LA QUINTA INNS INC, S-3, 1995-08-11

LA QUINTA INNS INC
S-3, 1995-08-11
HOTELS & MOTELS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1995.
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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. / /
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CALCULATION OF REGISTRATION FEE

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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY* OFFERING PRICE* REGISTRATION FEE
<S> <C> <C> <C> <C>
% Senior Notes due 2005............. $100,000,000 100% $100,000,000 $34,483
* Estimated solely for the purpose of calculating the registration fee.
</TABLE>

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

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.

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<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 AUGUST 11, 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" 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
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC (1) AND COMMISSIONS (2) COMPANY (1)(3)
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PER SENIOR NOTE....................... % % %
TOTAL................................. $ $ $
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(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.

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TABLE OF CONTENTS

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PAGE
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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................................................................. 35
Underwriters................................................................................ 46
Legal Matters............................................................................... 46
Experts..................................................................................... 47
Available Information....................................................................... 47
Incorporation of Certain Information by Reference........................................... 47
</TABLE>

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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 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.

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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.

MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INDUSTRY
PUBLICATIONS AND INTERNAL GUEST SURVEYS. INDUSTRY PUBLICATIONS GENERALLY STATE
THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED
TO BE RELIABLE, BUT THAT THE ACCURACY AND COMPLETENESS OF SUCH INFORMATION IS
NOT GUARANTEED. SIMILARLY, INTERNAL GUEST SURVEYS, WHILE BELIEVED TO BE
RELIABLE, HAVE NOT BEEN INDEPENDENTLY VERIFIED. NEITHER THE COMPANY NOR THE
UNDERWRITERS HAVE INDEPENDENTLY VERIFIED THIS MARKET DATA AND NEITHER OF THEM
MAKES ANY REPRESENTATION AS TO ITS ACCURACY.

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

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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.

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. 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.

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.

LODGING INDUSTRY

La Quinta benefits from the current strength of both the lodging industry as
a whole and the mid-priced segment in which the Company primarily competes. The
industry has now experienced three consecutive years in which the growth of
demand for rooms substantially exceeded the growth in room supply. This

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supply/demand relationship has led to industry-wide increases in occupancy
percentages and ADR, with occupancy rising to 65.2% in 1994 from 63.7% in 1993,
and ADR increasing 3.8% in 1994 over 1993 levels, based on information provided
by Smith Travel Research, an independent lodging industry research firm. The
mid-priced segment of the lodging industry also performed well in 1994, with
revenue per available room ("REVPAR," which is the product of occupancy
percentage and ADR) increasing 5.5% over 1993, the largest REVPAR increase of
any lodging segment except for the luxury segment. The mid-priced segment
continued to have strong REVPAR growth in the first quarter of 1995, with REVPAR
increasing 5.9% over the comparable 1994 period.

FINANCIAL PERFORMANCE

La Quinta's financial results reflect both the improvements in the lodging
industry and the successful implementation of its business strategy. During the
five-year period from 1990 through 1994, the Company's REVPAR 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."

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. 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
substantially all of such shares 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.

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THE OFFERING

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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 -- Ranking."
Certain Covenants................. 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. See "Description of Senior
Notes -- 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>

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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.

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SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
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(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
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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>

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<CAPTION>
AT JUNE 30, 1995
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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
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(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>
USE OF PROCEEDS

The net proceeds from the sale of the Senior Notes in the Offering are
estimated to be approximately $ 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 August 8, 1995, the Company had borrowings under the
secured line of credit and the secured term credit facility in the aggregate
amounts of $35 million and $141.5 million, respectively, at average interest
rates of 6.96% 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 August 8, 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 $24.5 million and $30 million, respectively,
at average interest rates of 6.72% 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, as defined by Smith Travel
Research, an independent lodging industry research firm. 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.

27
<PAGE>
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 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>
THE LODGING INDUSTRY

Conditions in the lodging industry have improved significantly since the
beginning of 1992, with occupancy percentages, ADR and profitability increasing
through the end of the first quarter of 1995, the last quarter for which such
industry information is available. The lodging industry as a whole earned
pre-tax profits of approximately $5.5 billion in 1994, more than double the
level of pre-tax profitability achieved in 1993.

The key elements underlying the industry's strong operating performance are
(i) increased economic activity, which has resulted in growth in demand for
hotel rooms, coupled with (ii) growth in new room supply that has been
significantly lower than the growth in demand. Room demand growth exceeded the
rate of new room supply by 2.0%, 2.6% and 3.3% in 1992, 1993 and 1994,
respectively. However, historical industry performance may not be indicative of
future results. See "Risk Factors -- Risks of the Lodging Industry."

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TOTAL U.S. LODGING INDUSTRY DEMAND GROWTH MARGIN
<S> <C>
(% Growth in Room Demand Less % Growth in Room Supply)
1991 -2.5%
1992 2.0%
1993 2.6%
1994 3.3%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TOTAL U.S. OCCUPANCY
PERCENTAGE TOTAL U.S. ADR
<S> <C> <C> <C> <C>
(% Increase/Decrease) (% Increase)
1991 -2.4% 1991 0.6%
1992 2.0% 1992 1.4%
1993 2.6% 1993 2.8%
1994 2.4% 1994 3.8%
</TABLE>

Source: Smith Travel Research

30
<PAGE>
In this favorable supply/demand environment, with an excess of demand growth
over supply growth, lodging companies like La Quinta have demonstrated a
significant degree of "pricing power," which describes a hotel's ability to
increase ADR without adversely affecting occupancy percentages. For example,
industry-wide ADR grew 3.8% in 1994 versus 1993, while industry average
occupancy percentages increased 2.4% over the same period. ADR growth exceeded
the rate of inflation in 1994 by 1.2%, the first year of real rate growth after
seven years of decline. Industry-wide ADR in the first three months of 1995
increased 4.9% over the first three months of 1994, with occupancy percentages
up 1.5% over the comparable 1994 first-quarter results.

The mid-priced lodging industry segment in which La Quinta primarily
operates has also experienced favorable operating results. In both 1994 and the
first quarter of 1995, demand growth exceeded supply growth in this segment by a
wider margin than in any other lodging industry segment except luxury hotels. In
addition, REVPAR grew by 5.5% in the mid-priced segment in 1994 versus 1993.
Only the luxury segment experienced higher REVPAR growth in 1994. The mid-priced
segment continued to have strong REVPAR growth in the first quarter of 1995,
with REVPAR increasing 5.9% over the comparable period in 1994. The foregoing
industry data is based on information provided by Smith Travel Research.

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.

31
<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

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<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

33
<PAGE>
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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<PAGE>
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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<PAGE>
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

36
<PAGE>
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

37
<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 otherwise 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 Consolidated 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

38
<PAGE>
otherwise 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 Consolidated 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 "Consolidated Net Worth" as defined in the Indenture means, at any
date of determination, the consolidated stockholders' equity of the Company, as
set forth on the then most recently available consolidated balance sheet of the
Company and its consolidated Subsidiaries.

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 and
opinion of counsel to the effect that immediately after giving effect to such
transaction, no Default (as defined in the Indenture) shall have occurred and be
continuing. (SECTION 5.1)

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
Securities 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 Securities 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 which 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 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

40
<PAGE>
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 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,

41
<PAGE>
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; (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 unless requested in writing so to do by the Holders of not less than a
majority in aggregate principal amount of the Securities of all series affected
then outstanding; PROVIDED that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of the
Indenture, the Trustee may require reasonable indemnity against such expenses or
liabilities as a condition to proceeding. (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 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

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<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
of the Indenture; (3) to comply with any requirements of the Securities and
Exchange Commission in connection with the qualification of the Indenture under
the Trust Indenture Act; (4) to evidence and provide for the acceptance of
appointment

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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; and (7) 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 shall give to the Holders affected thereby a notice briefly describing
the amendment, supplement or waiver, the Company 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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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.

46
<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.

47
<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.

48
<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>
<S> <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 Opinion of John F. Schmutz, Esq. as to 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).
24 Powers of Attorney (contained on the signature pages hereof).
25 Statement of Eligibility of Trustee on Form T-1.
<FN>
- ------------------------
* To be filed by amendment.
</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 11th day of August, 1995.

LA QUINTA INNS, INC.

BY: ______WILLIAM C. HAMMETT, JR._____
Name: William C. Hammett, Jr.
Title: Senior Vice President --
Accounting and
Administration

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Gary L. Mead, Michael A. Depatie, William C.
Hammett, Jr. and John F. Schmutz and each of them, any one of whom may act
without joiner of the other, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all pre- and
post-effective amendments to this Registration Statement or any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.

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

GARY L. MEAD President, Chief Executive
- ------------------------- Officer and Director (Principal August 11, 1995
(Gary L. Mead) Executive Officer)

MICHAEL A. DEPATIE
- ------------------------- Senior Vice President -- Finance August 11, 1995
(Michael A. Depatie) (Principal Financial Officer)

WILLIAM C. HAMMETT, JR. Senior Vice President Accounting
- ------------------------- and Administration (Principal August 11, 1995
(William C. Hammett, Jr.) Accounting Officer)

WILLIAM H. CUNNINGHAM
- ------------------------- Director August 11, 1995
(William H. Cunningham)

II-4
<PAGE>

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

DONALD J. MCNAMARA
- ------------------------- Director August 11, 1995
(Donald J. McNamara)

PETER STERLING
- ------------------------- Director August 11, 1995
(Peter Sterling)

THOMAS M. TAYLOR
- ------------------------- Director August 11, 1995
(Thomas M. Taylor)

II-5
<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 Opinion of John F. Schmutz, Esq. as to 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).
24 Powers of Attorney (contained on the signature pages hereof).
25 Statement of Eligibility of Trustee on Form T-1.
<FN>
- ------------------------
* To be filed by amendment.
</TABLE>

<PAGE>

$100,000,000

LA QUINTA INNS, INC.

___% Senior Notes due 2005

UNDERWRITING AGREEMENT

September __, 1995

Morgan Stanley & Co.
Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
NationsBanc Capital Markets, Inc.
c/o Morgan Stanley & Co.
Incorporated
1251 Avenue of the Americas
New York, New York 10020

Dear Sirs and Mesdames:

La Quinta Inns, Inc., a Texas corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") $100,000,000 principal amount of its ____% Senior Notes due
2005 (the "Securities") to be issued pursuant to the provisions of an
Indenture dated as of September ___, 1995 (the "Indenture") between the
Company and U.S. Trust Company of Texas, N.A., as Trustee (the "Trustee").

The Company wishes to confirm as follows its respective agreements with
you and the other several Underwriters on whose behalf you are acting, in
connection with the several purchases of the Securities by the Underwriters.

1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Securities. The term "Registration Statement" as used in this Agreement
means the registration

<PAGE>

statement (including all financial schedules and exhibits), as amended at the
time it becomes effective or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Securities may commence, the term "Registration Statement", as used in
this Agreement, means the registration statement as amended by said
post-effective amendment. The term "Registration Statement" shall also
include any registration statement relating to the Securities that is filed
and declared effective pursuant to Rule 462(b) under the Act. The term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the
Act and such information is included in a prospectus filed with the
Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as
used in this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b), PROVIDED that if a prospectus that meets the requirements of
Section 10(a) of the Act is delivered pursuant to Rule 434(c) under the Act,
then (i) the term "Prospectus" as used in this Agreement means the prospectus
subject to completion (as defined in Rule 434(g) under the Act) as
supplemented by (A) the addition of Rule 430A or other information contained
in the form of prospectus filed pursuant to Rule 434(c)(2) under the Act and
(B) the information contained in the abbreviated term sheet described in Rule
434(c)(3) under the Act, and (ii) the date of such Prospectus shall be deemed
to be the date of such abbreviated term sheet. The term "Prepricing
Prospectus" as used in this Agreement means the prospectus subject to
completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date
of the Prospectus. Any reference in this Agreement to the registration
statement, the Registration Statement, any Prepricing Prospectus or the
Prospectus shall be deemed to refer to and include the documents incorporated
by reference therein pursuant to Item 12 of Form S-3 under the Act as of the
date of the registration statement, the Registration Statement, such
Prepricing Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to the registration statement, the
Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder (collectively, the "Exchange Act"), that, upon
filing, are incorporated by reference therein, as required by paragraph (b)
of Item 12 of Form S-3. As used herein, the

-2-

<PAGE>

term "Incorporated Documents" means, at any time, the documents that at such
time are incorporated by reference in the registration statement, the
Registration Statement, any Prepricing Prospectus, the Prospectus, or any
amendment or supplement thereto.

2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to sell to each Underwriter
and, upon the basis of the representations, warranties and agreements of the
Company herein contained and subject to all the terms and conditions set
forth herein, each Underwriter agrees, severally and not jointly, to purchase
from the Company the principal amount of Securities set forth opposite the
name of such Underwriter in Schedule I hereto (or such principal amount of
Securities increased as set forth in Section 10 hereof) at ___% of such
principal amount plus accrued interest, if any, from September ___, 1995, to
the date of payment and delivery.

3. TERMS OF PUBLIC OFFERING. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective
portions of the Securities as soon after the Registration Statement and this
Agreement have both become effective as in your judgment is advisable and
initially to offer the Securities upon the terms set forth in the Prospectus.
The Company is further advised by you that the Securities are to be offered
to the public initially at ____% of their principal amount (the "Public
Offering Price") plus accrued interest, if any, from September ___, 1995 to
the date of payment and delivery and to certain dealers selected by you at a
price that represents a concession not in excess of ____% of their principal
amount under the Public Offering Price, and that any Underwriter may allow,
and such dealers may reallow, a concession, not in excess of ____% of their
principal amount, to any Underwriter or to certain other dealers.

4. DELIVERY OF THE SECURITIES AND PAYMENT THEREFOR. Payment for the
Securities shall be made by wire transfer to an account specified by the
Company in immediately available funds at 10:00 A.M., New York city time on
September ___, 1995, or at such other time on the same or such other date,
not later than September ___, 1995, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the
"Closing Date."

Payment for the Securities shall be made against delivery to you for the
respective accounts of the several Underwriters of the one or more global
certificates representing the Securities registered in the name of Cede & Co.
with any transfer taxes payable in connection with the transfer of the
Securities to the Underwriters duly paid.

-3-

<PAGE>

5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:

(a) The Company shall, if, at the time this Agreement is executed
and delivered, it is necessary for the Registration Statement or a post-
effective amendment thereto to be declared effective before the offering
of the Securities may commence, use its best efforts to cause the
Registration Statement or such post-effective amendment to become
effective at the earliest possible time. The Company shall comply fully
and in a timely manner with the applicable provisions of Rule 424,
Rule 430A and Rule 434 under the Act.

(b) The Company shall advise you promptly and, if requested by any
of you, confirm such advice in writing, (i) when the Registration
Statement has become effective, if and when the Prospectus or form of
prospectus is sent for filing pursuant to Rule 424 under the Act and when
any post-effective amendment to the Registration Statement becomes
effective, (ii) of the receipt of any comments from the Commission that
relate to the Registration Statement or any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement, or of the suspension of qualification of
the Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for such purpose by the Commission or any state
securities commission or other regulatory authority, and (iv) during the
period referred to in subsection (f) below, (A) of any change in the
Company's condition (financial or other), business, prospects, properties,
net worth or results of operations, or of the happening of any event,
including the filing of any information, document or report pursuant to
the Exchange Act, that makes any statement of a material fact made in the
Registration Statement untrue or that requires the making of any additions
to or changes in the Registration Statement in order to state a material
fact required by the Act to be stated therein or to make the statements
therein not misleading or that makes any statement of a material fact made
in the Prospectus (as then amended or supplemented) untrue or that
requires the making of any additions to or changes in the Prospectus (as
then amended or supplemented) in order to state a material fact required
by the Act to be stated therein or in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (B) of the necessity to amend or supplement the Prospectus
(as then amended or supplemented) to comply with the Act or any other law.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration

-4-

<PAGE>

Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption
of the Securities under any state securities or Blue Sky laws, the
Company shall use every reasonable effort to obtain the withdrawal or
lifting of such order at the earliest possible time.

(c) The Company shall furnish to each of you without charge (i) two
(2) conformed copies (plus one (1) additional similarly conformed copy to
your legal counsel) of the Registration Statement as first filed with the
Commission and of each amendment to it, including all exhibits filed
therewith, (ii) such number of conformed copies of the Registration
Statement as so filed and of each amendment to it, without exhibits, as
you may reasonably request, (iii) such number of copies of the
Incorporated Documents, without exhibits, as you may request, and (iv)
two (2) copies of each of the exhibits to the Incorporated Documents.

(d) The Company shall not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the Prospectus, or,
prior to the end of the period of time referred to in subsection (f)
below, file any document pursuant to the Exchange Act that will, upon
filing, become an Incorporated Document, of which you shall not previously
have been advised and provided a copy within two business days (or such
reasonable amount of time as is necessitated by the exigency of such
amendment, supplement or document) prior to the filing thereof and to
which you shall reasonably object in writing.

(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you
have requested, copies of each form of the Prepricing Prospectus. The
Company consents to the use, in accordance with the provisions of the Act
and with the state securities or Blue Sky laws of the jurisdictions in
which the Securities are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing
Prospectus so furnished by the Company.

(f) Promptly after the Registration Statement becomes effective,
and from time to time thereafter for such period as in the reasonable
opinion of counsel for the Underwriters a prospectus is required by the
Act to be delivered in connection with sales by any Underwriter or dealer,
the Company shall expeditiously furnish to each Underwriter and each
dealer, without charge, as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as you may reasonably request
for the purposes

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<PAGE>

contemplated by the Act. The Company consents to the use of the
Prospectus and any amendment or supplement thereto by you or any
dealer in accordance with the provisions of the Act and with the state
securities or Blue Sky laws of the jurisdictions in which the Securities
are offered by the several Underwriters and by all dealers to whom
Securities may be sold, both in connection with the offering or sale of
the Securities and for such period of time thereafter as a prospectus is
required by the Act to be delivered in connection therewith.

(g) If during the period specified in subsection (f) above any event
shall occur as a result of which it becomes necessary, in the judgment of
the Company or in the reasonable opinion of counsel for the Underwriters,
to amend or supplement the Prospectus (as them amended or supplemented) in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary to amend
or supplement the Prospectus to comply with the Act or any other law, the
Company shall, as promptly as practicable, prepare and, subject to the
provisions of subsection (d) above, file with the Commission an
appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not, in
the light of the circumstances under which they were made, be misleading,
and the Prospectus, as so amended or supplemented, will comply with the
Act or such other law, and shall expeditiously furnish to you without
charge such number of copies thereof as you may reasonably request.

(h) Prior to any public offering of the Securities, the Company
shall cooperate with you and with counsel for the Underwriters in
connection with the registration or qualification of the Securities for
offering and sale by the Underwriters and by dealers under the state
securities or Blue Sky laws of such jurisdictions as you may request
(provided, that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not so qualified
or to take any action that would subject it to consent to service of
process in suits, other than those arising out of the offering or sale of
the Securities, in any jurisdiction in which it is not now so subject).
The Company shall continue such qualification in effect so long as
required by law for distribution of the Securities and shall file such
consents to service of process or other documents as may be necessary or
appropriate in order to effect such registration or qualification
(provided, that the Company shall not be obligated to take any action
that would subject it to consent to service of process in suits, other
than those arising out of the offering or sale of the Securities, in
any jurisdiction in which it is not now so subject).

-6-

<PAGE>

(i) The Company shall make generally available to its security
holders as soon as reasonably practicable a consolidated earnings
statement covering a period of at least 12 months beginning after the
"effective date" (as defined in Rule 158 under the Act) of the
Registration Statement (but in no event later than 90 days after such
date) that shall satisfy the provisions of Section 11(a) of the Act.

(j) (i) For so long as any of the Securities are outstanding, the
Company shall mail to each of you without charge as soon as available, a
copy of each report of the Company mailed to stockholders or filed with
the Commission, and (ii) during the period specified in subsection (f)
above, from time to time such other information concerning the Company as
you may reasonably request.

(k) During the period beginning on the date hereof and continuing
to and including the Closing Date, the Company shall not offer, sell,
contract to sell or otherwise dispose of any debt securities of the
Company or warrants to purchase debt securities of the Company
substantially similar to the Securities (other than (i) the Securities and
(ii) commercial paper issued in the ordinary course of business), without
the prior written consent of Morgan Stanley & Co. Incorporated, which
shall not be unreasonably withheld.

(l) The Company shall use the proceeds from the sale of the
Securities in the manner described in the Prospectus under the heading
"Use of Proceeds".

(m) The Company shall not voluntarily claim, and shall actively
resist any attempt to claim, the benefit of any usuary laws against the
holders of the Securities.

(n) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provision hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 or Section 11 hereof) or
if this Agreement shall be terminated by the Underwriters because of any
failure or refusal on the part of the Company to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to
reimburse you for all reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel for the Underwriters) incurred by
you in connection herewith.

6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:

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<PAGE>

(a) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The registration
statement in the form in which it became or becomes effective and also in
such form as it may be when any post-effective amendment thereto shall
become effective and the Prospectus and any supplement or amendment
thereto when filed with the Commission under Rule 424(b) under the Act,
complied or will comply in all material respects with the provisions of
the Act; the Registration Statement does not and will not at any such
time contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Prospectus and any supplement
or amendment thereto will not at any such time contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
except that this representation and warranty does not apply (A) to
statements in or omissions from the registration statement or the
Prospectus made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by or on
behalf of any Underwriter through you expressly for use therein or (B) to
that part of the Registration Statement that constitutes the Statement of
Eligibility (Form T-1) under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), of the Trustee (the "Form T-1").

(b) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the provisions of the Act.

(c) The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act, and any further Incorporated
Documents so filed will, when they are filed, conform in all material
respects with the requirements of the Exchange Act; no such document
when it was filed (or, if an amendment with respect to any such document
was filed, when such amendment was filed), contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
and no such further document, when it is filed, will contain an untrue
statement of a material fact or will omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.

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<PAGE>

(d) All of the Company's subsidiaries (collectively, the
"Subsidiaries") are listed in an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, which is incorporated by
reference into the Registration Statement. The Company and each of the
Subsidiaries that is a "significant subsidiary" (as defined in Regulation
S-X under the Act) (collectively, the "Significant Subsidiaries") has been
duly organized, is validly existing (if applicable, as a corporation in
good standing) under the laws of its jurisdiction of organization and has
full corporate (or partnership) power and authority to carry on its
business as it is currently being conducted (and, in the case of the
Company, to execute, deliver and perform this Agreement) and to own,
lease and operate its properties, and each is duly qualified and is in
good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified could not reasonably be expected to have a material
adverse effect, singly or in the aggregate, on the condition (financial
or other), business, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole (a "Material Adverse
Effect").

(e) All of the issued and outstanding shares of capital stock of, or
other ownership interests in, each Significant Subsidiary have been duly
authorized and validly issued, and certain shares of capital stock of each
Significant Subsidiary are owned, directly or through Subsidiaries, by the
Company as set forth on Exhibit 21 to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994. All such shares or
other ownership interests in each Significant Subsidiary are fully paid
and nonassessable, and are free and clear of any security interest,
mortgage, pledge, claim, lien or encumbrance (each, a "Lien"), except for
Liens that are in the aggregate immaterial to the business of the Company
and the Subsidiaries, taken as a whole. There are no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale, or Liens related to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of any
Significant Subsidiary.

(f) Neither the Company nor any of the Significant Subsidiaries is
in violation of or in default in the performance of any of their
respective charters or bylaws (or partnership agreements, as the case may
be) or any bond, debenture, note or any other evidence of indebtedness or
any indenture, mortgage, deed of trust or other contract, lease or other
instrument to which the Company or any of the Significant Subsidiaries is
a party or by which it or any of them is bound, or to which any of the
property or assets of

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<PAGE>

the Company or any of the Significant Subsidiaries is subject, except as
could not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

(g) This Agreement has been duly and validly executed and delivered
by the Company, and constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms
(assuming the due execution and delivery thereof by you), except as rights
to indemnity and contribution hereunder may be limited by Federal or state
securities laws, court decisions or public policy.

(h) The Indenture has been duly qualified under the Trust Indenture
Act and has been duly authorized by all necessary corporate action of the
Company, and when duly executed and delivered by the Company in accordance
with its terms (assuming the due execution and delivery thereof by the
Trustee), will be a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except to
the extent that a waiver of rights under any usury laws may be
unenforceable and subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws, now or hereafter
in effect, relating to or affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether
enforcement is sought at law or in equity).

(i) The Securities have been duly authorized by the Company and on
the Closing Date, the Indenture and the Securities will have been duly
executed by the Company and will conform in all material respects to the
descriptions thereof in the Prospectus. When the Securities are issued,
executed and authenticated in accordance with the Indenture and paid for
in accordance with the terms of this Agreement, the Securities will be
legal, valid and binding obligations of the Company enforceable against
the Company in accordance with their terms and entitled to the benefits
of the Indenture, except to the extent that a waiver of rights under any
usury laws may be unenforceable and subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar
laws, now or hereafter in effect, relating to or affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought at law or in equity).

(j) The execution and delivery of this Agreement, the Indenture and
the Securities by the Company and the performance of this Agreement, the
Indenture and the Securities (i) does not require any consent, approval,
authorization or order of or registration or filing with any

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<PAGE>

court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be
required for the registration of the Securities under the
Act and the Trust Indenture Act and compliance with the
state securities or Blue Sky laws of various jurisdictions,
all of which have been or will be effected in accordance
with this Agreement) and (ii) will not conflict with or
result in a breach of any of the terms or provisions of, or
constitute a default or cause an acceleration of any
obligation under, any of the respective charters or bylaws
(or partnership agreements, as the case may be) of the
Company or any of the Significant Subsidiaries or any
material bond, note, debenture or other evidence of
indebtedness or any material indenture, mortgage, deed of
trust or other material contract, lease or other instrument
to which the Company or any of the Significant Subsidiaries
is a party or by which any of them is bound, or to which any
of the property or assets of the Company or any of the
Significant Subsidiaries is subject, or any order of any
court or governmental agency or authority entered in any
proceeding to which the Company or any of the Significant
Subsidiaries was or is a party or by which any of them is
bound or (solely with respect to actions by the Company or
the Significant Subsidiaries) violate any applicable
Federal, state or local law, rule, administrative regulation
or ordinance or administrative or court decree, any of the
foregoing of which could, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

(k) Except as disclosed in the Registration Statement
and the Prospectus, there is no action, suit or proceeding
before or by any court or governmental agency or body,
domestic or foreign, pending against the Company or any of
the Significant Subsidiaries that is required to be
disclosed in the Registration Statement or the Prospectus,
or that could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect or materially and
adversely to affect the performance of the Company's
obligations pursuant to this Agreement, the Indenture or the
Securities and, to the best of the Company's knowledge, no
such proceedings are contemplated or threatened. No action
has been taken with respect to the Company or any of the
Significant Subsidiaries, and no statute, rule or regulation
or order has been enacted, adopted or issued by any
governmental agency that suspends the effectiveness of the
Registration Statement, prevents or suspends the use of any
Prepricing Prospectus or suspends the sale of the Securities
in any jurisdiction referred to in Section 5(h) hereof; no
injunction, restraining order or order of any nature by a
Federal or state court of competent jurisdiction has been
issued with respect to the Company or any of the Significant
Subsidiaries that suspends the effectiveness of the
Registration Statement, prevents or suspends the use of any

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<PAGE>

Prepricing Prospectus or suspends the sale of the Securities
in any jurisdiction referred to in Section 5(h) hereof;
other than the litigation matters or proceedings described
in the Prospectus under the captions "Business -- Legal
Proceedings", no action, suit or proceeding before any court
or arbitrator or any governmental body, agency or official
(domestic or foreign), is pending against or, to the best of
the Company's knowledge, threatened against, the Company or
any of the Significant Subsidiaries that, if adversely
determined, could, singly or in the aggregate, reasonably be
expected in any manner to invalidate this Agreement, the
Indenture or the Securities; and every request of the
Commission, or any securities authority or agency of any
jurisdiction, for additional information (to be included in
the Registration Statement or the Prospectus or otherwise)
has been complied with in all material respects. No
contract or document of a character required to be described
in the Registration Statement or the Prospectus or to be
filed as an exhibit to or incorporated by reference in the
Registration Statement is not so described or filed or
incorporated by reference as required.

(l) The firm of accountants that has certified or
shall certify the applicable consolidated financial
statements and supporting schedules of the Company filed or
to be filed with the Commission as part of the Registration
Statement and the Prospectus are independent public
accountants with respect to the Company and the
Subsidiaries, as required by the Act and the Exchange Act.
The consolidated financial statements, together with related
notes, set forth in the Prospectus and the Registration
Statement comply as to form in all material respects with
the requirements of the Act and the Exchange Act and fairly
present, in all material respects, the financial position of
the Company and the Subsidiaries at the respective dates
indicated and the results of their operations and their cash
flows for the respective periods indicated, in accordance
with generally accepted accounting principles in the United
States of America consistently applied throughout such
periods, except as disclosed in the notes to such financial
statements; and the other financial and statistical
information and the supporting schedules included in the
Prospectus and in the Registration Statement present fairly,
in all material respects, the information required to be
stated therein.

(m) Except as disclosed in the Registration Statement,
subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus,
(i) neither the Company nor any of the Significant
Subsidiaries has incurred any liabilities or obligations,
direct or contingent, that are material to the Company and
the Subsidiaries, taken as a whole, nor entered into any

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<PAGE>

transaction not in the ordinary course of business that is
material to the Company and the Subsidiaries, taken as a
whole, (ii) there has been no decision or judgment in the
nature of litigation adverse to the Company or any of the
Significant Subsidiaries, and (iii) there has been no
material adverse change in the condition (financial or
other), business, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole (any of the
above, a "Material Adverse Change").

(n) Neither the Company nor any of the Subsidiaries is
involved in any labor dispute nor, to the best of the
Company's knowledge, is any labor dispute imminent, other
than routine disciplinary and grievance matters, and the
Company is not aware (without any independent verification)
of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers
or contractors, that could reasonably be expected to result
in a Material Adverse Effect.

(o) The Company and each of the Significant
Subsidiaries possess such licenses, certificates,
authorizations, approvals, franchises, trademarks, service
marks, trade names, permits and other rights issued by
local, state, federal or foreign regulatory agencies or
bodies as are necessary to conduct the businesses now
conducted by them and the lack of which could reasonably be
expected to have a Material Adverse Effect on the Company
and the Subsidiaries, taken as a whole, and neither the
Company nor any of the Significant Subsidiaries has, to be
the best of the Company's knowledge, received any notice of
proceedings relating to the revocation or modification of
any such certificate, authorization, approval, franchise,
trademark, service mark, trade name, permit or right that,
if the subject of any unfavorable decision, ruling or
finding, could reasonably be expected to have a Material
Adverse Effect.

(p) The Company has not and, to the best of the
Company's knowledge, none of the Subsidiaries nor any
employee or agent of the Company has, directly or
indirectly, paid or delivered any fee, commission or other
sum of money or item or property, however characterized, to
any finder, agent, government official or other party, in
the United States or any other country, that is in any
manner related to the business or operations of the Company
that the Company knows or has reason to believe to have been
illegal under any federal, state or local laws of the United
States or any other country having jurisdiction; and the
Company has not participated, directly or indirectly, in any
boycotts or other similar practices in contravention of law
affecting any of its actual or potential customers.

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<PAGE>

(q) All material tax returns required to be filed by
the Company or any of the Subsidiaries in any jurisdiction
have been filed, other than those filings being contested in
good faith, and all material taxes, including withholding
taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from such entities have
been paid, other than those being contested in good faith or
for which adequate reserves have been provided or those
currently payable without penalty or interest.

(r) Except as disclosed in the Prospectus or except as
could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect, (a) to the best
of the Company's knowledge, neither the Company nor the
Subsidiaries is in violation of any Federal, state or local
law or regulation relating to pollution or protection of
public heath or welfare or the environment, including,
without limitation, the storage, handling, transportation,
emissions, discharges, releases or threatened releases of
pollutants, contaminates, hazardous or toxic materials,
substances or wastes, or petroleum or petroleum products
("Environmental Laws"), (b) the Company and each of the
Subsidiaries have received all permits, licenses or other
approvals required of them under applicable Environmental
Laws to conduct their respective businesses, and the Company
and each of the Subsidiaries are in compliance with all
terms and conditions of any such permit, license or approval
and (c) neither the Company nor, to the best of the
Company's knowledge, any of the Subsidiaries, has received
any notice or communication from any governmental agency or
any written notice from any other person regarding violation
of or liability under Environmental Laws and (d) there is no
pending action or proceeding, or to the best of the
Company's knowledge, pending or threatened claim or
investigation against the Company or any of the Subsidiaries
regarding violation of or liability under Environmental Laws.

(s) To the best of the Company's knowledge, there are
no costs and liabilities associated with Environmental Laws
that could, in the aggregate, reasonably be expected to have
a Material Adverse Effect.

(t) To the best of the Company's knowledge, neither
the Company nor any of the Subsidiaries has (A) violated any
Federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable
wage or hour laws, nor any provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") or the
rules and regulations promulgated thereunder, or (B) engaged
in any unfair labor practice that, with respect to any
matter specified in clause (A) or (B) above, could
reasonably be expected to result, singly or in the

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<PAGE>

aggregate, in a Material Adverse Effect. There is (i) no
significant unfair labor practice complaint pending against
the Company or any of the Subsidiaries or, to the best of
the Company's knowledge, threatened against any of them,
before the National Labor Relations Board or any state or
local labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under
any collective bargaining agreement is so pending against
the Company or any of the Subsidiaries or, to the best of
the Company's knowledge, threatened against any of them and
(ii) to the best of the Company's knowledge, no union
representation question existing with respect to the
employees of the Company or any of the Subsidiaries and, to
the best of the Company's knowledge, no union organizing
activities are taking place, except (with respect to any
matter specified in clause (i) or (ii) above) such as would
not, singly or in the aggregate, have a Material Adverse
Effect.

(u) To the best of the Company's knowledge, (i) each
of the Company and the Subsidiaries has good and marketable
title to all property (real and personal) described in the
Prospectus as being owned by it, in fee simple in the case
of real property (other than in the case of certain
buildings the land under which is leased to the Company
pursuant to long-term leases that are valid, subsisting and
enforceable against the Company), free and clear of all
liens, claims, security interests or other encumbrances
except such as are described in the Registration Statement
and the Prospectus or in a document filed as an exhibit to
the Registration Statement and (ii) all the property
described in the Registration Statement and the Prospectus
as being held under lease by each of the Company and the
Significant Subsidiaries is held by it under valid,
subsisting and enforceable leases, except (with respect to
any matter specified in clause (i) or (ii) above) such as
would not, singly or in the aggregate, have a Material
Adverse Effect.

(v) Other than as described in the Registration
Statement and the Prospectus, no holder of any security of
the Company has any right to require registration of any
security of the Company because of the filing of the
registration statement or consummation of the transactions
contemplated by this Agreement.

(w) The Company has complied with all provisions of
Florida Statutes, Section 517.075, relating to issuers doing
business with Cuba.

7. INDEMNIFICATION AND CONTRIBUTION. (a) The
Company agrees to indemnify and hold harmless each of you and
each other Underwriter and each person, if any, who controls any

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<PAGE>

Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon
any untrue statement or alleged untrue statement of a material
fact contained in any Prepricing Prospectus or in the
Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein (in
the case of the any Prepricing Prospectus or the Prospectus, in
the light of the circumstances under which they were made) not
misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission
that has been made therein or omitted therefrom in reliance upon
and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf
of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained
in this subsection (a) with respect to any Prepricing Prospectus
shall not inure to the benefit of any Underwriter (or to the
benefit of any person controlling such Underwriter) on account of
any such loss, claim, damage, liability or expense arising from
the sale of the Securities by such Underwriter to any person if a
copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the
regulations thereunder, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material
fact contained in such Prepricing Prospectus was corrected in the
Prospectus, provided that the Company has delivered the
Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability that
the Company may otherwise have.

(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter
in respect of which indemnity may be sought against the Company,
such Underwriter or such controlling person shall promptly notify
the parties against whom indemnification is being sought (the
"indemnifying parties"), and such indemnifying parties shall
assume the defense thereof, including the employment of counsel
and payment of all fees and expenses. Such Underwriter or any
such controlling person shall have the right to employ separate
counsel in any such action, suit or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling
person unless (i) the indemnifying parties have agreed in writing
to pay such fees and expenses, (ii) the indemnifying parties have
failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including
any impleaded parties) include both such Underwriter or such

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<PAGE>

controlling person and the indemnifying parties and such
Underwriter or such controlling person shall have been advised by
its counsel that representation of such indemnified party and any
indemnifying party by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or
not such representation by the same counsel has been proposed)
due to actual or potential differing interests between them (in
which case the indemnifying party shall not have the right to
assume the defense of such action, suit or proceeding on behalf
of such Underwriter or such controlling person). It is
understood, however, that the indemnifying parties shall, in
connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all
such Underwriters and controlling persons, which firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, and
that all such fees and expenses shall be reimbursed as they are
incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected
without their written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree
to indemnify and hold harmless any Underwriter, to the extent
provided in the preceding paragraph, and any such controlling
person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.

(c) Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and
any person who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, to
the same extent as the foregoing indemnity from the Company to
each Underwriter, but only with respect to information relating
to such Underwriter furnished in writing by or on behalf of such
Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Company, any of its
directors, any such officer or any such controlling person based
on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter
pursuant to this subsection (c), such Underwriter shall have the
rights and duties given to the indemnifying parties by subsection
(b) above (except that if the Company shall have assumed the
defense thereof such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the
defense thereof, but the fees and expenses of such counsel shall
be at such Underwriter's expense), and the Company, its

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<PAGE>

directors, any such officer and any such controlling person shall
have the rights and duties given to the Underwriters by
subsection (b) above. The foregoing indemnity agreement shall be
in addition to any liability that any Underwriter may otherwise
have.

(d) If the indemnification provided for in this
Section 7 is unavailable to an indemnified party under subsection
(a) or (c) above in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the
Securities, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company
on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Under-
writers on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the
Company on the one hand or by the Underwriters on the other hand
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission.

(e) The Company and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this
Section 7 were determined by a pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the
equitable considerations referred to in subsection (d) above.
The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities and expenses referred to
in subsection (d) above shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no

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<PAGE>

Underwriter shall be required to contribute any amount in excess
of the amount by which the total price of the Securities
underwritten by it and distributed to the public exceeds the
amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section
7 are several in proportion to the respective principal amounts
of Securities set forth opposite their names in Schedule I hereto
(or such principal amounts of securities increased as set forth
in Section 10 hereof) and not joint.

(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement
of any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action,
suit or proceeding.

(g) Any losses, claims, damages, liabilities or
expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be
paid by the indemnifying party to the indemnified party as such
losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company
set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or
on behalf of any Underwriter or any person controlling any
Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Securities and
payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or
officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 7.

8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The
several obligations of the Underwriters to purchase the
Securities hereunder are subject to the following conditions:

(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or
a post-effective amendment thereto to be declared effective
before the offering of the Securities may commence, the
registration statement or such post-effective amendment

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<PAGE>

shall have become effective not later than 5:30 P.M., New
York City time, on the date hereof, or at such later date
and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424, 430A and 434 under
the Act shall have been timely made; no stop order
suspending the effectiveness of the registration statement
shall have been issued and no proceeding for that purpose
shall have been instituted or, to the knowledge of the
Company or any Underwriter, threatened by the Commission,
and any request of the Commission for additional information
(to be included in the registration statement or the
Prospectus or otherwise) shall have been complied with to
your satisfaction.

(b) Subsequent to the effective date of this
Agreement, there shall not have occurred (i) any downgrading
or any notice of any intended or potential downgrading or of
any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any
of the Company's securities by any "nationally recognized
statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act,
(ii) any change in or affecting the condition (financial or
other), business, properties, net worth, or results of
operations of the Company or the Subsidiaries not
contemplated by the Prospectus, that, in your reasonable
opinion, would materially adversely affect the market for
the Securities, or (iii) any event or development relating
to or involving the Company or any officer or director of
the Company that makes any statement made in the Prospectus
untrue in any material respect or that, in the opinion of
the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in
the Prospectus in order to state a material fact required by
the Act or any other law to be stated therein or necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if
amending or supplementing the Prospectus to reflect such
event or development would, in your reasonable opinion,
materially adversely affect the market for the Securities.

(c) You shall have received on the Closing Date, an
opinion of Latham & Watkins, counsel for the Company, dated
the Closing Date and addressed to the several Underwriters,
to the effect that:

(i) the Securities, when executed and
authenticated in accordance with the terms of the
Indenture and delivered to and paid for by you in
accordance with the terms of this Agreement, will
constitute valid and binding obligations of the Company
enforceable against the Company in accordance with
their terms, subject to applicable bankruptcy,

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<PAGE>
insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws then or thereafter in
effect relating to or affecting rights and remedies of
creditors, and to general principles of equity
(regardless of whether enforcement is sought in a
proceeding at law or in equity) and to the discretion
of the court before which any proceeding therefor may
be brought;

(ii) the Indenture, assuming due authorization,
execution and delivery thereof by the Trustee, will be
a valid and binding agreement of the Company,
enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and
similar laws then or thereafter in effect relating to
or affecting rights and remedies of creditors, and to
general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in
equity) and to the discretion of the court before which
any proceeding therefor may be brought;

(iii) the Securities and the Indenture conform in
all material respects to the descriptions thereof
contained in the Registration Statement and the
Prospectus under the heading "Description of Senior Notes";

(iv) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and,
to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued
under the Act and no proceedings therefor have been initiated by
the Commission; and any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) or Rule 434 under the
Act has been made in the manner and within the time period required
by Rule 424(b) and Rule 430A under the Act; the Indenture has
been duly qualified under the Trust Indenture Act;

(v) To the best of such counsel's knowledge no
consent, approval, authorization or order of, or filing
with, any federal or New York court or governmental
agency or body is required to be obtained or made by
the Company for the consummation of the sale of the
Securities by the Company pursuant to this Agreement,
except (A) such as have been obtained under the Act and
the Trust Indenture Act and (B) such as may be required
under the state securities laws in connection with the
purchase and distribution of the Securities by the Underwriters;

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<PAGE>

(vi) The Registration Statement and the Prospectus
comply as to form in all material respects with the
requirements for registration statements on Form S-3
under the Act and the rules and regulations of the
Commission thereunder; it being understood, however,
that such counsel need express no opinion with respect
to (A) the financial statements, schedules and other
financial and statistical data included in the
Registration Statement or the Prospectus or
incorporated therein or (B) the Form T-1. In passing
upon the compliance as to form of the Registration
Statement and the Prospectus, such counsel may assume
that the statements made and incorporated by reference
therein are correct and complete;

(vii) Neither the purchase of the Securities by the
Underwriters nor the sale of the Securities by the
Company pursuant to the terms of this Agreement will
result in the breach of or a default under those
agreements identified to such counsel by an officer of
the Company as material to the Company; and

(viii) The statements set forth in the Prospectus in
the first, second and seventh paragraphs under the
heading "Underwriters", insofar as such statements
constitute a summary of legal matters, are accurate in
all material respects.

Such opinion may be limited to the internal laws of the
State of New York and the Federal laws of the United States.
Such counsel may rely as to factual matters on certificates
of officers of the Company and of state officials, in which
case their opinion shall state that they are so doing. Such
opinion also shall take further exceptions that shall be
reasonably acceptable to the Underwriters.

In addition, such counsel shall state that such counsel
has participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company,
representatives of the Underwriters and their counsel, at
which the contents of the Registration Statement and
Prospectus and related matters were discussed and, although
such counsel need not pass upon and need not assume any
responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement
and the Prospectus and such counsel may state that they have
made no independent check or verification thereof, during
the course of such participation, (relying as to materiality
to a large extent upon the statements of officers and other
representatives of the Company), no facts came to such
counsel's attention that caused such counsel to believe that
the Registration Statement (as amended or supplemented, if

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<PAGE>

applicable, and including the Incorporated Documents), at
the time such Registration Statement or any post-effective
amendment became effective, contained an untrue statement of
a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus (including
the Incorporated Documents) as amended or supplemented, as
of its date and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made,
not misleading; it being understood that such counsel need
express no belief with respect to (i) the financial
statements, schedules and other financial and statistical
data included in the Registration Statement or the
Prospectus or incorporated therein or (ii) the Form T-1.

(d) You shall have received on the Closing Date, an
opinion of John F. Schmutz, Esq., Vice President and General
Counsel of the Company, dated the Closing Date and addressed
to the several Underwriters, to the effect that:

(i) To the best of such counsel's knowledge, no
authorization, approval, consent or order of, or
registration or filing with, any court or governmental
authority or agency is required to be obtained or made
by the Company for the valid sale of the Securities to
you, except (A) such as have been obtained under the
Act and the Trust Indenture Act and (B) such as may be
required under the state securities or Blue Sky laws or
regulations of any jurisdiction in the United States in
connection with the purchase and distribution of the
Securities by the Underwriters;

(ii) The Company has corporate power and authority
to enter into this Agreement, the Indenture and the
Securities and each of this Agreement, the Indenture
and the Securities has been duly authorized by all
necessary corporate action by the Company, and each of
this Agreement and the Indenture has been duly executed
and delivered by the Company;

(iii) Neither the purchase of the Securities by the
Underwriters nor the sale of the Securities by the
Company pursuant to the terms of this Agreement will
conflict with or constitute a breach of or a default
under the certificate or articles of incorporation or
bylaws, or other organizational documents, of the
Company or any of the Significant Subsidiaries or the
terms of any material agreement or instrument to which
the Company or any of the Significant Subsidiaries is a
party or by which any of them is bound, or to which any
of the properties of the Company or any of the

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<PAGE>

Significant Subsidiaries is subject, or will result in
the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company
or any of the Significant Subsidiaries, or result in
any violation of any statute, rule or regulation
applicable to the Company or, to the best of such
counsel's knowledge, any judgment, injunction, order or
decree of any court or governmental agency or body
having jurisdiction over the Company or any of the
Significant Subsidiaries or any of their respective
properties;

(iv) Each of the Company and, to the best of such
counsel's knowledge, the Significant Subsidiaries that
is a corporation has been duly incorporated and is
validly existing and is a corporation in good standing
under the laws of its jurisdiction of its
incorporation, and each of the Company and, to the best
of such counsel's knowledge, the Significant
Subsidiaries has the corporate (or partnership) power
and authority and all necessary governmental
authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all
governmental regulatory officials and bodies to own and
operate its properties and to conduct its business as
described in the Registration Statement and the
Prospectus and is duly qualified to do business as a
foreign corporation and is in good standing under the
laws of each jurisdiction in which such qualification
is required wherein it owns or leases material property
or conducts business, except where the failure so to
qualify could not reasonably be expected to have a
Material Adverse Effect;

(v) All of the issued and outstanding capital
stock of, or other ownership interests in, each
Significant Subsidiary has been duly authorized and
validly issued, and is fully paid and nonassessable
and, except as otherwise set forth in the Registration
Statement and the Prospectus, certain shares of capital
stock of, or other ownership interests in, each
Significant Subsidiary are owned by the Company, either
directly or through Subsidiaries, as set forth on
Exhibit 21 to the Company's annual report on Form 10-K
for the fiscal year ended December 31, 1994, free and
clear of any perfected security interest or, to the
best of such counsel's knowledge, any other security
interests, claims, liens, equities or encumbrances;

(vi) Except as described in the Registration
Statement and the Prospectus, there is no holder of any
security of the Company or any other person who has the
right, contractual or otherwise, to cause the Company

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<PAGE>

to sell or otherwise issue to them, or to permit them
to underwrite the sale of, the Securities or the right
to have any securities of the Company included in the
registration statement or the right, as a result of the
filing of the registration statement, to require
registration under the Act of any securities of the
Company;

(vii) To the best of such counsel's knowledge
(A) there are no franchises, contracts, indentures,
mortgages, leases, loan agreements, notes or other
agreements or instruments to which the Company or any
Significant Subsidiary is a party or by which any of
them may be bound that are required to be described in
the Registration Statement or the Prospectus or to be
filed as exhibits to or incorporated by reference in
the Registration Statement other than those described
therein or filed or incorporated by reference as
exhibits thereto, (B) no default exists in the due
performance or observance of any obligation, agreement,
covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or
other instrument, except for defaults that would not,
singly or in the aggregate, have a Material Adverse
Effect and (C) the statements in the Prospectus under
the caption "Business -- Legal Proceedings" insofar as
they relate to statements of law or legal conclusions,
are accurate in all material respects;

(viii) The Company and the Significant Subsidiaries
own all patents, trademarks, trademark registrations,
service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by
them or any of them or necessary for the conduct of
their respective businesses, and such counsel is not
aware of any claim to the contrary or any challenge by
any other person to the rights of the Company and the
Significant Subsidiaries with respect to the foregoing;

(ix) To the best of such counsel's knowledge,
there is no current, pending or threatened action, suit
or proceeding before any court or governmental agency,
authority or body or any arbitrator involving the
Company or any of the Significant Subsidiaries or any
of their respective properties of a character required
to be disclosed in the Registration Statement and the
Prospectus that is not adequately so disclosed;

(x) At the time it became effective and on the
Closing Date, the Registration Statement (except for
(A) financial statements, the notes thereto and related
schedules and other financial, numerical, statistical

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<PAGE>

or accounting data included therein or omitted
therefrom and (B) the Form T-1, as to which no opinion
need be expressed) and the Prospectus complied and
complies as to form in all material respects with the
applicable requirements of the Act; and each of the
Incorporated Documents (except for financial
statements, the notes thereto and related schedules and
other financial, numerical, statistical or accounting
data included therein or omitted therefrom, as to which
no opinion need be expressed) complies as to form in
all material respects with the Exchange Act;

(xi) The statements in the Registration Statement
and the Prospectus, insofar as they are descriptions of
contracts, agreements or other legal documents, or
refer to statements of law or legal conclusions, are
accurate and present fairly the information required to
be shown; and

(xii) Neither the Company nor any of the
Subsidiaries is an "investment company" required to be
registered under Section 8 of the Investment Company
Act of 1940, as amended (the "Investment Company Act"),
or an entity "controlled by an investment company"
required to be registered under Section 8 of the
Investment Company Act.

Such opinion may be limited to the internal laws of the
State of Texas and the Federal laws of the United States.
Such opinion shall take further exceptions that shall be
reasonably acceptable to the Underwriters.

In addition, such counsel shall state that such counsel
has participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, your
representatives and your counsel, at which the contents of
the Registration Statement and Prospectus (including the
Incorporated Documents) and related matters were discussed
and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement and the Prospectus, on the basis of the foregoing,
relying as to the factual matters underlying the
determination of materiality to a large extent upon the
statements of officers and other representatives of the
Company, no facts came to such counsel's attention that
caused such counsel to believe that the Registration
Statement (as amended or supplemented, if applicable, and
including the Incorporated Documents), at the time such
Registration Statement or any post-effective amendment
became effective, contained an untrue statement of a
material fact or omitted to state a material fact required

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<PAGE>

to be stated therein or necessary to make the statements
therein not misleading (other than information omitted
therefrom in reliance on Rule 430A under the Act), or the
Prospectus, as amended or supplemented, as of its date and
as of the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; it
being understood that such counsel need express no belief
with respect to (i) the financial statements, schedules and
other financial and statistical data included in the
Registration Statement or the Prospectus or incorporated
therein or (ii) the Form T-1.

(e) You shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the
Underwriters, dated the Closing Date and addressed to the
several Underwriters, with respect to the matters referred
to in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii)
and in the last paragraph of subsection (c) above and such
other related matters as you may request.

(f) You shall have received letters addressed to the
several Underwriters, and dated the date hereof and the
Closing Date from KPMG Peat Marwick LLP, independent
certified public accountants, substantially in the forms
heretofore approved by you.

(g) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued and no
proceedings for that purpose shall have been taken or, to
the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company
nor any material increase in the short-term or long-term
debt of the Company (other than in the ordinary course of
business) from that set forth or contemplated in the
Prospectus (or any amendment or supplement thereto);
(iii) there shall not have been, since the respective dates
as of which information is given in the Registration
Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the
Registration Statement and the Prospectus (or any amendment
or supplement thereto), any Material Adverse Change;
(iv) the Company and the Subsidiaries shall not have any
liabilities or obligations, direct or contingent (whether or
not in the ordinary course of business), that are material
to the Company and the Subsidiaries, taken as a whole, other
than those reflected in the Registration Statement and the
Prospectus (or any amendment or supplement thereto); and
(v) all the representations and warranties of the Company
contained in this Agreement and the International
Underwriting Agreement shall be true and correct in all

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<PAGE>

material respects on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the
Closing Date and signed by the chief executive officer and
the chief financial officer of the Company (or such other
officers as are acceptable to you), to the effect set forth
in this Section 8(g) and in Section 8(h) hereof.

(h) The Company shall not have failed at or prior to
the Closing Date to have performed or complied in all
material respects with any of its agreements herein
contained and required to be performed or complied with by
it hereunder at or prior to the Closing Date.

(i) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as
you shall have reasonably requested.

(j) The Underwriters shall have received evidence
reasonably satisfactory to them that all liens, claims,
security interests and other encumbrances in favor of the
lenders under the Company Credit Facility and the LQDP Lines
of Credit (each as defined in the Prospectus under the
caption "Use of Proceeds") to which any property (real or
personal) described in the Prospectus as being owned by the
Company is subject shall have been terminated by such
lenders prior to or simultaneously with the closing
hereunder.

All such opinions, certificates, letters and other
documents will be in compliance with the provisions hereof only
if they are reasonably satisfactory in form and substance to you
and your counsel.

Any certificate or document signed by any officer of
the Company and delivered to the Underwriters, or to counsel for
the Underwriters, shall be deemed a representation and warranty
by the Company to each Underwriter as to the statements made
therein.

9. EXPENSES. The Company agrees to pay the following
costs and expenses and all other costs and expenses incident to
the performance by the Company of its obligations hereunder:
(i) the preparation, printing or reproduction, and filing with
the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the
Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and
packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, the Incorporated
Documents, and all amendments or supplements to any of them, as
may be reasonably requested for use in connection with the

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<PAGE>

offering and sale of the Securities; (iii) the preparation,
printing, authentication, issuance and delivery of the
Securities, including any stamp taxes in connection with the
original issuance and sale of the Securities; (iv) the printing
(or reproduction) and delivery of this Agreement, the Indenture,
the preliminary and supplemental Blue Sky Memoranda and all other
agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Securities; (v) the
registration or qualification of the Securities for offer and
sale under the state securities or Blue Sky laws of the several
states as provided herein (including the reasonable fees,
expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental Blue Sky Memoranda
and such registration and qualification); (vi) the filing fees
and the fees and expenses of counsel for the Underwriters in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc.; (vii) the transportation
and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective
purchasers of the Securities; and (viii) the fees and expenses of
the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company.

10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall
become effective: (i) upon the execution and delivery hereof by
the parties hereto; or (ii) if, at the time this Agreement is
executed and delivered, it is necessary for the registration
statement or a post-effective amendment thereto to be declared
effective before the offering of the Securities may commence,
when notification of the effectiveness of the registration
statement or such post-effective amendment has been released by
the Commission. Until such time as this Agreement shall have
become effective, it may be terminated by the Company by
notifying you, or by you, on behalf of the several Underwriters,
by notifying the Company.

If any one or more of the Underwriters shall fail or
refuse to purchase Securities that it or they are obligated to
purchase hereunder on the Closing Date, and the aggregate
principal amount of Securities that such defaulting Underwriter
or Underwriters are obligated but fail or refuse to purchase is
not more than one-tenth of the aggregate principal amount of
Securities that the Underwriters are obligated to purchase on the
Closing Date, each non-defaulting Underwriter shall be obligated,
severally, in the proportion that the principal amount of
Securities set forth opposite its name in Schedule I hereto bears
to the aggregate principal amount of Securities set forth
opposite the names of all non-defaulting Underwriters or in such
other proportion as you may specify, to purchase the Securities
that such defaulting Underwriter or Underwriters are obligated,
but fail or refuse, to purchase; PROVIDED that in no event shall
the principal amount of Securities that any Underwriter has

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<PAGE>

agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 10 by an amount in excess of one-ninth
of such principal amount of Securities without the written
consent of such Underwriter. If any one or more of the
Underwriters shall fail or refuse to purchase Securities that it
or they are obligated to purchase on the Closing Date and the
aggregate principal amount of Securities with respect to which
such default occurs is more than one-tenth of the aggregate
principal amount of Securities that the Underwriters are
obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such
Securities by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made
within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting
Underwriter or the Company. In any such case that does not
result in termination of this Agreement, any of you or the
Company shall have the right to postpone the Closing Date, but in
no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus
or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I
hereto who, with your approval and the approval of the Company
purchases Securities that a defaulting Underwriter is obligated,
but fails or refuses, to purchase.

Any notice under this Section 10 may be given by
telegram, telecopy or telephone but shall be subsequently
confirmed by letter.

11. TERMINATION OF AGREEMENT. This Agreement shall be
subject to termination in your absolute discretion, without
liability on the part of any Underwriter to the Company by notice
to the Company if prior to the Closing Date (i) trading in
securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been
suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York or Texas shall have
been declared by either federal or state authorities, or
(iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis
or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is
such as to make it, in your reasonable judgment, impracticable or
inadvisable to commence or continue the offering of the
Securities at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the
resale of the Securities by the Underwriters. Notice of such

-30-

<PAGE>
termination may be given to the Company by telegram, telecopy or
telephone and shall be subsequently confirmed by letter.

12. INFORMATION FURNISHED BY THE UNDERWRITERS. The
statements set forth in the last paragraph on the cover page, the
stabilization legend on the inside cover page, and the statements
in the third paragraph under the caption "Underwriters" in any
Prepricing Prospectus and in the Prospectus constitute the only
information furnished by or on behalf of the Underwriters through
you expressly for use therein as such information is referred to
in Sections 6(a) and 7 hereof.

13. MISCELLANEOUS. Except as otherwise provided in
Sections 5, 10 and 11 hereof, notice given pursuant to any
provision of this Agreement shall be in writing and shall be
delivered (i) if to the Company, at the office of the Company at
Weston Centre, 112 E. Pecan Street, P.O. Box 2636, San Antonio,
Texas 78299-2636, Attention: John F. Schmutz, Esq., Vice
President and General Counsel; or (ii) if to the Underwriters,
care of Morgan Stanley & Co. Incorporated, 1251 Avenue of the
Americas, New York, New York 10020, Attention: [ ].

This Agreement has been and is made solely for the
benefit of the several Underwriters, the Company, its directors
and officers and the other controlling persons referred to in
Section 7 hereof and their respective successors and assigns, to
the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the
term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from any Underwriter of
any of the Securities in his status as such purchaser.

13. APPLICABLE LAW; COUNTERPARTS. This Agreement
shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be
performed within the State of New York.

This Agreement may be signed in various counterparts
that together constitute one and the same instrument. If signed
in counterparts, this Agreement shall not become effective unless
at least one counterpart hereof shall have been executed and
delivered on behalf of each party hereto.

-31-

<PAGE>

Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.

Very truly yours,

LA QUINTA INNS, INC.

By:__________________________________
Name:
Title:

Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
NationsBanc Capital Markets, Inc.

Acting severally on behalf
of themselves and on behalf
of the other several
Underwriters named herein.

By Morgan Stanley & Co.
Incorporated

By:_____________________________
Name:
Title:

-32-

<PAGE>

SCHEDULE I

LA QUINTA INNS, INC.

<TABLE>
<CAPTION>
Principal Amount
Underwriters of Securities
------------ -----------------
<S> <C>
Morgan Stanley & Co. Incorporated. . . . . . . . . .
Donaldson, Lufkin & Jenrette
Securities Corporation. . . . . . . . . . . . . . .
NationsBanc Capital Markets, Inc. . . . . . . . . . .
[NAMES OF OTHER UNDERWRITERS] . . . . . . . . . . . . -----------------

Total . . . . . . . . . . . . . . . . . . . . . . . =================

</TABLE>

-1-

<PAGE>

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

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 AND DATING. . . . . . . . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . 17
SECTION 2.8 REPLACEMENT SECURITIES . . . . . . . . . . . . . . . . . . 21
SECTION 2.9 OUTSTANDING SECURITIES . . . . . . . . . . . . . . . . . . 21
SECTION 2.10 TEMPORARY SECURITIES . . . . . . . . . . . . . . . . . . . 22
SECTION 2.11 CANCELLATION . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.12 CUSIP NUMBERS. . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.13 DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.14 SERIES MAY INCLUDE TRANCHES. . . . . . . . . . . . . . . . 24

ARTICLE 3

REDEMPTION

SECTION 3.1 APPLICABILITY OF ARTICLE . . . . . . . . . . . . . . . . . 24

________________
*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. . . . . . . . . 24
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. . . . . . . . . . . . . . 32
SECTION 4.3 NEGATIVE PLEDGE. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.4 CERTAIN SALE AND LEASE-BACK TRANSACTIONS . . . . . . . . . 35
SECTION 4.5 CERTIFICATE TO TRUSTEE . . . . . . . . . . . . . . . . . . 36
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. . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.2 ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.3 OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.4 WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . . 42
SECTION 6.5 CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . . . 42
SECTION 6.6 LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . . 43
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT . . . . . . . . . . . 43
SECTION 6.8 COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . . 44
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . . 44
SECTION 6.10 APPLICATION OF PROCEEDS. . . . . . . . . . . . . . . . . . 44

<PAGE>

Page
SECTION 6.11 RESTORATION OF RIGHTS AND REMEDIES . . . . . . . . . . . . 46
SECTION 6.12 UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . . 46
SECTION 6.13 RIGHTS AND REMEDIES CUMULATIVE . . . . . . . . . . . . . . 46
SECTION 6.14 DELAY OR OMISSION NOT WAIVER . . . . . . . . . . . . . . . 46

ARTICLE 7

TRUSTEE

SECTION 7.1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.2 CERTAIN RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . 47
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . 49
SECTION 7.4 TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . . 50
SECTION 7.5 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . 50
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS. . . . . . . . . . . . . . . 50
SECTION 7.7 COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . . 50
SECTION 7.8 REPLACEMENT OF TRUSTEE. . .. . . . . . . . . . . . . . . . 51
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC . . . . . . . . . . . . . 53
SECTION 7.10 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 7.11 MONEY HELD IN TRUST. . . . . . . . . . . . . . . . . . . . 53

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. . . . . . . . . . . . . . . . . . . . 56
SECTION 8.4 APPLICATION OF TRUST MONEY . . . . . . . . . . . . . . . . 57
SECTION 8.5 REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . . . . 57

ARTICLE 9

AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.1 WITHOUT CONSENT OF HOLDERS . . . . . . . . . . . . . . . . 58
SECTION 9.2 WITH CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . . 59
SECTION 9.3 REVOCATION AND EFFECT OF CONSENT . . . . . . . . . . . . . 60
SECTION 9.4 NOTATION ON OR EXCHANGE OF SECURITIES. . . . . . . . . . . 61

iii

<PAGE>

Page

SECTION 9.5 TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . . . 61
SECTION 9.6 CONFORMITY WITH TRUST INDENTURE ACT . . . . . . . . . . . 62

ARTICLE 10

MISCELLANEOUS

SECTION 10.1 TRUST INDENTURE ACT OF 1939 . . . . . . . . . . . . . . . 62
SECTION 10.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.3 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. . . . 63
SECTION 10.4 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . 64
SECTION 10.5 EVIDENCE OF OWNERSHIP . . . . . . . . . . . . . . . . . . 64
SECTION 10.6 RULES BY TRUSTEE, PAYING AGENT OR REGISTRAR . . . . . . . 65
SECTION 10.7 PAYMENT DATE OTHER THAN A BUSINESS DAY. . . . . . . . . . 65
SECTION 10.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 10.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . 66
SECTION 10.10 SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 10.11 DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . . . . 66
SECTION 10.12 SEPARABILITY. . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 10.13 TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . 66
SECTION 10.14 INCORPORATORS, STOCKHOLDERS, OFFICERS AND
DIRECTORS OF COMPANY EXEMPT FROM
INDIVIDUAL LIABILITY. . . . . . . . . . . . . . . . . . . 66
SECTION 10.15 JUDGMENT CURRENCY . . . . . . . . . . . . . . . . . . . . 67

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.

"Consolidated Net Worth" means, at any date of
determination, the consolidated stockholders' equity of the
Company, as set forth on the then most recently available
consolidated balance sheet of the Company and its
consolidated Subsidiaries.

"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 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 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 transactions
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 Securities 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 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 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
---- --------
<S> <C>

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

</TABLE>

<PAGE>

Term Section
---- --------
<S> <C>

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

</TABLE>

SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated 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 1.5 FORM AND DATING. 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) an Opinion of Counsel substantially to the effect
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 that the supplemental indenture, to the
extent applicable, and 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

<PAGE>
principles of equity, and such other matters as
shall be specified therein.

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,

12
<PAGE>

or upon redemption of, other Securities of the series
pursuant hereto);

(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;

13
<PAGE>

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

14
<PAGE>

other agents with respect to the Securities of the
series;

(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;

(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 SECURITIES; 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
of the Company executing the same may determine, as evidenced by their
execution thereof.

<PAGE>

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, registration 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 Securities 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. 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

16
<PAGE>

by a successor Agent to such Agent as evidenced by an appropriate agency
agreement entered into by the Company and such successor Agent and delivered
to the Trustee or (ii) notification to the Trustee that the Trustee shall
serve as such Agent until the appointment of a successor Agent in accordance
with clause (i) of this proviso. The Company or any affiliate of the Company
may act as Paying Agent or Registrar; 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 Indenture 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 writing of its action or failure to act
as required by this Section.

<PAGE>

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

18
<PAGE>

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. 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

19
<PAGE>

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

<PAGE>

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.

The Registrar shall not 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 issue and the Trustee shall authenticate a
replacement Security of such series and tenor and principal
amount bearing a number not contemporaneously outstanding.
If required by the Trustee or the Company, 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 from any loss that any of them may
suffer if a Security is replaced. The Company may charge
such Holder 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.

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

<PAGE>

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 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
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

<PAGE>

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 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

<PAGE>

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
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

<PAGE>

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 registry books. 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 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 the principal amount of each Security of such series
held by such Holder to be redeemed, the CUSIP numbers of the
Securities to be redeemed, the date fixed for redemption,
the redemption price, the place or places of payment, 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, that such
redemption is pursuant to the mandatory or optional sinking

<PAGE>

fund, or both, if such be the case, 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.

On or before 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 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 all of the
outstanding Securities of a series are to be redeemed, the
Company will deliver to the Trustee at least 10 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 stating that all such
Securities are to be redeemed. 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 stating the aggregate
principal amount of such Securities to be redeemed. In case
of a 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,

<PAGE>

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
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.

<PAGE>

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", 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)

<PAGE>

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
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

<PAGE>

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 (if requested in writing by the Company)
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 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

<PAGE>

necessary, sufficient for the purpose, to the payment of the Principal of,
and interest on, the Securities of such series at maturity.

On or before 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 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)

<PAGE>

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.

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

<PAGE>

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 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.

<PAGE>

SECTION 4.2 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, 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

<PAGE>

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 Consolidated 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 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 (C) the Company causes an amount equal to the
fair value (as determined by Board Resolution of the Company) of such
property to be applied to (1) to the purchase of other property that will

<PAGE>

constitute Principal Property with a fair value at least equal to the fair
value of the property sold or (2) 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 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 Consolidated Net Worth.

<PAGE>

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 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

<PAGE>

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.

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

<PAGE>

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 indebtedness (other than indebtedness
which is non-recourse to the Company and its Restricted Subsidiaries) in
excess of $15,000,000, whether such indebtedness 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 indebtedness, shall happen and be continuing and such
indebtedness 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 60 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;

<PAGE>

(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.

(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 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
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

<PAGE>

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
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

<PAGE>

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.

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 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

<PAGE>

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:

(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;

<PAGE>

(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 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. 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

<PAGE>

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:

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-

<PAGE>

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
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

<PAGE>

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.

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):

<PAGE>

(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
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;

(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

<PAGE>

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
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 unless requested in writing so to do by the
Holders of not less than a majority in aggregate
principal amount of the Securities of all series
affected then outstanding; PROVIDED that, if the
payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable
indemnity against such expenses or liabilities as a
condition to proceeding.

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

<PAGE>

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 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

<PAGE>

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 shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses, disbursements and
advances incurred or made by the Trustee. Such expenses
shall include the reasonable compensation and expenses of
the Trustee's agents, counsel and other persons not
regularly in its employ.

The Company shall indemnify the Trustee for, and
hold it harmless against, any loss or liability or expense
incurred by it without negligence or bad faith on its part
arising out of or in connection with the acceptance or
administration of this Indenture and the Securities or the
issuance of the Securities or of series thereof or the
trusts hereunder and the performance of duties under this
Indenture and the Securities, including the costs and
expenses of defending itself against or investigating any
claim or liability and of complying with any process served
upon it or any of its officers in connection with the
exercise or performance of any of its powers or duties under
this Indenture and the Securities.

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

<PAGE>

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(d) or Section 6.1(e) 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.

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 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

<PAGE>

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
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.

<PAGE>

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.

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.

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

<PAGE>

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
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 upon request 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

<PAGE>

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
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

<PAGE>

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
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.

<PAGE>

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 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.

<PAGE>

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;

(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; and

(7) 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

<PAGE>

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
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

<PAGE>

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 shall give
to the Holders affected thereby a notice briefly describing
the amendment, supplement or waiver. The Company 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. An amendment, supplement or
waiver shall become effective with respect to any Securities
affected thereby on receipt by the Trustee of written
consents from the requisite Holders of outstanding
Securities affected thereby.

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 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)

<PAGE>

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 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

<PAGE>

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 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 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.

<PAGE>

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
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
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

<PAGE>

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

(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.

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.

<PAGE>

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
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

<PAGE>

invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.

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, STOCKHOLDERS, 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 stockholder, 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

<PAGE>

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 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:
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>

CUSIP:
No. R-1 $100,000,000

Unless and until it is exchanged in whole or in part for Notes in definitive
registered form, this Note 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.

LA QUINTA INNS, INC.

___% Senior Note due 2005

LA QUINTA INNS, INC., a Texas corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to Cede & Co., or registered
assigns, at the office or agency of the Company in New York, New York, the
principal sum of 100,000,000 Dollars on [Pmt Date 2], 2005, in the coin or
currency of the United States, and to pay interest, semi-annually on
[Pmt Date 1] and [Pmt Date 2] of each year, commencing [Pmt Date 1], 1996, on
said principal sum at said office or agency, in like coin or currency, at the
rate per annum specified in the title of this Note, from the [Pmt Date 1] or
the [Pmt Date 2], as the case may be, next preceding the date of this Note to
which interest has been paid or duly provided for, unless the date hereof is
a date to which interest has been paid or duly provided for, in which case
from the date of this Note, or unless no interest has been paid or duly
provided for on these Notes, in which case from [Pmt Date 2], 1995, until
payment of said principal sum has been made or duly provided for; PROVIDED,
that payment of interest may be made at the option of the Company by check
mailed to the address of the person entitled thereto as such address shall
appear on the Security register or by wire transfer as provided in the

<PAGE>

Indenture. Notwithstanding the foregoing, if the date hereof is after
[Rec Date 1] or [Rec Date 2], as the case may be, and before the following
[Pmt Date 1] or [Pmt Date 2], this Note shall bear interest from such
[Pmt Date 1] or [Pmt Date 2]; PROVIDED, that if the Company shall default in
the payment of interest due on such [Pmt Date 1] or [Pmt Date 2], then this
Note shall bear interest from the next preceding [Pmt Date 1] or [Pmt Date 2],
to which interest has been paid or duly provided for or, if no interest has
been paid or duly provided for on these Notes, from [Pmt Date 2], 1995. The
interest so payable on any [Pmt Date 1] or [Pmt Date 2] will, subject to
certain exceptions provided in the Indenture referred to on the reverse
hereof, be paid to the person in whose name this Note is registered at the
close of business on the [Rec Date 1] or [Rec Date 2], as the case may be,
next preceding such [Pmt Date 1] or [Pmt Date 2], whether or not such day is
a Business Day.

Reference is made to the further provisions of this Note set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.

This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been manually signed by
the Trustee under the Indenture referred to on the reverse hereof.

IN WITNESS WHEREOF, LA QUINTA INNS, INC. has caused this instrument to be
signed manually or by facsimile by its duly authorized officers and has
caused a facsimile of its corporate seal to be affixed hereunto or imprinted
hereon.

Dated:

(SEAL) LA QUINTA INNS, INC.

By________________________________

Attest: By________________________________

________________________

<PAGE>
CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Dated: U.S. Trust Company of
Texas, N.A.,
as Trustee

By________________________________
Authorized Signatory

<PAGE>
REVERSE OF NOTE

LA QUINTA INNS, INC.

___% Senior Note due 2005

This Note is one of a duly authorized issue of debentures, notes, bonds
or other evidences of indebtedness of the Company (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to an indenture dated as of _______, 1995 (herein called
the "Indenture"), duly executed and delivered by the Company to U.S. Trust of
Texas, N.A., as Trustee (herein called the "Trustee"), to which Indenture and
all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the Holders of the
Securities. The Securities may be issued in one or more series, which
different series may be issued in various aggregate principal amounts, may
mature at different times, may bear interest (if any) at different rates, may
be subject to different redemption provisions (if any), may be subject to
different sinking, purchase or analogous funds (if any) and may otherwise
vary as in the Indenture provided. This Note is one of a series designated
as the ___% Senior Notes due 2005 of the Company, limited in aggregate
principal amount to $100,000,000.

Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal and, to the
extent lawful, on overdue installments of interest at the rate per annum
borne by this Note. If a payment date is not a Business Day as defined in
the Indenture at a place of payment, payment may be made at that place on the
next succeeding day that is a Business Day, and no interest shall accrue for
the intervening period.

In case an Event of Default with respect to the ___% Senior Notes due
2005, as defined in the Indenture, shall have occurred and be continuing, the
principal hereof and the interest accrued hereon, if any, may be declared,
and upon such declaration shall become, due and payable, in the manner, with
the effect and subject to the conditions provided in the Indenture.

The Indenture contains provisions which provide that, without prior
notice to any Holders, the Company and the Trustee may amend the Indenture
and the Securities of

4
<PAGE>

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
the Indenture or the Securities of such series; PROVIDED that, without the
consent of each Holder of the Securities of each series affected thereby, an
amendment or waiver, including a waiver of past defaults, 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 an acceleration of the maturity 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 the Indenture or certain Defaults and
their consequences provided for in 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 the Indenture governing supplemental
indentures with the consent of Securityholders 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.

It is also provided in the Indenture that, subject to certain conditions,
the Holders of at least a majority in principal amount of the outstanding
Securities of all series affected (voting as a single class), by notice to
the Trustee, may waive 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 or in respect of a
covenant or provision of the Indenture which cannot be modified or

5
<PAGE>

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.

The Indenture provides that 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 the Indenture, subject to certain
exceptions, with respect to sections of the Indenture concerning the
execution, authentication and terms of the Securities, redemption of the
Securities, Events of Default of the Securities, defeasance of the Securities
and amendment of the Indenture, 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
a board resolution or a supplemental indenture establishing such series or
tranche.

No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and
interest on this Note in the manner, at the place, at the respective times,
at the rate and in the coin or currency herein prescribed.

The Notes are issuable initially only in registered form without coupons
in denominations of $1,000 and any multiple of $1,000 at the office or agency
of the Company in the Borough of Manhattan, The City of New York, and in the
manner and subject to the limitations provided in the Indenture, but, without
the payment of any service charge, Notes may be exchanged for a like
aggregate principal amount of Notes of other authorized denominations.

This Note will not be redeemable at the option of the Company prior to
maturity.

6
<PAGE>

Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, a new Note or Notes of authorized denominations for an equal aggregate
principal amount will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Indenture, without charge except
for any tax or other governmental charge imposed in connection therewith.

The Company, the Trustee and any agent of the Company or the Trustee may
deem and treat the registered Holder hereof as the absolute owner of this
Note (whether or not this Note shall be overdue and notwithstanding any
notation of ownership or other writing hereon), for the purpose of receiving
payment of, or on account of, the principal hereof and, subject to the
provisions hereof, interest hereon, 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.

No recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of any indebtedness evidenced thereby, shall be had against
any incorporator, stockholder, officer or director, as such, past, present,
or future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, 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 hereof and as part of
the consideration for the issue hereof.

Terms used herein which are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture.

7
<PAGE>

FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto

[PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE]

______________________________________

___________________________________________________________________________

[PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE]

___________________________________________________________________________
the within Note and all rights thereunder, hereby

___________________________________________________________________________
irrevocably constituting and appointing such person attorney

___________________________________________________________________________
to transfer such Note on the books of the Issuer, with full

___________________________________________________________________________
power of substitution in the premises.

Dated:______________________

NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the
within Note in every particular without alteration
or enlargement or any change whatsoever.

<PAGE>
EXHIBIT 12

LA QUINTA INNS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)

<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>
Earnings (loss) before income taxes
and extraordinary items and
cumulative effect of accounting
change............................ $ 44,848 $ 27,577 $ 61,991 $ 31,836 $ (7,270) $ 2,185 $ 3,398
Partners' equity in earnings and
losses............................ 8,976 5,522 11,406 12,965 15,081 9,421 8,408
Partners' equity in earnings of
combined unincorporated ventures
that do not have fixed charges.... (995) (762) (1,577) (1,652) (1,504) (845) (802)
Fixed charges...................... 21,274 19,751 40,814 32,477 34,270 40,012 42,269
Interest capitalized............... (388) (597) (889) -- (50) -- --
Amortization of capitalized
interest.......................... 399 377 772 799 799 1,064 1,064
--------- --------- ---------- --------- --------- --------- ---------
Earnings as adjusted............. $ 74,114 $ 51,868 $ 112,517 $ 76,425 $ 41,326 $ 51,837 $ 54,337
--------- --------- ---------- --------- --------- --------- ---------
--------- --------- ---------- --------- --------- --------- ---------
Fixed charges:
Interest on long-term debt
(before capitalized interest)... $ 20,771 $ 19,196 $ 39,749 $ 31,366 $ 33,137 $ 38,713 $ 40,911
Portion of rental expense
allocated to interest........... 503 555 1,065 1,111 1,133 1,299 1,358
--------- --------- ---------- --------- --------- --------- ---------
Total fixed charges............ $ 21,274 $ 19,751 $ 40,814 $ 32,477 $ 34,270 $ 40,012 $ 42,269
--------- --------- ---------- --------- --------- --------- ---------
--------- --------- ---------- --------- --------- --------- ---------
Ratio of earnings to fixed
charges........................... 3.5x 2.6x 2.8x 2.4x 1.2x 1.3x 1.3x
--------- --------- ---------- --------- --------- --------- ---------
--------- --------- ---------- --------- --------- --------- ---------
</TABLE>

COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)

The following computations for the six months ended June 30, 1995 and for
the year ended December 31, 1994 reflect, on a pro-forma basis, earnings
available for fixed charges, fixed charges and the resultant ratio, after giving
effect to the AEW Transaction and the sale of the Senior Notes and the
anticipated application of the net proceeds therefrom.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
<S> <C> <C>
Earnings as adjusted.................................................... $ 74,114 $ 112,517
Adjustments related to the AEW Transaction.............................. (548) (1,096)
----------- ------------
Pro forma, adjusted earnings............................................ $ 73,566 $ 111,421
----------- ------------
----------- ------------
Fixed charges........................................................... $ 21,274 $ 40,814
Pro forma adjustments:
Adjustment related to the AEW Transaction............................. 1,658 3,316
Interest expense, including debt issuance costs, relating to the
proceeds of the Senior Notes......................................... 4,050 8,100
Interest expense reduction attributable to the substitution of the
proceeds from the sale of the Senior Notes to refinance existing
debt................................................................. (3,688) (7,306)
----------- ------------
Pro forma fixed charges............................................. $ 23,294 $ 44,924
----------- ------------
----------- ------------
Pro forma ratio of earnings to fixed charges............................ 3.2x 2.5x
----------- ------------
----------- ------------
</TABLE>

<PAGE>
EXHIBIT 15

La Quinta Inns, Inc.
San Antonio, Texas
Ladies and Gentlemen:

With respect to this registration statement, we acknowledge our awareness of
the incorporation by reference therein of our reports dated April 21, 1995 and
July 20, 1995, related to our reviews of the interim financial information.

Pursuant to Rule 436(c) under the Securities Act of 1933, such reports are
not considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.

KPMG PEAT MARWICK LLP

San Antonio, Texas
August 11, 1995

<PAGE>
EXHIBIT 23(A)

The Board of Directors
La Quinta Inns, Inc.

We consent to the use of our audit report incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the Prospectus.

Our audit report refers to the adoption of Statement of Financial Accounting
Standards No. 109 in 1993.

KPMG PEAT MARWICK LLP

San Antonio, Texas
August 11, 1995

<PAGE>

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM T-1

STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)__________

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

U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)

75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)

2001 Ross Avenue, Suite 2700 75201-2936
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)

Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201-2936
(214) 754-1200
(Name, address and telephone number of agent for service)

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

La Quinta Inns, Inc.
(Exact Name of obligor as specified in its charter)

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

112 East Pecan Street
P.O. Box 2636
San Antonio, Texas 78299-2636
(Address of principal executive offices) (Zip Code)

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

___% Senior Notes due 2005
(Title of the indenture securities)

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

<PAGE>

GENERAL

1. GENERAL INFORMATION.

Furnish the following information as to the Trustee:

(a) Name and address of each examining or supervising authority to which
it is subject.

Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency, Dallas, Texas

(b) Whether it is authorized to exercise corporate trust powers.

The Trust is authorized to exercise corporate trust powers.

2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.

If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.

None.

3. VOTING SECURITIES OF THE TRUSTEE.

Furnish the following information as to each class of voting securities
of the Trustee:

As of August 8, 1995
- -------------------------------------------------------------------------------
Col A. Col B.
- -------------------------------------------------------------------------------
Title of Class Amount Outstanding
- -------------------------------------------------------------------------------
Capital Stock - par value $100 per share 5,000 shares

4. TRUSTEESHIPS UNDER OTHER INDENTURES.

Not Applicable

5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.

Not Applicable

<PAGE>

6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.

Not Applicable

7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.

Not Applicable

8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.

Not Applicable

9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.

Not Applicable

10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.

Not Applicable

11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.

Not Applicable

12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.

Not Applicable

13. dEFAULTS BY THE OBLIGOR.

Not Applicable

14. AFFILIATIONS WITH THE UNDERWRITERS.

Not Applicable

15. FOREIGN TRUSTEE.

Not Applicable

16. LIST OF EXHIBITS.

T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
Texas, N.A.; incorporated herein by reference to Exhibit T-1.1
filed with Form T-1 Statement, Registration No. 22-21897.

<PAGE>

16. (con't.)

T-1.2 - A copy of the certificate of authority of the Trustee to commence
business; incorporated herein by reference to Exhibit T-1.2 filed
with Form T-1 Statement, Registration No. 22-21897.

T-1.3 - A copy of the authorization of the Trustee to exercise corporate
trust powers; incorporated herein by reference to Exhibit T-1.3
filed with Form T-1 Statement, Registration No. 22-21897.

T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas, N.A.,
as amended to date; incorporated herein by reference to Exhibit
T-1.4 filed with Form T-1 Statement, Registration No. 22-21897.

T-1.5 - The consent of the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939.

T-1.6 - A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or
examining authority.

NOTE

As of July 24, 1995 the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of August 5,
1993 U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation. U.S. Trust Corporation had
outstanding 9,653,964 shares of $5 par value Common Stock as of July 24, 1995.

The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of
U.S. Trust Company of Texas, N.A., U.S. T.L.P.O. and U.S. Trust Corporation.

Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9,
10 and 11, the answers to said Items are based upon incomplete information.
Items 2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless
amended by an amendment to this Form T-1.

In answering any items in this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligors or
their directors or officers, or an underwriter for the obligors, the Trustee
has relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S. Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this
statement of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Dallas, and State
of Texas on the 8th day of August, 1995.

U.S. Trust Company of Texas, N.A.,
Trustee

By: JOHN C. STOHLMANN
-----------------------------------
John C. Stohlmann
Vice President

<PAGE>

EXHIBIT T-1.5

CONSENT OF TRUSTEE

Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of La Quinta Inns, Inc.
Senior Notes due 2005, we hereby consent that reports of examination by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.

U.S. Trust Company of Texas, N.A.

By: JOHN C STOHLMANN
------------------------------------
John C. Stohlmann
Vice President

<PAGE>

Board of Governors of the Federal Reserve System
OMB Number: 7100-0036

Federal Deposit Insurance Corporation
OMB Number: 3064-0052

Office of the Comptroller of the Currency
OMB Number: 1557-0081

Expires March 31, 1996

Exhibit T-1.6

Federal Financial Institutions Examination Council
- --------------------------------------------------------------------------------
/1/
[Logo] Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC OFFICES ONLY AND
TOTAL ASSETS OF LESS THAN $100 MILLION -- FFIEC 034
(950630)
REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1995 --------
________

This report is required by law: 12 U.S.C. Section 324 (State member banks); 12
U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National
banks).

This report form is to be filed by banks with domestic offices only. Banks with
branches and consolidated subsidiaries in U.S. territories and possessions, Edge
or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries,
or International Banking Facilities must file FFIEC 031.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, /s/ Alfred B. Childs SVP & Cashier
-------------------------------------------------------
Name and Title of Officer Authorized to Sign Report

of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and belief.

/s/ Alfred B. Childs
- ---------------------------------------------------------
Signature of Officer Authorized to Sign Report

7/19/95
- ---------------------------------------------------------
Date of Signature

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.

We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.

/s/ Arthur White
- ---------------------------------------------------------
Director (Trustee)

/s/ Stuart M. Pearman
- ---------------------------------------------------------
Director (Trustee)

/s/ William J. Goodwin
- ---------------------------------------------------------
Director (Trustee)

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

For Banks Submitting Hard Copy Report Forms:

STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Reserve District Bank.

STATE NONMEMBER BANKS: Return the original only in the SPECIAL RETURN ADDRESS
ENVELOPE PROVIDED. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

NATIONAL BANKS: Return the original only in the SPECIAL RETURN ADDRESS ENVELOPE
PROVIDED. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------

FDIC Certificate Number / / / / / /

CALL NO. 192 34 06-30-95

CERT: 33217 02805 STBK 48-6797

U.S. TRUST COMPANY OF TEXAS, N.A.
500 NORTH AKARD, SUITE 2100
DALLAS, TX 75201
<PAGE>

U.S. Trust Co. of Texas, N.A. Call Date: 06/30/95 ST-BK: 486797 FFIEC 034
2001 Ross Avenue Page RC-1
Dallas, TX 75201 Vendor ID: D Cert: 33217

Transit Number: 11101765 9

CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1995

ALL SCHEDULES ARE TO BE REPORTED IN THOUSANDS OF DOLLARS. UNLESS OTHERWISE
INDICATED, REPORT THE AMOUNT OUTSTANDING AS OF THE LAST BUSINESS DAY OF THE
QUARTER.

SCHEDULE RC - BALANCE SHEET

<TABLE>
<CAPTION>
C100 --
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
1. Cash and balances due from depository institutions:
---------
RCON
a. Noninterest-bearing balances and currency and coin (1,2)________________________________________ 0061 346 1.a
---------
RCON
b. Interest-bearing balances (3)___________________________________________________________________ 0071 33 1.b
---------
2. Securities:
---------
RCON
a. Held-to-maturity securities (from Schedule RC-B, column A)______________________________________ 1754 0 2.a
---------
RCON
b. Available-for-sale securities (from Schedule RC-B, column D)____________________________________ 1773 30,254 2.b
---------
3. Federal funds sold and securities purchased under agreements to resell:
---------
RCON
a. Federal funds sold (4)______________________________________ 0276 0 3.a
---------
RCON
b. Securities purchased under agreements to resell (5)_____________________________________________ 0277 0 3.b
---------
4. Loans and lease financing receivables:
---------
RCON
a. Loans and leases, net of unearned income (from Schedule RC-C)__________________ 2122 29,352 4.a
---------
RCON
b. LESS: Allowance for loan and lease losses______________________________________ 3123 421 4.b
---------
RCON
c. LESS: Allocated transfer risk reserve__________________________________________ 3128 0 4.c
--------- ---------
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a RCON
minus 4.b and 4.c)_____________________________________________________________ 2125 28,931 4.d
---------
RCON
5. Trading assets____________________________________________________________________________________ 3545 0 5.
---------
RCON
6. Premises and fixed assets (including capitalized leases)__________________________________________ 2145 570 6.
---------
RCON
7. Other real estate owned (from Schedule RC-M)______________________________________________________ 2150 0 7.
---------
RCON
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)__________ 2130 0 8.
---------
RCON
9. Customers' liability to this bank on acceptances outstanding______________________________________ 2155 0 9.
---------
RCON
10. Intangible assets (from Schedule RC-M)____________________________________________________________ 2143 646 10.
---------
RCON
11. Other assets (from Schedule RC-F)_________________________________________________________________ 2160 542 11.
---------
RCON
12.a. Total assets (sum of items 1 through 11)________________________________________________________ 2170 61,322 12.a
---------
RCON
b. Losses deferred pursuant to 12 U.S.C. 1823(j)____________________________________________________ 0306 0 12.b
---------
RCON
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823 (j) (sum of items 12.a and 12.b)_____ 0307 61,322 12.c
---------
<FN>
- --------------------
(1) Includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum of Schedule RC-M, items 3.a and 3.b
(3) Includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a, "Loans and leases, net of unearned income", and in
Schedule RC-C, part I.
(5) Report securities purchased under agreements to resell that involve the receipt of immediately available funds and
mature in one business day or roll over under a continuing contract in Schedule RC, item 3.a, "Federal funds sold."
</TABLE>

<PAGE>

U.S. Trust Co. of Texas, N.A. Call Date: 06/30/95 ST-BK: 486797 FFIEC 034
2001 Ross Avenue Page RC-2
Dallas, TX 75201 Vendor ID: D Cert: 33217

Transit Number: 11101765 10

SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
_________
RCON
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E)__________________ 2200 11,926 13.a
RCON 3,409 ---------
(1) Noninterest-bearing (1)_____________________________________________________6631 ------ 13.a.1
(2) Interest-bearing ___________________________________________________________6636 8,517 13.a.2
------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing_________________________________________________________
(2) Interest-bearing____________________________________________________________
14. Federal funds purchased and securities sold under agreements to repurchase:
---------
RCON 26,000 14.a
a. Federal funds purchased (2)__________________________________________________________________0278 ---------
RCON 0 14.b
b. Securities sold under agreements to repurchase (3) __________________________________________0279 ---------
RCON 0 15.a
15. a. Demand notes issued to the U.S. Treasury ____________________________________________________2840 ---------
RCON 0 15.b
b. Trading liabilities _________________________________________________________________________3548 ---------

16. Other borrowed money: ---------
RCON 0 16.a
a. With original maturity of one year or less __________________________________________________2332 ---------
RCON 3,000 16.b
b. With original maturity of more than one year ________________________________________________2333 ---------
RCON 0 17.
17. Mortgage indebtedness and obligations under capitalized leases _________________________________2910 ---------
RCON 0 18.
18. Bank's liability on acceptances executed and outstanding _______________________________________2920 ---------
RCON 0 19.
19. Subordinated notes and debentures ______________________________________________________________3200 ---------
RCON 2,497 20.
20. Other liabilities (from Schedule RC-G) _________________________________________________________2930 ---------
RCON 43,423 21.
21. Total liabilities (sum of items 13 through 20) _________________________________________________2948 ---------

---------
RCON 0
22. Limited-life preferred stock and related surplus _______________________________________________3282 --------- 22.

EQUITY CAPITAL ---------
RCON 7,000 23.
23. Perpetual preferred stock and related surplus __________________________________________________3838 ---------
RCON 500 24.
24. Common stock ___________________________________________________________________________________3230 ---------
RCON 8,384 25.
25. Surplus (exclude all surplus related to preferred stock) _______________________________________3839 ---------
RCON 2,012 26.a
26. a. Undivided profits and capital reserves ______________________________________________________8434 ---------
RCON 3 26.b
b. Net unrealized holding gains (losses) on available-for-sale securities ______________________3632 ---------

27. Cumulative foreign currency translation adjustments ____________________________________________ ---------
RCON 17,899 28.a
28. a. Total equity capital (sum of items 23 through 27) ___________________________________________3210 ---------
RCON 0 28.b
b. Losses deferred pursuant to 12 U.S.C. 1823(j) _______________________________________________0306 ---------

---------
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j) RCON 17,899 28.c
(sum of items 28.a and 28.b) _______________________________________________________________3559 ---------

---------
29. Total liabilities, limited-life preferred stock, equity capital, and losses deferred pursuant RCON 61,322 29.
to 12 U.S.C. 1823(j) (sum of items 21, 22, and 28.c) ___________________________________________2257 ---------

<FN>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes Number
the most comprehensive level of auditing work performed for the bank by independent RCON ----------
external auditors as of any date during 1994 ___________________________________________________6724 N/A M.1
----------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance 8 = No external audit work
with generally accepted auditing standards by a certified
public accounting firm (may be required by state chartering
authority)
- -------------
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16, "Other borrowed money."
(3) Report securities sold under agreements to repurchase that involve the receipt of immediately available funds and
mature in one business day or roll over under a continuing contract in Schedule RC, item 14.a, "Federal funds purchased."
</TABLE>