Leverage Ratio is not less 0.70
than 3.50 to 1 or the Index Debt Rating is
any two of the following: BB by S&P, BB by
ARA or Ba2 by Moody's

CATEGORY 2 - The Leverage Ratio is less 0.55
than 3.50 to 1 but not less than 3.00 to 1
or the Index Debt Rating is any two of the
following: BB+ by S&P, BB+ by ARA or Ba1
by Moody's

CATEGORY 3 - The Leverage Ratio is less 0.45
than 3.00 to 1 but not less than 2.50 to 1
or the Index Debt Rating is any two of the
following: BBB- by S&P, BBB- by ARA or
Baa3 by Moody's

CATEGORY 4 - The Leverage Ratio is less 0.35
than 2.50 to 1 but not less than 2.00 to 1
or the Index Debt Rating is any two of the
following: BBB by S&P, BBB by ARA or Baa2
by Moody's

CATEGORY 5 - The Leverage Ratio is less 0.30
than 2.00 to 1 or the Index Debt Rating is
any two of the following: BBB+ or better
by S&P, BBB+ or better by ARA or Baa1 or
better by Moody's

(ii) NON-FINANCIAL LETTERS OF CREDIT. Subject to
Section 10.9 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 Maturity Date) on the average
daily amount available for drawing under all outstanding

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<PAGE>

Non-Financial Letters of Credit at the following per annum
percentages, applicable in the following situations:

APPLICABILITY PERCENTAGE
------------- ----------

CATEGORY 1 - The Leverage Ratio is not less 0.35
than 3.50 to 1 or the Index Debt Rating is
any two of the following: BB by S&P, BB by
ARA or Ba2 by Moody's

CATEGORY 2 - The Leverage Ratio is less 0.275
than 3.50 to 1 but not less than 3.00 to 1
or the Index Debt Rating is any two of the
following: BB+ by S&P, BB+ by ARA or Ba1
by Moody's

CATEGORY 3 - The Leverage Ratio is less 0.225
than 3.00 to 1 but not less than 2.50 to 1
or the Index Debt Rating is any two of the
following: BBB- by S&P, BBB- by ARA or
Baa3 by Moody's

CATEGORY 4 - The Leverage Ratio is less 0.175
than 2.50 to 1 but not less than 2.00 to 1
or the Index Debt Rating is any two of the
following: BBB by S&P, BBB by ARA or Baa2
by Moody's

CATEGORY 5 - The Leverage Ratio is less 0.150
than 2.00 to 1 or the Index Debt Rating is
any two of the following: BBB+ or better
by S&P, BBB+ or better by ARA or Baa1 or
better by Moody's

(iii) ADJUSTMENT OF LETTER OF CREDIT FEE. The fee
payable in respect of the Letters of Credit shall be
adjusted on each Adjustment Date if determined based on the
(i) Leverage Ratio, on a quarterly basis according to the
performance of the Borrower for the most recent fiscal
quarter or (ii) the Index Debt Rating, according to the most
recent determination of the Index Debt Rating. For purposes
of the foregoing, (a) if the Index Debt Rating and the
Leverage Ratio are in different categories, the commitment
fee shall be determined on whichever of the Index Debt
Rating or the Leverage Ratio falls within the superior (or
numerically higher) category, (b) if the Letter of Credit
fee is determined based on the Leverage Ratio and the
financial statements of the Borrower setting forth the
Leverage Ratio are not received by the Administrative Lender
by the date required pursuant to Section 6.1(a) or 6.1(b)
hereof, the Letter of Credit fee shall be determined as if
the Leverage Ratio is not less than 3.50 to 1, (c) if the
Index Debt Rating established by ARA shall fall within a
different category from Moody's or S&P, the Letter of Credit
fee shall be determined by reference to Moody's or S&P, and
(d) if the Index Debt Rating established by Moody's and S&P
shall fall within different categories, the Letter of Credit
fee shall be determined by reference to the superior (or
numerically higher) category, but not to exceed two rating
levels higher than the other rating agency. If the rating
system of Moody's, S&P or ARA shall change prior to the

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<PAGE>

Maturity Date, the Borrower and the Lenders shall negotiate
in good faith to amend the references to specific ratings to
reflect such changed rating system.

(iv) OTHER FEES. In addition to the foregoing fees,
subject to Section 10.9 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) an
issuance and fronting fee in the amount of 0.075% of the
average daily amount 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 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 7.2(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

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<PAGE>

become due and payable if and to the extent that the
Borrower shall fail directly to pay such Reimbursement
Obligations and (B) after the 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 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 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.

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<PAGE>

(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.

ARTICLE 3

CONDITIONS PRECEDENT

SECTION 3.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING
CREDIT ADVANCES AND THE INITIAL LETTERS OF CREDIT. The
obligation of each Lender to sign this Agreement and to make any
Revolving Credit Advance, and the obligation of the Issuing Bank
to issue Letters of Credit is subject to receipt by the
Administrative Lender of the following, in form and substance
satisfactory to each Lender, with a copy (except for the Notes)
for each Lender, or satisfaction of the following:

(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 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;

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

(d) opinions of counsel to the Borrower and the
Subsidiaries 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

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<PAGE>

other matters incident to the transactions contemplated hereby
as the Administrative Lender or Special Counsel may reasonably
request;

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

(f) 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 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;

(g) the closing fee as required pursuant to
Sections 2.4(b);

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

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

(j) the duly executed Master Covenant Agreement;

(k) 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;

(l) payment in full of all accrued and outstanding
obligations under the Existing Credit Agreement (other than in
respect of the Existing Letters of Credit) whereupon all
obligations of the Borrower (excluding those obligations which
expressly survive termination of the Existing Credit Agreement)
and the Lenders (including but not limited to, the participations
of the Lenders in the Bond Letters of Credit) shall terminate;

(m) the duly executed Swing Line Note, payable to the order
of the Swing Line Bank in the principal amount of $10,000,000;

(n) closing and funding of the Senior Notes;

(o) the duly executed Facility B Credit Agreement and all
documents related thereto; and

(p) 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

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<PAGE>

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 REVOLVING CREDIT
ADVANCES AND LETTERS OF CREDIT. The obligation of each Lender to
make each Revolving Credit 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
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; PROVIDED, HOWEVER, that the obligation of
each Lender to make a Revolving Credit Advance pursuant to
Sections 2.2(g) and 2.16(c) shall be absolute and unconditional
and shall not be affected by any circumstances, including,
without limitation, (i) the occurrence of any Default or Event of
Default, (ii) the failure of the Borrower to satisfy any
condition set forth in this Section 3.2, or (iii) any other
circumstance, happening or event whatsoever.

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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 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.

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<PAGE>

(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.

(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. 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.

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(i) FINANCIAL STATEMENTS; MATERIAL LIABILITIES. The Borrower has
furnished or caused to be furnished to the Lenders copies of its December 31,
1994 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, 1994 financial
statements, (ii) in respect of the Senior Notes and (iii) the "AEW
Transaction" as defined and described in the Borrower's Form S-3 dated August
11, 1995.

(j) NO ADVERSE CHANGE. Since December 31, 1994, no event or
circumstances has occurred or arisen that could have a Material Adverse
Effect.

(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 $10,000,000 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

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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 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.

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(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, 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,

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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 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

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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.

(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

BUSINESS COVENANTS

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

Section 5.1 MAINTENANCE OF PROPERTY, INSURANCE, ACCOUNTING PRACTICES,
CORPORATE EXISTENCE. The Borrower covenants and agrees to, and will cause
each Subsidiary and Unincorporated Venture to:

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(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 (i) all lawful tax assessments and
governmental charges imposed from the income or profits of the Borrower, its
Subsidiaries and Unincorporated Ventures or upon any property belonging to
the Borrower, 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 the Borrower or any of its Subsidiaries or
Unincorporated Ventures; PROVIDED, HOWEVER, that the Borrower, 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.

Section 5.2 INSPECTION OF PROPERTIES AND BOOKS. The Borrower
covenants and agrees that it will permit, and will cause each Subsidiary and
Unincorporated Venture to permit, any Bank, upon (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 the Borrower,
any Subsidiary or Unincorporated Venture and to take extracts therefrom and
to discuss the affairs, finances or accounts of the Borrower, any Subsidiary
or Unincorporated Venture, and to be advised as to the same by the officers
of the Borrower, at all such times during normal

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business hours, in such detail and through such agents and representatives as
such Bank may reasonably desire.

Section 5.3 MERGER AND SALE OF ASSETS.

(a) The Borrower 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) unless immediately prior to, and after giving effect to, such
sale, transfer or other disposition, the Borrower, its Subsidiaries and
Unincorporated Ventures are and will be in compliance with all covenants
hereunder and there shall otherwise be no Default or Event of Default
hereunder; and

(b) The Borrower 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 the Borrower or any Subsidiary
or Unincorporated Venture, as appropriate, will not be materially changed and
(ii) the Borrower 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 the Borrower 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 the Borrower, provided that the
Borrower 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 the
Borrower, 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 the Borrower or a Subsidiary, such
Unincorporated Venture shall be the continuing and surviving
person.

Section 5.4 NET WORTH. The Borrower covenants and agrees that it
will not allow its Net Worth at any time to be less than the sum of (i)
$285,000,000 plus (ii) 50% of Consolidated Net Income (excluding Consolidated
Net Income for any fiscal quarter in which Consolidated Net Income was a
negative number) earned on or after the Agreement Date, plus (iii) 75% of the
Net Cash Proceeds of any equity issues of the Borrower's Capital Stock after
the Agreement Date.

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Section 5.5 CONTINGENT LIABILITIES. The Borrower 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 the Borrower or any Subsidiary), including
obligations of the Borrower, 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 5.4(a)(iv) hereof, (ii) the
guarantees and other contingent obligations set forth on SCHEDULE 11 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 Agreement Date not to exceed
$20,000,000 in aggregate principal amount.

Section 5.6 INCURRENCE AND RETENTION OF DEBT. The Borrower 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, the Borrower, its
Subsidiaries and Unincorporated Ventures are and will be in compliance with
all covenants hereunder and there shall otherwise be no Default or Event of
Default hereunder.

Section 5.7 INVESTMENTS. The Borrower will not, and will cause each
Subsidiary and Unincorporated Venture to not, make or permit to remain any
Investment other than a Permitted Investment.

Section 5.8 NOTICE OF LITIGATION. The Borrower covenants and agrees
that it will, and will cause each Subsidiary and Unincorporated Venture to,
promptly give notice in writing to the Lenders (i) of any litigation to which
the Borrower, any Subsidiary or Unincorporated Venture becomes a party, if
(A) the amount in controversy exceeds $500,000 and (B) the Borrower'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
the Borrower, any Subsidiary or Unincorporated Venture in an amount in excess
of $500,000 or (B) materially affecting the ability of the Borrower, any
Subsidiary or Unincorporated Venture to perform their respective covenants
and obligations hereunder or under any other obligations owed any Lender.

Section 5.9 TOTAL DEBT RATIO. The Borrower covenants and agrees that
it will not allow the ratio of (i) Total Debt to (ii) EBITDA, in each case
for the four consecutive fiscal quarters immediately preceding the date of
determination, to be greater than 4.00 to 1 at the end of any fiscal quarter.
For purposes of this Section 5.10, with respect to assets not

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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.

Section 5.10 CASH FLOW RATIO. The Borrower covenants and agrees that
it will not allow the ratio of (i)(a) EBITDA, 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, 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 1.50 to 1 at the end of any fiscal quarter.

Section 5.11 SENIOR DEBT RATIO. The Borrower covenants and agrees
that it will not allow the ratio of (i) Senior Debt to (ii) EBITDA, in each
case for the four consecutive fiscal quarters immediately preceding the date
of determination, to be greater than 3.0 to 1 at the end of any fiscal
quarter. For purposes of this Section 5.12, 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.

Section 5.12 LIENS. The Borrower 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 Permitted Liens. Other
than with respect to Senior Notes, the Borrower shall not, and shall not
permit any Subsidiary or Unincorporated Venture to, agree with any Person
that it shall not create, assume, incur, permit or suffer to exist or to be
created, assumed, incurred or permitted to exist, directly or indirectly, any
Lien on any of its assets.

Section 5.13 ACCOUNTING CHANGES. The Borrower 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 in
effect from time to time. The Borrower will not change its fiscal year or the
calculation of its fiscal quarter ends.

Section 5.14 AMENDMENT AND MODIFICATION OF SUBORDINATED DEBT
DOCUMENTS. The Borrower 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

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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 Lenders 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 this Agreement and definitions with respect thereto
(including, without limitation, the definition of "Senior Debt")) or (ii)
places any further restrictions on the Borrower, its Subsidiaries or
Unincorporated Ventures or increases the obligations of the Borrower, its
Subsidiaries or Unincorporated Ventures thereunder or confers on the holders
thereof any additional rights.

Section 5.15 LEASE-BACKS. The Borrower 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
the Borrower, any Subsidiary or Unincorporated Venture shall sell or transfer
any property, whether now owned or hereafter acquired, used or useful in its
business, and thereafter rent or lease the property so sold or transferred in
an aggregate amount (determined at the greater of fair market value or net
book value) in excess of $20,000,000 during the term of this Agreement.

Section 5.16 ENVIRONMENTAL MATTERS.

(a) The Borrower 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 the Borrower 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 the Borrower'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) The Borrower 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 the Borrower 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), the Borrower or such Subsidiary or Unincorporated Venture
shall within thirty (30) days after written demand for performance thereof by
the Lenders (or such shorter period of time as may be required under any

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applicable law, regulation, order or agreement), commence and thereafter
diligently prosecute to completion, all such Remedial Work.

(d) The Borrower will defend, indemnify and hold harmless the Lenders,
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 the Borrowers 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. Sections 9601 ET SEQ., the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Sections 6901 ET SEQ. and the Hazardous
Materials Transportation Act, 49 U.S.C. Sections 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.

Section 5.17 ERISA COMPLIANCE. The Borrower 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 the Lenders 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 Lender, 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.

Section 5.18 BUSINESS. The Borrower covenants and agrees that it will
not, and will not permit any Subsidiary or Unincorporated Venture to, engage
in, directly or through

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other Persons, any business other than the businesses now carried on and
other businesses directly related thereto.

Section 5.19 DEBT. The Borrower 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 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 the Borrower 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.

Section 5.20 TRANSACTIONS WITH AFFILIATES. The Borrower 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 the
Borrower 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 5.21 USE OF PROCEEDS. The Borrower shall use the proceeds of
the Commitment to refinance the debt outstanding under the Existing Credit
Agreement and for working capital and general corporate purposes.

Section 5.22 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

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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 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 OR THE LETTERS OF CREDIT AND THE
MANAGEMENT OF THE ADVANCES OR THE 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

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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

INFORMATION

Section 6.1 FINANCIAL STATEMENTS AND OTHER REPORTS BY THE BORROWER.
The Borrower will deliver to each Lender:

(a) As soon as practicable after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Borrower, and in any
event within 45 days thereafter, duplicate copies of

(1) Combined 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 the Borrower
(Combined Basis) 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; and

(2) An Officer's Certificate (with calculations and a
new SCHEDULE 11 attached thereto) certifying (i) as to any
increases or reductions in interest in the Significant
Investments, and (ii) compliance with Sections 5.3, 5.4(a),
5.5, 5.6, 5.8, 5.10, 5.11 and 5.12.

(b) As soon as practicable after the end of each fiscal year of the
Borrower and in any event within 120 days thereafter, duplicate copies of:

(1) Combined balance sheets, statements of earnings,
shareholders' equity and cash flows of the Borrower for such
year; all in reasonable detail, prepared on a basis
consistent with the financial statements delivered to all
Lenders in prior periods and accompanied by an unqualified
opinion and report of KPMG Peat

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Marwick, or other independent certified accountants of recognized
standing selected by the Borrower and reasonably consented to by
Lenders, which report 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; and

(c) As soon as practicable after the Borrower 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 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 Lender.

(d) Upon request by any Lender, 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) On the date of receipt by the Borrower of any change in
the Index Debt Rating, a copy of such change.

(f) With reasonable promptness, such other data and
information as from time to time may be reasonably requested by
any Lender.

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(g) Notwithstanding anything in this Section 6.1 to the contrary, (i)
if the terms of any Subordinated Debt of the Borrower requires delivery of
Parent Company financial statements and (ii) any Lender shall request
delivery of Parent Company financial statements, the Borrower shall also
deliver to such Lender the financial statements required to be delivered
pursuant to (1) Section 6.1(a) on a Parent Company basis within 60 days after
the end of the first three quarterly fiscal periods of the Borrower and (2)
Section 6.1(b) on a Parent Company basis within 120 days after the end of
each fiscal year of the Borrower.

Section 6.2 OFFICER'S CERTIFICATE. Each set of financial statements
delivered pursuant to Sections 6.1(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 the Borrower is taking or
proposes to take with respect thereto.

ARTICLE 7

DEFAULT

Section 7.1 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 or
any Reimbursement Obligation on the date such payment is due;

(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;

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(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;

(j) 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);

(k) 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

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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 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

(l) A Change of Control shall have occurred.

Section 7.2 REMEDIES. If an Event of Default shall have occurred and
shall be continuing:

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(a) With the exception of an Event of Default specified in Section
7.1(f) hereof, the Administrative Lender shall, upon the direction of the
Determining Lenders, terminate the Commitment 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
7.1(f) hereof, such principal, interest and other amounts shall thereupon and
concurrently therewith become due and payable and the Commitment 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.

(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 8

CHANGES IN CIRCUMSTANCES

Section 8.1 LIBOR BASIS DETERMINATION INADEQUATE. If with respect to
any proposed LIBOR 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 does not adequately cover the
cost to such Lender of making and maintaining such proposed LIBOR 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 shall be suspended.

Section 8.2 ILLEGALITY. If any applicable law, rule or regulation,
or any change therein or adoption thereof, or interpretation or
administration thereof by any governmental

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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, 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 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 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 equal the outstanding principal amount of
the Advances owing immediately prior to such repayment.

Section 8.3 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

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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 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 10.9 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 "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 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,
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.

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Section 8.4 EFFECT ON PRIME RATE ADVANCES. If notice has been given
pursuant to Section 8.1, 8.2 or 8.3 hereof suspending the obligation of a
Lender to make LIBOR Advances, or requiring LIBOR 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 shall
be made instead as Prime Rate Advances.

Section 8.5 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
10.9, 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 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 9

AGREEMENT AMONG LENDERS

Section 9.1 AGREEMENT AMONG LENDERS. The Lenders agree among
themselves that:

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(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. If the Administrative Lender also then
serves in the capacity of the Swing Line Bank or the Issuing Bank, such
resignation or removal shall constitute resignation or removal of the Swing
Line Bank and the Issuing Bank. Any resignation or removal of the
Administrative Lender or any successor Administrative Lender 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

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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, 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.

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(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 9.2 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 9.3 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.

ARTICLE 10

MISCELLANEOUS

Section 10.1 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:

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La Quinta Inns, Inc.
112 E. Pecan Street, Suite 1200
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 10.2 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;

(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 10.3 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

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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 10.4 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 10.5 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 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 7.2 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 10.6 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.

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(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 portion of the
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 and
the Reimbursement Obligations (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 or the Reimbursement Obligations, or change in Applicable 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 8 and Section 10.5 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 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 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,

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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 $3,500, 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 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 Note a new Note to the order of such Assignee in an
amount equal to the portion of the Advances and Commitment assigned to it
pursuant to such Assignment Agreement and a new Note to the order of the
assigning Lender in an amount equal to the portion of the Advances and
Commitment retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note, shall be dated the effective date of such Assignment Agreement and
shall otherwise be in substantially the form of EXHIBIT A hereto.

(g) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.6,
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 10.6, nothing in
this Agreement or any other Loan Papers, expressed or implied, is intended to
or shall confer on any Person

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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 10.6 to the contrary, no
Assignee or Participant shall be entitled to receive any greater payment
under Section 2.15 or Section 8.3 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 10.7 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 10.8 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 10.9 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 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.

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SECTION 10.10 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 10.11 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 10.12 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 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 10.12, 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.

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SECTION 10.13 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 10.14 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 10.15 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 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 10.16 WAIVER OF JURY TRIAL. EACH OF THE BORROWER,
THE ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY

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<PAGE>

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 10.17 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.

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REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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<PAGE>

IN WITNESS WHEREOF, this Credit Agreement is executed as of
the date first set forth above.

BORROWER: LA QUINTA INNS, INC.

By: _________________________
Name:____________________
Title:___________________

ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender

By: _________________________
Douglas E. Hutt
Senior Vice President

LENDERS: NATIONSBANK OF TEXAS, N.A.,
as a Lender
Specified Percentage:
_____%

By: _________________________
Douglas E. Hutt
Senior Vice President

901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Douglas E. Hutt
Senior Vice President

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<PAGE>

CITICORP USA, INC.
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

_____________________________
_____________________________
_____________________________
Attn:________________________

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<PAGE>

THE FROST NATIONAL BANK
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

100 West Houston Street
San Antonio, Texas 78205
Attn: Suzanne Houser

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<PAGE>

TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

1020 N.E. Loop 410
San Antonio, Texas 78209
Attn: Mark Harris

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<PAGE>

THE BANK OF SCOTLAND
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

565 Fifth Avenue
New York, New York 10017
Attn: Cathy Oniffrey

copy to:

Citicorp Center
1200 Smith Street, Suite 1750
Houston, Texas 77002
Attn: Janna Blanter

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<PAGE>

BANK OF AMERICA ILLINOIS
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

333 Clay Street, Suite 4550
Houston, Texas 77002
Attn: W. Thomas Barnett

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<PAGE>

BANK ONE, TEXAS, N.A.
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attn: Alan Miller

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<PAGE>

FIRST INTERSTATE BANK OF TEXAS,
N.A.
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

700 N. St. Mary's Street, Suite 300
San Antonio, Texas 78205
Attn: Charles T. Bridgeman

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<PAGE>

U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
Specified Percentage:
_____%

By: _________________________
Name:____________________
Title:___________________

555 Southwest Oak Street, Suite 400
Portland, Oregon 97204
Attn: Blake R. Howells

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<PAGE>

SCHEDULE 1

LIBOR LENDING OFFICES

NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202

CITICORP USA, INC.
____________________

____________________

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

THE BANK OF SCOTLAND
565 Fifth Avenue
New York, New York 10017

BANK OF AMERICA ILLINOIS
333 Clay Street, Suite 4550
Houston, Texas 77002

BANK ONE, TEXAS, N.A.
1717 Main Street, 3rd Floor
Dallas, Texas 75201

FIRST INTERSTATE BANK OF TEXAS, N.A.
700 N. St. Mary's Street, Suite 300
San Antonio 78205

U.S. BANK OF WASHINGTON NATIONAL ASSOCIATION
555 Southwest Oak Street, Suite 400
Portland, Oregon 97204

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<PAGE>

EXHIBIT A

REVOLVING CREDIT NOTE

Dallas, Texas $_____________ September ___, 1995

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 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 (Facility A),
dated as of September ___, 1995, 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.

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 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

<PAGE>

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:_____________________

<PAGE>

EXHIBIT B

BID RATE NOTE

U.S.________________ Dated: September ___, 1995

FOR VALUE RECEIVED, the undersigned, LA QUINTA INNS, INC., a Texas
corporation, (the "Borrower"), HEREBY PROMISES TO PAY to the order of
____________________ (the "Lender") the lesser of _____________ MILLION AND
NO/100 Dollars ($__________) and the unpaid principal amount of the Bid Rate
Advances (as defined in the Credit Agreement referred to below) made by the
Lender to the Borrower pursuant to the Credit Agreement, payable at such
times, and in such amounts, as are agreed to by the Lender and the Borrower
pursuant to Section 2.2(c) of the Credit Agreement.

The Borrower promises to pay interest on the unpaid principal amount of
the Bid Rate Advances from the date made until such principal amount is paid
in full, at such interest rates, and payable at such times, as are agreed to
by the Lender and the Borrower pursuant to Section 2.2(c) of the Credit
Agreement.

Both principal and interest are payable in lawful money of the United
States of America to NationsBank of Texas, N.A. as Administrative Lender for
the Lender, at 901 Main Street, Dallas, Texas 75202 in immediately available
funds.

This Bid Rate Note is one of the Bid Rate Notes referred to in, and is
entitled to the benefits of, the Amended and Restated Credit Agreement
(Facility A), dated as of September ___, 1995, among the Borrower, the Lender
and certain other banks parties thereto, and NationsBank of Texas, N.A., as
Administrative Lender for the Lender and such other banks (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon
the terms and conditions therein specified.

The Borrower and all endorsers, sureties and guarantors of this Bid Rate
Note hereby severally waive demand, presentment for payment, protest, notice
of protest, notice of acceleration, notice of intention to accelerate the
maturity of this Bid Rate 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 manner of or in this Bid Rate 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 BID RATE 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

<PAGE>

SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.

LA QUINTA INNS, INC.

By:___________________________
Title:_____________________

<PAGE>

EXHIBIT C

SWING LINE NOTE

U.S. $10,000,000.00 Dated: September ___, 1995

FOR VALUE RECEIVED, the undersigned, LA QUINTA INNS, INC., a Texas
corporation (the "Company"), HEREBY PROMISES TO PAY to the order of
NATIONSBANK OF TEXAS, N.A. (the "Swing Line Bank") for the account of its
Lending Office (as defined in the Credit Agreement referred to below) the
lesser of TEN MILLION AND NO/100 Dollars ($10,000,000) and the unpaid
principal amount of the Swing Line Advances (as defined in the Credit
Agreement referred to below) made by the Swing Line Bank to the Company
pursuant to the Credit Agreement, payable at such times, and in such amounts,
as are specified in the Credit Agreement.

The Company promises to pay interest on the unpaid principal amount of
the Swing Line Advances from the date made until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.

Both principal and interest are payable in lawful money of the United
States of America to NationsBank of Texas, N.A. as Administrative Lender for
the Swing Line Bank, at NationsBank Plaza, 901 Main Street, Dallas, Texas
75202 in immediately available funds.

This Swing Line Note is the Swing Line Note referred to in, and is
entitled to the benefits of, the Amended and Restated Credit Agreement
(Facility A), dated as of September ___, 1995, among La Quinta Inns, Inc.,
the Swing Line Bank and certain other banks parties thereto, and NationsBank
of Texas, N.A., as Administrative Lender for the Swing Line Bank and such
other banks (as from time to time amended, modified or supplemented, the
"Credit Agreement"). The Credit Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of
certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.

The Borrower and all endorsers, sureties and guarantors of this Swing
Line Note hereby severally waive demand, presentment for payment, protest,
notice of protest, notice of acceleration, notice of intention to accelerate
the maturity of this Swing Line 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 manner of or in this Swing Line 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.

<PAGE>

THIS SWING LINE 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:_____________________

<PAGE>

EXHIBIT D

GUARANTY

This Guaranty, dated as of September ___, 1995 (this
"GUARANTY"), is made by the entities listed on the signature
pages hereof (all such entities 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 September ___, 1995 (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. In the case of each Guarantor which is a corporation, the Board of
Directors of each such Guarantor, and in the case of each Guarantor which is
a partnership or joint venture, the Board of Directors of each corporation
which is a partner or a joint venturer of such Guarantor, 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.

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 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

<PAGE>

Applicable Law, regulation or order now or hereafter in effect. The
obligations and liabilities of each 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 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 increase, reduction or termination of the
Commitment;

(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;

<PAGE>

(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 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

<PAGE>

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 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.

<PAGE>

(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 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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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 Guarantor, any other Obligor or any other
Person, (b) join Company, any Guarantor, 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
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

<PAGE>

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.

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 Maturity Date) of the
Obligation and all other amounts payable 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.

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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 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.

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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.