DOUBLETREE CORP, S-3/A, 1996-10-15

DOUBLETREE CORP
S-3/A, 1996-10-15
HOTELS & MOTELS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996

REGISTRATION NO. 333-13161

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DOUBLETREE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 860762415
(State or other jurisdiction (I.R.S. Employer
of incorporation or
organization) Identification No.)
</TABLE>

DOUBLETREE CORPORATION
410 NORTH 44TH STREET, SUITE 700
PHOENIX, ARIZONA 85008
(602) 220-6666
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

WILLIAM L. PEROCCHI
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
DOUBLETREE CORPORATION
410 NORTH 44TH STREET, SUITE 700
PHOENIX, ARIZONA 85008
(602) 220-6666
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------

Copies to:

<TABLE>
<S> <C>
WILLIAM J. PHILLIPS, ESQ. RICHARD D. TRUESDELL, JR., ESQ.
CURTIS L. MO, ESQ. DAVIS POLK & WARDWELL
DEWEY BALLANTINE 450 LEXINGTON AVENUE
1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10019-6092 (212) 450-4000
(212) 259-8000
</TABLE>

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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 dividend or interest reinvestment plans, please 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
reinvestment 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. / /
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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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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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Common Stock, par value $.01 per share................ 5,750,000 shares $44.375 $255,156,250 $77,320.08
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</TABLE>

(1) Includes 750,000 shares subject to an over-allotment option to be granted to
the Underwriters.

(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended, on
the basis of the average of the high and low sales prices of the Common
Stock, par value $.01 per share, of Doubletree Corporation on October 11,
1996 as quoted on The Nasdaq Stock Market's National Market.

(3) A filing fee of $79,304.00 was paid in connection with the initial filing of
this Registration Statement on October 1, 1996.

------------------------
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, AS AMENDED, OR UNTIL THE 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> 2

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and the other to be used in connection with a concurrent
international offering (the "International Prospectus"). The two prospectuses
are identical except for the front outside cover page. The form of U.S.
Prospectus is included herein, and the front outside cover page to be used in
the International Prospectus, labelled "Alternate Page for International
Prospectus," is included herein following the form of U.S. Prospectus.
<PAGE> 3

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.

PROSPECTUS (Subject to Completion)

Issued October 15, 1996

5,000,000 Shares

LOGO
COMMON STOCK
------------------------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED, 4,000,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." THE COMPANY'S COMMON STOCK IS QUOTED ON THE NASDAQ
STOCK MARKET'S NATIONAL MARKET UNDER THE SYMBOL "TREE." ON
OCTOBER 14, 1996, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK WAS $45 5/8 PER SHARE.

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

The Company will use the net proceeds from the sale of the Shares of Common
Stock made hereby to provide a portion of the financing for the acquisition of
Red Lion Hotels, Inc. pursuant to the Merger (as defined herein). The offering
of Common Stock made hereby is contingent upon the consummation of the Merger,
which in turn is subject to certain conditions. See "The Merger and the
Financing Plan."
------------------------

SEE "RISK FACTORS" COMMENCING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

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.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------

PRICE $ A SHARE
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>

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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."

(2) Before deducting expenses payable by the Company estimated at
$1,000,000.

(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
750,000 additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriters."

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

The Shares of Common Stock 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 Shares of Common Stock will be made on or about
, 1996 at the offices of Morgan Stanley & Co. Incorporated, New
York, New York, against payment therefor in same day funds.
------------------------

MORGAN STANLEY & CO.
Incorporated

MONTGOMERY SECURITIES

SCHRODER WERTHEIM & CO.

November , 1996
<PAGE> 4

[Inside cover page]

[Photographs of Doubletree

hotels and map depicting locations

of Doubletree and Red Lion hotels]

IN CONNECTION WITH THIS OFFERING, THE U.S. UNDERWRITERS MAY OVER-ALLOT OR
THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET, SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ STOCK MARKET'S NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"). SEE "UNDERWRITERS."

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<PAGE> 5

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE 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 BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES 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 AT ANY TIME NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE
IMPLY THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
Incorporation of Certain Documents by
Reference........................... 3
Corporate Organization................ 4
Prospectus Summary.................... 5
Risk Factors.......................... 20
The Merger and the Financing Plan..... 28
Use of Proceeds....................... 32
Common Stock Price Range.............. 32
Dividend Policy....................... 32
Capitalization........................ 33
The Combined Company.................. 34
Unaudited Pro Forma Condensed
Consolidated Financial
Information......................... 37
Selected Consolidated Financial
Data of Doubletree.................. 44
Management's Discussion and Analysis
of Results of Operations and
Financial Condition of Doubletree... 46
Business of Doubletree................ 52

<CAPTION>
PAGE
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<S> <C>
Selected Pro Forma Financial,
Historical
Financial and Other Data of Red
Lion................................ 67
Management's Discussion and Analysis
of
Results of Operations and Financial
Condition of Red Lion............... 69
Business of Red Lion.................. 74
Management............................ 82
Security Ownership of Certain
Beneficial
Owners and Management of
Doubletree.......................... 85
Description of Capital Stock of
Doubletree.......................... 88
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 91
Underwriters.......................... 94
Legal Matters......................... 97
Experts............................... 97
Available Information................. 97
Index to Financial Statements......... F-1
</TABLE>

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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents which have been filed with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference in
this Prospectus: (1) the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995; (2) the Company's Quarterly Report on Form 10-Q
for the fiscal quarters ended March 31, 1996 and June 30, 1996; (3) the
Company's Current Reports on Form 8-K dated February 27, 1996 and September 12,
1996; and (4) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A (File No. 0-24392) filed on June 18, 1994.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed incorporated by reference
herein and to be a part hereof from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Company will provide without charge
to each person to whom this Prospectus is delivered upon written or oral
request, a copy of any or all of such documents that have been or may be
incorporated by reference herein (other than exhibits to such documents which
are not specifically incorporated by reference into such documents). Requests
for such documents should be directed to Doubletree Corporation, 410 North 44th
Street, Suite 700, Phoenix, Arizona 85008, telephone number (602) 220-6666.

3
<PAGE> 6

CORPORATE ORGANIZATION

DOUBLETREE

Doubletree Corporation (the "Company") was incorporated on May 19, 1994 to
succeed to all the assets, liabilities and business operations of Doubletree
Partners, formerly Guest Quarters Hotel Partnership ("GQHP"). On December 16,
1993, Doubletree Partners and Doubletree Hotels Corporation ("DHC") were
combined through the transfer of the ownership interests in DHC to Doubletree
Partners in exchange for cash and partnership interests in Doubletree Partners
(the "Doubletree Combination Transaction"). On June 30, 1994 (immediately prior
to the initial public offering of the Company's Common Stock), the partners of
Doubletree Partners, other than Samantha Hotel Corporation ("Samantha"),
contributed their general partnership interests to the Company, and the Samantha
owners contributed all the capital stock of Samantha to the Company in
consideration for an aggregate of 15,500,000 shares of Common Stock, distributed
in proportion to their respective ownership interests in Doubletree Partners
prior to such transfers (the "Doubletree Reorganization").

RED LION

Red Lion Hotels, Inc. ("Red Lion") was incorporated in March 1994 as a
wholly-owned subsidiary of Red Lion, a California Limited Partnership (prior to
August 1, 1995, "Historical Red Lion" and, on and after August 1, 1995, the
"Partnership"). Red Lion's operations commenced in March 1995 when Historical
Red Lion contributed a 49.4% interest in a joint venture which owns the Santa
Barbara Red Lion Hotel to Red Lion. Red Lion completed an initial public
offering of Red Lion Common Stock (as defined below) on August 1, 1995 (the "Red
Lion Offering"). After giving effect to the Red Lion Offering, the Partnership
currently owns approximately 67% of outstanding Red Lion Common Stock.
Immediately prior to the closing of the Red Lion Offering, Historical Red Lion
repaid certain of its outstanding indebtedness with existing cash balances and
contributed substantially all of its assets (excluding 17 hotels (the "Red Lion
Leased Hotels"), certain minority joint venture interests and certain current
assets) and certain liabilities to Red Lion (the "Red Lion Formation"). On
August 1, 1995, Red Lion refinanced or repaid substantially all of the debt
contributed pursuant to the Red Lion Formation with the net proceeds of the Red
Lion Offering, borrowings under a new term loan and existing cash (the "Red Lion
Refinancing"). Red Lion also entered into a long-term master lease with the
Partnership for the Red Lion Leased Hotels.
------------------------------

Unless otherwise noted, the statistics set forth in "Business of Red Lion"
in this Prospectus relating to the lodging industry (other than Red Lion
statistics) are from, or have been derived from, information published or
provided by Smith Travel Research, an industry research organization. Smith
Travel Research has not provided any form of consultation, advice or counsel
regarding any aspect of the Merger, and Smith Travel Research is in no way
associated with the proposed transaction.
------------------------------

Doubletree Hotels(R), Doubletree Guest Suites(R) and Doubletree Club
Hotels(R) are registered trademarks of the Company, and Club Hotels by
Doubletree(TM) and Sweet Dreams(TM) are trademarks of Doubletree.

Red Lion Hotel(R), Red Lion Inns(R) and Red Lion(R) are registered
trademarks of Red Lion.

4
<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. As used in this
Prospectus, (i) the "Company" or "Doubletree" refers to Doubletree Corporation
and, unless the context otherwise requires, its subsidiaries, (ii) "Red Lion"
refers to Red Lion Hotels, Inc. (and, for periods prior to the Red Lion
Formation, the operations of Historical Red Lion and Historical Red Lion's
subsidiaries, affiliates and joint ventures) and, unless the context otherwise
requires, its subsidiaries, (iii) the "Partnership" means Red Lion, a California
Limited Partnership, and its subsidiaries, subsequent to the Red Lion Formation
and (iv) the "Combined Company" refers to the operations of Doubletree
(including Red Lion) after giving effect to the Merger (as defined herein). For
a discussion of the historic corporate organization of Doubletree and Red Lion,
see "Corporate Organization." Unless the context otherwise requires, all
assumptions relating to the Merger and the Financing Plan (as defined herein),
and to share numbers after giving effect thereto, assume that (a) 5,000,000
shares of Common Stock are issued and sold in the Offering (as defined herein)
at a price of $45.00 per share (the last reported sale price of the Common Stock
on October 4, 1996), (b) 6,925,502 shares of Common Stock are issued in the
Merger, based upon (i) an assumed Final Doubletree Stock Price under the Merger
Agreement (each as defined herein) of $45.00 and (ii) a resulting adjustment of
the Exchange Ratio (as defined herein) from .2398 to .2153 in accordance with
the Merger Agreement, and (c) 2,444,988 shares of Common Stock are issued and
sold pursuant to the GEPT Equity Investment (as defined below) on the basis of
such assumed adjusted Exchange Ratio. See "The Merger and the Financing Plan."
Unless otherwise noted, all information in this Prospectus assumes no exercise
of the U.S. Underwriters' over-allotment option. See "Underwriters."

INTRODUCTION

On September 12, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Red Lion and RLH Acquisition Corp., a
wholly-owned subsidiary of the Company ("Merger Sub"), pursuant to which, upon
the terms and subject to the conditions thereof, Merger Sub will be merged with
and into Red Lion (the "Merger") and Red Lion will become a wholly-owned
subsidiary of the Company. The total amount of funds required by Doubletree to
consummate the Merger and to pay related fees and expenses is expected to be
approximately $919.7 million, which will be financed in part through the sale of
the Common Stock offered hereby (the "Offering"). The sale of the shares of the
Common Stock in the Offering will occur concurrently with, and is contingent
upon, consummation of the Merger, which in turn is subject to certain
conditions. See "The Merger and the Financing Plan."

THE COMPANIES

DOUBLETREE

Doubletree is one of the nation's leading hotel management companies.
Doubletree provides hotel owners with management and franchise services under
its Doubletree Hotels, Doubletree Guest Suites, Doubletree Club Hotels and Club
Hotels by Doubletree brand names, as well as management services for
non-Doubletree brand hotels. At June 30, 1996, Doubletree managed, leased, or
franchised 179 hotels with an aggregate of 41,232 rooms in 37 states, the
District of Columbia and Mexico. This represents a 63% and 43% increase in
managed, leased or franchised hotels and aggregate room count, respectively,
during the twelve month period ended June 30, 1996. Excluding the hotels which
became part of the Doubletree system through the acquisition of RFS, Inc., a
privately held hotel operator ("RFS Management"), in February 1996 (the "RFS
Acquisition") through which Doubletree significantly expanded its portfolio of
non-Doubletree brand hotels (the "RFS Hotels"), this growth was 17% and 19%,
respectively. See "Business of Doubletree -- The RFS Acquisition." At June 30,
1996, the Company's hotels included 60 Doubletree Hotels, 37 Doubletree Guest
Suites, 13 Doubletree Club Hotels, and 69 hotels operated by Doubletree under
third party brand names or as independent hotels.

5
<PAGE> 8

After the Merger, the principal executive offices of Doubletree will
continue to be located at 410 North 44th Street, Suite 700, Phoenix, Arizona
85008, their telephone number at such address is (602) 220-6666 and Doubletree
maintains a web site at http://www.doubletreehotels.com.

RED LION

Red Lion is a leading full service hospitality company. At June 30, 1996,
Red Lion operated 55 hotels containing 14,540 rooms in the western United
States. In July 1996, Red Lion acquired a hotel in Houston, Texas, containing
319 rooms. In September 1996, Red Lion purchased the Modesto, California hotel,
which it managed prior to such acquisition. These two acquisitions and the April
1996 acquisition of a hotel in San Antonio, Texas are referred to herein as the
"Red Lion 1996 Hotel Acquisitions." Red Lion has long term operating control
over substantially all of its properties. As of September 15, 1996, Red Lion
owned or leased, under a long-term lease, 41 of its 56 hotels. Red Lion's
remaining 15 hotels are operated pursuant to management contracts. Owned hotels
consist of 100% owned properties (17 hotels) and properties in which Red Lion
holds at least a 50% interest through joint venture agreements (seven hotels).

THE COMBINED COMPANY

After the consummation of the Merger, the Combined Company will be one of
the largest full service hotel operating companies in the United States. On a
pro forma basis, as of June 30, 1996, the Combined Company would have had a
portfolio of 234 hotels (197 of which it would have managed and 37 of which it
would have franchised) containing 55,770 rooms in the United States and Mexico.
On a pro forma basis, the Combined Company would have had revenues of $599.3
million for the year ended December 31, 1995 and $327.9 million for the six
months ended June 30, 1996, with operating income of $60.0 million and $45.8
million and net income of $20.2 million and $14.6 million, respectively.

Doubletree's principal business strategy is, and the Combined Company's
principal business strategy will be, to provide its hotel owners with high
quality, responsive hotel management and franchise services designed to improve
hotel profitability and to provide its hotel guests with a high level of
satisfaction. In executing this business strategy, Doubletree seeks to implement
policies and programs designed to increase revenues while minimizing operating
expenses. Doubletree seeks to grow hotel revenues by continuing to strengthen
the Doubletree brand and implementing national, regional and local sales and
marketing programs. Programs designed to reduce costs include providing
purchasing services at favorable prices to hotel owners, offering management
services and the Doubletree brand for one combined fee, minimizing the costs
associated with operating under the Doubletree brand name, and promoting
employee productivity and morale. As a result of these and other Doubletree
business strategies, net operating income for the 46 hotels managed by
Doubletree for the period from January 1, 1991 through December 31, 1995 has,
Doubletree believes, increased on average by approximately 20% per annum during
such period.

Doubletree's growth strategy is, and the Combined Company's growth strategy
will be, focused on four areas: (i) improving the revenue and operating
performance of its existing hotels; (ii) increasing the number of rooms under
its management or brand in its hotel portfolio; (iii) expanding the support
services it offers to hotel owners; and (iv) acquiring other hotel management
companies.

Doubletree believes that it has several competitive strengths that will
enable it to implement its growth strategy and continue to obtain additional
management contracts, leases and franchise agreements, including: (i) a proven
track record of generating profits for hotel owners; (ii) the strength of the
Doubletree brand; (iii) the ability to offer capital and flexible management
structures to hotel owners; (iv) established relationships with institutional
hotel investors; (v) the operation of multiple product lines and brands; and
(vi) the ability to increase penetration into Doubletree's existing markets.

In addition to the Merger, Doubletree has pursued its growth strategy in
1996 by completing the following transactions:

6
<PAGE> 9

RFS Management, which operates 50 hotels with approximately 7,000 rooms
under such franchise brands as Holiday Inn, Holiday Inn Express,
Residence Inn by Marriott, Hampton Inn, and Comfort Inn. The RFS
Acquisition allows the Combined Company to further pursue non-Doubletree
brand management contract and lease opportunities. Doubletree also
separately negotiated a Right of First Refusal (as defined below in
"Business of Doubletree -- Recent Developments -- Acquisition of RFS
Management") with RFS Hotel Investors, Inc., a leading hotel real estate
investment trust (the "REIT"), which provides a new source of long-term
hotel management and lease opportunities for additions to the Combined
Company's hotel portfolio.

- Formation of Candlewood. Doubletree has entered the mid-priced extended
stay segment of the hotel industry through a joint venture ("Candlewood")
with entities controlled by Mr. Jack DeBoer, the founder of Residence
Inns, whom the industry credits with creating the extended stay concept.
Mr. DeBoer is primarily responsible for the development and day-to-day
operations of Candlewood. Candlewood's first hotel commenced operations
in May 1996. Doubletree believes that Candlewood provides an opportunity
to generate additional revenue and participate in a rapidly expanding and
high demand segment of the lodging industry.

- Formation of Joint Venture Strategic Alliance with Patriot American
Hospitality, Inc. In August 1996, Doubletree and Patriot American
Hospitality, Inc. ("Patriot"), one of the nation's leading hotel real
estate investment trusts, committed to invest $20.0 million and $200.0
million, respectively, of equity capital to acquire hotels that would be
managed, branded and leased by Doubletree. Management believes this
strategic alliance will provide the Combined Company with another source
of long-term hotel management and lease opportunities. The joint venture
has successfully completed the acquisition of four Doubletree hotels.

The Merger is consistent with, and is an important step in, Doubletree's
growth strategy. The Red Lion hotels complement Doubletree's current brand
portfolio and create critical mass for improved national brand awareness. While
there can be no assurance that the integration of Doubletree and Red Lion will
be successful or accomplished in a timely fashion or that the Combined Company
will successfully implement its growth strategy (see "Risk
Factors -- Integration of the Two Companies" and "Risk Factors--Risk of Contract
Turnover"), Doubletree believes the Merger will generate several benefits,
including:

- Doubletree believes that the Combined Company's expanded size and diverse
geographic presence presents opportunities for enhancing Doubletree's
brand recognition. Subject to the receipt of necessary third party
approvals, Doubletree currently intends to convert most of the Red Lion
hotels to one of the Doubletree brands, thereby providing a major
increase in market coverage for Doubletree's full service product,
particularly in the western United States. Based on its examination of
Red Lion hotels, Doubletree believes that such properties are generally
in well maintained condition and of high quality. As a result Doubletree
does not expect that such hotel brand conversions will require
significant capital expenditures. If the plans to convert the Red Lion
hotels to Doubletree brand hotels are successful, the Merger will nearly
double the number of upscale, non-suite Doubletree brand hotels, with
limited overlap in existing markets served. Notwithstanding the increased
size and presence of the Combined Company, Doubletree believes that there
will be a significant number of available markets offering expansion
potential for the Combined Company, including many of the markets in
which the Combined Company's hotels will be located.

- Doubletree believes that as a result of Doubletree's national brand
recognition, marketing strength, and higher average daily rate ("ADR")
structure compared to Red Lion's, the conversion of the Red Lion hotels
to the Doubletree brand presents opportunities for improvement in both
ADR and occupancy rates.

- Doubletree believes that the majority of leases and management agreements
covering the Red Lion hotels are long-term, stable assets that do not
present a significant risk that they will be terminated or renegotiated
in the ordinary course of the Combined Company's business.

7
<PAGE> 10

- Doubletree believes that the Combined Company will create economies of
scale in services provided to its hotel owners, such as centralized
reservations services, national sales and marketing departments,
centralized accounting, management information services and other
administrative departments. As a result of the Merger, Doubletree
believes that the Combined Company will achieve additional cost savings
in these centralized services departments over those that have been
experienced by Doubletree or Red Lion separately. In addition, Doubletree
believes that the opportunity to integrate Red Lion's and Doubletree's
corporate headquarters and services will result in cost savings that will
directly benefit the Combined Company.

- Doubletree believes that the combination of the experienced hotel
employees at each of Doubletree and Red Lion will result in the Combined
Company having a large pool of hotel employees with proven track records
that can further support the implementation of Doubletree's business
strategy and support the Combined Company's future growth. In addition,
the Merger presents Doubletree with the opportunity to augment its
successful corporate management team with individuals from Red Lion's
experienced corporate management team.

- Doubletree believes it can extend its purchasing power and leverage with
vendors to the Red Lion hotels. Doubletree offers purchasing services to
the hotels in its portfolio and uses its purchasing power, and, where
appropriate, the purchasing power of certain of its major stockholders,
to negotiate favorable contract terms with vendors, on both a regional
and national basis. Doubletree believes that the Combined Company's
increased size will further increase its purchasing power with such
vendors and any prospective vendors, which may therefore result in cost
savings to the hotel owners and may generate increased profits for the
Combined Company.

- Doubletree believes Red Lion's significant investments in upgrading its
reservation system will enhance the performance of its current
reservation system. Red Lion has invested approximately $11 million in
developing a new, state-of-the-art central reservations system, which
includes a direct interface with airline reservation systems, advanced
marketing database capabilities and improved revenue management tools,
including real-time room inventory, and is anticipated to be operational
throughout the Red Lion system in early 1997. Doubletree currently
intends to integrate its current reservation system with Red Lion's
reservation system, capitalizing on the best aspects of each system, for
use by the Combined Company's portfolio of hotels.

As a result of the Merger, Doubletree will acquire 100% ownership in 17 of
Red Lion's 56 hotel properties. Doubletree believes that these hotels can
benefit substantially from the implementation of the Combined Company's business
strategy. Doubletree, however, remains focused on managing hotels, and once such
operating improvements outlined above have been realized, will explore all of
its alternatives, including the sale of one or more of such properties while
retaining the right to manage the hotels sold.

It is expected that Doubletree's management team will continue to manage
the operations of the Combined Company after the completion of the Merger.
Doubletree intends to review its own operations and the operations of Red Lion
in order to develop a plan to integrate the operations of both companies,
capitalizing on the best aspects of each organization. Although no specific
plans have been developed, Doubletree anticipates that there are opportunities
to integrate corporate functions, sales and marketing, central reservations and
accounting functions. The Board of Directors of Doubletree will be expanded to
include two additional members to be designated by the Partnership, an entity
affiliated with Kohlberg Kravis Roberts & Co. ("KKR"). The Partnership is the
majority stockholder of Red Lion and will own approximately 12.0% of all
outstanding Doubletree Common Stock upon consummation of the Merger and the
Financing Plan (as defined below). GE Investment Management Incorporated
("GEIM"), Doubletree's principal stockholder, and the Trustees of General
Electric Pension Trust ("GEPT") will together beneficially own an aggregate of
approximately 23.7% of the Doubletree Common Stock upon consummation of the
Merger and the Financing Plan (as defined below). See "The Merger -- The
Financing Plan" and "Security Ownership of Certain Beneficial Owners and
Management of Doubletree."

8
<PAGE> 11

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered
United States offering..................... 4,000,000 shares(1)
International offering..................... 1,000,000 shares
Total................................... 5,000,000 shares(1)
Common Stock to be outstanding after the
Offering................................... 37,459,076 shares(1)(2)(3)
Use of proceeds.............................. To provide a portion of the financing for the
Merger. See "Use of Proceeds" and "The
Merger and the Financing Plan."
The Nasdaq Stock Market's National Market
Symbol..................................... TREE
</TABLE>

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

(1) Excludes 750,000 shares of Common Stock subject to the U.S. Underwriters'
over-allotment option. See "Underwriters".

(2) Excludes an aggregate of 1,760,275 shares of Common Stock subject to
issuance upon the exercise of options outstanding at August 15, 1996 under
the Company's 1994 Equity Participation Plan, as amended (the "Incentive
Plan").

(3) Assumes 6,925,502 shares of Common Stock are issued in the Merger and
2,444,988 shares of Common Stock are sold pursuant to the GEPT Equity
Investment, based on the assumptions set forth in the first paragraph of
"Prospectus Summary."

THE MERGER AND THE FINANCING PLAN

GENERAL

On September 12, 1996, the Company entered into the Merger Agreement with
Red Lion and Merger Sub, pursuant to which, upon the terms and subject to the
conditions thereof, Merger Sub will be merged with and into Red Lion in the
Merger and Red Lion will become a wholly-owned subsidiary of the Company.

The obligations of the Company and Red Lion to consummate the Merger are
subject to the satisfaction (or waiver) of certain conditions, including, among
others, the approval of the stockholders of Red Lion. The approval of the Merger
by Red Lion stockholders requires the affirmative vote of the holders of a
majority of the outstanding shares of Red Lion Common Stock entitled to vote
thereon. The Partnership has agreed to vote its shares of Red Lion Common Stock
(constituting approximately 66.7% of the total number of shares so entitled to
vote) in favor of approval and adoption of the Merger Agreement and the Merger.
As a result, upon the vote of the Partnership in accordance with such agreement,
approval and adoption of the Merger Agreement and the Merger by the stockholders
of Red Lion are assured. The Merger Agreement may also be terminated under
certain circumstances. If the Merger is approved by the requisite vote of the
Red Lion stockholders and the other conditions to the Merger are satisfied or
waived, the Merger will be consummated and become effective at the time
specified in the Merger Agreement (the "Effective Time"). See "The Merger and
the Financing Plan."

Assuming the conditions to the Merger are met, the closing of the Offering
hereby will occur concurrently with, and will be contingent upon the
consummation of, the Merger at the Effective Time and will provide a portion of
the financing for the Merger.

MERGER CONSIDERATION

Upon consummation of the Merger, each share of common stock, par value $.01
per share, of Red Lion ("Red Lion Common Stock") which is outstanding
immediately prior to the Merger will be converted into the right to receive (i)
$21.30 in cash, plus interest if the Merger does not occur on or prior to
November 18, 1996 (as further described herein, the "Cash Consideration"), and
(ii) 0.2398 shares (the "Exchange Ratio")

9
<PAGE> 12

of the Company's Common Stock, subject to adjustment under certain circumstances
(collectively together with the Cash Consideration, and as further described
herein, the "Merger Consideration"). In addition, upon consummation of the
Merger, each option to purchase Red Lion Common Stock then outstanding under Red
Lion's 1995 Equity Participation Plan (each, a "Red Lion Option") will be
converted into and represent the right to receive (i) the Merger Consideration
into which the share or shares of Red Lion Common Stock issuable upon exercise
of such Red Lion Option would have been converted if such Red Lion Option had
been exercised immediately prior to the effective time of the Merger, reduced by
(ii) the aggregate exercise price for the shares of Red Lion Common Stock then
issuable upon exercise of such Red Lion Option and the amount of any withholding
taxes which may be required thereon. See "The Merger and the Financing Plan."

THE FINANCING PLAN

The total amount of funds required by Doubletree to consummate the Merger
and to pay related fees and expenses is expected to be approximately $919.7
million, including approximately $685.2 million to be paid to stockholders and
optionholders of Red Lion as Cash Consideration in the Merger, approximately
$213.3 million which will be used to retire existing outstanding indebtedness of
Red Lion immediately following consummation of the Merger and $21.2 million of
estimated fees and expenses excluding underwriters discounts and commissions of
the Offering (as defined below). It is currently anticipated that such amounts
will be financed (the "Financing Plan") through (i) $600.0 million of borrowings
under a $736.0 million term loan and revolving credit facility committed by
Morgan Stanley Senior Funding, Inc. and the Bank of Nova Scotia (the "New Credit
Facility"), (ii) approximately $215.0 million in proceeds from the Offering
hereby, net of underwriting discounts and commissions and estimated offering
expenses, at or prior to the Effective Time, (iii) $100.0 million in proceeds
from the sale of newly-issued shares of Doubletree Common Stock, and warrants to
purchase additional newly-issued shares of Doubletree Common Stock (the
"Warrants"), to GEPT or an affiliate thereof (the "GEPT Equity Investment"), and
(iv) cash on hand.

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN MILLIONS)
<S> <C>
Sources of Funds:
Borrowings under the New Credit Facility....................... $600.0
Net proceeds from the Offering................................. 215.0
Proceeds from the GEPT Equity Investment....................... 100.0
Cash on hand................................................... 4.7
------
Total sources of funds.................................... $919.7
======
Uses of Funds:
Cash Consideration in the Merger............................... $685.2
Repayment of existing indebtedness of Red Lion................. 213.3
Estimated fees and expenses, excluding underwriting discounts
and commissions and estimated offering expenses in connection
with the Offering............................................ 21.2
------
Total uses of funds....................................... $919.7
======
</TABLE>

In the event that the Offering is not consummated at or prior to the
Effective Time, Doubletree currently intends to finance the Merger to the extent
necessary, through additional borrowings under the New Credit Facility and
bridge financing of up to $150.0 million for which Doubletree has received a
written commitment from various institutions, including Morgan Stanley Group
Inc. (the "Bridge Loan"). See "The Merger and the Financing Plan -- The
Financing Plan."

RISK FACTORS

See "Risk Factors" beginning on page 20 hereof for information that should
be considered by prospective investors.

10
<PAGE> 13

FORWARD LOOKING INFORMATION

The statements contained in this Prospectus that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. The following factors are among the factors that could
cause actual results to differ materially from the forward-looking statements:
national or local economic conditions affecting the supply and demand for hotel
space; competition in hotel operations, including additional or improved
services or facilities of competitors and price competition; competition for
acquisition and other expansion opportunities which could limit the ability of
Doubletree to implement its external growth strategy; availability of financing
to fund expansion opportunities; and integration of the business of Doubletree
and Red Lion following the Merger. The forward-looking statements should be
considered in light of these factors.

11
<PAGE> 14

UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA OF DOUBLETREE

The following combined statement of operations table presents unaudited pro
forma summary financial information for Doubletree for the year ended December
31, 1995 and the six month periods ended June 30, 1995 and June 30, 1996 as if
the Merger, the Financing Plan, the Red Lion Formation and the Red Lion 1996
Hotel Acquisitions had each occurred on January 1, 1995. Additionally, the
balance sheet data below is based on the unaudited June 30, 1996 balance sheets
of Red Lion and Doubletree and assumes that the Merger and the Financing Plan
were completed as of June 30, 1996 and that the two hotels acquired subsequent
to June 30, 1996 in connection with the Red Lion 1996 Hotel Acquisitions had
been purchased as of June 30, 1996. The unaudited pro forma financial data set
forth below is presented for informational purposes only and may not reflect
Doubletree's future results of operations and financial position or what the
results of operations and financial position would have been had such
transactions occurred on the dates indicated. The information below should be
read in conjunction with the "Unaudited Pro Forma Condensed Consolidated
Financial Information" and notes thereto and "Management's Discussion and
Analysis of Results of Operations and Financial Condition of Doubletree"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
------------ -----------------------
PRO FORMA PRO FORMA PRO FORMA
1995 1995 1996
------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................................... $599,309 $ 286,670 $ 327,888
Total operating costs and expenses..................... 539,358 250,944 282,127
Operating income....................................... 59,951 35,726 45,761
Interest, net.......................................... (37,050) (18,819) (18,838)
Income before income taxes and minority interest....... 22,901 16,907 26,923
Net income............................................. 20,225 9,352 14,597
Earnings per share(1).................................. 0.55 0.26 0.39
Weighted average common and common equivalent
shares(1)........................................... 36,590 36,355 37,220
OTHER DATA:
Operating Data Excluding Non-Recurring Items
Operating income.................................... $ 77,178(2) $ 35,726 $ 45,761
Net income.......................................... 21,266(3) 8,816(3) 14,597
Earnings per share(1)............................... 0.58(3) 0.24(3) 0.39
EBITDA(4).............................................. $119,296 $ 64,836 $ 75,747
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 62,254
Total assets............................................................ 1,789,450
Long-term debt, net of current portion.................................. 595,000
Stockholders' equity.................................................... 781,047
Book value per common share............................................. $ 20.86
</TABLE>

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

(1) Pro forma per share information assumes that the approximately 14.4 million
shares to be issued in connection with the Merger were issued as of January
1, 1995.

(2) Excludes $2.6 million of business combination expenses incurred by
Doubletree in the fourth quarter of 1995 related to the RFS Acquisition and
$14.7 million of formation expenses incurred by Red Lion as a result of the
Red Lion Formation in August 1995.

12
<PAGE> 15

(3) Adjusted to (a) provide for increased income tax expense on the excluded
business combination and formation expenses incurred during the year ended
December 31, 1995, (b) exclude the deferred tax benefit of $9.7 million
related to the Red Lion Formation and provide for income taxes at the
statutory rate and (c) provide for taxes on RFS Management's earnings that
were not taxed due to its Sub-Chapter S status for both 1995 periods.

(4) EBITDA represents earnings before interest expense, income taxes, income
(loss) attributable to joint venturers' interest, and depreciation and
amortization. EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles, and such information
should not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by generally
accepted accounting principles. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt.

For the year ended December 31, 1995 EBITDA includes $14.7 million of
non-recurring formation expenses associated with the Red Lion Formation and
$2.6 million of business combination expenses related to the RFS
Acquisition. Excluding these expenses, EBITDA for the year ended December
31, 1995 would have been $136.5 million.

COMBINED SUMMARY OPERATING DATA

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
----------------- -----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
NUMBER OF HOTELS
Owned Hotels.......................................... 21 21 21 22
Management Contracts.................................. 92 97 96 102
Lease Agreements...................................... 21 22 22 73
Franchise Agreements.................................. 23 30 24 37
------ ------ ------ ------
Total.............................................. 157 170 163 234
====== ====== ====== ======
NUMBER OF ROOMS
Owned Hotels.......................................... 5,113 5,113 5,117 5,406
Management Contracts.................................. 25,729 28,105 27,322 29,552
Lease Agreements...................................... 4,608 5,006 5,006 12,234
Franchise Agreements.................................. 4,969 6,641 5,209 8,580
------ ------ ------ ------
Total.............................................. 40,419 44,865 42,654 55,772
====== ====== ====== ======
</TABLE>

13
<PAGE> 16

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
----------------- -----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
OTHER DATA
Total Doubletree average daily rate(1)................ $82.21 $86.41 $82.22 $87.93
Doubletree branded hotels average daily rate(1)....... 84.59 88.99 88.55 94.99
Red Lion average daily rate........................... 70.52 75.14 74.80 79.75
Total Doubletree occupancy percentage(1).............. 71.0% 71.8% 72.8% 74.5%
Doubletree branded hotels occupancy percentage(1)..... 71.2 71.9 72.1 73.9
Red Lion occupancy percentage......................... 72.1 72.7 72.2 71.0
Total Doubletree REVPAR(1)(2)......................... $58.38 $62.03 $59.86 $65.51
Doubletree branded hotels REVPAR(1)(2)................ 60.22 63.96 63.84 70.20
Red Lion REVPAR(2).................................... 50.85 54.59 54.10 56.61
</TABLE>

- ---------------
(1) For the years ended 1994 and 1995, includes only information for hotels
continuously managed by Doubletree (including RFS Management, but excluding
Red Lion) since January 1, 1994. For the six months ended June 30, 1995 and
1996, includes only information for hotels continuously managed by
Doubletree (including RFS Management, but excluding Red Lion) since January
1, 1995. Doubletree branded hotels include only those hotels managed by
Doubletree under the Doubletree brand. Total Doubletree includes all hotels
(other than Red Lion hotels) managed by Doubletree.

(2) REVPAR is occupancy percentage multiplied by average daily rate.

14
<PAGE> 17

SUMMARY FINANCIAL INFORMATION OF DOUBLETREE

The following tables present summary historical consolidated financial
information for Doubletree, all of which have been restated to give effect to
the RFS Acquisition in February 1996, which was accounted for as a pooling of
interests. The table also presents summary pro forma consolidated financial
information for the year ended December 31, 1993, assuming that the Doubletree
Combination Transaction and the Doubletree Reorganization had each occurred on
January 1, 1993. The information below should be read in conjunction with the
consolidated financial statements of Doubletree and notes thereto and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition of Doubletree." Pro forma results of operations are not necessarily
indicative of the results of operations as they might have been had the
Doubletree Combination Transaction and the Doubletree Reorganization been
consummated at the beginning of the period shown. The results of operations for
the six months ended June 30, 1995 and 1996 are not necessarily indicative of
the results expected for the full year. For a discussion of the historical
corporate organization of Doubletree, see "Corporate Organization."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- --------------------
PRO FORMA(1) ACTUAL ACTUAL ACTUAL ACTUAL
1993 1994 1995 1995 1996
------------ -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues................... $ 56,796 $112,482 $196,586 $91,349 $117,376
Total operating costs and
expenses...................... 41,171 93,711 174,282 79,452 100,181
Operating income................. 15,625 18,771 22,304 11,897 17,195
Interest, net.................... (1,247) 799 3,920 1,726 1,947
Income before income taxes and
minority interest............. 14,378 19,570 26,224 13,623 19,142
Net income....................... 8,615 13,235(2) 17,791 9,387 12,427
Earnings per share............... $ 0.47 $ 0.66(2) $ 0.80 $ 0.43 $ 0.54
Pro forma net income(3).......... $ 18,736 $ 8,851
Pro forma earnings per
share(3)...................... $ 0.84 $ 0.40
Weighted average common and
common equivalent shares(4)... 18,228 20,071 22,219 21,984 22,849
OTHER DATA:
EBITDA(5)........................ $ 19,115 $ 23,344 $ 31,137(5) $15,811 $ 22,225
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30,
1996
--------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 46,566
Total assets.................................................................... 211,973
Long-term debt, net of current portion.......................................... --
Stockholders' equity............................................................ 154,461
Book value per common share..................................................... $ 6.70
</TABLE>

15
<PAGE> 18

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------- -----------------
1994 1995 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
NUMBER OF HOTELS
Doubletree Full-Service Hotels...................... 44 56 49 60
Doubletree Guest Suite Hotels....................... 33 36 34 37
Doubletree Club Hotels.............................. 14 13 14 13
------ ------ ------ ------
Total Doubletree Brand Hotels.................... 91 105 97 110
Non-Doubletree Brand Hotels......................... 13 11 13 69
------ ------ ------ ------
Total Company Hotel Portfolio.................... 104 116 110 179
====== ====== ====== ======
Management Contracts................................ 77 81 81 86
Lease Agreements(6)................................. 4 5 5 56
Franchise Agreements................................ 23 30 24 37
------ ------ ------ ------
Total Company Hotel Portfolio.................... 104 116 110 179
====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------- -----------------
1994 1995 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
NUMBER OF ROOMS
Doubletree Full-Service Hotels...................... 14,207 18,422 16,269 19,334
Doubletree Guest Suite Hotels....................... 7,138 7,693 7,378 8,033
Doubletree Club Hotels.............................. 2,573 2,386 2,573 2,364
------ ------- ------ ------
Total Doubletree Brand Hotels.................... 23,918 28,501 26,220 29,731
Non-Doubletree Brand Hotels......................... 2,620 2,114 2,551 11,501
------ ------- ------ ------
Total Company Hotel Portfolio.................... 26,538 30,615 28,771 41,232
====== ======= ====== ======
Management Contracts................................ 20,952 22,957 22,545 24,407
Lease Agreements(6)................................. 617 1,017 1,017 8,245
Franchise Agreements................................ 4,969 6,641 5,209 8,580
------ ------- ------ ------
Total Company Hotel Portfolio.................... 26,538 30,615 28,771 41,232
====== ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- -----------------
1994 1995 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
REVPAR ANALYSIS(7)
Doubletree Full-Service Hotels...................... $56.48 $ 60.08 $58.22 $64.28
Doubletree Guest Suite Hotels....................... 69.57 73.74 77.00 84.13
Doubletree Club Hotels.............................. 41.59 43.99 47.34 50.74
Total Doubletree Brand Hotels.................... 60.22 63.96 63.84 70.20
Non-Doubletree Brand Hotels......................... 49.02 52.51 50.60 54.69
Total Company Hotel Portfolio.................... 58.38 62.03 59.86 65.51
</TABLE>

- ---------------
(1) Assumes that the Doubletree Combination Transaction and the Doubletree
Reorganization had each occurred on January 1, 1993.

(2) Doubletree's effective tax rate for the year ended December 31, 1994 was
32.4% due to the organizational structure of Doubletree prior to its initial
public offering. Had a 35% rate been applied, 1994 net income and earnings
per share would have been $12.7 million and $0.63, respectively.

(3) During the fourth quarter of 1995, Doubletree and RFS Management incurred,
in the aggregate, $2.6 million of business combination expenses related to
the RFS Acquisition which closed in February 1996. RFS Management, as a
Subchapter S corporation for Federal income tax purposes, was generally not
liable for Federal income taxes for 1995. Accordingly, RFS Management did
not provide for Federal

16
<PAGE> 19

income taxes in its 1995 financial statements. Pro forma adjustments have
been made for the year ended December 31, 1995 and the six months ended June
30, 1995 to provide for income taxes on the earnings of RFS Management at
the effective tax rate of Doubletree; also, for the year ended December 31,
1995 pro forma adjustments have been made to exclude the business
combination expenses and provide for a related increase in income tax
expense.

(4) Assumes that the 15,500,000 shares issued in connection with the Doubletree
Reorganization and 2,727,811 shares issued to acquire RFS Management, which
was accounted for as a pooling of interests, were outstanding for all
periods presented.

(5) Includes $2.6 million of business combination expenses related to the RFS
Acquisition. Excluding these expenses, EBITDA would have been $33.7 million
for the year ended December 31, 1995.

(6) Includes one owned hotel (239 rooms).

(7) For the years ended 1994 and 1995, includes only information for hotels
managed by Doubletree (including RFS Management) for the entire two-year
period. For the six months ended June 30, 1995 and 1996, includes only
information for hotels managed by Doubletree (including RFS Management)
during both periods.

17
<PAGE> 20

SUMMARY FINANCIAL INFORMATION OF RED LION

The following tables present pro forma summary consolidated financial
information for 1994 and 1995 for Red Lion giving effect to the Red Lion
Formation and the Red Lion Refinancing as if they had occurred on January 1,
1994 and the actual results of operations for the six months ended June 30,
1996. THE FINANCIAL INFORMATION FOR ALL PERIODS PRESENTED HAS BEEN ADJUSTED TO
CONFORM TO THE FINANCIAL STATEMENT PRESENTATION OF DOUBLETREE. The information
below should be read in conjunction with the consolidated financial statements
of Red Lion and notes thereto, "Unaudited Pro Forma Condensed Consolidated
Financial Information" and notes thereto and "Management's Discussion and
Analysis of Results of Operations and Financial Condition of Red Lion." Pro
forma results of operations are not necessarily indicative of the results of
operations as they might have been had the Red Lion Formation and the Red Lion
Refinancing been consummated at the beginning of the period shown. The results
of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results expected for the full year. For a discussion of the
historical corporate organization of Red Lion, see "Corporate Organization."

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
PRO FORMA PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED AS ADJUSTED AS ADJUSTED
1994 1995 1995 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues............................ $ 345,857 $ 375,948 $ 181,810 $ 198,416
Total operating costs and expenses........ 284,515 318,183 148,264 159,106
Operating income.......................... 61,342 57,765(1) 33,546 39,310
Interest, net............................. (18,814) (16,929) (9,496) (6,939)
Income before income taxes and minority
interest............................... 42,528 40,836(1) 24,050 32,371
Net income................................ 24,922 32,751(1) 14,335 18,836
Earnings per share........................ $ 0.80 $ 1.05(1) $ 0.46 $ 0.60
Weighted average common and
common equivalent shares............... 31,313 31,313 31,313 31,313
OTHER DATA:
EBITDA.................................... $ 83,109 $ 81,922(2) $ 45,785 $ 50,592
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 36,509
Total assets.............................................................. 531,883
Long-term debt, net of current portion.................................... 204,109
Stockholders' equity...................................................... 249,115
Book value per common share............................................... $ 7.96
</TABLE>

18
<PAGE> 21

AS OF DECEMBER 31, AS OF JUNE 30,
------------------ -----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
SUMMARY OPERATING DATA
NUMBER OF HOTELS:(3)
Owned Hotels.......................................... 21 21 21 22
Management Contracts.................................. 15 16 15 16
Leased Hotels......................................... 17 17 17 17
------ ------ ------ ------
Total.............................................. 53 54 53 55
====== ====== ====== ======
NUMBER OF ROOMS:(3)
Owned Hotels.......................................... 5,113 5,113 5,117 5,406
Management Contracts.................................. 4,777 5,148 4,777 5,145
Leased Hotels......................................... 3,991 3,989 3,989 3,989
------ ------ ------ ------
Total.............................................. 13,881 14,250 13,883 14,540
====== ====== ====== ======
REVPAR:(4)
Owned Hotels.......................................... $56.98 $60.52 $59.88 $63.20
Management Contracts.................................. 47.82 51.10 51.61 53.20
Leased Hotels......................................... 46.60 51.20 49.65 52.45
------ ------ ------ ------
Total.............................................. $50.85 $54.59 $54.10 $56.61
====== ====== ====== ======
</TABLE>

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

(1) Includes $14.7 million of non-recurring costs associated with the Red Lion
Formation. Excluding these costs, operating income and income before income
taxes and minority interest would have been $72.4 million and $55.5
million, respectively. Net income and earnings per share adjusted to
exclude the costs associated with the Red Lion Formation, to provide for
taxes at the statutory rate and to exclude $9.7 million of deferred tax
benefits related to the Red Lion Formation would have been $32.8 million
and $1.05, respectively.

(2) Includes $14.7 million of non-recurring costs associated with the Red Lion
Formation. Excluding these costs, EBITDA would have been $96.6 million for
the year ended December 31, 1995.

(3) The information reflects the 17 Red Lion Leased Hotels, which were owned
prior to August 1, 1995, as if the hotels were leased on each date
presented.

(4) For the years ended 1994 and 1995, and the six months ended June 30, 1995
and 1996, includes information for all hotels owned or operated under
management contracts and a lease agreement.

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<PAGE> 22

RISK FACTORS

Prospective investors should carefully consider the following factors in
addition to the other information contained in this Prospectus in evaluating
whether to purchase the Common Stock offered hereby.

FINANCING OF THE MERGER; LEVERAGE

Following consummation of the Merger and the Financing Plan described in
"The Merger and the Financing Plan -- The Financing Plan," including the
Offering, Doubletree will have substantial indebtedness, and as a result
significant debt service obligations. After giving effect to the Merger and
assuming the Financing Plan is effectuated, on June 30, 1996 Doubletree would
have had $600.0 million of indebtedness and $781.0 million of stockholders'
equity, resulting in a debt to total capital ratio of 0.43 to 1.00. In addition,
depending on prevailing financial, economic and market conditions (including the
trading market for Doubletree Common Stock) and any other factors or
considerations the Board of Directors or management of Doubletree deems
relevant, Doubletree may finance the Merger through additional borrowings under
the New Credit Facility or the Bridge Loan, in lieu of the sale of Doubletree
Common Stock in the Offering. Accordingly, following the Merger, the amount of
outstanding indebtedness may be greater than contemplated under the Financing
Plan and stockholders' equity may be lower than contemplated under the Financing
Plan, resulting in a debt to total capital ratio of up to 0.57 to 1.00. See "The
Merger and the Financing Plan -- The Financing Plan."

The degree to which Doubletree is leveraged could have important
consequences to holders of Doubletree Common Stock, including the following: (i)
Doubletree's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of Doubletree's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to Doubletree for its
operations; (iii) certain of Doubletree's borrowings are and will continue to be
at variable rates of interest, which causes Doubletree to be vulnerable to
increases in interest rates; and (iv) such indebtedness contains or will contain
numerous financial and other restrictive covenants, including those restricting
the incurrence of indebtedness, the creation or existence of liens, the
declaration or payment of dividends, certain investments, the acquisition of
securities of Doubletree, and certain extraordinary corporate transactions.
Failure by Doubletree to comply with such covenants may result in an event of
default which, if not cured or waived, could have a material adverse effect on
Doubletree.

Doubletree's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
There can be no assurance that Doubletree's cash flow from its operations will
be sufficient for payment of Doubletree's indebtedness in the future.

INTEGRATION OF THE TWO COMPANIES

In determining the terms of the proposed Merger, the Boards of Directors of
both Doubletree and Red Lion evaluated the companies' respective businesses
based in part on expectations concerning the future operations of the Combined
Company. The evaluations took into consideration the expectation that the
combination of the two companies would produce the beneficial effects described
below in "The Combined Company." In addition, Doubletree and Red Lion believe
that a key benefit to be realized from the Merger will be the integration of
their respective hotel portfolios. There can be no assurance that these
expectations will be fulfilled. The combination of Doubletree and Red Lion
presents certain risks with regard to the integration of the two organizations.
The difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations; integrating different
strategies and integrating personnel with disparate business backgrounds and
corporate cultures. There can be no assurance that Doubletree and Red Lion will
be able to integrate effectively or in a timely manner. Nor can there be any
assurance that, even if integrated, the Combined Company's product and service
offerings will be successful. The integration and

20
<PAGE> 23

consolidation is intended to realize cost savings. There can be no assurance of
the extent to which such cost savings will be achieved, if any. If the Combined
Company is not successful in integrating its strategies and hotel portfolios or
if its integrated products and services fail to achieve market acceptance, the
Combined Company could be adversely affected.

In addition, as a key benefit of the Merger, Doubletree currently intends
to convert most of the Red Lion hotels to one of the Doubletree brands. In some
cases, such hotel brand conversions are subject to the approval of unaffiliated
third parties. There can be no assurance that any such necessary third party
approvals will be obtained.

COMPETITION FOR AND DEPENDENCE ON MANAGEMENT CONTRACTS, LEASES AND FRANCHISE
AGREEMENTS; COMPETITION FOR GUESTS

Competition for management contracts, leases and franchise agreements in
the lodging industry is intense. The Combined Company will compete with national
and regional brand franchisers and management companies, some of which have
greater name recognition than either Doubletree or Red Lion and greater
financial resources than the Combined Company. In addition, smaller hotel
management companies compete against the Combined Company. Doubletree believes
that the Combined Company's ability to secure management contracts, leases or
franchise agreements will be based principally upon the perceived value and
quality of the Combined Company's management services, brand name and the
potential economic advantages to the hotel owner of retaining the Combined
Company's management services or brand names. Doubletree believes that the
perceived value of a brand name to a hotel owner is in part a function of the
success of the hotels currently under management under that brand name.
Competitive factors also include relationships with hotel owners and investors,
marketing support, reservation system capacity and the willingness to make debt
and equity investments (collectively, "Investments") in connection with new
management contracts and leases. No assurance can be given that the Combined
Company will be successful in retaining current, or competing for additional,
management contracts, leases or franchise agreements.

Competition for guests in the lodging industry is also intense. Competitive
factors in the industry include room rates, quality of accommodations, name
recognition, service levels and convenience of location. The Combined Company's
hotels will be located in areas that generally contain numerous other
competitors, some of which have greater name recognition than either Doubletree
or Red Lion and greater financial resources than the Combined Company. There can
be no assurance that demographic, geographic or other changes in markets will
not adversely affect the convenience or desirability of the locales in which the
Combined Company's hotels are located. Further, there can be no assurance that
new or existing competitors will not significantly lower rates, offer greater
convenience, services or amenities, or significantly expand or improve
facilities in a market in which the Combined Company's hotels compete, thereby
adversely affecting the Combined Company's ability to attract guests.

RISK OF CONTRACT TURNOVER

Management contracts, leases and franchise agreements will be acquired,
terminated and renegotiated in the ordinary course of the Combined Company's
business. Many of the management contracts and leases to which Doubletree is a
party may be terminated by the owner of the hotel property if Doubletree fails
to meet certain performance standards, or in the event of a change in control of
the property through sale or foreclosure, or otherwise. Few of the management
contracts and leases to which Red Lion is a party are subject to the same types
of risks. In the event of a termination other than for performance, many
contracts require the hotel owner to pay a termination fee, which may be more or
less than the book value, if any, of the contract asset. If the Combined Company
loses a capitalized management contract, lease or franchise agreement, the
Combined Company will record a write-off of the remaining book value (less any
termination fee received) of such management contract, lease or franchise
agreement, which could have a material adverse effect on the Combined Company's
results of operations and financial condition.

Ownership of individual hotels and hotel portfolios change from time to
time, and management and hotel brands may be changed concurrently. Historically,
Doubletree and Red Lion have been successful in retaining

21
<PAGE> 24

management contracts, leases or franchise agreements in the majority of cases,
because of their operating performance and competitive advantages. During 1995,
four hotels managed by Doubletree (all operated under non-Doubletree brands) and
two Doubletree franchised hotels were sold to new owners which did not retain
Doubletree's services. In the six months ended June 30, 1996, two Doubletree
managed hotels operated under the Doubletree brand and one Doubletree franchised
hotel were sold to new owners which did not retain Doubletree's services. None
of these terminations resulted in a material loss to Doubletree. In 1995 and the
six months ended June 30, 1996, Doubletree was able to add 12 and 13 new hotels
(net of the above terminations), excluding the RFS Acquisition, respectively,
and achieved a net growth in rooms of 4,077 and 3,638, respectively.

In 1995 and 1996, Starwood Lodging Trust, or its affiliates ("Starwood"), a
company that owns and manages hotels, has acquired an aggregate of nine
Doubletree brand hotels and one non-Doubletree brand hotel. The nine Doubletree
brand hotels are subject to Doubletree brand franchise agreements, and the non-
Doubletree brand hotel has left the Doubletree system. Starwood has indicated
that three of such franchise agreements will likely be converted to other brands
in early 1997. However, Doubletree currently anticipates that it would terminate
two of the three franchise agreements as a result of the Merger. See "Business
of Doubletree -- Recent Developments." In addition, in 1996, Starwood entered
into a franchise agreement with Doubletree covering a Doubletree brand hotel
that was not previously a part of the Doubletree system. There can be no
assurance that Doubletree will retain the long-term management or franchise of
the hotels that are owned by Starwood. There can be no assurance that the
Combined Company will be as successful in the future as Doubletree and Red Lion
have been in the past in retaining contracts, avoiding a material loss on
contract termination, replacing terminated contracts with favorable new
contracts or renegotiating and converting contracts.

DEPENDENCE ON CERTAIN HOTEL OWNERS

Doubletree manages hotels for, leases hotels from, and franchises its
brands to, (i) certain affiliates of two of its original stockholders, GE
Investment Hotel Partners I, Limited Partnership ("GEHOP") and Metropolitan Life
Insurance Company ("Metropolitan"), (ii) affiliates of certain of its directors
and (iii) other major hotel investors. At June 30, 1996, affiliates of GEHOP and
Metropolitan owned 12 and ten hotels, respectively, that were managed or leased
by Doubletree. On the same date, Doubletree managed four hotels for affiliates
of Norman B. Leventhal, a director of Doubletree. In 1995 Doubletree received in
the aggregate (including reimbursements) $11.8 million, $10.3 million and $3.4
million, respectively, under contracts with these parties. At June 30, 1996,
Doubletree also leased 49 hotels (45 of which it managed) from RFS Partnership,
L.P., a limited partnership (the "Landlord"), of which RFS Hotel Investors, Inc.
(the "REIT") is the sole general partner and 98.6% owner. For a description of
certain of the relationships between Doubletree and the REIT, see "Business of
Doubletree -- The RFS Acquisition." In addition, at June 30, 1996, there were
five unrelated hotel owners that each owned between three and six hotels which
are managed by or franchised from Doubletree.

In addition, Red Lion leases from the Partnership the Red Lion Leased
Hotels pursuant to a long-term lease (the "Partnership Lease"). The Partnership
will continue to own the Red Lion Leased Hotels following consummation of the
Merger. Michael Michelson, a director and stockholder of RLA-GP, Inc. ("RLA"),
the general partner of the Partnership, and Edward Gilhuly, a director and
officer of RLA, will be members of the Doubletree Board of Directors. While Red
Lion believes the terms of the Partnership Lease are fair to Red Lion and the
Partnership, those terms were not negotiated on an arms-length basis.

Although Doubletree and Red Lion each believe that it has satisfactory
relationships with these respective hotel owners, no assurance can be given that
the Combined Company's relationship with these owners will remain satisfactory.
In addition, the Combined Company's growth opportunities are dependent in part
on its ability to maintain satisfactory relationships with these and other
institutional hotel investors, and therefore the failure of the Combined Company
to maintain any of these relationships could have a material adverse effect on
the Combined Company's results of operation and financial condition or its
ability to expand its portfolio of hotels under management or franchise.

22
<PAGE> 25
adverse effect on the Combined Company's results of operation and financial
condition or its ability to expand its portfolio of hotels under management or
franchise.

RISKS ASSOCIATED WITH EXPANSION

A major focus of the Combined Company's growth strategy will be to add
significantly to its portfolio of hotels through the acquisition of management
contracts, leases and franchise agreements, individually or in groups, including
through the acquisition of hotel management companies. There can be no assurance
that the Combined Company will be able to obtain new contracts, leases and
franchise agreements, that such contracts, leases and franchise agreements will
be profitable, or that the Combined Company's systems, procedures and controls
and management, financial and other resources, will be adequate to support such
expansion.

There can be no assurance that the Combined Company will be able to
integrate successfully new hotels, new hotel products or new hotel management
company acquisitions into its operations, that new hotels, new hotel products or
new hotel management company acquisitions will achieve revenue and profitability
levels comparable to Doubletree's or Red Lion's existing hotels or that the
combined business will be profitable. Hotels being operated under newly acquired
management contracts or lease agreements, including those of Red Lion, may begin
with lower occupancy and room rates. Furthermore, the Combined Company's
expansion within its existing markets could adversely affect the financial
performance of the Combined Company's existing hotels or its overall results of
operations. Expansion into new markets may present operating and marketing
challenges that are different from those currently encountered by Doubletree and
Red Lion in its existing markets. There can be no assurance that the Combined
Company will anticipate all of the changing demands, including those presented
by the Merger, that expanding operations will impose on its management or its
management information and reservation systems, and the failure to adapt its
systems and procedures could have a material adverse effect on the Combined
Company's business.

RISKS ASSOCIATED WITH OWNING AND LEASING REAL ESTATE

As of June 30, 1996, Doubletree leased 56 hotels and owned one hotel. At
the Effective Time, Doubletree's acquisition of Red Lion will result in
Doubletree leasing 17 additional hotels, owning 17 additional hotels and having
at least a 50% joint venture interest in seven hotels. As a result, the Combined
Company will be subject to varying degrees of risk generally related to leasing
and owning real estate. In addition to general risks related to the lodging
industry, these risks include, among others, liability for long-term lease
obligations, changes in national, regional and local economic conditions, local
real estate market conditions, changes in interest rates and in the
availability, cost and terms of financing, the potential for uninsured casualty
and other losses, the impact of present or future environmental legislation and
compliance with environmental laws, and adverse changes in zoning laws and other
regulations, many of which are beyond the control of the Combined Company.
Moreover, real estate investments are relatively illiquid, which means that the
ability of the Combined Company to vary its portfolio of hotels in response to
changes in economic and other conditions may be limited. Historically,
Doubletree has earned management fees based on a percentage of specified hotel
revenues and its risk has been limited to the extent of its management fee.
However, lease terms typically require the payment of a fixed monthly base rent
regardless of the performance of the hotel leased, in addition to a variable
rent based on a percentage of revenues.

The majority of the hotels that will be leased by the Combined Company will
be leased from the REIT pursuant to the Percentage Leases (as defined in
"Business of Doubletree -- Hotel Operations: Non-Doubletree Brand
Hotels -- Lease and Management Agreements") and the Partnership pursuant to the
Partnership Lease. Each of the Percentage Leases and the Partnership Lease is a
"triple net" lease which requires the lessee to maintain the leased hotel in
good condition and repair and in conformity with all applicable legal
requirements and to make, or cause to be made, all items of maintenance, repair,
replacement and alteration to the leased hotel as necessary for such purpose.
The Percentage Leases, the Partnership Lease and any other leases pursuant to
which the Combined Company is the lessee will expose the Combined Company to the
risk that the hotels covered by such leases will not generate sufficient
revenues to meet the

23
<PAGE> 26
Combined Company's lease and other obligations. If such obligations are not met,
the lessor can terminate the lease.

In addition to provisions generally included in "triple net" leases, the
Percentage Leases contain, among other things, a cross-default provision for
events of default under any Percentage Lease acquired as part of the RFS
Acquisition. This cross-default provision could result in additional leverage in
favor of the REIT in the event of a dispute between RFS Management and the REIT.
The Percentage Leases also require RFS Management to continue to make rental
payments and to pay all other charges required under the lease for up to six
months if a hotel is substantially damaged or destroyed and to indemnify the
REIT from and against a number of liabilities, costs and expenses. The REIT has
retained the right to sell one or more of the hotels subject to the Percentage
Leases and to terminate the Percentage Leases relating to such hotels, provided
that in connection with any such termination the REIT pays RFS Management the
fair market value of such lease or offers to lease to RFS Management a
substitute hotel under a lease with a fair market value equal to that of the
lease being terminated. For a more detailed description of the Percentage
Leases, see "Business of Doubletree -- Hotel Operations: Non-Doubletree Brand
Hotels -- Lease and Management Agreements."

The Partnership Lease requires, among other things, Red Lion to pay
substantially all expenses associated with the operation of the Red Lion Leased
Hotels, including all ground lease expense, real estate taxes, insurance,
utilities and services. The Partnership has retained the right to sell one or
more of the Red Lion Leased Hotels, subject to the terms of the Partnership
Lease. Red Lion also has agreed to fully indemnify the Partnership and its
affiliates for any matter arising by reason of or in connection with the
leasing, use, non-use, occupancy, management or operation of each of the Red
Lion Leased Hotels prior to or during the term of the Partnership Lease,
including environmental matters. In connection with the Merger, Doubletree has
agreed to guaranty these indemnification obligations. For a more detailed
description of the Partnership Lease, see "Business of Red Lion -- The
Partnership Lease."

INVESTMENT LOSSES; RISKS ASSOCIATED WITH JOINT VENTURES; CONTINGENT LIABILITIES

Doubletree and Red Lion have made selective Investments in hotels and hotel
ventures in connection with acquiring or maintaining management of hotels and to
enhance the respective value or position of Doubletree and Red Lion in the
lodging industry. They have also made certain financial commitments for the same
purposes. See "Business of Doubletree -- Investments and Commitments" and
"Business of Red Lion -- Joint Ventures." These Investments and commitments may
involve risks of loss different in nature or amount from losses ordinarily
associated with hotel management alone, and losses arising from Investments or
commitments could have a material adverse effect on the Combined Company. There
can be no assurance that the Combined Company will not sustain material losses
on its Investments and commitments.

Investments in joint venture arrangements to acquire or develop additional
hotels may, under certain circumstances, involve risks such as the possibility
that the co-venturer in an investment might become bankrupt, or have economic or
business interests or goals that are inconsistent with the business interests or
goals of the Combined Company, or be in a position to take action contrary to
the instructions or requests of the Combined Company or contrary to the Combined
Company's policies or objectives. Consequently, actions by a co-venturer might
result in subjecting hotels owned by the joint venture to additional risk.
Although the Combined Company will seek to maintain sufficient control of any
joint venture to permit the Combined Company's objectives to be achieved, it may
be unable to take action without the approval of its joint venture partners or
its joint venture partners could take actions binding on the joint venture
without the Combined Company's consent. Additionally, should a joint venture
partner become bankrupt, the Combined Company could, in certain circumstances,
become liable for such partner's share of joint venture liabilities.

In addition, each corporate subsidiary of the Combined Company which serves
as a general partner will be liable for the obligations of the partnership or
joint venture it manages. Although Doubletree believes that it is not
responsible for the liabilities of these subsidiaries, no assurance can be given
that the Combined Company would not be found liable for its subsidiaries'
obligations nor that it would not be required to pay substantial sums to satisfy
its subsidiaries' obligations.

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<PAGE> 27

RISKS ASSOCIATED WITH NEW CONSTRUCTION

Doubletree, through joint ventures and partnerships, is involved in the
construction of several new hotels. Any construction project entails significant
construction risks, including cost overruns, shortages of materials or skilled
labor, labor disputes, unforeseen environmental or engineering problems, work
stoppages, fire and other natural disasters, construction scheduling problems
and weather interferences, any of which, if they occurred could delay
construction or result in a substantial increase in costs of the construction of
the new hotels.

The opening of newly constructed hotels is contingent upon, among other
things, receipt of all required licenses, permits and authorizations. The scope
of the approvals required for a new hotel is extensive, including, without
limitation, state and local land-use permits, building and zoning permits,
health and safety permits and liquor licenses. In addition, unexpected changes
or concessions required by local, regulatory and state authorities could involve
significant additional costs and could delay or prevent the completion of
construction or the opening of a new hotel. There can be no assurance that the
necessary permits, licenses and approvals for the construction and operation of
the new hotels will be obtained, or that such permits, licenses and approvals
will be obtained within the anticipated time frame.

RISKS ASSOCIATED WITH THE LODGING INDUSTRY

The lodging industry may be adversely affected by changes in economic
conditions, changes in local market conditions, oversupply of hotel space, a
reduction in demand for hotel space in an area, changes in travel patterns,
extreme weather conditions, changes in governmental regulations that influence
or determine wages, prices or construction costs, changes in interest rates, the
availability of financing for operating or capital needs, and changes in real
estate tax rates and other operating expenses. Room supply and demand
historically have been sensitive to shifts in GNP growth, which has resulted in
cyclical changes in average daily room and occupancy rates. Overbuilding in the
industry in the mid and late 1980s, when approximately 500,000 rooms were added,
resulted in an oversupply of rooms. This oversupply and the general downturn in
the economy led to depressed industry performance and a lack of capital
available to the industry in the late 1980s and early 1990s. 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.

FLUCTUATIONS IN OPERATING RESULTS

The lodging industry is seasonal in nature with the second and third
quarters generally accounting for a greater proportion of annual revenues than
the first and fourth quarters. Quarterly earnings may be adversely affected by
events beyond the Combined Company's control such as poor weather conditions,
economic factors and other considerations affecting travel. In addition, the
loss of one or several management contracts, leases or franchise agreements, the
timing of achieving incremental revenues from new contracts, leases or franchise
agreements and the realization of a gain or loss upon the sale of hotels in
which Doubletree has an equity interest may also adversely impact earnings
comparisons.

GOVERNMENT REGULATIONS

The hotel industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws) and building and
zoning requirements. Also, the Combined Company and its customers are subject to
laws governing their relationships with employees, including minimum wage
requirements, overtime, working conditions and work permit requirements. The
Combined Company will also be subject to federal regulations and certain state
laws that govern the offer and sale of franchises. Many state franchise laws
impose substantive requirements on franchise agreements, including limitations
on noncompetition provisions and termination or nonrenewal of a franchise. Some
states require that certain materials be approved before franchises can be
offered or sold in that state. The failure to obtain or retain liquor licenses
or approvals to sell franchises, or an increase in the minimum wage rate,
employee benefit costs or other costs associated with employees, could adversely
affect the Combined Company. Under the Americans with Disabilities Act of 1990
(the "ADA"), all public

25
<PAGE> 28

accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Doubletree and Red Lion each believes that
the hotels under their respective management are substantially in compliance
with these requirements; however, a determination that such hotels are not in
compliance with the ADA could result in the imposition of fines, an award of
damages to private litigants or significant expense to the Combined Company in
bringing these hotels into compliance. These and other initiatives could
adversely affect the Combined Company as well as the hotel industry in general.
See "Business of Doubletree -- Government Regulation" and "Business of Red
Lion -- Government Regulation."

ENVIRONMENTAL REGULATIONS

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. For example, liability may arise as a result of
the historical use of a site or from the migration of contamination from
adjacent or nearby properties. Any such contamination or liability may also
reduce the value of the property. 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 businesses may be
operated, and these restrictions may require expenditures. In connection with
the ownership or operation of hotels, including properties managed, leased or
franchised by Doubletree or Red Lion, Doubletree or Red Lion, as the case may
be, may be potentially liable for any such costs.

The condition of a limited number of Red Lion's properties has been
affected by historical uses of such properties or activities in the vicinity of
such properties. There can be no assurance that the current condition of
Doubletree's or Red Lion's properties have not been or will not be further
affected by the historical or current uses of such properties or the activities
in the vicinity of Doubletree's or Red Lion's properties or that liability
resulting from non-compliance or other claims relating to environmental matters
will not have a material adverse effect on the Combined Company. See "Business
of Doubletree -- Environmental Matters" and "Business of Red
Lion -- Environmental Matters."

POTENTIAL CONFLICTS OF INTEREST

Certain affiliates of Doubletree are parties to management contracts,
leases and franchise agreements and other business arrangements with Doubletree.
These relationships, coupled with such parties' ownership of Doubletree Common
Stock and their representation on Doubletree's Board of Directors, could give
rise to conflicts of interest. See "Security Ownership of Certain Beneficial
Owners and Management of Doubletree." Doubletree believes that its contracts
with these persons are on terms no less favorable to Doubletree than those that
could have been obtained from unaffiliated third parties. There can be no
assurance that these parties will continue to transact business with the
Combined Company or that they will not attempt to utilize their ownership
positions and contractual rights with the Combined Company to influence the
terms on which they transact business with the Combined Company in the future.
The Combined Company expects to have a policy requiring any material transaction
or agreement with a related party be approved by a majority of the directors not
interested in such transaction or agreement.

Mr. Michelson, a stockholder and a director of RLA, and Mr. Gilhuly, an
officer and director of RLA, will become members of the Board of Directors of
Doubletree upon consummation of the Merger. Their representation on the Board,
as well as the Partnership's ownership of Doubletree Common Stock, could give
rise to a conflict of interest regarding transactions between, or other matters
relating to, the Combined Company and the Partnership, including enforcing any
rights of the Combined Company under, or modifying or amending, the Partnership
Lease with respect to the Red Lion Leased Hotels. Circumstances might arise
where the Partnership will not consent to amendments or modifications of these
contractual arrangements, and the Partnership's lack of consent could adversely
affect the Combined Company's operations. While Red Lion

26
<PAGE> 29

believes the terms of the Partnership Lease are fair to Red Lion and the
Partnership, those terms were not negotiated on an arms-length basis.

SIGNIFICANT STOCKHOLDERS

Following completion of the Merger and the Financing Plan, GEIM and GEPT
(collectively, the "GEI Entities") will together beneficially own an aggregate
of approximately 23.7% and the Partnership will own approximately 12.0% of the
total outstanding shares of Doubletree Common Stock. In addition, two members of
the Board of Directors of Doubletree are associated with the GEI Entities, and
the Partnership will have the right to designate two persons to be nominated and
elected to the Board of Directors of Doubletree effective upon consummation of
the Merger. By virtue of their representation on the Board of Directors of
Doubletree and ownership of Doubletree Common Stock, such significant
stockholders can be expected to have substantial influence over the Combined
Company. See "Security Ownership of Certain Beneficial Owners and Management of
Doubletree" and "Management."

ANTI-TAKEOVER PROVISIONS

The Board of Directors of Doubletree has the authority to issue up to
5,000,000 shares of preferred stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares, without
any further vote or action by the stockholders. The rights of the holders of
Doubletree Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock could have the effect of entrenching
Doubletree's Board of Directors and making it more difficult for a third party
to acquire a majority of the outstanding voting stock of Doubletree. Doubletree
currently has no plans to issue shares of preferred stock. See "Description of
Capital Stock of Doubletree -- Preferred Stock." In addition, the provision in
the certificate of incorporation of Doubletree which requires the vote of at
least 80% of the outstanding shares of Doubletree Common Stock for certain
amendments to the certificate of incorporation could hinder a third party's
ability to acquire control of Doubletree. See "Description of Capital Stock."

PRICE VOLATILITY

The market price of the Doubletree Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results and other factors. In addition, the securities markets have experienced
significant price and volume fluctuations from time to time in recent years that
have often been unrelated or disproportionate to the operating performance of
particular companies. These broad fluctuations may adversely affect the market
price of the Doubletree Common Stock. See "Common Stock Price Range."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of Doubletree's Common Stock in the public market after the
implementation of the Merger and Financing Plan could adversely affect the
market price of Doubletree's Common Stock. Upon completion of the Merger and
Financing Plan, assuming no options to purchase Doubletree Common Stock have
been exercised since August 15, 1996, Doubletree will have 37,459,076
outstanding shares of Doubletree Common Stock (38,209,076 if the underwriters'
over-allotment option under the terms of the Offering is exercised in full), of
which 17,731,768 shares are "restricted securities" within the meaning of Rule
144 promulgated under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available. Following completion of the Merger, the Partnership and certain other
principal stockholders are entitled to certain demand and "piggyback"
registration rights with respect to registration of an aggregate of 17,643,747
shares for offer or sale to the public. The Partnership, the GEI Entities, Mr.
Ferris, Mr. Ueberroth and certain of Doubletree's executive officers and
directors have agreed, subject to certain exceptions, not to offer or sell their
shares of Doubletree Common Stock for a period of 180 days (or, in the case of
such executive officers and directors, 90 days) after the Effective Time. See
"The Merger and the Financing Plan -- The Merger -- Interests of Certain Persons
in the Merger", "Description of Capital Stock of Doubletree -- Registration
Rights" and "Underwriters."

27
<PAGE> 30

THE MERGER AND THE FINANCING PLAN

GENERAL

MERGER CONSIDERATION

Upon consummation of the Merger, each share of Red Lion Common Stock which
is outstanding immediately prior to the Merger (other than shares owned by or
held in treasury of Red Lion, shares owned by Doubletree or any direct or
indirect wholly owned subsidiary of Red Lion or Doubletree, and shares as to
which appraisal rights have been perfected, and not withdrawn or otherwise lost,
under the Delaware General Corporation Law) will be converted into the right to
receive (i) $21.30 in cash, plus, if the Merger does not occur on or prior to
November 18, 1996, interest accruing at a fluctuating rate per annum equal to
the prime interest rate from time to time of Bankers Trust Company, compounded
daily, on $30.106 plus such accrued interest, for the period commencing on
November 18, 1996 and ending on the day on which the Effective Time occurs (the
"Cash Consideration"), and (ii) 0.2398 shares (the "Exchange Ratio") of the
Company's Common Stock (the "Stock Consideration" and, collectively together
with the Cash Consideration, the "Merger Consideration"); provided, however,
that in the event that the "volume-weighted average quote" of the reported sales
prices per share of the Common Stock quoted on The Nasdaq Stock Market's
National Market ("Nasdaq"), as reported by Bloomberg L.P., for the 10
consecutive trading days (on which shares of the Common Stock are actually
traded) immediately preceding the second business day prior to the Effective
Time (the "Final Doubletree Stock Price"), is equal to or less than $34.89, or
equal to or greater than $38.56, the Exchange Ratio shall be subject to
adjustment as follows: (a) if the Final Doubletree Stock Price is equal to or
less than $31.22, then the Exchange Ratio shall be equal to the sum of 0.2398
plus the quotient obtained by dividing $0.8806 by the Final Doubletree Stock
Price; (b) if the Final Doubletree Stock Price is greater than $31.22 and equal
to or less than $34.89, then the Exchange Ratio shall be equal to the quotient
obtained by dividing $8.3657 by the Final Doubletree Stock Price; (c) if the
Final Doubletree Stock Price is equal to or greater than $38.56 but less than
$42.23, then the Exchange Ratio shall be equal to the quotient obtained by
dividing $9.2463 by the Final Doubletree Stock Price; (d) if the Final
Doubletree Stock Price is equal to or greater than $42.23 but less than $44.07,
then the Exchange Ratio shall be equal to the difference of 0.2398 minus the
quotient obtained by dividing $0.8806 by the Final Doubletree Stock Price; and
(e) if the Final Doubletree Stock Price is equal to or greater than $44.07, then
the Exchange Ratio shall be equal to the quotient obtained by dividing $9.6866
by the Final Doubletree Stock Price. As noted in the first paragraph of
"Prospectus Summary," all assumptions relating to the Merger and the Financing
Plan, and to share numbers after giving effect thereto, assume that (among other
things) 6,925,502 shares of Common Stock are issued in the Merger, based upon an
assumed Final Doubletree Stock Price of $45.00 and a resulting adjustment of the
Exchange Ratio from .2398 to .2153 in accordance with the Merger Agreement.

In addition, upon consummation of the Merger, each option to purchase Red
Lion Common Stock then outstanding under Red Lion's 1995 Equity Participation
Plan (each, a "Red Lion Option") will be converted into and represent the right
to receive (i) the Merger Consideration into which the share or shares of Red
Lion Common Stock issuable upon exercise of such Red Lion Option would have been
converted if such Red Lion Option had been exercised immediately prior to the
effective time of the Merger, reduced by (ii) the aggregate exercise price for
the shares of Red Lion Common Stock then issuable upon exercise of such Red Lion
Option and the amount of any withholding taxes which may be required thereon
(such reductions to be applied on a pro rata basis against the Cash
Consideration and the Stock Consideration comprising such Merger Consideration,
in the respective proportions which such Cash Consideration and Stock
Consideration bear to such Merger Consideration).

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<PAGE> 31

CONDITIONS TO THE MERGER

The obligations of the Company and Red Lion to consummate the Merger are
subject to the satisfaction or, where legally permitted, waiver of certain
conditions, including, among others, (i) the approval of the stockholders of Red
Lion and Doubletree, to the extent required, (ii) the expiration or termination
of the waiting period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the
absence of any statute, rule, regulation, decree, injunction or other order of
any governmental or regulatory authority or any court prohibiting the
consummation of the Merger or any other material transaction pursuant to the
Merger Agreement, (iv) the absence of any change, event, occurrence or
circumstance in the business, operations, properties, financial condition or
results of operations of Red Lion or Doubletree and their respective
subsidiaries (each taken as a whole) which, individually or in the aggregate,
has had or is reasonably likely to have a material adverse effect on the
business, operations, properties, financial condition or results of operations
of Red Lion or Doubletree and their respective subsidiaries, each taken as a
whole.

The approval of the Merger by stockholders of Red Lion requires the
affirmative vote of the holders of a majority of the shares of Red Lion Common
Stock entitled to vote thereon. The Partnership has agreed to vote its shares of
Red Lion Common Stock (constituting approximately 66.7% of the total number of
shares so entitled to vote) in favor of approval and adoption of the Merger
Agreement and the Merger. As a result, upon the vote of the Partnership in
accordance with such agreement, approval and adoption of the Merger Agreement
and the Merger by the stockholders of Red Lion are assured. Doubletree has
received an exemption from certain corporate governance requirements of Nasdaq
for it to obtain the approval of its stockholders for the issuance of Doubletree
Common Stock pursuant to the Merger.

The Merger Agreement may be terminated under certain circumstances,
including, among others, if the Board of Directors of Red Lion changes or
withdraws its recommendation for approval of the Merger by the stockholders of
Red Lion, or if the Company is unable to consummate the Financing Plan described
below (and, therefore, the Merger) due to the nonfulfillment of certain
conditions precedent to the initial loans under the New Credit Facility.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Upon consummation of the Merger and the Financing Plan, the GEI Entities
will beneficially own an aggregate of approximately 23.7%, and the Partnership
will own approximately 12.0%, of the total outstanding shares of the Company's
Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management of Doubletree."

Effective upon consummation of the Merger, the Board of Directors of the
Company will be expanded to include two additional members to be designated by
the Partnership. The Partnership has designated Michael W. Michelson and Edward
I. Gilhuly, each of whom is currently a director of Red Lion. Mr. Michelson is a
stockholder, director and executive vice president of RLA, the general partner
of the Partnership, and Mr. Gilhuly is a director and executive vice president
of RLA. As general partner of the Partnership, RLA has sole voting and
investment power with respect to the shares of Red Lion Common Stock owned of
record by the Partnership and, accordingly, the shares of Common Stock to be
issued to the Partnership in the Merger. Mr. Michelson and George R. Roberts,
who is a stockholder, director and president of RLA, are each general partners
of KKR Associates (Delaware), a limited partner of the Partnership.

In connection with the Merger, certain registration rights will be granted
to the Partnership with respect to the shares of Common Stock to be issued to
the Partnership in the Merger, and the current Common Stock registration rights
held by GEHOP will be extended to cover the shares of Common Stock to be issued
pursuant to the GEPT Equity Investment. See "Description of Capital Stock of
Doubletree -- Registration Rights." The Partnership has agreed not to sell or
otherwise dispose of any such shares of Common Stock for 180 days following the
Merger, except for a distribution to a limited partner of the Partnership (which
shares will represent approximately 2.1% of the Common Stock to be outstanding
after giving effect to the Merger and the Financing Plan).

Pursuant to the Merger Agreement, at the time of the Merger, the Company,
Red Lion and certain affiliates of Red Lion, will enter into a Partnership
Services Agreement (the "Partnership Services

29
<PAGE> 32

Agreement") pursuant to which the Company will, upon request from the
Partnership, provide certain support services to the Partnership in return for a
fee. In addition, pursuant to the Partnership Services Agreement, the Company
will agree to guaranty, subject to defenses available to Red Lion, the
liabilities and obligations of Red Lion owed to the Partnership and its
affiliates arising out of or related to Red Lion's business.

THE FINANCING PLAN

The total amount of funds required by Doubletree to consummate the Merger
and to pay related fees and expenses is expected to be approximately $919.7
million, including approximately $685.2 million to be paid as Cash Consideration
in the Merger, approximately $213.3 million which will be used to repay existing
outstanding indebtedness of Red Lion immediately following consummation of the
Merger and $21.2 million of estimated fees and expenses excluding underwriting
discounts and commissions in connection with the Offering.

It is currently anticipated that such amounts will be financed (the
"Financing Plan") through (i) $600.0 million of borrowings under the New Credit
Facility, (ii) approximately $215.0 million in proceeds from the Offering, net
of underwriting discounts and commissions and estimated offering expenses, (iii)
$100.0 million in proceeds from the GEPT Equity Investment, and (iv) cash on
hand.

Depending on prevailing financial, economic and market conditions
(including the trading market for Doubletree Common Stock) and any other factors
or considerations the Board of Directors of Doubletree deems relevant,
Doubletree may decide to increase the size of the Offering, and sell additional
shares of Doubletree Common Stock in lieu of a portion of such borrowings under
the New Credit Facility.

In the event that the Offering is not consummated at or prior to the
Effective Time, Doubletree currently intends to finance the Merger, to the
extent necessary, through the Bridge Loan and additional borrowings under the
New Credit Facility. In such event, subject to prevailing financial, economic
and market conditions (including the trading market for Doubletree Common Stock)
and any other factors or considerations the Board of Directors or management of
Doubletree deems relevant, Doubletree intends to consummate the Offering or the
issuance of debt as soon as practicable following the Effective Time if it is
able to do so on satisfactory terms, and to use the net proceeds therefrom to
refinance the Bridge Loan and redeem and retire the senior subordinated notes
issued in connection therewith.

New Credit Facility. The New Credit Facility provides for a term loan
facility in the amount of $636.0 million and a revolving credit facility in the
amount of $100.0 million. As part of the Financing Plan, Doubletree intends to
borrow $600.0 million pursuant to the term loan facility. Principal amounts
under the term loan facility become due, commencing in 1997, in the amount of
$7.0 million in such year. Thereafter and through 2004, annual principal
payments under the term loan range from $57.0 million to a maximum of $146.0
million in 2003 with the term loan facility expiring, and the then outstanding
principal amount

30
<PAGE> 33

becoming due and repayable in full, in 2004. The revolving credit facility
expires, and is repayable in full, on the sixth anniversary after the Effective
Time. The term loan and the revolving credit facility each bear interest payable
quarterly at variable rates dependent upon applicable debt coverage ratios.

The New Credit Facility will be guaranteed by all material direct and
indirectly owned subsidiaries of Doubletree, subject to customary exceptions.
The obligations of Doubletree and the guaranteeing entities shall be secured by
a first priority perfected security interest in (i) all stock owned by
Doubletree and the guaranteeing entities (except for the REIT Preferred Shares,
as defined below), (ii) all notes owned by Doubletree and the guaranteeing
entities with a principal amount of $1.0 million or more, and (iii) all other
beneficially-owned tangible and intangible assets of Doubletree and the
guaranteeing entities, to the extent assignable.

The New Credit Facility will contain customary financial covenants, which
may include fixed charge and interest coverage ratios and a maximum ratio of
debt to EBITDA (as defined therein). The New Credit Facility will contain
certain customary covenants which may include, without limitation, restrictions
on mergers, consolidations, acquisitions, sale of assets, payment of dividends,
transactions with affiliates, sale and lease-back transactions, liens, capital
expenditures, debt and investments. The New Credit Facility will include
customary events of default, including a change of control of Doubletree. The
New Credit Facility is subject to numerous conditions. Reference is made to a
copy of the written commitment relating to the New Credit Facility filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.

GEPT Equity Investment. Pursuant to the GEPT Equity Investment, at the
Effective Time, GEPT or an affiliate thereof will purchase a number of shares of
Doubletree Common Stock equal to the quotient of $100.0 million divided by a
share price, at GEPT's election of either (i) the implied price per share of
Doubletree Common Stock used for purposes of determining the final Exchange
Ratio or (ii) the market price, net of underwriting discounts, of shares of
Doubletree Common Stock sold in the Offering (or, if the Offering is not
consummated by the Effective Time, the Final Doubletree Stock Price under the
Merger Agreement). GEPT or an affiliate thereof will also be issued five-year
Warrants to purchase 10% of the number of shares of Doubletree Common Stock
purchased by GEPT or any such affiliate at the Effective Time, at an exercise
price per share equal to the price at which GEPT elects to purchase (or elects
for any such affiliate to purchase) such shares at the Effective Time. GEPT has
elected the aforesaid implied price, and is entitled to change its election at
any time until the twentieth trading day prior to the Effective Time. Although
the price of the shares to be sold pursuant to the GEPT Equity Investment is
subject to change based on the actual Final Doubletree Stock Price, such implied
price would be $40.90 per share, assuming, as noted in the first paragraph of
"Prospectus Summary," that the Final Doubletree Stock Price is $45.00 and the
resulting adjusted Exchange Ratio is .2153. As a result, GEPT or such affiliate
would purchase 2,444,988 shares, and Warrants to purchase 244,499 additional
shares, of Doubletree Common Stock pursuant to the GEPT Equity Investment.

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<PAGE> 34

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering (based on an assumed public offering price of $45.00 per share,
representing the last reported sale price of the Common Stock on October 4,
1996, as quoted on Nasdaq), after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company in connection
with the Offering, are approximately $215.0 million ($247.4 million if the
Underwriters' over-allotment option is exercised in full).

The Company intends to use the net proceeds from its sale of Common Stock
in the Offering, together with the initial borrowings under the New Credit
Facility and the proceeds from the GEPT Equity Investment and a portion of the
Company's cash on hand, to effect the Merger and pay related fees and expenses.
See "The Merger and the Financing Plan."

COMMON STOCK PRICE RANGE

The Company's initial public offering of Common Stock occurred on July 1,
1994. The Company's Common Stock is quoted on Nasdaq under the symbol "TREE."
The following table sets forth, for the periods indicated, the high and low
closing bid prices for the Common Stock, as quoted on Nasdaq. The high and low
closing bid prices quoted on Nasdaq reflect prices between dealers. They do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
COMMON STOCK
-----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Third Quarter.................................................... $19.75 $14.50
Fourth Quarter................................................... 21.75 17.50
YEAR ENDED DECEMBER 31, 1995:
First Quarter.................................................... 19.75 16.25
Second Quarter................................................... 21.50 19.00
Third Quarter.................................................... 24.25 18.75
Fourth Quarter................................................... 25.88 20.50
YEAR ENDING DECEMBER 31, 1996:
First Quarter.................................................... 27.88 23.25
Second Quarter................................................... 35.38 26.50
Third Quarter.................................................... 39.50 31.25
Fourth Quarter (through October 14, 1996)........................ 45.25 40.50
</TABLE>

A recent reported last sales price for the Company's Common Stock as quoted
on Nasdaq is set forth on the cover of this Prospectus. On September 30, 1996,
there were approximately 327 holders of record of the Company's Common Stock.

DIVIDEND POLICY

No dividends have been declared or paid on the Common Stock since the
incorporation of Doubletree. After the consummation of the Merger, Doubletree
currently intends to retain any future earnings for reinvestment in the Combined
Company and does not anticipate paying any cash dividends on the Common Stock in
the foreseeable future. Any payment of dividends in the future will be at the
discretion of the Board of Directors of Doubletree and will be dependent upon
the Combined Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
Doubletree will be prohibited from paying cash dividends or other distributions
due to certain covenants under the New Credit Facility.

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<PAGE> 35

CAPITALIZATION

The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to reflect the consummation of the Merger and the
Financing Plan, including the sale of shares of Common Stock in the Offering
(all based upon the assumptions set forth in the first paragraph of "Prospectus
Summary.") See "Use of Proceeds." This table should be read in conjunction with
"The Merger and the Financing Plan," the Unaudited Pro Forma Condensed
Consolidated Financial Information and the consolidated financial statements of
the Company and Red Lion and the notes thereto included elsewhere or
incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total indebtedness (including current portion of $5,000)............... $ -- $ 600,000
Stockholders' equity(1):
Common Stock, $.01 par value, 100,000,000 shares authorized;
23,070,961 shares issued and outstanding, actual; and 37,441,451
shares as adjusted(2)............................................. 231 374
Additional paid-in capital........................................... 128,061 754,504
Unearned employee compensation....................................... (176) (176)
Unrealized gain on marketable equity securities...................... 26 26
Retained earnings.................................................... 26,319 26,319
-------- --------
Total stockholders' equity........................................ 154,461 781,047
-------- --------
Total capitalization......................................... $154,461 $ 1,381,047
======== ========
</TABLE>

- ---------------
(1) The Company is authorized to issue 5,000,000 shares of preferred stock,
$0.01 par value, none of which is currently outstanding. See "Description of
Capital Stock -- Preferred Stock."

(2) Does not include an aggregate of 1,509,625 shares of Common Stock reserved
for issuance under the Incentive Plan. At September 30, 1996, options to
purchase 1,727,600 shares of Common Stock were outstanding, of which 452,100
were exercisable.

33
<PAGE> 36

THE COMBINED COMPANY

After the consummation of the Merger, Red Lion will become a wholly owned
subsidiary of Doubletree, and its operations will be combined with those of
Doubletree. The Combined Company's corporate headquarters will be in Phoenix,
Arizona. It is expected that Doubletree's management team will continue to
manage the combined operations of the Combined Company after the completion of
the Merger. In addition, the acquisition of Red Lion presents Doubletree with
the opportunity to augment its successful management team with individuals from
Red Lion's experienced management team. The Board of Directors of Doubletree
will be expanded to include two additional members to be designated by the
Partnership, an entity affiliated with KKR. The Partnership is the majority
shareholder of Red Lion and will own approximately 12.0% of Doubletree's Common
Stock upon consummation of the Merger and the Financing Plan. The GEI Entities
will own in the aggregate approximately 23.7% of the Doubletree Common Stock
upon consummation of the Merger and the Financing Plan. See "The Merger and the
Financing Plan -- The Financing Plan" and "Security Ownership of Certain
Beneficial Owners and Management of Doubletree."

Management of Doubletree will review its own operations and the operations
of Red Lion and, upon completion of such review, will develop plans or proposals
regarding, among other things, the integration or combination of the sales and
marketing efforts, administrative support functions and other operations of
Doubletree and Red Lion. Management of Doubletree believes that the Merger will
create a combined entity with the resources to compete more effectively on a
national basis; however, the Combined Company will continue to be subject to the
competitive and economic factors associated with the lodging industry.

BUSINESS AND STRATEGY

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<PAGE> 37

In addition to the Merger, Doubletree has pursued its growth strategy in
1996 by completing the following transactions:

- Acquisition of RFS, Inc. and Strategic Alliance with RFS Hotel Investors,
Inc. In February 1996, Doubletree significantly expanded its portfolio
of non-Doubletree brand hotels with the acquisition of RFS Management,
which operates 50 hotels with approximately 7,000 rooms under such
franchise brands as Holiday Inn, Holiday Inn Express, Residence Inn by
Marriott, Hampton Inn, and Comfort Inn. The RFS Acquisition allows the
Combined Company to further pursue non-Doubletree brand management
contract and lease opportunities. Doubletree also separately negotiated a
Right of First Refusal with the REIT, which provides a new source of
long-term hotel management and lease opportunities for additions to the
Combined Company's hotel portfolio.

- Formation of Candlewood. Doubletree has entered the mid-priced extended
stay segment of the hotel industry through the Candlewood joint venture
with entities controlled by Mr. Jack DeBoer, the founder of Residence
Inns, whom the industry credits with creating the extended stay concept.
Mr. DeBoer is primarily responsible for the development and day-to-day
operations of Candlewood. Candlewood's first hotel commenced operations
in May 1996. Doubletree believes that Candlewood provides an opportunity
to generate additional revenue and participate in a rapidly expanding and
high demand segment of the lodging industry.

- Formation of Joint Venture Strategic Alliance with Patriot. In August
1996, Doubletree and Patriot, one of the nation's leading hotel real
estate investment trusts, committed to invest $20.0 million and $200.0
million, respectively, of equity capital to acquire hotels that would be
managed, branded and leased by Doubletree. Management believes this
strategic alliance will provide the Combined Company with another source
of long-term hotel management and lease opportunities. The joint venture
has successfully completed the acquisition of four Doubletree hotels.

The Merger is consistent with, and is an important step in, Doubletree's
growth strategy. The Red Lion hotels complement Doubletree's current brand
portfolio and create critical mass for improved national brand awareness. While
there can be no assurance that the integration of Doubletree and Red Lion will
be successful or accomplished in a timely fashion or that the Combined Company
will successfully implement its growth strategy (see "Risk
Factors -- Integration of the Two Companies" and "Risk Factors -- Risk of
Contract Turnover"), Doubletree believes the Merger will generate several
benefits, including:

- Doubletree believes that the Combined Company's expanded size and diverse
geographic presence presents opportunities for enhancing Doubletree's
brand recognition. Subject to the receipt of necessary third party
approvals, Doubletree currently intends to convert most of the Red Lion
hotels to one of the Doubletree brands, thereby providing a major
increase in market coverage for Doubletree's full service product,
particularly in the western United States. Based on its examination of
Red Lion hotels, Doubletree believes that such properties are generally
in well maintained condition and of high quality. As a result, Doubletree
does not expect that such hotel brand conversions will require
significant capital expenditures. If the plans to convert the Red Lion
hotels to Doubletree brand hotels are successful, the Merger will nearly
double the number of upscale, non-suite Doubletree brand hotels, with
limited overlap in existing markets served. Notwithstanding the increased
size and presence of the Combined Company, Doubletree believes that there
will be a significant number of available markets offering expansion
potential for the Combined Company, including many of the markets in
which the Combined Company's hotels will be located.

- Doubletree believes that as a result of Doubletree's national brand
recognition, marketing strength, and higher ADR structure compared to Red
Lion's, the conversion of the Red Lion hotels to the Doubletree brand
presents opportunities for improvement in both ADR and occupancy rates.

35
<PAGE> 38

- Doubletree believes that the combination of the experienced hotel
employees of each of Doubletree and Red Lion will result in the Combined
Company having a large pool of hotel employees with proven track records
that can further support the implementation of Doubletree's business
strategy and support the Combined Company's future growth. In addition,
the Merger presents Doubletree with the opportunity to augment its
successful corporate management team with individuals from Red Lion's
experienced corporate management team.

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<PAGE> 39

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and the six month periods ended June 30, 1995
and June 30, 1996 present the results of operations of Doubletree assuming that
the Merger, the Financing Plan, the Red Lion Formation and the Red Lion 1996
Hotel Acquisitions had been completed as of January 1, 1995. All material
adjustments necessary to conform the financial statement presentation of the
results of operations for Red Lion to that of Doubletree and to reflect the
foregoing assumptions are presented in the Reclassification Adjustments and Pro
Forma Adjustments columns, respectively, which are further described in the
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.

The unaudited pro forma consolidated balance sheet presents the historical
consolidated balance sheets of Doubletree and Red Lion adjusted to reflect the
Merger, the Financing Plan and the acquisition of two hotels subsequent to June
30, 1996 in connection with the Red Lion 1996 Hotel Acquisitions as if each had
occurred on June 30, 1996.

The following information is not necessarily indicative of the results of
operations of Doubletree as they may be in the future or as they might have been
had the Merger, the Financing Plan, the Red Lion Formation and the Red Lion 1996
Hotel Acquisitions been consummated at the beginning of the period shown. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations should be
read in conjunction with the audited historical Consolidated Financial
Statements of Doubletree and Red Lion included elsewhere herein and the notes
thereto.

For a discussion of the historical corporate organization of Doubletree and
Red Lion, see "Corporate Organization."

37
<PAGE> 40

DOUBLETREE CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
RED LION DOUBLETREE
------------------------------------------------ -----------------------------------
RECLASSIFICATION PRO FORMA
PRO FORMA(1) ADJUSTMENTS(2) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
------------ ------------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees.......... $ -- $ 11,389 $ 11,389 $ 30,082 $ (299)(a) $ 41,172
Owned hotel revenues................... -- 185,413 185,413 7,081 27,074(a) 219,568
Leased hotel revenues.................. -- 132,213 132,213 141,942 -- 274,155
Purchasing and service fees............ -- 44,634 44,634 16,487 -- 61,121
Other fees and income.................. -- 2,299 2,299 994 -- 3,293
Rooms revenues......................... 277,204 (277,204) -- -- -- --
Food and beverage revenues............. 165,281 (165,281) -- -- -- --
Other revenues......................... 49,884 (49,884) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues....................... 492,369 (116,421) 375,948 196,586 26,775 599,309
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and administrative
expenses............................. -- 10,470 10,470 14,413 -- 24,883
Owned hotel expenses................... -- 122,502 122,502 6,049 20,538(a) 149,089
Leased hotel expenses.................. -- 108,877 108,877 132,644 -- 241,521
Purchasing and service expenses........ -- 42,345 42,345 13,925 -- 56,270
Depreciation and amortization.......... 19,327 -- 19,327 4,686 26,355(a) 50,368
Business combination expenses.......... 14,662 -- 14,662 2,565 -- 17,227
Departmental direct expenses:
Rooms................................ 68,393 (68,393) -- -- -- --
Food and beverage.................... 127,450 (127,450) -- -- -- --
Other................................ 18,588 (18,588) -- -- -- --
Property indirect expenses............. 104,010 (104,010) -- -- -- --
Other costs............................ 36,445 (36,445) -- -- -- --
Payments due to owners of managed
hotels............................... 46,895 (46,895) -- -- -- --
-------- --------- -------- -------- -------- --------
Total operating costs and expenses... 435,770 (117,587) 318,183 174,282 46,893 539,358
-------- --------- -------- -------- -------- --------
Operating income......................... 56,599 1,166 57,765 22,304 (20,118) 59,951
Equity in earnings of unconsolidated
joint ventures....................... 2,299 (2,299) -- -- -- --
Interest income........................ 3,697 1,133 4,830 4,147 -- 8,977
Interest expense....................... (21,759) -- (21,759) (227) (24,041)(b) (46,027)
-------- --------- -------- -------- -------- --------
Income before income taxes and minority
interest............................... 40,836 -- 40,836 26,224 (44,159) 22,901
Minority interest share of income
(loss)............................... (758) -- (758) 35 -- (723)
-------- --------- -------- -------- -------- --------
Income before income taxes............... 40,078 -- 40,078 26,259 (44,159) 22,178
Income tax expense..................... (7,327) -- (7,327) (8,468) 13,842(c) (1,953)
-------- --------- -------- -------- -------- --------
Net income............................... $ 32,751 $ -- $ 32,751 $ 17,791 $ (30,317) $ 20,225(3)
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE....................... $ 0.80 $ 0.55(3)
======== ========
Weighted average common and common
equivalent shares outstanding.......... 22,219 36,590
======== ========
</TABLE>

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

(1) Presents the pro forma operating results of Red Lion as if the Red Lion
Formation and the Red Lion Refinancing had occurred on January 1, 1995. The
pro forma operating results include the operating results of Historical Red
Lion for the seven months ended July 31, 1995, the operating results of Red
Lion for the ten months ended December 31, 1995 and the following pro forma
adjustments: (i) to record $8.5 million of net lease expenses on the Red
Lion Leased Hotels, (ii) to decrease depreciation and amortization by $6.4
million related to the Red Lion Leased Hotels, (iii) to decrease interest
expense by $10.4 million reflecting the Red Lion Refinancing, (iv) to
decrease the minority interest in income from joint venturer by $0.2
million, (v) to increase income tax expense by $11.4 million and (vi) to
eliminate $4.6 million of offsetting other revenues and payments due to
owners of managed hotels.

(2) Reclassifications to conform the financial statement presentations of Red
Lion to that of Doubletree.

(3) During 1995, Doubletree incurred $2.6 million of business combination
expenses related to the RFS Acquisition. The pro forma operating results of
Red Lion include non-recurring costs associated with the Red Lion Formation
of $14.7 million and $9.7 million of deferred tax benefits. Excluding these
items and adjusting income taxes to Doubletree's effective tax rate and the
statutory tax rate for Red Lion, net income and earnings per share on a pro
forma basis would have been $21.3 million and $0.58, respectively.

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

38
<PAGE> 41

DOUBLETREE CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
RED LION DOUBLETREE
------------------------------------------------ ---------------------------------------
RECLASSIFICATION PRO FORMA
PRO FORMA(1) ADJUSTMENTS(2) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
------------ ------------------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees..... $ -- $ 5,441 $ 5,441 $ 14,536 $ (147)(a) $ 19,830
Owned hotel revenues.............. -- 90,171 90,171 3,308 13,658(a) 107,137
Leased hotel revenues............. -- 63,680 63,680 65,534 -- 129,214
Purchasing and service fees....... -- 20,829 20,829 7,478 -- 28,307
Other fees and income............. -- 1,689 1,689 493 -- 2,182
Rooms revenues.................... 135,918 (135,918) -- -- -- --
Food and beverage revenues........ 80,793 (80,793) -- -- -- --
Other revenues.................... 24,114 (24,114) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues.................. 240,825 (59,015) 181,810 91,349 13,511 286,670
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and
administrative expenses......... -- 3,954 3,954 7,106 -- 11,060
Owned hotel expenses.............. -- 61,198 61,198 2,936 10,271(a) 74,405
Leased hotel expenses............. -- 53,623 53,623 61,008 -- 114,631
Purchasing and service expenses... -- 19,605 19,605 6,346 -- 25,951
Depreciation and amortization..... 9,884 -- 9,884 2,056 12,957(a) 24,897
Departmental direct expenses:
Rooms........................... 33,534 (33,534) -- -- -- --
Food and beverage............... 63,473 (63,473) -- -- -- --
Other........................... 9,160 (9,160) -- -- -- --
Property indirect expenses........ 51,560 (51,560) -- -- -- --
Other costs....................... 16,954 (16,954) -- -- -- --
Payments due to owners of managed
hotels.......................... 23,858 (23,858) -- -- -- --
-------- --------- -------- -------- -------- --------
Total operating costs and
expenses...................... 208,423 (60,159) 148,264 79,452 23,228 250,944
-------- --------- -------- -------- -------- --------
Operating income.................... 32,402 1,144 33,546 11,897 (9,717) 35,726
Equity in earnings of
unconsolidated
joint ventures.................. 1,689 (1,689) -- -- -- --
Interest income................... 1,810 545 2,355 1,858 -- 4,213
Interest expense.................. (11,851) -- (11,851) (132) (11,049)(b) (23,032)
-------- --------- -------- -------- -------- --------
Income before income taxes and
minority interest................. 24,050 -- 24,050 13,623 (20,766) 16,907
Minority interest share of
(income) loss................... (159) -- (159) (7) -- (166)
-------- --------- -------- -------- -------- --------
Income before income taxes.......... 23,891 -- 23,891 13,616 (20,766) 16,741
Income tax expense................ (9,556) -- (9,556) (4,229) 6,396(c) (7,389)
-------- --------- -------- -------- -------- --------
Net income.......................... $ 14,335 $ -- $ 14,335 $ 9,387 $ (14,370) $ 9,352(3)
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE.................. $ 0.43 $ 0.26(3)
========
Weighted average common and common
equivalent shares outstanding..... 21,984 36,355
========
</TABLE>

- ---------------
(1) Presents the pro forma operating results of Red Lion as if the Red Lion
Formation and the Red Lion Refinancing had occurred on January 1, 1995. The
pro forma operating results include the operating results of Historical Red
Lion for the seven months ended July 31, 1995, the operating results of Red
Lion for the four months ended June 30, 1995 and the following pro forma
adjustments: (i) to record $7.3 million of net lease expenses on the Red
Lion Leased Hotels, (ii) to decrease depreciation and amortization by $5.4
million related to the Red Lion Leased Hotels, (iii) to decrease interest
expense by $8.7 million reflecting the Red Lion Refinancing, (iv) to
decrease the minority interest in income from joint venturer by $0.1
million, (v) to increase income tax expense by $10.6 million, and (vi) to
remove all revenues and expenses of Historical Red Lion for July 1995, which
decreased net income by $3.6 million.

(2) Reclassifications to conform the financial statement presentations of Red
Lion to that of Doubletree.

(3) RFS Management, as a Subchapter S corporation in 1995 for federal income tax
purposes, was generally not liable for federal income taxes. If income
taxes, at Doubletree's effective rate, are provided on RFS Management's
earnings then net income and earnings per share on a pro forma basis would
have been $8.8 million and $0.24, respectively.

See Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information

39
<PAGE> 42

DOUBLETREE CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
RED LION DOUBLETREE
-------------------------------------------- ------------------------------------
RECLASSIFICATION PRO FORMA
ACTUAL ADJUSTMENTS(1) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
-------- ------------------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees............ $ -- $ 6,138 $ 6,138 $ 18,519 $ (141)(a) $ 24,516
Owned hotel revenues..................... -- 95,337 95,337 3,979 12,237(a) 111,553
Leased hotel revenues.................... -- 67,501 67,501 86,321 -- 153,822
Purchasing and service fees.............. -- 28,017 28,017 7,585 -- 35,602
Other fees and income.................... -- 1,423 1,423 972 -- 2,395
Rooms revenues........................... 147,445 (147,445) -- -- -- --
Food and beverage revenues............... 81,389 (81,389) -- -- -- --
Other revenues........................... 29,133 (29,133) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues......................... 257,967 (59,551) 198,416 117,376 12,096 327,888
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and administrative
expenses............................... -- 4,851 4,851 8,641 -- 13,492
Owned hotel expenses..................... -- 63,263 63,263 3,217 9,166(a) 75,646
Leased hotel expenses.................... -- 55,232 55,232 79,735 -- 134,967
Purchasing and service expenses.......... -- 26,593 26,593 5,648 -- 32,241
Depreciation and amortization............ 9,167 -- 9,167 2,940 13,674(a) 25,781
Departmental direct expenses:
Rooms.................................. 36,991 (36,991) -- -- -- --
Food and beverage...................... 63,634 (63,634) -- -- -- --
Other.................................. 10,079 (10,079) -- -- -- --
Property indirect expenses............... 55,163 (55,163) -- -- -- --
Other costs.............................. 18,028 (18,028) -- -- -- --
Payments due to owners of managed
hotels................................. 26,178 (26,178) -- -- -- --
-------- --------- -------- -------- -------- --------
Total expenses......................... 219,240 (60,134) 159,106 100,181 22,840 282,127
-------- --------- -------- -------- -------- --------
Operating income........................... 38,727 583 39,310 17,195 (10,744) 45,761
Equity in earnings of unconsolidated
joint ventures......................... 1,423 (1,423) -- -- -- --
Interest income.......................... 1,275 840 2,115 2,090 -- 4,205
Interest expense......................... (9,054) -- (9,054) (143) (13,846)(b) (23,043)
-------- --------- -------- -------- -------- --------
Income before income taxes and minority
interest................................. 32,371 -- 32,371 19,142 (24,590) 26,923
Minority interest share of (income)...... (978) -- (978) (22) -- (1,000)
-------- --------- -------- -------- -------- --------
Income before income taxes................. 31,393 -- 31,393 19,120 (24,590) 25,923
Income tax expense....................... (12,557) -- (12,557) (6,693) 7,924(c) (11,326)
-------- --------- -------- -------- -------- --------
Net income................................. $ 18,836 $ -- $ 18,836 $ 12,427 $ (16,666) $ 14,597
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE....................... $ 0.54 $ 0.39
======== ========
Weighted average common and common
equivalent shares outstanding.......... 22,849 37,220
======== ========
</TABLE>

- ---------------
(1) Reclassifications to conform the financial statement presentations of Red
Lion to that of Doubletree.

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

40
<PAGE> 43

DOUBLETREE CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------------------------------
HISTORICAL PRO FORMA
DOUBLETREE ADJUSTMENTS(4) PRO FORMA
---------- -------------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 46,566 $ 15,688(a) $ 62,254
Accounts receivable, net.......................... 20,596 18,400(b) 38,996
Other............................................. 3,421 7,200(b) 10,621
-------- ---------- ----------
Total current assets......................... 70,583 41,288 111,871
-------- ---------- ----------
Notes and other receivables....................... 30,949 1,800(b) 32,749
Investments....................................... 29,892 43,100(b) 72,992
Due from affiliates............................... -- 29,000(b) 29,000
Property and equipment, net....................... 13,815 636,350(b) 650,165
Management contracts, net......................... 48,275 422,300(b) 470,575
Deferred costs and other assets................... 3,231 21,470(b) 24,701
Goodwill, net..................................... 15,228 382,169(b) 397,397
-------- ---------- ----------
$ 211,973 $1,577,477 $1,789,450
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses............. $ 39,258 $ 93,834(b)(c) $ 133,092
Current portion of long-term debt................. -- 5,000(d) 5,000
-------- ---------- ----------
Total current liabilities.................... 39,258 98,834 138,092
-------- ---------- ----------
Long-term debt, net of current portion............ -- 595,000(d) 595,000
Other long-term liabilities....................... -- 11,776(b) 11,776
Minority interest in consolidated joint
ventures........................................ -- 1,290(b) 1,290
Deferred income taxes............................. 18,254 243,991(b) 262,245
-------- ---------- ----------
Total liabilities............................ 57,512 950,891 1,008,403
-------- ---------- ----------
Common stock...................................... 231 143(e) 374
Additional paid-in capital........................ 128,061 626,443(e) 754,504
Unearned employee compensation.................... (176) -- (176)
Unrealized gain on marketable securities.......... 26 -- 26
Retained earnings................................. 26,319 -- 26,319
-------- ---------- ----------
Total Stockholders' Equity................... 154,461 626,586 781,047
-------- ---------- ----------
$ 211,973 $1,577,477 $1,789,450
======== ========== ==========
</TABLE>

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

41
<PAGE> 44

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION

DOUBLETREE CORPORATION

1. ASSUMPTIONS

The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and the six month periods ended June 30, 1995
and June 30, 1996 are presented as if each of the following events occurred on
January 1, 1995: (1) the Merger, including the issuance of approximately $311.6
million of Doubletree Common Stock as Stock Consideration, (2) the Red Lion 1996
Hotel Acquisitions (which are further described below), (3) the borrowing of
$600.0 million under the New Credit Facility, (4) the sale of $100.0 million of
Doubletree Common Stock pursuant to the GEPT Equity Investment, (5) the receipt
of net proceeds of $215.0 million from the Offering, (6) the payment of
approximately $685.2 million in Cash Consideration to the stockholders and
optionholders of Red Lion and (7) the repayment of existing Red Lion
indebtedness of approximately $213.3 million with a portion of the proceeds
obtained from the Financing Plan. See "The Merger and the Financing Plan -- The
Financing Plan." The Merger has been accounted for as a purchase transaction in
accordance with generally accepted accounting principles and, accordingly, the
assets acquired and liabilities assumed were recorded at their estimated fair
values as of that date. The excess of the purchase price over the fair value of
the net assets acquired, goodwill, is being amortized over 40 years.

2. RECLASSIFICATIONS

Reclassifications have been made to the pro forma statements of operations
and balance sheet for Red Lion to conform with the financial statement
presentation used by Doubletree as follows:

-- Red Lion has followed the practice of recording the operating revenues
and expenses and working capital of hotels managed but not owned by Red
Lion. The hotel owners' profit had been recorded as payments due to
owners. Reclassifications have been made to eliminate these amounts and
reflect the net management fee earned by Red Lion.

-- Revenues earned and expenses incurred in providing purchasing and other
services to hotels, previously reported at an amount equal to the net
profit resulting from the transactions, have been grossed up.

-- Reclassification of hotel revenues and expenses as managed, owned and
leased from departmental revenues and expenses

3. PRO FORMA ADJUSTMENTS -- STATEMENTS OF OPERATIONS

The following adjustments have been made to the Unaudited Pro Forma
Condensed Consolidated Statements of Operations:

(a) To record the change in depreciation and amortization resulting
from the application of purchase accounting and amortization of loan fees
related to the Financing Plan. Red Lion acquired one hotel in April of 1996
for $26.0 million and two hotels for $37.3 million (the "Red Lion 1996
Hotel Acquisitions") subsequent to June 30, 1996. The pro forma results of
operations include the operating results of these hotels as if they were
owned as of January 1, 1995. Hotel management fees from the hotel acquired
in September of 1996 (which was previously managed) have been eliminated.

(b) To eliminate actual interest expense of Red Lion and record
interest expense associated with the Financing Plan. An interest rate of
7.63% was assumed for all periods on borrowings under the New Credit
Facility. The effect of a 1/8 percent change in the interest rate would be
approximately $730,000 for the year ended December 31, 1995 and $365,000
for the six months ended June 30, 1995 and 1996, respectively.

42
<PAGE> 45

4. PRO FORMA ADJUSTMENTS -- BALANCE SHEET

The following adjustments have been made to the Unaudited Pro Forma
Condensed Consolidated Balance Sheet:

(a) Adjustments to reflect the net increase in cash and cash
equivalents consisting of:

<TABLE>
<S> <C>
Existing Red Lion cash................................... $ 36,509
Acquisition of two hotels subsequent to June 30, 1996.... (37,350)
Proceeds from the GEPT Equity Investment................. 100,000
Net proceeds from the Offering........................... 215,000
Proceeds from borrowings under the New Credit Facility... 600,000
Repayment of existing notes payable...................... (213,319)
Cash Consideration paid pursuant to the Merger........... (685,152)
---------
$ 15,688
=========
</TABLE>

(b) Adjustment to reflect the allocation of the purchase price to the
assets acquired (including the two hotels of the Red Lion 1996 Hotel
Acquisitions acquired subsequent to June 30, 1996), liabilities assumed,
deferred tax liability on the step-up in the historical basis and the
excess of the purchase price over the net assets acquired.

(c) Adjustment to increase accounts payable and accrued expenses by
the estimated costs to be incurred to complete the transaction of $46.3
million including $14.5 million to be incurred in conjunction with the
Financing Plan.

(d) Adjustment to record debt to reflect the Financing Plan.

(e) Adjustment to record the estimated shares to be issued in
connection with the Merger, the Offering and the GEPT Equity Investment all
in accordance with the assumptions set forth in the first paragraph of
"Prospectus Summary."

43
<PAGE> 46

SELECTED CONSOLIDATED FINANCIAL DATA OF DOUBLETREE
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following tables present selected historical consolidated financial
information for Doubletree and its Predecessor, the entity which owned 92% of
GQHP prior to the Doubletree Combination Transaction. Prior to January 1, 1993
the historical financial information for the Predecessor includes only the
operations of GQHP. From January 1, 1993 to December 16, 1993, the historical
financial information for the Predecessor includes the operations of GQHP and
RFS Management and subsequent to such date, includes the combined operations of
GQHP, RFS Management and DHC. The following tables also present selected 1993
pro forma consolidated financial information for Doubletree, giving effect to
the Doubletree Combination Transaction and the Doubletree Reorganization as if
each had occurred on January 1, 1993. The selected historical consolidated
financial information presented below as of and for the years ended December 31,
1994 and 1995 has been derived from the audited financial statements of
Doubletree. The selected historical consolidated financial information presented
below as of and for the fiscal years ended December 31, 1991, 1992 and 1993 has
been derived from the audited financial statements of the Predecessor. The
selected historical consolidated financial information as of and for the six
months ended June 30, 1995 and 1996 has been derived from the unaudited
consolidated financial statements of Doubletree and include all adjustments
consisting only of normal recurring adjustments that management considers
necessary for a fair presentation of the financial information. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of the results expected for the full year. For a discussion of the historical
corporate organization of Doubletree, see "Corporate Organization."

The financial information set forth below is qualified in its entirety by,
and should be read in conjunction with, "Management's Discussion and Analysis of
Results of Operations and Financial Condition of Doubletree," the consolidated
financial statements, the notes thereto and other financial and statistical
information appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------------- --------------------
PRO
PREDECESSOR FORMA(2) DOUBLETREE DOUBLETREE
------------------------------ -------- --------------------- --------------------
1991(1) 1992(1) 1993 1993 1994 1995 1995 1996
-------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues:
Management and franchise fees.... $ 8,953 $8,556 $10,612 $24,659 $ 26,330 $ 30,082 $ 14,536 $ 18,519
Owned hotel revenues............. 1,728 3,786 9,943 -- 92 7,081 3,308 3,979
Leased hotel revenues............ 2,345 5,932 14,923 19,849 73,769 141,942 65,534 86,321
Purchasing and service fees...... 89 -- 329 8,539 10,746 16,487 7,478 7,585
Other fees and income............ 6,162 419 2,547 3,749 1,545 994 493 972
------- ------- ------- ------- -------- -------- -------- --------
Total revenues................. 19,277 18,693 38,354 56,796 112,482 196,586 91,349 117,376
------- ------- ------- ------- -------- -------- -------- --------
Operating expenses
Corporate general and
administrative expenses........ 5,696 5,683 7,485 11,584 11,879 14,413 7,106 8,641
Owned hotel expenses............. 1,694 2,810 6,400 -- 101 6,049 2,936 3,217
Leased hotel expenses............ 1,796 4,972 14,266 18,523 68,981 132,644 61,008 79,735
Purchasing and service
expenses....................... -- -- 620 8,234 9,807 13,925 6,346 5,648
Depreciation and amortization.... 2,373 599 1,572 2,830 2,943 4,686 2,056 2,940
Business combination expenses.... 17,065 -- 1,865 -- -- 2,565 -- --
------- ------- ------- ------- -------- -------- -------- --------
Total expenses................. 28,624 14,064 32,208 41,171 93,711 174,282 79,452 100,181
------- ------- ------- ------- -------- -------- -------- --------
Operating income................. (9,347) 4,629 6,146 15,625 18,771 22,304 11,897 17,195
Interest expense............... (4,109) -- (1,228) (1,907 ) (831) (227) (132) (143)
Interest income................ 260 159 254 660 1,630 4,147 1,858 2,090
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before income taxes
and minority
interest....................... (13,196) 4,788 5,172 14,378 19,570 26,224 13,623 19,142
Minority interest share of
(income) loss.................. 6,923 372 175 -- -- 35 (7) (22)
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before taxes....... (6,273) 4,416 5,347 14,378 19,570 26,259 13,616 19,120
Income tax expense............. 27 65 414 5,763 (3) 6,335(4) 8,468 4,229 6,693
------- ------- ------- ------- -------- -------- -------- --------
Net income (loss)................ $ (6,300) $(4,351) $ 4,933 $ 8,615 $ 13,325(4) $ 17,791 $ 9,387 $ 12,427
======= ======= ======= ======= ======== ======== ======== ========
Earnings per share................. $ 0.47 $ 0.66(4) $ 0.80 $ 0.43 $ 0.54
======= ======== ======== ======== ========
Pro forma net income(5)............ $ 18,736 $ 8,851
======== ========
Pro forma earnings per share(5).... $ 0.84 $ 0.40
======== ========
Weighted average common and common
equivalent
shares outstanding(6)............ 18,228 20,071 22,219 21,984 22,849
======= ======== ======== ======== ========
</TABLE>

44
<PAGE> 47

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------------- JUNE 30,
1991(1) 1992(1) 1993 1994 1995 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $3,621 $5,741 $6,826 $ 23,169 $ 32,652 $ 46,566
Total assets............................................. 12,104 22,368 89,072 134,701 163,107 211,973
Long-term debt, net of current portion................... -- 5,736 25,000 -- -- --
Stockholders' equity..................................... 3,542 9,773 13,645 91,587 114,386 154,461
</TABLE>

- ---------------
(1) Predecessor only.

(2) Gives effect to the Doubletree Combination Transaction and the Doubletree
Reorganization as if each of these events had occurred at January 1, 1993.

(3) The pro forma effective tax rate is higher than the actual effective tax
rate due to fewer than expected restrictions on Doubletree's ability to
utilize net operating loss carryforwards.

(4) Doubletree's effective tax rate for the year ended December 31, 1994 was
32.4% due to the organizational structure of Doubletree prior to its initial
public offering. Had a 35% rate been incurred, 1994 net income and earnings
per share would have been $12.7 million and $0.63, respectively.

(5) During the fourth quarter of 1995, Doubletree and RFS Management incurred
$2.6 million of business combination expenses related to the RFS Acquisition
which closed in February 1996. RFS Management, as a Subchapter S corporation
in 1995 for federal income tax purposes, was not generally liable for income
taxes. Accordingly, RFS Management did not provide for federal income taxes
in its 1995 financial statements. Pro forma adjustments have been made for
the year ended December 31, 1995 and the six months ended June 30, 1995 to
provide for income taxes on the earnings of RFS Management at Doubletree's
effective tax rate; also, for the year ended December 31, 1995 pro forma
adjustments have been made to exclude the business combination expenses and
provide for a related increase in income tax expense.

(6) Assumes that the 15,500,000 shares issued in connection with the Doubletree
Reorganization and the 2,727,811 shares issued to acquire RFS Management,
which was accounted for as a pooling of interests, were outstanding for all
periods presented.

45
<PAGE> 48

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF DOUBLETREE

OVERVIEW

As of June 30, 1996, Doubletree leased and/or managed 142 hotels and had 37
franchise agreements consisting of contracts for 60 full-service Doubletree
Hotels, 37 Doubletree Guest Suites all-suite hotels, 13 limited-service
Doubletree Club Hotels and 69 non-Doubletree brand hotels. As a manager of
hotels, Doubletree is typically responsible for supervising or operating the
hotel in exchange for base fees tied to revenues. In addition, Doubletree may
also earn revenues through incentive fees based on the performance of the hotel
and income from debt and equity investments in the underlying hotel. As a
franchisor, Doubletree licenses its brand name to the hotel operator in exchange
for a franchise fee based on revenues.

Hotel revenues consist of revenues from hotels owned or leased by
Doubletree. For these hotels, Doubletree includes as revenues the entire hotel's
revenues. As the lessee of hotels that Doubletree also manages, Doubletree
exercises similar control over the operation and supervision of the hotel as is
given to it as a manager, however, Doubletree recognizes all revenues and
substantially all expenses associated with the operation of the hotel.

Purchasing and service fees represent fees from purchasing agreements with
preferred vendors, sales of furniture, supplies and other frequently used items
to hotels for a profit, and fees from technical services provided to hotel
owners in connection with the construction/renovation of hotels.

Other fees and income primarily comprise contract termination fees and
equity in income/losses of hotel partnerships and similar ventures, including
gains/losses upon the sale of a hotel.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 (Actual) vs. Six Months Ended June 30, 1995
(Actual)

Total revenues increased $26.0 million or 28% to $117.4 million for the six
months ended June 30, 1996 compared to $91.3 million for the six months ended
June 30, 1995.

Revenues from management and franchise fees increased $4.0 million or 27%
in 1996 compared to the same period in 1995. The increase is attributable to
increased incentive fees of $2.0 million, fees from new contracts (net of
contracts lost) of $1.4 million, and increased fees from comparable hotels of
$0.9 million. The growth in revenue was offset by reduced fees of approximately
$0.3 million from renegotiated contracts and management contracts which
converted to franchise agreements.

Owned hotel revenues increased $0.7 million or 20% in the first six months
of 1996 compared to the same period in 1995 reflecting a significantly improved
occupancy rate at the one owned hotel in Southfield, Michigan.

Leased hotel revenues increased $20.8 million or 32% in the first six
months of 1996 reflecting improved average daily rates and occupancies and the
net addition of ten leased hotels as compared with the same period in 1995. The
margin on leased hotel operating results increased 46% from $4.5 million to $6.6
million, reflecting the net addition of these properties and an improvement in
the operating margin from 6.9% to 7.6%.

Purchasing and service fees increased by $0.1 million in the first six
months of 1996 compared to the same period in 1995. The margin increased by $0.8
million to $1.9 million reflecting a shift in mix from high volume, low margin
bulk purchasing programs (whereby Doubletree purchases goods and resells such
goods to its hotel owners) to preferred vendor programs (whereby Doubletree
earns program management fees only).

Other fees and income increased principally due to dividends from
Doubletree's investment in the convertible preferred stock of the REIT.

General and administrative expenses increased $1.5 million or 22% over the
first six months of 1995 primarily due to the addition of employees, the
formation of a franchise development team and an increase in legal and
professional fees, all of which is attributable to the Company's growth.
Depreciation and

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amortization increased $0.9 million over the comparable 1995 period primarily
due to increased amortization associated with investments in management
contracts. Net interest income increased nominally by $0.2 million.

The provision for income taxes reflects a 35% effective tax rate for the
first six months of 1996 compared with a 31% effective tax rate for the
comparable 1995 period. The lower effective tax rate for 1995 reflects the
election of RFS Management to be taxed as a Subchapter S corporation for income
tax purposes and, therefore, it was generally not subject to federal income
taxes. Had RFS Management been included in the 1995 consolidated income tax
returns of Doubletree, the income tax provision for the first six months of 1995
would have increased by $0.5 million.

Net income and earnings per share for the six months ended June 30, 1996
were $12.4 million and $0.54, respectively, compared to $9.4 million and $0.43,
respectively, in 1995. With a normalized effective tax rate for RFS Management
in 1995 of 35%, net income would have increased from 1995 to 1996 by 40% from
$8.9 million to $12.4 million and per share earnings would have increased 35%
from $0.40 to $0.54.

Year Ended December 31, 1995 (Actual) vs. Year Ended December 31, 1994
(Actual)

Total revenues increased $84.1 million or 75% to $196.6 million for the
year ended December 31, 1995 compared to $112.5 million for the year ended
December 31, 1994.

Revenues from management and franchise fees increased $3.8 million or 14%
due to fees from new contracts (net of contracts lost) of $2.0 million,
increased fees from comparable hotels of $0.9 million and higher incentive fees
of $0.6 million. Fees from renegotiated contracts and fees from contracts which
converted from management to franchise contracts in connection with the sale of
the underlying hotels also increased $0.3 million.

Owned hotel revenues increased $7.0 million representing the full year of
results of the Southfield hotel acquired in December 1994.

Leased hotel revenues increased $68.2 million or 92% principally due to an
increase in the number of leased hotels in 1995 as compared to 1994. Leased
hotel revenues for 1995 reflect the net addition of nine leased hotels since
December 31, 1994 plus the full year of revenues from the 31 hotels RFS
Management began leasing during 1994. The margin on leased hotel results
increased $4.5 million to $9.3 million reflecting the net addition of these
properties since the prior year.

Purchasing and service fees increased $5.7 million or 53% primarily due to
increased purchasing volume and the net addition of new properties and increases
in revenues from existing properties. The margin from purchasing and service
fees increased $1.6 million to $2.6 million or 173% principally reflecting the
implementation of several purchasing agreements that lower the price of products
to the hotel owner while concurrently providing Doubletree with a fee in return
for negotiating and managing the program.

Other fees and income decreased $0.6 million or 36% resulting principally
from $0.8 million of termination fees received in 1994 in connection with the
termination of two management contracts. Doubletree subsequently entered into
management contracts with the new owners of these two hotels.

General and administrative expenses increased $2.5 million or 21%, $2.2
million of which was attributable to the growth of RFS Management, which added
31 hotels in 1994, and $0.3 million which was attributable to DHC's increased
legal costs and costs associated with the formation of the franchise development
team.

Depreciation and amortization increased $1.7 million in 1995 primarily due
to the acquisition of the Southfield, Michigan hotel in December 1994 and
increased amortization associated with investments in management contracts.

Business combination expenses of $2.6 million in 1995 are attributable to
legal, professional and accounting fees, due diligence and certain other
expenses incurred by RFS Management and Doubletree in connection with the
business combination.

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Interest income increased $2.5 million due to an increase in interest
earned on loans to hotel owners in conjunction with obtaining management
contracts and higher interest income on invested cash balances. Interest expense
decreased $0.6 million due to the repayment in July 1994 of all of the
outstanding indebtedness under Doubletree's $30.0 million credit facility with a
portion of the proceeds from the initial public offering.

The provision for income taxes in 1994 reflects a 32.4% effective tax rate
principally due to the organizational structure of Doubletree prior to its
initial public offering in July 1994 offset by a slightly higher rate on the
earnings of RFS Management. The provision in 1995 reflects a combined 32.2%
effective tax rate which is lower than Doubletree's effective rate of 35% due to
the election by RFS Management to be taxed as a Subchapter S corporation
effective January 1, 1995. Accordingly, the earnings of RFS Management for 1995
were generally not subject to federal income taxes.

Net income and earnings per share for the year ended December 31, 1995 were
$17.8 million and $0.80, respectively, compared to $13.3 million and $0.66,
respectively, in 1994. Excluding the business combination expenses in 1995 and
with a normalized effective tax rate for both 1994 and 1995 of 35%, net income
would have increased 47% to $18.7 million from $12.7 million and per share
earnings would have increased 33% to $0.84 from $0.63.

Year Ended December 31, 1994 (Actual) vs. Year Ended December 31, 1993 (Pro
Forma)

Actual revenues increased $55.7 million or 98% to $112.5 million for the
year ended December 31, 1994 compared to $56.8 million during the pro forma 1993
period.

Revenues from management and franchise fees increased $1.7 million or 7% in
1994 due to a $1.1 million increase in fees from comparable hotels, higher
incentive fees of $1.7 million and fees from new contracts (net of contracts
lost) of $0.2 million. These increases were partially offset by $1.1 million of
fee reductions on certain contracts that were either renegotiated or converted
from managed to franchised hotels in connection with the sale of the underlying
hotels; 1993 results included $0.2 million of fees received that had been
written off in prior years.

Owned hotel revenues represent the revenues derived from the Southfield
hotel acquired in December 1994.

Leased hotel revenues increased $53.9 million in 1994 or 272% principally
due to an increase in the number of leased hotels in 1994 as compared to 1993.
Hotel revenues for 1994 reflect the net addition of 33 leased hotels since
December 31, 1993. The margin on hotel results increased $3.5 million to $4.8
million reflecting the net addition of these hotels since the prior year.

Purchasing and service fees increased $2.2 million in 1994 or 26%
principally due to increased purchasing volume and the addition of new hotels
since December 31, 1993 and an increase in technical service fees of $0.6
million. The margin increased $0.6 million to $0.9 million reflecting the
increased activity.

Other fees and income in the pro forma 1993 period included $3.9 million of
gains from the sale of hotels in which Doubletree and RFS Management had equity
interests. Excluding these items, other fees and income for 1994 would have
increased $1.7 million, due to $0.8 million of fees received in connection with
the termination of two management contracts, and increases in franchise
application fees and equity income. Doubletree subsequently entered into
management contracts with the new owners of these two hotels.

General and administrative expenses increased by $0.3 million or 3% in
1994. During 1993, Doubletree recognized as a reduction to general and
administrative expense $1.1 million resulting from an insurance refund.
Excluding the insurance refund, general and administrative expense would have
decreased $0.8 million. The decrease was attributable to $1.8 million in payroll
and other cost savings achieved from the consolidation of the formerly separate
operations of DHC and GQHP offset by $1.0 million of increased administrative
expenses associated with the growth in the number of hotels leased by RFS
Management.

Depreciation and amortization increased $0.1 million or 4% in 1994 due to
the amortization associated with investments in management contracts.

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Interest income increased by $1.0 million principally due to income earned
on the remaining proceeds (after repayment of indebtedness) from Doubletree's
July 1994 initial public offering. Interest expense decreased $1.1 million to
$0.8 million due to the repayment in July 1994 of all of the outstanding
indebtedness under Doubletree's $30.0 million credit facility with a portion of
the proceeds from the initial public offering.

The actual provision for income taxes in 1994 reflects a 32.4% effective
tax rate as compared to the 40% effective tax rate used in the 1993 pro forma
due to the organizational structure of Doubletree prior to its initial public
offering and fewer than expected restrictions on Doubletree's ability to utilize
net operating loss carryforwards. Doubletree's effective tax rate subsequent to
the completion of the initial public offering was 35%.

Net income and earnings per share for the year ended December 31, 1994 were
$13.2 million and $0.66, respectively, compared to $8.6 million and $0.47,
respectively, in the prior year. Excluding the noncomparable items discussed
above and adjusting the effective tax rate to 35% for both 1993 and 1994, net
income would have increased 109% to $12.7 million from $6.1 million and per
share earnings would have increased 91% to $0.63 from $0.33.

Year Ended December 31, 1994 (Actual) vs. Year Ended December 31, 1993
(Actual)

Operating results for the year ended December 31, 1994 reflect the
inclusion of the operating results of DHC which was acquired on December 16,
1993, the addition of new contracts acquired subsequent to the acquisition and
the addition of 33 leased properties during the year. As a result, management
believes that the historical results of operations for the year ended December
31, 1994 are not comparable to the prior year period.

Revenues were $112.5 million, an increase of $74.1 million or 193% for the
year ended December 31, 1994 compared to the same period of 1993. Operating
expenses were $93.7 million, an increase of $61.5 million or 191%. Income before
taxes was $19.6 million, an increase of $14.2 million or 266%. The above changes
are primarily attributable to the inclusion of DHC's operations in the 1994
period and the increase in the number of hotels leased by RFS Management. The
provision for income taxes increased and the minority interest share of net
income decreased reflecting the Doubletree Reorganization and the above
increases.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1996, Doubletree's balance sheet reflected $31.3 million of
working capital which represents an increase of $10.8 million from December 31,
1995. The increase is principally attributable to $27.4 million of net proceeds
generated by the public offering of Doubletree Common Stock in May 1996 and cash
generated from operations. Doubletree generated cash from operating activities
of $22.6 million during the six months ended June 1996 as compared to $11.3
million during the same period of 1995. The increase was due to increases in net
income, increases in expenses not requiring the use of cash, and an increase in
current liabilities principally due to the timing of hotel lease and income tax
payments.

Doubletree requires capital primarily for making selective investments in
the underlying hotels that it manages as a means of obtaining and enhancing the
profitability of management contracts. Doubletree used $35.6 million of cash for
investing activities in the first six months of 1996 of which $18.5 million was
contributed to RFS Management and subsequently invested in 973,684 shares of
convertible preferred stock in RFS Hotel Investors, Inc. (the "REIT Preferred
Shares"). Additionally, Doubletree made loans to owners of hotels in conjunction
with obtaining new management contracts of $6.4 million and invested $6.6
million in hotel partnerships and ventures, of which $6.2 million was
contributed to Candlewood. Doubletree has committed to contribute up to $15.0
million to Candlewood, of which $7.4 million had been funded as of June 30,
1996. The balance of $7.6 million is anticipated to be contributed during the
six months following June 30, 1996. Such contributions will be used for general
corporate purposes as well as funding a portion of the development/construction
costs of certain hotels.

In addition, in August 1996 Doubletree committed to provide credit support
for a loan facility that will be utilized by Candlewood to arrange to provide
construction and permanent financing to Candlewood

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franchisees on terms that, in most cases, are much more attractive than those
which the franchisees could obtain on their own. The source of the loan facility
will be General Motors Acceptance Corporation Mortgage Group. In providing such
credit support, Doubletree's maximum exposure on any one Candlewood franchise
will be approximately $1.0 million, with the aggregate amount of exposure to
Doubletree for all such credit support capped at between $20.0 and $30.0
million, assuming that the aggregate amount of loans made under the loan
facility is between $100.0 and $150.0 million.

In August 1996, Doubletree and Patriot announced the formation of a joint
venture strategic alliance. Pursuant to the strategic alliance, Doubletree and
Patriot will work together to identify hotels potentially suitable for
acquisition by Patriot, which will then be operated as Doubletree brand hotels
or luxury non-Doubletree brand hotels, in each case to be leased and managed by
Doubletree. Patriot and Doubletree have committed to invest an aggregate of
$200.0 million and $20.0 million, respectively, into the purchase of hotels as
part of the strategic alliance.

Doubletree has guaranteed certain mortgages, leases and construction bonds
up to $6.5 million ($2.9 million of which is collateralized by letters of
credit).

Doubletree has committed to lend up to $9.0 million, $7.0 million of which
is to the owner of the Doubletree Hotel in Somerset, New Jersey, of which $0.7
million is for renovations and $6.3 million is to provide bridge financing, if
needed. The remaining loan commitments are to two other hotels for renovations.

Doubletree is committed, subject to certain conditions, to contributing an
additional $3.1 million to an investment partnership formed for the purposes of
acquiring hotels. Doubletree through its corporate subsidiaries serves as the
general partner of certain limited partnerships which own hotels. Debt of these
partnerships is typically secured by first mortgages on the properties and
generally is nonrecourse to the partners. However, such corporate subsidiaries
are liable, as a general partner, for the recourse obligations of the
partnerships they manage. No assurance can be given that Doubletree will not be
required to fund additional commitments.

Certain hotel management contracts provide that if a hotel does not achieve
agreed-upon performance levels, Doubletree may elect or may be required to fund
any performance shortfalls for a specified period of time. In general, if
Doubletree elects not to fund the shortfall, the hotel owner may elect to
terminate the management contract. If Doubletree elects to fund the shortfall,
but performance standards are not achieved at the expiration of the funding
period, the owner may elect to terminate the management contract at that time.
Doubletree funded $487,000 in June 1996 in connection with a shortfall at one
hotel. There were no shortfall funding payments in 1995 or 1994.

In connection with the acquisition of RFS Management, Doubletree's existing
credit facility was amended, allowing Doubletree to maintain borrowings
outstanding under the credit facility of up to $30.0 million through December
1997, and up to $12.5 million from December 1997 until scheduled maturity in
December 1998. Annually, Doubletree can request an extension of the maturity
date by one year. In May 1996, Doubletree requested an extension which was
granted by the lender. Accordingly, the initial reduction in the commitment has
been extended to 1998 and the maturity date is December 1999. In February 1996,
Doubletree borrowed $5.0 million under the credit facility and repaid the entire
amount by June 30, 1996. The credit facility provides for automatic reductions
in the amount of the facility by 100% of the net proceeds from the sale or other
disposition of certain types of loans or investments or the issuance of certain
debt obligations and by 50% of the new proceeds from the issuance of certain
equity securities. The lender has waived this required reduction with respect to
each of Doubletree's public offerings of common stock.

Following the consummation of the Merger and the related transactions
including the Financing Plan, Doubletree intends to terminate its existing
credit facility described above. After giving effect to the Merger and such
related transactions, Doubletree will have borrowed $600.0 million under the New
Credit Facility and will have $136.0 million available to borrow thereunder (of
which $36.0 million will be available only in certain circumstances).
Additionally, Doubletree intends to raise an additional $315.0 million of net
proceeds pursuant to the GEPT Equity Investment and the Offering. In the event
that the Offering is not consummated at or prior to the Effective Time,
Doubletree intends to obtain substitute financing through the Bridge Loan

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and additional borrowings under the New Credit Facility. All of the net cash
proceeds from these financing transactions are anticipated to be used to
consummate the Merger. In each instance, management believes that a combination
of its existing cash and cash equivalents, net cash to be provided from
operations and its remaining borrowing ability under the New Credit Facility
will be sufficient to fund its current operations and capital expenditures after
the Merger. See "Risk Factors -- Financing of the Merger; Leverage."

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BUSINESS OF DOUBLETREE

Doubletree Corporation is one of the nation's leading hotel management
companies. At June 30, 1996, Doubletree managed, leased, or franchised 179
hotels with an aggregate of 41,232 rooms in 37 states, the District of Columbia
and Mexico. This represents a 63% and 43% increase in managed, leased or
franchised hotels and aggregate room count, respectively, during the 12 month
period ended June 30, 1996. Excluding the RFS Acquisition, this growth was 17%
and 19%, respectively. See "-- Recent Developments." Doubletree provides hotel
owners with management and franchise services under its Doubletree Hotels,
Doubletree Guest Suites, Doubletree Club Hotels and Club Hotels by Doubletree
brand names, as well as management services for non-Doubletree brand hotels. At
June 30, 1996, Doubletree's hotels included 60 Doubletree Hotels, 37 Doubletree
Guest Suites, 13 Doubletree Club Hotels, and 69 hotels operated by Doubletree
under third party brand names or as independent hotels.

RECENT DEVELOPMENTS

Doubletree has recently taken the following steps to help implement and
further its business and growth strategies:

Acquisition of RFS Management. In February 1996, Doubletree significantly
expanded its portfolio of non-Doubletree brand hotels with the RFS Acquisition.
At June 30, 1996, RFS Management operated 56 hotels, 44 of which were leased and
managed, four of which were leased only, and eight of which were managed for
owners other than the Landlord. The RFS Hotels principally operate in the
limited-service and the extended stay segments of the lodging industry, comprise
8,855 rooms and are operated under such franchise brands as Holiday Inn, Holiday
Inn Express, Residence Inn by Marriott, Hampton Inn and Comfort Inn. With the
RFS Acquisition, Doubletree acquired an independent hotel management company
with experienced hotel management personnel and an established infrastructure,
which will allow Doubletree to pursue further non-Doubletree brand management
contract and lease opportunities. In addition, in connection with the RFS
Acquisition, Doubletree entered into an arrangement with the REIT granting
Doubletree the right to lease and manage any hotels acquired or developed by the
REIT or the Landlord during the ten years following the RFS Acquisition, with
limited exceptions (the "Right of First Refusal"). The Right of First Refusal
provides Doubletree with an additional source of capital for additions to
Doubletree's hotel portfolio. In addition to its ongoing efforts to acquire
hotels, the REIT currently has seven hotels under development which will be
subject to the Right of First Refusal. See "-- The RFS Acquisition."

Formation of Candlewood. In November 1995, Doubletree announced its
entrance into the mid-priced ($40-50 per night) extended stay segment of the
hotel market with its investment in Candlewood, a joint venture with entities
controlled by Mr. Jack DeBoer, the founder of Residence Inns. Candlewood will
develop, own, manage and franchise hotels containing fully furnished studio
units designed to serve the value-oriented extended stay guest. Mr. DeBoer, whom
the industry credits with creating the extended stay concept, is primarily
responsible for the development and day-to-day operations of Candlewood.
Doubletree appoints two of Candlewood's four delegates, and approval of at least
a majority of the delegates is required for all material transactions.
Candlewood's first hotel commenced operations in May 1996. Doubletree has
committed to invest up to $15.0 million of equity capital in Candlewood, of
which $7.4 million was invested at June 30, 1996, and an additional $7.6 million
was to have been invested over the next six months thereafter, for which it will
receive, after a preferred return of and on its capital, 50% of Candlewood's
profits and losses. In September 1996, Candlewood Hotel Company, Inc. filed a
registration statement with the Securities and Exchange Commission to register
its common stock. In connection with the offering, Doubletree's interest in
Candlewood will be converted into an equivalent interest in Candlewood Hotel
Company, Inc. In addition, in August 1996 Doubletree committed to provide credit
support for a loan facility that will be utilized by Candlewood to arrange to
provide construction and permanent financing to Candlewood franchisees on terms
that, in most cases, are much more attractive than those which the franchisees
could obtain on their own. The source of the loan facility will be General
Motors Acceptance Corporation Mortgage Group. In providing such credit support,
Doubletree's maximum exposure on any one Candlewood franchise will be
approximately $1.0 million, with the aggregate amount of exposure to Doubletree
for all such credit support capped at between $20.0 and $30.0 million, assuming
that the aggregate amount of loans made under the related loan facility is
between $100.0 and $150.0 million. Doubletree believes that the Candlewood joint
venture provides it with an

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opportunity to generate incremental revenues and participate in a quickly
expanding and high demand segment of the lodging industry. The Candlewood joint
venture is in the initial stages of development, and there can be no assurance
of its success. See "-- Investments and Commitments."

Formation of Joint Venture Strategic Alliance With Patriot American
Hospitality, Inc. In August 1996, Doubletree and Patriot announced the
formation of a joint venture strategic alliance. Pursuant to the strategic
alliance, Doubletree and Patriot will work together to identify hotels
potentially suitable for acquisition by Patriot, which will then be operated as
Doubletree brand hotels or luxury non-Doubletree brand hotels, in each case to
be leased and managed by Doubletree. Patriot and Doubletree have committed to
invest an aggregate of $200.0 million and $20.0 million, respectively, into the
purchase of hotels as part of the strategic alliance. The joint venture
strategic alliance provides Doubletree with another source of long-term hotel
management and lease opportunities. The joint venture has successfully completed
the acquisition of four Doubletree hotels. Despite these acquisitions, the joint
venture strategic alliance is in its initial stages, and there can be no
assurance of its success. There is no assurance that Doubletree's equity
investment in any hotel that is purchased as part of the strategic alliance will
be profitable, and the leasing and ownership of hotels presents certain risks
for Doubletree. See "Risk Factors -- Investment Losses; Risks Associated with
Joint Ventures; Contingent Liabilities" and "Risk Factors -- Risks Associated
with Owning and Leasing Real Estate."

Introduction of Club Hotels by Doubletree. In January 1996, Doubletree
introduced "Club Hotels by Doubletree," a new hotel brand specifically targeted
at the frequent business traveler, which was developed by Doubletree in concert
with Steelcase, Au Bon Pain and Kinko's. Each hotel will feature a multi-purpose
Business Club ranging from 2,000 to 5,000 square feet in size. One portion of
the Business Club will be dedicated to the Kinko's self-service business center
and will contain business equipment, such as computer printers, fax machines,
photocopiers and office and shipping supplies. Each Business Club will also
feature private mini offices and small conference rooms designed by Steelcase,
and will feature an Au Bon Pain bakery cafe, where guests may enjoy breakfast,
lunch or dinner. Doubletree plans to grow its new brand through the acquisition
of management contracts of underperforming hotels in target locations, a focused
franchising program and the conversion of certain existing Doubletree Club
Hotels. The first two conversions of hotels to a Club Hotel by Doubletree,
containing a fully operational Business Club, recently opened in Jacksonville,
Florida and San Antonio, Texas.

Sale of TIAA Hotel Portfolio; Cash Distribution. In August 1996, Starwood,
a company that owns and manages hotels, acquired four managed Doubletree brand
hotels from their owner, Teachers Insurance Assurance Association of America.
These hotels are: the Doubletree Hotel Los Angeles (Airport), Doubletree Hotel
San Diego Horton Plaza, Doubletree Hotel Atlanta and Doubletree Hotel
Bloomington (Mall of America). These hotels comprise a part of, and are not in
addition to, the hotels acquired by Starwood discussed in "Risk Factors -- Risk
of Contract Turnover." As part of the purchase and sale transaction, Starwood
retained Doubletree as the manager of the hotels, subject to either party's
right to terminate each management agreement, without cause, on 30 days' prior
written notice. In the event that Doubletree's management or franchise of the
hotels is terminated for any reason, Starwood is required to pay Doubletree a
termination payment the amount of which will be sufficient to recover
Doubletree's asset. Effective October 1, 1996, Starwood converted the short-term
management agreements for the hotels to short-term Doubletree franchise
agreements. Starwood has indicated that three of such franchise agreements will
likely be converted to other brands in early 1997. However, Doubletree currently
anticipates that it would terminate two of the three franchise agreements as a
result of the Merger.

Doubletree, through its subsidiaries, had a minority general partnership
interest in the general partnership that owned the Doubletree San Diego Horton
Plaza. As a result of the sale of the hotel and the liquidation of the general
partnership, Doubletree received a cash distribution of approximately $5.8
million.

THE LODGING INDUSTRY

Overview

Doubletree believes that the lodging industry is benefiting from an
improved supply and demand balance, which has led to overall profitability of
the lodging industry. According to Hospitality Directions, 1995 marked the
lodging industry's third consecutive year of profitability. The report estimates
that the lodging industry

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earned pretax profits of $7.6 billion in 1995, a 38% increase over the prior
year. Room supply growth in the lodging industry, particularly in the principal
segments in which Doubletree competes, has slowed dramatically in recent years
as the industry has absorbed some of the oversupply of rooms that resulted from
an average annual room supply growth of approximately 4% from 1987 to 1990.
According to industry reports, this growth slowed to 1.3% in 1992, 1.4% in 1993,
1.5% in 1994 and 1.6% in 1995. Increases in occupancy rates (measured by
occupied rooms) increased 3.3% in 1992, 3.1% in 1993, 4.0% in 1994 and 2.9% in
1995. Average daily room rates increased 1.4%, 2.8%, 4.8% and 4.9%,
respectively, during the same periods. Due to the cyclical nature of supply and
demand in the lodging industry, there can be no assurance that such increases
will continue. See "Risk Factors -- Risks Associated with the Lodging Industry."

Industry Segments

Industry segments within the lodging industry are principally based on
levels of service, guest amenities, room size, room configuration and price.
Doubletree's Doubletree brand hotels currently compete in three segments of the
lodging industry: full-service hotels, all-suite hotels, and limited-service
hotels. Full-service hotels typically include swimming pools, meeting and
banquet facilities, gift shops, restaurants, cocktail lounges, room service,
parking facilities and other services. All-suite hotels provide the guest with a
two room suite, including a bedroom and a living room. This segment can also be
further divided depending on the level of food and beverage services provided at
the hotel. Limited-service hotels are moderately priced and typically do not
include services such as extensive meeting and banquet facilities or extensive
food and beverage facilities.

Doubletree's non-Doubletree brand hotels compete in most segments, but
primarily in the limited-service and extended stay segments of the lodging
industry. Extended stay hotels are designed to combine the convenience of a
hotel with many of the comforts of an apartment, and generally contain a
furnished kitchen area and may include living areas separate from sleeping
areas.

HOTEL OPERATIONS: DOUBLETREE BRAND HOTELS

Doubletree Full-Service Hotels

Doubletree's full-service hotels are targeted at business travelers, group
meetings and leisure travelers. The total guest room revenue for the year ended
December 31, 1995 for Doubletree's full-service hotels was derived approximately
40% from business travelers, 41% from group meetings and 19% from leisure
travelers. Doubletree believes these percentages are consistent with other
full-service hotel brands in the industry.

At June 30, 1996, Doubletree's full-service hotel segment included 60
Doubletree hotels in 22 states, the District of Columbia and Mexico, with a
total of 19,334 guest rooms. Of these hotels, 44 were operated by Doubletree
under management contracts and 16 were operated by franchisees licensed to use
the Doubletree brand name at June 30, 1996. Four of the managed hotels were also
leased by Doubletree as of such date.

At June 30, 1996, Doubletree full-service hotels ranged in size from 120 to
720 rooms, and room rates generally ranged from $45 to $280 per night depending
upon location, time of year and day of the week. Doubletree full-service hotels
typically include a swimming pool, gift shop, meeting and banquet facilities, at
least one restaurant and cocktail lounge, room service, parking facilities and
other services. Three of Doubletree's full-service hotels are considered resort
hotels, with additional recreational facilities, such as tennis courts, and two
of these hotels have golf courses.

The following table sets forth certain information regarding the Doubletree
full-service hotels managed or franchised by Doubletree at June 30, 1996:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
HOTELS ROOMS
--------- ---------
<S> <C> <C>
Managed Hotels........................................... 44 14,654
Franchised Hotels........................................ 16 4,680
--- ------
Total............................................... 60 19,334
=== ======
</TABLE>

54
<PAGE> 57

Doubletree Guest Suites All-Suite Hotels

The Doubletree Guest Suites all-suite hotels comprise one of the largest
all-suite hotel chains in the United States as measured by number of suites and
system revenues. All-suite hotels are targeted at business travelers and
families who have a need or desire for greater space than typically is provided
at most traditional hotels. The total guest room revenue for the year ended
December 31, 1995 for Doubletree's all-suite hotels was derived approximately
50% from business travelers, 27% from group meetings and 23% from leisure
travelers.

At June 30, 1996, Doubletree's all-suite hotels included 37 Doubletree
Guest Suites hotels in 18 states and the District of Columbia, with a total of
8,033 guest rooms. Of these hotels, 26 are operated by Doubletree under
management contracts and 11 are operated by franchisees licensed to use the
Doubletree Guest Suites brand name. One of the managed hotels is also owned by
Doubletree.

At June 30, 1996, Doubletree Guest Suites ranged in size from 55 to 460
guest suites, and suite rates generally ranged from $60 to $250 per night. Each
guest suite has a separate living room and dining/work area, with a color
television, refrigerator and wet bar.

The following table sets forth certain information regarding the Doubletree
Guest Suites all-suite hotels managed or franchised by Doubletree at June 30,
1996:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
HOTELS ROOMS
--------- ---------
<S> <C> <C>
Managed Hotels........................................... 26 5,985
Franchised Hotels........................................ 11 2,048
--- -----
Total............................................... 37 8,033
=== =====
</TABLE>

Limited-Service Doubletree Club Hotels

Doubletree Club Hotels and Club Hotels by Doubletree, moderately-priced,
limited-service hotels, are primarily targeted at individual business travelers.
The total guest room revenue for the year ended December 31, 1995 for
Doubletree's limited-service hotels was derived approximately 56% from business
travelers, 25% from group meetings and 19% from leisure travelers.

At June 30, 1996, the Doubletree Club Hotels included 13 hotels in nine
states, with a total of 2,364 guest rooms. Of these hotels, three are operated
by Doubletree under management contracts and 10 are operated by franchisees
licensed to use the Doubletree Club Hotels name.

At June 30, 1996, Doubletree Club Hotels ranged in size from 158 to 215
rooms, and room rates generally ranged from $50 to $135 per night. Doubletree
Club Hotels typically include a pool and a central lounge with open seating for
serving meals and evening cocktails.

The following table sets forth certain information regarding the Doubletree
Club Hotels managed or franchised by Doubletree at June 30, 1996:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
HOTELS ROOMS
--------- ---------
<S> <C> <C>
Managed Hotels........................................... 3 512
Franchised Hotels........................................ 10 1,852
--- -----
Total............................................... 13 2,364
=== =====
</TABLE>

Doubletree plans to grow its new limited-service hotel brand, Club Hotels
by Doubletree, through the acquisition of management contracts of unaffiliated
underperforming hotels, a focused franchising program and the conversion of
certain existing Doubletree Club Hotels. Since June 30, 1996, one Doubletree
Club Hotel in each of Jacksonville, Florida, and San Antonio, Texas, has been
converted to Club Hotels by Doubletree. See "-- Recent
Developments -- Introduction of Club Hotels by Doubletree."

55
<PAGE> 58

Marketing and Sales

To enhance Doubletree's brand recognition and national presence, Doubletree
launched in February 1995 its multi-million dollar "Sweet Dreams" marketing
campaign. The "Sweet Dreams" campaign is intended to increase awareness among
business travelers of Doubletree's distinguishing characteristics and features
the Doubletree cookie -- a symbol of Doubletree's commitment to provide warm and
caring services to its guests. According to Nationwide Surveys, Inc., at
December 31, 1995, brand awareness of the Doubletree brand name in the business
travel segment was at 79%, an all-time Doubletree high.

Doubletree advertises nationally on network and cable TV and in major
newspapers and magazines. Doubletree has established marketing alliances with
major airlines, car rental and credit card companies to share customer lists and
build trade through joint promotions. Additionally, Doubletree is the official
hotel sponsor of the NFL and an official corporate partner of the NCAA. All
Doubletree brand hotels participate in national, regional and local advertising
and promotion programs designed by central marketing services.

Doubletree has a 24-hour central reservations office with an 800 number to
provide a simple and cost-effective means for making reservations and promotes
its branded hotels to reservation-makers, including all major airline
reservation systems and over 32,000 travel agencies in the United States.
Doubletree uses a centralized telemarketing group, is represented at major trade
shows in the United States and abroad, and specifically targets Fortune 500
companies and large national associations. In 1995 Doubletree established a
franchise sales organization and support infrastructure in order to capitalize
on the growth opportunities in franchising.

Management Contracts

Under each of Doubletree's management contracts, Doubletree operates or
supervises all aspects of the hotel's operations, including guest services,
hiring and training of hotel staff (who generally are employees of Doubletree),
sales and marketing, accounting functions, purchasing and budgeting. In exchange
for these services, Doubletree receives a base fee, typically tied to the
hotel's revenues. In addition, Doubletree may receive revenues from incentives
provided in Doubletree's management contracts based on achieving specified
operating performance goals or may earn income through Investments in the
underlying hotel properties. Doubletree's management contracts have average
terms of approximately 14 years, and there is an average of approximately 11
years remaining under existing management contracts. Under the contracts,
Doubletree also provides certain centralized corporate services for which it is
reimbursed at cost, including reservations, sales and marketing, public
relations, accounting, management information systems, internal audit and
specialized training. The hotel owner may purchase hotel supplies from
Doubletree, including brand-specific products, for cost plus a mark-up.
Additionally, Doubletree has implemented several purchasing agreements that
lower the cost of products to the hotel owner while concurrently providing
Doubletree with a fee in return for negotiating and managing the program.
Doubletree also provides design, construction and other technical services for a
fee. The hotel owner generally is responsible for all costs, expenses and
liabilities incurred in connection with operating the hotel, including the
expenses, salaries and benefits of all hotel employees, and generally is
required to provide a certain percentage of hotel revenues for capital
replacement. In addition, Doubletree may be responsible for certain liabilities,
such as workers compensation, environmental and general tort liability,
associated with a hotel's operations. Doubletree carries general liability
insurance to protect itself from most potential liability claims. See
"-- Insurance."

Upon assumption of the management of a hotel, Doubletree concentrates on
improving the value of the hotel while minimizing the impact of the transition
on employees, guests and the local marketplace. In addition, upon conversion of
a hotel to Doubletree management, Doubletree often works with the hotel owner to
renovate the hotel to improve its marketability and value and to meet the other
financial objectives of the owner. To facilitate the conversion, Doubletree
offers certain technical services for a fee, including recommending and
selecting architects and interior designers, as well as controlling the budget
process and supervising construction.

56
<PAGE> 59

Management of Doubletree hotels is coordinated from Doubletree's
headquarters in Phoenix, with a regional operations office in Boston, regional
sales offices in Chicago, Los Angeles and Philadelphia and an accounting office
in Cincinnati.

Franchise Operations

Doubletree's franchised hotels are operated under the Doubletree,
Doubletree Guest Suites and Doubletree Club Hotels brands and include hotels in
the full-service, all-suite and limited-service segments of the hotel industry.
At June 30, 1996, Doubletree franchised 37 hotels with a total of 8,580 guest
rooms. Until 1995, Doubletree had franchised hotels primarily when a managed
hotel was sold to an owner/manager who chose to manage the hotel, while
maintaining the use of one of Doubletree's brand names. In 1995 Doubletree
created a franchise sales organization to capitalize on additional franchising
opportunities as the awareness of the Doubletree brand increased. Doubletree's
centralized corporate services for franchised hotels include centralized
reservations, sales and marketing, public relations and national media
advertising. While franchising remains secondary to hotel management contract
growth, Doubletree intends to take advantage of franchising opportunities on a
selective basis and expects that the percentage of franchised hotels in its
system will increase.

Doubletree's franchise agreements have varying terms and typically require,
among other things, franchisees to pay an initial application fee upon
acceptance of the property, annual franchise fees based upon revenues and
marketing/reservation fees for the costs associated with the use of Doubletree's
centralized corporate services. Doubletree's franchise agreements have average
terms of approximately 11 years, and there is an average of approximately nine
years remaining under existing franchise agreements. Many of Doubletree's
franchisees purchase hotel supplies from Doubletree, including brand-specific
products.

In addition to acting as a franchisor of the Doubletree hotel brands,
Doubletree operates additional hotels as a franchisee under a variety of hotel
brand names. See "-- Hotel Operations: Non-Doubletree Brand Hotels -- Franchise
Agreements."

HOTEL OPERATIONS: NON-DOUBLETREE BRAND HOTELS

Non-Doubletree Brand Hotels

At June 30, 1996, Doubletree managed or leased 69 hotels under
non-Doubletree brands with a total of 11,501 rooms in 27 states, including
luxury, full-service, limited-service and extended stay hotels. See "-- The RFS
Acquisition." These non-Doubletree brand hotels are operated under brand names
such as Hampton Inn, Residence Inn by Marriott, Holiday Inn, Holiday Inn Express
and Comfort Inn or as independent hotels.

Marketing and Sales

Doubletree's marketing and sales objective for its non-Doubletree brand
hotels is to increase the revenues and profitability of those hotels through a
direct sales program at each hotel. In addition to direct sales and marketing
efforts at each franchised hotel, each such hotel takes advantage of the
advertising and promotional strength of its particular franchise organization.

Lease and Management Agreements

At June 30, 1996, of Doubletree's 69 non-Doubletree brand hotels, 46 were
leased and managed, 18 were managed only, four were leased only and one was
owned through the Candlewood joint venture. All of the leased and managed hotels
were leased and managed by Doubletree pursuant to lease agreements (the
"Percentage Leases") with the Landlord under similar terms. See "Risk
Factors -- Dependence on Certain Hotel Owners."

Each Percentage Lease has an initial term of not less than 15 years from
the date of inception (with expiration dates ranging from 2008 to 2015), is
subject to early termination upon the occurrence of certain contingencies and
requires the monthly payment of base rent and the quarterly payment of
percentage rent. During 1995, the base rent component of the Percentage Lease
expense was approximately 47% of total

57
<PAGE> 60

Percentage Lease expense. Top percentage rents ranged from 50% to 76.5% of
incremental room revenue. For the year ended December 31, 1995, room revenue for
each of the RFS Hotels exceeded the amount required to trigger the top tier of
percentage rent. Other than real estate taxes, casualty insurance, maintenance
of underground utilities and structural elements, and furniture, fixtures and
equipment and other capital improvements, which are obligations of the Landlord,
the Percentage Leases require Doubletree to pay rent, personal property taxes,
all costs and expenses and all utility and other charges incurred in the
operation of the hotels. Under each of the Percentage Leases, Doubletree has
agreed to indemnify the Landlord against certain liabilities including (i) any
injury to persons or property at the hotels; (ii) any environmental liability
resulting from conditions caused by Doubletree; (iii) liability resulting from
the sale or consumption of alcoholic beverages at the hotel; and (iv) costs
related to employees at the RFS Hotels. In connection with the RFS Acquisition,
RFS Stockholders have agreed to indemnify Doubletree for undisclosed conditions
existing prior to such acquisition. If the Landlord enters into an agreement to
sell a hotel, it may terminate the Percentage Lease and either (i) pay
Doubletree the fair market value of Doubletree's leasehold interest or (ii)
offer to lease to Doubletree a substitute hotel on terms that would create an
equivalent value. If the REIT terminates its status, for federal tax purposes,
as a real estate investment trust, the Landlord may terminate the Percentage
Leases then in effect and the Right of First Refusal by providing notice to
Doubletree and causing the REIT to redeem any REIT Preferred Shares then owned
by Doubletree. If the termination occurs within 10 years after the closing date
of the RFS Acquisition, the Landlord will pay to Doubletree a varying amount of
liquidated damages plus the fair value of the then existing Percentage Leases.
If the Landlord fails to cure a breach by it under a Percentage Lease,
Doubletree may purchase the relevant hotel from the Landlord for a purchase
price equal to the hotel's then fair market value. Events of default under the
Percentage Leases, in addition to customary events of default, include (i) the
occurrence of an event of default under any other lease between the Landlord and
Doubletree or an affiliate of Doubletree (only with respect to those leases that
were in place at the time of the closing of the RFS Acquisition), (ii) the
failure of RFS Management to maintain a minimum net worth of $15.0 million or a
ratio of total debt to consolidated net worth (as defined in the Percentage
Leases) of 50% or less, exclusive of capitalized leases, and (iii) the
termination by the franchisor, as a result of any action or failure to act by
Doubletree, of the franchise agreement with respect to any RFS Hotel. See
"-- The RFS Acquisition." If an event of default occurs and continues beyond any
cure period, the Landlord may terminate the Percentage Leases as well as the
Right of First Refusal.

Management of the RFS Hotels is coordinated from Doubletree's office in
Memphis, Tennessee. Doubletree uses a centralized accounting and data processing
system for its leased hotels which facilitates financial statement and budget
preparation, payroll management, internal auditing and other support functions
for the on-site hotel management team. Doubletree also provides centralized
control over purchasing and project management.

Franchise Agreements

Of the 69 non-Doubletree brand hotels, 62 are licensed to operate under
franchise agreements, including 15 hotels licensed as Hampton Inn hotels, 12
hotels licensed as Residence Inn by Marriott hotels, six hotels licensed as
Comfort Inn hotels, nine hotels licensed as Holiday Inn Express hotels, 11
hotels licensed as Holiday Inn hotels and nine hotels licensed under other
brands. Holiday Inn and Holiday Inn Express are registered trademarks of Holiday
Inn, Inc. Comfort Inn is a registered trademark of Choice Hotels International,
Inc. Residence Inn by Marriott is a registered trademark of Marriott
Corporation. Hampton Inn is a registered trademark of Promus Hotel Corporation.
Doubletree as lessee holds the franchise license for each hotel it operates and
is responsible for paying the franchise fees.

Generally, each franchise agreement gives Doubletree the right to operate
the particular hotel under a franchise for an initial term of between 10 and 20
years. The franchise agreements provide for termination at the franchisor's
option upon the occurrence of certain events. Doubletree is entitled to
terminate the franchise license by giving at least 12 months notice and paying a
specified amount of liquidated damages. Doubletree has no present intention to
terminate any of such franchises. The franchise agreements under which
Doubletree is a franchisee generally impose similar obligations on Doubletree as
those Doubletree imposes on its franchisees.

58
<PAGE> 61

INVESTMENTS AND COMMITMENTS

Doubletree makes selective Investments in hotels and hotel ventures in
connection with acquiring or maintaining management or the lease of hotels and
to enhance the value or position of Doubletree in the lodging industry. It also
makes certain financial commitments for the same purposes. These Investments and
commitments may be material to Doubletree's financial position and results of
operations, and often are characterized, as compared to Doubletree's ordinary
course operations, by enhanced risk and by lack or attenuation of Company
control.

Doubletree makes Investments in hotels in order to acquire or maintain
management of the hotels in a variety of circumstances. Doubletree may make or
guarantee loans to hotel owners for renovations, acquisitions, conversions, or
working capital, among other things. Such loans or loan guarantees are typically
nonrecourse other than to the hotel property and if secured, are subordinate.
Doubletree may also make Investments in hotels in a variety of forms, including
through partnerships, corporations and limited liability companies, which
typically are minority and illiquid positions. Doubletree believes that such
Investments better align its interests with those of the hotel owners and
provide a competitive advantage in acquiring and maintaining management of
hotels over management companies which do not make investments.

At June 30, 1996, Doubletree had general and/or limited partnership
interests in 17 limited partnerships, 11 of which own hotels while the others
own retail or industrial properties, which interests ranged from less than 1% to
49.9% of the respective partnerships and had an aggregate book value of $10.8
million. At such date, Doubletree also had loans outstanding to certain hotel
owners with an aggregate book value of $31.4 million, and had guaranteed certain
mortgages, leases and construction bonds for hotel owners up to $6.5 million
($2.9 million of which were collateralized by letters of credit). In addition,
at June 30, 1996 Doubletree had committed to lend up to $9.0 million: $7.0
million to the owner of the Doubletree Hotel in Somerset, New Jersey, of which
$0.7 million is for renovations and $6.3 million of which is to provide bridge
financing, if needed; the remaining loan commitments are to two other hotels,
primarily for renovations. See Notes 7 and 16 of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
and Financial Condition of Doubletree -- Liquidity and Capital Resources."

In connection with obtaining hotel management contracts or leases
Doubletree may also make guarantees of hotel performance to an owner, which
guarantees normally are limited in time or amount, and may make payments
directly to the hotel owner, normally in consideration of special financial or
other accommodations to Doubletree in management contract terms and conditions,
which payments are capitalized and amortized. In some circumstances, Doubletree
will acquire a hotel in order to manage it (Doubletree presently owns one
hotel), or agree to hotel lease terms which result in Doubletree assuming
greater operating risks than are associated with management contracts alone. See
"Risk Factors -- Risks Associated with Owning and Leasing Real Estate."

Doubletree's Investments in and commitments regarding hotels for the
purpose of acquiring or maintaining management or lease of a hotel normally do
not extend beyond the period of its management or lease of the hotels. Such
Investments and commitments increase the potential risks, and in some cases the
potential rewards, of such relationships.

Doubletree may also make Investments in institutional hotel owners rather
than in particular hotels, with varying levels of assurance that such
Investments will lead to management arrangements. At June 30, 1996, Doubletree
had invested $18.5 million in the REIT Preferred Shares, and had the Right of
First Refusal with respect to certain future hotel leases from the Landlord.
Additionally, Doubletree had investments in the REIT's common stock and
partnership units of the Landlord with a net book value of $1.4 million. At such
date, Doubletree had Investments with an aggregate book value of $1.8 million,
and commitments to invest, subject to certain conditions, an additional $3.1
million, in Thayer Hotel Investors II ("Thayer"), a limited partnership which
invests in hotel properties and for which Doubletree manages certain hotels. The
terms of Doubletree's investment in Thayer do not assure that Doubletree will be
offered the opportunity to manage hotels acquired by Thayer, but Doubletree
anticipates that at least 50% of the properties acquired by Thayer will either
be managed or franchised by Doubletree.

59
<PAGE> 62

Doubletree may also make Investments in other lodging industry companies
for strategic reasons and to enhance Doubletree's value. At June 30, 1996,
Doubletree had invested $7.4 million in Candlewood, and had committed to invest
up to an additional $7.6 million over the next 6 months thereafter. In addition,
in August 1996 Doubletree committed to provide credit support for a loan
facility that will be utilized by Candlewood to arrange to provide construction
and permanent financing to Candlewood franchisees on terms that, in most cases,
are much more attractive than those which the franchisees could obtain on their
own. Also in August 1996, Doubletree formed a joint venture strategic alliance
with Patriot, pursuant to which Doubletree and Patriot will seek to identify
hotels potentially suitable for acquisition and to be operated as Doubletree
brand hotels or luxury non-Doubletree brand hotels, in each case to be leased
and managed by Doubletree. Doubletree has agreed to invest approximately 10% of
the equity in each hotel that is purchased as part of the joint venture
strategic alliance up to an aggregate of $20.0 million. See "-- Recent
Developments" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition of Doubletree -- Liquidity and Capital Resources" and
"Risk Factors -- Investment Losses; Risks Associated with Joint Ventures;
Contingent Liabilities."

HOTEL PROPERTIES

The following table presents as of June 30, 1996 certain comparative
information with respect to Doubletree brand hotels and non-Doubletree brand
hotels:

<TABLE>
<CAPTION>
TOTAL NON-
DOUBLETREE DOUBLETREE
DOUBLETREE DOUBLETREE DOUBLETREE BRAND BRAND
FULL-SERVICE GUEST SUITES CLUB HOTELS HOTELS HOTELS TOTAL
------------ ------------ ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of Hotels(1)................... 60 37 13 110 69 179
Total Number of Rooms(1).............. 19,334 8,033 2,364 29,731 11,501 41,232
Average Number of Rooms Per
Hotel(1)............................ 322 217 182 270 167 230
Percentage of all Doubletree Rooms.... 46.9% 19.5% 5.7% 72.1% 27.9% 100.0 %
Occupancy Percentage(2)(3)
Year 1994........................... 70.2% 73.7% 65.9% 71.2% 69.9% 71.0 %
Year 1995........................... 70.8 74.6 66.2 71.9 71.4 71.8
Six Months Ended June 1995.......... 71.5 73.4 71.1 72.1 74.6 72.8
Six Months Ended June 1996.......... 73.0 75.9 71.0 73.9 76.1 74.5
Average Daily Rate(2)(3)
Year 1994........................... $80.44 $94.43 $ 63.10 $84.59 $70.18 $82.21
Year 1995........................... 84.87 98.84 66.42 88.99 73.56 86.41
Six Months Ended June 1995.......... 81.43 104.90 66.58 88.55 67.83 82.22
Six Months Ended June 1996.......... 88.06 110.84 71.46 94.99 71.86 87.93
REVPAR(2)
Year 1994........................... $56.48 $69.57 $ 41.59 $60.22 $49.02 $58.38
Year 1995........................... 60.08 73.74 43.99 63.96 52.51 62.03
Six Months Ended June 1995.......... 58.22 77.00 47.34 63.84 50.60 59.86
Six Months Ended June 1996.......... 64.28 84.13 50.74 70.20 54.69 65.51
</TABLE>

- ---------------
(1) Includes all managed and franchised properties as of June 30, 1996.

(2) For the years ended 1994 and 1995, includes only information for hotels
continuously managed by Doubletree (including RFS Management, but excluding
Red Lion) since January 1, 1994. For the six months ended June 30, 1995 and
1996, includes only information for hotels managed by Doubletree (including
RFS Management, but excluding Red Lion) since January 1, 1995. Doubletree
branded hotels include only those hotels managed by Doubletree under the
Doubletree brand. Total Doubletree includes all hotels (other than Red Lion
hotels) managed by Doubletree.

(3) Based upon rooms occupied, excluding complimentary rooms.

60
<PAGE> 63

The following table sets forth, at June 30, 1996, certain information with
respect to Doubletree hotels:

<TABLE>
<CAPTION>
MANAGED(M),
LEASED(L) OR NUMBER OF
HOTEL LOCATION STATE FRANCHISED(F)(1) ROOMS
- ----------------------------------------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
DOUBLETREE FULL-SERVICE HOTELS:
Paradise Valley.............................. Arizona M 387
Phoenix...................................... Arizona F 242
Tucson....................................... Arizona M 295
Little Rock.................................. Arkansas F 290
Anaheim (Orange)............................. California M 454
Carmel Highland.............................. California M 172
Del Mar...................................... California L 220
Los Angeles (Airport)........................ California M 720
Monterey..................................... California F 374
Palm Springs................................. California F 289
Pasadena..................................... California M 350
San Diego (Horton Plaza)..................... California M 450
San Francisco................................ California M 291
San Pedro.................................... California M 226
Santa Rosa................................... California F 247
Ventura...................................... California M 284
Westwood..................................... California F 300
Colorado Springs............................. Colorado M 290
Denver....................................... Colorado F 224
Westminster/Boulder.......................... Colorado L 180
Washington (Park Terrace).................... Dist. of Columbia M 219
Clearwater Beach............................. Florida F 427
Ft. Lauderdale (Oceanfront).................. Florida M 230
Miami (Coconut Grove)........................ Florida L 192
Miami (Grand)................................ Florida M 152
Tampa (Airport).............................. Florida M 500
Atlanta...................................... Georgia M 370
Kansas City (Overland Park).................. Kansas M 357
Metairie (New Orleans Lakeside).............. Louisiana M 210
New Orleans.................................. Louisiana M 363
Baltimore.................................... Maryland M 125
Rockville.................................... Maryland M 315
Ixtapa....................................... Mexico F 120
Mazatlan..................................... Mexico F 280
Detroit (Downtown)........................... Michigan M 250
Bloomington (Mall of America)................ Minnesota M 321
Kansas City (Airport)........................ Missouri F 348
St. Louis (Conference Center)................ Missouri M 223
Somerset..................................... New Jersey M 360
Albuquerque.................................. New Mexico F 294
Santa Fe..................................... New Mexico F 210
Tulsa (Downtown)............................. Oklahoma M 417
Tulsa (Warren Place)......................... Oklahoma M 371
Philadelphia................................. Pennsylvania M 425
Pittsburgh................................... Pennsylvania M 616
Newport...................................... Rhode Island M 253
Nashville.................................... Tennessee M 337
Austin....................................... Texas M 350
Dallas (Campbell Center)..................... Texas M 302
Dallas (Lincoln Centre)...................... Texas M 500
Dallas (Park West)........................... Texas F 339
Houston (Post Oak)........................... Texas M 449
</TABLE>

61
<PAGE> 64

<TABLE>
<CAPTION>
MANAGED(M),
LEASED(L) OR NUMBER OF
HOTEL LOCATION STATE FRANCHISED(F)(1) ROOMS
- ----------------------------------------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
Houston (Allen Center)....................... Texas M 341
Houston (Intercontinental Airport)........... Texas F 315
Salt Lake City............................... Utah F 381
Arlington (National Airport)................. Virginia M 632
Roanoke...................................... Virginia M 332
Tysons Corner (Falls Church)................. Virginia L 404
Seattle (Inn)................................ Washington M 198
Seattle (Plaza).............................. Washington M 221
DOUBLETREE GUEST SUITES:
Tucson....................................... Arizona M 304
Santa Monica................................. California M 253
Washington (New Hampshire Ave)............... Dist. of Columbia M 101
Washington (Pennsylvania Ave)................ Dist. of Columbia F 123
Boca Raton................................... Florida M 182
Ft Lauderdale (Cypress Creek)................ Florida F 254
Ft Lauderdale (Galleria)..................... Florida M 229
Orlando (Airport)............................ Florida F 150
Orlando (Disney)............................. Florida M 229
Orlando (Maingate/Melia)..................... Florida M 150
Tampa Bay (Rocky Point)...................... Florida M 203
Tampa (Busch Gardens)........................ Florida M 129
Tampa (Westshore)............................ Florida F 260
Vero Beach................................... Florida F 55
Atlanta...................................... Georgia M 224
Chicago...................................... Illinois M 345
Glenview..................................... Illinois F 240
Indianapolis................................. Indiana M 137
Lexington.................................... Kentucky F 166
Baltimore (BWI Airport)...................... Maryland M 251
Boston (Cambridge)........................... Massachusetts M 310
Boston (Waltham)............................. Massachusetts M 275
Southfield................................... Michigan M (2) 239
Troy......................................... Michigan M 251
Mount Laurel................................. New Jersey F 129
New York (Times Square)...................... New York M 460
Raleigh (Durham)............................. North Carolina M 203
Cincinnati................................... Ohio M 151
Columbus..................................... Ohio M 194
Dayton....................................... Ohio F 138
Philadelphia (Airport)....................... Pennsylvania M 251
Plymouth Meeting............................. Pennsylvania M 252
Nashville.................................... Tennessee M 138
Austin....................................... Texas M 189
Houston...................................... Texas M 335
Irving (DFW Airport)......................... Texas F 308
Alexandria................................... Virginia F 225
DOUBLETREE CLUB HOTELS:
El Segundo................................... California F 215
Ontario...................................... California F 171
Rancho Bernardo.............................. California F 209
Santa Ana (Orange County Airport)............ California F 170
Lakewood..................................... Colorado F 170
Jacksonville................................. Florida M 167
Boise........................................ Idaho M 158
St. Louis (Riverport)........................ Missouri F 181
</TABLE>

62
<PAGE> 65

<TABLE>
<CAPTION>
MANAGED(M),
LEASED(L) OR NUMBER OF
HOTEL LOCATION STATE FRANCHISED(F)(1) ROOMS
- ----------------------------------------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
Charlotte.................................... North Carolina M 187
Harrisburg................................... Pennsylvania F 176
Philadelphia (Northeast)..................... Pennsylvania F 188
McAllen...................................... Texas F 164
Norfolk...................................... Virginia F 208
NON-DOUBLETREE BRAND HOTELS:
CANDLEWOOD
Wichita...................................... Kansas M (3) 107
COMFORT INN
Conyers...................................... Georgia L 83
Marietta..................................... Georgia L 185
Farmington Hills............................. Michigan L 135
Grand Rapids................................. Michigan L 109
Clemson...................................... South Carolina L 122
Ft. Mill..................................... South Carolina L 153
ECONOLODGE
Orlando (Hawaiian)........................... Florida M 445
DAYS INN
Philadelphia (Airport)....................... Pennsylvania M 177
HAMPTON INN
Denver....................................... Colorado L 138
Lakewood..................................... Colorado L 150
Ft. Lauderdale............................... Florida L 122
Indianapolis................................. Indiana L 131
Lansing...................................... Michigan L 109
Warren....................................... Michigan L 124
Bloomington.................................. Minnesota L 135
Minnetonka................................... Minnesota L 127
Hattiesburg.................................. Mississippi L 155
Lincoln...................................... Nebraska L 111
Omaha........................................ Nebraska L 129
Oklahoma City................................ Oklahoma L 134
Tulsa........................................ Oklahoma L 148
Memphis...................................... Tennessee L 120
Laredo....................................... Texas L 120
HAWTHORNE SUITES
Atlanta...................................... Georgia L 220
HOLIDAY INN
Windsor Locks (Bradley Airport).............. Connecticut M 200
Orlando (Maingate West)...................... Florida M 287
Crystal Lake................................. Illinois L 196
Louisville................................... Kentucky L 169
Lafayette.................................... Louisiana L 242
Flint........................................ Michigan L 171
Clayton...................................... Missouri L 253
Burlington................................... North Carolina M 132
Anderson..................................... South Carolina M 130
Columbia..................................... South Carolina L 175
San Antonio (Riverwalk)...................... Texas M 325
HOLIDAY INN EXPRESS
Orlando (International Drive)................ Florida M 217
Arlington Heights............................ Illinois L 125
Downers Grove................................ Illinois L 123
Bloomington.................................. Minnesota L 142
Tupelo....................................... Mississippi L 124
</TABLE>

63
<PAGE> 66

- ---------------
(1) All leased properties are also managed by Doubletree unless otherwise noted.

(2) Owned and managed by Doubletree.

(3) Owned and managed by the Candlewood joint venture.

(4) Managed by an unaffiliated third party hotel management company.

The principal executive offices of Doubletree are located in Phoenix and
are occupied pursuant to a lease that expires March 31, 1998. In addition to its
executive offices, Doubletree leases office space in Memphis, Boston, Chicago,
Cincinnati, Los Angeles and Philadelphia. Management believes that such
properties are sufficient to meet its present needs and does not anticipate any
difficulty in securing additional space, as needed, on terms acceptable to
Doubletree. See Note 8 of Notes to Consolidated Financial Statements of
Doubletree.

Additionally, Doubletree leases 54 hotels which are located in 24 different
states. Each lease expires between 1998 and 2015 and is subject to early
termination upon the occurrence of certain contingencies. See Note 4 of Notes to
Consolidated Financial Statements of Doubletree.

In addition to the leased hotels, Doubletree acquired on December 22, 1994,
a 239-room all-suite hotel, subject to a 70 year ground lease, in Southfield,
Michigan for approximately $11.0 million. Doubletree also opened the first
Candlewood hotel on May 9, 1996, a 107-room extended stay hotel in Wichita,
Kansas, the first of the Candlewood joint venture.

64
<PAGE> 67

THE RFS ACQUISITION

On February 27, 1996 Doubletree acquired all of the outstanding stock of
RFS Management in exchange for 2,727,811 shares (the "RFS Acquisition Shares")
of Doubletree Common Stock. At June 30, 1996, RFS Management leased 48 hotels
(44 of which it also managed) from the Landlord and managed an additional eight
hotels for third party owners. The sole general partner and approximately 98.7%
owner of the Landlord is the REIT. The 56 hotels, principally operating in the
limited-service and extended stay segments of the market, comprise approximately
9,000 rooms and are operated under such franchise brands as Holiday Inn, Holiday
Inn Express, Residence Inn by Marriott, Comfort Inn and Hampton Inn.

In connection with the RFS Acquisition, Doubletree and the REIT entered
into agreements, pursuant to which Doubletree purchased the REIT Preferred
Shares. There is no current market for the REIT Preferred Shares. The REIT
Preferred Shares pay an annual fixed dividend of $1.45 per share and are
convertible into shares of the REIT's common stock on a one-for-one basis at the
end of seven years. The REIT Preferred Shares are redeemable by the REIT after
seven years. Doubletree has also been granted the Right of First Refusal with
respect to the future lease and management of hotels to be acquired or developed
by the Landlord or the REIT during the ten year period following the RFS
Acquisition. Pursuant to these rights, RFS Management is entitled, for a minimum
of seven years, to written notice from the Landlord specifying the terms and
conditions upon which the Landlord would be willing to lease the hotel to
Doubletree. In the event that Doubletree does not initially agree to such terms
or declines to lease the hotel, Doubletree has the right to match the terms
proposed to an alternative lessee by the Landlord. In the event that the REIT
terminates its status, for federal tax purposes, as a real estate investment
trust, the Landlord may elect to terminate the then existing Percentage Leases
and the Right of First Refusal by providing notice to Doubletree and redeeming
any REIT Preferred Shares then owned by Doubletree; provided, however, if the
termination occurs within ten years after the RFS Closing Date, the Landlord
pays to Doubletree an amount equal to $5.0 million minus $41,667 for each
calendar month which has passed during such ten year period and the Landlord
pays to Doubletree the fair market value of the then existing Percentage Leases,
based upon the remaining length of their terms.

Until the earlier of the expiration of ten years following the closing of
the RFS Acquisition or the date of the redemption or conversion of the REIT
Preferred Shares, without the prior written approval of the Landlord, Doubletree
may not permit any merger or sale of RFS Management's stock or the transfer or
conveyance of all or substantially all of RFS Management's assets, if, as a
result thereof, RFS Management would cease to be controlled by Doubletree. The
foregoing restriction does not restrict any change in control or ownership of
Doubletree.

COMPETITION

Doubletree's managed, leased and franchised hotels compete for guests
against a wide range of lodging facilities offering full-service,
limited-service, all-suite and extended stay lodging options to the public.
Competitive factors in the lodging industry include room rates, quality of
accommodations, name recognition, service levels and convenience of location.
These factors may impact the operations of Candlewood.

Doubletree competes for management contracts, leases, franchise contracts,
acquisition opportunities and other expansion opportunities. See "Risk
Factors -- Competition for and Dependence on Management Contracts, Leases and
Franchise Agreements; Competition for Guests" and "Risk Factors -- Risks
Associated With Expansion."

GOVERNMENT REGULATION

The hotel industry in general, including Doubletree, is subject to numerous
federal, state and local government regulations. See "Risk Factors -- Government
Regulations."

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<PAGE> 68

ENVIRONMENTAL MATTERS

Doubletree is subject to various Federal, State and local environmental
laws, ordinances and regulations relating to the environment and the handling of
hazardous or toxic substances which may impose significant potential
environmental liabilities. See "Risk Factors -- Environmental Regulations." The
Landlord has indemnified RFS Management against undisclosed matters and certain
environmental liabilities, other than liabilities caused by RFS Management's
acts or grossly negligent failures to act, and the former stockholders of RFS
(the "RFS Stockholders") have, subject to certain limitations and exceptions,
indemnified Doubletree against any such acts or grossly negligent failure to act
by RFS Management prior to the closing of the RFS Acquisition. Based on
Doubletree's current assessment of expenses and actions which may be required,
Doubletree does not believe its liability (if any) with respect to environmental
matters, individually or in the aggregate, will be material to its financial
condition, results of operations, or liquidity. However, because of
uncertainties associated with environmental assessment, remediation and
liability determination, no assurance can be given that Doubletree will not
incur material environmental expense in the future.

INTELLECTUAL PROPERTY

The trademarks "Doubletree Hotels," "Doubletree Guest Suites," "Doubletree
Suites," "Doubletree Club Hotels," "Club Hotels by Doubletree," "Guest Quarters
Suite Hotels," "Guest Quarters Suites by Doubletree" and related marks and logos
are material to Doubletree's business. Doubletree, as well as its franchisees,
actively use these marks. All of Doubletree's material marks are registered, or
are on application for registration, with the United States Patent and Trademark
Office. See "-- Legal Proceedings."

INSURANCE

Doubletree currently has the types and amounts of insurance coverage,
including comprehensive general liability insurance with a coverage limit of
$2.0 million, and additional excess general liability insurance, that it
believes is appropriate for a company in the hotel management business. While
management believes that its insurance coverage is adequate, if Doubletree were
held liable for amounts exceeding the limits of its insurance coverage or for
claims outside of the scope of its insurance coverage, Doubletree's business,
results of operations and financial condition could be materially and adversely
affected.

EMPLOYEES

At June 30, 1996, Doubletree had approximately 14,195 full-time employees
and 3,715 part-time employees. Of these full-time employees, approximately 517
of these employees are employed at the corporate level and approximately 13,678
employees are employed at the hotel properties. The wages and salaries, health
insurance and other employee benefits of persons employed at Doubletree's hotels
are paid out of the operations of the hotel property. Corporate personnel are
paid directly by Doubletree. Employees at three of Doubletree's managed hotels
are members of labor unions. Doubletree has entered into formal negotiations
regarding a collective bargaining agreement at two of such hotels and an interim
recognition agreement was entered into at the third hotel. Doubletree's
management believes its ongoing labor relations are good.

LEGAL PROCEEDINGS

Doubletree is not party to any litigation, other than routine litigation
incidental to the business of Doubletree. Doubletree believes that such
litigation is not material to the business of Doubletree, either individually or
in the aggregate.

66
<PAGE> 69

SELECTED PRO FORMA FINANCIAL, HISTORICAL
FINANCIAL AND OTHER DATA OF RED LION
(IN THOUSANDS, EXCEPT SHARE AND STATISTICAL DATA)

The pro forma financial information provided below generally gives effect
to the Red Lion Formation and the Red Lion Refinancing as if they had occurred
on January 1, 1994 (see Note a below) and, in particular, combines the results
of operations of Historical Red Lion for the portion of 1995 prior to the Red
Lion Formation with Red Lion's results of operations for the portion of 1995
after the Red Lion Formation to show the results of the business for the entire
year. The historical financial data in the table do not reflect the Red Lion
Formation and the Red Lion Refinancing and, accordingly, the table presents data
for Historical Red Lion that (i) includes amounts, including historical
depreciation, attributable to the Red Lion Leased Hotels and other assets
retained by the Partnership and (ii) does not include the base lease expense in
respect of the Red Lion Leased Hotels which has been incurred by Red Lion
subsequent to the Red Lion Formation. The information set forth below should be
read in conjunction with the Consolidated Financial Statements and Notes of Red
Lion, and "Management's Discussion and Analysis of Results of Operations and
Financial Condition of Red Lion," as well as the Pro Forma Consolidated
Statements of Income of Red Lion included elsewhere in this Prospectus. For a
discussion of the historical corporate organization of Red Lion, see "Corporate
Organization."

<TABLE>
<CAPTION>
HISTORICAL RED LION RED LION
---------------------------------------------------- -------------------------------------------------------
SEVEN TEN YEARS ENDED SIX MONTHS ENDED
MONTHS MONTHS DECEMBER 31, JUNE 30,
YEARS ENDED DECEMBER 31, ENDED ENDED --------------------- --------------------
----------------------------------------- JULY 31, DEC. 31, PRO FORMA PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(B) 1994(A) 1995(A) 1995 1996
-------- -------- -------- -------- -------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING
STATEMENT DATA:
Revenues......... $412,574 $413,489 $440,017 $462,888 $282,206 $214,769 $462,888 $492,369 $240,825 $257,967
Gross operating
profit(c)...... 128,309 135,373 143,661 157,438 98,333 80,201 157,438 173,928 83,048 92,100
Depreciation and
amortization... 36,612 34,630 31,144 31,313 17,053 8,715 19,813 19,327 9,884 9,167
Operating
income(a)...... 35,009 42,307 52,449 63,714 38,420 20,285 60,564 56,599 32,402 38,727
Interest expense,
net............ 45,418 32,055 30,065 32,737 20,316 8,107 19,363 18,062 10,041 7,779
Income (loss)
before income
taxes and
cumulative
effect of
accounting
change......... (9,827) 12,793 21,573 30,983 20,129 11,498 41,536 40,078 23,891 31,393
Cumulative effect
of accounting
change(e)...... -- -- (29,878) -- -- -- -- -- -- --
Income tax
(benefit)
expense(f)..... -- -- -- -- -- (4,107) 16,614 7,327 9,556 12,557
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss)......... $ (9,827) $ 12,793 $ (8,305) $ 30,983 $ 20,129 $ 15,605 $ 24,922 $ 32,751 $ 14,335 $ 18,836
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings per
common share... $ 1.00 $ 0.80 $ 1.05 $ 0.46 $ 0.60
OTHER DATA:
Gross operating
margin(c)...... 31.1% 32.7% 32.6% 34.0% 34.8% 37.3% 34.0% 35.3% 34.5% 35.7%
Occupancy
percentage(g)... 70.4% 70.7% 70.9% 72.1% 73.2% 71.9% 72.1% 72.7% 72.2% 71.0%
Average daily
room rate(h)... $ 66.39 $ 66.11 $ 67.88 $ 70.52 $ 75.14 $ 75.13 $ 70.52 $ 75.14 $ 74.88 $ 79.75
EBITDA(i)........ $ 72,076 $ 77,483 $ 84,806 $ 97,759 $ 59,184 $ 31,285 $ 83,109 $ 81,922 $ 45,785 $ 50,592
</TABLE>

67
<PAGE> 70

<TABLE>
<CAPTION>
HISTORICAL RED LION RED LION
---------------------------------------------------- -------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
AS OF DECEMBER 31, AS OF AS OF AS OF AS OF AS OF AS OF
----------------------------------------- JULY 31, DEC. 31, DEC. 31, DEC. 31, JUNE 30, JUNE 30,
1991 1992 1993 1994 1995 1995(B) 1994(A) 1995(A) 1995 1996
-------- -------- -------- -------- -------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and cash
equivalents and
short-term debt
securities..... $ 2,500 $ 1,404 $ 1,278 $ 68,695 -- $ 68,355 -- -- -- $ 36,509
Property and
equipment,
net............ 596,900 563,385 519,632 514,807 -- 336,269 -- -- -- 375,567
Total assets..... 674,231 667,181 626,961 693,344 -- 526,920 -- -- -- 531,883
Long-term debt,
including
current
portion........ 529,803 504,753 468,843 497,302 -- 223,367 -- -- -- 213,328
Partners'/Stockholders'
equity......... 99,687 112,480 104,175 135,158 -- 230,279 -- -- -- 249,115
</TABLE>

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

(a) The pro forma financial information gives effect to the Red Lion Formation
and the Red Lion Refinancing as if they had occurred on January 1, 1994,
except that certain expenses resulting from the Red Lion Formation and the
Red Lion Offering totaling $14.7 million and the initial recording of
estimated deferred income tax benefits of $9.7 million resulting from the
Red Lion Formation, all of which were included in Red Lion's actual
financial results for the 10 months ended December 31, 1995, are included in
the 1995 pro forma presentation. The expenses resulting from the Red Lion
Formation and Red Lion Offering include $13.3 million for obligations under
an incentive unit plan and a supplemental income retirement agreement which
were contingent upon the completion of the Red Lion Offering. The expenses
resulting from the Red Lion Formation and Red Lion Offering also include the
write-off of previously recorded financing costs, debt discount and
prepayment penalties and expenses of $1.3 million associated with the
transfer of assets to Red Lion. Excluding the nonrecurring expenses
resulting from the Red Lion Formation and Red Lion Offering, pro forma 1995
operating income would have been $71.3 million.

Excluding the impact of the nonrecurring Red Lion Formation costs of $1.3
million, obligations under an incentive unit plan and a supplemental
retirement agreement aggregating $13.3 million, and deferred income tax
benefits of $9.7 million, pro forma net income would have been $32.8 million
or $1.05 per common share for 1995.

(b) Results of operations include five months of actual operations subsequent to
the August 1, 1995 Red Lion Formation date as well as operations of one
joint venture for the period from March 1, 1995 through July 31, 1995.

(c) "Gross operating profit" represents revenues less departmental direct and
property indirect expenses. "Gross operating margin" represents gross
operating profit as a percentage of revenues. Gross operating profit and
gross operating margin are included herein because management uses them as a
measure of hotel operating performance and because management believes these
items are useful in making industry comparisons.

(d) Effective January 1, 1993, Historical Red Lion prospectively changed the
estimated useful lives of its hotels to 40 years from lives averaging 32
years. The effect of this change decreased depreciation expense in 1993 by
approximately $2.6 million. In addition, the 17 Red Lion Leased Hotels were
retained by the Partnership in the Red Lion Formation. Accordingly, the pro
forma data and Red Lion's results of operations for the ten months ended
December 31, 1995 do not include depreciation on the Red Lion Leased Hotels.

(e) Effective January 1, 1993, Historical Red Lion changed its accounting method
for measuring impairment of individual hotel properties from using
undiscounted future cash flows to discounted future cash flows. As a result
of this change, 1993 net income includes a reduction in the carrying value
of one hotel of $29.9 million, which is reflected in the 1993 financial
statements as the cumulative effect of an accounting change.

(f) Historical Red Lion made no provision for income taxes since taxes on income
were the responsibility of the individual partners. Pro forma and Red Lion
income taxes are calculated at an estimated tax rate of 40%. Income taxes
for 1995 pro forma and Red Lion's ten-month period ended December 31, 1995
include a deferred income tax benefit of $9.7 million resulting from the tax
effect of the differences between the book and tax bases of the assets and
liabilities transferred to Red Lion by Historical Red Lion.

(g) Calculated on a per available room per year basis.

(h) Based on rooms occupied.

(i) EBITDA represents earnings before interest expense, income taxes, income
(loss) attributable to joint venturers' interest, depreciation and
amortization and certain other non-cash charges. EBITDA is not intended to
represent cash flow from operations as defined by GAAP, and such information
should not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by GAAP. EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the ability to service debt. For the year
ending December 31, 1995, EBITDA includes $14.7 million of expenses
resulting from the Red Lion Formation and the Red Lion Refinancing.
Excluding these expenses, EBITDA would have been $96.6 million.

68
<PAGE> 71

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF RED LION

RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes appearing elsewhere in this document. Red Lion believes the
comparison of actual results for the six months ended June 30, 1996 to pro forma
results for the six months ended June 30, 1995 and pro forma results for 1995 to
pro forma results for 1994 provides a more meaningful presentation than a
comparison to actual 1995 operations which represent the results of one hotel
and a relatively short time period since Red Lion's operations commenced.

Six Months Ended June 30, 1996 Compared to Pro Forma Six Months Ended June 30,
1995

Revenues. Red Lion's operating revenues for the six months ended June 30,
1996 were $258.0 million, an increase of $17.2 million or 7% from pro forma
operating revenues of $240.8 for the six months ended June 30, 1995. The change
in operating revenues is primarily a result of increased room and other
revenues.

Room revenues increased 8% to $147.4 million for the six months ended June
30, 1996 as compared to pro forma room revenues of $135.9 million for the six
months ended June 30, 1995. This increase was primarily due to a 7% rise in
average daily room rates to $79.75. Actual occupancy of 71% during the six
months ended June 30, 1996 declined 2% as compared to the pro forma occupancy
rate for the six months ended June 30, 1995. Another component of the increase
was the acquisition of two hotels since June 30, 1995 which contributed
additional room revenues of approximately $6.5 million during the six months
ended June 30, 1996.

A summary of occupancy and room rates for the six months ended June 30 is
as follows:

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Occupancy percentage............................... 71.0% 72.2%
Average room rate.................................. $79.75 $74.88
</TABLE>

Other revenues increased 21% to $29.1 million for the six months ended June
30, 1996 as compared to pro forma other revenues of $24.1 million for the six
months ended June 30, 1995 due primarily to increased telephone income, banquet
rentals, ancillary banquet services and insurance proceeds relating to two
hotels which were affected by the February 1996 flood in the Portland, Oregon
area.

Expenses. Departmental direct expenses (expenses related to a specific
function, such as rooms or food and beverage) for the six months ended June 30,
1996 increased 4% over pro forma departmental direct expenses for the six months
ended June 30, 1995. As a percentage of revenues and pro forma revenues,
departmental direct expenses and pro forma departmental direct expenses
decreased to 43% from 44% for the six months ended June 30, 1996 and 1995,
respectively, primarily due to the increase in revenues.

Property indirect expenses for the six months ended June 30, 1996 increased
7% over pro forma property indirect expenses for the six months ended June 30,
1995 and remained constant as a percentage of revenues. Indirect costs include
expenses related to a hotel's general operation, such as utilities, repairs and
maintenance, promotional expenses and administrative costs.

Gross Operating Profit. Red Lion's gross operating profit for the six
months ended June 30, 1996 was $92.1 million, an increase of $9.0 million or 11%
from pro forma gross operating profit of $83.1 million for the six months ended
June 30, 1995. The increase is primarily attributable to the higher revenues
discussed above. Gross operating profit margin for the six months ended June 30,
1996 improved to 36% from pro forma gross operating profit margin of 35% for the
six months ended June 30, 1995.

Payments Due to Owners of Managed Hotels. Revenues and expenses include
operating revenues and expenses of unconsolidated managed properties since the
operating responsibilities associated with those hotels are substantially the
same as those for owned hotels. Payments to owners of those hotels, net of Red

69
<PAGE> 72

Lion's management fees, increased approximately $2.3 million for the six months
ended June 30, 1996 as compared to the pro forma payments to owners of managed
hotels for the six months ended June 30, 1995. The increase in payments due to
owners of managed hotels is primarily attributable to improved operating
performance at the managed hotels.

Management fees in connection with the managed hotels increased to $6.1
million for the six months ended June 30, 1996 as compared to pro forma
management fees of $5.4 million for the six months ended June 30, 1995.

Operating Income. Red Lion's operating income for the six months ended
June 30, 1996 was $38.7 million, an increase of $6.3 million or 19% from pro
forma operating income of $32.4 million for the six months ended June 30, 1995.
The increase is primarily attributable to the higher revenues discussed above.

Interest Expense. Interest expense, net, decreased $2.2 million to $7.8
million for the six months ended June 30, 1996 as compared to pro forma interest
expense of $10.0 million for the six months ended June 30, 1996. The decrease is
primarily due to interest income earned during the six months ended June 30,
1996 of approximately $1.3 million and a lower average outstanding principal
balance on Red Lion's debt.

Income Tax Expense. Income tax expense increased $3.0 million to $12.6
million for the six months ended June 30, 1996 as compared to pro forma income
tax expense of $9.6 million for the six months ended June 30, 1995. Red Lion's
estimated effective tax rate is 40% for both quarters.

Net Income. Red Lion's net income increased 31% to $18.8 million ($.60 per
share) for the six months ended June 30, 1996 from pro forma net income of $14.3
million ($.46 per share) for the six months ended June 30, 1995. The increase in
net income is primarily due to increased operating income and decreased interest
expense.

Pro Forma 1995 Compared to Pro Forma 1994

Pro forma net income increased from $24.9 million, or $.80 per share, in
1994, to $32.8 million, or $1.05 per share in 1995, an increase of 31.4%. Net
income for 1995 reflected pre-tax expenses resulting from the Red Lion Formation
and Red Lion Offering totaling $14,662,000, the effects of which were
substantially offset by a deferred income tax benefit of $9,736,000. The net
negative effect of these factors on pro forma income for 1995 was $96,000, or
less than $.01 per share.

Revenues. Pro forma revenues rose from $462.9 million in 1994 to $492.4
million in 1995, an increase of $29.5 million, or 6.4%. The changes in specific
revenue categories are discussed below.

Pro forma room revenues increased 7.6% to $277.2 million in 1995, compared
to $257.7 million in 1994. The increase in pro forma room revenues was due
primarily to a 6.6% increase in average daily room rate, which rose to $75.14.
Occupancy for 1995 increased from 72.1% to 72.7.%

Pro forma food and beverage revenues for 1995 increased 3.8% from 1994. The
increase in pro forma food and beverage revenues was primarily due to an
increase in banquet revenues and the addition of an airport restaurant facility
which opened in late 1994.

Other pro forma revenues for 1995 rose 8.4% over 1994 due mainly to an
increase in meeting room rentals and telephone sales.

Expenses. Pro forma departmental direct expenses (expenses related to a
specific function such as rooms or food and beverage) increased 4.2% in 1995.
However, as a percentage of revenues, pro forma departmental direct expenses
decreased from 44.5% to 43.6% primarily due to effective control of food costs.

Pro forma property indirect expenses increased 4.4% in 1995 but decreased
modestly as a percentage of revenues. Indirect costs include expenses related to
a hotel's general operation, such as utilities, repairs and maintenance,
promotional expenses and administrative costs.

Pro forma gross operating profit (revenues less departmental direct and
property indirect expenses) rose from $157.4 million in 1994 to $173.9 million
in 1995, a 10.5% increase. Pro forma gross operating profit

70
<PAGE> 73

margins improved from 34.0% in 1994 to 35.3% in 1995, primarily due to the
decrease in departmental direct expenses as a percentage of revenues.

Pro forma other costs, which include corporate administrative and general
expenses, property taxes, insurance, leases and other miscellaneous costs,
increased 6.5% due primarily to increases in corporate administrative and
general expenses and insurance, while depreciation and amortization fell 2.5%
from 1994 to 1995.

Red Lion's revenues and expenses include operating revenues and expenses of
unconsolidated managed properties since the operating responsibilities
associated with those hotels are substantially the same as those for owned
hotels. Payments to owners of those hotels, net of Red Lion's management fees,
increased 9.5% from 1994 to 1995, primarily due to improved operating
performance of the managed properties.

Management fees in connection with the managed hotels for 1995 increased
6.7% from $10.3 million to $10.9 million. The majority of the management fees
are incentive fees related mainly to Red Lion Inns Limited Partnership (the
"MLP") (see Note 7 to the Consolidated Financial Statements of Red Lion), which
are determined, in part, on the basis of available cash flows. For 1995,
incentive management fees increased $1.0 million.

The pro forma results for 1995 include $14.7 million of nonrecurring costs
associated with the Red Lion Formation and Red Lion Offering (see Note 9 to the
Consolidated Financial Statements of Red Lion). Such costs include approximately
$13.4 million expended in conjunction with an incentive unit plan and a
supplemental income retirement agreement. As the obligations under the plan and
the agreement were contingent upon completion of Red Lion's initial public
offering, no liability or related expense had been recorded by Historical Red
Lion. In addition, Red Lion recognized $1.3 million of expense in connection
with refinancing the assumed debt and transferring Historical Red Lion's assets
to Red Lion.

Pro forma operating income decreased from $60.6 million in 1994 to $56.6
million in 1995 due primarily to the expenses resulting from the Red Lion
Formation and Red Lion Offering. Excluding those expenses, pro forma operating
income would have increased $10.7 million, or 17.7%, in 1995.

Pro forma interest expense increased from $20.8 million in 1994 to $21.8
million in 1995, an increase of 4.8%, due primarily to interest rate increases
on debt not refinanced. Interest income increased $2.3 million as a result of
interest earned on short-term investments acquired with proceeds from the
initial public offering.

Pro forma income tax expense decreased from $16.6 million in 1994 to $7.3
million in 1995, a decrease of $9.3 million. The decrease resulted largely from
$9.7 million of deferred tax benefits recognized as a result of a change in tax
status at the Red Lion Formation date as Historical Red Lion was a partnership
whose partners were responsible for its taxes. The decrease also reflects $4.9
million of tax benefits associated with the $14.7 million in expenses resulting
from the Red Lion Formation and Red Lion Offering. Excluding the tax benefits
resulting from the Red Lion Formation and Red Lion Offering and the resultant
change in tax status, the effective tax rate for 1995 would have been 40.0%, the
same effective rate as 1994.

Red Lion for the Ten Months ended December 31, 1995

The only operations of Red Lion prior to the Red Lion Formation related to
a joint venture interest in one Red Lion hotel that was contributed to Red Lion
by Historical Red Lion in March 1995. On a historical basis, which includes the
actual operations of Red Lion following the August 1, 1995 Red Lion Formation,
Red Lion had net income of $15.6 million for the ten months ended December 31,
1995. The period's net income included an income tax benefit of approximately
$9.7 million, recorded in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," and expenses, net of income
tax benefits, of approximately $9.8 million resulting from the Red Lion
Formation and Red Lion Offering.

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Historical Red Lion 1994 Compared to Historical Red Lion 1993

The comparison of operating results of Historical Red Lion for the years
ended December 31, 1994 and 1993 is based on the actual results of operations of
Historical Red Lion as reflected in its statements of income. Such results do
not include the effects of the Red Lion Formation and Red Lion Refinancing.

Income before cumulative effect of accounting change increased from $21.6
million in 1993 to $31.0 million in 1994, an increase of $9.4 million, or 43.6%

In 1993, Historical Red Lion changed its method of measuring impairment of
individual hotel properties from using undiscounted future cash flows to
discounted cash flows, resulting in a reduction of net income of $29.9 million,
which is reflected as cumulative effect of an accounting change.

Revenues. Revenues increased 5.2% from $440.0 million in 1993 to $462.9
million in 1994. Room revenues rose $15.5 million in 1994, an increase of 6.4%.
The increase in room revenues was due to improvements in occupancy and average
daily room rate at existing hotels and an increase in the number of available
room nights. Average daily room rates rose from $67.94 in 1993 to $70.52 in
1994, a 3.8% increase. Occupancy improved from 70.9% in 1993 to 72.1% in 1994,
while available room nights increased 0.8% from 5,027,000 to 5,068,000. Revenues
from group business increased $5.4 million, or 6.8%, primarily due to a 4.9%
increase in group room nights. Food and beverage revenues increased 1.9% from
$156.2 million in 1993 to $159.2 million in 1994, a year in which Historical Red
Lion completed a program to reformat its restaurants to respond to customer
preferences for more casual dining and lighter fare. Other revenues grew from
$41.6 million in 1993 to $46.0 million in 1994, an increase of 10.6%. This
increase was due primarily to higher banquet-related revenues. The results for
1994 include the first full year of operations of a managed hotel that was added
to the Red Lion system in May of 1993.

Expenses. Departmental direct expenses increased from $201.2 million in
1993 to $205.8 million in 1994, an increase of 2.3%, but decreased as a
percentage of revenues from 45.7% to 44.5%. This decrease as a percentage of
revenues was due primarily to reduced labor costs resulting from higher labor
productivity and to lower food costs resulting from more centralized purchasing.

Property indirect expenses increased 4.8% from $95.1 million in 1993 to
$99.7 million in 1994. As a percentage of revenues, property indirect expenses
remained relatively constant.

Gross operating profit rose from $143.7 million in 1993 to $157.4 million
in 1994, an increase of 9.6%. Gross operating margin improved from 32.6% in 1993
to 34.0% in 1994.

Other costs increased from $18.3 million in 1993 to $19.6 million in 1994,
but remained relatively constant as a percentage of revenues. The increase in
other costs was attributable largely to increases in property taxes, insurance
costs and administrative expenses.

Payments due to owners of managed hotels increased $1.1 million, or 2.7%,
to $42.8 million in 1994. Management fees received in connection with the
managed hotels increased from $6.1 million in 1993 to $10.3 million in 1994, an
increase of 67.8%. These increases were primarily due to an increase of $3.3
million in incentive management fees due to improved operating performance of
the managed hotels.

Operating income climbed from $52.4 million in 1993 to $63.7 million in
1994, an improvement of 21.5%, and increased as a percentage of revenues from
11.9% to 13.8%. The increase in operating income resulted primarily from the
improvement in gross operating profit, offset by increases in other costs,
depreciation and amortization, and payments due to owners of managed hotels.

Equity in earnings of unconsolidated joint ventures increased from $1.2
million in 1993 to $1.3 million in 1994.

Interest expenses, net, increased 8.9% from $30.1 million in 1993 to $32.7
million in 1994. This increase reflects higher interest rates in 1994, partially
offset by a reduction of $4.4 million in average outstanding debt balances, an
increase in average combined cash and cash equivalents balances of $22.6 million
and an increase of $9.3 million in average short-term debt securities balances.
Average combined cash and cash equivalents

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balances and short-term average debt securities balances increased as a result
of borrowings under Historical Red Lion's revolving credit line.

Losses on sale of property reflects a sale of excess land in 1993,
resulting in a $1.7 million loss.

Income attributable to joint venturers' interests increased from $0.3
million in 1993 to $1.3 million in 1994. This item reflects earnings
attributable to the joint venture partners in the five consolidated joint
venture hotels.

LIQUIDITY AND CAPITAL RESOURCES

Cash decreased to $36.5 million at June 30, 1996 from $68.4 million at
December 31, 1995 primarily as a result of an acquisition, ongoing capital
expenditures, repayment of term loan principal and seasonal working capital
fluctuations. Red Lion's principal source of cash is hotel operations. Red Lion
and Historical Red Lion historically have generated internal cash flow to meet
operating needs, make capital expenditures and reduce outstanding debt.

At June 30, 1996, commitments relating to capital improvement projects were
approximately $9.6 million. As part of its capital expenditure program, Red Lion
budgets for costs incurred in connection with environmental compliance at its
properties. These costs historically have not been material, and Red Lion does
not anticipate incurring material costs for environmental compliance in the
future.

In connection with the Red Lion Formation, Red Lion repaid the majority of
the debt contributed to Red Lion by Historical Red Lion with the proceeds of the
Red Lion Offering and a new $135.0 million seven year term loan. In addition, on
August 1, 1995, Red Lion obtained a $130.0 million credit line facility of which
$80.0 million is available for acquisitions and $50.0 million is available for
working capital requirements. The credit line facility has a term of seven
years. The term loan and credit line facility (collectively the "Red Lion Credit
Facility") carry a variable interest rate based on LIBOR plus 2% (7.5% at June
30, 1996). Quarterly mandatory prepayments which increase over the term of the
Red Lion Credit Facility are required. In addition, in March of each year a
mandatory prepayment of the Red Lion Credit Facility is required in an amount
equal to 50% of annual excess cash flow (as defined in the credit agreement) for
the prior fiscal year. At August 9, 1996, there was no outstanding balance under
the Red Lion Credit Facility except for the term loan. In connection with the
Merger, it is expected that the Red Lion Credit Facility will be repaid with a
portion of the proceeds of the Financing Plan. See "The Merger and the Financing
Plan -- The Financing Plan."

SEASONALITY

The lodging industry is affected by normally recurring seasonal patterns.
At most Red Lion hotels, demand is higher in the summer and early fall (May
through October) than during the balance of the year. Demand also changes on
different days of the week, with Sunday generally having the lowest occupancy.

INFLATION

The effect of inflation, as measured by fluctuations in the Consumer Price
Index, has not had a material impact on Red Lion's revenue or net income during
the periods under review.

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BUSINESS OF RED LION

GENERAL

Red Lion is a leading full service hospitality company. At June 30, 1996,
Red Lion operated 55 hotels containing 14,540 rooms in the western United
States. In July 1996, Red Lion acquired a hotel in Houston, Texas containing 319
rooms. In September 1996, Red Lion purchased the Modesto, California hotel,
which it managed prior to such acquisition. A typical Red Lion property is a
full service hotel located in close proximity to a business or commercial
center, airport, major highway or tourist destination. Red Lion hotels target
the business traveler (both individual and group) and compete primarily in the
upscale segment of the lodging industry with national chains. For the six months
ended June 30, 1996, Red Lion's average room and occupancy rates were $79.75 and
71.0%, respectively.

Red Lion's operating strengths have translated into strong financial
performance. Red Lion has significantly outperformed the full service segment of
the lodging industry in periods of industry weakness as well as periods of
industry growth, as measured by gross operating margins. For the three years
ended December 31, 1995, Red Lion's gross operating margins ranged from 32.6% to
35.3%, compared to the average for the full service segment during this time
period of 27.4% to 31.8%. Management attributes these higher margins to an
operating strategy that has resulted in high labor productivity, well trained
employees and effective cost controls and to the efficiencies generated through
its centralized support services.

Red Lion has long-term operating control over each of its hotels. This
operating control allows Red Lion to implement consistent standards and programs
at the hotels. As of September 15, 1996, Red Lion owned or leased, under a
long-term lease, 41 of its 56 hotels. Red Lion's remaining 15 hotels are
operated pursuant to management contracts. Owned hotels consist of 100% owned
properties (17 hotels) and properties in which Red Lion holds at least a 50%
interest through joint venture agreements (seven hotels). In addition, Red Lion
owns a 10% interest in the joint venture which owns Red Lion Hotel, Spokane City
Center. See "-- Joint Ventures." Leased properties (17 hotels) are operated
pursuant to a lease, which has a 15 year initial term and is renewable, at the
option of Red Lion, for five additional five year periods on the same terms (the
"Partnership Lease"). See "-- The Partnership Lease." Ten of the managed hotels
are owned by the MLP, and operated by Red Lion pursuant to a management
contract, expiring in 2062, including all renewals. The general partner of the
MLP is a wholly-owned subsidiary of Red Lion. The other five management
contracts (including the contract at the Spokane joint venture) have remaining
terms ranging from one to 20 years and an average remaining term of 12 years,
including all renewals. Under each management contract, Red Lion receives a base
management fee ranging from 3 - 4% of gross revenues plus an incentive
management fee based on the operating performance of the hotels. See
"-- Management Contracts."

HOTELS

Red Lion's properties are high quality, primarily full service hotels. In
addition to restaurants, lounges, banquet and meeting space, these hotels
generally offer premium television channel and movie availability, complimentary
airport shuttle service, swimming pools, room service and valet services. Other
guest amenities may include health and fitness facilities, tennis courts, spas,
gift shops, car rental desks, free parking, hair styling salons, valet parking,
concierge services, business centers, honor bars, in-room two-line telephones
and guest memberships at health clubs, tennis courts and golf courses. Eight Red
Lion hotels containing fewer than 5% of Red Lion's total hotel rooms are limited
service hotels, reflecting the smaller communities where these hotels are
located.

Red Lion's full service hotels have in excess of 688,000 aggregate square
feet of meeting and convention space. These extensive meeting and convention
facilities attract numerous national, regional and local associations and major
corporate groups to Red Lion's hotels for business conventions, conferences,
banquets, receptions, sales meetings, training sessions, seminars and private
celebrations. Red Lion believes that the significant size of, and amenities
provided at, its facilities attract repeat business from these associations and
groups. Fourteen of the hotels have ballrooms that can accommodate groups of
over 1,000 people.

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Red Lion's restaurants, lounges and banquet services are committed to
providing high quality food and beverage services. Food and beverage revenues
constituted 33.6%, 34.4% and 35.5% of Red Lion's revenues in 1995, 1994 and
1993, respectively. Management believes that a significant portion of its
restaurant and lounge business comes from local communities and that this
patronage increases repeat business potential in the local community. Red Lion
renovated or reformatted substantially all of its restaurants during the last
six years in response to customers' desires for a casual dining format and
lighter fare.

The following table sets forth certain information with respect to each of
the hotels currently operated by Red Lion, all of which are managed by Red Lion.

<TABLE>
<CAPTION>
OWNED (O),
MANAGED (M) OR NUMBER OF
HOTEL LOCATION STATE LEASED (L) ROOMS
- ---------------------------------------------------- ----------- -------------- ---------
<S> <C> <C> <C>
Scottsdale, LaPosada Resort......................... Arizona O (1) 262
Bakersfield......................................... California O (1) 262
Costa Mesa, Orange County Airport................... California O (1) 484
Eureka.............................................. California O (2) 178
Glendale............................................ California O (1) 348
Los Angeles, Los Angeles Airport.................... California M 371
Modesto............................................. California O (2) 258
Ontario............................................. California O (1) 339
Redding............................................. California O (2) 194
Rohnert Park, Sonoma County......................... California L (3) 245
Sacramento.......................................... California M (4) 448
Sacramento, Sacramento Inn.......................... California L (3) 376
San Diego........................................... California L (3) 300
San Jose............................................ California O (2) 505
Santa Barbara (Fess Parker's Red Lion Resort)....... California O (1) 360
Colorado Springs.................................... Colorado M (4) 299
Denver.............................................. Colorado M 573
Durango............................................. Colorado L (3) 159
Boise, Boise Downtowner............................. Idaho L (3) 182
Boise, Boise Riverside.............................. Idaho M (4) 304
Kalispell........................................... Montana O (2) 64
Missoula............................................ Montana L (3) 76
Missoula Village.................................... Montana O (1) 172
Omaha............................................... Nebraska M (4) 413
Astoria............................................. Oregon L (3) 124
Bend, Bend North.................................... Oregon L (3) 75
Bend, Bend South.................................... Oregon O (2) 75
Coos Bay............................................ Oregon L (3) 143
Eugene.............................................. Oregon L (3) 138
Springfield......................................... Oregon M (4) 234
Klamath Falls....................................... Oregon O (2) 108
Medford............................................. Oregon L (3) 186
Pendleton........................................... Oregon L (3) 168
Portland, Coliseum.................................. Oregon M 212
Portland, Columbia River............................ Oregon O (2) 351
Portland, Downtown.................................. Oregon M (4) 235
Portland, Jantzen Beach............................. Oregon O (2) 320
Portland/Lloyd Center............................... Oregon M (4) 476
</TABLE>

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<PAGE> 78

<TABLE>
<CAPTION>
OWNED (O),
MANAGED (M) OR NUMBER OF
HOTEL LOCATION STATE LEASED (L) ROOMS
- ---------------------------------------------------- ----------- ------
<S> <C> <C> <C>
Austin, Austin Airport.............................. Texas M (5) 300
Houston............................................. Texas O (2) 319
San Antonio......................................... Texas O (2) 290
Salt Lake City...................................... Utah L (3) 495
Aberdeen............................................ Washington O (2) 67
Bellevue............................................ Washington O (2) 353
Bellevue, Bellevue Center........................... Washington M (4) 208
Kelso............................................... Washington L (3) 163
Pasco............................................... Washington O (2) 279
Port Angeles........................................ Washington O (2) 187
Richland, Richland/Hanford House.................... Washington O (2) 149
Seattle, Seattle Airport............................ Washington L (3) 850
Spokane Valley...................................... Washington M (4) 237
Spokane City Center................................. Washington M (6) 369
Vancouver........................................... Washington L (3) 160
Wenatchee........................................... Washington L (3) 149
Yakima.............................................. Washington O (2) 58
Yakima, Yakima Valley............................... Washington M (4) 209
------
Total..................................... 14,859
======
</TABLE>

- ---------------
(1) Owned and managed by Red Lion pursuant to a joint venture (Red Lion owns at
least a 50% interest in each joint venture).

(2) Wholly-owned (100%) and managed by Red Lion.

(3) All leased properties are also managed by Red Lion.

(4) Owned by the MLP. A wholly-owned subsidiary of Red Lion is the sole general
partner of the MLP.

(5) Owned by Red Lion subject to a non-recourse cash flow mortgage.

(6) Managed by Red Lion pursuant to a joint venture in which Red Lion owns a 10%
interest.

CUSTOMERS AND MARKETING

Customers, Marketing and Sales

Red Lion's customer mix consists of business travelers, leisure travelers,
groups and contract accounts. These customer segments accounted for an estimated
46%, 11%, 33% and 10%, respectively, of total room nights in 1995. Red Lion's
marketing and sales program consists of a centrally coordinated national
marketing team operating through sales offices in Sacramento, Los Angeles, San
Francisco, Portland, Seattle, Chicago and Washington, D.C. and over 300 trained
sales and catering managers located at individual properties. Property sales
personnel participate in local and regional trade shows, design local
promotional and advertising campaigns and use direct solicitation to increase
room and catering sales to national and local groups and associations.

The combined national and local sales force works to expand Red Lion's base
of profitable group business. As a result of its efforts, the number of room
nights attributable to groups has increased from 1.0 million in 1990 to
approximately 1.2 million in 1995 ($93.4 million in revenues in 1995), or 33.2%
of Red Lion's total room nights and 19.0% of total revenues during 1995. In
addition, catering sales personnel assisted in generating $95.6 million in
banquet-related revenues in 1995 (19.4% of total Red Lion revenues for that
period).

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Central Reservations System

In 1995, Red Lion's central reservations system accounted for approximately
32% of Red Lion's total business and leisure traveler room nights. The toll-free
reservation system is available to customers throughout the United States and
Canada. The reservation system provides Red Lion's reservation agents with
information about hotel locations, available rooms and prices in order to assist
customers in booking rooms. In 1995, Red Lion's reservation center processed
over 990,000 calls, contributing approximately 722,000 reservations to the Red
Lion system with approximately a 65% conversion ratio of calls to reservations.

In 1993, Red Lion commenced development of a new central reservations
system, known as "OSCAR," that will include, among other enhanced features, a
direct interface with airlines, increases in marketing database capabilities and
improved revenue management tools, including real time room inventory. Red Lion
anticipates that OSCAR will be operational throughout the Red Lion system in
early 1997 at a total cost of approximately $11 million.

In addition, Red Lion participates in four major airline reservation
systems, American Airlines' "SABRE," United Airlines' "APOLLO," Trans World
Airlines/Delta's "WORLDSPAN" and Continental's "AMADEUS/SYSTEM ONE." These
airline reservation systems have an aggregate of approximately 385,000 computer
terminals on line at approximately 111,000 locations, allowing other travel
agents to book Red Lion hotel reservations when guests are making other travel
arrangements. Red Lion's system includes a direct communications interface with
major airline systems that allows immediate confirmation numbers for
reservations.

HOTEL MANAGEMENT AND CENTRALIZED SUPPORT SERVICES

Hotel Management

Each Red Lion hotel is managed by a general manager and supported by a
regional and corporate management organization. The size of each management team
and its hourly staff varies by hotel, based on the size and business volume of a
particular hotel. Management carefully monitors staffing levels to ensure labor
productivity.

Red Lion's hotel general managers have an average of over 16 years of
experience in the lodging industry, and over 90% of the managers have been
promoted from an existing position with Red Lion. Red Lion's general managers
report directly to a regional vice president. A regional sales director and a
regional controller complete the regional support team. The regional management
teams provide management support and direction to the general managers and their
staff, coordinate communications between the properties and the centralized
support organization and assist in establishing and administering corporate
policies, procedures and standards.

Corporate and Centralized Support Services

Red Lion provides each Red Lion hotel with the benefits of its management
services which are delivered by a network of experienced executives, corporate
personnel and regional managers. Red Lion also provides technical assistance and
training to each hotel's employees for administrative operations, room and guest
services, reservations, maintenance and engineering, retail services, and human
resources and benefits. Other services provided by Red Lion include treasury,
internal audit, credit services, accounting, payroll, tax, legal and risk
management. Red Lion has several auxiliary divisions including: (i) a
centralized procurement division that allows Red Lion to maintain uniform
quality and control costs; (ii) a centralized systems department that supports
all property and corporate computer systems and applications, including a
standardized proprietary property management system and Red Lion's central
reservations system; and (iii) a construction and design department that
administers Red Lion's capital expenditure programs, provides design and product
expertise in selecting materials and equipment, and provides project
administration on major renovation and new construction projects.

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MANAGEMENT CONTRACTS

Red Lion operates 15 hotels pursuant to management agreements under which
it is responsible for the day-to-day operations of the hotels. Ten of the hotels
are owned by the MLP and operated by Red Lion pursuant to a management agreement
expiring in 2062, including all renewal options. A wholly owned subsidiary of
Red Lion is the general partner of the MLP. Red Lion's compensation under the
management agreement with the MLP is comprised of an annual base management fee
equal to 3% of gross revenues of the hotels and an annual incentive management
fee. The annual incentive management fee is a percentage of adjusted operating
profit, subject to increase if certain operating profits targets are met. Red
Lion has received incentive management fees in each year since 1989. Those fees
totaled $4.4 million and $5.4 million in 1994 and 1995, respectively.

The other five management contracts have remaining terms ranging from one
to 20 years, and an average remaining term of 12 years, including renewal
options. Red Lion's compensation under these agreements is comprised of a base
management fee (ranging from 3 - 4% of gross revenues) and an incentive
management fee (based on a percentage of cash flow or operating profit). The
incentive fees under these management contracts totaled $317,000 and $309,000 in
1994 and 1995, respectively.

JOINT VENTURES

Red Lion owns at least a 50% interest in seven joint ventures, each of
which owns a Red Lion hotel. In September 1996, the Partnership exercised its
right to sell to Red Lion for approximately $1.36 million certain minority
interests in these joint ventures that the Partnership had retained in
connection with the Red Lion Formation. In addition to the above, in December
1995 Red Lion acquired a 10% interest in the joint venture which owns the Red
Lion Hotel, Spokane City Center.

In addition to its ownership interest in the joint ventures, Red Lion is
responsible for the day-to-day operations of the hotels owned by the joint
ventures and receives management fees for operating the hotels. Under each joint
venture agreement or separate management agreement with respect to the joint
venture, Red Lion's compensation is comprised of either an annual base
management fee (ranging from 3 - 4% of gross revenues), an annual incentive
management fee (based on a percentage of cash flow or operating profit) or both.
Red Lion has made significant advances to certain of the joint ventures.
Repayment of these advances receives priority distribution from the cash flow of
those joint ventures.

THE PARTNERSHIP LEASE

On August 1, 1995, the Red Lion Leased Hotels were leased by the
Partnership to Red Lion pursuant to the Partnership Lease. The initial term of
the Partnership Lease is 15 years, subject to earlier termination by the
Partnership upon the occurrence of one or more Events of Default (as defined in
the Partnership Lease). In addition, Red Lion has the option to extend the
Partnership Lease on a hotel-by-hotel basis for five additional five year
periods on the same terms. The Partnership's ownership interest in the Red Lion
Leased Hotels is subject to the Partnership Lease.

Rental payments under the Partnership Lease consist of base rent (the "Base
Rent"), payable quarterly, and additional rent (the "Additional Rent"), payable
annually, based on growth in revenues at the Red Lion Leased Hotels. The Base
Rent for all of the Red Lion Leased Hotels is $15 million per year. The
Additional Rent for the Red Lion Leased Hotels will be equal to 7.5% of the
amount, if any, by which the aggregate Operating Revenues (as defined in the
Partnership Lease) for all of the Red Lion Leased Hotels under the Partnership
Lease for the given year exceeds the aggregate Operating Revenues at all such
Red Lion Leased Hotels for the twelve month period commencing October 1, 1995.
This long-term arrangement allows Red Lion to retain all of the benefit from any
increase in operating income from these properties during the term of the
Partnership Lease, subject to the payment of Additional Rent.

The Partnership has retained the right to sell one or more of the Red Lion
Leased Hotels to third parties, subject to the terms of the Partnership Lease.
Upon any sale of a Red Lion Leased Hotel by the Partnership, the Red Lion Leased
Hotel would be leased under a stand alone lease which would be modified to
provide,

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<PAGE> 81

among other things, for a calculation of Additional Rent based on the Gross
Revenues (as defined in the Partnership Lease) of that Red Lion Leased Hotel
alone.

The Partnership Lease is a triple net lease which requires Red Lion to
maintain the Red Lion Leased Hotels in good condition and repair and in
conformity with all applicable legal requirements and to make or cause to be
made all items of maintenance, repair, replacement and alteration to the Red
Lion Leased Hotels as necessary for such purposes. In addition, Red Lion is
required to pay substantially all expenses associated with the operation of the
Red Lion Leased Hotels, including all ground lease expense, real estate taxes,
insurance, utilities and services. If in any year Red Lion fails to spend at
least 3% of the aggregate annual Operating Revenues from all of the Red Lion
Leased Hotels under the Partnership Lease on capital expenditures, including
without limitation renovations, at one or more of the Red Lion Leased Hotels, it
will be required to deposit any shortfall into a reserve account. Any fixtures,
furniture or equipment installed and used in the Red Lion Leased Hotels that are
replaced during the term of the Partnership Lease will become the property of
Red Lion, subject to a security interest therein granted to the Partnership. At
the end of the Partnership Lease, the Partnership will have the option to
purchase any such fixtures, furniture or equipment from Red Lion at their then
fair market value.

The Partnership Lease provides that each of the following constitutes an
Event of Default: (i) failure to pay any monetary obligation, including Base
Rent and Additional Rent, subject to certain limited cure periods, (ii) failure
by Red Lion after notice to comply with any material term, covenant or condition
of the Partnership Lease, (iii) certain events of bankruptcy or insolvency with
respect to Red Lion, (iv) the liquidation or dissolution of Red Lion or
commencement of proceedings therefor, (v) failure by Red Lion, after notice or
passage of time, to vacate or discharge any levy or attachment upon the estate
or interest of Red Lion in any Red Lion Leased Hotel, (vi) voluntary cessation
by Red Lion of operation of any Red Lion Leased Hotel for a certain period,
except as a result of damage, destruction or a partial or complete condemnation,
(vii) default by Red Lion of its obligations under the Red Lion Credit Facility
and (viii) an assignment or subletting by Red Lion without obtaining from the
Partnership any required consent. In addition, the Partnership's lenders have,
pursuant to the terms of its credit facility, certain rights to consent to any
changes to the Partnership Lease, and certain rights to consent to assignments
or sublettings by Red Lion to third parties of hotels that are subject to the
Partnership Lease.

Red Lion has indemnified the Partnership and its affiliates for any matter
arising by reason of or in connection with the leasing, use, non-use, occupancy,
management or operation of each of the Red Lion Leased Hotels prior to or during
the term of the Partnership Lease, including violations of Environmental Laws,
discharges, disposals or releases of Hazardous Materials, presence of Hazardous
Materials, including any which are the result of off-site migration onto the Red
Lion Leased Hotels, and certain exposures to Hazardous Materials (as such terms
are defined in the Partnership Lease) which exist at or are released from any of
the Red Lion Leased Hotels prior to or during the term of the Partnership Lease.
Such indemnities will survive the termination of the Partnership Lease. Pursuant
to the Partnership Services Agreement, Doubletree has agreed to guaranty Red
Lion's indemnity obligations to the Partnership following the Effective Time.
See "The Merger and the Financing Plan -- The Merger -- Interests of Certain
Persons in the Merger."

While Red Lion believes the terms of the Partnership Lease are fair to both
parties, such terms were not negotiated on an arms-length basis.

COMPETITION

Red Lion competes in the upscale and mid-priced sectors of the hospitality
market, depending on the communities in which its hotels are located. In each
locality there are other limited and full service establishments that compete
with Red Lion's hotels. Red Lion's food and beverage operations also compete
with local free standing restaurants and lounges. There is no single competitor
or small number of competitors of Red Lion that is or are dominant in Red Lion's
markets. However, some of Red Lion's competitors have a larger network of
locations and greater financial resources than Red Lion. Competition in the
United States lodging industry is based generally on convenience of location,
price, range of services and guest amenities offered and quality of customer
service and overall product. Red Lion considers the location of its hotels and

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the services and guest amenities provided by it to be among the most important
factors in its business. The present sites of Red Lion's hotels were chosen for
their convenient access to airports, major traffic arteries, commercial centers
and tourist destinations.

ENVIRONMENTAL MATTERS

Most of Red Lion's properties have been subject to Phase I environmental
assessments (which generally provide a physical inspection and database search
but not soil or groundwater analyses). Most of Red Lion's properties have also
been inspected to determine the presence of asbestos. While asbestos-containing
materials are present in certain of Red Lion's properties, Red Lion believes
that these materials have been adequately contained. Red Lion has developed and
implemented an operations and maintenance program that establishes operating
procedures with respect to asbestos-containing materials at such properties.

Red Lion operates a service station located in Vancouver, Washington. In
addition, some of the Red Lion properties are on, adjacent to or near properties
that have contained in the past or currently contain underground storage tanks
and/or above-ground storage tanks used to store petroleum products or other
hazardous or toxic substances. Several of the Red Lion properties have been
contaminated with petroleum products. Monitoring wells have been installed at
some of these sites. In addition, certain of the Red Lion properties are on,
adjacent to or near properties upon which others have engaged or may in the
future engage in activities that may release petroleum products or other
hazardous or toxic substances into the soil or groundwater. One of Red Lion's
hotels is located on property that was used as a landfill. The state agency
responsible for oversight of potentially contaminated properties has determined
the leachate from the landfill has contaminated groundwater, and the state
agency has placed the landfill on the list of sites where a release of hazardous
substances has been confirmed. Although the state agency has not placed the
landfill on the list of sites requiring investigation or remediation, there can
be no assurance that Red Lion will not be required in the future to investigate
or remediate any contamination resulting from the landfill. There can be no
assurance that there are no environmental liabilities or claims of which Red
Lion is unaware or that the current condition of the Red Lion properties,
including the service station, has not been or will not be affected by the
historical or current uses of such properties or the activities in the vicinity
of the Red Lion properties.

Pursuant to the Partnership Lease, Red Lion has indemnified the Partnership
and its affiliates for any matter arising by reason of or in connection with the
leasing, use, non-use, occupancy, management or operation of each of the Red
Lion Leased Hotels prior to or during the term of the Partnership Lease,
including violations of Environmental Laws, discharges, disposal or releases of
Hazardous Materials, presence of Hazardous Materials, including any which are
the result of off-site migration onto the Red Lion Leased Hotels, and certain
exposures to Hazardous Materials (as such terms are defined in the Partnership
Lease) which exist at or are released from any of the Red Lion Leased Hotels
prior to or during the term of the Partnership Lease. Such indemnities will
survive the termination of the Partnership Lease. See "-- The Partnership
Lease." In addition, Red Lion has indemnified the Partnership and its affiliates
from and against any and all liabilities, costs, losses and damages (including
without limitation interest, penalties and costs of mitigation) incurred in
connection with any environmental laws arising out of any event or condition
relating to the assets, liabilities and businesses contributed to Red Lion.
Pursuant to the Partnership Services Agreement, Doubletree has agreed to
guaranty Red Lion's indemnity obligation to the Partnership following the
Effective Time. See "The Merger and the Financing Plan -- The
Merger -- Interests of Certain Persons in the Merger."

EMPLOYEES

As of June 30, 1996, Red Lion employed 11,600 persons, of whom
approximately 90% were nonmanagement employees. Approximately 416 of these
employees work at the corporate headquarters. Red Lion has a career development
program managed by its Human Resources division through which Red Lion's
approximately 1,225 property level management staff receive training to enhance
opportunities for promotion within the Red Lion organization.

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<PAGE> 83

Employees at two of Red Lion's hotels currently are represented by a labor
union. Red Lion's management believes its ongoing labor relations are good.

TRADEMARKS AND SERVICE MARKS

Red Lion, Red Lion Inn and Red Lion Hotel are each registered trademarks of
Red Lion. Red Lion monitors use of similar names and takes appropriate action
when possible infringements occur.

In connection with the sale of Red Lion in 1985, Red Lion licensed the use
of the Red Lion trademark and central reservations system to one of the founders
of Red Lion for the operation of certain Red Lion hotels in Nevada. Under the
terms of the current license agreement, Red Lion licenses its name and central
reservation system for two hotels in Nevada and a hotel in Wyoming (which are
not included in the 56 hotels Red Lion operates) for which Red Lion receives an
annual license fee of $25,000 per hotel. The license agreement terminates with
respect to the hotel in Wyoming at such time as Red Lion opens a hotel in the
Jackson Hole area of Wyoming and otherwise expires with respect to all of these
hotels, two years after the earlier of the death of the founder or transfer of
the founder's interests in the hotels.

Red Lion knows of approximately nine lodging and food service
establishments located in the United States that use "Red Lion" in their names
(some of which may have used the name before the Red Lion chain was
established), but which have no existing or historical relationship with Red
Lion.

LEGAL PROCEEDINGS

Red Lion is involved in various lawsuits arising in the normal course of
business. Red Lion believes that the ultimate outcome of these lawsuits will not
have a material adverse effect on Red Lion.

GOVERNMENT REGULATION

The hotel industry in general, including Red Lion, is subject to numerous
federal, state and local government regulations. See "Risk Factors -- Government
Regulations."

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<PAGE> 84

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the persons
who are expected to serve as directors and executive officers of Doubletree
following the Merger. The Partnership will designate two persons to be nominated
and elected to the Board of Directors of Doubletree effective upon consummation
of the Merger. The Partnership has designated as its Board members Michael W.
Michelson and Edward A. Gilhuly, each of whom is currently a director of Red
Lion.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- --------------------------------------------------
<S> <C> <C>
Richard J. Ferris........ 60 Co-Chairman of the Board
Peter V. Ueberroth....... 59 Co-Chairman of the Board
William R. Fatt.......... 45 Director
Dale F. Frey............. 64 Director
Ronald K. Gamey.......... 51 Director
Edward A. Gilhuly........ 37 Director
Norman B. Leventhal...... 79 Director
Michael W. Michelson..... 45 Director
John H. Myers............ 51 Director
Richard M. Kelleher...... 47 President and Chief Executive Officer of DHC and
Director of Doubletree
James P. Evans........... 49 Executive Vice President of Operations of DHC
William L. Perocchi...... 39 Executive Vice President, Chief Financial Officer
and Treasurer of Doubletree and DHC
Stephen D. Pletcher...... 52 Senior Vice President of DHC
Margaret Ann Rhoades..... 51 Executive Vice President of Human Resources of DHC
David L. Stivers......... 35 Senior Vice President, General Counsel and
Secretary of Doubletree and DHC and Senior Vice
President of New Business of DHC
Thomas W. Storey......... 40 Executive Vice President of Sales and Marketing of
DHC
Raymond Terry............ 47 President of RFS Management
</TABLE>

Richard J. Ferris, 60, has served as Co-Chairman of the Board of Doubletree
and Doubletree Partners since December 1993. From June 1992 to December 1993,
Mr. Ferris served as Co-Chairman of GQHP. From June 1987 to June 1992, Mr.
Ferris was a private investor. Mr. Ferris is the former Chairman and Chief
Executive Officer of UAL Corporation, a position he held from April 1976 to June
1987. Mr. Ferris serves as a director of The Procter & Gamble Company, Amoco
Corporation, Evanston Hospital Corporation and the PGA Tour Policy Board.

Peter V. Ueberroth, 59, has served as Co-Chairman of the Board of
Doubletree and Doubletree Partners since December 1993. From June 1992 to
December 1993, Mr. Ueberroth served as Co-Chairman of GQHP. From April 1989 to
the present, Mr. Ueberroth has been Managing Director and a principal of The
Contrarian Group, a business management company. From March 1984 to March 1989,
Mr. Ueberroth served as the sixth Commissioner of Major League Baseball. Mr.
Ueberroth serves as a director of Ambassadors International Inc., CB Commercial,
The Coca Cola Company and Transamerica Corporation.

William R. Fatt, 45, has served as a director of Doubletree and Doubletree
Partners since December 1993. Mr. Fatt is Executive Vice President and Chief
Financial Officer of Canadian Pacific Limited, a position he has held since
January 1994. From August 1990 to January 1994, Mr. Fatt was Vice President,
Finance and Accounting and Chief Financial Officer of Canadian Pacific Limited.
From August 1988 to August 1990, Mr. Fatt was its Vice President and Treasurer.
Mr. Fatt serves as a director of Canada Maritime Limited, Canadian Pacific
Hotels & Resorts Inc., Pan Canadian Petroleum Limited and various direct and
indirect subsidiaries of Canadian Pacific Limited.

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<PAGE> 85

Dale F. Frey, 64, has served as a director of Doubletree and Doubletree
Partners since December 1993. From July 1992 to December 1993, Mr. Frey served
as a director of GQHP. Mr. Frey is President, Chief Executive Officer and
Chairman of the Board of Directors of GEIM, a position he has held since
February 1988. Mr. Frey is also President, Chief Executive Officer and Chairman
of General Electric Investment Corporation, a position he has held since July
1984. Mr. Frey is also Vice President of General Electric Company, a position he
has held since June 1980. Mr. Frey serves as a Trustee of GEPT. Mr. Frey also
serves on the Board of Directors of GE Financial Services, Inc., GE Capital
Corporation, USF&G Corporation, Praxair, Inc. and the Damon Runyon-Walter
Winchell Cancer Research Fund and is a Trustee of Franklin and Marshall College.

Ronald K. Gamey, 51, has served as a director of Doubletree and Doubletree
Partners since December 1993. Mr. Gamey is Executive Vice President of Canadian
Pacific Limited, a position he has held since July 1988. Mr. Gamey also serves
as a director of Laidlaw Inc., Canada Maritime Limited, Canadian Pacific Hotels
& Resorts, Inc. and various direct and indirect subsidiaries of Canadian Pacific
Limited.

Edward A. Gilhuly, 37, has been a director of Red Lion since March 1994.
Mr. Gilhuly has been a General Partner or an executive with KKR for more than
five years. Mr. Gilhuly is also a director of Layne-Christensen Company;
Owens-Illinois, Inc.; Owens-Illinois Group, Inc.; Red Lion Properties, Inc.;
Merit Behavioral Care Corporation; and Union Texas Petroleum Holdings, Inc. Mr.
Gilhuly will resign from the board of Red Lion Properties, Inc. at the Effective
Time.

Norman B. Leventhal, 79, has served as a director of Doubletree and
Doubletree Partners since December 1993. From September 1992 to December 1993,
Mr. Leventhal served as a director of GQHP. Mr. Leventhal is Chairman of The
Beacon Companies, a position he has held for more than ten years. Mr. Leventhal
co-founded The Beacon Companies, a major real estate developer, in 1946. Mr.
Leventhal serves as a director of Beacon Properties Corporation. Mr. Leventhal
is a Life Member Emeritus of The Corporation of The Massachusetts Institute of
Technology and a director of The Picower Institute for Medical Research and has
numerous community and civic involvements.

Michael W. Michelson, 45, has been a director of Red Lion since March 1994.
Mr. Michelson has been a General Partner of KKR and KKR Associates for more than
five years. Mr. Michelson is also a director of AutoZone, Inc.; Fred Meyer,
Inc.; Owens-Illinois, Inc.; Owens-Illinois Group, Inc.; Red Lion Properties,
Inc.; and Union Texas Petroleum Holdings, Inc. Mr. Michelson will resign from
the board of Red Lion Properties, Inc. at the Effective Time.

John H. Myers, 51, has served as a director of Doubletree and Doubletree
Partners since December 1993. From July 1992 to December 1993, Mr. Myers served
as a director of GQHP. Mr. Myers is a director and Executive Vice President of
GEIM, a position he has held since February 1988. Mr. Myers is also director and
Executive Vice President of General Electric Investment Corporation, a position
he has held since June 1986. Mr. Myers is a Trustee of GEPT and Wagner College
and also serves on the Board of Directors of Hispaland, S.A., the Butler Capital
Advisory Board and Grimes Aerospace Company.

Richard M. Kelleher, 47, has served as President and Chief Executive
Officer of DHC since December 1993 and as a director of Doubletree since July
28, 1995. From April 1993 to December 1993, Mr. Kelleher served as Chief
Executive Officer and President of GQHP. From December 1989 to April 1993, Mr.
Kelleher was President of Guest Quarters Suite Hotels. In 1983, Mr. Kelleher
co-founded Beacon Hotel Corporation, which merged with GQHP in 1986.

James P. Evans, 49, has served as Executive Vice President of Operations of
DHC since February 1996. From May 1993 through February 1996, Mr. Evans served
as the Senior Vice President Sales and Marketing with Hyatt Hotels Corporation.
From December 1987 through May 1993, Mr. Evans served as Senior Vice President
Sales with Hyatt Hotels Corporation. From May 1975 through December 1987, Mr.
Evans served in a variety of management positions with Hyatt Hotels Corporation.
From January 1972 through May 1975, Mr. Evans served in a variety of sales and
marketing management positions with ITT Sheraton Corporation.

William L. Perocchi, 39, has served as Executive Vice President, Chief
Financial Officer and Treasurer of Doubletree since its formation and DHC since
December 1993. From August 1992 to December 1993,

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<PAGE> 86

Mr. Perocchi served as the Executive Vice President and Chief Financial Officer
of GQHP. From June 1989 to July 1992, Mr. Perocchi served as the Vice President,
Finance for AMETEK Aerospace Products, Inc. From June 1979 to June 1989, Mr.
Perocchi served in various financial management capacities with The General
Electric Company.

Stephen D. Pletcher, 52, has served as Senior Vice President of Technical
Services and Project Management of DHC since December 1993. From January 1988 to
December 1993, Mr. Pletcher served as Senior Vice President, Owner Relations,
Guest Quarters Suite Hotels.

Margaret Ann Rhoades, 51, has served as Executive Vice President of Human
Resources of DHC since February 1996. From January 1995 to February 1996, Ms.
Rhoades served as the Senior Vice President of Human Resources of DHC. From July
1989 through January 1995, Ms. Rhoades served as the Vice President, People
Department with Southwest Airlines. From March 1984 through June 1989, Ms.
Rhoades served as the Senior Vice President, Human Resources, Dallas Region for
Bank One.

David L. Stivers, 35, has served as Senior Vice President New Business of
DHC since January 1, 1996. Since October 1994 Mr. Stivers has served as Senior
Vice President, General Counsel and Secretary of Doubletree and DHC. From May
1988 to October 1994, Mr. Stivers was a corporate lawyer with the law firm of
Latham & Watkins.

Thomas W. Storey, 40, has served as Executive Vice President of Sales and
Marketing of DHC since August 1994. From August 1989 to July 1994, Mr. Storey
served as Executive Vice President of Sales and Marketing of Radisson Hotels
International. From August 1986 to August 1989, Mr. Storey served in a variety
of senior management positions with Marriott Hotels Corporation.

Raymond Terry, 47, has served as President of RFS Management since June
1994. From September 1991 to June 1994, Mr. Terry served as Vice President of
Operations with RFS Management. From December 1984 to September 1991, Mr. Terry
served as Vice President of Operations of Dominion Hospitality Management, Inc.

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<PAGE> 87

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF DOUBLETREE

The following table sets forth certain information regarding beneficial
ownership of Doubletree Common Stock at August 15, 1996 and as adjusted to
reflect the Merger and the Financing Plan, including the sale of shares of
Common Stock in the Offering, by (i) each person who is known by Doubletree to
own beneficially more than five percent of Doubletree's Common Stock, (ii) each
of Doubletree's current directors and nominees, (iii) each of Doubletree's named
executive officers and (iv) all current Doubletree executive officers and
directors as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.

<TABLE>
<CAPTION>
SHARES OF DOUBLETREE COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------------------------------
BEFORE THE MERGER
AND THE FINANCING AFTER THE MERGER AND
PLAN THE FINANCING PLAN(2)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
GE Investment Management Incorporated(3)........... 6,060,981 26.2% 6,060,981 16.2%
Trustees of General Electric Pension Trust(4)...... 137,134 * 2,826,620 7.5%
---------- ------- ---------- -------
Total GEI Entities............................... 6,198,115 26.8% 8,887,601 23.7%
3003 Summer Street
P.O. Box 7900
Stamford, Connecticut 06905
Red Lion, a California Limited Partnership(5)...... -- -- 4,499,970 12.0%
4001 Main Street
Vancouver, Washington 98663
Putnam Investments, Inc.(6)........................ 2,446,674 10.6% 2,446,674 6.5%
One Post Office Square
Boston, MA 02109
Ridge Partners, L.P.(7)............................ 1,532,432 6.6% 1,532,432 4.1%
1436 Ridge Road
Northbrook, Illinois 60062
RCM Capital Management(8).......................... 1,315,500 5.7% 1,315,500 3.5%
Four Embarcadero Center
San Francisco, CA 94111
Richard J. Ferris(7)(10)(11)....................... 1,537,432 6.7% 1,537,432 4.1%
Peter V. Ueberroth(9)(10)(11)...................... 1,085,432 4.7% 1,085,432 2.9%
William R. Fatt(10)(11)............................ 5,000 * 5,000 *
Dale F. Frey(10)(12)............................... -- -- -- --
Ronald K. Gamey(10)(11)............................ 5,000 * 5,000 *
Norman B. Leventhal(10)(11)(13).................... 15,000 * 15,000 *
John H. Myers(10)(12).............................. -- -- -- --
Richard M. Kelleher(10)(11)........................ 106,347 * 106,347 *
William L. Perocchi(10)(14)........................ 60,674 * 60,674 *
James P. Evans(10)................................. -- -- -- --
Stephen D. Pletcher(10)(14)........................ 12,500 * 12,500 *
Margaret Ann Rhoades(10)(14)....................... 13,500 * 13,500 *
David L. Stivers(10)(14)........................... 12,500 * 12,500 *
Thomas W. Storey(10)(14)........................... 45,000 * 45,000 *
Raymond Terry(10).................................. 19,748 * 19,748 *
Edward A. Gilhuly.................................. -- -- -- --
Michael W. Michelson(5)............................ -- -- -- --
All current directors and executive officers as a
group (17 persons)(15)........................... 2,918,133 12.5% 2,918,133 7.7%
</TABLE>

- ---------------
* Less than 1%.

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<PAGE> 88

(1) Beneficial ownership as of August 15, 1996 includes shares subject to
options which are exercisable within 60 days after such date. All
expressions of percent of class held assume that the options of the
particular person or group in question, and no others, have been exercised
after such date.

(2) The number of shares of Doubletree Common Stock and percentages reflected
in this column are based on (i) the assumption that the Financing Plan is
effectuated and (ii) the assumptions set forth in the first paragraph of
"Prospectus Summary."

(3) Based on Schedule 13G filed jointly by GEHOP, GEIM, General Electric
Company ("GE") and GEPT. Shares indicated as beneficially owned by GEIM
include 6,049,226 shares owned of record by GEHOP and 1,755 shares owned of
record by GEIM. GEIM is a wholly-owned subsidiary of GE, and thus GE may be
deemed to be the beneficial owner of such 1,755 shares owned by GEIM.
Shares indicated as beneficially owned by GEIM exclude 137,134 shares owned
beneficially and of record by GEPT and, giving effect to the Merger and the
Financing Plan (assuming the exercise of the Warrants), 2,826,620 shares to
be owned of record and beneficially by GEPT. GEHOP, GEIM and GEPT each
disclaim beneficial ownership of the shares owned by the others, and GE
disclaims beneficial ownership of the shares owned by GEHOP and GEPT. Also
includes 10,000 shares reserved for issuance upon exercise of the vested
portion of an outstanding option to purchase 20,000 shares granted to
GEHOP, which is exercisable within 60 days after August 15, 1996. Each of
Messrs. Frey and Myers disclaim beneficial ownership of such shares.

(4) Based on shares to be beneficially owned by GEPT, after giving effect to
the Merger and the Financing Plan and assuming the exercise of the
Warrants. Each of Messrs. Frey and Myers disclaim beneficial ownership of
all such shares. GEPT disclaims beneficial ownership of all shares owned by
GE, GEIM and GEHOP.

(5) RLA will have sole voting and investment power with respect to the shares
of Doubletree Common Stock to be owned of record by the Partnership. RLA
has a 1% general partnership interest in the Partnership. George Roberts is
the President and a director of RLA. The stockholders of RLA are general
and limited partners of KKR Associates (Delaware). KKR Associates
(Delaware) is a limited partner of the Partnership. Mr. Michelson, who will
be appointed to the Board of Directors of Doubletree following the Merger,
and Mr. Roberts are general partners of KKR Associates (Delaware). Mr.
Michelson and Mr. Roberts will disclaim beneficial ownership of any shares
of Doubletree Common Stock held by the Partnership.

(6) Based on Schedule 13G filed jointly by Putnam Investments, Inc. ("Putnam"),
Marsh & McClennan Companies, Inc. ("MMC"), Putnam Investment Management,
Inc. ("PIM") and The Putnam Advisory Company, Inc. ("TPAC"). Shares
indicated as beneficially owned by Putnam include 1,190,516 and 165,900
shares owned of record by PIM and TPAC, respectively, both wholly-owned
subsidiaries of Putnam. Putnam is a wholly-owned subsidiary of MMC, and MMC
may be deemed to beneficially own such shares. Putnam and MMC disclaim
beneficial ownership of such shares. Putnam, PIM and TPAC have shared
dispositive power with respect to the shares, and Putnam and TPAC have
shared voting power with respect to 105,400 shares owned of record by TPAC.
Neither Putnam, PIM nor TPAC have any voting power with respect to the
remainder of the shares.

(7) Based on Schedule 13D filed by Ridge Partners, L.P. ("Ridge"), Kelrick,
Inc. ("Kelrick") and Richard J. Ferris. Ridge is a limited partnership
whose sole general partner is Kelrick. Ridge is the record owner of the
shares. Kelrick has sole voting and dispositive power with respect to such
shares. Mr. Ferris is the President and holder of 51% of the shares of
Doubletree Common Stock of Kelrick and may be deemed to have the right to
receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, the shares of Doubletree Common Stock owned by
Ridge. Mr. Ferris disclaims beneficial ownership of the shares owned by
Ridge, except to the extent of his ownership of Kelrick.

(8) Based on Schedule 13G filed jointly by RCM Capital Management ("RCM
Capital"), RCM Limited L.P. ("RCM Limited") and RCM General Corporation
("RCM General"). RCM Capital is the beneficial owner of these shares. RCM
Limited is the general partner of RCM Capital and has beneficial ownership
of these shares only to the extent that RCM Limited may be deemed to have

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<PAGE> 89

beneficial ownership of securities managed by RCM Capital. RCM General is the
general partner of RCM Limited and has beneficial ownership of these shares only
to the extent that RCM General may be deemed to have beneficial ownership of
securities managed by RCM Capital.

(9) Based on Schedule 13D filed by Peter V. and Virginia M. Ueberroth, as
cotrustees of The Ueberroth Family Trust (the "1986 Trust"), Alice J.
Saviez, as trustee of the Ueberroth Investment Trust (the "1994 Trust") and
Peter V. Ueberroth (collectively, the 1986 Trust and the 1994 Trust may be
referred to herein as the "Ueberroth Trusts"). Includes 919,459 shares of
Doubletree Common Stock beneficially owned by Peter V. and Virginia M.
Ueberroth as co-trustees of the 1986 Trust, who have shared voting and
shares dispositive power with respect to such shares. Also includes 160,973
shares of Doubletree Common Stock beneficially owned by Alice J. Saviez as
trustee of the 1994 Trust (who has sole voting and dispositive power with
respect to such shares). Mr. Ueberroth may be deemed to have an interest in
the 1,080,432 shares of Doubletree Common Stock as a trustee and
beneficiary of the 1986 Trust and as a family member of the beneficiaries
of the 1994 Trust. Mr. Ueberroth disclaims beneficial ownership of such
shares.

(10) The address of Messrs. Ferris, Ueberroth, Fatt, Frey, Gamey, Leventhal,
Myers, Kelleher, Evans, Perocchi, Pletcher, Stivers, Storey, Terry and Ms.
Rhoades is c/o Doubletree Corporation, 410 North 44th Street, Suite 700,
Phoenix, Arizona 85008.

(11) Includes 5,000 shares reserved for issuance upon exercise of outstanding
options owned by Messrs. Ferris, Ueberroth, Fatt, Gamey and Leventhal and
75,000 shares reserved for issuance upon exercise of outstanding options
owned by Mr. Kelleher.

(12) Excludes 6,049,226 shares owned of record by GEHOP, 1,755 shares owned of
record by GEIM, which is GEHOP's sole general partner and a direct
wholly-owned subsidiary of GE, and 137,134 shares owned of record by GEPT.
Each of Messrs. Frey and Myers are executive officers and directors of GEIM
and Trustees of GEPT, and Mr. Frey is an executive officer of GE. Messrs.
Frey and Myers have voting and investment power with respect to such shares
and, therefore, may be deemed to be beneficial owners of such shares. Also
excludes 10,000 shares reserved for issuance upon exercise of the vested
portion of an outstanding option to purchase 20,000 shares granted to
GEHOP, which is exercisable within 60 days of August 15, 1996. Also
excludes 2,826,620 shares to be owned of record and beneficially by GEPT
after giving effect to the Merger and the Financing Plan (assuming the
exercise of the Warrants). Each of Messrs. Frey and Myers disclaim
beneficial ownership of all such shares.

(13) Includes 10,000 shares beneficially owned by Muriel Leventhal, Mr.
Leventhal's wife. Mr. Leventhal disclaims beneficial ownership of such
shares.

(14) Messrs. Evans, Perocchi, Pletcher, Stivers, Storey, Terry and Ms. Rhoades
are executive officers of Doubletree but are not directors. Includes
45,000, 12,500, 12,500, 45,000 and 12,500 shares reserved for issuance upon
the exercise of outstanding options held by Messrs. Perocchi, Pletcher,
Stivers, Storey and Ms. Rhoades, respectively, exercisable within 60 days
of August 15, 1996.

(15) Includes shares of Doubletree Common Stock held by Ridge, Peter V. and
Virginia M. Ueberroth, as co-trustees of the 1986 Trust, and Alice J.
Saviez, as trustee of the 1994 Trust (see footnotes 7 and 9 above).

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<PAGE> 90

DESCRIPTION OF CAPITAL STOCK OF DOUBLETREE

The following description of Doubletree's capital stock does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of Doubletree's Certificate of Incorporation (the "Doubletree
Certificate") and the bylaws of Doubletree (the "Doubletree Bylaws"), copies of
which have been incorporated by reference as exhibits to the Registration
Statement of which this Prospectus is a part.

The authorized capital stock of Doubletree consists of 100,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share (the "Doubletree Preferred Stock"). After giving
effect to the consummation of the Merger and the Financing Plan, 37,459,076
shares of Doubletree Common Stock are expected to be issued and outstanding, and
no shares of Doubletree Preferred Stock will be issued or outstanding.

COMMON STOCK

Holders of the Doubletree Common Stock are entitled to one vote per share
on all matters to be voted upon by the stockholders. Holders of Doubletree
Common Stock do not have cumulative voting rights, and therefore holders of a
majority of the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.

Holders of the Doubletree Common Stock are entitled to receive such
dividends as may be declared from time to time by the Doubletree Board of
Directors out of funds legally available therefor, subject to the terms of
Doubletree's credit agreements restricting payment of dividends. Doubletree does
not anticipate paying cash dividends in the foreseeable future. See "Dividends."
In the event of the liquidation, dissolution or winding up of Doubletree, the
holders of Doubletree Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities.

Holders of Doubletree Common Stock have no preemptive, conversion or
redemption rights and are not subject to further calls or assessments by
Doubletree. All of the outstanding shares of Doubletree Common Stock are, and
the shares to be issued by Doubletree in connection with the Merger will be,
validly issued, fully paid and nonassessable.

The Transfer Agent and Registrar for the Doubletree Common Stock is Harris
Trust Company of California.

PREFERRED STOCK

Doubletree's Board of Directors is authorized to issue from time to time,
without shareholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of Doubletree Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided in
the particular series. Any series of Doubletree Preferred Stock may possess
voting, dividend, liquidation and redemption rights superior to those of the
Doubletree Common Stock. The rights of the holders of Doubletree Common Stock
will be subject to and may be adversely affected by the rights of the holders of
any Doubletree Preferred Stock that may be issued in the future. Issuance of a
new series of Doubletree Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of entrenching Doubletree's Board of Directors and making it
more difficult for a third party to acquire, or discourage a third party from
acquiring, a majority of the outstanding voting stock of Doubletree. Doubletree
has no present plans to issue any series of Doubletree Preferred Stock.

REGISTRATION RIGHTS

In connection with the Doubletree Combination Transaction, certain of
Doubletree's original stockholders entered into a registration rights agreement,
as amended (the "1993 Registration Rights Agreement"), which gives each of such
stockholders certain "piggyback" registration rights with respect to the
registration under the Securities Act of the shares of Doubletree Common Stock
issued to them in the Doubletree Reorganization, including rights to include
such shares in any registration under the Securities Act effected for the
benefit of Doubletree or at the request of another holder of Doubletree Common
Stock. In addition,

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GEHOP and Metropolitan (two of such original stockholders) have demand
registration rights pursuant to which they may require Doubletree to register
under the Securities Act the shares of Doubletree Common Stock issued to them in
the Doubletree Reorganization. According to the terms of the 1993 Registration
Rights Agreement, Doubletree is required to effect two such demand registrations
for GEHOP and one such demand registration for Metropolitan. Upon the exercise
of a demand registration right by Metropolitan, Doubletree may, at its option
and in lieu of effecting such registration, purchase from Metropolitan the
shares required to be registered as a result of such exercise. The 1994 Trust
sold 240,000 shares of Doubletree Common Stock pursuant to the exercise of its
"piggyback" registration rights in Doubletree's public offering completed in
June 1995 and 212,000 shares of Doubletree Common Stock pursuant to its
"piggyback" registration rights in Doubletree's public offering completed in May
1996.

In connection with the RFS Acquisition, pursuant to an amendment to the
1993 Registration Rights Agreement, the RFS Stockholders were granted demand
registration rights pursuant to which, on two occasions, they may require
Doubletree to register the RFS Acquisition Shares under the Securities Act. The
RFS Stockholders sold 1,508,422 shares of Doubletree Common Stock pursuant to
the exercise of one of their demand registration rights in connection with
Doubletree's public offering completed in May 1996. The second registration
demand can occur no earlier than February 27, 1997 and may include the balance
of the RFS Acquisition Shares.

The RFS Stockholders also have "piggyback" registration rights with respect
to any registration under the Securities Act effected for the benefit of
Doubletree or at the request of another holder of Doubletree Common Stock, and
in certain limited circumstances, the right to require Doubletree to file and
maintain a shelf registration statement. For a further description of the RFS
Acquisition, see "Business of Doubletree -- The RFS Acquisition."

Pursuant to the Merger Agreement, at the Effective Time, the 1993
Registration Rights Agreement will be amended to grant to the Partnership four
demand and unlimited "piggyback" registration rights with respect to the shares
of Doubletree Common Stock to be issued to the Partnership pursuant to the
Merger. In addition, the amendment will provide that the shares of Doubletree
Common Stock to be issued to GEPT or an affiliate thereof as part of the
Financing Plan, including any shares that are issued upon the exercise of the
Warrants, will be covered by GEHOP's demand and "piggyback" registration rights.

Doubletree is not required to file a registration statement upon exercise
of any of the above-described demand registration rights within 90 days
following any underwritten public offering of Doubletree Common Stock or
securities convertible into or exchangeable for Doubletree Common Stock. All
expenses of any such registration relating to the subject shares are to be borne
by Doubletree.

CERTAIN PROVISIONS OF DELAWARE LAW

Doubletree is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding shares owned by persons who are
both officers and directors of the corporation and shares held by certain
employee stock ownership plans); or (iii) following the transaction in which
such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
interested stockholder.

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LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS

The Doubletree Certificate provides that to the fullest extent permitted by
the DGCL, a director of Doubletree shall not be liable to Doubletree or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Under the DGCL, liability of a director may not be limited (i) for any breach of
the director's duty of loyalty to Doubletree or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of such provision in
the Doubletree Certificate is to eliminate the rights of Doubletree and its
stockholders (through stockholders' derivative suits on behalf of Doubletree) to
recover monetary damages against a director for breach of the fiduciary duty of
care as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of Doubletree
or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Doubletree Certificate provides that Doubletree shall indemnify its
directors, officers, employees and agents against losses incurred by any such
person by reason of the fact that such person was acting in such capacity.

Doubletree has entered into agreements (the "Indemnification Agreements")
with each of the directors and officers of Doubletree pursuant to which
Doubletree has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of his or her
capacity as a director, officer, employee and/or agent of Doubletree or any
other corporation of which he or she is a director or officer at the request of
Doubletree to the maximum extent provided by applicable law. In addition, such
director or officer is entitled to an advance of expenses to the maximum extent
authorized or permitted by law.

To the extent that the Board of Directors or the stockholders of Doubletree
may in the future wish to limit or repeal the ability of Doubletree to provide
indemnification as set forth in the Doubletree Certificate, such repeal or
limitation may not be effective as to directors and officers who are currently
parties to the Indemnification Agreements, because their rights to full
protection would be contractually assured by the Indemnification Agreements. It
is anticipated that similar contracts may be entered into, from time to time,
with future directors of Doubletree.

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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following discussion sets forth certain United States Federal income
and estate tax consequences of the ownership and disposition of shares of Common
Stock by Non-U.S. Holders. In general, a "Non-U.S. Holder" is any holder other
than (i) a citizen or resident, as specifically defined for United States
Federal income and estate tax purposes, of the United States, (ii) a corporation
or partnership (or any entity treated as a corporation or partnership for United
States Federal income tax purposes) created or organized in the United States or
under the laws of the United States or of any political subdivision thereof, or
(iii) an estate or trust whose income is includible in gross income for United
States Federal income tax purposes regardless of its source. The discussion is
based on current law, which is subject to change retroactively or prospectively,
and is for general information only. The discussion does not address all aspects
of United States Federal income and estate taxation and does not address any
aspects of state, local or foreign tax laws. The discussion does not consider
any specific facts or circumstances that may apply to a particular Non-U.S.
Holder (including the fact that in the case of a Non-U.S. Holder that is a
partnership, the United States tax consequences of holding and disposing of
shares of Common Stock may be affected by certain determinations made at the
partner level). Accordingly, prospective investors are urged to consult their
tax advisors regarding the application of United States Federal income and
estate tax laws to their particular situations as well as any tax consequences
to them arising under the laws of any state, local or foreign taxing
jurisdiction.

DIVIDENDS

It is not currently contemplated that Doubletree will pay dividends on
Common Stock in the foreseeable future. In general, dividends paid to a Non-U.S.
Holder will be subject to United States withholding tax at a 30% rate (or such
lower rate as may be prescribed by an applicable tax treaty) unless the
dividends are either (i) effectively connected with a trade or business carried
on by the Non-U.S. Holder within the United States, or (ii) if a tax treaty
applies, attributable to a United States permanent establishment maintained by
the Non-U.S. Holder. Dividends effectively connected with such a trade or
business or attributable to such a permanent establishment (if a tax treaty
applies) and so treated as effectively connected income will generally not be
subject to withholding (if the Non-U.S. Holder files certain forms annually with
the "payor," as defined for United States Federal income tax purposes, of the
dividend) and will generally be subject to United States Federal income tax on a
net income basis at regular graduated rates. In the case of a Non-U.S. Holder
which is a corporation, such effectively connected income also may be subject to
the 30% branch profits tax (which is generally imposed on a foreign corporation
on the repatriation from the United States of effectively connected earnings and
profits). The branch profits tax may not apply, or may apply at a reduced rate,
if the recipient is a qualified resident of certain countries with which the
United States has an income tax treaty.

To determine the applicability of a tax treaty providing for a lower rate
of withholding, dividends paid to an address in a foreign country are presumed
under current Treasury Regulations to be paid to a resident of that country,
unless the payor has definite knowledge that such presumption is not warranted
or an applicable tax treaty (or specific United States Treasury Regulations
thereunder) requires some other method for determining a Non-U.S. Holder's
residence. Under current regulations, Doubletree must report annually to the
Internal Revenue Service ("IRS") and to each Non-U.S. Holder the amount of
dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder.
These reporting requirements apply regardless of whether withholding was reduced
or eliminated by an applicable tax treaty. Under the provisions of a specific
treaty or agreement, copies of these reports may also be made available to the
tax authorities in the country in which the Non-U.S. Holder resides.

SALE OF COMMON STOCK

Generally, a Non-U.S. Holder will not be subject to United States Federal
income tax on any gain realized upon the disposition of such holder's shares of
Doubletree Common Stock unless (i) subject to the exception discussed below,
Doubletree is or has been a "United States real property holding corporation" (a
"USRPHC") within the meaning of section 897(c)(2) of the Code at any time within
the shorter of the five-year period preceding such disposition or such holder's
holding period (the "Required Holding Period");

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(ii) the gain is effectively connected with a trade or business carried on by
the Non-U.S. Holder within the United States or, if a tax treaty applies,
attributable to a permanent establishment maintained by the Non-U.S. Holder in
the United States; (iii) the Non-U.S. Holder is an individual who holds the
shares of Doubletree Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of the disposition, and
either (a) such Non-U.S. Holder has a "tax home" (as specifically defined for
United States Federal income tax purposes) in the United States (unless the gain
from the disposition is attributable to an office or other fixed place of
business maintained by such Non-U.S. Holder in a foreign country and such gain
has been subject to a foreign tax equal to at least 10%), or (b) the gain from
the disposition is attributable to an office or fixed place of business
maintained by such Non-U.S. Holder in the United States; or (iv) the Non-U.S.
Holder is subject to tax pursuant to the provisions of United States tax law
applicable to certain United States expatriates.

A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. It is unclear whether Doubletree
currently is a USRPHC and there can be no assurance that Doubletree is not (or
will not become, by reason of the Merger or otherwise) a USRPHC. However, even
if Doubletree is or becomes a USRPHC, a Non-U.S. Holder would generally not be
subject to tax, or withholding in respect of such tax, on gain from a sale or
other disposition of Doubletree Common Stock by reason of Doubletree's USRPHC
status so long as the Doubletree Common Stock is regularly traded on an
established securities market as defined for purposes of Code section 897(c)
("regularly traded") during the calendar year in which such sale or disposition
occurs provided that such holder does not own and has not owned, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Doubletree Common Stock outstanding at any time during
the Required Holding Period. Doubletree believes that the Doubletree Common
Stock will be treated as regularly traded.

If Doubletree is or has been a USRPHC within the Required Holding Period,
and if a non-U.S. holder owns or owned in excess of 5% of the fair market value
of Common Stock (as described in the preceding paragraph), such Non-U.S. Holder
of Doubletree Common Stock will be subject to U.S. Federal income tax at regular
graduated rates under certain rules ("FIRPTA tax") on gain recognized on a sale
or other disposition of such Doubletree Common Stock. In addition, if Doubletree
is or has been a USRPHC during the Required Holding Period and the Doubletree
Common Stock were not treated as regularly traded, a Non-U.S. Holder (without
regard to its ownership percentage) would be subject to withholding at a rate of
10% of the amount realized on a sale or other disposition of Doubletree Common
Stock and would be subject to further FIRPTA tax if such tax exceeded the amount
withheld. Any amount withheld would be creditable against such Non-U.S. Holder's
U.S. Federal income tax liability. Non-U.S. holders are urged to consult their
tax advisors concerning the potential applicability of these provisions.

ESTATE TAX

Shares of Doubletree Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as defined for United States
federal estate tax purposes) of the United States at the time of death will be
includible in such individual's gross estate for United States Federal estate
tax purposes (unless an applicable tax treaty provides otherwise) and therefore
may be subject to United States federal estate tax.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Under current United States Federal income tax law, backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish the information required under the
United States information reporting requirements) and information reporting
requirements apply to payments of dividends. Backup withholding tax and
information reporting requirements will generally not apply to dividends paid on
Doubletree Common Stock to Non-U.S. Holders to which the Company is required to
withhold at a 30% rate or, if applicable, a lower treaty rate, as described
under "-- Dividends."

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The payment of the proceeds from the disposition of shares of Doubletree
Common Stock to or through the United States office of a broker will be subject
to information reporting and backup withholding unless the holder or beneficial
owner certifies, under penalties of perjury, among other things, as to its
status as a Non-U.S. Holder, or otherwise establishes an exemption. Generally,
the payment of the proceeds from the disposition of shares of Doubletree Common
Stock to or through a non-U.S. office of a broker will not be subject to backup
withholding and will not be subject to information reporting. In the case of the
payment of proceeds from the disposition of shares of Doubletree Common Stock to
or through a non-U.S. office of a broker that is a U.S. person or a
"U.S.-related person," existing regulations require information reporting on the
payment unless the broker receives a statement from the owner, signed under
penalties of perjury, certifying, among other things, its status as a Non-U.S.
Holder, or the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no actual knowledge to the contrary. For this
purpose, a "U.S.-related person" is (i) a "controlled foreign corporation" for
United States Federal income tax purposes or (ii) a foreign person 50% or more
of whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a United States trade or business.
Non-U.S. Holders should consult their tax advisors regarding the application of
these rules to their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available.

A Non-U.S. Holder generally may obtain a refund of any excess amounts
withheld by filing the appropriate claim for refund with the IRS.

PROPOSED REGULATIONS

On April 22, 1996, the IRS issued proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form, would, among other things, unify current certification
procedures and forms and clarify reliance standards. The proposed regulations
would, among other things, eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of that
country and would impose certain certification and documentation requirements
(which, in some cases, could be satisfied by the provision of a certificate of
residence issued by a competent authority of the relevant treaty country) on
Non-U.S. Holders claiming the benefit of a reduced withholding rate with respect
to dividends under a tax treaty. These regulations generally are proposed to be
effective with respect to payments made after December 31, 1997, although in
certain cases they are proposed to be effective only with respect to payments
made after December 31, 1999. Proposed regulations are subject to change,
however, prior to their adoption in final form. Prospective investors are urged
to consult their tax advisors regarding the potential effect on them of the
proposed regulations.

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UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), a syndicate of United
States Underwriters (the "U.S. Underwriters") named below has severally agreed
to purchase, and the Company has agreed to sell to them, severally, shares of
the Company's Common Stock and the syndicate of International Underwriters (the
"International Underwriters") named below has severally agreed to purchase, and
the Company has agreed to sell to them, severally, the respective number of
shares of Common Stock set forth opposite the names of such Underwriters below.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.......................................
Montgomery Securities...................................................
Schroder Wertheim & Co. Incorporated....................................
-------
Subtotal........................................................ 4,000,000
-------
International Underwriters:
Morgan Stanley & Co. International Limited..............................
Montgomery Securities...................................................
J. Henry Schroder & Co. Limited.........................................
-------
Subtotal........................................................ 1,000,000
-------
Total...................................................... 5,000,000
=======
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined below)
being sold by it for the account of any United States or Canadian Person and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute any prospectus relating to
the International Shares within the United States or Canada or to any United
States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International Underwriter, the foregoing representations and
agreements (a) made by it in its capacity as a U.S. Underwriter shall apply only
to shares purchased by it in its capacity as a U.S. Underwriter and (b) made by
it in its capacity as an International Underwriter shall apply only to shares
purchased by it in its capacity as an International Underwriter, and (c) do not
restrict its ability to distribute any prospectus relating to the shares of
Common Stock to any person. The foregoing limitations do not apply to
stabilization actions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or

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Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the U.S. Shares and the International
Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the price to public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer or sale of Common Stock in
Canada will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer or sale is
made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance that,
by purchasing such Common Stock, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, directly or indirectly, any of
such Common Stock in Canada or to, or for the benefit of, any resident of Canada
in contravention of the securities laws of Canada or any province or territory
thereof and that any offer or sale of Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made, and that
such dealer will deliver to any other dealer to whom it sells any of such Common
Stock a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and will not, during the period of six months from the date of
the Offering, offer or sell any shares of Common Stock in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations (1995) (the "Regulations"); (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue or sale of the shares of Common Stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988 or is a person to whom such document may
otherwise lawfully be issued or passed on.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and agrees not to offer or sell, directly or indirectly, in Japan or to or
for the account of any resident thereof, any of the shares of Common Stock
acquired in connection with the distribution contemplated hereby, except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law of Japan. Each International Underwriter further agrees to send
to any dealer who purchases from it any of the Common Stock a notice stating in
substance that, by purchasing such shares, such dealer represents and agrees
that it has not offered or sold and will not offer or sell any of such shares,
directly or indirectly in Japan or to or for the account of any resident thereof
except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law of Japan, and that such dealer will send to any
other dealer whom it sells any of such Common Stock a notice containing
substantially the same statement as contained in the foregoing.

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The Underwriters propose to offer part of the Common Stock directly to the
public at the price to public set forth on the cover page hereof and part of the
Common Stock to certain dealers at a price which represents a concession not in
excess of $ per share below the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to other Underwriters or to certain dealers. After the
initial public offering of the Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 750,000 additional shares of Common Stock at the
price to public set forth on the cover page hereof, less underwriting discounts
and commissions. The U.S. Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, made in connection
with the offering of the shares of Common Stock hereby. To the extent such
option is exercised, each U.S. Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the U.S. Underwriters hereby.

The Company, all of the Company's executive officers and Directors and
certain other stockholders of the Company, who will own after the Offering in
the aggregate approximately 11,805,734 shares of Common Stock (including 471,999
shares which can be acquired through currently exercisable options), have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated
("Morgan Stanley"), they will not (a) offer, pledge, sell contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (b) enter
into any swap or other agreement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (a) or (b) of this paragraph is to be
settled by delivery of such Common Stock or such other securities, in cash or
otherwise, for a period of 180 days (or, in the case of executive officers and
Directors of the Company, 90 days) after the date of this Prospectus, other than
(i) the sale to the Underwriters of the shares of Common Stock under the
Underwriting Agreement, (ii) the issuance of any shares of Common Stock in
connection with the Merger or the GEPT Equity Investment, and (iii) the issuance
by the Company of shares of Common Stock upon the exercise of an option sold or
granted, or the grant of options, pursuant to an existing employee benefit plan
of the Company and outstanding on the date of this Prospectus or upon exercise
of any of the Warrants issued in connection with the Financing Plan.

In addition, the Partnership (which will own 4,499,970 shares of Common
Stock after giving effect to the Merger and the Financing Plan) has agreed with
the Company not to offer or sell its shares of Common Stock for a period of 180
days after the Effective Time (except for certain distributions to a limited
partner of the Partnership as described in "The Merger and the Financing
Plan -- Interests of Certain Persons in the Merger"). The Company has agreed
that, without the prior written consent of Morgan Stanley, it will not waive or
release the Partnership from the foregoing 180-day restriction.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

Pursuant to regulations promulgated by the Commission, market makers in the
Common Stock who are Underwriters or prospective underwriters ("passive market
makers") may, subject to certain limitations, make bids for or purchases of
shares of Common Stock until the earlier of the time of commencement (the
"Commencement Date") of offers or sales of the Common Stock contemplated by this
Prospectus or the time at which a stabilizing bid for such shares is made. In
general, and after the date two business days prior to the Commencement Date (1)
such market maker's net daily purchases of the Common Stock may not exceed 30%
of its average daily trading volume in such stock for the two full consecutive
calendar months immediately preceding the filing date of the Registration
Statement of which this Prospectus forms a part, (2) such market maker may not
effect transactions in, or display bids for, the Common Stock at a price that
exceeds the highest bid for the Common Stock by persons who are not passive
market makers and (3) bids made by passive market makers must be identified as
such.

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Certain of the Underwriters and their affiliates have from time to time
performed, and continue to perform, various investment banking and other
financial services for the Company.

Morgan Stanley has acted as financial advisor to Doubletree in connection
with the Merger, and has rendered an opinion to the Board of Directors of
Doubletree that the Merger is fair to Doubletree from a financial point of view.
In connection therewith, Doubletree has agreed to pay Morgan Stanley fees of (i)
$1.5 million for rendering its fairness opinion (in the event the Merger is
consummated) and (ii) $500,000 for other advice in connection with its role as
financial advisor. Doubletree has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities, including liabilities under Federal securities laws, and
expenses related to Morgan Stanley's role as financial advisor.

Morgan Stanley Senior Funding, Inc. and Morgan Stanley Group Inc.,
affiliates of Morgan Stanley, are being paid customary fees and reimbursed
expenses by the Company in connection with acting as syndication agent under the
New Credit Facility and providing a commitment under the Bridge Loan,
respectively.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dewey Ballantine. Certain legal matters relating to the
Offering will be passed upon for the Underwriters by Davis Polk & Wardwell.

EXPERTS

The consolidated financial statements and schedule of the Company and its
subsidiaries as of December 31, 1994 and 1995, and for each of the years in the
three-year period ended December 31, 1995, included or incorporated by reference
in this Prospectus have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in their reports, which are included
herein, and have been given upon the authority of said firm as experts in
accounting and auditing.

The financial statements of Red Lion Hotels, Inc. as of December 31, 1995
and for the ten month period then ended and the consolidated statements of
operations, partners' equity, and cash flows of Historical Red Lion for the
seven month period ended July 31, 1995 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, appearing elsewhere herein, and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

The financial statements included in this Prospectus relating to Historical
Red Lion and its subsidiaries, to the extent and for the periods indicated in
their reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports. Reference is made to the report on the
Financial Statements of Historical Red Lion, which includes an explanatory
paragraph with respect to changes in accounting for joint ventures and the
accounting method for measuring impairment of hotel properties, effective
January 1, 1993, as discussed in Note 1 of those Financial Statements.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601. Copies of such materials can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 at prescribed rates. The

97
<PAGE> 100

Company's Common Stock is quoted on The Nasdaq Stock Market's National Market,
and certain of the reports, proxy statements and other information concerning
the Company can be inspected at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington D.C. 20006. Such materials can also be
inspected on the Internet at http://www.sec.gov.

The Company has filed a Registration Statement on Form S-3 (together with
any amendments thereto, the "Registration Statement"), of which this Prospectus
is a part, with the Commission under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. The
Registration Statement, including exhibits filed as a part thereof, are
available for inspection and copying as set forth above. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.

98
<PAGE> 101

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DOUBLETREE CORPORATION
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheet at December 31, 1994, December 31, 1995 and June 30, 1996
(unaudited)...................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993,
December 31, 1994, December 31, 1995, Six Months Ended June 30, 1995 (unaudited)
and Six Months Ended June 30, 1996 (unaudited)................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993,
December 31, 1994, December 31, 1995, Six Months Ended June 30, 1995 (unaudited)
and Six Months Ended June 30, 1996 (unaudited)................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1993, December 31, 1994, and December 31, 1995 and Six Months Ended June 30, 1996
(unaudited)...................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
RED LION HOTELS, INC.
Independent Auditors' Report........................................................ F-24
Consolidated Balance Sheets at December 31, 1995 and June 30, 1996 (unaudited)...... F-25
Consolidated Statements of Income for the Ten Months Ended December 31, 1995,
Four Months Ended June 30, 1995 (unaudited) and Six Months Ended June 30, 1996
(unaudited)...................................................................... F-26
Consolidated Statements of Stockholders' Equity for the Ten Months Ended
December 31, 1995 and Six Months Ended June 30, 1996 (unaudited)................. F-27
Consolidated Statements of Cash Flows for the Ten Months Ended December 31, 1995,
Four Months Ended June 30, 1995 (unaudited) and Six Months Ended June 30, 1996
(unaudited)...................................................................... F-28
Notes to Consolidated Financial Statements.......................................... F-29
HISTORICAL RED LION
Independent Auditors' Reports....................................................... F-43
Consolidated Balance Sheet at December 31, 1994..................................... F-45
Consolidated Statements of Operations for the Years Ended December 31, 1994
and 1993 and the Seven Months Ended July 31, 1995................................ F-46
Consolidated Statements of Partners' Equity for the Years Ended December 31, 1994
and 1993 and the Seven Months Ended July 31, 1995................................ F-47
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and
1993 and the Seven Months Ended July 31, 1995.................................... F-48
Notes to Consolidated Financial Statements.......................................... F-50
</TABLE>

F-1
<PAGE> 102

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Doubletree Corporation

We have audited the consolidated financial statements of Doubletree
Corporation and subsidiaries (Company) and of Samantha Hotel Corporation and
subsidiaries (Predecessor) as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

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

In our opinion, the aforementioned Company consolidated and financial
statements present fairly, in all material respects, the financial position of
Doubletree Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for the Company period, in
conformity with generally accepted accounting principles. Further, in our
opinion, the aforementioned Predecessor consolidated financial statements
present fairly, in all material respects, the results of their operations and
their cash flows for the Predecessor period, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

KPMG Peat Marwick LLP

Orange County, California
February 27, 1996

F-2
<PAGE> 103

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)

DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 23,169 $ 32,652 $ 46,566
Restricted cash............................................ 535 -- --
Accounts receivable, net of allowance for doubtful accounts
of $393, $295 and $316, respectively..................... 11,887 17,907 20,596
Current portion of notes and other receivables, including
amounts due from affiliates of $16 in 1994............... 16 390 477
Other...................................................... 1,831 2,694 2,944
-------- -------- --------
Total current assets.................................. 37,438 53,643 70,583
-------- -------- --------
Notes and other receivables, including amounts due from
affiliates of $10,674, $10,755 and $15,342,
respectively............................................. 17,312 24,185 30,949
Investments................................................ 2,606 5,070 29,892
Hotel properties, net...................................... 11,143 10,572 10,289
Leasehold improvements and office equipment, net........... 2,253 3,968 3,526
Management contracts, net.................................. 45,372 49,634 48,275
Goodwill, net.............................................. 17,407 15,431 15,228
Deferred costs and other assets............................ 1,170 604 3,231
-------- -------- --------
$ 134,701 $ 163,107 $ 211,973
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses...................... $ 22,505 $ 25,072 $ 25,347
Leases payable............................................. 4,283 6,744 10,122
Accrued interest payable................................... 11 23 15
Current portion of notes payable........................... 65 672 --
Income taxes payable....................................... 124 585 3,774
-------- -------- --------
Total current liabilities............................. 26,988 33,096 39,258
-------- -------- --------
Deferred income taxes...................................... 14,680 15,625 18,254
Notes payable.............................................. 1,446 -- --
-------- -------- --------
43,114 48,721 57,512
-------- -------- --------
Commitments and contingencies (Notes 4, 7, 8 and 16)
Stockholders' equity:
Common stock, $.01 par value.
Authorized 100,000,000 shares: issued and
outstanding 21,677,811, 22,099,186 and 23,070,961
shares at December 31, 1994 and 1995 and June 30,
1996, respectively.................................... 216 221 231
Additional paid-in capital............................... 93,215 100,462 128,061
Unrealized gain on marketable equity securities.......... -- 22 26
Unearned employee compensation........................... -- (211) (176)
Retained earnings (accumulated deficit).................. (1,844) 13,892 26,319
-------- -------- --------
91,587 114,386 154,461
-------- -------- --------
$ 134,701 $ 163,107 $ 211,973
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 104

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------- ------------------
PREDECESSOR COMPANY COMPANY COMPANY COMPANY
1993 1994 1995 1995 1996
----------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees.............. $10,612 $ 26,330 $ 30,082 $14,536 $ 18,519
Owned hotel revenues....................... 9,943 92 7,081 3,308 3,979
Leased hotel revenues...................... 14,923 73,769 141,942 65,534 86,321
Purchasing and service fees................ 329 10,746 16,487 7,478 7,585
Other fees and income...................... 2,547 1,545 994 493 972
------- -------- -------- ------- --------
Total revenues.......................... 38,354 112,482 196,586 91,349 117,376
------- -------- -------- ------- --------
Operating costs and expenses:
Corporate general and administrative
expenses................................ 7,485 11,879 14,413 7,106 8,641
Owned hotel expenses....................... 6,400 101 6,049 2,936 3,217
Leased hotel expenses...................... 14,266 68,981 132,644 61,008 79,735
Purchasing and service expenses............ 620 9,807 13,925 6,346 5,648
Depreciation and amortization.............. 1,572 2,943 4,686 2,056 2,940
Business combination expenses (Note 2)..... 1,865 -- 2,565 -- --
------- -------- -------- ------- --------
Total expenses.......................... 32,208 93,711 174,282 79,452 100,181
------- -------- -------- ------- --------
Operating income............................. 6,146 18,771 22,304 11,897 17,195
Interest expense........................... (1,228) (831) (227) (132) (143)
Interest income............................ 254 1,630 4,147 1,858 2,090
------- -------- -------- ------- --------
Income before income taxes and minority
interest................................... 5,172 19,570 26,224 13,623 19,142
Minority interest share of net (income)
loss.................................... 175 -- 35 (7) (22)
------- -------- -------- ------- --------
Income before taxes.......................... 5,347 19,570 26,259 13,616 19,120
Income tax expense......................... (414) (6,335) (8,468) (4,229) (6,693)
------- -------- -------- ------- --------
Net income................................... $ 4,933 $ 13,235 $ 17,791 $ 9,387 $ 12,427
======= ======== ======== ======= ========
Earnings per share (Note 12)................. $ 0.66 $ 0.80 $ 0.43 $ 0.54
======== ======== ======= ========
Weighted average common and common equivalent
shares outstanding......................... 20,071 22,219 21,984 22,849
======== ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 105

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------- -------------------
PREDECESSOR COMPANY COMPANY COMPANY COMPANY
1993 1994 1995 1995 1996
----------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income............................................................ $ 4,933 $ 13,235 $ 17,791 $ 9,387 $ 12,427
Adjustments to reconcile net income to net cash provided by
operations:
Provision for bad debts............................................. 56 189 211 69 202
Depreciation and amortization....................................... 1,601 3,013 4,686 2,056 2,940
Equity in (earnings) loss of partnerships........................... (992) (373) 91 (231) 37
Gain on termination of management contracts......................... -- (500) -- -- --
Minority interest share of net income............................... (175) -- (35) 7 22
Asset write-offs and other non-cash expenses........................ 615 -- 70 70 35
Deferred income taxes............................................... 42 3,394 3,375 2,118 2,629
Net (deposits to) withdrawals from restricted cash.................. (1,091) 1,179 535 535 --
Increase in accounts receivable..................................... (873) (3,407) (6,187) (5,209) (2,687)
(Increase) decrease in other assets................................. 25 (648) (1,234) (702) (113)
Increase in accounts payable and accrued expenses................... 3,085 6,680 5,225 3,242 7,063
Other, net.......................................................... (313) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by operations................................ 6,913 22,762 24,528 11,342 22,555
-------- -------- -------- -------- --------
Cash flow from investing activities:
Cash acquired at purchase of Doubletree Hotels Corporation............ 22,819 -- -- -- --
Purchase of Doubletree Hotels Corporation............................. (45,000) -- -- -- --
Purchases of furniture and equipment.................................. (66) (1,877) (2,708) (948) (656)
Investments in partnerships and ventures.............................. (255) (1,021) (2,531) (692) (25,146)
Distributions from partnerships and ventures.......................... 149 603 514 153 292
Investments in management contracts................................... -- (6,607) (7,181) (4,671) (811)
Proceeds from terminations of management contracts.................... -- 2,188 562 408 --
Acquisition of investment property.................................... (12,504) (11,129) -- -- --
Loans to owners of managed hotels..................................... (7,309) (4,935) (7,367) (7,800) (6,381)
Deposits in hotels to obtain management contracts..................... -- (280) 250 250 (250)
Purchase of marketable securities..................................... -- -- (516) (369) --
Increase in deferred costs............................................ -- -- -- -- (2,626)
Other................................................................. 1,255 76 (43) -- --
-------- -------- -------- -------- --------
Net cash used in investing activities.......................... (40,911) (22,982) (19,020) (13,669) (35,578)
-------- -------- -------- -------- --------
Cash flow from financing activities:
Proceeds from issuance of common stock, net of offering costs......... -- 40,261 6,620 6,620 27,372
Proceeds from exercise of common stock options........................ -- -- 249 -- 237
Capital contributions................................................. 135 -- -- -- --
Cash distributions to stockholders.................................... (943) (34) (2,055) (6) --
Minority interest share of Doubletree Partners distributions.......... (80) -- -- -- --
GQEL redemption, purchase of common and preferred stock............... (261) -- -- -- --
Proceeds from borrowings.............................................. 39,640 -- -- -- 5,000
Issuance of redeemable preferred stock................................ 540 -- -- -- --
Purchase of common and redeemable preferred stock..................... (231) (182) -- -- --
Principal payments on notes payable................................... (3,358) (25,414) (839) (807) (5,672)
-------- -------- -------- -------- --------
Net cash provided by financing activities...................... 35,442 14,631 3,975 5,807 26,937
-------- -------- -------- -------- --------
Net increase in cash end cash equivalents............................... 1,444 14,411 9,483 3,480 13,914
Cash and cash equivalents at beginning of year.......................... 7,314 8,758 23,169 23,169 32,652
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.............................. $ 8,758 $ 23,169 $ 32,652 $ 26,649 $ 46,566
======== ======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 106

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
RETAINED
ADDITIONAL UNEARNED EARNINGS
COMMON PAID-IN ESOP TREASURY EMPLOYEE UNREALIZED (ACCUMULATED
STOCK CAPITAL OBLIGATION STOCK COMPENSATION GAIN DEFICIT) TOTAL
------ ---------- ---------- -------- ------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor:
Balances at December 31,
1992........................ $ -- $ 28,459 $ -- $ -- $ -- $ -- $(18,686) $ 9,773
Issuance of 2,727,811 shares
of common stock to acquire
RFS, Inc., accounted for
as a pooling of
interests................. 27 (25) (592) -- -- -- (811) (1,401)
Distributions to
stockholders.............. -- (926) -- -- -- -- -- (926)
Capital contribution........ -- 1,282 -- -- -- -- -- 1,282
Preferred stock dividends... -- -- -- -- -- -- (17) (17)
Termination of ESOP......... -- -- 592 (452) -- -- (371) (231)
Redemption of GQEL minority
interest.................. -- (852) -- -- -- -- -- (852)
Net income.................. -- -- -- -- -- -- 4,933 4,933
---- -------- ----- ----- ----- --- -------- --------
Company:
Balances at December 31,
1993........................ 27 27,938 -- (452) -- -- (14,952) 12,561
Issuance of 15,500,000
shares of common stock to
the partners of Doubletree
Partners in exchange for
their interests in
Doubletree Partners and
Samantha.................. 155 25,051 -- -- -- -- -- 25,206
Proceeds from sale of
3,450,000 shares of common
stock to the public, net
of offering costs of
$4,589.................... 35 40,226 -- -- -- -- -- 40,261
Preferred stock dividends... -- -- -- -- -- -- (34) (34)
Preferred stock
conversion................ -- 440 -- -- -- -- -- 440
Purchase of allocated ESOP
shares.................... -- -- -- (82) -- -- -- (82)
Retirement of treasury
shares.................... (1) (440) -- 534 -- -- (93) --
Net income.................. -- -- -- -- -- -- 13,235 13,235
---- -------- ----- ----- ----- --- -------- --------
Balances at December 31,
1994........................ 216 93,215 -- -- -- -- (1,844) 91,587
Proceeds from sale of
400,000 shares of common
stock to the public, net
of offering costs of
$980...................... 4 6,616 -- -- -- -- -- 6,620
Exercise of common stock
options and other
grants.................... -- 289 -- -- -- -- -- 289
Tax benefits attributable to
common stock options
exercised................. -- 62 -- -- -- -- -- 62
Common stock issued to
employees................. 1 280 -- -- (281) -- -- --
Amortization of unearned
employee compensation..... -- -- -- -- 70 -- -- 70
Marketable equity securities
unrealized gain........... -- -- -- -- -- 22 -- 22
Distributions to
stockholders.............. -- -- -- -- -- -- (2,055) (2,055)
Net income -- -- -- -- -- -- 17,791 17,791
---- -------- ----- ----- ----- --- -------- --------
Balances at December 31,
1995........................ 221 100,462 -- -- (211) 22 13,892 114,386
Proceeds from the sale of
952,300 shares of common
stock to the public, net
of offering costs of
$1,045 (unaudited)........ 10 27,362 -- -- -- -- -- 27,372
Exercise of common stock
options (unaudited)....... -- 237 -- -- -- -- -- 237
Amortization of unearned
employee compensation
(unaudited)............... -- -- -- -- 35 -- -- 35
Marketable equity securities
unrealized gain
(unaudited)............... -- -- -- -- -- 4 -- 4
Net income (unaudited)...... -- -- -- -- -- -- 12,427 12,427
---- -------- ----- ----- ----- --- -------- --------
Balances at June 30, 1996
(unaudited)................. $231 $128,061 $ -- $ -- $ (176) $ 26 $ 26,319 $154,461
==== ======== ===== ===== ===== === ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 107

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

(1) SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Doubletree Corporation was incorporated on May 19, 1994 as a Delaware
corporation to succeed to all the assets, liabilities and business operations of
Doubletree Partners, formerly Guest Quarters Hotel Partnership ("GQHP").
Doubletree Corporation and its majority-owned subsidiaries are collectively
referred to as the "Company." At June 30, 1996, the Company managed 86 hotels,
leased 55 hotels, owned one hotel and had franchise agreements with 37 hotels.

On December 16, 1993, Doubletree Partners and Doubletree Hotels Corporation
("DHC") were combined through the transfer of the ownership interests of DHC to
Doubletree Partners in exchange for cash and partnership interests in Doubletree
Partners. On June 30, 1994 (immediately prior to the Company's initial public
offering), the owners of Doubletree Partners (Samantha Hotel Corporation
("Samantha"), Canadian Pacific Hotels (U.S.) Inc. ("CPHUS") and MetPark Funding,
Inc. ("MET")) contributed their ownership interests to the Company and the
Samantha owners contributed Samantha to the Company. In consideration for such
transfer, each of the owners was issued shares of common stock (15,500,000
shares in the aggregate) of the Company in proportion to their direct or
indirect ownership interests in Doubletree Partners prior to such transfer. The
June 1994 transaction has been accounted for as if it were a pooling of
interests. Accordingly, the 1994 consolidated financial statements combine the
previously separate minority interests of CPHUS and MET with the financial
statements of Samantha as if the transaction occurred at the beginning of 1994.
The operating results and cash flows for the periods prior to December 16, 1993
are those of Samantha, the then 92% owner of Doubletree Partners.

On February 27, 1996, Doubletree Corporation acquired a 100% interest in
RFS, Inc. ("RFS Management") in a transaction accounted for as a pooling of
interests. Accordingly, the consolidated financial statements have been restated
to include RFS Management as if it had been acquired at the beginning of the
earliest period presented.

The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. Certain financial statement
items from prior years have been reclassified to be consistent with the current
year financial statement presentation. The accounts of DHC and its subsidiaries
are included from the date of acquisition, December 16, 1993. All significant
inter-entity accounts and transactions have been eliminated.

(a) Revenue Recognition

Management fees, franchise fees, purchasing and service fees, and hotel
revenues are recognized when earned.

(b) Hotel Properties

Buildings are carried at cost and depreciated over 30 - 40 years using the
straight-line method. Furniture, fixtures and equipment are depreciated using
the straight-line method over 7 years. Leasehold improvements are amortized over
the shorter of the lives of the assets or the terms of the related leases.
Accumulated depreciation at December 31, 1994 and 1995 and June 30, 1996 was
$182,000, $601,000 and $904,000, respectively.

Investments in partnerships and ventures are accounted for using the equity
method of accounting when the Company has a general partnership interest or its
limited partnership interest exceeds 5%. All other

F-7
<PAGE> 108

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

investments are accounted for using the cost method with the exception of
marketable equity securities which are recorded at market.

(d) Leasehold Improvements and Office Equipment

Improvements to office leaseholds are amortized over the shorter of the
lives of the assets or the terms of the related leases. Office furniture and
equipment is depreciated using the straight-line method over 3 to 10 years.
Accumulated depreciation at December 31, 1994 and 1995 and June 30, 1996 was
$2,767,000, $2,730,000 and $2,945,000, respectively.

Repairs and maintenance are charged to operations as incurred; major
renewals and improvements at the leased hotels are the responsibility of the
owner.

(e) Management Contracts and Goodwill

Management contracts acquired in the acquisition of DHC represent the
estimated present value of net cash flows expected to be received over the
estimated lives of the contracts and is being amortized using the straight-line
method over the estimated weighted average contract life (25 years) from
December 16, 1993. Management contracts acquired subsequent to the acquisition
represent the cash paid to acquire the contract and are being amortized using
the straight-line method over the life of the respective contract. Management
contracts are carried net of accumulated amortization of $2,199,000, $4,554,000
and $6,224,000 at December 31, 1994 and 1995 and June 30, 1996, respectively.

Goodwill arose in connection with the acquisition of DHC by Doubletree
Partners in December 1993 and is amortized using the straight-line method over
40 years. Goodwill is carried net of accumulated amortization of $389,000,
$835,000 and $1,038,000 at December 31, 1994 and 1995 and June 30, 1996,
respectively.

(f) Deferred Costs and Other Assets

At June 30, 1996 deferred costs and other assets primarily consist of
franchise application fees paid in connection with the acquisition of RFS
Management which are amortized over the lives of the franchise agreements. The
initial cost of obtaining franchise licenses for hotels leased by RFS Management
are paid by the owner. Accumulated amortization at June 30, 1996 is $60,000.

(g) Statements of Cash Flows

All short-term, highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents for
purposes of the statement of cash flows.

Cash paid for interest amounted to $1,188,000, $892,000 and $215,000 for
the years ended December 31, 1993, 1994, and 1995, respectively, and $121,000
and $151,000 for the six months ended June 30, 1995 and 1996, respectively. Cash
paid for income taxes amounted to $456,000, $3,020,000 and $4,631,000 for the
years ended December 31, 1993, 1994 and 1995, respectively, and $768,000 and
$875,000 for the six months ended June 30, 1995 and 1996, respectively.

(h) Income Taxes

Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets, including net operating loss carryforwards,
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred

F-8
<PAGE> 109

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.

(i) Earnings Per Share

Earnings per share is determined by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year. Common equivalent shares include employee stock options which have been
deemed exercised for the purpose of computing earnings per share. The Company
has no other potentially dilutive securities.

(j) Notes Receivable

The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosure, on January 1, 1995. There was no
financial statement impact as a result of such adoption. Management considers a
note to be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the note. When a
loan is considered to be impaired, the amount of the impairment is measured
based on the present value of expected future cash flows discounted at the
note's effective interest rate. Impairment losses are charged to expense.
Generally, cash receipts will first be applied to reduce accrued interest and
then to reduce principal.

(k) Long-Lived Assets

The recoverability of management contract costs, goodwill, hotel
investments and franchise application fees are periodically evaluated to
determine whether such costs will be recovered from future operations.
Evaluations of goodwill are based on projected earnings, exclusive of goodwill
amortization, on an undiscounted basis. Management contracts are individually
evaluated based on the projected management fee stream on an undiscounted basis.
If the undiscounted earnings or fee streams are insufficient to recover the
recorded assets, then the projected earnings or fee stream is discounted to
determine the revised carrying value and a write-down for the difference is
recorded.

(2) ACQUISITIONS

Acquisition of RFS, Inc.

On February 27, 1996, the Company issued 2,727,811 shares of its common
stock in exchange for all of the outstanding stock of RFS Management (a
privately held hotel operator) in a transaction accounted for as a pooling of
interests. At June 30, 1996, RFS Management operates 56 hotels (44 hotels are
leased and managed, 4 are leased only and 6 are managed).

Effective January 1, 1995, RFS Management was a Subchapter S Corporation
for income tax purposes and, therefore, was not generally liable for income
taxes for the year ending December 31, 1995.

F-9
<PAGE> 110

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents total revenues and net income of the merged
companies. Additionally, the table includes unaudited 1995 pro forma net income
and earnings per share. The 1995 pro forma adjustments exclude business
combination expenses, provide for additional tax expense due to the exclusion of
the business combination expenses and increase the provision for taxes for RFS
Management to a 35% rate which is the Company's 1995 effective tax rate.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
--------------------------------- ENDED
1993 1994 1995 JUNE 30, 1995
------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues
Doubletree........................... $26,229 $ 49,908 $ 74,066 $33,726
RFS Management....................... 12,125 62,574 122,520 57,623
------- -------- -------- -------
Total revenues, as reported............ $38,354 $112,482 $196,586 $91,349
======= ======== ======== =======
Net income
Doubletree........................... $ 4,368 $ 12,578 $ 15,662 $ 7,666
RFS Management....................... 565 657 2,129 1,721
------- -------- -------- -------
Net income, as reported................ $ 4,933 $ 13,235 17,791 9,387
======= ========
Business combination expenses.......... 2,565 --
Pro forma additional income tax
expense.............................. (1,620) (536)
-------- -------
Pro forma net income................... $ 18,736 $ 8,851
======== =======
Pro forma earnings per share........... $ 0.84 $ 0.40
======== =======
Weighted average shares outstanding.... 22,219 21,984
======== =======
</TABLE>

The Company incurred pre-tax expenses in the fourth quarter of 1995 related
to the business combination of approximately $2,565,000. The costs incurred
include legal, professional and accounting fees, due diligence and certain other
costs necessary to complete the transaction.

Certain of the franchisors required the payment of an application fee, as a
result of the merger, of $2,626,000 which is being amortized over the terms of
the respective franchise agreements.

Acquisition of Doubletree Hotels Corporation

On December 16, 1993 Doubletree Partners purchased all of the outstanding
stock of DHC from CPHUS and MET for $72,000,000, including acquisition costs.
The purchase price was established by an assessment of the net assets acquired
and was paid by issuing partnership interests in the amount of $25,852,000
representing a 40% interest in Doubletree Partners and $45,000,000 in cash. The
cash portion of the purchase price was paid by causing DHC to borrow $25,000,000
and using $20,000,000 of DHC's cash. The purchase price of $72,000,000 is
comprised of the $45,000,000 of cash paid and the $27,000,000 of net assets
acquired. The transaction has been accounted for as a purchase. The purchase
price was allocated to the net assets acquired, including management contracts,
based upon their estimated fair market values. The excess of the purchase price
over the estimated fair value of the net assets acquired of $14,936,000 was
recorded as goodwill. During 1994, the Company concluded negotiations and
reached agreements with several key executives of DHC regarding severance and
related benefits. Primarily, as a result, goodwill and liabilities increased by
$2,857,000. The consolidated statement of operations for 1993 includes the
results of operations of DHC from December 16, 1993.

F-10
<PAGE> 111

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma summary presents the consolidated results
of operations of Samantha as if DHC had been acquired at the beginning of 1993.
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would actually
have resulted had the combination been in effect on the date indicated (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
-----------------
(UNAUDITED)
<S> <C>
Total revenues............................................... $56,796
=======
Net income................................................... $ 8,615
=======
</TABLE>

In 1993, business combination expenses represented the estimated costs to
close duplicate facilities, relocate certain equipment, make severance payments
to terminated employees and relocate certain other employees of GQHP as a result
of the acquisition of DHC. They also include the write-off of all costs related
to the Guest Quarters name as management determined that all Doubletree and
Guest Quarters hotels would be marketed under the Doubletree brand.

(3) REDEMPTION OF GQEL MINORITY INTEREST

Effective December 16, 1993 Doubletree Partners distributed its ownership
interest in two hotels, its leasehold interest in another hotel and certain
liabilities to its partner, GQ Equities Limited ("GQEL"), in complete redemption
of GQEL's interest in Doubletree Partners. The owners of GQEL were also the
owners of Samantha. On December 16, 1993 the carrying amount of the distributed
assets and the carrying amount of the liabilities, having an aggregate net book
value of $3,056,000, including cash of $261,000, approximated their fair market
value. Pursuant to the redemption agreement, Doubletree Partners and GQEL have
entered into management agreements for each of the hotels, which provide that
Doubletree Partners shall continue to receive base management fees at the
existing rate and an incentive fee, which, if earned, will not be less than 68%
of the hotels' net cash flow (as defined therein). The agreement will terminate
upon the sale of the hotels or the leasehold interests but, in any event, no
earlier than December 16, 1998.

(4) HOTEL PROPERTIES

Owned hotel revenues and expenses represent the operating results of hotels
owned by the Company. The Company currently owns a 239-room hotel in Southfield,
Michigan which was acquired (from a subsidiary of General Electric Capital
Corporation) on December 22, 1994 for approximately $11,129,000 in cash, of
which $556,000 was allocated to land. In December 1992 and July 1993, Doubletree
Partners acquired hotels in Cincinnati and Atlanta, respectively. The purchase
price of the Cincinnati property was $7,950,000 of which $5,168,000 was financed
in the form of a nonrecourse purchase money mortgage note and the balance was
paid in cash. The purchase price of the Atlanta property was $12,000,000, of
which $9,000,000 was financed in the form of a non-recourse mortgage, $2,000,000
was borrowed from an affiliate and the balance was paid in cash. Those hotels
and the Company's leasehold interest in another hotel were distributed to GQEL
on December 16, 1993 at which time GQEL assumed the related financing.

As of December 31, 1993, 1994 and 1995 and June 30, 1996 the Company leased
12, 44 and 52 and 55 hotels, respectively. The Company leased 50 of these hotels
from the REIT at June 30, 1996. All of the Company's leases require the payment
of rent equal to the greater of fixed base rent or percentage rent based on a
percentage of gross room revenue, beverage revenue and food revenue (if the
hotel offers food and beverage service). Substantially all of the hotels leased
from the REIT are cross defaulted with one another. All hotel leases are
operating leases. Percentage rents, included in total lease expense, were
$748,000, $10,961,000 and $25,254,000 for the years ended December 31, 1993,
1994 and 1995, respectively and

F-11
<PAGE> 112

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$12,091,000 and $17,978,000 for the six months ended June 30, 1995 and 1996,
respectively. The Company leases two hotels from affiliates of the General
Electric Pension Trust.

The following is a schedule, by year, of future minimum rental payments
required under non-cancelable hotel operating leases (in thousands) as of
December 31, 1995:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
------------
<S> <C> <C>
1996............................................................. $ 29,651
1997............................................................. 30,429
1998............................................................. 28,468
1999............................................................. 27,496
2000............................................................. 24,403
Thereafter....................................................... 209,676
--------
Total future minimum lease payments......................... $ 350,123
========
</TABLE>

The Company leased another hotel, which lease commenced in July 1991 and
required Doubletree Partners to pay all normal, recurring expenses of the hotel
including real estate taxes and interest in lieu of rent. All of these amounts
are included in leased hotel expenses. The lease term expired on December 31,
1994.

(5) RESTRICTED CASH

Restricted cash consisted of amounts in escrow for fixed asset replacement
at hotels under management.

F-12
<PAGE> 113

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) NOTES AND OTHER RECEIVABLES

Notes and other receivables, consisting primarily of loans to owners of
managed hotels, are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
REPAYMENT TERMS ----------------- JUNE 30,
INTEREST RATE INTEREST/PRINCIPAL MATURITY 1994 1995 1996
- ------------- ------------------------------------------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
SECURED:
Monthly/monthly to the extent of cash
12.0% flow....................................... 2006 $ 4,000 $ 4,000 $ 4,500
Monthly/monthly to the extent of cash
10.0% flow....................................... 2005 -- 2,850 2,850
8.0-10.0% Monthly/at maturity........................ 2001 2,250 2,800 2,800
Quarterly/quarterly to the extent of cash
10.0% flow....................................... 2003 -- 2,600 2,575
9.0% Monthly/at maturity........................ 2015 -- 1,625 3,193
Prime-1.5% Monthly/at maturity........................ 2010 -- 1,300 1,300
6.5-9.0% Monthly/at maturity........................ 2000 1,250 1,250 1,250
Monthly/monthly to the extent of cash
8.0% flow....................................... 2014 1,000 1,000 1,000
8.0-10% Various.................................... Upon sale 1,273 1,153 1,313
Notes repaid in full....................... 3,040 1,000 --
------- ------- -------
12,813 19,578 20,781
------- ------- -------
UNSECURED:
7.5% Monthly/at maturity........................ 2000 3,000 3,500 4,000
10.0% Monthly/annually........................... 2000 -- -- 3,000
8.0% Monthly/at maturity........................ 2001 -- -- 1,000
10.0% Quarterly/quarterly........................ 2002 720 720 665
8.50% At maturity/at maturity.................... 2005 -- -- 459
5.75%-10.0% Various.................................... Upon sale 795 777 1,521
------- ------- -------
4,515 4,997 10,645
------- ------- -------
Total notes and other receivables.......... 17,328 24,575 31,426
Less: current portion...................... 16 390 477
------- ------- -------
Non-current portion........................ $17,312 $24,185 $ 30,949
======= ======= =======
</TABLE>

Repayment of notes receivable are generally due upon the earlier of
termination of the management contract or sale of the hotel. At December 31,
1995 and June 30, 1996, the Company does not consider any of its notes
receivable to be impaired.

(7) INVESTMENTS

As of June 30, 1996 the Company and its subsidiaries have general and/or
limited partnership interests in 17 partnerships. Eleven of the partnerships own
hotels while the others own retail or industrial properties. Six of the
partnership interests were acquired in the acquisition of DHC and six were
acquired in the acquisition of RFS Management. The Company's percentage of
ownership in such partnerships at June 30, 1996 ranges from less than 1% to
49.9%. The partnership investments include an investment in a partnership that
is a majority owned subsidiary of the REIT. These partnership interests are
convertible into common stock of the REIT.

F-13
<PAGE> 114

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1995, unrecorded losses of approximately $381,000, related
to certain limited partnership investments have not been recorded because the
book value of these investments has been reduced to zero. The Company has no
obligation to further fund these investments.

The aggregate carrying value of the partnership interests is less than the
proportionate share of aggregate net assets of such partnerships by
approximately $1,685,000 at December 31, 1995. This difference is principally
the result of previous write-offs of the Company's investment, in excess of that
recorded by certain of the partnerships, offset by losses in excess of amounts
invested which are not reflected in the accompanying financial statements
because the Company has no obligation to further fund the investments.

In October 1995, the Company acquired a 50% interest in Candlewood Hotel
Company, L.L.C. ("Candlewood"). Candlewood will compete in the extended stay
market of the lodging industry and will design, develop and manage and/or
franchise hotels under the Candlewood brand. The Company committed to provide
$15,000,000 of capital to the venture, of which, $7,400,000 has been funded at
June 30, 1996 ($1,200,000 at December 31, 1995).

The Company, through RFS Management, purchased 973,684 shares of the REIT's
convertible preferred stock for $19 per share or approximately $18,500,000. This
investment is recorded at cost as there is no ready market for these securities.
The convertible preferred stock will pay a fixed annual dividend of $1.45 per
share and is convertible on a one-for-one share basis at the end of seven years.
Separately, the REIT granted the Company a 10-year right of first refusal to
manage and lease future hotels acquired or developed by the REIT. The Company
has committed to the REIT to maintain $15,000,000 of net worth in RFS
Management.

Investments also include 35,000 shares of REIT common stock recorded at
market value. The unrealized gain is reflected in stockholders' equity as these
securities are classified as available-for-sale.

Investments consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
REIT convertible preferred stock........................ $ -- $ -- $ 18,500
REIT common shares...................................... -- 538 542
Hotel partnerships...................................... 2,989 3,746 4,171
Candlewood.............................................. -- 1,098 6,991
Other................................................... (383) (312) (312)
------ ------ -------
$2,606 $5,070 $ 29,892
====== ====== =======
</TABLE>

(8) OPERATING LEASES

The Company occupies administrative offices under operating leases which
provide for minimum annual rental charges plus a share of maintenance expenses
and real estate taxes.

Total rent expense for operating leases of office space for the years ended
December 31, 1993, 1994 and 1995 amounted to approximately $816,000, $1,402,000
and $1,597,000, respectively, and $688,000 and $689,000 for the six months ended
June 30, 1995 and 1996, respectively.

F-14
<PAGE> 115

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule, by year, of future minimum rental payments
required under non-cancelable operating leases for administrative office space
(in thousands) as of December 31, 1995:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996................................................................. $1,392
1997................................................................. 1,447
1998................................................................. 874
1999................................................................. 591
2000................................................................. 596
Thereafter........................................................... 1,856
------
Total future minimum lease payments................................ $6,756
======
</TABLE>

(9) NOTES PAYABLE

Note payable due December 16, 1999 with interest payable monthly at LIBOR
plus a variable rate (between 0.675% and 1.50%) related to debt-to-equity and
interest coverage ratios. The note payable is a credit facility which allows
borrowings up to $30,000,000, all of which was available for borrowing at
December 31, 1995. Subsequent to December 31, 1995 the Company borrowed
$5,000,000 under this facility and repaid the entire amount prior to June 30,
1996. Interest related to this borrowing amounted to $105,000. The facility
requires the payment of a quarterly commitment fee that ranges from 0.20% to
0.375% of the unused balance. The loan has various covenants which prohibit the
payment of distributions (including dividends) from DHC and Doubletree Partners
(which owns substantially all of the assets) to their stockholders and partners,
respectively, and restricts the payment of certain expenditures based on the
financial condition of the Company. Various notes receivable and stock of
certain significant subsidiaries have been pledged as collateral. The loan is
guaranteed by the Company, Samantha and Doubletree Partners.

The maximum borrowing which may be outstanding under the facility declines
one year prior to the maturity date to $12,500,000 and is due in full one year
later. The facility provides that, at the election of the Company and approval
by the Lender, the maturity dates can both be extended by one year.

Other notes payable outstanding at December 31, 1994 and 1995 are as
follows:

<TABLE>
<CAPTION>
1994 1995
------ ----
<S> <C> <C>
8% note payable shareholder, repaid March 1996...................... $ 902 $672
10% note payable shareholders, repaid June 1995..................... 609 --
------ ----
$1,511 $672
====== ====
</TABLE>

(10) STOCKHOLDERS' EQUITY

On July 8, 1994, the Company completed its initial public offering of
3,450,000 shares of its common stock at a price to the public of $13 per share.
The net proceeds to the Company, after expenses of the offering and giving
effect to the underwriter's discount, were $40,261,000. The proceeds of the
offering were primarily used for the repayment of debt outstanding under the
credit facility and for general corporate purposes.

In March 1995, the Company issued 2,000 shares of common stock with a fair
value at the date of issuance of $40,000 to certain non-executive employees.

In June 1995, the Company completed an offering of 4,600,000 shares of its
common stock (of which 400,000 shares were newly issued shares of the Company)
at a price to the public of $19 per share. The net

F-15
<PAGE> 116

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

proceeds to the Company, after expenses of the offering and giving effect to the
underwriter's discount, were $6,620,000.

In January 1995, RFS Management issued 12 restricted shares of RFS
Management common stock to certain of its employees. These shares vest ratably
over a four year period from the date of issuance. The estimated fair market
value of these shares at issuance was $281,000. The shares were exchanged for
approximately 36,500 Company common shares, subject to the same restrictions, in
connection with the acquisition of RFS Management.

In February 1996 the Company issued 2,727,811 shares (including the 36,500
restricted shares) of its common stock to acquire all of the outstanding common
stock of RFS Management.

In May 1996, the Company completed an offering of 4,234,300 shares of its
common stock (of which 952,300 shares were newly issued shares of the Company)
at a price to the public of $31.25 per share. The net proceeds to the Company,
after expenses of the offering and giving effect to the underwriter's discount,
were $27,372,000.

(11) STOCK OPTIONS

The Company has one stock option plan, the 1994 Equity Participation Plan
(the "Plan"), in which options may be granted to key personnel to purchase
shares of the Company's common stock at a price not less than the current market
price at the date of the grant. The options vest annually and ratably over the
four-year period from the date of grant and expire ten years after the grant
date. An aggregate of 3,300,000 shares have been authorized for issuance. The
Plan also provides for the issuance of stock appreciation rights, restrictive
stock or other awards, none of which have been granted. Activity in the stock
option plan is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------ ENDED
PRICE RANGE 1994 1995 JUNE 30, 1996
---------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
year................................ $13.00 - $23.50 -- 967,500 1,103,500
Granted............................... $13.00 - $28.88 1,099,500 193,000 710,270
Exercised............................. $13.00 -- (19,375) (19,745)
Canceled.............................. $13.00 - $17.78 (132,000) (37,625) (27,250)
--------- --------- ---------
Options outstanding, end of period.... $13.00 - $28.88 967,500 1,103,500 1,766,775
--------- --------- ---------
Number of options exercisable......... $13.00 - $20.38 -- 243,750 443,275
Number of shares available for future
issuance............................ 1,032,500 877,125 1,494,105
</TABLE>

(12) EARNINGS PER SHARE

For the year ended December 31, 1994, earnings per share has been
calculated assuming the 15,500,000 shares issued immediately prior to the
initial public offering were outstanding since January 1, 1994. Additionally,
the 2,727,811 shares issued to acquire RFS Management are assumed to be
outstanding for the entire years of 1994 and 1995. Per share data for 1993 has
not been provided as the information is not comparable. The common equivalent
shares include employee stock options which have been deemed exercised using the
treasury stock method for the purpose of computing earnings per share. The
Company has no outstanding securities or agreements which would result in the
issuance of common shares other than common stock equivalents.

F-16
<PAGE> 117

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) TRANSACTIONS WITH RELATED PARTIES

Revenues include amounts derived from entities in which affiliates of the
Company own interests and, in general, exercise operational control. Revenues
derived from these entities were as follows (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Management fees and franchise fees........ $ 5,513 $ 15,051 $ 15,241 $ 7,225 $ 9,417
Leased hotel revenues..................... -- -- 11,327 4,236 8,581
Share of partnership income............... -- 243 388 424 12
Interest income........................... 30 847 1,674 706 878
Purchasing and service fees............... 96 4,436 6,288 2,745 1,389
EXPENSES
Hotel expenses............................ -- -- 10,721 3,975 7,823
Administrative office rent................ 334 312 73 35 35
</TABLE>

Additionally, the Company was reimbursed for expenses incurred in providing
centralized services to its managed and/or franchised hotels related to
marketing, central reservations, accounting, data processing, internal audit and
training as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------
1993 1994 1995 1995 1996
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Marketing and central
reservations...................... $ 2,587 $ 11,129 $ 11,020 $ 4,465 $ 5,171
Accounting, data processing,
internal audit and training....... 1,151 2,084 1,781 835 989
------- -------- -------- ------- -------
$ 3,738 $ 13,213 $ 12,801 $ 5,300 $ 6,160
====== ======= ======= ====== ======
</TABLE>

Amounts due from affiliates included in accounts receivable at December 31,
1994 and 1995 and June 30, 1996 are $3,877,000, $4,318,000 and $7,102,000,
respectively. Non-current amounts due from affiliates included in other assets
at December 31, 1994 and 1995 and June 30, 1996 are $114,000, $147,000 and
$321,000, respectively.

Amounts due to affiliates included in accounts payable at December 31, 1994
and 1995 and June 30, 1996 amounted to $123,000, $105,000 and $246,000,
respectively.

During 1995 RFS Management, under terms of a consulting agreement, made
payments of $780,000 to Hospitality Advisory Services, Inc. ("HAS"). The
consulting agreement terminated on February 27, 1996 and $75,000 was paid prior
to termination. Subsequently, two of the former HAS shareholders entered into
new consulting agreements, that terminate February 27, 1997, with RFS Management
and were paid $70,000 in total through June 30, 1996.

(14) EMPLOYEE BENEFIT PLANS

The Company participates in 401(k) retirement savings plans. Generally,
employees who are over 21 years of age and have completed one year of service
are eligible to participate in the plans. The Company, except for RFS
Management, matches employee contributions up to 3% of an employee's salary. RFS
Management matches employee contributions up to 2% of an employee's salary. The
aggregate expense under all plans amounted to $135,000, $218,000 and $563,000
for the years ended December 31, 1993, 1994 and 1995, respectively.

F-17
<PAGE> 118

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company, except for RFS Management, maintains a self-insured group
health plan through a Voluntary Employee Benefit Association. This plan is
funded to the limits provided in the Internal Revenue Code. RFS Management
maintains a self-insured group health plan. Liabilities are recorded for
estimated incurred but unreported claims. Aggregate and stop loss insurance
exists at amounts which limit the exposure to the Company, including RFS
Management.

(15) INCOME TAXES

The components of income tax expense consist of the following (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Federal:
Current.................................................. $257 $1,559 $3,561
Deferred................................................. 42 3,476 2,832
---- ------ ------
299 5,035 6,393
---- ------ ------
State:
Current.................................................. 115 1,382 1,532
Deferred................................................. -- (82) 543
---- ------ ------
115 1,300 2,075
---- ------ ------
$414 $6,335 $8,468
==== ====== ======
</TABLE>

The actual income tax expense differs from the expected tax expense
computed by applying the Federal statutory income tax rate as a result of the
following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ----- -----
<S> <C> <C> <C>
Income tax expense at Federal statutory rate............... 34.0% 34.0% 34.0%
Goodwill and other permanent differences................... 0.2 1.1 0.7
State income taxes......................................... 0.8 4.3 5.5
RFS, Inc. S Corp. earnings not taxed....................... -- -- (2.8)
Effect of net operating loss and other carryforwards....... (29.2) -- --
Decrease in valuation allowance............................ -- (8.3) (5.2)
Other...................................................... 2.2 1.3 --
------ ----- -----
8.0% 32.4% 32.2%
====== ===== =====
</TABLE>

The income tax benefit attributable to the use of net operating loss
carryforwards ("NOLs") in the year ended 1993 was $2,129,000 and $47,000 in
1994.

Deferred income taxes result principally from amortization of management
contracts, investments in partnerships and the utilization of NOLs and passive
activity loss carryforwards.

F-18
<PAGE> 119

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 17,596 $ 15,288
Passive activity loss carryforwards.......................... 2,206 834
Reserves..................................................... 3,540 3,335
Other........................................................ 2,867 3,979
Valuation allowance.......................................... (25,522) (22,605)
-------- --------
Total deferred tax assets................................. 687 831
-------- --------
Deferred tax liabilities:
Management contracts......................................... (13,457) (13,982)
Investments in partnerships.................................. (1,910) (2,474)
-------- --------
Total deferred tax liabilities............................ (15,367) (16,456)
-------- --------
Net deferred tax liability................................... $(14,680) $(15,625)
======== ========
</TABLE>

The Company estimates that, more likely than not, it will not realize a
substantial portion of the benefits of its deferred tax assets. Accordingly, it
has established a valuation allowance to reflect this uncertainty. A portion of
the valuation allowance was established upon the combination of Doubletree
Partners and DHC. In accordance with purchase accounting methodology, to the
extent the tax benefits to which this allowance relates are recognized, the
reduction in the valuation allowance will be applied to reduce goodwill. As of
December 31, 1995, the amount of the valuation allowance subject to this
treatment is approximately $6,500,000. During 1995, $1,530,000 was used and
credited to goodwill. None of this NOL was recognized in 1994.

The Company's federal NOLs of $40,979,000 expire as follows (in thousands):

<TABLE>
<CAPTION>
AMOUNT OF
YEAR OF EXPIRATION FEDERAL NOLS
- ------------------ ------------
<S> <C>
2004............................................................. $ 4,320
2005............................................................. 9,860
2006............................................................. 1,230
2007............................................................. --
2008............................................................. 13,086
2009............................................................. 12,483
-------
40,979
Passive loss carryforwards -- no stated expiration............... 2,166
-------
$ 43,145
=======
</TABLE>

Total NOLs for state purposes are less than the amounts stated above due
primarily to shorter carryforward periods.

The Company also has passive loss carryforwards that do not have a stated
expiration term. The tax benefit attributable to these federal and state NOLs
and passive loss carryforwards has been calculated considering the reduced
amount available for state purposes.

F-19
<PAGE> 120

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) COMMITMENTS AND CONTINGENCIES

Certain hotel management contracts provide that if a hotel does not achieve
agreed-upon performance levels, the Company may elect or may be required to fund
any performance shortfalls for a specified period of time. In general, if the
Company elects not to fund the shortfall, the hotel owner may elect to terminate
the management contract. If the Company elects to fund the shortfall, but
performance standards are not achieved at the expiration of the funding period,
the owner may elect to terminate the management contract at that time. The
Company funded one shortfall in the amount of $487,000 in June 1996. The Company
has not funded any other shortfalls during the three year and six month period
ended June 30, 1996.

The Company has guaranteed certain mortgages, leases and construction bonds
up to $6,460,000 ($2,860,000 of which are collateralized by letters of credit).
The Company has also committed to lend up to $8,907,000, $7,007,000 to the owner
of the Somerset hotel, of which $707,000 is for renovations and $6,300,000 is to
provide bridge financing, if needed. The remaining loan commitments are to two
other hotels primarily for renovations.

In addition, in August 1996 Doubletree committed to provide a credit
support for a loan facility that will be utilized by Candlewood to arrange
construction and permanent financing for Candlewood franchisees on terms that,
in most cases, are much more attractive than that which the franchisees could
obtain on their own. The source of the loan facility will be General Motors
Acceptance Corporation Mortgage Group. In providing such credit support,
Doubletree's maximum exposure on any one Candlewood franchise will be
approximately $1 million, with the aggregate amount of exposure for all such
credit support capped at between $20 to $30 million.

In August 1996, Doubletree and Patriot American Hospitality, Inc. formed a
joint venture wherein Doubletree will invest up to $20.0 million of capital to
be combined with up to $200.0 million of capital from Patriot to be used for the
acquisition of hotels. Doubletree will have a 10% interest in the Venture.

The Company has a commitment to contribute an additional $3,127,000 to an
investment partnership formed for the purpose of acquiring hotel properties. The
Company has a 4.35% limited partnership interest and it is anticipated that at
least 50% of the properties acquired will be either managed and/or franchised by
the Company.

The Company is a defendant in various litigation matters arising from the
normal course of its operations. While it is not feasible to predict or
determine the ultimate outcome of these matters, it is the opinion of management
that their ultimate outcome is not likely to have a material adverse effect on
the results of operations and the financial position of the Company.

Metropolitan Life has indemnified the Company against any litigation
matters which occurred prior to the date of acquisition of MetHotels by DHC
(December 6, 1990), and certain indemnification by Canadian Pacific exists for
events which transpired from December 6, 1990 to December 16, 1993.

Four of the hotels leased by the Company are managed by others under
agreements with terms of ten to twenty years. Management fees are based on a
percentage of each hotel's revenues.

F-20
<PAGE> 121

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE
------------------- 30,
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Accounts payable...................................... $ 6,342 $ 5,592 $ 5,290
Payroll and related costs............................. 3,395 4,805 4,518
Leased and owned hotel expenses....................... 1,609 3,290 4,586
Deferred compensation................................. 2,702 2,106 2,005
Marketing costs....................................... 2,449 2,038 2,168
Business combination expenses......................... 1,013 2,555 1,077
Insurance expense..................................... 1,237 1,055 1,980
Professional fees..................................... 1,209 679 739
Sales tax............................................. 760 1,102 1,427
Other................................................. 1,789 1,850 1,557
------- ------- -------
$22,505 $25,072 $25,347
======= ======= =======
</TABLE>

(18) REIMBURSABLE COSTS

The Company is reimbursed for costs associated with providing central
reservations, sales and marketing, accounting, data processing, internal audit
and employee training services to managed hotels. The Company is also reimbursed
for central reservations and marketing services provided to franchised hotels.
Such costs primarily consist of personnel and related fringe benefits,
advertising, promotional fees and reservation service costs.

(19) MANAGEMENT CONTRACTS

An analysis of management contract activity follows (in thousands):

<TABLE>
<S> <C>
Balance at December 31, 1992............................................... $ 423
Contracts acquired at acquisition of DHC................................... 42,000
Amortization............................................................... (135)
-------
Balance at December 31, 1993............................................... 42,288
Contracts acquired......................................................... 6,607
Contract conversions and terminations...................................... (1,718)
Amortization............................................................... (1,805)
-------
Balance at December 31, 1994............................................... 45,372
Contracts acquired......................................................... 7,181
Contract conversions and terminations...................................... (562)
Amortization............................................................... (2,357)
-------
Balance at December 31, 1995............................................... 49,634
Contracts acquired (unaudited)............................................. 811
Contract conversions and terminations (unaudited).......................... (500)
Amortization (unaudited)................................................... (1,670)
-------
Balance at June 30, 1996 (unaudited)....................................... $48,275
=======
</TABLE>

F-21
<PAGE> 122

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(20) FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, notes and other receivables, accounts payable
and accrued expenses, accrued interest payable and income taxes payable, each as
included in the consolidated balance sheets under such captions. With the
exception of notes and other receivables and the investment in RFS Partnership
L.P. units, the carrying amounts of all other classes of financial instruments
approximate fair value due to the short maturity of those instruments or, in the
case of marketable equity securities they are carried at their estimated fair
value. The Company has determined that the fair value of its notes receivable is
not significantly different from their carrying value based on interest rate and
payment terms the Company would currently offer on notes with similar security
to borrowers of similar creditworthiness. RFS Partnership L.P. units, which are
convertible into REIT common shares, have a carrying value of $841,000 and an
estimated fair value of $1,197,000 at December 31, 1995.

(21) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly financial information for the years ended December 31, 1994 and
1995, restated to reflect the acquisition of RFS Management, is presented below
(in thousands except per share data). The sum of the individual quarterly data
may not equal the annual data due to rounding.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1994
Total revenues....................... $17,186 $ 23,913 $33,272 $ 38,111
Net income........................... 1,884(a) 3,821(a) 4,180 3,350
Earnings per share................... $ 0.10(a) $ 0.21(a) $ 0.19 $ 0.15
Weighted average common and common
equivalent shares outstanding...... 18,228 18,228 21,900 21,938
</TABLE>

- ---------------
(a) The Company's effective tax rate for the quarters ended March 31 and June 30
was 29% and 25%, respectively, due to the organizational structure of the
Company prior to its initial public offering. Had a 35% rate been incurred,
net income and earnings per share would have been $1,648 and $0.09 per share
and $3,073 and $0.17 per share, respectively.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1995
Total revenues....................... $40,580 $ 50,771 $52,891 $ 52,344
Net income........................... 3,645 5,742 5,606 2,798(b)
Earnings per share................... $ 0.17 $ 0.26 $ 0.25 $ 0.12
Net income -- pro forma(c)........... $ 3,490 $ 5,360 $ 5,311 $ 4,575(d)
Earnings per share -- pro forma(c)... $ 0.16 $ 0.24 $ 0.24 $ 0.20(d)
Weighted average common and common
equivalent shares outstanding...... 21,910 22,057 22,443 22,472
</TABLE>

- ---------------
(b) Includes $2,565,000 of business combination expenses.

F-22
<PAGE> 123

DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(c) Effective January 1, 1995 RFS Management elected to be taxed as a Subchapter
S Corporation for federal income tax purposes. As a result, it was generally
not liable for income taxes and its financial statements for the year ended
December 31, 1995 did not include a provision for federal income taxes. A
pro forma adjustment to each quarter increasing the provision for income
taxes by approximately $0.8 million in the aggregate has been reflected in
the 1995 pro forma results.

(d) Excludes $2,565,000 of business combination expenses and provides for a
related increase in income tax expense.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
MARCH 31, JUNE 30,
--------- --------
<S> <C> <C>
1996
Total Revenues.................................................. $53,829 $ 63,547
Net income...................................................... 4,878 7,549
Earnings per share.............................................. $ 0.22 $ 0.33
Weighted average common and common equivalent shares
outstanding................................................... 22,584 23,173
</TABLE>

(22) SUBSEQUENT EVENT (UNAUDITED)

On September 12, 1996, Doubletree, through a subsidiary, entered into an
Agreement and Plan of Merger with Red Lion Hotels, Inc. ("Red Lion"), whereby
Doubletree would acquire all of the outstanding common stock of Red Lion. Red
Lion is a full service hospitality company that owns, leases and/or manages 55
hotels as of June 30, 1996 principally in the western United States. The
purchase price, which is subject to adjustment, and includes the assumption of
approximately $213.3 million of indebtedness, is approximately $1.2 billion and
is anticipated to be funded with a combination of newly-issued shares of
Doubletree Common Stock, $600.0 million in institutional debt, and existing
cash. Consummation of the transaction is subject to certain conditions and is
expected to be completed prior to December 31, 1996.

F-23
<PAGE> 124

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Red Lion Hotels, Inc.:

We have audited the accompanying consolidated balance sheet of Red Lion
Hotels, Inc. and subsidiaries (the "Company") as of December 31, 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the ten month period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Red Lion Hotels, Inc. and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the ten month period ended December 31, 1995, in conformity
with generally accepted accounting principles.

Deloitte & Touche LLP
Portland, Oregon
February 24, 1996

F-24
<PAGE> 125

RED LION HOTELS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 68,355 $ 36,509
Accounts receivable, net........................................... 19,709 21,761
Accounts receivable -- affiliates.................................. 12,096 4,572
Inventories........................................................ 6,339 6,286
Prepaid expenses and other current assets.......................... 5,461 4,596
Deferred income taxes.............................................. 2,306 2,796
-------- --------
Total current assets....................................... 114,266 76,520
Property and Equipment, net.......................................... 336,269 375,567
Investment in and Advances to Unconsolidated Joint Ventures.......... 16,429 16,274
Goodwill, net........................................................ 21,508 21,147
Deferred Income Taxes................................................ 6,571 4,773
Due from Affiliate................................................... 20,828 25,758
Other Assets, net.................................................... 11,049 11,844
-------- --------
$526,920 $531,883
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................... $ 23,618 $ 18,086
Accrued expenses................................................... 37,197 38,288
Current portion of long-term debt.................................. 7,759 9,219
-------- --------
Total current liabilities.................................. 68,574 65,593
Long-Term Debt, net of current portion............................... 215,608 204,109
Other Long-Term Obligations.......................................... 11,169 11,776
Joint Venturers' Interest............................................ 1,290 1,290
-------- --------
Total liabilities.......................................... 296,641 282,768
-------- --------
Commitments and Contingencies (Notes 5 and 11)
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
0 shares issued and outstanding................................. -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
31,312,500 shares issued and outstanding........................ 313 313
Additional paid-in capital and net assets contributed.............. 214,361 214,361
Retained earnings.................................................. 15,605 34,441
-------- --------
Total stockholders' equity................................. 230,279 249,115
-------- --------
$526,920 $531,883
======== ========
</TABLE>

See notes to consolidated financial statements.

F-25
<PAGE> 126

RED LION HOTELS, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
FOUR SIX
MONTHS ENDED MONTHS ENDED
TEN JUNE 30, JUNE 30,
MONTHS ENDED 1995 1996
DECEMBER 31, 1995 (UNAUDITED) (UNAUDITED)
----------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Rooms......................................... $ 115,370 $ -- $ 147,445
Food and beverage............................. 72,711 -- 81,389
Other......................................... 26,688 3,421 29,133
----------- ----------- -------
Total revenues........................ 214,769 3,421 257,967
Operating Costs and Expenses:
Departmental direct expenses:
Rooms...................................... 28,723 -- 36,991
Food and beverage.......................... 54,181 -- 63,634
Other...................................... 7,996 -- 10,079
Property indirect expenses.................... 43,668 -- 55,163
Other costs................................... 17,111 189 18,028
Depreciation and amortization................. 8,715 721 9,167
Payments due to owners of managed hotels...... 19,428 295 26,178
Expenses resulting from the Formation and
Offering................................... 14,662 -- --
----------- ----------- -------
Operating Income.............................. 20,285 2,216 38,727
Equity in Earnings of Unconsolidated Joint
Ventures...................................... 685 -- 1,423
Other Income (Expense):
Interest income............................... 1,600 -- 1,275
Interest expense.............................. (9,707) (1,256) (9,054)
----------- ----------- -------
Total other expense................... (8,107) (1,256) (7,779)
----------- ----------- -------
Income Before Joint Venturers' Interests...... 12,863 960 32,371
Joint Venturers' Interests...................... (1,365) (570) (978)
----------- ----------- -------
Income Before Income Taxes.................... 11,498 390 31,393
Income Tax Benefit (Expense).................... 4,107 1,044 (12,557)
----------- ----------- -------
Net Income...................................... $ 15,605 $ 1,434 $ 18,836
=========== =========== =======
Earnings Per Common Share....................... $ 1.00 $ 14,340 $ 0.60
=========== =========== =======
Weighted Average Common Shares Outstanding...... 15,656,300 100 31,312,500
=========== =========== =======
</TABLE>

See notes to consolidated financial statements.

F-26
<PAGE> 127

RED LION HOTELS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
COMMON STOCK CAPITAL AND
----------------- NET ASSETS RETAINED
SHARES AMOUNT CONTRIBUTED EARNINGS TOTAL
------ ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1995............. -- $ -- $ -- $ -- $ --
Net assets contributed................... 20,900 209 34,427 -- 34,636
Net proceeds from initial public
offering............................... 10,063 101 173,287 -- 173,388
Issuance of shares in conjunction with
termination of an incentive unit
plan................................... 350 3 6,647 -- 6,650
Net income............................... -- -- 15,605 15,605
------ ---- -------- ------- --------
Balance at December 31, 1995............. 31,313 313 214,361 15,605 230,279
Net income (unaudited)................... -- -- -- 18,836 18,836
------ ---- -------- ------- --------
Balance at June 30, 1996 (unaudited)..... 31,313 $313 $ 214,361 $ 34,441 $249,115
====== ==== ======== ======= ========
</TABLE>

See notes to consolidated financial statements.

F-27
<PAGE> 128

RED LION HOTELS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
TEN MONTHS ENDED 1995 1996
DECEMBER 31, 1995 (UNAUDITED) (UNAUDITED)
----------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income......................................................... $ 15,605 $ 1,434 $ 18,836
Adjustments to reconcile net income to cash provided by operating
activities:
Income attributable to joint venturers' interest................. 1,365 570 978
Distributions to joint venturers................................. (1,702) -- (557)
Equity in earnings of unconsolidated joint ventures.............. (685) -- (1,423)
Depreciation and amortization.................................... 8,715 721 9,167
Amortization of other assets..................................... 1,092 83 656
Deferred income taxes............................................ (8,877) (1,200) 1,308
Issuance of common stock in connection with termination of the
incentive unit plan............................................ 6,650 -- --
Changes in assets and liabilities:
Accounts receivable............................................ (1,097) (1,278) (2,052)
Accounts receivable -- affiliates.............................. (2,015) -- 7,524
Inventories.................................................... (413) -- 53
Prepaid expenses and other current assets...................... (427) -- 865
Accounts payable, accrued expenses and other long-term
obligations................................................. 17,683 -- (4,255)
-------- ------- --------
Net cash provided by operating activities................... 35,894 330 31,100
-------- ------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment, net............................ (16,499) (330) (48,735)
Net increase in due from affiliates................................ (8,017) -- (4,930)
Net increase in other assets....................................... -- (820)
Net (increase) decrease in advances to and investments in
unconsolidated joint ventures.................................... (3,509) -- 1,451
Distributions from unconsolidated joint ventures................... 160 -- 127
Other investing activities......................................... 501 -- --
-------- ------- --------
Net cash used in investing activities....................... (27,364) (330) (52,907)
-------- ------- --------
Cash Flows from Financing Activities:
Cash received from contribution of assets.......................... 10,480 -- --
Net proceeds from common stock issued in the Offering.............. 173,388 -- --
Proceeds from long-term borrowings................................. 135,000 -- 9,000
Repayment of long-term borrowings.................................. (256,467) -- (19,237)
Increase in note payable........................................... 165 -- 198
Other financing activities......................................... (2,741) -- --
-------- ------- --------
Net cash provided by (used in) financing activities......... 59,825 -- (10,039)
-------- ------- --------
Net Increase (Decrease) in Cash and Cash Equivalents................. 68,355 -- (31,846)
Cash and Cash Equivalents at Beginning of Period..................... -- -- 68,355
-------- ------- --------
Cash and Cash Equivalents at End of Period........................... $ 68,355 $ -- $ 36,509
======== ======= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest......................................................... $ 8,133 $ 1,252 $ 9,211
Income taxes..................................................... 2,945 -- 7,945
Noncash Investing and Financing Activities:
Net assets (other than cash) contributed by Historical Red Lion
(Note 1), including property and equipment of $327,928,
long-term debt of $344,500, investments in and advances to
unconsolidated joint ventures of $12,790, other assets and
amounts receivable from affiliates of $54,644, other long-term
obligations of $7,396, joint venturers' interests of $1,742,
and current assets and current liabilities of $29,572 and
$47,140, respectively.......................................... $ 24,156 $ 93 $ --
</TABLE>

See notes to consolidated financial statements.

F-28
<PAGE> 129

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

Red Lion Hotels, Inc. together with its subsidiaries ("Red Lion" or the
"Company") is a full service hospitality company operating 55 hotels in 10
western states. A typical Red Lion property is a full service hotel located in
close proximity to a business or commercial center, airport, major highway or
tourist destination. Red Lion hotels target the business traveler (both
individual and group) and compete primarily in the upscale segment of the
lodging industry.

The Company was incorporated in Delaware in March 1994 as a wholly owned
subsidiary of Red Lion, a California Limited Partnership ("Historical Red
Lion"). The Company's operations commenced in March 1995 when Historical Red
Lion contributed to the Company a 49.4% interest in a joint venture (the "Santa
Barbara Joint Venture") which owns Fess Parker's Red Lion Resort (the "Santa
Barbara Hotel") located in Santa Barbara, California.

The Company initiated an initial public offering of a portion of its common
stock on July 26, 1995 (the "Offering"), which closed August 1, 1995, raising
net proceeds of approximately $173 million. After giving effect to the Offering,
Historical Red Lion owns approximately 67% of the Company.

On August 1, 1995, prior to the closing of the Offering, Historical Red
Lion repaid certain of its outstanding indebtedness with existing cash balances
and contributed substantially all of its assets (excluding 17 hotels and certain
related obligations (the "Leased Hotels"), certain minority joint venture
interests and certain current assets) and certain liabilities to the Company
(the "Formation"). Historical Red Lion subsequent to the Formation and
refinancing of the Company (the "Partnership") retained the Leased Hotels and
the related goodwill, deferred loan costs and mortgage debt, certain minority
joint venture interests and certain current assets.

On August 1, 1995, the Company refinanced or repaid substantially all of
the debt contributed pursuant to the Formation with the net proceeds of the
Offering, borrowings under a new term loan and existing cash (the
"Refinancing"). The Company also entered into a long-term master lease with the
Partnership for the Leased Hotels.

Basis of Presentation

The accompanying financial statements reflect the contribution, at
Historical Red Lion's net book value, of the interest in the Santa Barbara Joint
Venture. Accordingly, the Santa Barbara Joint Venture has been consolidated with
the Company in the accompanying financial statements prior to the Formation. In
connection with the Formation, the other assets and liabilities contributed by
Historical Red Lion have been recorded in the accompanying consolidated
financial statements at Historical Red Lion's net book value at August 1, 1995.
There were no operations of the Company prior to the contribution of the Santa
Barbara Joint Venture. Therefore, the accompanying consolidated financial
statements reflect ten months rather than twelve months of 1995 operations,
consisting of the results of the Santa Barbara Joint Venture for ten months and
the results of the other hotels and operations contributed pursuant to the
Formation for five months.

The Santa Barbara Joint Venture contribution did not transfer the right to
manage the operations of the Santa Barbara Hotel to the Company. Therefore, the
financial statements of the Company prior to the Formation do not include the
operating revenues and expenses of the Santa Barbara Hotel or that hotel's
current assets and current liabilities. These amounts were included in the
financial statements of Historical Red Lion, which continued to manage the Santa
Barbara Hotel. The right to manage the operations of the Santa Barbara Hotel was
transferred to the Company at Formation, and that hotel's operating revenues,
expenses and current assets and current liabilities are reflected in the
consolidated financial statements of the Company beginning August 1, 1995.

F-29
<PAGE> 130

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The consolidated financial statements include seven joint ventures in which
the Company holds a 49.9% interest. When combined with the interests retained by
the Partnership, the Company and the Partnership own at least 50% of these joint
ventures. Pursuant to an agreement between the Company and the Partnership, the
Company has the power, in its sole discretion, to prescribe the Partnership's
conduct with respect to the joint venture interests held by the Partnership.
Accordingly, the Company consolidates the four joint ventures in which the
combined interests of the Partnership and the Company exceed 50%. The Company
consolidates one of its 50% owned joint ventures because the Company controls
the joint venture through contractual arrangements, has the majority of capital
at risk through its significant ownership percentage and has guaranteed 100% of
the joint venture's third party debt. The unconsolidated joint ventures,
including one other 10% owned joint venture, are accounted for on the equity
method of accounting.

In 1987, Historical Red Lion sold its interest in 10 hotels to Red Lion
Inns Limited Partnership, a publicly traded limited partnership (the "MLP"). Red
Lion Properties, Inc., the general partner of the MLP, was contributed to the
Company in connection with the Formation and is a wholly owned subsidiary of the
Company. The MLP's public limited partners have an effective 98.01% ownership
interest in the MLP's hotels with the general partner retaining the remaining
1.99 % ownership interest. The Company operates the MLP's hotels under a
management agreement.

Operating revenues, expenses and current assets and current liabilities of
the MLP and other management contract hotels (including the three unconsolidated
joint ventures which are also managed by the Company) are included in the
accompanying consolidated financial statements because the operating
responsibilities associated with these hotels are substantially the same as
those for owned hotels. The operating profit, net of management fee income
earned by the Company for managed hotels, is recorded as an expense in the
accompanying consolidated statements of income. The consolidated financial
statements include current assets and current liabilities of $9,933,000 and
$8,843,000 (unaudited) at December 31, 1995 and June 30, 1996, respectively, and
operating revenues of $73,685,000 and $95,128,000 (unaudited) and operating
expenses of $49,263,000 and $62,811,000 (unaudited) for the ten months ended
December 31, 1995 and six months ended June 30, 1996, respectively, related to
the operation of the MLP and other management contract hotels.

One wholly owned hotel was acquired by Historical Red Lion in 1989 subject
to a nonrecourse cash flow mortgage which requires interest payments contingent
on achieving certain levels of performance. Because of the nonrecourse and cash
flow nature of the loan, the mortgage has not been recorded as an obligation and
the property and equipment of the hotel are excluded from the consolidated
financial statements. The mortgage is in substance a management contract with a
purchase option. Accordingly, the hotel is treated as a management contract in
the accompanying consolidated financial statements.

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. While
management endeavors to make accurate estimates, actual results could differ
from estimates.

All significant intercompany accounts and transactions have been eliminated
in consolidation.

The unaudited consolidated financial statements reflect, in the opinion of
the management, all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of the Company at June 30,
1996 and the results of operations and cash flows for the six month period ended
June 30, 1996 and for the four month period ended June 30, 1995. Interim results
are not necessarily indicative of results to be expected for a full fiscal year.

Certain prior year amounts have been reclassified to conform to the current
year presentation.

F-30
<PAGE> 131

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, time
deposits, commercial paper and U.S. government and other short-term securities
with maturities of three months or less when purchased. The carrying amount
approximates fair value because of the short-term maturity of these instruments.
The balance at December 31, 1995 and June 30, 1996 includes commercial paper of
$6,991,000 and $0 (unaudited) and government obligations of $58,443,000 and
$32,463,000 (unaudited), respectively.

Accounts Receivable

Accounts receivable are shown net of allowances for doubtful accounts of
$361,000 and $221,000 (unaudited) at December 31, 1995 and June 30, 1996,
respectively.

Inventories

Inventories consist primarily of consumable supplies as well as food and
beverage products held for sale. Inventories are valued at the lower of cost,
determined on a first-in, first-out basis, or market.

Property and Equipment

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Land........................................... $ 48,126 $ 53,195
Buildings and improvements..................... 321,940 345,580
Furnishings and equipment...................... 122,351 131,166
Construction in progress....................... 14,834 19,803
--------- ---------
507,251 549,744
Accumulated depreciation....................... (170,982) (174,177)
--------- ---------
$ 336,269 $ 375,567
========= =========
</TABLE>

Property and equipment are stated at Historical Red Lion's carrying value
at the date of contribution, plus additions, at cost, made subsequent to the
contribution. Additions and improvements are capitalized at cost, including
interest costs incurred during construction. Normal repairs and maintenance are
charged to expense as incurred. Upon the sale or retirement of property and
equipment, the cost and related accumulated depreciation and amortization are
removed from the respective accounts and the resulting gain or loss, if any, is
included in income.

Base stock (linens, china, silverware and glassware) is depreciated to 50%
of its initial cost on a straight-line basis over three years. Subsequent
replacements are expensed when placed in service. The carrying value of base
stock is included in furnishings and equipment.

Depreciation is computed on a straight-line basis using the following
estimated useful lives:

<TABLE>
<S> <C>
Building and improvements..................................... 10 to 40 years
Furnishings and equipment..................................... 5 to 15 years
</TABLE>

F-31
<PAGE> 132

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investment in and Advances to Unconsolidated Joint Ventures

The Company is a partner in three joint ventures which are accounted for on
the equity method of accounting. The Company's equity in and advances to these
joint ventures are shown under the caption "Investment in and Advances to
Unconsolidated Joint Ventures" in the consolidated balance sheets. Because the
Company manages these joint ventures, they are accounted for as managed hotels,
and therefore, the operating revenues, expenses and current assets and current
liabilities of the hotels are included in the consolidated financial statements.

Profits and losses of these joint ventures are allocated in accordance with
the joint venture agreements. The Company's share of the income or losses of the
joint ventures (after management fee income) is recorded under the caption
"Equity in Earnings of Unconsolidated Joint Ventures" in the consolidated
statements of income. If a joint venture experiences operating losses which
reduce the other joint venture partner's equity to a zero balance, the loss
which would otherwise be attributable to the other joint venturer is absorbed
within the Company's consolidated operating results.

Summarized financial information for the unconsolidated joint ventures,
excluding the current assets and current liabilities and operating revenues and
expenses included in the Company's consolidated financial statements, is as
follows (in thousands and unaudited):

<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Property and equipment, net....................... $ 35,263 $ 34,486
Goodwill, net..................................... 678 667
Deferred loan costs............................... 541 498
-------- ---------
$ 36,482 $ 35,651
======== =========
LIABILITIES AND PARTNERS' DEFICIT
Net working capital............................... $ 1,741 $ 842
Long-term debt, excluding current portion......... 21,841 21,364
Company advances.................................. 27,384 27,606
Partners' deficit................................. (14,484) (14,161)
-------- ---------
$ 36,482 $ 35,651
======== =========
</TABLE>

<TABLE>
<CAPTION>
TEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Revenues (payments from the Company representing
gross operating profit, net of management
fees)........................................... $ 2,729 $ 4,996
Expenses (principally depreciation and interest on
outside debt and Company advances).............. 3,276 5,215
----------- -----------
Net............................................... $ (547) $ (219)
============ ===========
</TABLE>

Goodwill

Historical Red Lion acquired interests in certain hotels, motor inns and
supporting auxiliary enterprises in 1985. Goodwill resulted from the acquisition
and represents the excess of purchase price over the fair value of net assets
acquired. Goodwill relates primarily to the hotels contributed to the Company by
Historical Red Lion and is being amortized on a straight-line basis over its
estimated useful life of approximately 40 years. Amortization expense was
$301,000 and $361,000 (unaudited) for the ten months ended December 31, 1995

F-32
<PAGE> 133

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and six months ended June 30, 1996, respectively. Accumulated amortization
aggregated $7,219,000 and $7,580,000(unaudited) at December 31, 1995 and June
30, 1996, respectively.

Deferred Loan Costs

Deferred loan costs incurred in connection with the Company's indebtedness
are included in other assets, net, and are amortized over the life of the
associated debt.

Accrued Expenses

Accrued expenses include the following items (in thousands):

<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Accrued payroll and related costs................. $22,253 $20,085
Accrued interest.................................. 2,311 2,153
Other............................................. 12,633 16,050
------- -------
$37,197 $38,288
======= =======
</TABLE>

Other Long-Term Obligations

The Company provides for the uninsured portions of medical, property,
liability and workers compensation claims. Such costs are estimated each year
based on historical claims data relating to operations. While actual results may
vary from estimates, the Company maintains stop-loss insurance to minimize the
effect of large claims on financial results. The long-term portion of accrued
claims costs relates primarily to general liability and workers compensation
claims which are not expected to be paid within one year and is reflected in
other long-term obligations.

The Company's retirement savings plan includes a non-qualified Supplemental
Employee Retirement Plan ("SERP") designed to supplement key employees whose
benefits would otherwise be reduced due to certain statutory limits of a 401(k)
plan. In addition, the Chief Executive Officer of the Company has entered into a
separate supplemental income retirement agreement with the Company. Both of
these obligations are reflected in long-term obligations.

Income Taxes

The Company utilizes the liability method to account for income taxes.
Under the liability method, deferred taxes are provided for the effects of
temporary differences between the financial statement and tax bases of assets
and liabilities.

Property Indirect Expenses

Property indirect expenses include undistributed property expenses for
selling, general and administrative, utilities, repairs and maintenance and an
allocation of certain corporate services (such as marketing, legal, tax and
accounting services) related to the operation of the properties.

Other Costs

Other costs include corporate administrative and general expenses, property
taxes, insurance, leases and other miscellaneous costs.

F-33
<PAGE> 134

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Payments Due to Owners of Managed Hotels

Payments due to owners of managed hotels is analogous to rent owed to
outside owners due to the nature of the management contracts and the control the
Company has over operations. The amounts shown in the consolidated statement of
income are net of management fee income of $4,994,000 and $6,138,000 (unaudited)
earned by the Company for the ten months ended December 31, 1995 and six months
ended June 30, 1996, respectively.

Joint Venturers' Interests

The Company is a partner in eight joint ventures, each of which owns a
separate hotel. The assets and liabilities of five of the eight joint ventures
are fully consolidated due to the Company's control of the ventures. The other
joint ventures are accounted for on the equity method of accounting (see
"Investment in Unconsolidated Joint Ventures"). The caption "joint venturers'
interests" represents the net equity attributable to the joint venturers'
interests, including their share of income, losses, distributions and
contributions.

Profits and losses of each joint venture are allocated in accordance with
the joint venture agreement. If a joint venture experiences operating losses
which reduce the other joint venture partner's equity to a zero balance, the
loss which would otherwise be attributable to the other joint venturer is
absorbed within the Company's consolidated operating results.

Earnings per Share and Stock Options

Earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Common stock equivalents have not
been included in the earnings per share calculation since their effect is
immaterial.

Impairment of Long-Lived Assets

In March 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Management evaluates its ability
to recover the recorded value of long-lived assets such as property and
equipment, goodwill, investments in and advances to unconsolidated joint
ventures and deferred loan costs at least annually, unless events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. If the sum of projected undiscounted future cash flows is less than
the carrying amount of the asset, an impairment loss would be recognized to the
extent that the carrying amount of the asset differs from its fair value
measured on a discounted cash flow basis. No impairment losses were recorded for
the ten months ended December 31, 1995 or six months June 30, 1996.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," effective January 1, 1996. SFAS No. 123 defines a fair value
based method of accounting for employee stock options or similar instruments and
permits companies to adopt that method of accounting for all of their employee
stock compensation plans. However, it also allows a company to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees." The Company has elected to continue to measure
compensation cost in conformity with APB No. 25 and to make pro forma
disclosures of net income and earnings per share in its annual report on Form
10-K for the year ended December 31, 1996, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied.

F-34
<PAGE> 135

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT AND CREDIT FACILITIES

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Term loan, LIBOR plus 2% (8.0% at December 31,
1995 and 7.5% at June 30, 1996) payable
through 2002................................. $ 133,750 $ 123,869
Mortgages, variable rates (7.0% - 8.3% at
December 31, 1995 and 6.6% - 7.0% at June 30,
1996) payable through 1998................... 84,900 84,545
Note payable, 8.69, payable through 2022....... 4,717 4,914
-------- --------
223,367 213,328
Current portion of long-term debt.............. (7,759) (9,219)
-------- --------
Long-term debt, net of current portion......... $ 215,608 $ 204,109
======== =========
</TABLE>

The annual principal requirements for the five years subsequent to June 30,
1996 are as follows (in thousands and unaudited):

<TABLE>
<S> <C>
1997...................................................... $ 9,219
1998...................................................... 101,045
1999...................................................... 19,375
2000...................................................... 20,000
2001...................................................... 27,125
Thereafter................................................ 36,564
--------
$213,328
========
</TABLE>

The Company has available a $130 million credit line facility of which $80
million is available for acquisitions and $50 million is available for working
capital requirements. The credit line facility has a term of seven years. The
term loan and credit line facility (collectively the "Credit Facility") carry a
variable interest rate based on LIBOR plus 2% (8.0% at December 31, 1995 and
7.5% at June 30, 1996). Quarterly mandatory prepayments which increase over the
term of the Credit Facility are required. In addition, in March of each year a
mandatory prepayment of the Credit Facility is required in an amount equal to
50% of annual excess cash flow (as defined in the credit agreement) for the
prior fiscal year. The $80.0 million available for acquisitions is anticipated
to be utilized by the Company to finance the addition of hotels to the Red Lion
chain through acquisitions, management contracts, joint ventures or leases. At
June 30, 1996, there was no outstanding balance on the credit line facility. All
debt and credit facilities are secured by the hotels owned by the Company or by
its joint venture interests.

The Company's credit facilities contain covenants which, among other
things, prohibit the payment of cash dividends, require certain levels of
tangible net worth and require the maintenance of debt coverage, interest
coverage, leverage and debt-to-equity ratios. As of December 31, 1995, the
Company was in compliance with these covenants.

The Company had outstanding letters of credit totaling $5,604,000
(unaudited) at June 30, 1996. These letters of credit expire at various dates
ranging from July to October, 1996.

F-35
<PAGE> 136

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest Rate Swap Agreements

The Company enters into interest rate swap agreements in order to reduce
its exposure to interest rate fluctuations. The agreements have effectively
converted floating rate debt, which is tied to LIBOR, to fixed rates.
Accordingly, the net interest received or paid on the interest rate swap is
recorded as an adjustment to interest expense.

At December 31, 1995 and June 30, 1996, the Company had three interest rate
swap agreements outstanding which have substantially converted $75 million of
debt from floating LIBOR based rates to fixed rates ranging from 5.19% to 5.57%.
The agreements expire from September 1997 to March 1998. Interest income earned
by the Company relating to interest rate swap agreements for the ten months
ended December 31, 1995 and six months ended June 30, 1996, was $215,000 and
$74,000 (unaudited), respectively, and is included as an adjustment to interest
expense.

These agreements are with major commercial banks and management does not
anticipate a credit loss due to nonperformance.

5. LEASES

Certain hotels are located on leased land. Certain leases contain rental
provisions and renewal options which are based on a percentage of revenues,
changes in the Consumer Price Index or changes in property values. All land
leases extend over the remaining estimated useful lives of the buildings
situated thereon. The Company also leases certain office space and equipment
under operating leases. The Company leases 17 hotels (Leased Hotels) from the
Partnership. The Leased Hotels are leased for an initial term of 15 years. The
Company may extend the lease on a hotel-by-hotel basis for five additional
five-year periods at comparable terms. Total land, office and equipment and
Leased Hotels rent expense was $6,676,000 and $8,342,000 (unaudited) for the ten
months ended December 31, 1995 and six months ended June 30, 1996, respectively.
Future minimum rental payments required under land, office and equipment leases
and Leased Hotels for the five years subsequent to June 30, 1996 are as follows
(in thousands and unaudited):

<TABLE>
<S> <C>
1997...................................................... $ 16,403
1998...................................................... 16,367
1999...................................................... 16,050
2000...................................................... 16,029
2001...................................................... 16,004
Thereafter................................................ 155,490
--------
$236,343
========
</TABLE>

6. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution 401(k) retirement plan for all full
time, non-union employees who have completed one year of service and who have
attained the age of 21 years. Under the 401(k) plan, the Company contributes
amounts equal to each participant's elected contributions up to 6% of eligible
compensation. Pension expense under this plan was $723,000 and $1,385,000
(unaudited) for the ten months ended December 31, 1995 and six months ended June
30, 1996, respectively.

The Company also has a non-qualified supplemental employee retirement plan.
The SERP was designed to complement the 401(k) plan by restoring benefits
otherwise lost by certain employees due to the statutory limits in the 401(k)
plan. The pension expense under the SERP was $80,000 and $128,000 (unaudited)
for the ten months ended December 31, 1995 and six months ended June 30, 1996,
respectively.

F-36
<PAGE> 137

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July 1995, the Company adopted the 1995 Equity Participation Plan (the
"Incentive Plan") which provides for the issuance of incentive or nonqualified
stock options, stock appreciation rights and other awards to key employees,
officers, consultants and non-employee directors at the discretion of the
Compensation Committee. The vesting period is determined at the date of grant
and generally ranges from zero to five years beginning on the date of grant. The
following table summarizes stock option transactions:

<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE
OPTION PER SHARE
------------ ------------------
<S> <C> <C>
Options outstanding at February 28, 1995............. -- --
Options granted, at fair market value on date of
grant.............................................. 2,250,833 $19.00 to $21.50
Options forfeited.................................... (15,000) $19.00
---------
Options outstanding at December 31, 1995............. 2,235,833 $19.00 to $21.50
Options granted, at fair market value on date of
grant (unaudited).................................. 142,500 $18.25 to $20.875
Options forfeited.................................... (161,000) $19.00
---------
Options outstanding at June 30, 1996 (unaudited)..... 2,217,333 $18.25 to $21.50
=========
</TABLE>

At December 31, 1995 and June 30, 1996, there were 696,667 options
exercisable and 1,064,157 and 1,082,667 (unaudited) shares available for grant
under the Incentive Plan, respectively.

7. RELATED PARTY TRANSACTIONS

Prior to the Formation the Santa Barbara Hotel was operated and managed by
Historical Red Lion. Management fees paid to Historical Red Lion were $385,000
for the five months ended July 31, 1995 and are included in other costs.

Investments in and advances to unconsolidated joint ventures includes two
notes receivable from one joint venture in the amounts of $1,500,000 and
$2,009,000 at December 31, 1995 and $1,387,000 and $2,009,000 (unaudited) at
June 30, 1996. The notes bear interest at a fixed rate of 10.0% and prime plus
1.0% (9.5% at December 31, 1995 and 9.25% at June 30, 1996), respectively. The
$1,387,000 note matures on November 21, 2003. The $2,009,000 note has an
unspecified term and is to be repaid based on cash flow available for
distribution, as defined. In addition, other assets, net, includes a note
receivable from a joint venture partner in the amount of $1,628,000 and
$1,714,000 (unaudited) at December 31, 1995 and June 30, 1996, respectively,
which bears interest at a rate based on prime (10.5% at December 31, 1995 and
10.2% at June 30, 1996) and has an unspecified term with repayment amounts based
on cash flow available for distribution, as defined. In addition, accounts
receivable-affiliates includes $4,120,000 and $3,448,000 (unaudited) at December
31, 1995 and June 30, 1996, respectively, receivable from the management
contract hotels and other related parties other than Red Lion Inns Limited
Partnership.

The Company leases the Leased Hotels from the Partnership. Annual lease
payments aggregate $15,000,000. Lease expense for the period from the Formation
through December 31, 1995 and for the six months ended June 30, 1996 totaled
$6,250,000 and $7,500,000 (unaudited), respectively.

Transactions with Red Lion Inns Limited Partnership

A wholly owned subsidiary of the Company serves as general partner and owns
1.99 percent of the MLP. The general partner is responsible for management and
administration of the MLP. In accordance with the partnership agreement, the MLP
reimburses the Company for related administrative costs.

Under a management agreement, the MLP pays base and incentive management
fees to the Company. Base management fees payable to the Company are equal to 3%
of the annual gross revenues of the MLP hotels. Incentive management fees
payable to the Company are equal to the sum of 15% of adjusted gross

F-37
<PAGE> 138

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operating profit up to $36 million (operating profit target) and 25% of adjusted
gross operating profit in excess of the operating profit target. Adjusted gross
operating profit is gross operating profit less base management fees.

Incentive management fees are only payable to the extent that cash flow
available for distributions and incentive management fees exceeds the amount
required to pay the annual priority distribution to the MLP's limited partners.
Cash flow is defined as pre-tax income (or loss) before noncash charges
(primarily depreciation and amortization) and incentive management fees, but
after the reserve for capital improvements and principal payments on certain
debt.

The Company also charges the MLP hotels for their pro rata share of support
services such as computer, advertising, public relations, promotional and sales
and central reservation services.

All MLP personnel are employees of the Company. All costs for services of
such employees are reimbursed to the Company by the MLP. These costs include
salaries, wages, payroll taxes and other employee benefits. Additionally,
auxiliary enterprises owned by the Company sell operating supplies, furnishings
and equipment to the MLP.

The aggregate amounts, excluding personnel related expenses, charged by the
Company to the MLP under the arrangements described above are as follows (in
thousands):

<TABLE>
<CAPTION>
TEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Management fees................................... $ 3,614 $ 4,336
Support services.................................. 1,732 3,430
Purchases from auxiliary enterprises.............. 6,064 7,195
General Partner administrative expenses........... 197 283
</TABLE>

Included in accounts receivable-affiliates and due from affiliate is
$19,078,000 and $22,455,000 (unaudited) at December 31, 1995 and June 30, 1996,
respectively, representing amounts receivable from the MLP primarily for
advances made by the Company and Historical Red Lion for capital improvements
which exceeded the 3% reserve established in accordance with the provisions of
the management agreement. Such amounts are presented net of current assets and
current liabilities related to the managed MLP hotels of $2,194,000 and
$3,231,000 (unaudited) at December 31, 1995 and June 30, 1996, respectively. The
current balance of $2,823,000 and $1,064,000 (unaudited) at December 31, 1995
and June 30, 1996, respectively, is included in accounts receivable-affiliates.
The remaining balance of $16,255,000 and $21,391,000 (unaudited) at December 31,
1995 and June 30, 1996, respectively, is classified as due from affiliate.
Amounts receivable from the MLP earn interest at the rate of prime plus 0.5%
(9.0% at December 31, 1995 and 8.75% at June 30, 1996).

Accounts receivable-affiliates and due from affiliate also include certain
other advances to and deferred incentive management fees receivable from the
MLP. A total of $3,726,000 was advanced to the MLP to fund distributions during
the first 36 months of the MLP's operations. The advance is non-interest
bearing, has an unspecified term and is to be repaid out of available cash flow
or refinancing proceeds. Additionally, non-interest bearing deferred incentive
management fees receivable of $6,000,000 were contributed to the Company in the
Formation. At December 31, 1995, $5,153,000 and $847,000 are classified as
accounts-receivable-affiliates and due from affiliate, respectively. The Company
received $5,299,000 (unaudited) of such fees during the six months ended June
30, 1996. Of the total remaining balance of $701,000 (unaudited), $641,000
(unaudited) is classified as due from affiliate and $60,000 (unaudited) as
accounts receivable-affiliates at June 30, 1996.

F-38
<PAGE> 139

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized income statement information for the MLP is as follows (in
thousands and unaudited):

<TABLE>
<CAPTION>
AUGUST 1
THROUGH SIX MONTHS
DECEMBER ENDED
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Revenues.......................................... $16,884 $19,677
Net income........................................ 2,364 1,722
</TABLE>

Revenues of the MLP represent the gross operating profit (operating
revenues less operating expenses) of the MLP hotels as this amount is similar to
gross rent received from the Company to manage the hotels. As discussed in Note
1, the operating revenues and expenses of the MLP hotels are consolidated.
Consolidation of the operating revenues and expenses of the MLP does not affect
the Company's cash flow or net income except to the extent that management fees
were earned.

Summarized balance sheet information for the MLP, not included in the
accompanying consolidated balance sheets (including amounts due to the Company)
is as follows (in thousands and unaudited):

<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Cash............................................... $ 229 $ 448
Noncurrent assets, primarily property and
equipment........................................ 166,038 169,112
Current liabilities................................ 29,094 28,164
Long-term obligations, net of current portion...... 117,266 124,178
Deferred income taxes.............................. 1,673 1,919
Partners' equity................................... 18,234 15,299
</TABLE>

8. INCOME TAXES

Income tax benefit (expense) consists of the following (in thousands):

<TABLE>
<CAPTION>
TEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Current
Federal......................................... $(3,928) $ (9,814)
State........................................... (842) (1,435)
Deferred
Federal......................................... 7,767 (1,144)
State........................................... 1,110 (164)
------- ---------
Total tax benefit (expense)..................... $ 4,107 $ (12,557)
======= =========
</TABLE>

F-39
<PAGE> 140

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The effective tax rate varies from the statutory rate due to the following
(in thousands):

<TABLE>
<CAPTION>
TEN MONTHS
ENDED SIX MONTHS
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Expected tax expense at federal statutory rates... $(4,007) $ (10,988)
Deferred income tax benefit due to the difference
between the book and tax bases of net assets
contributed..................................... 9,736 --
Nondeductible Formation and Offering Costs........ (879) --
State income taxes................................ (586) (1,570)
Other............................................. (157) 1
-------- ---------
Total tax benefit (expense)............. $ 4,107 $ (12,557)
======== =========
</TABLE>

Since Historical Red Lion was a partnership, no deferred tax benefits had
been provided on the net assets contributed to the Company. In accordance with
SFAS No. 109, "Accounting for Income Taxes," the Company recorded net deferred
tax assets of $1.2 million and $8.5 million related to the contribution of the
Santa Barbara Joint Venture and the Formation, respectively.

The components of the net deferred income tax assets are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Basis difference in joint ventures.............. $ 9,720 $ 9,960
Accrued expenses................................ 5,851 5,852
Payroll related costs and other................. 1,734 1,687
------- ---------
Total deferred tax assets............... 17,305 17,499
DEFERRED TAX LIABILITIES:
Basis difference in property and equipment...... (8,428) (9,930)
------- ---------
Net deferred tax asset.......................... $ 8,877 $ 7,569
======= =========
Net deferred tax assets are presented as follows
(in thousands):
Current deferred tax asset........................ $ 2,306 $ 2,796
Noncurrent deferred tax asset..................... 6,571 4,773
------- ---------
Net deferred tax asset.................. $ 8,877 $ 7,569
======= =========
</TABLE>

9. EXPENSES RESULTING FROM THE FORMATION AND OFFERING

Expenses resulting from the Formation and Offering include certain
Formation costs of $1,314,000 and expenses resulting from the Offering of
$11,348,000 and $2,000,000 related to the termination of an incentive unit plan
and assumption of the obligation of a supplemental income retirement agreement,
respectively.

10. INSURANCE PROCEEDS (UNAUDITED)

On February 8, 1996, three of the Company's hotels were evacuated due to
flooding in northwestern Oregon and southwestern Washington. Two of the hotels
were damaged by flood waters, have reopened and have been repaired. The third
hotel was undamaged and reopened quickly. As the Company maintains flood and
business interruption insurance, management does not believe that the ultimate
outcome will have a

F-40
<PAGE> 141

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

material adverse effect on the results of operations or financial position of
the Company. Moreover, as the Company's flood insurance policy covers the
replacement cost of the damaged property, insurance proceeds will likely exceed
the net book value of the underlying property, resulting in the recognition of
gains when such proceeds are received.

11. COMMITMENTS AND CONTINGENCIES

At June 30, 1996, the Company had commitments relating to capital
improvement projects aggregating approximately $9,619,000 (unaudited).

In connection with the Formation, the Company agreed to indemnify the
Partnership with respect to any potential obligations arising out of the
transfer to the Company of certain assets and the assumption of certain
liabilities. Management is not aware of any such obligations.

Beginning August 2, 1996, for a period of 60 days, the Partnership has the
option to require the Company to purchase its retained joint venture interests
for $1,290,000.

The Company is party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a material
adverse effect, if any, on the Company's financial position, results of
operations or liquidity.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments and the
methods and assumptions used to estimate such fair values at December 31, 1995,
are as follows (in thousands):

<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
--------- ----------
<S> <C> <C>
Accounts receivable-affiliates (Note 7).............. $ 12,096 $ 11,990
Due from affiliate (Note 7).......................... 20,828 20,080
Long-term debt....................................... (223,367) (223,367)
Interest rate swaps.................................. -- 24
</TABLE>

The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and other long-term obligations is a
reasonable approximation of their fair value.

The carrying value of accounts receivable-affiliates approximates fair
value due to the short-term nature of the receivable. The carrying value of due
from affiliate includes non-interest bearing receivables at December 31, 1995
aggregating $4,573,000, as discussed in Note 7. The fair value of due from
affiliate is determined using estimated rates for similar notes, based on
anticipated repayment dates. Based on borrowing rates currently quoted by
financial institutions for debt with similar terms and remaining maturities, the
carrying value of long-term debt approximates fair value.

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

The quarterly results of the Company are not comparable since the quarter
ended June 30, 1995 only includes the operations of one joint venture
contributed by Historical Red Lion in March 1995. The quarter ended September
30, 1995 includes the operations of that joint venture for the quarter as well
as the results of the Company subsequent to the Formation. The quarter ended
December 31, 1995 was the first full quarter of

F-41
<PAGE> 142

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operations subsequent to the Formation. Summarized quarterly financial data are
as follows (in thousands, except share and per share amounts, room and occupancy
statistics):

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
JUNE DECEMBER
30, SEPTEMBER 30, 31, JUNE 30,
1995 1995 1995 1996
------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues......................................... $ 2,764 $ 89,274 $ 122,074 $ 137,317
Operating income................................. $ 1,800 $ 4,290 $ 13,779 $ 24,343
Net income....................................... $ 220 $ 7,902 $ 6,269 $ 12,388
Earnings per share............................... $ 2,200 $ 0.38 $ 0.20 $ 0.40
Weighted average common shares outstanding....... 100 20,875,033 31,312,500 31,312,500
Occupancy percentage............................. -- 80.7% 65.5% 75.3%
Average room rate................................ $ -- $ 76.93 $ 73.51 $ 81.12
</TABLE>

14. SUBSEQUENT EVENTS (UNAUDITED)

On August 7, 1996, the Company acquired a 319 room hotel in Houston, Texas
for $21.75 million. Additionally, on September 6, 1996, the 258 room hotel in
Modesto, California which was previously managed by Red Lion was purchased by
the Company for $15.6 million.

F-42
<PAGE> 143

INDEPENDENT AUDITORS' REPORT

To the Partners of Red Lion, a California Limited Partnership:

We have audited the accompanying consolidated statements of operations,
partners' equity and cash flows of Red Lion, a California Limited Partnership
("Historical Red Lion"), and subsidiaries for the seven month period ended July
31, 1995. These financial statements are the responsibility of Historical Red
Lion's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Historical Red Lion and subsidiaries for the seven month period ended
July 31, 1995, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Portland, Oregon
February 24, 1996

F-43
<PAGE> 144

INDEPENDENT AUDITORS' REPORT

To the Partners of Red Lion, a California Limited Partnership:

We have audited the accompanying consolidated balance sheet of Red Lion, a
California Limited Partnership ("Historical Red Lion"), and subsidiaries as of
December 31, 1994, and the related consolidated statements of operations,
partners' equity and cash flows for each of the two years in the period ended
December 31, 1994. These financial statements are the responsibility of
Historical Red Lion's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Historical
Red Lion and subsidiaries as of December 31, 1994, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, Historical
Red Lion has given retroactive effect to the changes in accounting for their
investment in two joint ventures and its accounting for joint venturers'
interests. Also, as discussed in Note 1 to the consolidated financial
statements, effective January 1, 1993, Historical Red Lion changed their
accounting method for measuring impairment of hotel properties.

ARTHUR ANDERSEN LLP

Portland, Oregon
February 7, 1995

F-44
<PAGE> 145

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(In thousands)

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 27,804
Short-term debt securities.................................................... 40,891
Accounts receivable, net...................................................... 17,486
Accounts receivable, affiliates............................................... 13,138
Inventories................................................................... 6,361
Prepaid expenses and other current assets..................................... 3,729
--------
Total current assets.................................................. 109,409
--------
PROPERTY AND EQUIPMENT, NET..................................................... 514,807
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES..................................... 14,281
OTHER ASSETS:
Goodwill, net................................................................. 36,453
Other, net.................................................................... 18,394
--------
Total assets.......................................................... $693,344
========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 19,290
Accrued expenses.............................................................. 33,007
Current portion of long-term debt............................................. 108,358
--------
Total current liabilities............................................. 160,655
--------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION..................................... 388,944
OTHER LONG-TERM OBLIGATIONS................................................... 7,682
JOINT VENTURERS' INTEREST..................................................... 905
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4 & 5)
PARTNERS' EQUITY.............................................................. 135,158
--------
Total liabilities and partners' equity................................ $693,344
========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-45
<PAGE> 146

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
SEVEN MONTHS 31,
ENDED JULY 31, ---------------------
1995 1994 1993
-------------- -------- --------
<S> <C> <C> <C>
REVENUES:
Rooms................................................. $161,834 $257,699 $242,193
Food and beverage..................................... 92,570 159,154 156,242
Other................................................. 27,802 46,035 41,582
-------- -------- --------
Total revenues................................ 282,206 462,888 440,017
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Departmental direct expenses:
Rooms.............................................. 39,670 64,121 60,785
Food and beverage.................................. 73,269 124,070 123,518
Other.............................................. 10,592 17,586 16,935
Property indirect expenses............................ 60,342 99,673 95,118
Other costs........................................... 10,787 19,570 18,346
Depreciation and amortization......................... 17,053 31,313 31,144
Payments due to owners of managed hotels.............. 32,073 42,841 41,722
-------- -------- --------
OPERATING INCOME........................................ 38,420 63,714 52,449
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES..... 1,614 1,327 1,213
OTHER EXPENSE:
Interest expense, net................................. (20,316) (32,737) (30,065)
Loss on sale of property.............................. -- -- (1,701)
-------- -------- --------
Total other expense........................... (20,316) (32,737) (31,766)
-------- -------- --------
INCOME BEFORE JOINT VENTURERS' INTERESTS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE........................... 19,718 32,304 21,896
JOINT VENTURERS' INTERESTS.............................. 411 (1,321) (323)
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.... 20,129 30,983 21,573
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(NOTE 1).............................................. -- -- (29,878)
-------- -------- --------
NET INCOME (LOSS)....................................... $ 20,129 $ 30,983 $ (8,305)
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-46
<PAGE> 147

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND SEVEN MONTHS ENDED JULY 31, 1995
(In thousands)

<TABLE>
<CAPTION>
PARTNERS' ACCUMULATED
CAPITAL DEFICIT TOTAL
--------- ----------- --------
<S> <C> <C> <C>
BALANCE, December 31, 1992................................ $ 180,000 $ (67,520) $112,480
Net loss.................................................. -- (8,305) (8,305)
-------- -------- --------
BALANCE, December 31, 1993................................ 180,000 (75,825) 104,175
Net income................................................ -- 30,983 30,983
-------- -------- --------
BALANCE, December 31, 1994................................ 180,000 (44,842) 135,158
Net income................................................ -- 20,129 20,129
-------- -------- --------
BALANCE, July 31, 1995.................................... $ 180,000 $ (24,713) $155,287
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-47
<PAGE> 148

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, --------------------
1995 1994 1993
------------ -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 20,129 $ 30,983 $ (8,305)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change................ -- -- 29,878
Loss on sale of property.............................. -- -- 1,701
Income attributable to joint venturers' interests..... (411) 1,321 323
Equity in earnings of unconsolidated joint ventures... (1,614) (1,327) (1,213)
Depreciation and amortization......................... 16,316 31,313 31,144
Amortization of other assets (principally deferred
loan costs)......................................... 737 1,927 1,612
Decrease (increase) in accounts receivable, net....... (1,185) (2,217) 72
Increase in accounts receivable, affiliates........... (1,441) (1,545) (6,253)
Decrease (increase) in inventories.................... 435 (520) 714
Decrease (increase) in prepaid expenses and other
current assets...................................... (1,305) 89 (249)
Increase (decrease) in accounts payable, accrued
expenses and other long-term obligations............ (4,548) 4,920 5,139
-------- -------- --------
Total adjustments........................................ 6,984 33,961 62,868
-------- -------- --------
Net cash provided by operating activities........ 27,113 64,944 54,563
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................... (15,858) (23,959) (20,002)
Proceeds from sale of property and equipment............. -- -- 1,190
Distributions to joint venturers......................... (252) (1,241) (467)
Purchase of short-term debt securities................... (19,694) (44,307) --
Proceeds from sales of short-term debt securities........ 60,585 3,416 --
Other investing activities, net.......................... 1,751 72 1,911
-------- -------- --------
Net cash (used in) provided by investing
activities..................................... 26,532 (66,019) (17,368)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings....................... $ 1,223 $ 1,892 $ 50,430
Net increase (decrease) in revolving lines of credit..... -- 72,000 (14,148)
Repayment of long-term debt.............................. (13,839) (45,523) (71,550)
Other financing activities............................... -- (768) (2,053)
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (12,616) 27,601 (37,321)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 41,029 26,526 (126)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 27,804 1,278 1,404
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 68,833 $ 27,804 $ 1,278
======== ======== ========
</TABLE>

F-48
<PAGE> 149

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(In thousands)

<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEARS ENDED
JULY 31, DECEMBER 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest,
net of capitalized portion............................ $ 23,633 $ 28,368 $ 26,738
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property for noncash consideration........... $ -- $ -- $ 1,500
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-49
<PAGE> 150

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Red Lion, a California Limited Partnership ("Historical Red Lion"),
acquired interests in certain hotels, motor inns and supporting auxiliary
enterprises on April 10, 1985, which were previously operating as Red Lion Inns
and Thunderbird Motor Inns. One of the previous principal owners contributed his
ownership interests in exchange for a limited partnership interest in Historical
Red Lion.

On April 14, 1987, Historical Red Lion sold its interest in 10 hotels to
Red Lion Inns Limited Partnership, a publicly traded limited partnership (the
"MLP"). Red Lion Properties, Inc., a wholly-owned subsidiary of Historical Red
Lion, is the general partner of the MLP. Since completion of this sale, the
MLP's limited partners have had an effective 98.01% ownership interest in the
hotels with the general partner retaining the remaining 1.99% ownership
interest. Historical Red Lion operates the MLP's hotels under a management
agreement.

Basis of Presentation

The accompanying consolidated financial statements include Historical Red
Lion, its wholly-owned subsidiaries and five of its seven partially owned joint
ventures. Historical Red Lion consolidates those entities which it controls.
Historical Red Lion is the managing general partner, controls and owns 75
percent, 66.67 percent, 66.67 percent, 51 percent and 50 percent of the joint
venture interests of the five consolidated joint ventures. Historical Red Lion
consolidates one of its 50 percent owned joint ventures because Historical Red
Lion controls the joint venture through contractual arrangements, has the
majority of capital at risk through its significant ownership percentage and has
guaranteed 100 percent of the joint venture's third party debt. The remaining
two joint ventures are accounted for using the equity method of accounting. Each
of the seven joint ventures is a single purpose venture whose only business is
the operation of one Red Lion hotel.

Operating revenues and expenses and current assets and current liabilities
of the MLP and other management contract hotels (including the two
unconsolidated joint ventures which are also managed by Historical Red Lion) are
included in the accompanying consolidated financial statements because the
operating responsibilities associated with these hotels are substantially the
same as those for owned hotels. The operating profit net of management fee
income for managed hotels is recorded as an expense in the accompanying
consolidated statements of operations. The consolidated financial statements
also include the following amounts related to managed hotels (including the two
unconsolidated joint ventures which are also managed by Historical Red Lion):
current assets and current liabilities of $8,121,000 at December 31, 1994;
operating revenues of $155,668,000, $166,283,000 and $110,684,000 for the years
ended December 31, 1993 and 1994 and for the seven month period ended July 31,
1995, respectively; and operating expenses of $107,801,000, $113,131,000 and
$72,216,000 for the years ended December 31, 1993 and 1994 and for the seven
month period ended July 31, 1995, respectively.

One wholly-owned hotel was acquired in 1989 subject to a non-recourse
cash-flow mortgage which requires interest payments contingent on achieving
certain levels of performance. Because of the non-recourse and cash flow nature
of the loan, the mortgage has not been recorded as an obligation, and the
property and equipment of the hotel are excluded from the accompanying
consolidated financial statements. The mortgage is in substance a management
contract with a purchase option. Accordingly, the hotel is treated as a
management contract in the accompanying consolidated financial statements.

All significant intercompany accounts and transactions have been eliminated
in consolidation.

F-50
<PAGE> 151

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, certificates
of deposit, time deposits and U.S. government and other short-term securities
with maturities of three months or less when purchased. The carrying amount
approximates fair value because of the short term maturity of these instruments.

Short-Term Debt Securities

Short-term debt securities include treasury bills, commercial paper and
other short-term debt securities with maturities greater than three months when
purchased. All of these securities mature within ten months from December 31,
1994. As the securities are actively traded, Historical Red Lion has classified
these investments as trading securities and these securities are recorded at
market which approximated cost at December 31, 1994.

Accounts Receivable

Accounts receivable are shown net of allowances for doubtful accounts of
$357,000 at December 31, 1994 and approximate fair value.

Inventories

Property and Equipment

Property and equipment consist of the following at December 31, 1994 (in
thousands):

<TABLE>
<S> <C>
Land............................................................. $ 70,579
Buildings and improvements....................................... 500,922
Furnishings and equipment........................................ 183,506
Construction in progress......................................... 7,878
--------
762,885
Less allowance for depreciation and amortization................. (248,078)
--------
$ 514,807
========
</TABLE>

Additions and improvements are capitalized at cost, including interest
costs incurred during construction. There was no capitalized interest during the
seven month period ended July 31, 1995, or during each of the two years ended
December 31, 1994. Normal repairs and maintenance are charged to expense as
incurred. Upon the sale or retirement of property and equipment, the cost and
related accumulated depreciation and amortization are removed from the
respective accounts and the resulting gain or loss, if any, is included in
income.

Base stock (linens, china, silverware and glassware) is depreciated to 50%
of its initial cost on a straightline basis over three years. Subsequent
replacements are expensed when placed in service. The carrying value of base
stock is included in furnishings and equipment as noted above.

Depreciation and amortization of property and equipment were computed on a
straight-line basis using the following estimated useful lives:

<TABLE>
<S> <C>
Buildings....................................................... 40 years
Improvements.................................................... 10-15 years
Furnishings and equipment....................................... 3-15 years
</TABLE>

F-51
<PAGE> 152

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective January 1, 1993, Historical Red Lion prospectively changed the
estimated useful lives of its buildings to 40 years from lives averaging 32
years. The change was made to align building lives with actual experience and
common industry practice. The effect of the change was to decrease depreciation
expense for 1993 by approximately $2,600,000.

Effective January 1, 1993, Historical Red Lion changed its accounting
method for measuring impairment of hotel properties from using undiscounted
future cash flows to discounted future cash flows. Historical Red Lion made this
change because it believes this is a preferable method of measuring impairment
of hotel properties. As a result of this change, the 1993 consolidated financial
statements include a reduction in the carrying value of one hotel of $29,878,000
reflected as a cumulative effect of accounting change in the accompanying
consolidated statements of operations for the year ended December 31, 1993. The
reduction in depreciation expense as a result of this change was $994,000 in
1993.

Investment in Unconsolidated Joint Ventures

Historical Red Lion is a partner in two joint ventures that are accounted
for on the equity method of accounting. Historical Red Lion's equity in and
advances to these joint ventures are shown under the caption "Investment in
Unconsolidated Joint Ventures" in the accompanying consolidated balance sheets.
Because Historical Red Lion manages these joint ventures, they are accounted for
as managed hotels, and therefore, the operating working capital of the hotels
are consolidated in the accompanying consolidated balance sheets.

Profits and losses of these joint ventures are allocated in accordance with
the joint venture agreements. Because the hotels are accounted for as managed
hotels, the operating revenues and expenses are consolidated in the accompanying
statements of operations with Historical Red Lion's share of the income or
losses of the joint ventures (after management fee income) recorded under the
caption "Equity in Earnings of Unconsolidated Joint Ventures." If a joint
venture experiences operating losses which reduce the other joint venture
partner's equity to a zero balance, the loss which would otherwise be
attributable to the other joint venturer is absorbed within Historical Red
Lion's consolidated operating results.

Summarized financial information for the unconsolidated joint ventures,
excluding the working capital and operating revenues and expenses which are
consolidated in Historical Red Lion's consolidated financial statements, is as
follows (in thousands and unaudited):

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Total current assets............................................ $ 470
Property and equipment, net..................................... 24,161
Goodwill, net................................................... 701
Other assets.................................................... 68
--------
$ 25,400
========
LIABILITIES AND PARTNERS' DEFICIT
Total current liabilities....................................... $ 1,076
Long-term debt, excluding current portion....................... 8,913
Historical Red Lion advances.................................... 26,973
Partners' deficit............................................... (11,562)
--------
$ 25,400
========
</TABLE>

F-52
<PAGE> 153

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -----------------
1995 1994 1993
------------ ------ ------
<S> <C> <C> <C>
Revenues (payments from Historical Red Lion
representing gross operating profit)....... $4,533 $6,642 $5,831
Expenses (principally depreciation and
interest on
outside debt and Historical Red Lion
advances).................................. 4,484 6,850 5,817
------ ------ ------
Net income (loss)............................ $ 49 $ (208) $ 14
====== ====== ======
</TABLE>

Goodwill

Goodwill resulted from the April 10, 1985 acquisition and represents the
excess of purchase price over the net fair value of assets acquired and is being
amortized on a straight-line basis over 40 years. Accumulated amortization was
$11,177,000 at December 31, 1994. Management evaluates its accounting for
goodwill impairment, considering such factors as historical and future
profitability, annually, or more frequently when events or changes in
circumstances indicate that the carrying amount of goodwill may not be
recoverable. To perform that review, the Company estimates the sum of expected
future discounted cash flows from operating activities. If the estimated net
cash flows are less than the carrying amount of goodwill, the Company will
recognize an impairment loss in an amount necessary to write down goodwill to a
fair value as determined from expected future discounted cash flows. Management
believes that the goodwill at December 31, 1994 is realizable and the
amortization period is appropriate.

Deferred Loan Costs

Deferred loan costs are included in other assets, net and represent prepaid
mortgage financing fees which are amortized over the life of the associated
mortgages.

Other Assets

Other assets include approximately $2.7 million of costs incurred through
December 31, 1994 related to the initial public offering. This amount was
contributed to Red Lion Hotels, Inc. and netted against the proceeds of such
initial public offering.

Accrued Expenses

Accrued expenses include the following items at December 31, 1994 (in
thousands):

<TABLE>
<S> <C>
Accrued payroll and related costs.................................. $20,682
Accrued interest................................................... 2,676
Other.............................................................. 9,649
-------
$33,007
=======
</TABLE>

Insurance Reserves

Historical Red Lion provides for the uninsured costs of medical, property,
liability and workers compensation claims. Such costs are estimated each year
based on historical claim data relating to operations conducted through December
31, 1994. The long-term portion of accrued claims costs relate primarily to
general liability and workers compensation claims and are reflected in other
long-term obligations in the accompanying consolidated balance sheets.

F-53
<PAGE> 154

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

Historical Red Lion is a limited partnership. Accordingly, no provision is
made for income taxes as taxes on income are the responsibility of the partners.
The allocation of taxable income or loss and depreciation expense to each
partner is based on the terms of the partnership agreement.

Property Indirect Expenses

Property indirect expenses include undistributed property expenses for
selling, general and administrative, utilities, repairs and maintenance, and an
allocation of certain corporate services (such as marketing, legal, tax and
accounting services) related to the operation of the properties.

Other Costs

Other costs include corporate administrative and general expenses, property
taxes, insurance, leases and other miscellaneous costs.

Payments Due to Owners of Managed Hotels

"Payments due to owners of managed hotels" is analogous to rent owed to
outside owners due to the nature of the management contracts and the control
Historical Red Lion has over operations. The amounts shown on the statements of
operations are net of management fee income of $6,145,000 and $10,311,000 for
1993 and 1994, respectively, and $6,395,000 for the seven month period ended
July 31, 1995.

Joint Venturers' Interests

Historical Red Lion is a partner in seven joint ventures, each of which
owns a separate hotel. The assets and liabilities of five of the seven joint
ventures are fully consolidated in the accompanying financial statements. The
other joint ventures are accounted for on the equity method of accounting (see
Investment in Unconsolidated Joint Ventures above). The assets and liabilities
attributable to joint venturers' interests existing at the date of the April 10,
1985 acquisition were valued at historical amounts and were not revalued to
reflect appraised values at that date. The caption "joint venturers' interests"
represents the net equity attributable to the joint venturers' interests,
including their share of income, losses, distributions and contributions.

Profits and losses of each joint venture are allocated in accordance with a
joint venture agreement. If a joint venture experiences operating losses which
reduce the other joint venture partner's equity to a zero balance, the loss
which would otherwise be attributable to the other joint venturer is absorbed
within Historical Red Lion's consolidated operating results.

Prior Year Restatements

In 1994, Historical Red Lion retroactively changed two of its accounting
principles for all years presented in the accompanying consolidated financial
statements as follows:

- In prior years, Historical Red Lion generally absorbed losses
attributable to other joint venturers' interests once the equity of
the other joint venturer was reduced to zero. However, certain
distributions and losses attributable to other joint venturers'
interests were not absorbed by Historical Red Lion if such amounts
were deemed recoverable from the fair value of the joint ventures'
assets. Accordingly, these distributions and losses were reflected
as joint ventures' interests in the consolidated balance sheets. In
1994, Historical Red Lion changed its accounting policy to absorb
all losses and distributions to outside joint venturers once a
partner's equity has been reduced to zero. Historical Red Lion
changed its accounting policy for joint ventures'

F-54
<PAGE> 155

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest to more closely align with the accounting treatment discussed
in Emerging Issues Task Force No. 94-2 issued in 1994. This change
decreased income before cumulative effect of accounting change by
$515,000 for the year ended December 31, 1993. The change also
increased accumulated deficit at December 31, 1991 by approximately
$11.8 million.

- Two of Historical Red Lion's 50 percent owned joint ventures, which
had been previously consolidated, are now accounted for on the
equity method. Historical Red Lion's five other joint ventures
continue to be consolidated in the accompanying financial
statements. There was no effect of this change on net income or
partners' equity in any year.

Prior Year Reclassifications

Certain prior year amounts have been reclassified to conform to current
year presentation.

2. LONG-TERM DEBT

Long-term debt at December 31, 1994 consists of the following (in
thousands):

<TABLE>
<S> <C>
Mortgages, secured by hotel properties, variable rates, 7.13% to
10%, payable in varying installments through 1999............... $390,750
Mortgages, secured by hotel properties, fixed rates, 8.75% to 11%,
payable in varying installments through 2008.................... 4,211
Note payable, fixed rate, 8.69%, payable through 2022............. 4,341
Bank revolving credit lines, unsecured............................ --
Term loan, unsecured, variable rate, 8.06%, payable through
1997............................................................ 98,000
--------
497,302
Current portion of long-term debt................................. (108,358)
--------
Long-term debt, excluding current portion............... $388,944
========
</TABLE>

The annual principal requirements for the five years subsequent to December
31, 1994 are as follows (in thousands):

<TABLE>
<S> <C>
1995............................................................ $108,358
1996............................................................ 110,328
1997............................................................ 215,120
1998............................................................ 46,992
1999............................................................ 15,298
Thereafter...................................................... 1,206
--------
$497,302
========
</TABLE>

The current portion of long-term debt at December 31, 1994 includes $87
million related to balloon payments on four mortgages which are due in 1995.
Management believes that these maturities can be satisfied from existing or
future financing resources.

Loan Extension Options

The above presentation of principal payments due for each of the five years
subsequent to December 31, 1994 and thereafter reflects Historical Red Lion's
plan to exercise certain options under the existing loan agreements to extend
the due dates of various loans.

F-55
<PAGE> 156

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revolving Credit Lines and Term Loan

At December 31, 1993, Historical Red Lion had two revolving credit line
facilities, with a combined total amount available of $105 million, of which
$32,218,000 was outstanding, including amounts due under the cash management
system.

Historical Red Lion's primary credit agreement provided a $100 million
three-year revolving credit line with variable interest rates that varied, at
Historical Red Lion's option, on the bank's prime rate, certificate of deposit
rate or the London Interbank Offering Rate (LIBOR). The weighted average
interest rate for 1993 was 5.4%, with the rate at December 31, 1993, equal to
5.3%. At December 31, 1993, $26 million was outstanding under this line.

The credit agreement, with the same interest rate options, converted to a
three-year term loan on September 1, 1994. At December 31, 1994, $98 million was
outstanding under this term loan. Quarterly principal payments, equal to 2% of
the term loan balance as of September 1, 1994, will be required through 1997 at
which time the remaining principal balance will be due and payable. The weighted
average interest rate for 1994 was 6.92% with the rate at December 31, 1994
equal to 8.06%. Historical Red Lion must maintain, among other things, certain
financial covenants over the term of the loan. As of December 31, 1994,
Historical Red Lion was in compliance with these covenants.

Historical Red Lion also had a $5 million line of credit which was
terminated in 1994.

Historical Red Lion had outstanding letters of credit of $10,762,000 at
December 31, 1994. These letters of credit are unsecured.

Interest Rate Swap Agreements

Historical Red Lion enters into interest rate swap agreements in order to
lessen its exposure to interest rate changes. The agreements have effectively
converted floating rate debt, which is tied to LIBOR, to fixed rate debt. The
interest cost relating to interest rate swap agreements for the years ended
December 31, 1993 and 1994 was $1,345,000 and $743,000, respectively, and
interest income for the seven months ended July 31, 1995 was $353,000.

At December 31, 1994, Historical Red Lion had three interest rate swap
agreements outstanding which have substantially converted $75 million of debt
from floating LIBOR based rates to all-in fixed rates ranging from 7.01% to
7.39% in 1994. The terms of the agreements range from four and one half to five
years.

These agreements are with major commercial banks and the exposure to a
credit loss in the event of nonperformance by the banks is minimal.

Disclosures About Fair Value of Financial Instruments

Based on the borrowing rates currently quoted by financial institutions for
bank loans with terms and maturities similar to Historical Red Lion's long-term
debt, the carrying value of such debt approximates its fair value. Based on
quotes obtained from dealers, Historical Red Lion would have had a gain of
approximately $5,375,000 to settle the interest rate swap agreements at December
31, 1994.

3. LEASES

Certain Historical Red Lion hotels are located on leased land. Two of these
leases contain rental provisions which are based on a percentage of revenues.
All land leases extend over the remaining useful lives of the buildings situated
thereon. Historical Red Lion also leases certain office space and equipment
under operating leases. Total land, office and equipment rent expense was
$1,252,000 and $1,350,000 for the years ended December 31, 1993 and 1994,
respectively and $961,000 for the seven months ended July 31, 1995.

F-56
<PAGE> 157

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum rental payments subsequent to December 31, 1994 required
under land, office and equipment leases are as follows (in thousands).

<TABLE>
<S> <C>
1995............................................................... $ 975
1996............................................................... 945
1997............................................................... 898
1998............................................................... 721
1999............................................................... 668
Thereafter......................................................... 12,786
-------
$16,993
=======
</TABLE>

4. EMPLOYEE BENEFIT PLANS

Historical Red Lion has a defined contribution 401(k) retirement plan for
all full time, non-union employees who have completed one year of service and
who have attained the age of 21 years.

Under the 401(k) plan, Historical Red Lion contributes amounts equal to
each participants' elected contributions up to 6% of eligible compensation.
Pension expense under this plan was $1,670,000 and $1,758,000 for the years
ended December 31, 1993 and 1994, respectively, and $1,338,000 for the seven
months ended July 31, 1995.

Historical Red Lion also has a non-qualified supplemental employee
retirement plan ("SERP"). The SERP was designed to complement the 401(k) plan by
restoring participants' benefits otherwise lost by certain employees due to the
statutory limits in the 401(k) plan. The pension expense under the SERP was
$287,000 and $322,000 for the years ended December 31, 1993 and 1994,
respectively, and $126,000 for the seven months ended July 31, 1995.

Certain management employees are participants in an incentive unit plan.
Participation units are awarded at the discretion of Historical Red Lion's
general partner. No units have been awarded since 1991. Awarded units vest five
years after the award date and are payable five years after vesting or earlier
under certain circumstances. Unit values are determined by various formulas tied
to cash flow, as defined, and appreciation in value of Historical Red Lion and
partners' equity. No accrual for this plan was required for the years ended
December 31, 1993 or 1994, or the seven month period ended July 31, 1995.

The Chief Executive Officer of Historical Red Lion has an incentive
compensation agreement, the value of which is tied to the increase, if any, in
the value of Historical Red Lion's partners' equity. No accrual for this
agreement was required for the years ended December 31, 1993 or 1994, or the
seven month period ended July 31, 1995.

5. COMMITMENTS AND CONTINGENCIES

At December 31, 1994, Historical Red Lion had commitments, relating to
capital improvement projects, of $7,994,000.

Historical Red Lion is party to litigation arising in the ordinary course
of business. In the opinion of management, these actions will not have a
material adverse effect, if any, on Historical Red Lion's financial position,
results of operations or liquidity.

6. RELATED PARTY TRANSACTIONS

At December 31, 1994, other assets, net, include $1,483,000 of interest
bearing notes receivable from a joint venturer.

F-57
<PAGE> 158

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other significant related party transactions are discussed in Notes 1
and 7.

7. TRANSACTIONS WITH RED LION INNS LIMITED PARTNERSHIP

As discussed in Note 1, Red Lion Properties, Inc. ("Properties"), a
wholly-owned subsidiary of Historical Red Lion, serves as general partner and
owns 1.99% of the MLP.

Historical Red Lion manages the MLP hotels pursuant to a management
agreement and receives a base management fee equal to 3% of annual gross
revenues plus an incentive management fee based on adjusted gross operating
profit, as defined in the management agreement. The management agreement, which
began in 1987, has a seventy-five year term including renewal options.
Historical Red Lion also charges the MLP hotels for their pro rata share of
support services such as computer, advertising, public relations, promotional
and sales and central reservation services.

All the MLP personnel are employees of Historical Red Lion and its
affiliates. Additionally, auxiliary enterprises owned by Historical Red Lion
sell operating supplies, furnishings and equipment to the MLP. In the opinion of
management, sales to the MLP by the auxiliary enterprises were made at prices
and terms which approximate arms-length transactions.

The aggregate amounts, excluding personnel related expenses, charged to the
MLP under the arrangements described above were as follows (in thousands):

<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -----------------
1995 1994 1993
------------ ------ ------
<S> <C> <C> <C>
Management fees...................................... $4,956 $7,456 $4,029
Support services..................................... 2,409 3,778 3,653
Purchase from auxiliary enterprises.................. 5,184 9,513 9,409
</TABLE>

Incentive management fees are subordinate to distributions by the MLP to
facilitate current payment of distributions to the limited partners. The
subordinated fees accrue without interest up to a maximum amount of $6 million.
This ceiling was reached in 1988 and, because management does not anticipate it
will be paid during 1995, such amount has been classified as non-current under
the caption other assets, net, in the consolidated balance sheet at December 31,
1994.

At December 31, 1994, other assets, net, include $3,726,000 which
Properties advanced to the MLP under a $4 million credit facility made available
to facilitate cash distributions to partners during the MLP's first 36 months of
operations. The amount outstanding under this facility will be repaid to
Historical Red Lion out of either (i) cash flow after payment of priority
distributions and incentive management fees or (ii) sale or refinancing proceeds
prior to any distribution to limited partners.

In addition to the incentive management fee and general partner loan
discussed above, Historical Red Lion was due $13,482,000 from the MLP for
services, payroll funding and capital expenditure funding provided as of
December 31, 1994. These amounts are included in accounts receivable, affiliates
in the consolidated balance sheet, net of working capital related to the managed
MLP hotels of $1,160,000, at December 31, 1994.

F-58
<PAGE> 159

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized income statement information for MLP is as follows (in
thousands):

<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -------------------
1995 1994 1993
------------ ------- -------
<S> <C> <C> <C>
Revenues........................................... $ 22,258 $35,620 $32,511
======= ======= =======
Income before cumulative effect of change in
accounting principle............................. 2,153 2,929 3,206
Cumulative effect of change in accounting for
income taxes..................................... -- -- (1,351)
------- ------- -------
Net income......................................... $ 2,153 $ 2,929 $ 1,855
======= ======= =======
</TABLE>

Revenues of the MLP represent the gross operating profit (operating
revenues less operating expenses) of the MLP hotels as this amount is similar to
gross rent received from Historical Red Lion to manage the hotels. As discussed
in Note 1, the operating revenues and expenses of the MLP hotels are
consolidated in Historical Red Lion's consolidated financial statements.

Consolidation of the operating revenues and expenses of the MLP does not
affect Historical Red Lion's cash flow or net income except to the extent that
management fees were paid.

Summarized balance sheet information for the MLP, not included in the
accompanying consolidated balance sheet (including amounts due from and owed to
Historical Red Lion) is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Cash.................................................................... $ --
Noncurrent assets, primarily property and equipment..................... 165,205
Current liabilities..................................................... 17,343
Long-term obligations, net of current portion........................... 123,430
Deferred income taxes................................................... 1,401
Partners' equity........................................................ 23,031
</TABLE>

8. LOSS ON SALE OF PROPERTY

During 1993, Historical Red Lion recorded a loss of $1,701,000 which
resulted from the sale of excess land and other assets.

9. SUBSEQUENT EVENTS (UNAUDITED)

On August 1, 1995, Historical Red Lion contributed substantially all of its
assets (excluding 17 hotels (the "Leased Hotels"), certain minority joint
venture interests and certain current assets) and certain liabilities to Red
Lion Hotels, Inc. ("RLHI") in exchange for 20,899,900 shares of RLHI's common
stock. An additional 10,062,500 shares of RLHI's common stock were sold to the
public at the August 1, 1995 closing of RLHI's initial public offering, raising
net proceeds of $173,388,000.

Also on August 1, 1995, Historical Red Lion paid $50,052,000 of the
remaining indebtedness and contributed the Leased Hotels and the remaining
related debt to a new partnership wholly-owned by Historical Red Lion. Such
debt, aggregating approximately $91,136,000, was repaid with proceeds from a
$97,500,000 refinancing of the Leased Hotels.

F-59
<PAGE> 160

[Inside back cover page]
[Artwork to come]
<PAGE> 161

[DOUBLETREE LOGO]
<PAGE> 162

PROSPECTUS (Subject to Completion)

Issued October 15, 1996

5,000,000 Shares

DOUBLETREE CORPORATION LOGO

COMMON STOCK
------------------------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED, 1,000,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 4,000,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." THE COMPANY'S COMMON STOCK IS
QUOTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET UNDER THE
SYMBOL "TREE." ON OCTOBER 14, 1996, THE REPORTED LAST SALE
PRICE OF THE COMMON STOCK WAS $45 5/8 PER SHARE.

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

SEE "RISK FACTORS" COMMENCING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

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.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

------------------------
PRICE $ A SHARE
------------------------

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

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."

(2) Before deducting expenses payable by the Company estimated at
$1,000,000.

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

MORGAN STANLEY & CO.
International

MONTGOMERY SECURITIES

J. HENRY SCHRODER & CO. LIMITED

November , 1996
<PAGE> 163

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee and the NASD
filing fee.

<TABLE>
<CAPTION>
AMOUNT
TO
BE PAID
----------
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 79,304
NASD Filing Fee.......................................................... 23,500
Nasdaq National Market Application Fee................................... 17,500
Printing costs........................................................... 250,000
Legal fees and expenses (other than blue sky)............................ 250,000
Accounting fees and expenses............................................. 175,000
Blue Sky fees and expenses............................................... 40,000
Transfer Agent and Registrar fees and expenses........................... 5,000
Miscellaneous............................................................ $ 159,696
---------
Total.......................................................... $1,000,000
=========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law ("the DGCL"), a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director. Under the
current DGCL, liability of a director may not be limited (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of the provision of
the Company's Certificate of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as a
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Certificate of Incorporation provides that the
Company shall indemnify its directors, officers, employees and agents against
losses incurred by any such person by reason of the fact that such person was
acting in such capacity.

In addition, the Company has entered into agreements (the "Indemnification
Agreements") with each of the directors and officers of the Company pursuant to
which the Company has agreed to indemnify such director or officer from damages,
judgments, fines, penalties, settlements and costs, attorneys' fees and
disbursements, and costs of attachment or similar bonds, investigation, or any
expenses of establishing a right to indemnification under the Indemnification
Agreements incurred by such director or officer and arising out of his or her
capacity as a director, trustee, officer, employee and/or agent of the
corporation of which he or she is a director or officer to the maximum extent
provided by applicable law. In addition, such director or officer will be
entitled to an advance of expenses to the maximum extent authorized or permitted
by law to meet the obligations indemnified against; provided, however, that the
director or officer will repay to the Company any expenses previously advanced
to the extent that it is determined that such expenses were not reasonable in
that the director or officer was not entitled to indemnification therefor.

II-1
<PAGE> 164

To the extent that the Board of Directors or the stockholders of the
Company may in the future wish to limit or repeal the ability of the Company to
indemnify directors, such repeal or limitation may not be effective as to
directors and officers who are currently parties to the Indemnification
Agreements, because their rights to full protection are contractually assured by
the Indemnification Agreements. It is anticipated that similar contracts may be
entered into, from time to time, with future directors of the Company.

ITEM 16. EXHIBITS.

(a) EXHIBITS.

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

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
2.1** -- Agreement and Plan of Merger dated as of September 12, 1996, by and among
Doubletree Corporation, RLH Acquisition Corp. and Red Lion Hotels, Inc.
</TABLE>

<TABLE>
<S> <C> <C>
2.2+ -- Form of Third Amendment to the Incorporation and Registration Rights Agreement to
be entered into by and among Doubletree Corporation, GE Investment Hotel Partners
I, Limited Partnership, Metpark Funding Inc., The Ueberroth Family Trust,
Ueberroth Investment Trust, Richard J. Ferris, Ridge Partners, L.P., Robert M.
Solmson (for himself and as attorney-in-fact for the RFS Shareholders, as defined
therein), Canadian Pacific Hotels Holdings (U.S.) Inc. and Red Lion, a California
Limited Partnership.
2.3+ -- Form of Partnership Services Agreement to be entered into by and among Doubletree
Corporation, Red Lion Hotels, Inc., Red Lion, a California Limited Partnership
and the affiliates thereof identified therein.
4.1*** -- Certificate of Incorporation of Doubletree Corporation.
4.2*** -- By-Laws of Doubletree Corporation.
5.1* -- Opinion of Dewey Ballantine as to the legality of the securities.
10.1 -- Acquisition Financing Letter dated September 12, 1996 among Morgan Stanley Senior
Funding, Inc., The Bank of Nova Scotia and Doubletree Corporation, relating to
the New Credit Facility described in the Prospectus included in this Registration
Statement.
10.2 -- Summary of Terms and Conditions dated September 10, 1996, as agreed to among
Morgan Stanley Group, Inc., The Bank of Nova Scotia, First Union Corporation,
Societe Generale Investment Corporation and Doubletree Corporation, relating to
the Bridge Loan described in the Prospectus included in this Registration
Statement.
10.3 -- Commitment letter dated September 6, 1996, as supplemented on September 12, 1996,
from General Electric Investment Corporation to Doubletree Corporation.
10.4* -- Securities Purchase Agreement dated , 1996, by and between Doubletree
Corporation and General Electric Pension Trust.
10.5* -- Form of Warrant to Purchase Common Stock of Doubletree Corporation to be issued
to General Electric Pension Trust or an affiliate thereof.
10.6* -- Credit Agreement dated as of , 1996, by and among Doubletree
Corporation, Morgan Stanley & Co. Incorporated, as syndication agent, The Bank of
Nova Scotia, as administrative agent, and the lenders identified therein.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP.
23.4 -- Consent of Dewey Ballantine (included in Exhibit 5.1).
23.5+ -- Consent of Michael W. Michelson.
</TABLE>

II-2
<PAGE> 165

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C> <C>
23.6+ -- Consent of Edward I. Gilhuly.
24.1+ -- Powers of Attorney.
27.1+ -- Financial Data Schedule.
</TABLE>

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

+ Previously filed.

* To be filed by amendment.

** Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated September 12, 1996.

*** Previously filed by the Registrant in Registration No. 33-79188 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.

(b) FINANCIAL STATEMENT SCHEDULES:

Schedule VII Valuation and Qualifying Account

All other schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
the Registrant pursuant to the provisions described under Item 14 or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant 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, the Registrant 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in this 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.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, 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 this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 166

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 for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix, State of Arizona, on this
15th day of October, 1996.

DOUBLETREE CORPORATION,
a Delaware corporation

By: *

------------------------------------
Richard J. Ferris
Co-Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by each of the following persons in the
capacities indicated on October 15, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -----------------------------------------------
<C> <S>
* Co-Chairman of the Board and Director
- ---------------------------------------- (Principal Executive Officer)
Richard J. Ferris
* Co-Chairman of the Board and Director
- ----------------------------------------
Peter V. Ueberroth

/s/ WILLIAM L. PEROCCHI Executive Vice President, Chief Financial
- ---------------------------------------- Officer and Treasurer (Principal Financial and
William L. Perocchi Accounting Officer)

* Director
- ----------------------------------------
William R. Fatt
* Director
- ----------------------------------------
Dale F. Frey
* Director
- ----------------------------------------
Ronald K. Gamey
* Director
- ----------------------------------------
Norman B. Leventhal
* Director
- ----------------------------------------
John H. Myers
* Director
- ----------------------------------------
Richard M. Kelleher
*By /s/ DAVID L. STIVERS
- ----------------------------------------
David L. Stivers
Attorney-in-fact
</TABLE>

II-4
<PAGE> 167

SCHEDULE VII

DOUBLETREE CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
BALANCE ------------------------------------- BALANCE
AT CHARGED TO CHARGED TO ACQUIRED IN AT
YEAR ENDED BEGINNING COSTS AND OTHER DHC END OF
DECEMBER 31, DESCRIPTION OF YEAR EXPENSES ACCOUNTS ACQUISITION DEDUCTIONS YEAR
- ------------ ------------------------ --------- ---------- ---------- ----------- ---------- -------
<C> <S> <C> <C> <C> <C> <C> <C>
1995 Allowance for doubtful
accounts................ $ 393 211 0 0 (309)(1) $ 295
1994 Allowance for doubtful
accounts................ $ 291 189 0 0 (87)(1) $ 393
1993 Allowance for doubtful
accounts................ $ 15 56 0 260 (40) $ 291
</TABLE>

- ---------------
(1) Represents write-offs of amounts previously reserved.
<PAGE> 168

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------- --------------------------------------------------------------------------- ----
<S> <C> <C> <C>
1.1* -- Form of Underwriting Agreement.............................................
2.1** -- Agreement and Plan of Merger dated as of September 12, 1996, by and among
Doubletree Corporation, RLH Acquisition Corp. and Red Lion Hotels, Inc.....
</TABLE>

<TABLE>
<S> <C> <C> <C>
2.2+ -- Form of Third Amendment to the Incorporation and Registration Rights
Agreement to be entered into by and among Doubletree Corporation, GE
Investment Hotel Partners I, Limited Partnership, Metpark Funding Inc., The
Ueberroth Family Trust, Ueberroth Investment Trust, Richard J. Ferris,
Ridge Partners, L.P., Robert M. Solmson (for himself and as
attorney-in-fact for the RFS Shareholders, as defined therein), Canadian
Pacific Hotels Holdings (U.S.) Inc. and Red Lion, a California Limited
Partnership................................................................
2.3+ -- Form of Partnership Services Agreement to be entered into by and among
Doubletree Corporation, Red Lion Hotels, Inc., Red Lion, a California
Limited Partnership and the affiliates thereof identified therein..........
4.1*** -- Certificate of Incorporation of Doubletree Corporation.....................
4.2*** -- By-Laws of Doubletree Corporation..........................................
5.1* -- Opinion of Dewey Ballantine as to the legality of the securities...........
10.1 -- Acquisition Financing Letter dated September 12, 1996 among Morgan Stanley
Senior Funding, Inc., The Bank of Nova Scotia and Doubletree Corporation,
relating to the New Credit Facility described in the Prospectus included in
this Registration Statement.
10.2 -- Summary of Terms and Conditions dated September 10, 1996, as agreed to
among Morgan Stanley Group, Inc., The Bank of Nova Scotia, First Union
Corporation, Societe Generale Investment Corporation and Doubletree
Corporation, relating to the Bridge Loan described in the Prospectus
included in this Registration Statement.
10.3 -- Commitment letter dated September 6, 1996, as supplemented on September 12,
1996, from General Electric Investment Corporation to Doubletree
Corporation.
10.4* -- Securities Purchase Agreement dated , 1996, by and between
Doubletree Corporation and General Electric Pension Trust..................
10.5* -- Form of Warrant to Purchase Common Stock of Doubletree Corporation to be
issued to General Electric Pension Trust or an affiliate thereof...........
10.6* -- Credit Agreement dated as of , 1996, by and among Doubletree
Corporation, Morgan Stanley & Co. Incorporated, as syndication agent, The
Bank of Nova Scotia, as administrative agent, and the lenders identified
therein....................................................................
23.1 -- Consent of KPMG Peat Marwick LLP...........................................
23.2 -- Consent of Deloitte & Touche LLP...........................................
23.3 -- Consent of Arthur Andersen LLP.............................................
23.4 -- Consent of Dewey Ballantine (included in Exhibit 5.1)......................
23.5+ -- Consent of Michael W. Michelson............................................
23.6+ -- Consent of Edward I. Gilhuly...............................................
24.1+ -- Powers of Attorney.........................................................
27.1+ -- Financial Data Schedule....................................................
</TABLE>

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

+ Previously filed.

* To be filed by amendment.

** Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated September 12, 1996.

*** Previously filed by the Registrant in Registration No. 33-79188 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.

<PAGE> 1
Exhibit 10.1

MORGAN STANLEY SENIOR FUNDING, INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020

THE BANK OF NOVA SCOTIA
580 CALIFORNIA STREET
SUITE 2100
SAN FRANCISCO, CALIFORNIA 94104

September 12, 1996

Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, Arizona 85008

Attention: William L. Perocchi, Executive
Vice President and Chief
Financial Officer

re Acquisition
Financing Letter

Ladies and Gentlemen:

You have advised Morgan Stanley Senior Funding, Inc. ("Morgan
Stanley") and The Bank of Nova Scotia ("Scotiabank" and, together with Morgan
Stanley, the "Agents") that you intend to consummate a transaction pursuant to
which (i) Doubletree Corporation (the "Borrower") would acquire (the
"Acquisition"), through a newly created direct or indirect wholly-owned
subsidiary of the Borrower ("Merger
<PAGE> 2

Sub"), 100% of the equity of Red Lion Hotels, Inc. ("Red Lion") through a
merger of Merger Sub with and into Red Lion with Red Lion remaining as the
surviving corporation and (ii) the Borrower would refinance (the "Refinancing")
up to $210 million of existing net indebtedness of the Borrower and Red Lion.

We understand that the funding required to effect the
Acquisition and the Refinancing, to pay the fees and expenses incurred in
connection with the Transaction (as defined below) and to provide for the
ongoing working capital and general corporate needs of the Borrower and its
subsidiaries shall be provided solely from (i) $250 million of gross cash
proceeds received from (x) the issuance by the Borrower of its common stock
through a public and/or private offering (the "Equity Offering") and/or (y) the
issuance (either by private placement or an underwritten public sale) by the
Borrower of unsecured senior subordinated notes, including through a bridge
financing thereof (the "Senior Subordinated Notes"), it being understood that
no more than $150 millon of proceeds pursuant to this clause (i) shall be in
the form of the Senior Subordinated Notes, (ii) the issuance by the Borrower of
its common stock to the selling shareholders of Red Lion having an implied
value equal to $283 million (with such implied value subject to adjustment
based on the closing price of the shares of the Borrower as provided in the
merger agreement for the Acquisition) (the "Equity Rollover"), (iii) the
incurrence by the Borrower of the Senior Bank Financing described and defined
below and (iv) cash on hand at the Borrower and/or Red Lion. As used herein,
the term "Transaction" shall collectively refer to the Acquisition, the
Refinancing, the Equity Offering, the Equity Rollover, the issuance of the
Senior Subordinated Notes and the incurrence of the Senior Bank Financing.

We further understand that the senior secured bank financing
(the "Senior Bank Financing") will be in the form of (i) a term loan facility
(the "Tranche A Term Loan Facility") in the amount of $405 million, (ii) a
second term loan facility (the "Tranche B Term Loan Facility", and together
with the Tranche A Term Loan Facility, the "Term Loan Facilities") in the
amount of $231 million and (iii) a revolving credit facility (the "Revolving
Credit Facility", and together with the Term Loan Facilities, the "Credit
Facilities") in the amount of $100 million. A preliminary summary of terms and
conditions of the Senior Bank Financing is attached as Exhibit A to this letter
(the "Summary of Terms").

The Agents are pleased to confirm that they are willing to
commit to provide (on a several basis), subject to and upon the terms and
conditions set forth herein and in the Summary of Terms, 100% of the Senior
Bank Financing on the terms and conditions set forth herein and in the Summary
of Terms (with Morgan Stanley having a commitment of $441.6 million and
Scotiabank having a commitment of $294.4 million). It is understood that
Morgan Stanley shall act as Syndication Agent and Arranger for the Senior Bank
Financing and that Scotiabank shall act as Administrative Agent for the Senior
Bank Financing.

-2-
<PAGE> 3

The Agents reserve the right, prior to or after execution of
the definitive credit documentation for the Senior Bank Financing, to syndicate
all or part of their commitments for the Senior Bank Financing to one or more
lending institutions (the "Lenders") that will become parties to such
definitive credit documentation pursuant to a syndication to be managed by the
Agents. The Agents shall commence syndication efforts promptly after the
execution of this letter by you and you agree actively to assist the Agents in
achieving a syndication that is satisfactory to the Agents. Such syndication
will be accomplished by a variety of means, including direct contact during the
syndication between senior management and advisors of the Borrower, Red Lion
and the proposed syndicate members. To assist the Agents in their syndication
efforts, you hereby agree (a) to provide and cause your advisors to provide the
Agents and the other syndicate members upon request with all information
reasonably deemed necessary by the Agents to complete syndication, including,
but not limited to, information and evaluations prepared by you and your
advisors or on your behalf relating to the transactions contemplated hereby and
(b) to assist the Agents upon request in the preparation of an Information
Memorandum to be used in connection with the syndication of the Senior Bank
Financing and (c) to make available your senior officers and representatives
and to use your reasonable efforts to make available the senior officers and
representatives of Red Lion, in each case from time to time and to attend and
make presentations regarding the business and prospects of the Borrower and Red
Lion at a meeting or meetings of lenders or prospective lenders. You also
agree to use your best efforts to provide, at your expense, real estate
appraisals on certain fee properties to be determined by the Agents in
consultation with you.

As you are aware, the Agents have completed their due
diligence analysis and review with respect to the Transaction, the Borrower,
Red Lion and their subsidiaries and are satisfied with the results thereof.
Neither Agent shall be responsible or liable for any consequential damages
which may be alleged as a result of its failure to provide the Senior Bank
Financing.

To induce the Agents to issue this letter, you hereby agree
that all reasonable out-of-pocket fees and expenses (including the reasonable
fees and expenses of counsel and consultants) of the Agents and their
affiliates arising in connection with this letter (and their due diligence and
syndication efforts in connection herewith) and in connection with the
transactions described herein shall be for your account, whether or not the
Transaction is consummated, the Senior Bank Financing is made available or
definitive credit documents are executed. You further agree to indemnify and
hold harmless each Agent and each director, officer, employee and affiliate
thereof (each an "indemnified person") from and against any and all actions,
suits, proceedings (including any investigations or inquiries), claims, losses,
damages, liabilities or expenses of any kind or nature whatsoever which may be
incurred by or asserted against or involve any Agent or any such other
indemnified person as a result of or arising out of or in any way related to or
resulting from this letter and, upon demand,

-3-
<PAGE> 4

to pay and reimburse each Agent and each other indemnified person for any
reasonable legal or other out-of-pocket expenses incurred in connection with
investigating, defending or preparing to defend any such action, suit,
proceeding (including any inquiry or investigation) or claim (whether or not
any Agent or any such other indemnified person is a party to any action or
proceeding out of which any such expenses arise, and whether any such action,
suit or proceeding is between you and any Agent or any other indemnified person
or between any Agent or any other indemnified person and a third party or
otherwise); provided, however, that you shall not have to indemnify any
indemnified person against any loss, claim, damage, expense or liability which
resulted primarily from the gross negligence or willful misconduct of such
indemnified person. This letter is issued for your benefit only and no other
person or entity may rely hereon.

Each Agent reserves the right to employ the services of its
affiliates in providing services contemplated by this letter and to allocate,
in whole or in part, to such affiliates certain fees payable to such Agent in
such manner as such Agent and such affiliates may agree in their sole
discretion. You acknowledge that each Agent may share with any of its
affiliates, and such affiliates may share with each Agent, any information
related to the Transaction, the Borrower, Red Lion, any of their respective
subsidiaries or any of the matters contemplated hereby.

The provisions of the immediately preceding two paragraphs
shall survive any termination of this letter.

The Agents' willingness to provide the Senior Bank Financing
as set forth above will terminate on January 31, 1997, if a definitive credit
agreement evidencing the Senior Bank Financing, satisfactory in form and
substance to the Agents (the "Credit Agreement"), shall not have been entered
into prior to such date.

Except as otherwise required by law or unless each Agent has
otherwise consented, you are not authorized to show or circulate this letter to
any other person or entity (other than your legal or financial advisors in
connection with your evaluation hereof). If this letter is not accepted by you
as provided in the immediately succeeding paragraph, you are to immediately
return this letter (and any copies hereof) to the Agents.

If you are in agreement with the foregoing, please sign and
return to the Agents (including by way of facsimile transmission), c/o Morgan
Stanley, the enclosed copy of this letter, together with the related fee
letter, no later than 6:00 p.m., New York time, on September 12, 1996. This
letter may be executed in any number of counterparts, and by the different
parties hereto on separate counterparts, each of which when executed and
delivered, shall be an original, but all of which shall together constitute one
and the same instrument.

-4-
<PAGE> 5

THIS LETTER AND THE RELATED FEE LETTER SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND ANY
RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR CONTEMPLATED BY THIS LETTER AND/OR THE RELATED FEE LETTER IS
HEREBY WAIVED. YOU HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION
WITH ANY DISPUTE RELATED TO THIS LETTER AND/OR THE RELATED FEE LETTER OR ANY
MATTERS CONTEMPLATED HEREBY OR THEREBY.

Very truly yours,

MORGAN STANLEY SENIOR
FUNDING, INC.

By__________________________
Title:

THE BANK OF NOVA SCOTIA

By__________________________
Title:

Agreed to and Accepted this
___ day of September, 1996:

DOUBLETREE CORPORATION

By__________________________
Title:

-5-
<PAGE> 6

EXHIBIT A

PRELIMINARY SUMMARY OF CERTAIN TERMS AND CONDITIONS*/

I. Description of Credit Facilities Comprising the Senior Bank Financing

A. Term Loan Facilities

Tranche A Term
Loan Facility: $405,000,000 Tranche A Term Loan Facility.

Maturity: The final maturity of the Tranche A Term Loan
Facility shall be the sixth anniversary of the date
of initial borrowing under the Senior Bank
Financing (the "Closing Date"). The loans under
the Tranche A Term Loan Facility (the "Tranche A
Term Loans") shall amortize in equal quarterly
installments in aggregate annual principal amounts
as set forth below (with the final such installment
payable on the sixth anniversary of the Closing
Date):

<TABLE>
<CAPTION>
Year Amount
---- ----------------
<S> <C>
1 $ 5,000,000
2 $ 55,000,000
3 $ 70,000,000
4 $ 80,000,000
5 $ 95,000,000
6 $100,000,000
</TABLE>

Tranche B Term
Loan Facility: $231,000,000 Tranche B Term Loan Facility.

Maturity: The final maturity of the Tranche B Term Loan
Facility shall be that date which is seven years
and six months from the Closing Date. Commencing
on the date which is six years and three months
from the Closing Date, the loans under the Tranche
B Term Loan Facility (the "Tranche B Term Loans",
and together with the Tranche A Term Loans, the
"Term Loans") shall

__________________________________

*/ Capitalized terms used herein and not defined herein shall have the
meanings provided in the commitment letter to which this summary is attached.
<PAGE> 7
EXHIBIT A
Page 2

amortize in six equal quarterly payments of
$36,500,000, provided that during each year prior
to that time, the Tranche B Term Loans shall
amortize in equal quarterly installments in
aggregate annual principal amounts of $2,000,000.

Use of Proceeds: The Term Loans shall only be utilized (x) to
finance, in part, the Acquisition and the
Refinancing and (y) to pay fees and expenses
incurred in connection with the Transaction.

Availability: Term Loans may only be incurred on the Closing
Date, provided that up to $85 million of the
Tranche A Term Loan Facility may be utilized on two
additional dates within three months after the
Closing Date to refinance the Santa Barbara Joint
Venture Debt and the Glendale Joint Venture Debt
(each as hereinafter defined) to the extent such
debt is to be refinanced as part of the
Refinancing. No amount of Term Loans once repaid
may be reborrowed.

B. Revolving Credit Facility

Revolving Credit
Facility: $100,000,000 Revolving Credit Facility, with a
letter of credit sub-limit to be agreed upon.

Maturity: The final maturity of the Revolving Credit Facility
shall be the sixth anniversary of the Closing Date.
Loans made pursuant to the Revolving Credit
Facility (the "Revolving Loans", and together with
the Term Loans, the "Loans") shall be repaid in
full, and all letters of credit issued thereunder
shall terminate, on the sixth anniversary of the
Closing Date.

Use of Proceeds: The Revolving Loans shall be utilized for the
Borrower's and its subsidiaries' working capital
requirements and other general corporate purposes,
provided that up to $15,000,000 of Revolving Loans
may be incurred to finance the Acquisition and the
Refinancing and to pay fees and expenses relating
to the Transaction.

Availability: Revolving Loans may be borrowed, repaid and
reborrowed on and after the Closing Date, provided
that the Revolving Credit Facility shall have an
annual clean down pursuant to which all outstanding
<PAGE> 8
EXHIBIT A
Page 3

Revolving Loans thereunder will have to be reduced
to no more than $50,000,000 for at least 30
consecutive days.

II. Terms Applicable to the Entire Senior Bank Financing

Syndication
Agent and Arranger: Morgan Stanley (the "Syndication Agent").

Administrative Agent: Scotiabank (the "Administrative Agent").

Lenders: Morgan Stanley, Scotiabank and a group of financial
institutions (collectively, the "Lenders")
acceptable to the Borrower and the Agents.

Borrower: Doubletree Corporation (the "Borrower").

Guaranty: All obligations under the Senior Bank Financing
shall be unconditionally guaranteed by all material
direct and indirect wholly-owned subsidiaries of
the Borrower (including, without limitation,
Doubletree Partners) (collectively, the
"Guarantors"), subject to customary exceptions for
transactions of this type.

Security: The obligations of the Borrower and the Guarantors
under the Senior Bank Financing shall be secured by
a first priority perfected security interest in (x)
all stock owned by the Borrower and the Guarantors
(other than the capital stock in RFS Hotels
Investors, Inc. and the partnership units in RFS
Hotels Investors, Inc.'s affiliated limited
partnership), (y) all notes owned by the Borrower
and the Guarantors (other than notes that are in a
principal amount of less than $1,000,000) and (z)
all other tangible and intangible assets of the
Borrower and the Guarantors (including real estate,
equipment, inventory, receivables, contracts
(including, but not limited to, management
contracts, but excluding any contract (including
any management contract) to the extent that the
terms thereof prohibit the assignment thereof or
the grant of a security interest therein, provided
that such security interests in any event shall
include the right to receive payments for money due
under all such excluded contracts) and intellectual
property), subject to customary exceptions for
transactions of this type. Notwithstanding
anything to the contrary contained above in this
paragraph, (i) the collateral shall not include any
asset that
<PAGE> 9
EXHIBIT A
Page 4

the Borrower or any Guarantor owns, as agent, for
the benefit of a third party as opposed for its own
benefit, (ii) the collateral shall not include any
equity interests in a joint venture (whether such
equity interests are in the form of partnership
interests, capital stock or otherwise) that are not
permitted to be assigned or a security interest
therein granted without the consent of a third
party, provided that the Borrower and each
Guarantor will assign its respective equity
interest in any joint entity to the extent that the
same is assignable or a security interest therein
permitted to be granted without the consent of any
third party and the Agents request an assignment
of, or a grant of a security interest in, same and
(iii) neither the Borrower nor any Guarantor shall
be required to obtain the consent of any third
party whose consent is required to grant a security
interest in any contract, partnership, corporate or
joint venture agreement or any lease.

Interest Rates: At the option of the Borrower, Loans may be
maintained from time to time as (x) Base Rate Loans
which shall bear interest at the Applicable Margin
in excess of the Base Rate in effect from time to
time or (y) Reserve Adjusted Eurodollar Loans which
shall bear interest at the Applicable Margin in
excess of the Eurodollar Rate (adjusted for maximum
reserves) as determined by certain reference
Lenders to be agreed upon for the respective
interest period, provided that until the earlier to
occur of (x) the 90th day following the Closing
Date and (y) that date upon which the Agents have
determined (and notify the Borrower) that the
primary syndication of the Senior Bank Financing
(and the resultant addition of institutions as
Lenders) has been completed, Reserve Adjusted
Eurodollar Loans may be incurred only if they have
a one month interest period (and with all such
Reserve Adjusted Eurodollar Loans to be subject to
the same one month interest period).

"Base Rate" shall mean the higher of (x) 1/2 of 1%
in excess of the federal funds rate and (y) the
rate that the Administrative Agent announces from
time to time as its prime commercial lending rate,
as in effect from time to time.

"Applicable Margin" shall mean with respect to (i)
Loans made pursuant to the Tranche A Term Loan
Facility and the Revolving Credit Facility, the
respective per annum percentage set forth in Table
A below and (ii) Loans made pursuant to the Tranche
B
<PAGE> 10
EXHIBIT A
Page 5

Term Loan Facility, the respective percentage per
annum set forth in Table B below; provided, at any
time that a payment default, or any event of
default, exists under the Senior Bank Financing,
the Applicable Margin for a particular Credit
Facility shall be the highest percentage set forth
in Table A or Table B below, as applicable.

A. Applicable Margin for Tranche A Term Loans/Revolving Loans

<TABLE>
<CAPTION>
Eurodollar Base Rate
Margin Margin Leverage Ratio**
------ -------- ----------------
<S> <C> <C>
2.125% 1.125% At Least 4.50:1.00
1.875% 0.875% At Least 4.25:1.00 Less Than 4.50:1.00
1.750% 0.750% At Least 4.00:1.00 Less Than 4.25:1.00
1.625% 0.625% At Least 3.75:1.00 Less Than 4.00:1.00
1.500% 0.500% At Least 3.50:1.00 Less Than 3.75:1.00
1.375% 0.375% At Least 3.25:1.00 Less Than 3.50:1.00
1.250% 0.250% Less Than 3.25:1.00
</TABLE>

B. Applicable Margin for Tranche B Term Loans

<TABLE>
<CAPTION>
Eurodollar Base Rate Leverage
Margin Margin Ratio
------ -------- --------
<S> <C> <C>
2.500% 1.500% At Least 4.50:1.00
2.250% 1.250% Less Than 4.50:1.00
</TABLE>

Notwithstanding the foregoing, (x) in the event
that the Borrower does not receive gross cash
proceeds of at least $250 million from the Equity
Offering, each Applicable Margin set forth in Table
A and Table B above shall be increased by 0.125% or
(y) in the event that the Borrower receives gross
cash proceeds in excess of $350 million from the
Equity Offering and 100% of the net cash proceeds
therefrom in excess of $250 million are used to
reduce the Term Loan Facilities, each Applicable
Margin in Table A above shall be decreased by
0.125%.

__________________________

** Leverage Ratio will be defined as Total Debt to EBITDA for the then
most recently ended 12-month period.
<PAGE> 11
EXHIBIT A
Page 6

Interest periods of 1, 2, 3 and 6 months shall be
available in the case of Reserve Adjusted
Eurodollar Loans.

The Senior Bank Financing shall include standard
protective provisions for such matters as
defaulting banks, capital adequacy, increased
costs, actual reserves, funding losses, illegality
and withholding taxes.

Interest in respect of Base Rate Loans shall be
payable quarterly in arrears on the last business
day of each quarter. Interest in respect of
Reserve Adjusted Eurodollar Loans shall be payable
in arrears at the end of the applicable interest
period and every three months in the case of
interest periods in excess of three months.
Interest will also be payable at the time of
repayment of any Loans and at maturity. All
interest calculations for Base Rate Loans shall be
based on a 365/366-day year and actual days elapsed
and all other interest calculations shall be based
on a 360-day year and actual days elapsed.

Overdue principal, interest and other amounts shall
bear interest at a rate per annum equal to the rate
which is 2% in excess of the rate otherwise
applicable to the Base Rate Loans under the
respective Credit Facility from time to time. Such
interest shall be payable on demand.

Agents/Lenders Fees: The Agents and the Lenders shall receive such fees
as have been separately agreed upon with the
Borrower.

Commitment Fees: 1/2 of 1% (or 3/8 of 1% at any time that the
Leverage Ratio is less than 4.00:1.00 and no
payment default, and no event of default, exists
under the Senior Bank Financing) per annum of the
unutilized total commitments under the Senior Bank
Financing, as in effect from time to time,
commencing on the date on which the Credit
Agreement is executed and continuing to but
excluding the date of the termination of the Senior
Bank Financing, payable in arrears quarterly and
upon the termination of the Senior Bank Financing.
All commitment fee and other fee calculations shall
be based on a 360-day year and actual days elapsed.

Letter of Credit Fees: Applicable Margin for Reserve Adjusted Eurodollar
Loans which are Revolving Loans on the aggregate
outstanding stated amounts of letters of credit
plus an additional 1/4 of 1% on the aggregate
<PAGE> 12
EXHIBIT A
Page 7

outstanding stated amounts of letters of credit to
be paid as a fronting fee to the issuing Lender.

Voluntary Commit-
ment Reductions: Voluntary reductions to the unutilized portion of
the Revolving Credit Facility may be made from time
to time by the Borrower without premium or penalty.

Voluntary Prepay-
ments: Voluntary prepayments of Loans may be made at any
time, with prior notice but without premium or
penalty, provided that voluntary prepayments of
Reserve Adjusted Eurodollar Loans made on any day
other than the last day of an interest period
applicable thereto shall be accompanied by
customary breakage costs. Voluntary prepayments of
Term Loans shall be applied ratably to the Tranche
A Term Loans and the Tranche B Term Loans and shall
be applied to reduce the remaining scheduled
amortization payments under the Tranche A Term Loan
Facility and the Tranche B Term Loan Facility on a
pro rata basis (based on the amount of each
remaining scheduled amortization payment), provided
that the Borrower shall have the right, at its
option, to apply its retained share of (i) equity
issuance proceeds and/or (ii) excess cash flow to
voluntary prepay a single tranche of Term Loans in
an amount not to exceed $10 million per year
through the third year from the Closing Date and
$15 million per year thereafter, and with each such
repayment to reduce the remaining scheduled
amortization payments of such tranche of Term Loans
pro rata (based on the amount of each remaining
scheduled amortization payment).

Mandatory Repay-
ments: Mandatory repayments of Term Loans, and to the
extent applicable, mandatory reductions to the
unutilized portion of the Term Loan Facilities (and
after all Term Loans (and commitments in respect
thereof) have been repaid (and/or terminated) in
full, permanent reductions to the Revolving Credit
Facility), to be required from (a) 100% of the net
proceeds from asset sales (or 50% if the Leverage
Ratio is less than 3.00:1.00 and no payment
default, and no event of default, exists under the
Senior Bank Financing), other than asset sales in
the ordinary course of business and asset sales the
proceeds which are reinvested in like assets
(subject, in each case, to size and other
limitations to be mutually agreed upon), (b) 100%
of the net proceeds from issuances of debt,
provided, in the event that bridge Senior
<PAGE> 13
EXHIBIT A
Page 8

Subordinated Notes are issued as part of the
Transaction, the proceeds from the issuance of the
permanent Senior Subordinated Notes (or other
junior debt securities reasonably acceptable to the
Agents and the Required Lenders) shall be used to
refinance any outstanding bridge Senior
Subordinated Notes (which for purposes of this
clause does not include any rollover Senior
Subordinated Notes that bear interest at a fixed
rate), (c) 50% of the net proceeds from equity
issuances or capital contributions, provided, in
the event that bridge Senior Subordinated Notes are
issued as part of the Transaction, the proceeds
from any equity issuance after the Closing Date
shall be used to refinance any outstanding bridge
Senior Subordinated Notes (which for purposes of
this clause does not include any rollover Senior
Subordinated Notes that bear interest at a fixed
rate), (d) 50% of annual excess cash flow (the
definition of which will be mutually agreed upon)
and (e) 100% of certain insurance proceeds, with
certain reinvestment rights to be agreed upon. In
addition, 50% of the net cash proceeds from the
Equity Offering in excess of $250,000,000 will be
applied to reduce the Term Loan Facilities. The
Term Loan Facilities also shall be reduced as
provided in the final sentence of clause (v) under
the heading "Conditions Precedent to Initial Loans"
of this Summary of Terms.

All mandatory repayments of Term Loans (and, to the
extent applicable, all mandatory reductions to the
unutilized commitments under the Term Loan
Facilities) will be applied ratably as between the
Tranche A Term Loans and the Tranche B Term Loans,
and shall be applied to reduce the remaining
scheduled amortization payments under the Tranche A
Term Loan Facility and the Tranche B Term Loan
Facility on a pro rata basis (based on the amount
of each remaining scheduled amortization payment).

Notwithstanding the foregoing, the Borrower will
have the right to ask either the Lenders under the
Tranche A Term Loan Facility or the Lenders under
the Tranche B Term Loan Facility (but not both) to
forgo any mandatory prepayment applicable to that
tranche, and with respect to any Lender under such
tranche that has agreed to forgo such mandatory
prepayment, such Lender's portion of such mandatory
prepayment instead will be applied to the other
tranche of Term Loans.
<PAGE> 14
EXHIBIT A
Page 9

Documentation: The Agents' commitments will be subject to the
negotiation, execution and delivery of definitive
financing agreements (and related security
documentation, guaranties, etc.) consistent with
the terms of this letter, in each case prepared by
counsel to the Agents. All documentation shall be
governed by New York law.

Conditions Precedent: In addition to conditions precedent typical for
these types of facilities that are mutually
acceptable to the Borrower and the Agents, the
following conditions shall apply:

A. To the Initial Loans

(i) The structure and all terms of, and the
documentation for, the Transaction (and each
component thereof) shall be reasonably satisfactory
to the Agents and the Required Lenders it being
understood that (x) the form of the Merger
Agreement (including the exhibits thereto), and the
structure of the Acquisition, in each case as in
effect on the date hereof are satisfactory, (y) the
pricing, maturity and general structure of the
bridge Senior Subordinated Notes as in effect on
the date hereof are satisfactory and (z) the
general terms of the $100,000,000 private common
equity investment in the Borrower by General
Electric Investment (the "Private Equity
Investment") as in effect on the date hereof is
satisfactory; provided that, notwithstanding the
foregoing clauses (y) and (z), (A) the definitive
documentation for the bridge Senior Subordinated
Notes (including, but not limited to, the specific
terms and provisions of the covenants,
representations and warranties, events of default,
remedies, redemption provisions, subordination
provisions and guaranty terms) are still required
to be in form and substance reasonably satisfactory
to the Agents and the Required Lenders and (B) the
definitive documentation evidencing the Private
Equity Investment is still required to be
reasonably satisfactory to the Agents and the
Required Lenders. All conditions precedent to the
consummation of the Transaction (and each component
thereof) as set forth in the documentation relating
thereto shall have been satisfied in all material
respects, and not waived except with the reasonable
consent of the Agents and the Required Lenders, to
the reasonable satisfaction of the Agents and the
Required Lenders. The Agents shall have received
copies of the "comfort" letters referred to in
Sections 6.2(f) and 6.3(e) of the Merger Agreement.
<PAGE> 15
EXHIBIT A
Page 10

(ii) The Borrower shall have received $250,000,000 of
gross cash proceeds from the Equity Offering and/or
the issuance of the Senior Subordinated Notes,
provided that not more than $150,000,000 of such
proceeds may be received from the Senior
Subordinated Notes. The structure and all terms
and conditions of, and the documentation for, the
Equity Offering and the Senior Subordinated Notes
(including, without limitation, in the case of the
Senior Subordinated Notes, the subordination
provisions, covenants, events of defaults,
remedies, interest rate, maturities, sinking fund
and redemption provision, limitations on cash
interest payable and all other terms) shall be
reasonably satisfactory to the Agents. The Agents
shall have received evidence satisfactory to them
that the Borrower and/or Red Lion have cash on
hand, when added to the aggregate amount of the
Term Loan Facilities, up to $15,000,000 of the
Revolving Credit Facility and the amount received
from the Equity Offering and/or the issuance of the
Senior Subordinated Notes, that is sufficient to
consummate the Acquisition and the Refinancing and
to pay the fees and expenses incurred in connection
with the Transaction.

(iii) The Borrower shall have issued shares of its common
stock having an implied value of $283,000,000 (with
such implied value subject to adjustment based on
the closing pricing of the shares of stock of the
Borrower as provided in the merger agreement for
the Acquisition) as part of the Equity Rollover.

(iv) After giving effect to the transactions
contemplated in clause (ii) above, the Borrower
shall have used the aggregate amount of proceeds so
received to make payments owing in connection with
the Transaction before utilizing any proceeds of
Loans pursuant to the Senior Bank Financing for
such purpose.

(v) All necessary governmental approvals (other than
approvals required to effect the transfer of liquor
licenses), all necessary shareholder and board of
director approvals and the approval of the lenders
to Red Lion Inns Operating L.P. (or (x) the written
acknowledgement by such lenders that such approval
is not necessary or (y) the issuance of an opinion
of counsel of the Borrower, satisfactory in form
and substance to the Agents, that no such approval
is necessary), in each case in connection with the
Transaction and the other transactions contemplated
by the Senior Bank Financing and otherwise referred
to herein shall have
<PAGE> 16
EXHIBIT A
Page 11

been obtained and remain in effect, and all
applicable waiting periods shall have expired
without any action being taken by any competent
authority which restrains, prevents, or imposes
materially adverse conditions upon, the
consummation of the Transaction or the other
transactions contemplated by the Senior Bank
Financing and otherwise referred to herein. The
Borrower shall have informed the Agents as to
whether (x) the Borrower intends to refinance, as
part of the Refinancing, the loans outstanding to
either or both of Red Lion's joint ventures for its
Glendale hotel (the "Glendale Joint Venture Debt")
and/or its Santa Barbara hotel (the "Santa Barbara
Joint Venture Debt", and together with the Glendale
Joint Venture Debt, the "Specified Joint Venture
Debt") aggregating $85,000,000 and/or (y) the
Borrower intends to keep outstanding either or both
of the Glendale Joint Venture Debt and/or the Santa
Barbara Joint Venture Debt. To the extent that the
Borrower intends to refinance, as part of the
Refinancing, either or both of the issues of
Specified Joint Venture Debt with Term Loans, such
debt shall be required to be refinanced within
three months after the Closing Date. To the extent
that either or both of the issues of Specified
Joint Venture Debt are to remain outstanding, the
Term Loan Facilities would be reduced by the
principal amount of the issue or issues of
Specified Joint Venture Debt to remain so
outstanding.

(vi) Nothing shall have occurred (and (x) neither the
Agents nor the Lenders shall have become aware of
any facts or conditions not previously disclosed to
them and (y) no information previously submitted by
or on behalf of the Borrower to the Agents
(including, without limitation, financial,
accounting and tax information) is inaccurate,
incomplete or misleading) which (in any such case)
could reasonably be expected to have a Material
Adverse Effect. As used herein, the term Material
Adverse Effect shall mean a material adverse effect
(i) on the Transaction or (ii) on the business,
property, assets, operations, liabilities or
financial condition of the Borrower, Red Lion and
their respective subsidiaries taken as a whole.

(vii) No material litigation by any entity (private or
governmental) shall be pending or threatened with
respect to the Transaction or the Senior Bank
Financing or any documentation executed in
connection therewith.
<PAGE> 17
EXHIBIT A
Page 12

(viii) The Lenders shall have received legal opinions from
counsel, and covering matters, reasonably
acceptable to the Agents and the Required Lenders.

(ix) There shall have been no material changes to the
corporate and capital structure (and all agreements
related thereto) of the Borrower and its
subsidiaries, or to any organizational documents of
such entities.

(x) All Loans and other financing to the Borrower shall
be in full compliance with all applicable
requirements of the margin regulations.

(xi) All costs, fees, expenses (including, without
limitation, legal fees and expenses) and other
compensation contemplated hereby payable to the
Lenders or the Agents shall have been paid to the
extent due.

(xii) The Lenders shall have received (x) insurance
certificates naming the collateral agent for the
Lenders as an additional insured and/or loss payee
and stating that such insurance will not be
terminated without at least 30 days' prior notice to
such collateral agent (or such shorter period of
time as a particular insurance company generally
provides) and (y) a solvency certificate from the
chief financial officer of the Borrower with
respect to the solvency of the Borrower and its
subsidiaries (on a consolidated basis) acceptable
to the Agents and the Required Lenders.

(xiii) The Lenders shall have a perfected first priority
security interest in the assets of the Borrower and
the Guarantors as required above. The Guarantors
shall have executed their guaranty in respect of
the Senior Bank Financing.

(xiv) The Borrower and its subsidiaries shall have no
other indebtedness except such indebtedness which
shall be acceptable to the Agents and the Required
Lenders and permitted under the Senior Bank
Financing.

(xv) There not having occurred and be continuing a
material disruption of or material adverse change
in financial, banking or capital markets that would
have a material adverse effect on the successful
syndication of the Senior Bank Financing as
determined
<PAGE> 18
EXHIBIT A
Page 13

by the Agents in their reasonable discretion. The
Borrower and Red Lion shall have fully cooperated
in the syndication efforts, including, without
limitation, by promptly providing the Agents with
all information deemed necessary by them to
successfully complete the syndication.

B. Conditions to All Loans

Absence of material adverse change, absence of
material litigation, absence of default or
unmatured default under the Senior Bank Financing,
continued accuracy of representations and
warranties and receipt of such documentation as
shall be required by the Agents.

Representations
and Warranties: The Senior Bank Financing and related documentation
shall contain representations and warranties
typical for these types of facilities, as well as
any additional ones appropriate in the context of
the proposed transaction.

Covenants: Those typical for these types of facilities and any
additional covenants appropriate in the context of
the proposed transaction. Although the covenants
have not yet been specifically determined, we
anticipate that the covenants shall in any event
include:

(i) Restrictions on other indebtedness.

(ii) Restrictions on mergers, acquisitions, joint
ventures, investments, partnerships and
acquisitions and dispositions of assets; provided
that, commencing on January 1, 1998, there shall be
a $20,000,000 aggregate investment, partnership,
joint venture, acquisition and additional capital
expenditure basket (although no more than
$10,000,000 may be spent in any year).

(iii) Restrictions on dividends and amendments of
organizational, corporate and other documents.

(iv) Restrictions on voluntary prepayments of other
indebtedness and amendments thereto.

(v) Restrictions on transactions with affiliates
and formation of subsidiaries.
<PAGE> 19
EXHIBIT A
Page 14

(vi) Restrictions on sale-leaseback transactions,
provided that sale-leaseback transactions shall be
permitted so long as such transactions (w) are for
at least 75% in cash, (x) are at fair market value,
(y) all net proceeds therefrom are applied as a
mandatory prepayment of Term Loans and (z) no
default or event of default then exists or would
result therefrom under the Senior Bank Financing.

(vii) Maintenance of existence and properties.

(viii) No liens, with exceptions to be negotiated.

(ix) Financial covenants consisting of minimum fixed
charge coverage, minimum interest coverage, maximum
total debt to EBITDA, maximum total senior debt to
EBITDA (which covenant shall only be included while
any Senior Subordinated Notes are outstanding) and
maximum total debt to capitalization. The
financial covenants will reflect the Borrower's
intention to deleverage over time.

(x) Adequate insurance coverage.

(xi) ERISA covenants.

(xii) The obtaining of interest rate protection in
amounts and for periods to be determined.

(xiii) Limitations on capital expenditures.

(xiv) Financial reporting.

(xv) Compliance with laws.

Events of Default: Those typical for these types of facilities and any
additional ones appropriate in the context of the
proposed transaction, including, without limitation,
a change of control of the Borrower.

Assignments and
Participations: The Borrower may not assign its rights or
obligations under the Senior Bank Financing without
the prior written consent of the Lenders. Any
Lender may assign, and may sell participations in,
its rights and obligations under the Senior Bank
Financing, subject (x) in the case of
participations, to customary restrictions on the
voting rights of the participants and (y) in the
case of
<PAGE> 20
EXHIBIT A
Page 15

assignments, to such limitations as may be
established by the Agents (including a minimum
assignment amount of $5,000,000 and the receipt of
the consent of the Agents). The Senior Bank
Financing shall provide for a mechanism which will
allow for each assignee to become a direct
signatory to the Senior Bank Financing and will
relieve the assigning Lender of its obligations
with respect to the assigned portion of its
commitment.

Required Lenders: Lenders holding a majority of the loans and
commitments under the Credit Facilities.

<PAGE> 1
Exhibit 10.2

SENIOR SUBORDINATED INCREASING RATE NOTES:

SUMMARY OF TERMS AND CONDITIONS

ISSUER: Doubletree Corporation (the "Company").

PURCHASERS: Morgan Stanley Group Inc. ("Morgan Stanley"), The Bank
of Nova Scotia, First Union Corporation and Societe
Generale Investment Corporation or, in any such case,
one of its affiliates designated by it and one or more
other purchasers (collectively, the "Purchasers"), in
each case in the proportions set forth in the
Commitment Letter.

FEES: As set forth in the Commitment Letter.

ISSUE: Senior Subordinated Increasing Rate Notes (the "Bridge
Notes") issued pursuant to a Securities Purchase
Agreement (the "Securities Purchase Agreement") among
the Company and the Purchasers.

USE OF PROCEEDS: The proceeds of the Bridge Notes will be used (i) to
finance, in part, the consideration payable in
connection with the Acquisition and the Refinancing
and (ii) to pay costs and expenses in connection with
the Acquisition and the Refinancing.

PRINCIPAL AMOUNT: Up to $150,000,000, as determined by the Company.

PRICE: 100% of principal amount.

INTEREST RATE: Interest on the Bridge Notes shall be paid at the
Applicable Interest Rate (as defined below) and
payable quarterly in arrears. "Applicable Interest
Rate" means the highest of the following, as
determined as of the beginning of each three-month
period: (i) the prime rate (as announced from time to
time by Citibank N.A.) plus 300 basis points, (ii)
three-month U.S. Dollar LIBOR (as determined from
specified sources) plus 575 basis points and (iii) the
highest yield on any of the 1, 3, 5 and 10-year direct
obligations issued by the United States plus 475 basis
<PAGE> 2
points; provided that if the Bridge Notes are not
retired in whole by the end of the first six months
following the issuance date, the Applicable Interest
Rate otherwise in effect will increase by 100 basis
points and shall thereafter increase by an additional
50 basis points at the end of each subsequent
three-month period for so long as the Bridge Notes are
outstanding (the "Incremental Spread"); and provided,
further, that (A) in no event shall the Applicable
Interest Rate exceed 19.0% and (B) the amount of cash
interest paid will be subject to a cap of 16.0%, with
the excess (if any) of the Applicable Interest Rate
over such cash interest cap to be paid in additional
Bridge Notes.

MATURITY: One year from the date of issuance.

SUBORDINATION: The Bridge Notes, and the guarantees thereof by
subsidiaries of the Company, will be subordinated to
the Credit Facility (including interest hedging
arrangements entered into in connection therewith and
an additional principal amount thereunder to be
negotiated), certain existing indebtedness of the
Company and the Target and certain refinancings
thereof on terms to be agreed.

GUARANTEES: Each of the Company's direct and indirect subsidiaries
that is a borrower or guarantor with respect to the
Credit Facility or any refinancing thereof will, so
long as it is a borrower or guarantor with respect to
the Credit Facility or such a refinancing, guarantee
the Company's obligations under the Bridge Notes and
the Securities Purchase Agreement.

MANDATORY REDEMPTION: The Company will redeem the Bridge Notes with, subject
to certain agreed exceptions, (i) the net proceeds
from the issuance of any equity or subordinated debt
securities (the "Permanent Financing"), (ii) the net
proceeds from the incurrence of any other debt to the
extent permitted by the Credit Facility, and (iii) the
net proceeds from asset sales in excess of the amount
thereof required to be paid to the banks under the
Credit Facility other than asset sales in the ordinary
course of business and asset sales the proceeds of
which are reinvested in like assets (subject, in each
case to size and other limitations to be mutually
agreed upon); in each case, the

2
<PAGE> 3
redemption price shall be at par plus accrued
interest; provided, that the redemption price shall be
104.167% of par plus accrued interest if the Bridge
Notes are redeemed with or in anticipation of funds
raised by any means other than a transaction in which
Morgan Stanley or any of its affiliates has been given
an opportunity to act as lead agent or lead
underwriter on market terms and has declined for
reasons other than then existing market conditions.

CHANGE-OF-CONTROL The Company will redeem, subject to certain
conditions, the Bridge Notes upon any
change-of-control of the Company at a redemption price
of 104.167% of par plus accrued interest (or, if
Morgan Stanley or any of its affiliates shall have
been offered an opportunity to act as lead agent or
lead underwriter on market terms with respect to the
offering, the funds from which shall have been used to
so redeem the Bridge Notes, and has declined for
reasons other than then existing market conditions
100% of par plus accrued interest).

INTEREST PAYMENT: Quarterly in arrears.

OPTIONAL REDEMPTION: The Bridge Notes will be callable, in whole or in
part, upon not less than 3 business days' written
notice, at the option of the Company, at any time at
par plus accrued interest to the redemption date;
provided that the redemption price shall be 104.167%
of par plus accrued interest if the Bridge Notes are
refunded (whether at the time of redemption or
maturity) with or in anticipation of funds raised by
any means other than a transaction in which Morgan
Stanley or any of its affiliates has been given an
opportunity to act as lead agent or lead underwriter
on market terms and has declined for reasons other
than then existing market conditions.

MANDATORY EXCHANGE: If the Bridge Notes have not been previously redeemed
in full for cash on or prior to maturity, the
principal of the Bridge Notes outstanding at maturity
may, subject to certain conditions precedent, be
satisfied at maturity through the issuance and
delivery of the Rollover Notes described in Exhibit B
to the Commitment Letter. The Rollover Notes will be
issued at the same

3
<PAGE> 4
time as the Bridge Notes and held in escrow, as
described below, pending such mandatory exchange.

RIGHT TO RESELL
BRIDGE NOTES: The Purchasers shall have the absolute and
unconditional right to resell the Bridge Notes to one
or more third parties, whether by assignment or
participation, in compliance with applicable law.

EXPIRATION DATE: The obligations of the Purchasers to purchase Bridge
Notes will expire upon the earlier of (i) immediately
prior to the consummation of the Acquisition or
another transaction or series of transactions (other
than the Transaction) in which the Company or any of
its affiliates acquires any stock or assets of the
Target, including, without limitation, the Alternate
Transaction, (ii) termination of the Acquisition
Agreement, and (iii) December 1, 1996 (or, if the
Company shall have made a Commitment Extension
Election and paid the Additional Commitment Fee on or
prior to November 28, 1996, January 31, 1997).

EQUITY AMOUNT; ESCROW: On the date of the issuance of the Bridge Notes,
warrants ("Warrants") representing 3.5% of the common
stock of the Company (the "Escrowed Warrant Amount"),
which Warrants shall contain reasonable anti-dilution
provisions, will be placed in an escrow account with a
mutually agreeable escrow agent and will be released
either (i) at the direction of the Company and Morgan
Stanley or one of its affiliates, as the lead agent or
lead underwriter (the "Placement Agent") with respect
to the Permanent Financing (as referred to in the
Commitment Letter), to the purchasers purchasing the
securities issued in such refinancing, in amounts
agreed by the Placement Agent and the Company to be
reasonably necessary to facilitate the sale of such
securities or (ii) to the holders of the Bridge Notes
(or Rollover Notes, if any are issued) (A) 2.5% upon
the first anniversary of the issuance of the Bridge
Notes and (B) 0.25% upon each third month thereafter
through the second anniversary of the issuance of the
Bridge Notes, in each case if any Bridge Notes or
Rollover Notes are then outstanding, with all such
amounts pursuant to this clause (ii) being reduced pro
rata (or in such other proportion as the Company and
the Purchasers shall mutually agree) if less than 100%
of the Bridge Notes

4
<PAGE> 5
or Rollover Notes originally issued are then
outstanding.

All Warrants will be exercisable at a nominal price
for a period of five years from the date such warrants
are released from the Escrow and will have customary
anti-dilution provisions and demand and "piggy back"
(subject to reasonable "cut-back" and other customary
provisions) registration rights.

In addition, the Rollover Notes will be held, undated,
in escrow by the same escrow agent from the date that
the Bridge Notes are purchased.

CONDITIONS TO FUNDING: In addition to conditions precedent typical for
leveraged financings similar to the Bridge Financing
that are mutually acceptable to the Company and the
Purchasers, the execution and closing of the
Securities Purchase Agreement and the funding of the
Bridge Notes will be subject to satisfaction of the
following conditions precedent:

1. The Acquisition shall have been consummated in
accordance with the Acquisition Agreement, and the
Acquisition Agreement and other documentation
shall be satisfactory in form and substance to the
Purchasers, without any amendment, modification or
waiver of any of the terms or conditions thereof
except with the prior written consent of the
Purchasers (which will not be unreasonably
withheld).

2. The other financings and transactions contemplated
to be consummated on the closing date in
connection with the Transaction, including,
without limitation, the Refinancing, the Private
Equity Offering, the Equity Rollover and the
Credit Facility, shall have been consummated prior
to (or shall be consummated simultaneously with)
the issuance of the Bridge Notes, all on terms and
conditions reasonably satisfactory to the
Purchasers, it being understood that (x) the form
of the Merger Agreement (including the exhibits
thereto) and the structure of the Acquisition, in
each case as in effect on the date hereof, are
satisfactory, (y) the pricing, maturity and
general structure of the Credit Facility as in
effect on the date hereof are satisfactory and (z)
the general terms of the Private Equity Offering,
as in effect on the date hereof, are satisfactory;
provided that notwithstanding (x),

5
<PAGE> 6
(y) and (z) above, (A) the definitive
documentation for the Credit Facility (including,
but not limited to, the specific terms and
provisions of the covenants, representations and
warranties, events of default, remedies,
guaranties and security interests) is still
required to be in form and substance reasonably
satisfactory to the Purchasers and (B) the
definitive documentation evidencing the Private
Equity Offering is still required to be reasonably
satisfactory to the Purchasers.

3. Receipt by the Purchasers of evidence satisfactory
to them that the Company and the Target have cash
(other than proceeds from the Credit Facility, the
Private Equity Offering and the Bridge Financing)
on hand in an amount sufficient, together with the
proceeds of the Term Facility, the Private Equity
Offering, the Bridge Financing and not more than
$15 million in borrowings under the Revolving
Facility, to consummate the Acquisition and the
Refinancing and to pay all fees and expenses
incurred in connection with the Transaction.

4. The Purchasers shall have received copies of a
comfort letter from the Company's accountants.

5. Receipt by the Purchasers of solvency certificates
to the extent required by the lenders under the
Credit Facility.

6. Satisfactory completion of the Securities Purchase
Agreement and all other documentation relating to
the Bridge Notes in form and substance
satisfactory to the Purchasers, including issuance
of appropriate guarantees, and receipt by the
Purchasers of satisfactory opinions of counsel to
the Company and to the Purchasers as to the
transactions contemplated thereby (including,
without limitation, compliance with all applicable
securities laws), together with customary closing
documentation.

7. All necessary governmental approvals (other than
approvals required to effect the transfer of
liquor licenses), all necessary shareholder and
board of director approvals and the approval of
the lender to Red Lion Inns Operating L.P. (or (x)
the written acknowledgment by such lenders that
such approval is not necessary or (y) the issuance
of an opinion of counsel to the Company,
satisfactory in form and substance to the
Purchasers, that no such approval is necessary),
in each case necessary in

6
<PAGE> 7
connection with the Transaction and the other
transactions contemplated by the Bridge Financing
and otherwise referred to herein, shall have been
obtained and remain in effect, and all applicable
waiting periods shall have expired without any
action being taken by any competent authority
which restrains, prevents or imposes materially
adverse conditions upon the consummation of the
Transaction or the other transactions contemplated
by the Bridge Financing or otherwise referred to
herein.

8. Nothing shall have occurred (and (x) the
Purchasers shall not have become aware of any
facts or conditions not previously disclosed to
them and (y) no information previously submitted
to the Purchasers by or on behalf of the Company
(including, without limitation, financial,
accounting and tax information) is inaccurate,
incomplete or misleading) which (in any such case)
could reasonably be expected to have a material
adverse effect on the Transaction or the business,
property, assets, operations, liabilities or
financial condition of the Company, the Target and
their respective subsidiaries taken as a whole.

9. Absence of any material adverse change in or
material disruption of financial, syndication or
capital markets, that would have a material
adverse effect on the Permanent Financing, as
determined by the Purchasers in their reasonable
discretion.

10. Absence of any material pending or threatened
litigation or other proceedings by any entity
(private or governmental) with respect to the
Transaction, the Bridge Financing, the Permanent
Financing or any documentation executed in
connection therewith or which the Purchasers
reasonably determine could be reasonably be
expected to have a material adverse effect on the
business, property, assets, operations,
liabilities or financial condition of the Company,
the Target or the Company and its subsidiaries
taken as a whole.

11. Absence of any default or event of default.

12. Absence of any change of control of the Company.

13. There shall have been no material changes to
corporate and capital structure (and all
agreements related thereto)

7
<PAGE> 8
of the Company and its subsidiaries, or to any
organizational documents of such entities.

14. The Purchasers shall have received consent from
the Credit Facility lenders, if any, concerning
the anticipated terms and conditions of the Bridge
Notes, the Rollover Notes and the Permanent
Financing, including the application of the
proceeds from any such financing. Such terms will
include usual and customary terms for securities
of this type.

15. All costs, fees, expenses (including, without
limitation, legal fees and expenses) and other
compensation contemplated hereby payable to the
Purchasers on or prior to the Closing Date shall
have been paid.

REPRESENTATIONS AND
WARRANTIES: The Securities Purchase Agreement will contain
representations and warranties to the holders of the
Bridge Notes which are usual and customary for
transactions of this nature or reasonably required by
the Purchasers for this transaction, including, but not
limited to, the following:

1. Corporate existence.

2. Corporate and governmental authorizations; no
contravention; binding and enforceable agreements.

3. Financial information.

4. No material adverse change.

5. Environmental matters.

6. Compliance with laws, including ERISA and
environmental laws.

7. No material litigation.

8. Existence, incorporation, etc., of subsidiaries.

9. Payment of taxes and other material obligations.

10. No default or event of default.

11. Full disclosure.

12. Other deal specific representations.

COVENANTS: The Securities Purchase Agreement will contain usual
and customary covenants for securities of this nature
or reasonably required by the Purchasers for this
transaction, including, without limitation, the
following:

1. Furnishing of information.

2. Maintenance of property; insurance coverage.

8
<PAGE> 9
3. Compliance with laws; conduct of business;
inspection of properties.

4. Use of proceeds.

5. Restrictions on indebtedness.

6. Negative pledge.

7. Restrictions on dividends and other restricted
payments (including redemptions and prepayment of
junior or pari passu indebtedness).

8. Restrictions on asset sales, including
sale-leasebacks.

9. Restrictions on transactions with affiliates.

10. Restrictions on mergers and consolidations.

11. Refinancing of Bridge Notes.

12. Limitation on investments.

13. Other deal specific covenants.

EVENTS OF DEFAULT: The Securities Purchase Agreement will contain usual
and customary events of default for securities of this
nature or reasonably required by the Purchasers for
this transaction, including, without limitation, the
following:

1. Failure to pay any principal when due or any
interest or fees payable within 10 days of when
due.

2. Failure to meet covenants, with grace periods
where appropriate.

3. Representations or warranties false in any
material respect when made.

4. Cross acceleration to other material debt of the
Company and its subsidiaries.

5. Material judgment defaults.

6. Change-of-control of the Company.

7. Other usual defaults, including, without
limitation, insolvency, bankruptcy and ERISA.

INDEMNIFICATION: The Company will indemnify the Purchasers against all
losses, liabilities, claims, damages or expenses
relating to the Bridge Notes, the Securities Purchase
Agreement and the Company's use of the Bridge Note
proceeds or the commitments, including, but not limited
to, reasonable attorney's fees and settlement costs,
substantially on the terms set forth in the Commitment
Letter.

EXPENSES: The Company will pay all reasonable legal and other
out-of-pocket expenses of the Purchasers promptly upon
receipt of reasonably detailed invoices therefor,
including reasonable travel costs, document production
and other

9
<PAGE> 10
expenses of this type, and the reasonable fees of
outside counsel and fees of other professional
advisors engaged with the Company's consent.

GOVERNING LAW: State of New York.

10
<PAGE> 11

SENIOR SUBORDINATED ROLLOVER NOTES:

SUMMARY OF TERMS AND CONDITIONS

ISSUER: Doubletree Corporation (the "Company").

PURCHASERS: The Purchasers and any other holder or holders of the
Bridge Notes.

ISSUE: Senior Subordinated Rollover Notes (the "Rollover
Notes")

PRINCIPAL AMOUNT: Up to the outstanding principal amount of the Bridge
Notes plus an amount equal to 4.167% of such principal
amount, representing a funding fee payable to the
Purchasers.

PURPOSE: The Rollover Notes will be used in their entirety to
redeem 100% of the outstanding principal amount of the
Bridge Notes.

MATURITY: 8 years after the issuance date of the Rollover Notes.

INTEREST RATE: Interest on the Rollover Notes shall be paid at the
Applicable Interest Rate (as defined below) and
payable quarterly in arrears. "Applicable Interest
Rate" means the sum of (A) the Incremental Spread (as
defined in the Summary of Terms and Conditions for the
Bridge Notes) as of the date of the issuance of the
Rollover Notes, which shall (for so long as the
Rollover Notes are held by the Purchasers) increase by
an additional 50 basis points at the end of each
three-month period for so long as the Rollover Notes
are outstanding, plus (B) the highest of the
following, as determined as of the beginning of each
three-month period: (i) the prime rate (as announced
from time to time by Citibank N.A.) plus 300 basis
points, (ii) three-month U.S. Dollar LIBOR (as
determined from specified sources) plus 575 basis
points and (iii) the highest yield on any of the 1, 3,
5 and 10-year direct obligations issued by the United
States plus 475 basis points; provided that (A) in no
event shall the Applicable Interest Rate exceed 19.0%
and (B) the amount of cash interest paid will be
subject to a cap of 16.0%, with the excess (if any) of
the Applicable Interest Rate over such cash interest
cap to be paid in additional Rollover Notes.

1
<PAGE> 12
OPTIONAL REDEMPTION: For so long as they are held by the Purchasers, the
Rollover Notes will be redeemable at the option of the
Company, in whole or in part, at any time at par plus
accrued and unpaid interest to the redemption date;
provided, however, that if the Rollover Notes are sold
to unaffiliated third party purchasers on a fixed rate
basis no less favorable to the Company than the then
applicable rate of interest (it being understood that
the Purchasers shall have the right to unilaterally
fix the Interest Rate on the Rollover Notes in
conjunction with such third party sales and it also
being understood that no such third party sales shall
take place unless the Company has been given 30 days'
prior notice), the Rollover Notes will be non-callable
for 5 years from the date of issuance and will be
callable thereafter at par plus accrued interest plus
a premium equal to 50% of the coupon in effect on the
date of issuance of the Rollover Notes, declining
ratably on each yearly anniversary to par one year
prior to the maturity of the Rollover Notes.

MANDATORY REDEMPTION: Same as Bridge Notes, except that the redemption price
shall be at par plus accrued interest.

CHANGE-OF-CONTROL: The Company will redeem, subject to the certain
conditions, the Rollover Notes upon any
change-of-control of the Company at a redemption price
of 101% of par plus accrued interest.

SUBORDINATION: Same as Bridge Notes.

GUARANTEES: Same as Bridge Notes.

REGISTRATION RIGHTS: The Company will file, and will use its best efforts
to cause to become effective, a "shelf" registration
statement with respect to the Rollover Notes as soon
as practicable after the issuance of the Rollover
Notes. The Company will keep the registration
statement for the Rollover Notes effective until the
Rollover Notes shall have been redeemed. If a "shelf"
registration statement for the Rollover Notes has
either (i) not been filed within 60 days from the date
of issuance of the Rollover Notes, or (ii) not been
declared effective within 120 days from the date of
issuance of the Rollover Notes, the Company will pay
liquidated damages of $.192 per week per $1,000
principal amount of Rollover Notes until such time as
such registration statement has become effective. The
Company will also pay such liquidated damages for any
period of time following the effectiveness of such
registration statement that the registration statement
is not available for

2
<PAGE> 13
resales thereunder. In addition, the holders of the
Rollover Notes will have the right to "piggy-back" on
the registration of any debt securities which are
registered by the Company unless all of the Rollover
Notes will be redeemed from the proceeds of such
securities.

RIGHT TO RESELL
ROLLOVER NOTES
AND WARRANTS: The Purchasers shall have the absolute and
unconditional right to resell Rollover Notes and
Warrants in compliance with applicable law to any
third parties.

RELEASE OF EQUITY
FROM ESCROW: In the event that the Rollover Notes are exchanged for
the Bridge Notes, the Purchasers shall be entitled to
receive and retain the Warrants held in escrow at the
times and in the amounts described in the Summary of
Terms and Conditions for the Bridge Notes.

DEFEASANCE PROVISIONS: None.

CONDITIONS TO ISSUANCE: The right to issue the Rollover Notes will be subject
to satisfaction of the following conditions precedent:
(i) at the time of issuance, there shall exist no
bankruptcy or payment default or cross acceleration
under the Securities Purchase Agreement, (ii) all fees
and other amounts owing to the Purchasers and then
payable shall have been paid in full and (iii) no
injunction, decree, order or judgment enjoining such
issuance shall be in effect.

REPRESENTATIONS,
WARRANTIES, COVENANTS,
EVENTS OF DEFAULT,
INDEMNITIES AND
EXPENSES: As in the Securities Purchase Agreement (see above).

GOVERNING LAW: State of New York.

<PAGE> 1
Exhibit 10.3

[GE INVESTMENTS LETTERHEAD]

September 6, 1996

Doubletree Corporation
410 North 44th Street
Suite 700
Phoenix, AZ 85008

Gentlemen:

This will confirm that General Electric Investment Corporation ("GE
Investments") hereby commits to purchase, either directly or indirectly through
an affiliate, for an aggregate purchase price of $100,000,000 (i) shares of
Common Stock, par value $.01 per share ("Common Stock"), of Doubletree
Corporation, a Delaware corporation (the "Company"), and (ii) warrants to
purchase Common Stock, substantially upon the terms set forth in Annex A hereto
("Warrants"), at the closing (the "Closing") of the merger contemplated by the
Agreement and Plan of Merger dated as of September 6, 1996 by and among the
Company, RLH Acquisition Corp., a Delaware corporation, and Red Lion Hotels,
Inc., a Delaware corporation (without modification except as approved by GE
Investments in writing, the "Merger Agreement").

The number of shares of Common Stock to be purchased hereunder shall be
equal to the quotient of (a) $100,000,000 divided by (b) the Elected Price, as
defined below. The number of Warrants to be purchased hereunder shall be equal
to 10% of the number of shares of Common Stock purchased hereunder.

The Company shall notify GE Investments of the expected date for the
Closing not less than 25 trading days prior thereto. On or prior to the 20th
trading day prior to the expected date for the Closing, GE Investments shall
notify the Company as to GE Investments' election (the "Elected Price") between
the following two pricing options: (i) the Acquisition Price, as defined below,
or (ii) the Market Price, as defined below. The Company shall keep GE
Investments informed as to any change in the expected date for the Closing. At
any time after GE Investments delivers its notice of election, GE Investments
may deliver one or more subsequent notices specifying a different Elected Price,
and, if the actual date of the Closing is three or more days later than the
expected date specified by the Company in its notice to GE Investments, the
latest GE Investments election received by the Company not less than 20 trading
days prior to the actual date of the Closing shall be given effect.

<PAGE> 2
As used herein the term "Acquisition Price" shall mean the implied price
for shares of Common Stock used for purposes of determining the "Exchange Ratio"
(as defined in the Merger Agreement) under the Merger Agreement, after giving
effect to any adjustment to the Exchange Ratio required by Section 2.2 of the
Merger Agreement.

As used herein the term "Market Price" shall mean (i) if the Company
shall consummate an underwritten public offering of not less than $100 million
of its Common Stock at or immediately prior to the Closing, the price at which
shares of Common Stock are sold to the underwriters (i.e., net of any
underwriting discounts) for such offering, or (ii) otherwise, the "Final Parent
Stock Price" as defined in the Merger Agreement.

The commitment set forth herein is conditioned only on any necessary
compliance under the HSR Act (as defined in the Merger Agreement), the necessary
modification of the registration rights agreement as referred to below, and the
occurrence of the Closing as contemplated by the Merger Agreement.

The shares of Common Stock acquired at the Closing or issuable upon
exercise of the Warrants shall be subject to, and covered by, the existing
registration rights agreement among the Company, the undersigned and the other
stockholders of the Company party thereto.

GENERAL ELECTRIC INVESTMENT
CORPORATION

By: /s/ DALE F. FREY
--------------------------
Name:
Title:

2
<PAGE> 3
ANNEX A
-------

Terms of Warrants

<S> <C>
Initial Exercise Ratio: One share of the Company's Common Stock per
Warrant.

Exercise Price: Price at which shares of the Company's Common
Stock are purchased hereunder at the Closing.

Term: 5 years

Other: Customary anti-dilution provisions for issuances
below exercise price or market.
</TABLE>

3
<PAGE> 4
[GE INVESTMENTS LETTERHEAD]

September 12, 1996

Doubletree Corporation
410 North 44th Street
Suite 700
Phoenix, Arizona 85008

Gentlemen:

This will confirm that we approve the modifications incorporated in the
Agreement and Plan of Merger dated as of the date hereof by and among you. RLH
Acquisition Corp., a Delaware corporation, and Red Lion Hotels, Inc., a Delaware
corporation, and that our commitment to you of September 6, 1996 with respect to
the purchase for $100,000,000 of Common Stock and Warrants continues in effect
with respect to such Agreement and Plan of Merger.

GENERAL ELECTRIC INVESTMENT
CORPORATION

By: /s/ DALE F. FREY
----------------------------

<PAGE> 5
GE INVESTMENT HOTEL PARTNERS I,
LIMITED PARTNERSHIP
3003 Summer Street
Stamford, Connecticut 06904

September 12, 1996

Doubletree Corporation
410 North 44th Street
Suite 700
Phoenix, Arizona 85008

Gentlemen:

This will confirm that we approve the modifications incorporated in the
Agreement and Plan of Merger dated as of the date hereof by and among you, RLH
Acquisition Corp., a Delaware corporation, and Red Lion Hotels, Inc., a Delaware
corporation, and that our Shareholder Support Agreement dated as of September 6,
1996 continues in effect with respect to such Agreement and Plan of Merger.

GE INVESTMENT HOTEL PARTNERS I,
LIMITED PARTNERSHIP

By: GE Investment Management
Incorporated

By: /s/ DALE F. FREY
---------------------------

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
Doubletree Corporation:

The audits referred to in our report dated February 27, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995 included in the
Registration Statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the Registration Statement.

KPMG Peat Marwick LLP

Orange County, California
October 14, 1996

<PAGE> 1

EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-13161 of Doubletree Corporation on Form S-3 of our reports dated February
24, 1996, on Red Lion Hotels, Inc. as of and for the ten months ended December
31, 1995, and of Red Lion, a California Limited Partnership, for the seven
months ended July 31, 1995, appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.

DELOITTE & TOUCHE LLP
Portland, Oregon
October 14, 1996

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
dated February 7, 1995 on the financial statements of Red Lion, a California
Limited Partnership, as of and for the two years ended December 31, 1994
included in this registration statement, as amended by Amendment No. 1 thereto
and to all references to our Firm included in this registration statement, as
amended.

Arthur Andersen LLP

Portland, Oregon
October 14, 1996

For S-3