FELCOR SUITE HOTELS INC, 424B3, 1998-02-13

FELCOR SUITE HOTELS INC
424B3, 1998-02-13
REAL ESTATE INVESTMENT TRUSTS

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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-39595

FELCOR SUITES LIMITED PARTNERSHIP

OFFER TO EXCHANGE ALL OF ITS OUTSTANDING
7 3/8% REDEEMABLE SENIOR NOTES DUE 2004 AND
7 5/8% REDEEMABLE SENIOR NOTES DUE 2007
FOR 7 3/8% REDEEMABLE SENIOR NOTES DUE 2004 AND
7 5/8% REDEEMABLE SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MARCH 16, 1998 (AS SUCH DATE MAY BE EXTENDED, BUT SHALL NOT BE
LATER THAN MARCH 31, 1998, THE "EXPIRATION DATE").

FelCor Suites Limited Partnership, a Delaware limited partnership ("FelCor
LP"), hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal"), to exchange (i) $1,000 in principal
amount of its 7 3/8% Redeemable Senior Notes due 2004 (the "New 7 3/8% Notes")
for each $1,000 in principal amount of its outstanding 7 3/8% Redeemable Senior
Notes due 2004 (the "Old 7 3/8% Notes") and (ii) $1,000 in principal amount of
its 7 5/8% Redeemable Senior Notes due 2007 (the "New 7 5/8% Notes") for each
$1,000 in principal amount of its outstanding 7 5/8% Redeemable Senior Notes due
2007 (the "Old 7 5/8% Notes") (the Old 7 3/8% Notes and Old 7 5/8% Notes are
collectively referred to herein as the "Old Notes"; the New 7 3/8% Notes and the
New 7 5/8% Notes are collectively referred to herein as the "New Notes"; the Old
Notes and the New Notes are collectively referred to herein as the "Notes").
Aggregate principal amounts of $175,000,000 of Old 7 3/8% Notes and $125,000,000
of Old 7 5/8% Notes are outstanding. At September 30, 1997, after giving effect
to the Private Placement (as defined herein) and the application of the net
proceeds therefrom, FelCor LP and the Guarantors (as defined herein) would have
had $428 million in outstanding Indebtedness (as defined herein), none of which
was subordinate to the Notes, including $12 million in outstanding secured
Indebtedness, to which the Notes are effectively subordinate. See "The Exchange
Offer" and "Description of the Notes and Guarantees."

Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. FelCor LP has agreed that,
starting on the Expiration Date and ending on the close of business one year
after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."

FelCor LP will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. The
Exchange Offer is being made pursuant to the terms and provisions of the
Registration Rights Agreement, dated as of September 26, 1997

(continued on next page)
---------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 16 HEREIN FOR A DISCUSSION OF MATERIAL
RISKS THAT SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
THE 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 date of this Prospectus is February 10, 1998

<PAGE> 2

(the "Registration Rights Agreement"), among FelCor LP, FelCor Suite Hotels,
Inc., a Maryland corporation ("FelCor"), and Morgan Stanley & Co. Incorporated,
NationsBanc Capital Markets, Inc. and Salomon Brothers Inc (the "Initial
Purchasers"). Each series of the Old Notes may be tendered only in multiples of
$1,000. See "The Exchange Offer."

The Old Notes were issued in a transaction (the "Private Placement")
pursuant to which FelCor LP issued the Old Notes to the Initial Purchasers on
October 1, 1997 pursuant to a Placement Agreement, dated September 26, 1997 (the
"Placement Agreement"), among FelCor LP, FelCor and the Initial Purchasers. The
Initial Purchasers subsequently resold the Old Notes in reliance on Rule 144A
under the Securities Act. FelCor LP, FelCor and the Initial Purchasers also
entered into the Registration Rights Agreement, pursuant to which FelCor LP
granted certain registration rights for the benefit of the holders of the Old
Notes. The Exchange Offer is intended to satisfy certain of FelCor LP's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See "The Exchange Offer -- Purpose and Effect."

The Old Notes were, and the New Notes will be, issued under the Indenture,
dated as of October 1, 1997 (the "Indenture"), among FelCor LP, FelCor, and
certain direct or indirect wholly-owned subsidiaries of FelCor LP that are
obligors on other Indebtedness (as defined herein) of FelCor or FelCor LP which
is pari passu with or subordinated to the Notes (the "Subsidiary Guarantors")
and SunTrust Bank, Atlanta, as trustee (in such capacity, the "Trustee"). The
form and terms of each series of the New Notes will be identical in all material
respects to the form and terms of the corresponding series of the Old Notes,
except that (i) the New Notes have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof, and (ii)
holders of New Notes will not be, and upon the consummation of the Exchange
Offer, holders of Old Notes will no longer be, entitled to any rights under the
Registration Rights Agreement intended for the holders of unregistered
securities. See "The Exchange Offer -- Termination of Certain Rights" and
"Description of the Notes and Guarantees."

The New Notes will be unsecured Senior Indebtedness (as defined herein) of
FelCor LP, will rank pari passu in right of payment to existing and future
unsecured Senior Indebtedness of FelCor LP and will rank senior in right of
payment to future subordinated Indebtedness of FelCor LP. The New Notes will be
fully and unconditionally guaranteed on a senior unsecured basis by FelCor and
each of the Subsidiary Guarantors (collectively, the "Guarantors").

Based on existing interpretations of the Securities Act by the Staff of the
Securities and Exchange Commission (the "Commission") set forth in "no-action"
letters issued to third parties, FelCor LP believes that New Notes issued
pursuant to the Exchange Offer to any holder of Old Notes in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by such holder
(other than a broker-dealer who purchased Old Notes directly from FelCor LP for
resale pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such holder
is not an affiliate of FelCor LP, is acquiring the New Notes in the ordinary
course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. Holders wishing to accept the Exchange Offer must represent to FelCor LP,
as required by the Registration Rights Agreement, that such conditions have been
met. In addition, if such holder is not a broker-dealer, it must represent that
it is not engaged in, and does not intend to engage in, a distribution of the
New Notes. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "The Exchange
Offer -- Resales of the New Notes." This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities.

There has previously been only a limited secondary market, and no public
market, for the Old Notes. In addition, the Initial Purchasers have advised the
Company that they currently intend to make a market in the New Notes; however,
the Initial Purchasers are not obligated to do so and any market making
activities may be discontinued by the Initial Purchasers at any time. Prior to
the Exchange Offer, there has been no public trading market for the New Notes.
Therefore, there can be no assurance that an active trading market for any of
the Notes will develop. If such a trading market develops for any of the Notes,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, FelCor LP's results of operations and the
market for similar securities. Depending on such factors, the Notes may trade at
a discount from their face value. See "Risk Factors -- Absence of Public
Market."

FelCor LP will not receive any proceeds from this Exchange Offer. Pursuant
to the Registration Rights Agreement, FelCor LP will bear certain registration
expenses.

THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL FELCOR LP ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.

(ii)
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... v
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. v
NOTE REGARDING FORWARD-LOOKING INFORMATION.................. vi
SUMMARY..................................................... 1
The Company............................................ 1
The Industry........................................... 3
Business Strategy...................................... 3
Hotel Portfolio........................................ 5
The Private Placement.................................. 6
The Exchange Offer..................................... 6
Description of New Notes............................... 9
Risk Factors........................................... 11
Summary Historical and Pro Forma Financial
Information........................................... 12
RISK FACTORS................................................ 16
Risks of Leverage; Floating Rate Debt; Inability to
Retain Earnings....................................... 16
Dependence on Lessee's Hotel Operations................ 16
Conflicts of Interest.................................. 17
Absence of Public Market............................... 17
Risk of Fraudulent Transfer Liability.................. 18
Restrictive Debt Covenants............................. 18
Hotel Industry Risks................................... 18
Risks of Operating Hotels Under Franchise Agreements... 20
Operational Risks of Rapid Growth...................... 20
Reliance on Key Personnel.............................. 21
Real Estate Investment Risks........................... 21
THE EXCHANGE OFFER.......................................... 23
Purpose and Effect..................................... 23
Consequences of Failure to Exchange Old Notes.......... 23
Terms of the Exchange Offer............................ 23
Expiration Date; Extensions; Amendments................ 24
Conditions of the Exchange Offer....................... 24
Accrued Interest....................................... 24
Procedures for Tendering Old Notes..................... 24
Guaranteed Delivery Procedures......................... 26
Acceptance of Old Notes for Exchange; Delivery of New
Notes................................................. 26
Withdrawal Rights...................................... 27
The Exchange Agent; Assistance......................... 27
Fees and Expenses...................................... 27
Accounting Treatment................................... 28
Resales of the New Notes............................... 28
CAPITALIZATION.............................................. 29
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION..... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 37
Overview............................................... 37
Results of Operations.................................. 38
Renovations and Capital Expenditures................... 48
Liquidity and Capital Resources........................ 49
Impact of the Year 2000 Issue.......................... 51
Inflation.............................................. 51
Seasonality............................................ 51
Recently Issued Statements of Financial Accounting
Standards............................................. 51
</TABLE>

(iii)
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<TABLE>
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PAGE
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<S> <C>
BUSINESS AND PROPERTIES..................................... 52
The Industry........................................... 52
Background............................................. 53
Business Strategy...................................... 53
Hotel Portfolio........................................ 55
Hotel Operations....................................... 56
The Percentage Leases.................................. 63
Seasonality............................................ 65
Competition............................................ 65
Environmental Matters.................................. 65
Tax Status............................................. 68
Employees.............................................. 68
Personnel and Office Sharing Arrangements.............. 69
Legal Proceedings...................................... 69
MANAGEMENT.................................................. 69
Directors and Executive Officers....................... 69
Security Ownership of Management....................... 72
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 73
The Percentage Leases.................................. 73
Employment Agreements.................................. 73
Option and Right of First Refusal...................... 73
Sharing of Offices and Employees....................... 74
Compensation of Director for Special Services.......... 74
DESCRIPTION OF CERTAIN INDEBTEDNESS......................... 74
Line of Credit......................................... 74
Renovation Loan........................................ 76
Interest Rate Swaps.................................... 76
DESCRIPTION OF THE NOTES AND GUARANTEES..................... 77
General................................................ 77
Guarantees and Subsidiary Guarantors................... 78
Optional Redemption.................................... 78
Sinking Fund........................................... 79
Registration Rights.................................... 79
Ranking................................................ 80
Certain Definitions.................................... 80
Covenants.............................................. 90
Repurchase of Notes upon a Change of Control........... 97
Commission Reports and Reports to Holders.............. 97
Events of Default...................................... 97
Consolidation, Merger and Sale of Assets............... 99
Defeasance............................................. 99
Modification and Waiver................................ 100
No Personal Liability of Incorporators, Partners,
Stockholders,
Officers, Directors, or Employees.................... 101
Concerning the Trustee................................. 101
Book Entry; Delivery and Form.......................... 101
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............... 103
General................................................ 103
Exchange Offer......................................... 103
PLAN OF DISTRIBUTION........................................ 103
LEGAL MATTERS............................................... 104
EXPERTS..................................................... 104
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
GLOSSARY.................................................... A-1
</TABLE>

(iv)
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AVAILABLE INFORMATION

FelCor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a World Wide Web site that
contains registration statements, reports, proxy and information statements and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov.

In addition, FelCor's Common Stock and Series A Preferred Stock are listed
on the New York Stock Exchange. FelCor's reports, proxy statements and other
information filed under the Exchange Act may also be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.

FelCor LP has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of Notes and submit to the
Commission (unless the Commission will not accept such materials) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if FelCor LP
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by FelCor's independent
accountants, and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if FelCor LP were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, FelCor LP has
agreed to make available to any prospective purchaser of Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS
THERETO, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO
FELCOR SUITES LIMITED PARTNERSHIP, 545 E. JOHN CARPENTER FRWY., SUITE 1300,
IRVING, TEXAS 75062, ATTENTION: GENERAL COUNSEL, (972) 444-4900.

The following documents, which have been previously filed by FelCor with
the Commission under the Exchange Act (File No. 001-14236), are incorporated
herein by reference:

(i) Annual Report on Form 10-K for the year ended December 31, 1996;

(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;

(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1997;

(iv) Quarterly Report on Form 10-Q for the quarter ended September 30,
1997;

(v) Current Report on Form 8-K dated June 4, 1997;

(vi) Current Report on Form 8-K dated July 11, 1997, as amended by
Current Report on Form 8-K/A dated August 13, 1997;

(vii) Current Report on Form 8-K dated September 19, 1997; and

(v)
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(viii) Current Report on Form 8-K dated October 1, 1997.

All documents filed by FelCor pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.

Any statement contained herein, or in any 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 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.

FelCor will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests for such copies should be directed to
FelCor at 545 E. John Carpenter Frwy., Suite 1300, Irving, Texas 75062,
Attention: Lawrence D. Robinson, Senior Vice President, General Counsel and
Secretary.

NOTE REGARDING FORWARD-LOOKING INFORMATION

INFORMATION CONTAINED IN THIS PROSPECTUS WITH RESPECT TO FELCOR CONTAINS
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 16 OF
THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS,
INCLUDING MATERIAL RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.

(vi)
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SUMMARY

The following is a summary of the material terms of the offering and is
qualified in its entirety by reference to, and should be read in conjunction
with, the more detailed information and the consolidated financial statements of
FelCor LP and FelCor, including the notes thereto, contained elsewhere in this
Prospectus, as well as the information appearing in the documents incorporated
by reference herein. Unless otherwise indicated, all references to the "Company"
are to FelCor, FelCor LP and their respective subsidiaries, collectively.
Certain defined terms used herein are set forth in a "Glossary" beginning on
page A-1 of this Prospectus.

Market data and certain other industry data and forecasts used throughout
this Prospectus were obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that the information contained therein has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. Similarly, internal surveys, industry data and
forecasts and market research, while believed to be reliable, have not been
independently verified, and none of FelCor LP, or the Guarantors makes any
representation as to the accuracy of such information.

THE COMPANY

At September 30, 1997, FelCor LP and its subsidiaries held the Company's
interest in 71 full-service, upscale hotels ("Current Hotels"). The sole general
partner of FelCor LP is FelCor, a self-administered equity real estate
investment trust ("REIT") that, at September 30, 1997, owned an approximate
92.7% general partner interest in FelCor LP. The Current Hotels consist of 51
Embassy Suites(R) hotels, one hotel in Myrtle Beach, South Carolina, that was
converted by year end to an Embassy Suites hotel, 12 Doubletree Guest Suites(R)
hotels, six Sheraton(R) hotels, and one Hilton Suites(R) hotel. The Current
Hotels contain an aggregate of 17,486 suites/rooms, and are located in 26
states. Fifty of the Current Hotels are managed by a subsidiary of Promus Hotel
Corporation ("Promus"), which is the largest operator of full-service, all-suite
hotels in the United States.

Since its formation, through a merger with entities organized in 1991, and
FelCor's initial public offering ("IPO") in July 1994, the Company has acquired
interests in 65 full-service, upscale hotels containing an aggregate of 16,007
suites/rooms. Since the IPO, FelCor has completed five public offerings of its
capital stock, raising gross proceeds of more than $1 billion, including one
public offering of convertible preferred stock that raised $151.3 million in
gross proceeds. The Company seeks to increase operating cash flow and enhance
its value through both internal growth and acquisitions, while maintaining a
conservative capital structure. At September 30, 1997, the Company had a total
market capitalization in excess of $2 billion and a debt to total market
capitalization ratio of 19%. Additionally, after giving effect to the Private
Placement and application of the proceeds therefrom, the Company would have had
total unencumbered assets of $1.6 billion and total Indebtedness of $428 million
(of which only $12 million would have been secured Indebtedness), representing
approximately 26% of its Adjusted Total Assets (as defined herein) at such date.

The Company's senior management includes co-founders Hervey A. Feldman,
Chairman of the Board, and Thomas J. Corcoran, Jr., President and Chief
Executive Officer. Mr. Feldman has been engaged in the hotel business for
approximately 30 years, including serving as the founding President and Chief
Executive Officer of Embassy Suites (the predecessor of Promus) from January
1983 to May 1990 and as its Chairman of the Board from June 1990 until January
1992. Mr. Corcoran has been engaged in the hotel and restaurant business since
1979, with experience in the development, financing and acquisition of hotel and
restaurant properties. Based on the closing price of the common stock of FelCor
("Common Stock") on the New York Stock Exchange ("NYSE") on September 30, 1997,
Messrs. Feldman and Corcoran, together with other executive officers and
directors of the Company, owned collectively more than $40 million of the
aggregate outstanding Common Stock and units of limited partner interest in
FelCor LP ("Units"). See "Management -- Security Ownership of Management."

To enable FelCor to satisfy certain requirements for qualification as a
REIT, neither FelCor nor FelCor LP can operate the hotels in which they invest.
Accordingly, FelCor LP leases the Current Hotels (and expects to lease any
additional hotels) to DJONT Operations, L.L.C., or a subsidiary thereof
("Lessee"), pursuant to leases providing for the payment of rent based primarily
upon the suite revenues of
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<PAGE> 8

such hotels ("Percentage Leases"). The Lessee pays rent to FelCor LP and its
subsidiaries under the Percentage Leases and, in addition, enters into franchise
agreements (where applicable) and engages independent, unaffiliated third party
professional managers to operate the hotels. Under the Percentage Leases, the
Lessee is required to pay all franchise fees, management fees and other
operating expenses of the hotels leased by it. All of the voting interests in
the Lessee (constituting a 50% equity interest) are owned beneficially by
Messrs. Feldman and Corcoran, and the non-voting interests (constituting the
remaining 50% equity interest) are owned beneficially by the children of Charles
N. Mathewson, a major initial investor in the Company and a director of FelCor.

The following diagram illustrates the corporate structure of FelCor, FelCor
LP and the six Subsidiary Guarantors, and the relationship among them, the
Lessee and the unrelated third party franchisors and managers. None of the three
Subsidiary Guarantors that is a limited liability company owns directly any
hotel properties or engages in any business other than the ownership of
partnership and membership interests in other entities. The three Subsidiary
Guarantors that are limited partnerships own directly an aggregate of 18 of the
Current Hotels and own general partner interests in a partnership that owns
directly one additional hotel in which the Company has an interest. FelCor LP
and certain of the Subsidiary Guarantors have additional subsidiaries not shown
in the diagram below, none of which subsidiaries is material to FelCor LP.
Executive officers of FelCor constitute all of the managers and officers of such
Subsidiary Guarantors and serve in such capacities without additional
compensation. The discussion herein of the business and properties of the
Company include, on a combined basis, all of the business and properties of the
Subsidiary Guarantors.

DIAGRAM

The Company's executive offices are located at 545 E. John Carpenter Frwy.,
Suite 1300, Irving, Texas 75062. The Company may also be reached by telephone at
(972) 444-4900, by facsimile transmission at (972) 444-4949, or by e-mail
addressed to [email protected]. Additional information regarding the
Company may be obtained from its Internet web site at http://www.felcor.com.
2
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THE INDUSTRY

The United States hotel industry has experienced significant improvement in
the past five years. According to Coopers & Lybrand L.L.P. Hospitality
Directions, after a period of extended unprofitability in the late 1980's and
early 1990's, lodging industry profit has increased every year from 1992 through
1996. The industry downturn in the late 1980's resulted primarily from an
increase in the supply of new hotel rooms that significantly outpaced growth in
room demand. The percentage growth in room demand exceeded percentage growth in
new room supply from 1992 through 1996. As a result, according to Smith Travel
Research, for All Upscale U.S. Hotels (including both Upscale and Upper Upscale
Hotels), occupancy increased from 61.7% in 1991 to 68.4% in 1996, and ADR
increased from $65.89 in 1991 to $85.54 in 1996.

Smith Travel Research classifies the hotel industry into six distinct
categories: Budget, Economy, Midscale, Midscale with Food & Beverage, Upscale
and Upper Upscale. All of the Company's properties are operated under brands
that are included in the Upper Upscale category. This category has experienced
relatively low levels of new construction.

BUSINESS STRATEGY

OVERVIEW

The Company's primary business objectives are to (i) focus on selection of
sound hotel investments, (ii) add value to its hotels through active asset
management and the strategic investment of capital, and (iii) build solid
working relationships with, and be the "owner-of-choice" for, selected premium,
full-service hotel brand owners/managers who are willing to commit to the
on-going success of the hotels they license/ manage for the Company. The Company
seeks to increase operating cash flow and enhance its value through both
internal growth and acquisitions. The Company's internal growth strategy is to
utilize its asset management expertise to improve the quality of its hotels by
renovating, upgrading and repositioning, thereby improving the revenue
performance of the hotels, and to participate, through the Percentage Leases, in
any growth in revenues at its hotels. The Company's acquisition growth strategy
remains focused primarily upon the purchase of additional existing and a limited
number of newly developed hotels that meet the Company's investment criteria.

STRATEGIC RELATIONSHIPS

The Company currently maintains strategic brand owner/manager relationships
with Promus, Doubletree Hotels Corporation ("Doubletree") and ITT Sheraton
Corporation ("Sheraton"). Promus and Doubletree have recently completed the
merger of their companies. The combined company will constitute the lodging
industry's third largest entity based on annual revenue. The Company believes
that this merger will increase the Company's flexibility in branding its
all-suite hotels to capitalize on local market conditions and brand
representation. ITT Corporation, the parent of ITT Sheraton Corporation, has
announced that it has entered into a definitive agreement to merge with Starwood
Lodging.

- Promus Hotel Corporation is the largest operator of full-service,
all-suite hotels in the United States. Promus is also the owner of the
Embassy Suites brand and the manager of 50 of the Company's Current
Hotels. In addition, based on the closing price of the Common Stock on
the NYSE on September 30, 1997, Promus owned more than $55 million of
the aggregate Common Stock of FelCor and Units of FelCor LP. The
relationship with Promus has provided the foundation for the Company's
historical growth.

- Doubletree Hotels Corporation is the owner of the nation's second
largest full-service, all-suite hotel brand, Doubletree Guest Suites.
Doubletree provides hotel owners with management and franchise services
under its Doubletree Hotels(R), Doubletree Guest Suites, Club Hotels by
Doubletree(R), Red Lion Hotels(R) and other brands, as well as
management services for other non-Doubletree brand hotels. Doubletree is
the manager of all of the 12 Current Hotels operated under the
Doubletree Guest Suites brand.

3
<PAGE> 10

- ITT Sheraton Corporation is the owner of the Sheraton brand and one of
the world's largest hotel companies, with more than 430 hotels in over
60 countries. This newest strategic alliance, coupled with the purchase
of six Sheraton hotels this year (including a total of four non-suite
hotels), provided the Company with its initial entry into the upscale,
full-service, non-suite hotel market and should provide the Company with
opportunities for future growth.

The strength of the Company's strategic relationships with the foregoing
brand owners/managers are evidenced by their (i) significant equity investments
in 15 of the Company's hotels, (ii) agreements to make subordinated loans to the
Lessee (in support of the Lessee's obligations under certain Percentage Leases
with respect to certain hotels), (iii) subordination of certain customary fees
to the Lessee's obligations under applicable Percentage Leases, (iv) grants of
certain performance-based termination rights by the managers to the Lessees, and
(v) in one case, guarantee of a $25 million loan to the Company.

GROWTH STRATEGY

Beginning with the acquisition of the 18 Crown Sterling Suites(R) hotels
("CSS Hotels"), from the fourth quarter of 1995 through September 30, 1997, the
Company has acquired interests in 58 hotels containing an aggregate of 14,587
suites/rooms for approximately $1.4 billion, resulting in an increase in its
portfolio of suites/rooms by more than 500%. The Company converted the 18 CSS
Hotels to Embassy Suites hotels (16 hotels) and Doubletree Guest Suites hotels
(two hotels), investing over $50 million in the complete renovation and upgrade
of such hotels. As a consequence, revenue per available room/suite ("RevPAR") of
the CSS Hotels for the nine months ended September 30, 1997 increased
approximately 22.0% over the nine months ended September 30, 1996. Additionally,
for the 13 original hotels acquired by the Company prior to the acquisition of
the CSS Hotels, the Company achieved a 6.6% increase in RevPAR for the nine
months ended September 30, 1997 over the comparable period in 1996, from $79.39
to $84.61.

The Company intends to continue to focus its acquisition strategy with
respect to individual hotels primarily upon the purchase of full-service,
upscale hotels (both all-suite and non-suite) that will fit within one of the
Company's premium brand owner/manager alliances with Promus, Doubletree and
Sheraton. The Company believes that it has benefitted, and will continue to
benefit, from its strong relationships with its brand owner/managers. The
Company also may construct additional suites/rooms and meeting space at certain
of its hotels if market and other conditions warrant.

CAPITAL STRATEGY

The Company intends to maintain a conservative capital structure (as
evidenced by the current debt limitation policy of the Board of Directors
described below) that enhances its access to the capital markets on favorable
terms and promotes future earnings growth. Since the IPO, FelCor has completed
five public offerings of its capital stock, raising gross proceeds of more than
$1 billion, including one public offering of convertible preferred stock that
raised $151.3 million in gross proceeds. In addition, FelCor has reduced its
payout ratio (distributions as a percentage of Funds From Operations) from 80%
for the year ended December 31, 1995 to 68% for the twelve month period ended
September 30, 1997.

The Board of Directors of FelCor ("Board of Directors") has adopted a
policy which limits the Company's indebtedness to not more than 40% of its
investment in hotel assets, at cost. This policy may be modified by the Board of
Directors at any time. At September 30, 1997, the Company had a $550 million
unsecured revolving line of credit ("Line of Credit"), under which it had
borrowed $296 million, an unsecured term loan of $25 million (guaranteed by
Promus) ("Renovation Loan"), the proceeds of which were used to finance the cost
of renovations to the CSS Hotels, and approximately $1 million of other
unsecured indebtedness. The Company also had, at September 30, 1997, an $85
million secured term loan ("Term Loan") that has been repaid from the proceeds
of the Private Placement, and an additional $12 million in secured debt. At
September 30, 1997, after giving effect to the Private Placement and the
application of the proceeds therefrom, the total Indebtedness of the Company
would have been 26% of Adjusted Total Assets and its ratio of EBITDA to interest
paid for the 12 months ended September 30, 1997 would have been 4.8 to 1. The
Company believes that its current debt limitation policy, its preference for
unsecured debt and its

4
<PAGE> 11

success in raising equity capital for expansion, demonstrate the Company's
commitment to the maintenance of a conservative but flexible capital structure.

HOTEL PORTFOLIO

CURRENT HOTELS

FelCor was organized as a REIT in July 1994. At such time, the Company
acquired six Embassy Suites hotels (the "Initial Hotels") through a merger with
entities organized in 1991. Subsequent to its formation, the Company has
completed the acquisition of interests in 65 additional hotels through September
30, 1997. Of the Current Hotels, the Company owns 100% equity interests in 53
hotels, a 97% interest in a partnership that owns one hotel, a 90% interest in
partnerships that own three hotels and a 50% interest in separate partnerships
that own 14 hotels. The following table provides certain information regarding
the Current Hotels:

<TABLE>
<CAPTION>
NUMBER OF HOTELS NUMBER OF AGGREGATE
ACQUIRED SUITES/ROOMS ACQUISITION PRICE(1)
---------------- ------------ --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Inception (July 28, 1994) through
December 31, 1994.................. 7 1,730 $ 107.3
Year Ended December 31, 1995......... 13 2,649 237.1
Year Ended December 31, 1996......... 23 5,769 560.5
Nine Months Ended September 30,
1997............................... 28 7,161 596.9
-- ------ --------
Subtotals.......................... 71 17,309 1,501.8
Additional suites constructed by the
Company at its hotels.............. -- 177 21.2
-- ------ --------
Totals..................... 71 17,486 $1,523.0
== ====== ========
</TABLE>

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

(1) With respect to the hotels in which the Company owns less than a 100%
interest, includes the Company's purchase price for the interest acquired by
the Company.

The Current Hotels represent the following brands:

<TABLE>
<CAPTION>
NUMBER NUMBER OF
BRAND OF HOTELS SUITES/ROOMS
----- --------- ------------
<S> <C> <C>
Embassy Suites.............................................. 52 12,709
Doubletree Guest Suites..................................... 12 2,381
Sheraton.................................................... 6 2,222
Hilton Suites............................................... 1 174
-- ------
Totals............................................ 71 17,486
== ======
</TABLE>

RECENT ACQUISITIONS

During the fourth quarter of 1997, the Company acquired two additional
hotels with an aggregate of 447 suites and rooms for approximately $42.3
million. One is a traditional 309-room Sheraton hotel in Burlington, Vermont,
which includes a conference center offering more than 30,000 square feet of
meeting space. The other is a 138-suite Doubletree Guest Suites hotel in Dayton,
Ohio. The addition of these hotels brings the Company's total hotel portfolio to
73 hotels with an aggregate of 17,933 suites and rooms located in 27 states.

OTHER POTENTIAL HOTEL TRANSACTIONS

The Company is in various stages of evaluation and negotiation with respect
to a number of other available hotel transactions which, if the Company were to
elect to pursue all of such transactions, could require an additional investment
by the Company of more than $300 million. Due to the preliminary status of such
negotiations and evaluations, no assurance can be given that the Company will
elect to pursue, or succeed in the completion of, any of such transactions.

5
<PAGE> 12

THE PRIVATE PLACEMENT

The outstanding $175 million in principal amount of Old 7 3/8% Notes and
$125 million in principal amount of Old 7 5/8% Notes, were sold by FelCor LP to
the Initial Purchasers on October 1, 1997, pursuant to the Placement Agreement.
The Initial Purchasers subsequently resold the Old Notes to Qualified
Institutional Buyers in compliance with Rule 144A and to a limited number of
institutional Accredited Investors that, prior to their purchase of Old Notes,
delivered to the Initial Purchasers a letter containing certain representations
and agreements. FelCor LP and the Initial Purchasers also entered into the
Registration Rights Agreement pursuant to which FelCor LP granted certain
registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer made hereby is intended to satisfy certain of FelCor LP's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See "The Exchange Offer -- Purpose and Effect."

THE EXCHANGE OFFER

The Exchange Offer............ FelCor LP is offering, upon the terms and
subject to the conditions set forth herein and
in the Letter of Transmittal, to exchange
$1,000 in principal amount of New Notes for
each $1,000 in principal amount of outstanding
Old Notes of the corresponding maturity, with
Global New Notes being exchanged for Global Old
Notes and Certificated New Notes being
exchanged for Certificated Old Notes. As of the
date of this Prospectus, $175 million in
aggregate principal amount of the Old 7 3/8%
Notes and $125 million in aggregate principal
amount of Old 7 5/8% Notes, is outstanding. As
of February 6, 1998, (i) there were two
registered holders of the Old 7 3/8% Notes,
Cede & Co., which held $174.6 million in
principal amount for 27 of its participants,
and one institutional Accredited Investor which
held $360,000 in principal amount, and (ii)
there were four registered holders of the Old
7 5/8% Notes, Cede & Co., which held $122
million in principal amount for 25 of its
participants, and three institutional
Accredited Investors which held an aggregate of
$3 million in principal amount. See "The
Exchange Offer -- Terms of the Exchange Offer."

Expiration Date............... 5:00 p.m., New York City time, on March 16,
1998 as the same may be extended at the
discretion of FelCor LP, but shall not be later
than March 31, 1998. See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."

Conditions of the Exchange
Offer......................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. The only condition to
the Exchange Offer is the declaration by the
Commission of the effectiveness of the
Registration Statement of which this Prospectus
constitutes a part (the "Exchange Offer
Registration Statement"). See "The Exchange
Offer -- Conditions of the Exchange Offer."

Accrued Interest.............. The New 7 3/8% Notes will bear interest at a
rate equal to 7 3/8% annum and the New 7 5/8%
Notes will bear interest at a rate equal to
7 5/8% per annum. Interest shall accrue from
October 1, 1997 or from the most recent
Interest Payment Date with respect to the Old
Notes to which interest was paid or duly
provided for. See "Description of the Notes and
Guarantees -- General."

6
<PAGE> 13

Procedures for Tendering Old
Notes......................... Each holder desiring to accept the Exchange
Offer must complete and sign the Letter of
Transmittal, have the signature thereon
guaranteed if required by the Letter of
Transmittal, and deliver the Letter of
Transmittal, together with the Old Notes or a
Notice of Guaranteed Delivery (as defined in
the Letter of Transmittal) and any other
required documents (such as evidence of
authority to act, if the Letter of Transmittal
is signed by someone acting in a fiduciary or
representative capacity), to the Exchange Agent
(as defined under "The Exchange Offer -- The
Exchange Agent; Assistance") at the address set
forth herein and on the back cover page of this
Prospectus prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Beneficial
Owner (as defined under "The Exchange
Offer -- Procedures for Tendering Old Notes")
of the Old Notes whose Old Notes are registered
in the name of a nominee, such as a broker,
dealer, commercial bank or trust company and
who wishes to tender Old Notes in the Exchange
Offer, should instruct such entity or person to
promptly tender on such Beneficial Owner's
behalf. See "The Exchange Offer -- Procedures
for Tendering Old Notes."

Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot
deliver their Old Notes or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date,
may tender their Old Notes according to the
guaranteed delivery procedures set forth in the
Letter of Transmittal. See "The Exchange
Offer -- Guaranteed Delivery Procedures."

Acceptance of Old Notes and
Delivery of New Notes......... Upon effectiveness of the Exchange Offer
Registration Statement of which this Prospectus
constitutes a part and consummation of the
Exchange Offer, FelCor LP will accept any and
all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly after acceptance of
the Old Notes. See "The Exchange Offer --
Acceptance of Old Notes for Exchange; Delivery
of New Notes."

Withdrawal Rights............. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange
Offer -- Withdrawal Rights."

Federal Income Tax
Consequences.................. There will not be any U.S. Federal income tax
consequences to holders exchanging Old Notes
for New Notes pursuant to the Exchange Offer.
See "United States Federal Income Tax
Consequences."

The Exchange Agent............ SunTrust Bank, Atlanta is the exchange agent
(in such capacity, the "Exchange Agent"). The
address and telephone number of the Exchange
Agent are set forth in "The Exchange
Offer -- The Exchange Agent; Assistance" and on
the back cover page of this Prospectus.

Fees and Expenses............. All expenses incident to FelCor LP's
consummation of the Exchange Offer and
compliance with the Registration Rights Agree-
7
<PAGE> 14

ment will be borne by FelCor LP. FelCor LP will
also pay certain transfer taxes applicable to
the Exchange Offer. See "The Exchange
Offer -- Fees and Expenses."

Resales of the New Notes...... Based on existing interpretations by the Staff
of the Commission set forth in "no-action"
letters issued to third parties, FelCor LP
believes that New Notes issued pursuant to the
Exchange Offer to a holder in exchange for Old
Notes may be offered for resale, resold and
otherwise transferred by a holder (other than
(i) a broker-dealer who purchased the Old Notes
directly from FelCor LP for resale pursuant to
Rule 144A under the Securities Act or any other
available exemption under the Securities Act or
(ii) a person that is an affiliate of FelCor LP
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
holder is acquiring the New Notes in the
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate,
in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old Notes were acquired by such broker as
a result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer -- Resales of the New Notes" and "Plan of
Distribution."

Effect of Not Tendering Old
Notes for Exchange............ Old Notes that are not tendered or that are not
properly tendered will, following the
expiration of the Exchange Offer, continue to
be subject to the existing restrictions upon
transfer thereof. The Company will have no
further obligations to provide for the
registration under the Securities Act of such
Old Notes and such Old Notes will, following
the expiration of the Exchange Offer, bear
interest at the same rate as the New Notes.

8
<PAGE> 15

DESCRIPTION OF NEW NOTES

The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (ii) holders of the New Notes will
not be, and upon consummation of the Exchange Offer, holders of the Old Notes
will no longer be, entitled to any rights under the Registration Rights
Agreement intended for the holders of unregistered securities, except in limited
circumstances. See "The Exchange Offer -- Termination of Certain Rights." The
Exchange Offer shall be deemed consummated upon the occurrence of the delivery
by FelCor LP to the Registrar under the Indenture of the New Notes in the same
aggregate principal amount and maturities as the aggregate principal amount and
maturities of Old Notes that are duly tendered by holders thereof pursuant to
the Exchange Offer. See "The Exchange Offer -- Termination of Certain Rights,"
"-- Procedures for Tendering Old Notes" and "Description of the Notes and
Guarantees."

Issuer........................ FelCor Suites Limited Partnership.

Securities Offered............ $175,000,000 aggregate principal amount of
7 3/8% Redeemable Senior Notes Due 2004 and
$125,000,000 aggregate principal amount of
7 5/8% Redeemable Senior Notes Due 2007 which
have been registered under the Securities Act.

Maturity Dates................ The New 7 3/8% Notes will mature on October 1,
2004 and the New 7 5/8% Notes will mature on
October 1, 2007.

Interest...................... Interest on the New Notes is payable
semiannually in cash on October 1 and April 1
of each year, commencing April 1, 1998.

Optional Redemption........... Each series of New Notes will be redeemable in
whole or in part at the option of FelCor LP at
any time, at a redemption price equal to the
greater of (i) 100% of the principal amount of
such Notes and (ii) the sum of the present
values of the remaining scheduled payments of
principal and interest thereon discounted to
the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined
herein) plus 25 basis points, plus, in each
case, accrued interest thereon to the date of
redemption. See "Description of the Notes and
Guarantees -- Optional Redemption."

Change of Control............. Upon a Change of Control (as defined herein),
each holder of the New Notes will have the
right to require FelCor LP to purchase such
holder's New Notes at a price equal to 101% of
the principal amount thereof plus accrued
interest, if any, to the date of purchase.
There can be no assurance that FelCor LP will
have the financial resources necessary to
purchase the New Notes upon a Change of
Control. See "Description of the Notes and
Guarantees -- Repurchase of Notes upon a Change
of Control."

Ranking....................... The Indebtedness evidenced by the New Notes
will be unsecured, senior obligations of FelCor
LP, and will rank pari passu in right of
payment with all other unsecured Senior
Indebtedness thereof, including, without
limitation, the obligations of FelCor LP under
the Line of Credit. As unsecured Senior
Indebtedness of FelCor LP and the Guarantors,
the New Notes will be effectively subordinated
to all secured Indebtedness thereof and to the
Indebtedness of the non-guarantor Subsidiaries.
As of September 30, 1997, after giving effect
to the Private Placement and the applica-
9
<PAGE> 16

tion of the proceeds therefrom, the total
Indebtedness of FelCor LP and the Guarantors
would have been approximately $428 million,
including $12 million of secured Indebtedness.
Although FelCor LP and the Guarantors have no
immediate plans to incur additional
Indebtedness (other than pursuant to the Line
of Credit or in connection with hotel
acquisitions), it is likely they will do so in
the future. The non-guarantor Subsidiaries had
no Indebtedness at September 30, 1997 and have
no present intention to incur any Indebtedness.
There is currently no outstanding indebtedness
of FelCor LP or the Guarantors that is
subordinated in right of payment to the New
Notes. See "Capitalization" and "Description of
Certain Indebtedness."

Guarantees.................... All payments with respect to the New Notes will
be unconditionally and irrevocably guaranteed
by FelCor and by certain wholly owned
Subsidiaries of FelCor LP that are obligors on
other Indebtedness of FelCor or FelCor LP which
is pari passu with or subordinated to the New
Notes. At present, the Subsidiary Guarantors
consist of FelCor/CSS Hotels, L.L.C.,
FelCor/LAX Hotels, L.L.C., FelCor Eight Hotels,
L.L.C., FelCor CSS Holdings, L.P., FelCor/St.
Paul Holdings, L.P. and FelCor/LAX Holdings,
L.P., each of which is a guarantor with respect
to the Line of Credit. See "Description of the
Notes and Guarantees -- Guarantees."

Limitations on Incurrence of
Indebtedness................ The Indenture contains certain covenants
limiting the incurrence of Indebtedness:

(1) FelCor LP, FelCor and the Restricted
Subsidiaries (as defined herein) will not
incur any Indebtedness if, after giving
effect thereto, the aggregate principal
amount of their outstanding Indebtedness is
greater than 60% of Adjusted Total Assets
(as defined herein). After giving effect to
the application of the proceeds of the
Private Placement, Indebtedness of FelCor
LP, FelCor and the Restricted Subsidiaries
would have been approximately 26% of
Adjusted Total Assets as of September 30,
1997.

(2) FelCor LP, FelCor and the Restricted
Subsidiaries will not incur any Secured
Debt or Subsidiary Debt (each as defined
herein) if, after giving effect thereto,
the aggregate principal amount of their
outstanding Secured Debt and Subsidiary
Debt is greater than 40% of their Adjusted
Total Assets. After giving effect to the
application of the proceeds of the Private
Placement, the Secured Debt and Subsidiary
Debt of FelCor LP, FelCor and the
Restricted Subsidiaries would have been
less than 1% of the Adjusted Total Assets
as of September 30, 1997.

(3) FelCor LP, FelCor and the Restricted
Subsidiaries will not incur any
Indebtedness if, after giving effect to the
incurrence of such Indebtedness, their
Interest Coverage Ratio (as defined herein)
would be less than 2.0 to 1. After giving
effect to the application of the proceeds
of the Private Placement, their

10
<PAGE> 17

Interest Coverage Ratio would have been 4.8
to 1 for the 12 months ended September 30,
1997.

(4) FelCor LP, FelCor and the Restricted
Subsidiaries will maintain Total
Unencumbered Assets (as defined herein) of
not less than 150% of the aggregate
outstanding principal amount of their
Unsecured Indebtedness (as defined herein)
on a consolidated basis. After giving
effect to the application of the proceeds
of the Private Placement, Total
Unencumbered Assets would have been 398% of
such Unsecured Indebtedness as of September
30, 1997.

Certain Other Covenants....... The Indenture contains certain other covenants
for the benefit of the holders of the Notes
which, among other things, restrict the ability
of FelCor LP, FelCor and the Restricted
Subsidiaries to: make certain distributions,
investments and other restricted payments;
create restrictions on the ability of
Restricted Subsidiaries to make certain
payments; issue or sell stock of Restricted
Subsidiaries; enter into transactions with
affiliates; create liens; sell assets; enter
into certain sale-leaseback transactions; and,
with respect to FelCor LP and FelCor,
consolidate, merge or sell all or substantially
all of their assets. See "Description of the
Notes and Guarantees -- Covenants." However, in
the event, and only for so long as, the Notes
are rated Investment Grade (as defined herein)
the covenants described under "Description of
the Notes and
Guarantees -- Covenants -- Limitation on
Liens," "-- Limitation on Sale-Leaseback
Transactions," "-- Limitation on Restricted
Payments," "-- Limitation on Dividend and other
Payment Restrictions Affecting Restricted
Subsidiaries," "-- Limitation on the Issuance
and Sale of Capital Stock of Restricted
Subsidiaries," "-- Limitation on Issuances of
Guarantees by Restricted Subsidiaries," and
"-- Limitation on Transactions with Affiliates"
will be inapplicable.

Absence of a Public Market for
the New Notes................. The New Notes are a new issue of securities
with no established trading market.
Accordingly, there can be no assurance as to
the development or liquidity of any market for
the New Notes. The Initial Purchasers have
advised FelCor LP that they currently intend to
make a market in the New Notes. However, the
Initial Purchasers are not obligated to do so,
and any market making with respect to the New
Notes may be discontinued at any time without
notice. FelCor LP does not intend to apply for
listing of the New Notes on any securities
exchange.

RISK FACTORS

SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DESCRIPTION OF MATERIAL RISKS
THAT SHOULD BE CONSIDERED IN EVALUATING THE EXCHANGE OFFER.

11
<PAGE> 18

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following tables set forth summary historical and pro forma
consolidated financial information for FelCor LP and FelCor. The following
information should be read in conjunction with the historical financial
statements and notes thereto for FelCor LP and FelCor and Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
are included herein. In the opinion of management, the financial data as of
September 30, 1996 and 1997 and for the nine months ended September 30, 1996 and
1997 include all adjustments necessary to present fairly the information set
forth therein.

The pro forma operations and other data for the year ended December 31,
1996 and for the nine months ended September 30, 1997 have been prepared as if
the purchase of each of the hotels acquired prior to September 30, 1997, the
Series A Preferred Stock offering in the second quarter of 1996, the Common
Stock offerings in the first and second quarters of 1997, and the $300 million
senior unsecured debt placement had been consummated on January 1, 1996. The pro
forma balance sheet data has been prepared as if the $300 million senior
unsecured debt placement had been consummated on September 30, 1997. The pro
forma financial information is not necessarily indicative of what the actual
financial position and results of operations of FelCor LP or FelCor would have
been as of and for the periods indicated, nor does it purport to represent the
future financial position and results of operations of FelCor LP or FelCor.

FELCOR SUITES LIMITED PARTNERSHIP

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------------------------------
HISTORICAL HISTORICAL PRO FORMA
---------------------------------- ----------------------- ----------
1994 1995 1996 1996 1997 1997(1)
-------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments....... $ 1,118 $166,821 $ 7,793 $ 8,803 $ 18,942 $ 18,942
Investment in hotel properties, net... 104,800 325,155 899,691 804,097 1,447,340 1,447,340
Investment in unconsolidated
partnerships........................ -- 13,819 59,867 44,941 127,606 127,606
Total assets.......................... 108,305 548,359 978,788 866,913 1,616,487 1,625,348
Long-term debt and capital lease
obligations:
7 3/8% Senior Notes Due 2004........ -- -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007........ -- -- -- -- -- 125,000
Unsecured Line of Credit............ -- -- 115,000 -- 296,000 89,861
Term Loan........................... 8,750 -- 85,000 85,000 85,000 --
Capitalized leases.................. -- 11,256 12,875 13,339 11,527 11,527
Other unsecured debt................ -- 8,410 26,550 26,550 25,650 25,650
Redeemable units, at redemption
value............................... 33,055 74,790 98,542 89,877 119,266 119,266
Preferred units....................... -- -- 151,250 151,250 151,250 151,250
Partners' capital..................... 61,885 445,433 468,247 496,796 889,499 889,499
</TABLE>

12
<PAGE> 19

FELCOR SUITE HOTELS, INC.

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------------------------------
HISTORICAL HISTORICAL PRO FORMA
---------------------------------- ----------------------- ----------
1994 1995 1996 1996 1997 1997(1)
-------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments....... $ 1,118 $166,821 $ 7,793 $ 8,083 $ 18,942 $ 18,942
Investment in hotel properties, net... 104,800 325,155 899,691 804,097 1,447,340 1,447,340
Investment in unconsolidated
partnerships........................ -- 13,819 59,867 44,941 127,606 127,606
Total assets.......................... 108,305 548,359 978,788 866,913 1,616,487 1,625,348
Debt and capital lease obligations:
7 3/8% Senior Notes Due 2004........ -- -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007........ -- -- -- -- -- 125,000
Unsecured Line of Credit............ -- -- 115,000 -- 296,000 89,861
Term Loan........................... 8,750 -- 85,000 85,000 85,000 --
Capitalized leases.................. -- 11,256 12,875 13,339 11,527 11,527
Other unsecured debt................ -- 8,410 26,550 26,550 25,650 25,650
Minority interest in FelCor LP........ 25,685 58,837 76,112 78,220 74,175 74,144
Shareholders' equity.................. 69,255 461,386 641,926 659,703 1,085,840 1,085,871
</TABLE>

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

(1) The pro forma financial information does not purport to represent what the
financial position or results of operations of FelCor LP or FelCor actually
would have been if the purchases of each of the hotels acquired in 1996 and
1997 (through September 30, 1997), the Series A Preferred Stock offering,
the Common Stock offerings in the first and second quarters of 1997, and the
$300 million in long term senior unsecured debt had, in fact, occurred on
such dates, or to project their financial position or results of operations
at any future date or for any future period.

(2) Represents lease payments from the Lessee to FelCor LP calculated on a pro
forma basis by applying the contractual or anticipated rent provisions of
the Percentage Leases to the historical suite and food and beverage revenues
of the Current Hotels.

(3) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after comparable adjustments for the Company's portion of
these items related to unconsolidated partnerships and joint ventures. The
Company believes that Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing
13
<PAGE> 20

activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash needs. The Company computes
Funds from Operations in accordance with standards established by NAREIT
which may not be comparable to Funds from Operations reported by other REITs
that do not define the term in accordance with the current NAREIT definition
or that interpret the current NAREIT definition differently than the
Company. Funds from Operations does not represent cash generated from
operating activities determined by GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
Funds from Operations may include funds that may not be available for
management's discretionary use due to functional requirements to conserve
funds for capital expenditures and property acquisitions, and other
commitments and uncertainties.

The computation of Funds from Operations for FelCor LP and FelCor yields
the same results. The following is a reconciliation between net income and
Funds from Operations.

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994
(INCEPTION OF YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
OPERATIONS) ------------------------------- ---------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ------------------ --------- ------------------- ---------
1994 1995 1996 1996(1) 1996 1997 1997(1)
------------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income..................... $2,511 $12,191 $40,937 $ 62,623 $32,752 $48,057 $ 57,529
Add:
Minority interest in FelCor
LP........................... 907 3,131 5,590 4,968 4,619 4,584 4,577
Depreciation................... 1,487 5,232 26,544 47,522 17,833 35,969 43,243
Depreciation for unconsolidated
subsidiaries................. -- 153 1,716 10,353 1,070 6,904 7,711
Extraordinary charge from
writeoff of deferred
financing fees............... -- -- 2,354 -- 2,354 -- --
------ ------- ------- -------- ------- ------- --------
Funds From Operations assuming
conversion of preferred
stock........................ $4,905 $20,707 $77,141 $125,466 $58,628 $95,514 $113,060
====== ======= ======= ======== ======= ======= ========
</TABLE>

14
<PAGE> 21

(4) EBITDA is computed by adding net income, minority interest in FelCor LP,
interest expense, income taxes, depreciation expense, amortization expense,
extraordinary expenses and cash distributions paid by unconsolidated
partnerships and deducting extraordinary income and income from
unconsolidated partnerships. The computation of EBITDA for FelCor LP and
FelCor yields the same result. The differences between Funds From Operations
and EBITDA are scheduled in the following table.

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994
(INCEPTION OF YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
OPERATIONS) ------------------------------- --------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ------------------ --------- ------------------- ---------
1994 1995 1996 1996 1996(1) 1997 1997(1)
------------- ------- ------- --------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Funds From Operations assuming
conversion of preferred
stock........................ $4,905 $20,707 $77,141 $125,466 $58,628 $ 95,514 $113,060
Add:
Interest expense............. 109 2,004 9,803 32,829 6,273 20,097 28,244
Amortization expense......... -- 158 592 592 377 807 807
Cash distributions from
unconsolidated
partnerships............... -- -- 1,954 11,414 896 2,849 11,730
Deduct:
Income from unconsolidated
partnerships............... -- (513) (2,010) (3,123) (1,412) (5,765) (5,681)
Depreciation from
unconsolidated
partnerships............... -- (153) (1,716) (10,353) (1,070) (6,904) (7,711)
------ ------- ------- -------- ------- -------- --------
EBITDA......................... $5,014 $22,203 $85,764 $156,825 $63,692 $106,598 $140,449
====== ======= ======= ======== ======= ======== ========
</TABLE>

(5) For purposes of computing ratio of earnings to fixed charges, earnings
consist of net income plus fixed charges and minority interest expense in
FelCor LP (with respect to FelCor), excluding capitalized interest, and
fixed charges consist of interest, whether expensed or capitalized, and
amortization of loan costs.

15
<PAGE> 22

RISK FACTORS

An investment in the Notes involves a significant degree of risk. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following factors in evaluating the
Exchange Offer.

RISKS OF LEVERAGE; FLOATING RATE DEBT; INABILITY TO RETAIN EARNINGS

At September 30, 1997, after giving effect to the $300 million senior
unsecured debt placement and the application of the proceeds therefrom, the
Company's outstanding Indebtedness would have been approximately $428 million,
including approximately $91 million under the Line of Credit which bears
interest at floating rates. Since the Company intends to continue to acquire
additional hotels, and FelCor must distribute annually at least 95% of its
taxable net income to maintain its REIT status, the Company may borrow
additional funds to make investments or distributions. The Board of Directors
has the discretion to permit the Company to incur debt, subject to the current
policy of the Board of Directors limiting indebtedness to not more than 40% of
the Company's investment in hotel properties, at cost, on a consolidated basis,
after giving effect to the Company's use of proceeds from any indebtedness. The
Company has obtained the Line of Credit to provide, as necessary, funds for
investments in additional hotel properties, working capital and cash to make
distributions. The Company's use of the Line of Credit for working capital,
distributions and general corporate purposes is limited to 10% of the amount
available thereunder. The majority of the Company's floating rate debt bears
interest at LIBOR (5.656% at September 30, 1997) plus an amount between 0.45%
and 1.5%.

There can be no assurance that the Company will be able to meet its present
or future debt service obligations and, to the extent that it cannot, it risks
the loss of certain of its assets to foreclosure. Changes in economic conditions
could result in higher interest rates which could increase debt service
requirements on the Company's floating rate debt. Adverse economic conditions
could cause the terms on which borrowings become available to be unfavorable. In
such circumstances, if the Company is in need of capital to repay indebtedness
in accordance with its terms or otherwise, it could be required to liquidate one
or more investments in hotel properties at times which may not permit
realization of the maximum return on such investments.

In order to qualify as a REIT, FelCor generally is required each year to
distribute to its shareholders at least 95% of its net taxable income (excluding
any net capital gain). In addition, FelCor is subject to a 4% nondeductible
excise tax on the amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of (i) 85% of its ordinary
income, (ii) 95% of its capital gain net income for that year, and (iii) any
undistributed taxable income from prior periods. FelCor intends to continue to
make distributions to its shareholders to comply with the 95% distribution
requirement and to avoid the nondeductible excise tax. FelCor's income consists
primarily of its share of the income of FelCor LP, and FelCor's cash available
for distribution consists primarily of its share of cash distributions from
FelCor LP. Differences in timing between taxable income and cash available for
distribution due to the seasonality of the hospitality industry could require
the Company to borrow funds on a short-term basis to meet the 95% distribution
requirement and to avoid the nondeductible excise tax. In such a case, the
Company also would be required to borrow funds to make payments of principal and
interest on Indebtedness.

DEPENDENCE ON LESSEE'S HOTEL OPERATIONS

The Company's revenues consist primarily of lease revenue under the
Percentage Leases. The obligations of the Lessee under the Percentage Leases are
unsecured. The Lessee's only assets are cash, receivables, inventory, supplies
and prepaid expenses needed in the operation of the Current Hotels, the
franchise licenses for the Current Hotels, its rights and benefits under the
Percentage Leases and the management contracts relating to such hotels and,
subject to certain limitations, its right to borrow on a subordinated basis an
aggregate of up to approximately $15.4 million from its equity owners partners
and managers of certain hotels. At September 30, 1997, the Lessee had a deficit
in total shareholders' equity of approximately $8.0 million. Consequently, both
the Company and the Lessee are substantially dependent upon the operations of
the Current Hotels. See "-- Hotel Industry Risks."

16
<PAGE> 23

CONFLICTS OF INTEREST

Mr. Feldman and Mr. Corcoran, who are officers and directors of FelCor, are
also officers and directors of the Lessee. All of the voting interests in the
Lessee (constituting a 50% equity interest) are beneficially owned by Messrs.
Feldman and Corcoran, and the non-voting interests (constituting the remaining
50% equity interest) are owned beneficially by the children of Mr. Mathewson, a
major initial investor in the Company and a director of FelCor.

General

Because of the direct and indirect ownership interests of Messrs. Feldman,
Corcoran and Mathewson in, and their positions with, the Company and the Lessee,
there are inherent conflicts of interest in connection with the Company's
purchase of the Initial Hotels, in which such persons held an interest, and in
the ongoing lease and operation of the Company's hotels. Accordingly, the
interests of the Company's equity owners may not have been, and in the future
may not be, solely reflected in all decisions made or actions taken by such
officers and directors. In an effort to address one of the primary continuing
conflicts, Messrs. Feldman and Corcoran have entered into an agreement with the
Company to utilize any amounts distributed to them from the Lessee, in excess of
their tax liability for the earnings of the Lessee, to purchase from the Company
additional shares of Common Stock (or Units) at the then current market price.

No Arms-Length Bargaining on Percentage Leases

The terms of the Percentage Leases were not negotiated on an arms-length
basis and, accordingly, may not reflect fair market values or terms. Management
of the Company believes, however, that the terms of such agreements are fair to
the Company and are upon terms as favorable to the Company as could be obtained
from a financially responsible unrelated third party. The lease payments under
the Percentage Leases have been, and will be, calculated with reference to
historical financial data and the projected operating and financial performance
of the hotels. The terms of the Percentage Leases are believed by management of
the Company to be typical of provisions found in other leases entered into in
similar transactions. The Percentage Leases are approved by FelCor's
"Independent Directors," being those directors who are not officers or employees
of FelCor or affiliates of any subsidiary or lessee thereof. The Company does
not own any interest in the Lessee. All of the voting Class A membership
interest in the Lessee (representing a 50% equity interest) is owned
beneficially by Messrs. Feldman and Corcoran and all of the non-voting Class B
membership interest in the Lessee (representing the remaining 50% equity
interest) is held by RGC Leasing, Inc., a Nevada corporation owned by the
children of Mr. Mathewson, a director of FelCor. As a result, such persons may
have a conflict of interest with the Company in the performance of their
management services to the Company in connection with the Percentage Leases.

Adverse Tax Consequences to Certain Affiliates on a Sale of Initial Hotels

Certain affiliates of the Company may have unrealized gain in their
investments in the six Initial Hotels acquired by the Company at its inception
on July 28, 1994. A subsequent sale of such hotels by the Company, although not
restricted by agreement, may cause adverse tax consequences to such persons.
Therefore, the interests of the Company and certain of its affiliates, including
Messrs. Feldman, Corcoran and Mathewson, could be different in connection with
the disposition of any of such hotels. However, decisions with respect to the
disposition of all hotel properties in which the Company invests will be made by
a majority of the Board of Directors, which majority must include a majority of
the Independent Directors when the disposition involves any of the Initial
Hotels.

ABSENCE OF PUBLIC MARKET

The New Notes are new issues of securities, have no established trading
market and may not be widely distributed. The Company does not intend to list
the New Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. The Company has been advised by the Initial Purchasers that
they presently intend to make a market in the New Notes. However, the Initial
Purchasers are not obligated to do so and any market making activities with
respect to the New Notes may be discontinued at any time without notice. In
addition, such market

17
<PAGE> 24

making activity will be subject to the limitations imposed by the Exchange Act
and may be limited during the Exchange Offer and at certain other times. No
assurance can be given that an active public or other trading market will
develop for the New Notes or as to the liquidity of any trading market for the
New Notes. If a trading market does not develop or is not maintained, holders of
the New Notes may experience difficulty in reselling the New Notes or may be
unable to sell them at all. If a market for the New Notes develops, any such
market may be discontinued at any time. If a public trading market develops for
the New Notes, future trading prices of the New Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
results of operations and the market for similar securities. Depending on
prevailing interest rates, the market for similar securities and other facts,
including the financial condition of the Company, the New Notes may trade at a
discount from their principal amount.

RISK OF FRAUDULENT TRANSFER LIABILITY

The management of FelCor believes that the indebtedness represented by the
Notes and the Subsidiary Guarantees was incurred for proper purposes and in good
faith, and that, based on present forecasts, asset valuations and other
financial information, the Company is solvent, has sufficient capital for
carrying on its businesses and is able to pay its debts as they mature.
Notwithstanding management's belief, if a court of competent jurisdiction in a
suit by an unpaid creditor or a representative of creditors (such as a trustee
in bankruptcy or a debtor-in-possession) were to find that either FelCor, FelCor
LP or the Subsidiary Guarantors did not receive fair consideration or reasonably
equivalent value for issuing the Notes or the Subsidiary Guarantees and, at the
time of the incurrence of indebtedness represented by the Notes or the
Subsidiary Guarantees, such entity was insolvent, was rendered insolvent by
reason of such incurrence, was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital, intended to hinder,
delay or defraud its creditors, such court could avoid such indebtedness or
subordinate such indebtedness to other existing and future indebtedness of such
entity. The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the relevant jurisdiction. Generally, however, an
entity would be considered insolvent for purposes of the foregoing if the sum of
an entity's debts is greater than all of its property at a fair valuation, or if
the present fair saleable value of the entity's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and matured.

RESTRICTIVE DEBT COVENANTS

The terms of the Line of Credit and Indenture contain certain restrictive
covenants, including, among others, covenants which may prohibit or
significantly restrict the ability of FelCor, FelCor LP and certain of their
subsidiaries to incur indebtedness, make investments, engage in transactions
with shareholders and affiliates, incur liens, create restrictions on the
ability of certain subsidiaries to pay dividends or make certain payments to the
Company, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
such entities. In addition, the Company is required under the Line of Credit to
maintain certain specified financial ratios. There can be no assurance that the
Company will be able to maintain such ratios or that such covenants will not
adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the
interest of the Company. The breach of any of these covenants or the inability
of the Company to comply with the required financial ratios could result in a
default under the Line of Credit or the Indenture. In the event of any such
default, all amounts borrowed under the Line of Credit or the Indenture,
together with accrued interest, could be declared to be due and payable. If the
Indebtedness under the Line of Credit or the Indenture were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay such Indebtedness in full. See "Description of Certain Indebtedness" and
"Description of the Notes and Guarantees."

HOTEL INDUSTRY RISKS

Operating Risks

The Company's hotels are subject to all operating risks common to the hotel
industry. These risks include, among other things, intense competition from
other hotels; over-building in the hotel industry which

18
<PAGE> 25

has adversely affected occupancy, ADR and RevPAR in the past; increases in
operating costs due to inflation and other factors, which increases have not
always been, and may not necessarily in the future be, offset by increased
suite/room rates; dependence on business and commercial travelers and tourism;
increases in energy costs and other expenses of travel; and adverse effects of
general and local economic conditions. Such factors could adversely affect the
Lessee's ability to make lease payments and, consequently, the Company's ability
to make any required payments of principal and interest on indebtedness.
Further, annual adjustments to the base rent and the thresholds for computation
of percentage rent, based upon a formula taking into account changes in the U.S.
Consumer Price Index ("CPI"), would (in the absence of offsetting increases in
suite revenue and in the event of any decrease in suite revenues) result in
decreased revenues to the Company under the Percentage Leases and decreased
amounts available for required payments of principal and interest on
indebtedness.

Competition

Competition for Guests; Operations. The hotel industry is highly
competitive. Each of the Company's hotels experiences competition primarily from
other upscale hotels in its immediate vicinity, but also competes with other
hotel properties in its geographic market. Some of the competitors of the
Company's hotels have substantially greater marketing and financial resources
than the Company and the Lessee. A number of additional hotel rooms are in
development, have been announced or have recently been completed in a number of
the Company's markets, and additional hotel rooms may be developed in the
future. Such additional hotel rooms could have an adverse effect on the revenues
of the Company's hotels in such markets.

Competition for Acquisitions. The Company may be competing for investment
opportunities with entities which have substantially greater financial resources
than the Company. These entities may generally be able to accept more risk than
the Company prudently can manage. Competition may generally reduce the number of
suitable investment opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell.

Seasonality of Hotel Business

The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
Through diversity in the geographic location and in the primary customer base of
the Company's hotels, the Company may be able to lessen, but not eliminate, the
effects of seasonality. Accordingly, seasonality can be expected to cause
quarterly fluctuations in the Company's lease revenue, to the extent it receives
percentage rent.

Investment Concentration in Single Industry

The Company's current strategy is to acquire interests exclusively in hotel
properties. The Company will not seek to invest in assets selected to reduce the
risks associated with investments in the hotel industry, and will be subject to
risks inherent in concentrating investments in a single industry. Therefore, the
adverse effect on the Company's lease revenue and amounts available for required
payments of principal and interest on indebtedness and to make distribution to
shareholders resulting from a downturn in the hotel industry will be more
pronounced than if the Company had diversified its investments outside of the
hotel industry. In addition, the Company's hotels are concentrated in the Upper
Upscale category of the hotel industry, particularly the all-suite segments
therein.

Emphasis on Embassy Suites Hotels; Market Concentration

Fifty-one of the Company's 71 Current Hotels are operated under, and one
was converted by year end to, the Embassy Suites brand. Accordingly, the Company
is subject to risks inherent in concentrating the Company's investments in the
Embassy Suites brand, such as a reduction in business following adverse
publicity related to the brand, which could have an adverse effect on the
Company's lease revenues and amounts available for required payments of
principal and interest on indebtedness and to make distributions to
shareholders.

The Current Hotels are located in 26 states; however, almost one-half of
such hotels are located in three states, with 11 hotels located in each of
Florida and California and nine hotels located in Texas. Therefore,

19
<PAGE> 26

adverse events or conditions which affect those areas particularly (such as
natural disasters or adverse changes in local economic conditions) could have a
more pronounced negative impact on the operations of the Company and amounts
available for required payments of principal and interest on indebtedness than
events affecting other areas.

RISKS OF OPERATING HOTELS UNDER FRANCHISE AGREEMENTS

At September 30, 1997, fifty-one of the Current Hotels were being operated
under, and one was converted by year end to, the Embassy Suites brand. Of the 19
remaining Current Hotels, 12 are operated as Doubletree Guest Suites hotels,
under management contracts with Doubletree, six are operated as Sheraton hotels,
under management contracts with Sheraton, and one is, and may continue to be,
operated under a franchise license as a Hilton Suites hotel. No assurance can be
provided that the Company will not be required to make and fund significant
additional improvements to the Current Hotels in the future to obtain or
maintain its franchise licenses. Failure to complete improvements, when
required, in a manner satisfactory to the franchisor could result in the failure
to issue, or the cancellation, of one or more franchise licenses. In addition,
the Company may desire to operate additional hotels acquired by it under
franchise licenses from Promus or another franchisor, and such franchisors may
require that significant capital expenditures be made to such additional hotels
as a condition of granting such franchise licenses.

The continuation of franchise licenses for the Current Hotels is subject to
the maintenance of specified operating standards and other terms and conditions.
Promus periodically inspects its licensed properties to confirm adherence to its
maintenance and operating standards. Under each Percentage Lease, the Company is
obligated, among other things, to pay the costs of maintaining the structural
elements of each hotel and to set aside as a reserve 4% of hotel suite revenues
per month, on a cumulative basis, and to fund from the reserve or from other
sources capital expenditures (subject to approval by the Board of Directors) for
the periodic replacement or refurbishment of furniture, fixtures and equipment
required for the retention of such franchise licenses. During the period from
the closing of FelCor's initial public offering to December 31, 1996, the
Company made, and in the future may be obligated or deem it advisable to make,
capital investments in the Current Hotels in excess of 4% of the suite revenues
thereof. Should the Company be required or elect to do so in the future, such
investments may necessitate the use of borrowed funds or the reduction of
distributions. The Lessee is responsible for routine maintenance and repair
expenditures with respect to the Current Hotels. The failure to maintain the
standards or adhere to the other terms and conditions of the Embassy Suites or
other franchise licenses could result in the loss or cancellation of such
franchise licenses. It is possible that a franchisor could condition the
continuation of a franchise license upon the completion of substantial capital
improvements, which the Board of Directors may determine to be too expensive or
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotel. In that event, the Board of
Directors may elect to allow the franchise license to lapse, in which event the
Company will be obligated to indemnify the Lessee against any loss or liability
incurred by it as a consequence of such decision. In any case, if a franchise is
terminated, the Company and the Lessee may seek to obtain a suitable replacement
franchise, or to operate the affected hotel independent of a franchise license.
The loss of any franchise license could have a material adverse effect upon the
operations or the underlying value of the hotel covered by such license because
of the loss of associated name recognition, marketing support and centralized
reservation systems provided by the franchisor. The loss of a number of the
franchise licenses for the Current Hotels could have a material adverse effect
on the Company's revenues under the Percentage Leases and the Company's cash
available to make required payments of principal and interest on indebtedness
and to make distributions to its shareholders.

OPERATIONAL RISKS OF RAPID GROWTH

The Company's acquisition of interests in 58 hotels between late 1995 and
September 30, 1997, has resulted in a substantial increase in the number and
geographic dispersion of the hotels owned by the Company and leased to the
Lessee. As a result, FelCor has added five senior management personnel as well
as additional accounting and administrative personnel between mid-1995 and
September 30, 1997. To the extent FelCor is unable to retain or hire experienced
personnel to manage the Company's business and assets, its operations could be
adversely affected. Continued growth may result in increased demands upon, or
additions

20
<PAGE> 27

to, FelCor staff. The increased demand upon the time of such employees,
particularly if additional qualified staff cannot be obtained, could adversely
affect the operations and revenues of the Company.

RELIANCE ON KEY PERSONNEL

The Company's future success, including particularly the implementation of
the Company's acquisition growth strategy, is substantially dependent on the
active participation of Messrs. Feldman and Corcoran. The loss of the services
of both these individuals could have a material adverse effect on the Company.

REAL ESTATE INVESTMENT RISKS

The Company's investments are subject to varying degrees of risk generally
incident to the ownership of real property, including, in addition to the risks
discussed below, adverse changes in general or local economic conditions, zoning
laws, traffic patterns and neighborhood characteristics, tax rates, governmental
rules and fiscal policies, and by civil unrest, acts of war, and other adverse
factors which are beyond the control of the Company.

Illiquidity of Real Estate

Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions
will be limited. Also, no assurances can be given that the market value of any
of the Current Hotels will not decrease in the future. There can be no assurance
that the Company will be able to dispose of an investment when it finds
disposition advantageous or necessary or that the sale price realized in any
disposition will recoup or exceed the amount of the Company's investment
therein.

Uninsured and Underinsured Losses

Each of the Current Hotels is covered by comprehensive policies of
insurance, including liability, fire and extended coverage. Management believes
such specified coverage is of the type and amount customarily obtained by owners
of real property assets. However, there are certain types of losses, generally
of a catastrophic nature, such as earthquakes, hurricanes and floods, that may
be uninsurable or not economically insurable. Eleven of the Current Hotels are
located in California, which is subject to relatively higher seismic risks.
Although each of such hotels was constructed under the more recent and stringent
post-1984 building codes that were intended to reduce the likelihood or extent
of damage from seismic activity, no assurance can be given that an earthquake
would not cause substantial damage and losses. Additionally, 16 of the Current
Hotels are located in the coastal areas of Florida, Georgia, Louisiana, South
Carolina or Texas and may, therefore, be particularly susceptible to potential
damage from hurricanes or high-wind activity. The Company presently maintains
and intends to continue to maintain earthquake insurance on each of the Current
Hotels located in California and wind damage insurance on its hotels located in
Florida, Georgia, Louisiana, South Carolina and Texas, to the extent
practicable. The Board of Directors may exercise discretion in determining
amounts, coverage limits and the deductibility provisions of insurance, with a
view to maintaining appropriate insurance coverage on the Company's investments
at a reasonable cost and on suitable terms. This may result in insurance
coverage that, in the event of a substantial loss, would not be sufficient to
pay the full current market value or current replacement cost of the Company's
lost investment. Inflation, changes in building codes and ordinances,
environmental considerations, and other factors also might make it impractical
to use insurance proceeds to replace the property after such property has been
damaged or destroyed. Under such circumstances, the insurance proceeds received
by the Company might not be adequate to restore its economic position with
respect to such property.

Environmental Matters

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. Liability also may extend to persons holding a
security interest in the property, under certain limited circumstances. In
addition, the presence of contamination from hazardous or toxic substances, or
the failure to properly remediate such
21
<PAGE> 28

contaminated property, may adversely affect the owner's ability to dispose of
such property, to fully utilize such property without restriction or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is or ever was owned or operated by such person.
Certain environmental laws and common law principles could be used to impose
liability for release of hazardous or toxic substances, including the 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 or
property damage associated with such releases, including 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. Environmental laws provide for sanctions in the event of
noncompliance and may be enforced by governmental agencies or, in certain
circumstances, by private parties. In connection with the ownership of the
Current Hotels and any subsequently acquired hotels, the Company may be
potentially liable for such costs. The cost of defending against claims of
liability, of compliance with environmental regulatory requirements or of
remediating a contaminated property could materially adversely affect the
business, assets or results of operations of the Company and, consequently,
amounts available for required payments of principal and interest on
indebtedness and to make distributions to the Company's equity owners.

Phase I environmental audits from independent environmental engineers were
obtained with respect to substantially all of the Current Hotels prior to the
acquisition thereof by the Company. The principal purpose of Phase I audits is
to identify indications of potential environmental contamination for which the
Current Hotels may be responsible and, secondarily, to assess, to a limited
extent, the potential for environmental regulatory compliance liabilities. The
Phase I audits of the Current Hotels were designed to meet the requirements of
the then current industry standards governing Phase I audits, and consistent
with those requirements, none of the audits involved testing of groundwater,
soil or air. Accordingly, they do not represent evaluations of conditions at the
studied sites that would be revealed only through such testing. In addition,
their assessment of environmental regulatory compliance issues was general in
scope and was not a detailed determination of the Current Hotels' complete
compliance status. Similarly, the audits did not involve comprehensive analysis
of potential off-site liability. The Phase I audit reports have not revealed any
environmental liability that management believes would have a material adverse
effect on the Company's business, assets or results of operations, nor is the
Company aware of any such liability. Nevertheless, it is possible that these
reports do not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware.

Compliance with Americans with Disabilities Act

Under the Americans with Disabilities Act of 1990 ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While management of the Company believes
that, based upon an examination thereof and consultation with professionals, the
Current Hotels are substantially in compliance with these requirements, a
determination that the Company is not in compliance with the ADA could result in
the imposition of fines or an award of damages to private litigants. If the
Company were required to make substantial modifications at the Current Hotels to
comply with the ADA, the Company's ability to make required payments of
principal and interest on indebtedness and to make distributions to its equity
owners could be adversely affected.

Increases in Property Taxes

Each Current Hotel is subject to real and personal property taxes. The real
and personal property taxes on hotel properties in which the Company invests may
increase as property tax rates change and as the properties are assessed or
reassessed by taxing authorities. If property taxes increase, the Company's
ability to make required payments of principal and interest on indebtedness and
to make distributions to its equity owners could be adversely affected.

22
<PAGE> 29

THE EXCHANGE OFFER

PURPOSE AND EFFECT

The Old Notes were sold by FelCor LP to the Initial Purchasers on October
1, 1997, pursuant to the Placement Agreement. The Initial Purchasers
subsequently resold the Old Notes to Qualified Institutional Buyers in
compliance with Rule 144A and to a limited number of institutional Accredited
Investors that, prior to their purchase of Old Notes, delivered to the Initial
Purchasers a letter containing certain representations and agreements. FelCor
LP, FelCor and the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which FelCor LP agreed, with respect to the Old Notes and
subject to the Company's determination that the Exchange Offer is permitted
under applicable law, to cause to be filed a registration statement with the
Commission under the Securities Act concerning the Exchange Offer, to use its
best efforts to cause such registration statement to be declared effective by
the Commission, and to cause the Exchange Offer to be consummated on or prior to
April 1, 1998. FelCor LP will keep the Exchange Offer open for a period of not
less than 20 business days and not more than 30 business days. This Exchange
Offer is intended to satisfy the Company's exchange offer obligations under the
Registration Rights Agreement.

CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES

Following the expiration of the Exchange Offer, holders of Old Notes not
tendered, or not properly tendered, will not have any further registration
rights and such Old Notes will continue to be subject to the existing
restrictions on transfer thereof. Accordingly, the liquidity of the market for a
holder's Old Notes could be adversely affected upon expiration of the Exchange
Offer if such holder elects not to participate in the Exchange Offer.

TERMS OF THE EXCHANGE OFFER

FelCor LP hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange (i)
$1,000 in principal amount of the New 7 3/8% Notes for each $1,000 in principal
amount of the outstanding Old 7 3/8% Notes and (ii) $1,000 in principal amount
of the New 7 5/8% Notes for each $1,000 in principal amount of the outstanding
Old 7 5/8% Notes. Global New Notes will be exchanged for Global Old Notes and
Certificated New Notes will be exchanged for Certificated Old Notes. FelCor LP
will accept for exchange any and all Old Notes that are validly tendered on or
prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of the
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to the terms and provisions of the Registration Rights
Agreement. See "-- Conditions of the Exchange Offer."

Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Old Notes may tender less than the aggregate principal
amount represented by the Old Notes held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Old Notes.

As of the date of this Prospectus, $175 million in aggregate principal
amount of the Old 7 3/8% Notes and $125 million in aggregate principal amount of
Old 7 5/8% Notes, is outstanding. As of February 6, 1998, (i) there were two
registered holders of the Old 7 3/8% Notes, Cede & Co., which held $174.6
million in principal amount for 27 of its participants, and one institutional
Accredited Investor which held $360,000 in principal amount, and (ii) there were
four registered holders of the Old 7 5/8% Notes, Cede & Co., which held $122
million in principal amount for 25 of its participants, and three institutional
Accredited Investors which held an aggregate of $3 million in principal amount.
Solely for reasons of administration, FelCor LP has fixed the close of business
on February 6, 1998, as the record date (the "Record Date") for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
initially will be mailed. Only a holder of the Old Notes (or such holder's legal
representative or attorney-in-fact) may participate in the Exchange Offer. There
will be no fixed record date for determining holders of the Old Notes entitled
to participate in the

23
<PAGE> 30

Exchange Offer. FelCor LP believes that, as of the date of this Prospectus, no
such holder is an affiliate (as defined in Rule 405 under the Securities Act) of
FelCor LP.

FelCor LP shall be deemed to have accepted validly tendered Old Notes when,
as and if FelCor LP has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes and for the purposes of receiving the New Notes from FelCor LP.

If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The Expiration Date shall be March 16, 1998, at 5:00 p.m., New York City
time, unless FelCor LP, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended, but shall not be later than March 31, 1998.

In order to extend the Exchange Offer, FelCor LP will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.

FelCor LP reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "-- Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by FelCor LP to constitute a material change,
FelCor LP will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
Modification of the Exchange Offer, including, but not limited to, (i) extension
of the period during which the Exchange Offer is open and (ii) satisfaction of
the conditions set forth below under "-- Conditions of the Exchange Offer" may
require that at least five (5) business days remain in the Exchange Offer.

CONDITIONS OF THE EXCHANGE OFFER

The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Exchange Offer Registration Statement of which this Prospectus constitutes a
part.

ACCRUED INTEREST

The New 7 3/8% Notes will bear interest at a rate equal to 7 3/8% per annum
and the New 7 5/8% Notes will bear interest at a rate equal to 7 5/8% per annum,
which interest shall accrue from October 1, 1997 or from the most recent
Interest Payment Date with respect to the Old Notes to which interest was paid
or duly provided for. See "Description of the Notes and Guarantees -- General."

PROCEDURES FOR TENDERING OLD NOTES

The tender of a holder's Old Notes as set forth below and the acceptance
thereof by FelCor LP will constitute a binding agreement between the tendering
holder and FelCor LP upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a holder who wishes to tender Old Notes for exchange pursuant to
the Exchange Offer must deliver such Old Notes, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth under "-- The Exchange Agent; Assistance" and on the back cover page of
this Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELEC-
24
<PAGE> 31

TION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY.

Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined under "The Exchange Offer -- Procedures
for Tendering Old Notes"). In the event that a signature on a Letter of
Transmittal or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If the Letter of Transmittal is signed by a person other than
the registered holder of the Old Notes, the Old Notes surrendered for exchange
must either (i) be endorsed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution, or (ii) be accompanied by a bond power,
in satisfactory form as determined by FelCor LP in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution. The term "registered holder" as used herein with respect
to the Old Notes means any person in whose name the Old Notes are registered on
the books of the Registrar.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by FelCor LP in its sole discretion, which determination shall be
final and binding. FelCor LP reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes FelCor LP's
acceptance of which might, in the judgment of FelCor LP or its counsel, be
unlawful. FelCor LP also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by FelCor LP
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as FelCor LP shall determine. FelCor LP will
use reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.

If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by
FelCor LP, proper evidence satisfactory to FelCor LP, in its sole discretion, of
such person's authority to so act must be submitted.

Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.

By tendering, each registered holder will represent to FelCor LP that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the holder and each Beneficial Owner of the Old Notes are
being acquired by the holder and each Beneficial Owner in the ordinary course of
business of

25
<PAGE> 32

the holder and each Beneficial Owner, (ii) the holder and each Beneficial Owner
are not participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the distribution of the New
Notes, (iii) the holder and each Beneficial Owner acknowledge and agree that any
person participating in the Exchange Offer for the purpose of distributing the
New Notes must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction of the
New Notes acquired by such person and cannot rely on the position of the Staff
of the Commission set forth in "no-action" letters that are discussed herein
under "-- Resales of the New Notes," (iv) that if the holder is a broker-dealer
that acquired Old Notes as a result of market making or other trading
activities, it will deliver a prospectus in connection with any resale of New
Notes acquired in the Exchange Offer, (v) the holder and each Beneficial Owner
understand that a secondary resale transaction described in clause (iii) above
should be covered by an effective registration statement containing the selling
security holder information required by Item 507 of Regulation S-K of the
Securities Act, and (vi) neither the holder nor any Beneficial Owner is an
"affiliate," as defined under Rule 405 of the Securities Act, of FelCor LP
except as otherwise disclosed to FelCor LP in writing.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Letter of Transmittal. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
and a Notice of Guaranteed Delivery (as defined in the Letter of Transmittal)
must be signed by such holder, (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from the holder and the Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder, the certificate number or numbers of the tendered Old Notes, and the
principal amount of tendered Old Notes, stating that the tender is being made
thereby and guaranteeing that, within five (5) business days after the date of
delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a duly
executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer must be received by the
Exchange Agent within five (5) business days after the Expiration Date. Any
Holder who wishes to tender Old Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.

ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES

Upon satisfaction or waiver of all the conditions to the Exchange Offer,
FelCor LP will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, FelCor LP
shall be deemed to have accepted validly tendered Old Notes, when, as, and if
FelCor LP has given oral or written notice thereof to the Exchange Agent.

In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents; provided, however, that
FelCor LP reserves the absolute right to waive any defects or irregularities in
the tender or conditions of the Exchange Offer. If any tendered Old Notes are
not accepted for any reason, such unaccepted Old Notes will be returned without
expense to the tendering holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.

26
<PAGE> 33

WITHDRAWAL RIGHTS

Tenders of the Old Notes may be withdrawn by delivery of a written notice
to the Exchange Agent, at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depository"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the name of the
person withdrawing the tender, in satisfactory form as determined by FelCor LP
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depository,
pursuant to such documents of transfer. Any questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by FelCor LP, in its sole discretion. The Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Notes which have been tendered for exchange but which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "The Exchange
Offer -- Procedures for Tendering Old Notes" at any time on or prior to the
Expiration Date.

THE EXCHANGE AGENT; ASSISTANCE

SunTrust Bank, Atlanta is the Exchange Agent. All tendered Old Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Questions and requests for assistance and requests for
additional copies of this Prospectus, the Letter of Transmittal and other
related documents should be addressed to the Exchange Agent as follows:

BY REGISTERED OR CERTIFIED MAIL, HAND DELIVERY OR OVERNIGHT COURIER:

<TABLE>
<S> <C> <C>
SunTrust Bank, Atlanta SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex c/o First Chicago Trust Company
Atlanta, Georgia 30302 or 14 Wall Street, 8th Floor
Attention: David M. Kaye New York, New York 10005
</TABLE>

BY FACSIMILE:

(404) 332-3966 (GA)
or
(212) 240-8938 (NY)

FEES AND EXPENSES

All expenses incident to FelCor LP's consummation of the Exchange Offer and
compliance with the Registration Rights Agreement will be borne by FelCor LP,
including, without limitation: (i) all registration and filing fees (including
fees and expenses of compliance with state securities or Blue Sky laws), (ii)
printing expenses (including expenses of printing certificates for the New Notes
in a form eligible for deposit with DTC and of printing prospectuses), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for FelCor LP, (v) fees and disbursements of independent certified
public accountants, (vi) rating agency fees, and (vii) internal expenses of
FelCor LP (including all salaries and expenses of officers and employees of
FelCor LP performing legal or accounting duties).

FelCor LP has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others for
soliciting acceptance of the Exchange Offer. FelCor LP, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.

27
<PAGE> 34

FelCor LP will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.

ACCOUNTING TREATMENT

The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in FelCor LP's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by FelCor LP for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.

RESALES OF THE NEW NOTES

Based on an interpretation by the Staff of the Commission set forth in
"no-action" letters issued to third parties, FelCor LP believes that the New
Notes issued pursuant to the Exchange Offer to a holder in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by such holder
(other than (i) a broker-dealer who purchased Old Notes directly from FelCor LP
for resale pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act, or (ii) a person that is an affiliate of
FelCor LP within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such holder is acquiring the New Notes in the
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. The Company has not requested or obtained an interpretive letter from the
Staff of the Commission with respect to this Exchange Offer, and the Company and
the holders are not entitled to rely on interpretive advice provided by the
Staff to other persons, which advice was based on the facts and conditions
represented in such letters. However, the Exchange Offer is being conducted in a
manner intended to be consistent with the facts and conditions represented in
such letters. If any holder acquires New Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the New Notes,
such holder cannot rely on the position of the Staff of the Commission
enunciated in Morgan Stanley & Co., Incorporated (available June 5, 1991) and
Exxon Capital Holdings Corporation (available April 13, 1989), or interpreted in
the Commission's letter to Shearman & Sterling (available July 2, 1993), or
similar "no-action" or interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."

It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of FelCor LP within the meaning of the Securities
Act will be subject to certain limitations on resale under Rule 144 of the
Securities Act. Such persons will only be entitled to sell New Notes in
compliance with the volume limitations set forth in Rule 144, and sales of New
Notes by affiliates will be subject to certain Rule 144 requirements as to the
manner of sale, notice and the availability of current public information
regarding FelCor LP. The foregoing is a summary only of Rule 144 as it may apply
to affiliates of FelCor LP. Any such persons must consult their own legal
counsel for advice as to any restrictions that might apply to the resale of
their Notes.

28
<PAGE> 35

CAPITALIZATION

The following table sets forth the capitalization of FelCor LP at September
30, 1997 and as adjusted to reflect the sale of the Old Notes in the Private
Placement and the application of the net proceeds therefrom to reduce
indebtedness.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of Term Loan............................ $ 3,281 $ --
Current portion of capitalized leases................... 2,164 2,164
---------- ----------
Total short-term debt........................... $ 5,445 $ 2,164
========== ==========
Long-term debt:
7 3/8% Senior Notes Due 2004............................ -- $ 175,000
7 5/8% Senior Notes Due 2007............................ -- 125,000
Line of Credit.......................................... $ 296,000 81,000
Term Loan............................................... 81,719 --
Capitalized leases...................................... 9,363 9,363
Other unsecured debt.................................... 25,650 25,650
---------- ----------
Total long-term debt............................ 412,732 416,013
---------- ----------
Redeemable units, at redemption value..................... 119,266 119,266
Preferred units........................................... 151,250 151,250
Partners' capital(1)...................................... 889,499 889,499
---------- ----------
Total capitalization............................ $1,572,747 $1,576,028
========== ==========
</TABLE>

(1) Includes an aggregate of 162,500 Units issued to reflect shares awarded
under FelCor's Restricted Stock and Stock Option Plans, of which 72,400
shares are fully vested and 90,100 shares vest ratably over five years
(unvested shares being subject to forfeiture under certain conditions).
Excludes (a) 4,689,960 Units issuable to reflect shares of Common Stock
issuable upon conversion of FelCor's outstanding Series A Preferred Stock
and (b) 1,449,500 Units issuable to reflect shares of Common Stock issuable
upon the exercise of outstanding stock options granted to employees of
FelCor.

29
<PAGE> 36

SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following tables set forth selected historical and pro forma financial
information for FelCor LP and FelCor.

With respect to each of FelCor LP and FelCor, the following tables set
forth (i) selected historical operating and other financial information for the
period from July 28, 1994 (inception of operations) to December 31, 1994 and the
years December 31, 1995 and 1996 and the nine months ended September 30, 1996
and 1997, (ii) selected historical balance sheet data as of December 31, 1994,
1995 and 1996, and September 30, 1996 and 1997, (iii) selected pro forma
operating and other financial information for the year ended December 31, 1996
and the nine months ended September 30, 1997 and (iv) selected pro forma balance
sheet data as of September 30, 1997.

The selected historical financial information for each of FelCor LP and
FelCor as of and for the period from July 28, 1994 (inception of operations) to
December 31, 1994 and the years ended December 31, 1995 and 1996 has been
derived from the historical financial statements of FelCor LP or FelCor audited
by Coopers & Lybrand L.L.P., independent accountants, whose reports with respect
thereto are set forth elsewhere herein. The selected historical financial data
as of and for the nine months ended September 30, 1996 and 1997 have been
derived from the unaudited financial statements of FelCor LP and FelCor, which
have been prepared by management on the same basis as the audited financial
statements, and, in the opinion of management, include all adjustments
consisting of normal recurring accruals that are considered necessary for a fair
presentation of the results for such periods. Such results of operations for the
nine months ended September 30, 1996 and 1997 are not necessarily indicative of
results to be anticipated for the entire year.

The pro forma operating and other information is presented as if the
purchase of each of the hotels acquired in 1996 and 1997 (through September 30,
1997), the Series A Preferred Stock offering in the second quarter of 1996, the
Common Stock offerings in the first and second quarters of 1997, and the $300
million senior unsecured debt placement had been consummated on January 1, 1996
and, therefore, incorporates certain assumptions that are included in the notes
to the pro forma financial statements that are included in the Company's
Consolidated Financial Statements herein. The pro forma balance sheet data is
presented as if the $300 million senior unsecured debt placement had been
consummated on September 30, 1997. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of FelCor LP or FelCor would have been as of and for the periods
indicated, nor does it purport to represent the future financial position and
results of operations of FelCor LP or FelCor.

The selected combined historical financial data for the predecessor of
FelCor LP and FelCor (the "Initial Hotels") is presented for the years ending
December 31, 1992, 1993 and the period ending July 27, 1994 and represents the
operations of the six hotels acquired by the Company upon the completion of
FelCor's initial public offering of common stock ("IPO") in July 1994. The
Initial Hotels data is derived by combining the selected combined historical
financial data of the Tulsa Embassy Suites hotel (the "Tulsa Hotel"), five
additional hotels for periods prior to their acquisition by a FelCor affiliate
(the "E-5 Hotels") and the six hotels comprising the Tulsa Hotel and the E-5
Hotels for the period between their acquisition by a FelCor affiliate and
FelCor's IPO (the "FelCor Hotels") and represents the selected combined
historical financial data of all six initial hotels for the entire periods
presented. The Tulsa Hotel includes the operations of the Tulsa Hotel for
periods prior to acquisition by a FelCor affiliate on December 29, 1992, the E-5
Hotels includes the operations of five hotels prior to acquisition by a FelCor
affiliate on July 15, 1993 and the FelCor Hotels includes the operations of all
six hotels from date of acquisition by the FelCor affiliate. The selected
combined historical financial data for the E-5 Hotels and the FelCor Hotels have
been derived from the historical financial statements and notes thereto of the
E-5 Hotels and the FelCor Hotels, respectively, audited by Coopers and Lybrand
L.L.P., independent accountants. The selected combined historical financial data
for the Tulsa Hotel was derived from unaudited internal statements.

30
<PAGE> 37

FELCOR SUITES LIMITED PARTNERSHIP

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, NINE MONTHS ENDED
1994 YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(INCEPTION OF ----------------------------------- -----------------------------------
OPERATIONS) PRO PRO
THROUGH HISTORICAL FORMA HISTORICAL FORMA
DECEMBER 31, ---------------------- --------- ---------------------- ---------
1994 1995 1996 1996(1) 1996 1997 1997(1)
------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue......... $ 6,043 $ 23,787 $ 97,950 $173,147(2) $ 72,648 $ 122,651 $152,127(2)
Income from unconsolidated
partnerships................... -- 513 2,010 3,123 1,412 5,765 5,681
Interest income.................. 207 1,691 984 -- 937 283 --
--------- --------- --------- -------- --------- --------- --------
TOTAL REVENUE..................... 6,250 25,991 100,944 176,270 74,997 128,699 157,808
--------- --------- --------- -------- --------- --------- --------
EXPENSES
General and administrative....... 355 870 1,819 3,303(3) 1,307 2,743 2,743(3)
Depreciation..................... 1,487 5,232 26,544 47,522 17,833 35,969 43,243
Taxes, insurance and other....... 881 2,563 13,897 24,789 9,859 16,912 21,045
Interest expense................. 109 2,004 9,803 32,829 6,273 20,097 28,244
Minority interest in other
partnerships................... -- -- -- 236 -- 337 427
--------- --------- --------- -------- --------- --------- --------
TOTAL EXPENSES.................... 2,832 10,669 52,063 108,679 35,272 76,058 95,702
--------- --------- --------- -------- --------- --------- --------
Income before extraordinary
charge......................... 3,418 15,322 48,881 67,591 39,725 52,641 62,106
Extraordinary charge............. -- -- 2,354 -- 2,354 -- --
--------- --------- --------- -------- --------- --------- --------
Net income (loss)................ 3,418 15,322 46,527 67,591 37,371 52,641 62,106
Preferred distributions(4)....... -- -- 7,734 11,798 4,784 8,848 8,848
--------- --------- --------- -------- --------- --------- --------
Net income applicable to
unitholders.................... $ 3,418 $ 15,322 $ 38,793 $ 55,793 $ 32,587 $ 43,793 $ 53,258
========= ========= ========= ======== ========= ========= ========
Net income per unit(5)........... $ 0.54 $ 1.70 $ 1.49 $ 1.42 $ 1.26 $ 1.35 $ 1.35
========= ========= ========= ======== ========= ========= ========
Weighted ave. no. of units
outstanding.................... 6,385 8,956 26,037 39,407 25,953 32,412 39,481
========= ========= ========= ======== ========= ========= ========
OTHER DATA:
Lessee suite revenue............. $ 16,094 $ 65,649 $ 234,451 $481,471 $ 168,950 $ 330,545 $400,079
Funds From Operations assuming
conversion of preferred
units(6)....................... 4,905 20,707 77,141 125,446 58,628 95,514 113,060
EBITDA(7)........................ 5,014 22,203 85,764 156,825 63,692 106,598 140,449
Ratio of EBITDA to interest
paid........................... -- 15.1x 9.4x 4.9x 9.1x 5.4x 5.0x
Ratio of earnings to fixed
charges(8)..................... 32.4x 8.6x 5.3x 2.9x 6.7x 3.5x 3.1x
Cash provided from operating
activities..................... 3,959 18,075 73,932 -- 49,146 74,558 --
Cash provided from financing
activities..................... 97,952 406,825 247,422 -- 152,995 571,675 --
Cash used in investing
activities..................... (100,793) (259,197) (480,382) -- (360,879) (635,084) --
Cash available for
distributions(9)............... 4,370 18,081 60,888 95,001 45,109 74,251 89,016
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------------------
HISTORICAL HISTORICAL PRO FORMA
------------------------------ --------------------- ----------
1994 1995 1996 1996 1997 1997(1)
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments........................... $ 1,118 $166,821 $ 7,793 $ 8,083 $ 18,942 $ 18,942
Investment in hotel properties, net....................... 104,800 325,155 899,691 804,097 1,447,340 1,447,340
Investment in unconsolidated partnerships................. -- 13,819 59,867 44,941 127,606 127,606
Total assets.............................................. 108,305 548,359 978,788 866,913 1,616,457 1,625,348
Debt and capital lease obligations
7 3/8% Senior Notes Due 2004............................ -- -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007............................ -- -- -- -- -- 125,000
Unsecured Line of Credit................................ -- -- 115,000 -- 296,000 89,861
Term Loan............................................... 8,750 -- 85,000 85,000 85,000 --
Capitalized leases...................................... -- 11,256 12,875 13,339 11,527 11,527
Other unsecured debt.................................... -- 8,410 26,550 26,550 25,650 25,650
Redeemable units, at redemption value..................... 33,055 74,790 98,542 89,877 119,266 119,266
Preferred units........................................... -- -- 151,250 151,250 151,250 151,250
Partners' capital......................................... 61,885 445,433 468,247 496,796 889,499 889,499
</TABLE>

31
<PAGE> 38

FELCOR SUITE HOTELS, INC.

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994 NINE MONTHS ENDED
(INCEPTION OF YEAR ENDED DECEMBER 31, SEPTEMBER 30,
OPERATIONS) --------------------------------- ---------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, --------------------- --------- --------------------- ---------
1994 1995 1996 1996(1) 1996 1997 1997(1)
------------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER UNIT AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue............... $ 6,043 $ 23,787 $ 97,950 $173,147(2) $ 72,648 $ 122,651 $152,127(2)
Income from unconsolidated
partnerships......................... -- 513 2,010 3,123 1,412 5,765 5,681
Interest income........................ 207 1,691 984 -- 937 283 --
--------- --------- --------- -------- --------- --------- --------
TOTAL REVENUE............................ 6,250 25,991 100,944 176,270 74,997 128,699 157,808
--------- --------- --------- -------- --------- --------- --------
EXPENSES
General and administrative............. 355 870 1,819 3,303(3) 1,307 2,743 2,743
Depreciation........................... 1,487 5,232 26,544 47,522 17,833 35,969 43,243
Taxes, insurance and other............. 881 2,563 13,897 24,789 9,859 16,912 21,045
Interest expense....................... 109 2,004 9,803 32,829 6,273 20,097 28,244
Minority interest in other
partnerships......................... -- -- -- 236 -- 337 427
Minority interest in FelCor LP(10)..... 907 3,131 5,590 4,968 4,619 4,584 4,577
--------- --------- --------- -------- --------- --------- --------
TOTAL EXPENSES........................... 3,739 13,800 57,653 113,647 39,891 80,642 100,279
--------- --------- --------- -------- --------- --------- --------
Income before extraordinary charge..... 2,511 12,191 43,291 62,623 35,106 48,057 57,529
Extraordinary charge................... -- -- 2,354 -- 2,354 -- --
--------- --------- --------- -------- --------- --------- --------
Net income (loss)...................... 2,511 12,191 40,937 62,623 32,752 48,057 57,529
Preferred dividends(4)................. -- -- 7,734 11,798 4,784 8,848 8,848
--------- --------- --------- -------- --------- --------- --------
Net income applicable to common
shareholders......................... $ 2,511 $ 12,191 $ 33,203 $ 50,825 $ 27,968 $ 39,209 $ 48,861
========= ========= ========= ======== ========= ========= ========
Net income per common share(5)......... $ 0.54 $ 1.70 $ 1.44 $ 1.40 $ 1.22 $ 1.33 $ 1.33
========= ========= ========= ======== ========= ========= ========
Weighted average number of common
shares outstanding................... 4,690 7,165 23,076 36,237 22,933 29,570 36,570
========= ========= ========= ======== ========= ========= ========
OTHER DATA:
Lessee suite revenue................... $ 16,094 $ 65,649 $ 234,451 $481,471 $ 168,950 $ 330,545 $400,079
Cash dividends per common share........ $ 0.66 $ 1.84 $ 1.92 $ 1.92 $ 1.42 $ 1.55 $ 1.55
Funds From Operations assuming
conversion of preferred stock(6)..... 4,905 20,707 77,141 125,466 58,628 95,514 113,060
EBITDA(7).............................. 5,014 22,203 85,764 156,825 63,692 106,598 140,449
Ratio of EBITDA to interest paid....... -- 15.1x 9.4x 4.9x 9.1x 5.4x 5.0x
Ratio of earnings to fixed
charges(8)........................... 32.4x 8.6x 5.3x 2.9x 6.7x 3.5x 3.1x
Cash provided from operating
activities........................... 3,959 18,075 73,932 -- 49,146 74,558 --
Cash provided from financing
activities........................... 97,952 406,825 247,422 -- 152,995 571,675 --
Cash used in investing activities...... (100,793) (259,197) (480,382) -- (360,879) (635,084) --
Cash available for distributions(11)... 4,370 18,081 60,888 95,001 45,109 74,251 89,016
--------- --------- --------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------------------
HISTORICAL HISTORICAL PRO FORMA
------------------------------ --------------------- ----------
1994 1995 1996 1996 1997 1997(1)
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments........................... $ 1,118 $166,821 $ 7,793 $ 8,083 $ 18,942 $ 18,942
Investment in hotel properties, net....................... 104,800 325,155 899,691 804,097 1,447,340 1,447,340
Investment in unconsolidated partnerships................. -- 13,819 59,867 44,941 127,606 127,606
Total assets............................................ 108,305 548,359 978,788 866,913 1,616,487 1,625,348
Debt and capital lease obligations 7 3/8%
Senior Notes Due 2004..................................... -- -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007............................ -- -- -- -- -- 125,000
Unsecured Line of Credit................................ -- -- 115,000 -- 296,000 89,861
Term Loan............................................... 8,750 -- 85,000 85,000 85,000 --
Capitalized leases...................................... -- 11,256 12,875 13,339 11,527 11,527
Other unsecured debt.................................... -- 8,410 26,550 26,550 25,650 25,650
Minority interest in FelCor LP............................ 25,685 58,837 76,112 78,220 74,175 74,144
Shareholders' equity...................................... 69,255 461,386 641,926 659,703 1,085,840 1,085,871
</TABLE>

32
<PAGE> 39

INITIAL HOTELS

SELECTED COMBINED HISTORICAL FINANCIAL DATA
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 1, 1994 DECEMBER 31,
THROUGH ------------------
JULY 27, 1994 1993 1992
--------------- ------- -------
<S> <C> <C> <C>
Statement of Operations Data:
Suite revenue............................................. $21,884 $33,550 $28,566
Other revenue............................................. 1,307 2,002 1,443
------- ------- -------
Total revenue................................... 23,191 35,552 30,009
Hotel expenses............................................ 15,238 22,048 20,797
Depreciation.............................................. 2,325 4,092 4,989
Interest expense.......................................... 3,446 5,437 4,764
Other corporate expenses.................................. 620 3,260 3,189
------- ------- -------
Net income (loss)............................... $ 1,562 $ 715 $(3,730)
======= ======= =======
</TABLE>

FELCOR HOTELS

SELECTED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 1, 1994 DECEMBER 31,
THROUGH ----------------
JULY 27, 1994 1993 1992
--------------- ------- -----
<S> <C> <C> <C>
Statement of Operations Data:
Suite revenue.............................................. $21,884 $17,866
Other revenue.............................................. 1,307 1,092
------- -------
Total revenue.................................... 23,191 18,958
Hotel expenses............................................. 15,238 12,042 $ 103
Depreciation............................................... 2,325 1,761 118
Interest expense........................................... 3,446 2,822 3
Other corporate expenses................................... 620 1,590 16
------- ------- -----
Net income (loss)................................ $ 1,562 $ 743 $(240)
======= ======= =====
</TABLE>

E-5 HOTELS

SELECTED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1993 1992
------- -------
<S> <C> <C>
Statement of Operations Data:
Suite revenue............................................... $15,684 $24,098
Other revenue............................................... 910 1,284
------- -------
Total revenue..................................... 16,594 25,382
Hotel expenses.............................................. 10,006 17,389
Depreciation................................................ 2,331 4,216
Interest expense............................................ 2,615 4,761
Other corporate expenses.................................... 1,670 2,810
------- -------
Net income (loss)................................. $ (28) $(3,794)
======= =======
</TABLE>

33
<PAGE> 40

TULSA HOTEL

UNAUDITED SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992
------------
<S> <C>
Statement of Operations Data:
Suite revenue............................................... $4,468
Other revenue............................................... 159
------
Total revenue..................................... 4,627
Hotel expenses.............................................. 3,305
Depreciation................................................ 655
Other corporate expenses.................................... 363
------
Net income........................................ $ 304
======
</TABLE>

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

(1) The pro forma financial information does not purport to represent what the
financial position or results of operations of FelCor LP or FelCor
actually would have been if the purchases of each of the hotels acquired
in 1996 and 1997 (through September 30, 1997), the Series A Preferred
Stock offering, the Common Stock offerings in the first and second
quarters of 1997, and the $300 million senior unsecured debt placement
had, in fact, occurred on such dates, or to project their financial
position or results of operations at any future date or for any future
period.

(2) With respect to the pro forma financial information, represents lease
payments from the Lessee to FelCor LP calculated on a pro forma basis by
applying the contractual or anticipated rent provisions of the Percentage
Leases to the historical suite and food and beverage revenues of the
Current Hotels.

(3) Pro forma general and administrative expenses represent executive and
other compensation, legal, audit, and other expenses. These amounts are
based on historical general and administrative expenses as well as
probable 1997 expenses.

(4) Represents annual dividends on the Series A Preferred Stock of $1.95 per
share multiplied by 6,050,000 outstanding shares of Series A Preferred
Stock.

(5) Net income per common share is computed by dividing net income applicable
to common shareholders by the weighted average number of common shares and
equivalents outstanding. Net income per unit is computed by dividing net
income applicable to unitholders by the weighted average number of
partnership units outstanding. Common share and unit equivalents that have
a dilutive effect represent restricted shares issued to certain officers
and directors. For the periods presented, the common share and unit
equivalents had an immaterial dilutive effect.

(6) The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of properties, plus real estate related
depreciation and amortization and after comparable adjustments for the
Company's portion of these items related to unconsolidated partnerships
and joint ventures. The Company believes that Funds from Operations is
helpful to investors as a measure of the performance of an equity REIT
because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent
cash generated from operating activities determined by GAAP and should not
be considered as an alternative to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or to
cash flow from operating activities (determined in accordance with GAAP)
as a measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
cash distributions. Funds from Operations may include funds that may not
be available for management's discretionary use due to functional
requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties.

34
<PAGE> 41

The computation of Funds from Operations for FelCor LP and FelCor yields
the same results. The following is a reconciliation between net income and
Funds from Operations.

(7) EBITDA is computed by adding net income, minority interest in FelCor LP,
interest expense, income taxes, depreciation expense, amortization
expense, extraordinary expenses and cash distributions paid by
unconsolidated partnerships and deducting extraordinary income and income
from unconsolidated partnerships. The computation of EBITDA for FelCor LP
and FelCor yields the same result. The differences between Funds From
Operations and EBITDA are scheduled in the following table.

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994
(INCEPTION OF YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
OPERATIONS) ----------------------------- --------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ----------------- --------- ------------------- ---------
1994 1995 1996 1996(1) 1996 1997 1997(1)
------------- ------- ------- --------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Funds From Operations assuming
conversion of preferred stock.... $4,905 $20,707 $77,141 $125,466 $58,628 $ 95,514 $113,060
Add:
Interest expense................. 109 2,004 9,803 32,829 6,273 20,097 28,244
Amortization expense............. -- 158 592 592 377 807 807
Cash distributions from
unconsolidated partnerships.... -- -- 1,954 11,414 896 2,849 11,730
Deduct:
Income from unconsolidated
partnerships................... -- (513) (2,010) (3,123) (1,412) (5,765) (5,681)
Depreciation from unconsolidated
partnerships................... -- (153) (1,716) (10,353) (1,070) (6,904) (7,711)
------ ------- ------- -------- ------- -------- --------
EBITDA........................... $5,014 $22,203 $85,764 $156,825 $63,692 $106,598 $140,449
====== ======= ======= ======== ======= ======== ========
</TABLE>

(8) For purpose of computing the ratio of earnings to fixed charges, earnings
consist of net income plus fixed charges and minority interest in FelCor LP
(with respect to FelCor), excluding capitalized interest, and fixed charges
consist of interest, whether expensed or capitalized, and amortization of
loan costs.

(9) Represents net income applicable to unitholders plus depreciation and
amortization, depreciation from unconsolidated subsidiaries, amortization
of unearned officers' and directors' compensation, amortization of loan
costs, and the non-cash portion of general and administrative expenses,
less scheduled repayments of borrowings and an amount equal to 4% of hotel
suite revenues, which is required to be set aside by the Company for
refurbishment and replacement of furniture and equipment, capital
expenditures and other nonroutine items as required by the Percentage
Leases.

35
<PAGE> 42

(10) Calculated for FelCor as 7.35% of income before minority interest on a pro
forma basis.

(11) Represents net income applicable to common shareholders plus minority
interest, depreciation and amortization, depreciation from unconsolidated
subsidiaries, amortization of unearned officers' and directors'
compensation, amortization of loan costs, and the non-cash portion of
general and administrative expenses, less scheduled repayments of
borrowings and an amount equal to 4% of hotel suite revenues, which is
required to be set aside by the Company for refurbishment and replacement
of furniture and equipment, capital expenditures and other nonroutine items
as required by the Percentage Leases.

36
<PAGE> 43

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

OVERVIEW

FelCor is a self-administered REIT that at September 30, 1997, owned an
approximate 92.7% general partner interest in FelCor LP. At September 30, 1997,
the Company owned interests in 71 hotels with an aggregate of 17,486 rooms and
suites ("Hotels"). For additional background relating to the Company and the
definitions of certain capitalized terms used herein, reference is made to Note
1 of Notes to Consolidated Financial Statements of FelCor appearing elsewhere
herein.

The principal factors affecting the Company's results of operations are:
continued growth in the number of hotels through acquisitions; improvements in
the suite revenues measured by RevPAR and the status of renovations to hotels
acquired. Improvements in suite revenue significantly impact the Company because
the Company's principal source of revenues is lease payments by the Lessee under
the Percentage Leases. The Percentage Leases are computed as a percentage of
suite revenues, food and beverage revenues and food and beverage rents of the
Hotels. For the nine months ended September 30, 1997 and the years ended
December 31, 1996 and 1995, the portion of the Percentage Lease revenue derived
from suite revenues was 97.3%, 97.2% and 97.6%, respectively.

At September 30, 1997, the Company owned interests in 71 hotels, an
increase of 28 hotels over year end 1996 and an increase of 51 hotels over year
end 1995.

During 1996 and 1997, the Company substantially completed major renovations
on the 18 CSS Hotels acquired in late 1995 and early 1996. While the renovations
adversely impacted the suite revenue for these hotels in 1996, RevPAR for those
hotels during the first nine months of 1997 improved 22.0% over the same period
last year.

Actual historical results of operations, for the nine months ended
September 30, 1997 and 1996, for the years ended December 31, 1996 and 1995 and
the period from July 28, 1994 (inception of operations) through December 31,
1994 for FelCor LP are summarized as follows:

<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1994
NINE MONTHS TWELVE MONTHS (INCEPTION OF
ENDED ENDED OPERATIONS)
SEPTEMBER 30, DECEMBER 31, THROUGH
--------------- --------------- DECEMBER 31,
1997 1996 1996 1995 1994
------ ----- ------ ----- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $122.7 $72.6 $100.9 $26.0 $6.3
Income before extraordinary
charge............................ 52.6 39.7 48.9 15.3 3.4
Net income available to unit
holders........................... 43.8 32.6 38.8 15.3 3.4
Funds From Operations (FFO)(a)...... 95.5 58.6 77.1 20.7 4.9
Weighted average units
outstanding(a).................... 37.1 28.6 29.2 9.0 6.4
</TABLE>

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

(a) Conversion of preferred units to common units is assumed for purposes of
computing FFO and weighted average units outstanding.

37
<PAGE> 44

<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1994
NINE MONTHS TWELVE MONTHS (INCEPTION OF
ENDED ENDED OPERATIONS)
SEPTEMBER 30, DECEMBER 31, THROUGH
--------------- --------------- DECEMBER 31,
1997 1996 1996 1995 1994
------ ----- ------ ----- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $122.7 $72.6 $100.9 $26.0 $6.3
Income before extraordinary
charge............................ 48.1 35.1 43.3 12.2 2.5
Net income available to common
shareholders...................... 39.2 28.0 33.2 12.2 2.5
Funds From Operations (FFO)(a)...... 95.5 58.6 77.1 20.7 4.9
Weighted average shares and units
outstanding(a).................... 37.1 28.6 29.2 9.0 6.4
</TABLE>

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

(a) Conversion of preferred stock to common stock is assumed for purposes of
computing FFO and weighted average shares and units outstanding.

RESULTS OF OPERATIONS

FELCOR LP -- ACTUAL

Comparison of the Nine Months Ended September 30, 1997 and 1996

Revenues. For the nine months ended September 30, 1997 and 1996, FelCor LP
had revenues of $128.7 million and $75.0 million, respectively, consisting of
Percentage Lease revenues of $122.7 million and $72.6 million, income in
unconsolidated partnerships of $5.8 million and $1.4 million and other revenue
(consisting primarily of interest income) of $283,000 and $937,000,
respectively. Percentage Lease revenue is computed as a percentage of suite
revenue, food and beverage revenues and food and beverage rents of the Hotels.
For the nine months ended September 30, 1997, 97.3% of Percentage Lease revenue
was derived from suite revenue. A more detailed discussion of hotel suite
revenue begins at "The Hotels -- Actual" section of this Management's Discussion
and Analysis of Financial Condition and Results of Operations.

The increase in Percentage Lease revenue is attributed primarily to the
increased number of hotels owned at September 30, 1997 compared to the same
period in 1996 and increased suite revenue at the comparable hotels (those
hotels owned for the entire nine months in both 1996 and 1997). The increase in
the number of hotels accounted for approximately $43.0 million of the increase
(86%) while Percentage Lease revenue for the nineteen comparable hotels
increased by $7.1 million (14%).

Suite revenue for the Original Hotels and the CSS Hotels increased 9.3% and
21.4%, respectively, for this nine month period.

The increase in income from unconsolidated partnerships is primarily
attributed to the increase in unconsolidated partnership hotels from five hotels
at September 30, 1996 to 14 at September 30, 1997.

Expenses. Total expenses increased $40.8 million in the nine months ended
September 30, 1997 from $35.3 million to $76.1 million over the same period in
1996. The primary components of the dollar increase are: depreciation; taxes,
insurance and other; and interest expense. The primary reason for this increase
is related to the increased number of hotels owned by the Company. Those
expenses that made up the majority of the increase, as a percentage of total
revenue, were depreciation (27.9% of total revenue for the nine months ended
September 30, 1997 compared to 23.8% in the same period 1996), and interest
expense (15.6% of total revenue in 1997 compared to 8.4% in 1996).

Depreciation, as a percentage of total revenue, increased primarily as a
result of the major renovation projects which were placed in service and started
depreciating in late 1996 or early 1997.

38
<PAGE> 45

The increased interest expense, as a percentage of total revenue, is
reflective of the additional borrowings during the end of 1996 and first nine
months of 1997 to finance hotel acquisitions and the renovation program.

Preferred distributions increased from $4.8 million for the nine months in
1996 to $8.8 million for the same period in 1997. This increased because the
preferred units, which were issued in May 1996, accrued a full nine months of
distributions in 1997.

Net income applicable to unitholders for the nine months ended September
30, 1997 and 1996 was $43.8 million and $32.6 million respectively.

Comparison of the Years Ended December 31, 1996 and 1995

Revenues. For the years ended December 31, 1996 and 1995, FelCor LP had
revenues of $100.9 million and 26.0 million, respectively, consisting primarily
of Percentage Lease revenues of $98.0 million and $23.8 million.

The 288% increase in total revenue is primarily attributable to the
Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of
36 hotels acquired during 1995 and 1996. There were seven hotels which were
owned for all of 1996 and 1995. Percentage Lease revenues for these hotels
increased 13.9% for the year ended December 31, 1996 over the same period in
1995 (an increase of $2.7 million). All of these hotels experienced increases in
RevPAR, ranging from 2.3% to 12.1% over the prior year.

Management believes that the hotels it acquires will generally experience
increases in suite revenue (and accordingly, provide the Company with increases
in Percentage Lease revenues) after the completion of the renovation and upgrade
programs; however, as individual hotels undergo such renovations, their
performance has been, and may continue to be, adversely affected by such
temporary factors as suites out of service and disruptions of hotel operations.
See "-- The Hotels -- Actual."

Expenses. Total expenses increased by $41.4 million for the year ended
December 31, 1996 from $10.7 million in 1995 to $52.1 million in 1996. The
primary components of this increase were: depreciation; taxes, insurance and
other; and interest. The primary reason for the increases are attributed to the
additional hotels acquired in 1996 and 1995.

Depreciation increased as a percentage of total revenue from 20% in 1995 to
26% in 1996. The relative increase in depreciation is primarily a result of
capital expenditures during 1995 and 1996 and the resultant depreciation as well
as a decrease in long lived fixed assets relative to total fixed assets (long
lived fixed assets at December 31, 1996 made up 81.7% of total fixed assets and
at December 31, 1995 84.7% of total fixed assets).

Taxes, insurance and other increased as a percentage of total revenue from
10% in 1995 to 14% in 1996. The largest single component in this category is
real and personal property taxes. In many instances upon purchase of a hotel,
the hotel is reassessed for tax purposes resulting in increased property tax
expenses.

Interest expense increased as a percentage of total revenue from 8% in 1995
to 10% in 1996. This relative increase is attributed to the increased use of
debt to finance acquisitions, the extensive renovations in 1996 and the
assumption of capital leases, for hotels purchased in late 1995 and during 1996.

In the third quarter of 1996, FelCor LP recorded an extraordinary charge
for the write off of deferred financing fees of $2.4 million. This extraordinary
write off resulted from the early retirement of debt.

Comparison of the Year Ended December 31, 1995 and the Period from July 28,
1994 (Inception of Operations) through December 31, 1994

39
<PAGE> 46

primarily from the relative increase in Percentage Lease revenue to depreciation
with respect to the seven hotels acquired in 1994 and a decrease in the
percentage of long lived fixed assets relative to total fixed assets.

FELCOR -- ACTUAL

Comparison of the Nine Months Ended September 30, 1997 and 1996

Revenues. For the nine months ended September 30, 1997 and 1996, FelCor had
revenues of $128.7 million and $75.0 million, respectively, consisting of
Percentage Lease revenues of $122.7 million and $72.6 million, income in
unconsolidated partnerships of $5.8 million and $1.4 million and other revenue
(consisting primarily of interest income) of $283,000 and $937,000,
respectively. Percentage Lease revenue is computed as a percentage of suite
revenue, food and beverage revenues and food and beverage rents of the Hotels.
For the nine months ended September 30, 1997, 97.3% of Percentage Lease revenue
was derived from suite revenue. A more detailed discussion of hotel suite
revenue begins at "The Hotels -- Actual" section of this Management's Discussion
and Analysis of Financial Condition and Results of Operations.

Suite revenue for the Original Hotels and the CSS Hotels increased 9.3% and
21.4%, respectively, for this nine month period.

Expenses. Total expenses increased $40.7 million in the nine months ended
September 30, 1997 from $39.9 million to $80.6 million over the same period in
1996. The primary components of the dollar increase are: depreciation; taxes,
insurance and other; and interest expense. The primary reason for this increase
is related to the increased number of hotels owned by the Company. Those
expenses that made up the majority of the increase, as a percentage of total
revenue, were depreciation (27.9% of total revenue for the nine months ended
September 30, 1997 compared to 23.8% in the same period 1996), and interest
expense (15.6% of total revenue in 1997 compared to 8.4% in 1996).

Depreciation, as a percentage of total revenue, increased primarily as a
result of the major renovation projects which were placed in service and started
depreciating in late 1996 or early 1997.

Minority interest in FelCor LP decreased as a percentage of total revenue
because of the additional 14.2 million shares of common stock issued during
1997, which decreases the Unitholders' interest in the operations of FelCor LP.

Preferred dividends increased from $4.8 million for the nine months in 1996
to $8.8 million for the same period in 1997. This increased because the
preferred stock, which was issued in May 1996, accrued a full nine months of
dividends in 1997.

Net income applicable to common shareholders for the nine months ended
September 30, 1997 and 1996 was $39.2 million and $28.0 million respectively.

Comparison of the Years Ended December 31, 1996 and 1995

Revenues. For the years ended December 31, 1996 and 1995, FelCor had
revenues of $100.9 million and 26.0 million, respectively, consisting primarily
of Percentage Lease revenues of $98.0 million and $23.8 million.

40
<PAGE> 47

Expenses. Total expenses increased by $43.9 million for the year ended
December 31, 1996 from $13.8 million in 1995 to $57.7 million in 1996. The
primary components of this increase were: depreciation; taxes, insurance and
other; and interest. The primary reason for the increases are attributed to the
additional hotels acquired in 1996 and 1995.

In the third quarter of 1996, FelCor recorded an extraordinary charge for
the write off of deferred financing fees of $2.4 million. This extraordinary
write off resulted from the early retirement of debt.

Comparison of the Year Ended December 31, 1995 and the Period from July 28,
1994 (Inception of Operations) through December 31, 1994

Percentage Lease revenue increased from $6.0 million in 1994 to $23.8
million in 1995, primarily because of the partial year of operations in 1994 and
the increase in the number of hotels in which the Company owned an interest
(from seven to 20). Income before minority interest as a percent of total
revenues increased from 54.7% in 1994 to 59.0% in 1995, primarily as a result of
the decline in depreciation, as a percentage of total revenues, from 23.8% in
1994 to 20.1% in 1995. The decrease in depreciation, as a percentage of total
revenues, resulted primarily from the relative increase in Percentage Lease
revenue to depreciation with respect to the seven hotels acquired in 1994 and a
decrease in the percentage of long lived fixed assets relative to total fixed
assets.

FUNDS FROM OPERATIONS

The Company considers funds from operations to be a key measure of a REIT's
performance and should be considered along with, but not as an alternative to,
net income and cash flow as a measure of the Company's operating performance and
liquidity.

The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 defines Funds from Operations as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
comparable adjustments for the Company's portion of these items related to
unconsolidated partnerships and joint

41
<PAGE> 48

ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of any equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current NAREIT
definition differently than the Company. Funds from Operations does not
represent cash generated from operating activities determined by GAAP and should
not be considered as an alternative to net income (determined in accordance with
GAAP) as an indication of the Company's financial performance or to cash flow
from operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions. Funds
from Operations may include funds that may not be available for management's
discretionary use due to functional requirements to conserve funds for capital
expenditures and property acquisitions, and other commitments and uncertainties.

The computation of Funds from Operations for FelCor LP and FelCor yields
the same results. The following is a reconciliation between net income and Funds
from Operations.

<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1994
(INCEPTION OF
NINE MONTHS ENDED YEAR ENDED OPERATIONS)
SEPTEMBER 30, DECEMBER 31, THROUGH
----------------- ----------------- DECEMBER 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Funds From Operations (FFO):
Net income................................ $48,057 $32,752 $40,937 $12,191 $2,511
Less preferred dividends.................. 8,848 4,784 7,734 -- --
------- ------- ------- ------- ------
Net income available for common shares.... 39,209 27,968 33,203 12,191 2,511
Add back:
Extraordinary charge from write off of
deferred financing fees.............. -- 2,354 2,354 -- --
Minority interest....................... 4,584 4,619 5,590 3,131 907
Depreciation............................ 35,969 17,833 26,544 5,232 1,487
Depreciation for unconsolidated
partnerships......................... 6,904 1,070 1,716 153 --
------- ------- ------- ------- ------
FFO available to common shares and
units................................... 86,666 53,844 69,407 20,707 4,905
Add preferred dividends................... 8,848 4,784 7,734 -- --
------- ------- ------- ------- ------
FFO assuming conversion of preferred
stock................................... $95,514 $58,628 $77,141 $20,707 $4,905
======= ======= ======= ======= ======
Weighted average common shares
outstanding............................. 29,570 22,933 23,076 7,165 4,690
Weighted average units outstanding........ 2,842 3,020 2,961 1,791 1,695
------- ------- ------- ------- ------
Weighted average common shares and units
outstanding............................. 32,412 25,953 26,037 8,956 6,385
======= ======= ======= ======= ======
Weighted average common shares and units
outstanding, assuming conversion of
preferred stock......................... 37,102 28,555 29,164 8,956 6,385
======= ======= ======= ======= ======
</TABLE>

42
<PAGE> 49

Included in the Funds From Operations described above is the Company's
share of FFO from its interest in 14 unconsolidated partnerships. The FFO
contribution from these unconsolidated partnerships was as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- --------------------
1997 1996 1996 1995
------- ------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION
Percentage Lease revenue..................... $35,551 $6,011 $9,985 $1,561
Other income................................. 4,316 -- -- --
Depreciation................................. 11,431 2,037 3,086 282
Taxes, insurance and other................... 6,314 358 895 229
Interest expense............................. 8,216 689 1,638 --
Net income................................... 13,906 2,927 4,366 1,050
50% of net income attributable to the
Company................................... 6,953 1,464 2,183 525
Amortization of cost in excess of book
value..................................... (1,188) (52) (173) (12)
------- ------ ------ ------
Income from unconsolidated partnerships...... 5,765 1,412 2,010 513
Add back: Depreciation....................... 5,715 1,018 1,543 141
Amortization of excess cost....... 1,188 52 173 12
------- ------ ------ ------
FFO contribution of unconsolidated
partnerships.............................. $12,668 $2,482 $3,726 $ 666
======= ====== ====== ======
</TABLE>

43
<PAGE> 50

THE HOTELS -- ACTUAL

Comparison of Hotels' Suite Revenue for the Nine Months Ended September 30,
1997 and 1996

The following table sets forth historical suite revenue and percentage
changes therein between the periods presented for the 71 hotels which the Lessee
operated at September 30, 1997. The following table also presents comparative
information with respect to occupancy, ADR and RevPAR for the 13 Original
Hotels, the 18 CSS Hotels, the 12 1996 Acquisitions and the 28 1997
Acquisitions, regardless of ownership, through September 30, 1997. Except as
otherwise noted below, each of such hotels is operated as an Embassy Suites
hotel.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996 VARIANCE
-------- -------- --------
<S> <C> <C> <C>
SUITE REVENUE (IN THOUSANDS):
Original Hotels(13)................................ $ 64,876 $ 59,354 9.3%
CSS Hotels(18)..................................... 108,379 89,287 21.4
1996 Acquisitions(12).............................. 69,493 64,782 7.3
1997 Acquisitions(28).............................. 157,331 155,134 1.4
-------- --------
Totals(71)................................. $400,079 $368,557 8.6%
OCCUPANCY:
Original Hotels.................................... 77.4% 77.7% (0.3)pts.
CCS Hotels......................................... 74.5 68.4 6.1
1996 Acquisitions.................................. 76.2 74.6 1.6
1997 Acquisitions.................................. 72.9 75.2 (2.3)
Totals..................................... 74.6% 73.7% 0.9pts.
ADR:
Original Hotels.................................... $ 109.29 $ 102.11 7.0%
CSS Hotels......................................... 115.67 103.21 12.1
1996 Acquisitions.................................. 118.69 112.74 5.3
1997 Acquisitions.................................. 110.25 105.18 4.8
Totals..................................... $ 112.92 $ 105.42 7.1%
REVPAR:
Original Hotels.................................... $ 84.61 $ 79.39 6.6%
CSS Hotels......................................... 86.16 70.60 22.0
1996 Acquisitions.................................. 90.44 84.07 7.6
1997 Acquisitions.................................. 80.42 79.13 1.6
Totals..................................... $ 84.24 $ 77.70 8.4%
</TABLE>

ORIGINAL HOTELS: Boston -- Marlborough, MA; Brunswick, GA;
Chicago -- Lombard, IL; Corpus Christi, TX; Dallas (Love
Field), TX; Dallas (Park Central), TX; Flagstaff, AZ;
Jacksonville, FL; Nashville, TN; New Orleans, LA; Orlando
(North), FL; Orlando (South), FL; Tulsa, OK.

CSS HOTELS: Anaheim, CA; Baton Rouge, LA; Birmingham, AL; Boca Raton
(Doubletree), FL; Deerfield Beach, FL; Ft. Lauderdale, FL;
El Segundo (LAX (Airport) South), CA; Miami (Airport), FL;
Milpitas, CA; Minneapolis (Airport), MN; Minneapolis
(Downtown), MN; Napa, CA; Oxnard (Mandalay Beach), CA;
Phoenix (Camelback), AZ; South San Francisco (Airport
North), CA; Burlingame (S.F. Airport So.), CA; St. Paul, MN;
Tampa (Busch Gardens), FL(1).

1996 ACQUISITIONS: Atlanta (Buckhead), GA; Avon (Beaver Creek Resort), CO; Boca
Raton (Embassy), FL; Charlotte, NC; Cleveland, OH;
Deerfield, IL; Indianapolis (North), IN; Myrtle Beach
(Kingston Plantation), SC(3); Lexington, KY(2); Parsippany,
NJ; Piscataway, NJ; San Rafael (Marin Co.), CA.

44
<PAGE> 51

1997 ACQUISITIONS: Atlanta (Airport), GA; Atlanta Galleria, GA(4); Atlanta
Gateway, GA(4); Austin (Airport North), TX; Austin
(Downtown), TX(1); Bloomington, MN(1); BWI Airport, MD(1);
Chicago O'Hare, IL(4); Covina, CA; Dallas Market Center, TX;
Dallas Park Central, TX(4); Dana Point, CA(1); Kansas City,
MO; Lake Buena Vista, FL(1); LAX North, CA; Nashville
(Airport), TN; Omaha, NE(1); Overland Park, KS; Phoenix
Crescent, AZ(4); Raleigh, NC; Raleigh/ Durham, NC(1); San
Antonio (NW), TX; San Antonio (Airport), TX; Secaucus, NJ;
Society Hill, PA(4); Syracuse, NY; Tampa Rocky Point, FL(1);
Troy, MI(1).
- ---------------

(1) Operating as a Doubletree Guest Suites hotel.

(2) Operating as a Hilton Suites hotel.

(3) In the process of conversion to Embassy Suites hotels.

(4) Operating as a Sheraton Hotel.

Suite revenue from the 71 Hotels, included without regard to ownership,
increased 8.6% for the nine months ended September 30, 1997 from the same period
of 1996. The Original Hotels increased 9.3%, the CSS Hotels increased 21.4%, the
1996 Acquisition Hotels increased 7.3% and the 1997 Acquisition Hotels increased
1.4% for the nine months ended September 30, 1997 as compared to the same period
of 1996.

The Original Hotels were owned by the Company throughout all of the first
nine months of both 1997 and 1996. Suite revenue for these hotels increased $5.5
million over the same period in 1996. This improvement in suite revenue resulted
from increased ADR of 7.0%. The hotels in this group recorded increases in ADR
ranging from 2.5% to 12.5%. The increases in ADR at these hotels are attributed
to the strength of the markets that these hotels are in as well as aggressive
rate management.

For the first nine months of 1997 compared to the first nine months of 1996
the CSS Hotels experienced an increase in ADR of 12.1% to $115.67 and a 6.1
percentage point increase in occupancy to 74.5%. The strength of the improvement
in the CSS Hotels is partially reflective of the $54 million suite renovation
program that was completed in the first quarter of 1997. This program made
substantial upgrades and improvements to these former CSS Hotels. This group of
hotels were also converted to the Embassy Suites (16) or Doubletree Guest Suites
(2) brand during 1996. The increase in both occupancy and ADR is also
attributable in part, to the stronger marketing presence of the Embassy Suites
and Doubletree Guest Suites brands.

The 1996 Acquisition hotels increased ADR by 5.3% to $118.69 and occupancy
increased 1.6 percentage points which resulted in suite revenue increases for
these hotels of $4.7 million in the first nine months of 1997 compared to the
same period in 1996. Some of the 1996 Acquisition Hotels benefitted from suite
renovations completed in 1996 or during the first quarter of 1997. The Company
has committed to reserving 4% of suite revenue for ongoing capital replacements
and improvements for all of its hotels, in addition to making repair and
maintenance expenditures and any necessary renovations for hotels acquired.
Typically, the Lessee spends 5% to 6% of suite revenue for repair and
maintenance expenditures annually.

The 1997 Acquisition hotels collectively, increased ADR by 4.8% for the
nine months ended September 30, 1997 compared to the same period of 1996.
Certain of the individual 1997 Acquisition hotels, however, had decreases in ADR
and/or occupancy for such comparable periods. These decreases are primarily the
result of temporary declines attributed to disruptions from the rebranding,
repositioning and/or renovation of certain hotels and, in the case of those
hotels located in Atlanta, Georgia, decreased demand in 1997 compared to 1996
due to the 1996 Summer Olympics which were held in Atlanta.

45
<PAGE> 52

Comparison of the Hotels' Suite Revenue for the Years Ended December 31,
1996 and 1995

The following table presents comparative information with respect to suite
revenue, occupancy, ADR and revenue per available suite for the six Initial
Hotels, the seven Pre-CSS Hotels, the 18 CSS Hotels and the 12 1996
Acquisitions, regardless of ownership. The following figures reflect the adverse
impact of the loss of nearly 173,000 available suite nights (approximately 5.5%
of total available suite nights for the year) as a result of the temporary
removal of suites from service for renovation and upgrading during 1996. The
variance for suite revenue and RevPAR for the Hotels, as set forth above, do not
agree primarily because the leap year in 1996 added one additional day.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 VARIANCE
---------- ---------- --------
<S> <C> <C> <C>
SUITE REVENUE (IN THOUSANDS):
Initial Hotels(6).................................. $ 43,540 $ 39,961 9.0%
Pre-CSS Hotels(7).................................. 35,083 31,766 10.4
-------- -------- ----
Original Hotels(13)................................ 78,623 71,727 9.6
CSS Hotels(18)..................................... 118,300 114,408 3.4
1996 Acquisitions(12).............................. 83,921 80,699 4.0
-------- -------- ----
Totals(43)................................. $280,844 $266,834 5.3%
======== ======== ====
OCCUPANCY:
Initial Hotels..................................... 77.5% 76.1% 1.4pts
Pre-CSS Hotels..................................... 75.3 74.1 1.2
Original Hotels.................................... 76.5 75.2 1.3
CSS Hotels......................................... 67.8 69.6 (1.8)
1996 Acquisitions.................................. 73.0 75.2 (2.2)
Totals..................................... 71.6% 72.6% (1.0)pts
ADR:
Initial Hotels..................................... $ 103.73 $ 97.27 6.6%
Pre-CSS Hotels..................................... 101.71 94.40 7.7
Original Hotels.................................... 102.82 95.98 7.1
CSS Hotels......................................... 103.31 97.75 5.7
1996 Acquisitions.................................. 111.54 104.51 6.7
Totals..................................... $ 105.50 $ 99.20 6.3%
REVENUE PER AVAILABLE SUITE (REVPAR):
Initial Hotels..................................... $ 80.43 $ 74.02 8.7%
Pre-CSS Hotels..................................... 76.55 69.96 9.4
Original Hotels.................................... 78.65 72.17 9.0
CSS Hotels......................................... 70.05 68.01 3.0
1996 Acquisitions.................................. 81.46 78.56 3.7
Totals..................................... $ 75.52 $ 72.05 4.8%
</TABLE>

INITIAL HOTELS: Dallas (Park Central), TX; Jacksonville, FL; Nashville, TN;
Orlando (North), FL; Orlando (South), FL; Tulsa, OK.

PRE-CSS HOTELS: Boston -- Marlborough, MA; Brunswick, GA;
Chicago -- Lombard, IL; Corpus Christi, TX; Dallas (Love
Field), TX; Flagstaff, AZ; New Orleans, LA.

ORIGINAL HOTELS: Initial Hotels and Pre-CSS Hotels combined.

CSS HOTELS: Anaheim, CA; Baton Rouge, LA; Birmingham, AL; Boca Raton
(Doubletree), FL; Deerfield Beach, FL; Ft. Lauderdale, FL;
El Segundo (LAX (Airport) South), CA; Oxnard (Mandalay
Beach), CA; Miami (Airport), FL; Milpitas, CA; Minneapolis
(Airport), MN; Minneapolis (Downtown), MN; Napa, CA; Phoenix
(Camelback), AZ; South San Francisco (Airport North), CA;
Burlingame (S.F. Airport So.), CA; St. Paul, MN; Tampa
(Busch Gardens), FL(1).

46
<PAGE> 53

1996 ACQUISITIONS: Avon (Beaver Creek Resort), CO; Boca Raton (Embassy), FL;
Charlotte, NC; Deerfield, IL; Cleveland, OH; Indianapolis
(North), IN; Lexington, KY(2); San Rafael (Marin Co.), CA;
Parsippany, NJ; Piscataway, NJ; Atlanta (Buckhead), GA;
Myrtle Beach (Kingston Plantation), SC(3).
- ---------------

(1) Operating as a Doubletree Guest Suites hotel.

(2) Operating as a Hilton Suites hotel.

(3) In the process of conversion to an Embassy Suites hotel.

Pro forma revenues for the 43 hotels that the Company owned at December 31,
1996, increased 5.3% over 1995. The majority of the increase came from the
Pre-CSS Hotels (10.4%) and the Initial Hotels (9.0%). The CSS Hotels had only a
slight increase in suite revenue (3.4%) as did the 1996 Acquisitions (4.0%)
primarily as a result of the commencement of major renovations in the CSS Hotels
and some of the 1996 Acquisitions. As a result of these renovations, the Company
lost nearly 173,000 available suite nights, or 5.5% of the total available suite
nights for the year.

The Initial Hotels and the Pre-CSS Hotels experienced increases in both
occupied suites, as a percentage of available suites (including those
temporarily out of service for renovation) and ADR over the prior year. The CSS
Hotels increased ADR by 5.7% but dropped in occupancy by 1.8 percentage points.
Similarly the 1996 Acquisitions increased ADR by 6.7% but dropped in occupancy
by 2.2 percentage points.

The CSS Hotels revenues were adversely affected by the suites taken out of
service during 1996 for renovation. During 1996 the Company took more than
153,000 suite nights out of service in the CSS Hotels for renovation, this
represents more than 9% of the total available suite nights for these hotels.
This renovation adversely impacted the ADR at the hotels because of the
disruptions caused by the renovation and the occupancy was adversely impacted by
reducing the number of suites actually available. During the fourth quarter of
1996, the 10 CSS Hotels where renovations had been substantially completed by
early in the fourth quarter experienced an increase in suite revenue in excess
of 15% compared to the same period in 1995. Management believes that similar
increases in suite revenue should occur in 1997 for the CSS Hotels as the
renovations had been substantially completed by year end 1996.

The Company expects that the Initial Hotels and the Pre-CSS Hotels should
continue increased suite revenue growth in 1997. The CSS Hotels should start to
benefit from the extensive renovation that was substantially completed in 1996,
and show solid revenue growth in 1997. The 1996 Acquisitions should also start
to benefit from renovations (many of which began in 1996) and show improving
suite revenue during 1997.

THE LESSEE -- ACTUAL

Comparison of the Nine Months Ended September 30, 1997 and 1996

Total revenues increased from $194.4 million in the first nine months of
1996 to $380.7 million for the same period of 1997. The primary reasons for this
increase are the number of hotels operated by the Lessee which increased from 41
hotels at September 30, 1996 to 71 hotels at September 30, 1997 and the
increases in revenues at the hotels owned in both the first nine months of 1997
and 1996. Percentage Lease expense, property operating costs, and other hotel
expenses increased in the first nine months of 1997 compared to the same period
of 1996 and relate primarily to the increased number of hotels operated by the
Lessee. The increase in percentage lease expense is also attributable in part to
the increase in the suite revenues. The Lessee had net losses of $1.6 and $2.9
million for the nine months ended September 30, 1997 and 1996, respectively.
Except as otherwise noted, each of such hotels is operated as an Embassy Suites
hotel.

Comparison of the Years Ended December 31, 1996 and 1995

For the years ended December 31, 1996 and 1995, the Lessee had revenues of
$269.2 million and $72.6 million respectively, consisting primarily of suite
revenues of $234.5 million and $65.6 million.

47
<PAGE> 54

The 271% increase in total revenue is primarily attributable to the
increase in number of hotels leased, from 20 hotels at December 31, 1995 to 43
hotels at December 31, 1996. There were seven hotels which were leased for all
of 1996 and 1995. Suite revenues for these hotels increased 9.0% for the year
ended December 31, 1996 over the same period in 1995 (an increase of $4.3
million). All of these hotels experienced increases in suite revenue, ranging
from 2.6% to 12.5% over the prior year.

The Lessee recorded a net loss of $5.4 million for 1996, compared to a net
loss of $240,000 for 1995. The increased loss is reflected in the relative
increase in Percentage Lease expenses, from 37.1% of total revenue in 1995 to
40.1% of total revenue in 1996. Since Percentage Lease expense is principally
computed as a percentage of suite revenue, the losses of suite revenue from the
renovation and conversion of the CSS hotels (through suites taken out of service
and disruptions from the renovation) resulted in a larger portion of the
Percentage Lease expense to be fixed in nature and therefore increased as a
percentage of total revenue. The Lessee also incurred approximately $2.2 million
in one-time conversion costs related to the CSS Hotels.

Year Ended December 31, 1995

For the year ended December 31, 1995, the Lessee had suite revenue of $65.5
million. The Percentage Lease payments, hotel expenses and operating expenses
were $26.9 million, $18.5 million and $26.6 million respectively, and net loss
was $240,000. The Lessee distributed approximately $200,000 to two of its
shareholders in 1995 and these shareholders purchased shares of Common Stock of
FelCor in an amount equal to such distributions.

Period from July 28, 1994 (Inception of Operations) through December 31,
1994

For the period July 28, 1994 (inception of operations) through December 31,
1994 the Lessee had suite revenue of $16.1 million. The Percentage Lease
payments, hotel expenses and operating expenses were $6.0 million, $4.7 million
and $7.3 million, respectively, and net income was $109,000. The Lessee
distributed approximately $443,000 to its shareholders in 1994 and these
shareholders purchased shares of common stock of FelCor in an amount equal to
such distributions.

Comparison of the Year Ended December 31, 1995 and the Period from July 28,
1994 (Inception of Operations) through December 31, 1994

Total revenues increased 297% from 1994 to 1995, primarily because of the
partial year of operations in 1994 and the increase in the number of hotels
leased (from seven to 20). The Lessee recorded a net loss of $240,000 for 1995,
compared to net income of $109,000 in 1994, primarily as a result of the
relative increase in Percentage Lease payments, as a percentage of total
revenues, from 33.0% in 1994 to 37.1% in 1995, offset (in part) by a decline in
all other expenses, as a percentage of total revenues, from 66.4% in 1994 to
63.2% in 1995.

RENOVATIONS AND CAPITAL EXPENDITURES

The Company believes that one factor that differentiates it from many other
hotel companies is its commitment to make the necessary capital expenditures on
its hotels to maintain them and improve them to the Company's high standards.
This is approached in three ways: annual investments of a minimum of 4% of suite
revenue for capital improvements; an aggressive renovation and upgrade program
for hotels acquired to bring them up to Company standards; and the construction
of additional suites, meeting rooms and public areas where market conditions
indicate.

Renovations

The Company committed approximately $70 million during 1996 to the upgrade
and renovation of the CSS Hotels and the wholly owned 1996 Acquisitions. At
September 30, 1997, the Company had spent approximately $57 million on the CSS
Hotels renovations and upgrades. Additionally, in 1996 the Company spent
approximately $3 million on renovations to hotels owned prior to the purchase of
the CSS Hotels.

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<PAGE> 55

Room Additions

In 1996, the Company completed the addition of an aggregate of 48 suites at
its hotels in Flagstaff, Arizona and New Orleans, Louisiana at an approximate
cost of $5.3 million, and at July 1, 1997, the Company added a net of 129
suites, additional meeting rooms and other public area upgrades at its Boston --
Marlborough, Massachusetts hotel with a completion cost of approximately $15.9
million. Additionally, an aggregate of 224 additional suites are currently in
the process of development at three of the Company's existing hotels at an
aggregate estimated cost of approximately $20.5 million.

Capital Improvements

It is the Company's policy to invest approximately 4% of suite revenue on
annual capital improvements at its hotels. These investments are in addition to
the previously discussed renovations and room additions. During 1996 the Company
spent approximately $9.2 million on these type capital expenditures totaling
4.3% of suite revenue of company owned hotels. These investments also are in
addition to the 5% to 6% of suite revenue spent by the Lessee for repair and
maintenance expenditures annually.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to meet its cash requirements,
including repayments of Indebtedness, is its cash flow from the Percentage
Leases. For the nine months ended September 30, 1997, cash flow provided by
operating activities, consisting primarily of Percentage Lease revenue, was
$74.6 million and funds from operations assuming the conversion of preferred
stock, which is the sum of net income, minority interest, and depreciation of
real property (including furniture and equipment), was $95.5 million. The
Lessee's obligations under the Percentage Leases are unsecured. The Lessee's
ability to make lease payments under the Percentage Leases and the Company's
liquidity, including repayments of Indebtedness, are substantially dependent on
the ability of the Lessee to generate sufficient cash flow from the operation of
the Hotels.

At September 30, 1997, the Lessee had paid all amounts then due FelCor LP
under the Percentage Leases. During the nine months ended September 30, 1997,
the Lessee realized a net loss of $1.6 million. The Lessee's accumulated
shareholders' deficit of $8.0 million at September 30, 1997 resulted primarily
from losses during 1996 as a consequence of the one-time costs of converting the
CSS Hotels to the Embassy Suites and Doubletree Guest Suites brands and the
substantial number of suite nights lost during 1996 due to renovation. It is
anticipated that a substantial portion of any future profits of the Lessee will
be retained until a positive shareholders' equity is restored. Although it is
currently anticipated that the Lessee will sustain a loss during 1997, it is
anticipated that its future earnings will be sufficient to enable it to continue
to make its lease payments under the Percentage Leases when due.

Minority equity interest in two of DJONT's consolidated subsidiaries,
relating to an aggregate of 15 Hotels, are held by unrelated third parties that
also own an equity interest in such Hotels. Messrs. Feldman and Corcoran, such
unrelated third party owners, and the managers of certain of the Hotels have
agreed, directly or through their affiliates, to make loans to the Lessee of up
to an aggregate of approximately $15.4 million, to the extent necessary to
enable the Lessee to pay rent and other obligations due under the respective
Percentage Leases relating to a total of 32 of the Hotels. Amounts so borrowed
by the Lessee, if any, will be subordinate in right of repayment to the prior
payment in full of rent and other obligations due under the Percentage Leases to
such Hotels. No loans were outstanding under such agreements at September 30,
1997.

The Company intends to acquire additional hotels and may incur indebtedness
to make such acquisitions, or to meet distribution requirements imposed on a
REIT under the Internal Revenue Code, to the extent that working capital and
cash flow from the Company's investments are insufficient to make such
distributions.

At September 30, 1997, the Company had $18.9 million of cash and cash
equivalents and had utilized $296 million of the amount available under the
Company's $550 million unsecured revolving Line of Credit. On October 1, 1997,
FelCor LP placed $300 million in long term senior unsecured private placement
debt.

49
<PAGE> 56

This senior unsecured private placement debt, bears interest at 7 3/8% for the
notes due 2004, and 7 5/8% for notes due 2007.

To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into two separate interest rate swap
agreements. These interest rate swap agreements modify a portion of the interest
characteristics of the Company's outstanding debt without an exchange of the
underlying principal amount and effectively convert variable rate debt to a
fixed rate. The fixed rates to be paid, the effective fixed rate, and the
initial variable rate to be received by the Company at September 30, 1997 are
summarized in the following table:

<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
NOTIONAL SWAP RATE EFFECTIVE (VARIABLE) AT
AMOUNT PAID (FIXED) FIXED RATE 9/30/97 MATURITY
-------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
50 million.................... 6.11125% 7.61125% 6.47625% October 1999
25 million.................... 5.95500% 7.45500% 6.19100% November 1999
</TABLE>

After application of the $300 million senior unsecured privately placed
debt, and taking into consideration the $75 million in interest rate swaps, the
Company has reduced its variable rate debt to about 10% of total debt
outstanding. The fixed rate debt held by the Company bears interest at a
weighted average rate of 7.6%.

The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on its
future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.

To provide for additional flexibility, FelCor has registered up to an
aggregate of $1.0 billion in common stock, preferred stock, debt securities
and/or common stock warrants pursuant to two shelf registration statements. One
shelf registration statement, for $500 million, was declared effective by the
Securities and Exchange Commission during 1996 and the second shelf registration
statement, for $500 million, was declared effective during the second quarter of
1997. The terms and conditions of the stock or debt securities issued thereunder
are determined by FelCor based upon market conditions at the time of issuance. A
total of 6,050,000 shares of preferred stock at $25.00 per share were issued in
the second quarter of 1996 and 3,000,000 shares of common stock at $35.50 were
issued during the first quarter of 1997 pursuant to the shelf registration
declared effective in 1996 leaving approximately $242.3 million available under
that shelf registration. With regard to the shelf registration declared
effective in 1997, FelCor issued 11,200,000 shares of common stock at $36.625
leaving approximately $89.8 million available under that shelf registration. On
October 22, 1997 a Special Meeting of Shareholders approved an amendment to
FelCor's Charter increasing the number of authorized shares of Common Stock from
50 million shares to 100 million shares. The amendment was adopted by the
affirmative vote of shareholders owning more than 77% of the shares of common
stock outstanding at the close of business on September 8, 1997.

The Company completed construction and placed into service on July 1, 1997,
129 net additional suites, meeting rooms and other public area upgrades at its
Boston -- Marlborough, Massachusetts hotel at a cost of $15.9 million. The
Company is constructing an additional 67 suites at its Jacksonville, Florida
hotel and 67 additional suites at its Orlando (North), Florida hotel at an
aggregate projected cost of $10.2 million with an expected completion in early
1998.

The Company's cash flow from financing activities of approximately $571.7
million for the nine months ended September 30, 1997 resulted from the
following: The sale of an aggregate of 14.2 million shares of common stock with
net proceeds of $448.0 million; (3.0 million shares in the first quarter of 1997
at $35.50 per share and 11.2 million shares at September 30, 1997 at $36.625)
net of 1.2 million shares of common stock repurchased from Promus; net
borrowings under the Company's line of credit of $180.1 million; distributions

50
<PAGE> 57

paid to common shareholders, preferred shareholders and limited partners of
$57.0 million; and proceeds from the exercise of stock options by former
employees of $592,000.

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to the define the applicable year. Any computer
program that has date-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

The Company has recently assessed its internal computer systems and
believes that the current systems used will properly utilize dates beyond
December 31, 1999. The Company has been informed that companies that manage the
hotels owned by the Company are in the process of studying the Year 2000 issue,
including inquiries of their vendors. Upon the completion of the management
companies' study, which is expected in late 1998, the Company will determine the
extent to which the Company is vulnerable to third parties' failure to remediate
their own Year 2000 issues and the costs associated with resolving this issue.

INFLATION

Operators of hotels, in general, possess the ability to adjust room rates
periodically to reflect the effects of inflation. Competitive pressures may,
however, limit the Lessee's ability to raise room rates.

SEASONALITY

The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize other cash on hand
or borrowings under the Line of Credit to make distributions to its shareholders
or to make payments on the Notes.

RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), No.
129 "Disclosure of Information About Capital Structure" ("SFAS 129"), No. 130
"Reporting Comprehensive Income" ("SFAS 130"), and No. 131 "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), all of which
are effective for fiscal years beginning after December 15, 1997.

SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS 129 establishes standards for
disclosing information about an entity's capital structure such as information
about securities, liquidation preference of preferred stock and redeemable
stock. SFAS 130 specifies the presentation and disclosure requirements for
reporting comprehensive income which includes those items which have been
formerly reported as a component of shareholders' equity. SFAS 131 establishes
the disclosure requirements for reporting segment information.

Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not
have a significant impact on the Company's financial statements.

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<PAGE> 58

BUSINESS AND PROPERTIES

THE INDUSTRY

The United States hotel industry has experienced significant improvement in
the past five years. According to Coopers & Lybrand L.L.P. Hospitality
Directions, after a period of extended unprofitability in the late 1980's and
early 1990's, lodging industry profit has increased every year from 1992 through
1996. The industry downturn in the late 1980's resulted primarily from an
increase in the supply of new hotel rooms that significantly outpaced growth in
demand. The industry began to turn around in 1991, and the percentage growth in
room demand exceeded the percentage growth in room supply from 1992 through
1996. As a result, according to Smith Travel Research, for All Upscale U.S.
Hotels (including both Upscale and Upper Upscale Hotels), occupancy increased
from 61.7% in 1991 to 68.4% in 1996, and ADR increased from $65.89 in 1991 to
$85.54 in 1996.

The following table contains information with respect to average occupancy,
ADR and RevPAR for the Current Hotels, all Embassy Suites hotels, all upscale
U.S. hotels and all U.S. hotels for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OCCUPANCY:
Current Hotels(1)............ -- -- -- -- 73.9% 72.6% 72.2%
Embassy Suites Hotels(2)..... 69.6% 69.4% 71.8% 73.1% 74.9 74.2 73.6
All Upscale U.S. Hotels(3)... 61.6 61.7 64.7 66.8 68.1 68.4 68.4
All U.S. Hotels(4)........... 61.8 60.1 61.9 63.1 64.7 65.1 65.7
ADR
Current Hotels(1)............ -- -- -- -- $92.87 $ 98.20 $105.23
Embassy Suites Hotels(2)..... $86.73 $88.19 $90.97 $93.78 97.18 101.90 107.36
All Upscale U.S. Hotels(3)... 62.16 65.89 73.11 72.05 77.19 81.17 85.54
All U.S. Hotels(4)........... 58.70 59.12 59.62 61.30 64.24 67.66 71.66
REVPAR(5)
Current Hotels(1)............ -- -- -- -- $68.63 $ 71.30 $ 75.97
Embassy Suites Hotels(2)..... $60.36 $61.20 $65.32 $68.55 72.86 75.61 79.02
All Upscale U.S. Hotels(3)... 38.29 40.65 47.30 48.13 52.57 55.52 58.51
All U.S. Hotels(4)........... 36.28 35.53 36.90 38.68 41.56 44.05 47.08
</TABLE>

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

(1) The information for the Current Hotels, for periods prior to their
acquisition by the Company, was obtained from the prior owners. Information
for certain of the Current Hotels was not available for periods prior to
1994.

(2) Information provided by Promus.

(3) Information obtained from Smith Travel Research. This category includes 49
hotel chains designated by such firm as "upper upscale" (including Embassy
Suites hotels, Doubletree Guest Suites hotels and Sheraton hotels) or
"upscale."

(4) Information obtained from Smith Travel Research.

(5) RevPAR is determined by dividing room or suite revenues by available rooms
or suites.

52
<PAGE> 59

BACKGROUND

FelCor was formed as a Delaware corporation on May 16, 1994 and was
reincorporated as a Maryland corporation on June 23, 1995. FelCor is a self
administered equity REIT formed for the purpose of acquiring and holding
interests in hotel properties.

In connection with the formation of FelCor, FelCor LP acquired the six
Initial Hotels through a merger with entities organized in 1991 and controlled
by Hervey A. Feldman and Thomas J. Corcoran, Jr. The consideration for the
acquisition consisted of (i) 1,695,146 Units, then representing approximately
26.5% of the equity interests in FelCor LP and (ii) the assumption and payment
of mortgage indebtedness and other obligations relating to the Initial Hotels of
approximately $76.0 million. The Units are exchangeable, subject to certain
limitations, for a like number of shares of the Common Stock of FelCor or for
cash, at the option of FelCor.

To enable FelCor to qualify as a REIT, neither FelCor nor FelCor LP can
operate the hotels in which they invest. Accordingly, FelCor LP leases all of
the hotels owned by it to the Lessee, pursuant to the Percentage Leases. The
Lessee is a Delaware limited liability company, 25% of which is beneficially
owned by each of Messrs. Feldman and Corcoran, the Chairman of the Board and the
President of FelCor, respectively, and 50% of which is owned by RGC Leasing,
Inc., a Nevada corporation owned by the children of Charles N. Mathewson, a
major initial investor in the Company and a director of FelCor. It is
anticipated that additional hotels acquired by the Company will be leased to the
Lessee upon similar terms. See "Certain Relationships and Related Transactions"
for additional information regarding the interests of affiliates arising out of
the acquisition of the Initial Hotels, the Percentage Leases and certain other
transactions.

BUSINESS STRATEGY

Overview

The Company's primary business objectives are to (i) focus on selection of
sound hotel investments, (ii) add value to its hotels through active asset
management and the strategic investment of capital, and (iii) build solid
working relationships with, and be the "owner-of-choice" for, selected premium,
full-service hotel brand owners/managers who are willing to commit to the
on-going success of the hotels they license/ manage for the Company. The Company
seeks to increase operating cash flow and, enhance its value through both
internal growth and acquisitions. The Company's internal growth strategy is to
utilize its asset management expertise to improve the quality of its hotels by
renovating, upgrading and repositioning, thereby improving the revenue
performance of the hotels, and to participate, through the Percentage Leases, in
any growth in revenues at its hotels. The Company's acquisition growth strategy
remains focused primarily upon the purchase of additional existing and a limited
number of newly developed hotels that meet the Company's investment criteria.

Strategic Relationships

The Company currently maintains strategic brand owner/manager relationships
with Promus, Doubletree and Sheraton. Promus and Doubletree have recently
completed the merger of their companies. The combined company will constitute
the lodging industry's third largest entity based on annual revenue. The Company
believes that this merger will increase the Company's flexibility in branding
its all suite hotels to capitalize on local market conditions and brand
representation. ITT Corporation, the parent of ITT Sheraton Corporation, has
announced that it has entered into a definitive agreement to merge with Starwood
Lodging.

- Promus Hotel Corporation is the largest operator of full-service,
all-suite hotels in the United States. Promus is also the owner of the
Embassy Suites brand and the manager of 50 of the Company's Current
Hotels. In addition, based on the closing price of the Common Stock on
the NYSE on September 30, 1997, Promus owned more than $55 million of the
aggregate Common Stock of FelCor and Units of FelCor LP. The relationship
with Promus has provided the foundation for the Company's historical
growth.

53
<PAGE> 60

- Doubletree Hotels Corporation is the owner of the nation's second largest
full-service, all-suite hotel brand, Doubletree Guest Suites. Doubletree
provides hotel owners with management and franchise services under its
Doubletree Hotels, Doubletree Guest Suites, Club Hotels by Doubletree,
Red Lion Hotels and other brands, as well as management services for
other non-Doubletree brand hotels. Doubletree is the manager of all of
the 12 Current Hotels operated under the Doubletree Guest Suites brand.

- ITT Sheraton Corporation is the owner of the Sheraton brand and one of
the world's largest hotel companies, with more than 430 hotels in over 60
countries. This newest strategic alliance, coupled with the purchase of
six Sheraton hotels this year (including a total of four non-suite
hotels), provided the Company with its initial entry into the upscale,
full-service, non-suite hotel market and should provide the Company with
opportunities for future growth.

Internal Growth Strategy

Beginning with the acquisition of the CSS Hotels, from the fourth quarter
of 1995 through September 30, 1997, the Company has acquired interests in 58
hotels containing an aggregate of 14,587 suites/rooms for approximately 1.4
billion, resulting in an increase in its portfolio of suites/rooms by more than
500%. The Company converted the 18 CSS Hotels to Embassy Suites hotels (16
hotels) and Doubletree Guest Suites hotels (two hotels), investing over $50
million in the complete renovation and upgrade of such hotels. As a consequence,
RevPAR of the CSS Hotels for the nine months ended September 30, 1997 increased
approximately 22.0% over the nine months ended September 30, 1996. Additionally,
for the 13 original hotels acquired by the Company prior to the acquisition of
the CSS Hotels, the Company achieved a 6.6% increase in RevPAR for the nine
months ended September 30, 1997 over the comparable period in 1996, from $79.39
to $84.61.

Acquisition Growth Strategy

At present, the Company intends to continue to focus its acquisition
strategy with respect to individual hotels primarily upon the purchase of
full-service, upscale hotels (both all-suite and non-suite) that will fit within
one of the Company's three premium brand/owner/manager alliances with Promus,
Doubletree and Sheraton. The Company believes that it has benefitted, and will
continue to benefit, from its strong relationships with its brand
owner/managers. The Company also may construct additional suites/rooms and/ or
meeting space at certain of its hotels if market and other conditions warrant.
An aggregate of 224 additional suites are currently in the process of
development at three of the Company's existing hotels at an aggregate estimated
cost of approximately $20.5 million.

Capital Strategy

The Board of Directors has adopted a policy which limits the Company's
indebtedness to not more than 40% of its investment in hotel assets, at cost.
This policy may be modified by the Board of Directors at any
54
<PAGE> 61

time. At September 30, 1997, the Company had the $550 million unsecured
revolving Line of Credit, under which it had borrowed $296 million, the
unsecured Renovation Loan of $25 million (guaranteed by Promus), the proceeds of
which were used to finance the cost of renovations to the CSS Hotels, and
approximately $1 million of other unsecured indebtedness. The Company also had
at September 30, 1997, the $85 million secured Term Loan that was repaid from
the proceeds of the Private Placement, and an additional $12 million in secured
debt. At September 30, 1997, after giving effect to the Private Placement and
the application of the proceeds therefrom, the total Indebtedness of the Company
would have been 26% of total assets and its ratio of EBITDA to interest paid for
the twelve months ended September 30, 1997 would have been 5.9 to 1. The Company
believes that its current debt limitation policy, its preference for unsecured
debt and its success in raising equity capital for expansion, demonstrate the
Company's commitment to the maintenance of a conservative but flexible capital
structure.

HOTEL PORTFOLIO

Current Hotels

Subsequent to the Company's formation and the concurrent acquisition of the
Initial Hotels, the Company completed the acquisition of interests in 65
additional hotels through September 30, 1997. Of the Current Hotels, the Company
owns 100% equity interests in 53 hotels, a 97% interest in the partnership that
owns one hotel, a 90% interest in partnerships that own three hotels, and a 50%
interest in separate partnerships that own 14 hotels. At September 30, 1997, 51
of the Current Hotels were operated as Embassy Suites hotels, 12 as Doubletree
Guest Suites hotels, six as Sheraton hotels, one as a Hilton Suites hotel, and
one hotel was in the process of being converted to the Embassy Suites brand. The
Current Hotels are located in 26 states. The following table provides certain
information regarding the Current Hotels:

<TABLE>
<CAPTION>
NUMBER OF HOTELS AGGREGATE
ACQUIRED NUMBER OF SUITES ACQUISITION PRICE
---------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
1994
Initial Hotels...................... 6 1,479 $ 81.5
4th Quarter......................... 1 251 25.8
1995
1st Quarter......................... 2 350 27.4
2nd Quarter......................... 1 100 9.4
3rd Quarter......................... 3 542 31.3(1)
4th Quarter......................... 7 1,657 169.0
1996
1st Quarter......................... 14 3,501 383.5
2nd Quarter......................... 3 691 68.1
3rd Quarter......................... 4 1,005 30.8(2)
4th Quarter......................... 2 572 78.1
1997
1st Quarter......................... 15 3,446 209.4(3)
2nd Quarter......................... 9 2,715 264.9(4)
3rd Quarter......................... 4 1,000 122.6
-- ------- --------
Subtotals........................... 71 17,309 $1,501.8
Additional suites constructed by the
Company at its hotels............ -- 177 21.2
-- ------- --------
Totals...................... 71 17,486 $1,523.0
== ======= ========
</TABLE>

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

(1) Includes the purchase price of the Company's 50% interest in the
unconsolidated partnership owning the 262-suite, Chicago-Lombard, Illinois
Embassy Suites hotel.

(2) Represents the purchase price of the Company's 50% interest in separate
unconsolidated partnerships owning Embassy Suites hotels in Marin County,
California; Parsippany, New Jersey; Charlotte, North Carolina; and
Indianapolis, Indiana, with an aggregate of 1,005 suites.

55
<PAGE> 62

(3) Includes the purchase price of the Company's (a) 50% interests in separate
unconsolidated partnerships owning eight Embassy Suites hotels, with an
aggregate of 1,934 suites, and (b) 90% interests in consolidated
partnerships owning three Doubletree Guest Suites hotels, with an aggregate
of 691 suites.

(4) Includes the purchase price of the Company's 50% interest in an
unconsolidated partnership owning the 261-suite Embassy Suites hotel in San
Antonio (Airport), Texas.

Of the 1997 Acquisitions, nine consist of 50% interests in unconsolidated
partnerships owning an aggregate of eight Embassy Suites hotels, bringing to 12
the number of hotels owned by joint ventures with Promus, and three consist of
90% interests in consolidated partnerships, in which Doubletree holds the
remaining 10% interest, owning an aggregate of three Doubletree Guest Suites
hotels. Of the remaining hotels acquired in 1997, three are Embassy Suites
hotels, seven are Doubletree Guest Suites hotels (including three that were
converted from other brands), and six are Sheraton hotels.

Recent Acquisitions

During the fourth quarter of 1997, the Company acquired two additional
hotels with an aggregate of 447 suites and rooms for approximately $42.3
million. One is a traditional 309-room Sheraton Hotel in Burlington, Vermont,
which includes a conference center offering more than 30,000 square feet of
meeting space. The other is a 138-suite Doubletree Guest Suites hotel in Dayton,
Ohio. The addition of these hotels brings the Company's total hotel portfolio to
73 hotels with an aggregate of 17,933 suites and rooms located in 27 states.

Other Potential Hotel Transactions

Hotel Renovation and Conversion

The Company believes that its commitment to make the necessary capital
expenditures to upgrade and maintain its hotel properties in accordance with its
high standards differentiates it from many other hotel companies. Typically, the
Company renovates or upgrades hotels acquired by it and, in many instances,
incurs the cost of converting such hotels into national brands, like Embassy
Suites, Doubletree Guest Suites or Sheraton. The Company made capital
expenditures of approximately $52.2 million during 1996, in the conversion and
upgrade of hotels acquired by it through December 31, 1996. The majority of such
expenditures were made in connection with the complete renovation and upgrading
of the 18 CSS Hotels. The Company has incurred additional conversion and upgrade
costs of approximately $17.6 million during the first six months of 1997 with
respect to various renovation and upgrade projects. Significant additional
conversion and upgrade costs may be incurred by the Company with respect to any
additional hotels acquired by it.

In addition to the conversion and upgrade costs typically incurred by the
Company in connection with newly acquired hotels, the Company is required under
the Percentage Leases to provide a capital replacement reserve, consisting of 4%
of suite revenues (on a cumulative basis), for recurring capital improvements
and replacements at its hotels. In addition to the capital expenditures made, as
described above, for the conversion and upgrade of newly acquired hotels, the
Company spent approximately $9.2 million (approximately 4.3% of suite revenues)
during 1996, and approximately $3.9 million (approximately 2.4% of suite
revenues) during the six months ended June 30, 1997, on recurring capital
replacements. In addition to such capital expenditures by the Company, the
Lessee also spent approximately $14.5 million (approximately 6.2% of suite
revenues) during 1996, and approximately $11.1 million (approximately 5.5% of
suite revenues) during the six months ended June 30, 1997, on routine
maintenance and repair of its hotels, for which the Lessee is responsible under
the Percentage Leases.

56
<PAGE> 63

During 1996 and the first six months of 1997, the Company completed the
construction of 17 additional suites at its Flagstaff hotel, 31 additional
suites at its New Orleans hotel, and a net of 129 suites, additional meeting
rooms and other public area improvements to its Boston-Marlborough hotel at an
aggregate cost of approximately $21.2 million. Additionally, an aggregate of 224
additional suites are currently in the process of development at three of the
Company's existing hotels, at an estimated cost of approximately $20.5 million.

Embassy Suites Hotels

At September 30, 1997, fifty-one of the Current Hotels were, and one was in
the process of conversion to, Embassy Suites hotels operating under franchise
licenses from Promus. Embassy Suites hotels are upscale, full-service, all-suite
hotels designed to attract frequent business travelers, leisure travelers and
weekend guests. Embassy Suites consistently achieves one of the highest guest
satisfaction ratings in the industry. Among the services and amenities typically
offered by Embassy Suites hotels are: two-room suites, with each suite
containing two telephones, a mini-refrigerator, coffee maker, microwave oven,
wet bar, and two color televisions; complimentary, full, cooked-to-order
breakfast every morning; complimentary cocktails during two hours every evening
(subject to local laws and regulations) in an atrium environment; fitness
center, indoor heated pool, sauna, whirlpool and steam room; guest laundry and
valet services; and a 100% satisfaction guarantee. Restaurant, banquet, in-room
dining and lounge services are available to guests at customary rates. Embassy
Suites hotels are constructed, maintained and operated in accordance with a
comprehensive set of building, maintenance, operational, recordkeeping and
reservation system guidelines designed to ensure a uniformly high level of
service, appearance and quality. The Embassy Suites system was among the first
hotel chains to offer guests an unconditional 100% satisfaction guarantee.

Embassy Suites, the predecessor-in-interest to Promus, was organized in
1983, and the first Embassy Suites hotel was opened in Overland Park, Kansas in
1984. Mr. Feldman, Chairman of the Board of FelCor, served as the founding
President and Chief Executive Officer of Embassy Suites from 1983 until 1990,
and as its Chairman of the Board from 1990 until January 1992. In March 1984,
Embassy Suites, Inc. acquired the 24 hotel Granada Royale Hometel(R) chain, and
converted its hotels to the Embassy Suites system during 1985. By the spring of
1986, Embassy Suites hotels were located in 20 states, making it a national
upscale all-suite chain and the largest upscale all-suite operator in the United
States. The Embassy Suites chain has continued to grow through franchising, new
hotel development and the acquisition and conversion of all-suite hotels from
other brands. From 30 hotels in 10 states at December 31, 1984, the Embassy
Suites chain has grown to 137 hotels in 35 states, the District of Columbia,
Canada, Colombia, Puerto Rico, and Thailand at August 31, 1997, making it the
largest U.S. full-service, all-suite hotel chain. Of the 137 Embassy Suites
hotels in operation at August 31, 1997, a total of 76 were being operated by
Promus as owner, lessee or manager.

Doubletree Guest Suites Hotels

Twelve of the Current Hotels are Doubletree Guest Suites 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. Doubletree's 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, 1996 for Doubletree's all-suite hotels was derived approximately
45% from business travelers, 29% from group meetings and 26% from leisure
travelers.

As of June 30, 1997, Doubletree's all-suite hotels included 42 Doubletree
Guest Suites hotels in 18 states and the District of Columbia, with a total of
8,987 guest rooms. The hotels range in size from 55 to 460 guest suites. Suite
rates generally range 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.

Doubletree is one of the largest full-service hotel operating companies in
the United States. As of June 30, 1997, Doubletree and its affiliates managed,
leased, or franchised 255 hotels with an aggregate of 58,578 rooms in 40 states,
the District of Columbia, Mexico, and the Caribbean. This represents a 6% and 5%
increase in number of hotels and aggregate room count, respectively, for the
first half of 1997. Doubletree provides hotel owners with management and
franchise services under its Doubletree Hotels, Doubletree Guest

57
<PAGE> 64

Suites, Club Hotels by Doubletree, Red Lion Hotels and other brands. As of June
30, 1997, Doubletree's portfolio of hotels included 101 Doubletree Hotels, 42
Doubletree Guest Suites hotels, 19 Club Hotels by Doubletree, 16 Red Lion Hotels
and 77 hotels operated by Doubletree under third party brand names or as
independent hotels.

Sheraton Hotels

Two of the Current Hotels are Sheraton Suites hotels. Sheraton Suites
hotels typically offer two-room suites, each with a wet bar, refrigerator,
microwave, coffee maker and two televisions. Restaurant, lounge, swimming pool
and fitness center facilities are also typically available to guests. Four of
the Current Hotels are full-service upscale Sheraton hotels. While each of these
hotels offers some suite accommodations, the substantial percentage of the
accommodations are non-suite rooms. Sheraton hotels generally offer numerous
amenities and facilities, such as multiple restaurants, banquet and meeting
space, recreational facilities (including indoor and/or outdoor pools and
fitness centers) and business centers.

Sheraton Hotels, including Sheraton Suites, are part of Sheraton Hotels &
Resorts, the upscale brand segment operated and franchised by ITT Sheraton
Corporation, which is a wholly-owned subsidiary of ITT Corporation. ITT Sheraton
Corporation owns, leases, manages and/or franchises over 430 luxury, upscale and
mid-scale hotels, having over 135,000 guest rooms, in over 60 countries. In the
upscale segment, which includes Sheraton hotels, Sheraton owns, leases, manages
and franchises approximately 290 properties with approximately 105,000 rooms.
Sheraton's origins date back to 1937 and its history includes many firsts in the
hospitality industry, including the first hotel chain to be listed on the NYSE,
the first chain to centralize and automate the reservations function and the
first to develop a toll-free 800-number system for direct consumer access.

Other All-Suite Hotels

The Company also owns one Hilton Suites hotel. Hilton Suites is one of the
brands operated and franchised by Hilton Hotels Corporation. Hilton Suites
hotels provide a private bedroom and separate living room with amenities that
include a second television with a video cassette player, wet bar with
microwave, mini-refrigerator and coffee maker. In addition, a complimentary
prepared-to-order breakfast and evening beverage reception are offered daily.

HOTEL OPERATIONS

At September 30, 1997, 50 of the Current Hotels were being managed by
Promus, 12 were being managed by Doubletree, six were being managed by Sheraton
and three were being managed by independent professional management companies.

During 1996, the ADR at the Current Hotels increased by approximately 7.2%
which, when combined with a decline in occupancy of approximately 0.4 percentage
points, resulted in an increase in RevPAR of 6.5%. These figures reflect the
adverse impact of the loss of nearly 173,000 available suite nights
(approximately 2.7% of total available suite nights for the year) as a result of
the temporary removal of suites from service for renovation and upgrading during
1996. The performance of the CSS Hotels and certain of the other hotels acquired
during 1996, which underwent substantial renovation and upgrading during the
year, substantially offset the improved performance of the other Current Hotels,
which experienced an increase in RevPAR during 1996 of approximately 8.5% over
1995.

58
<PAGE> 65

The following table sets forth historical operating data regarding the
Current Hotels for the periods presented, regardless of ownership.
<TABLE>
<CAPTION>
ADR($)
--------------------------------------
TWELVE
# OF MONTHS YEAR ENDED DECEMBER 31,
SUITES/ YEAR YEAR ENDED ---------------------------
LOCATION BRAND ROOMS OPENED ACQUIRED 9/30/97 1996 1995 1994
- ----------------------------- -------------------------- ------- ------ -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT HOTELS(1):
Birmingham, AL............... Embassy Suites(3) 242 1987 1996 $111.31 $101.33 $ 94.13 $ 88.49
Flagstaff, AZ................ Embassy Suites(3) 119 1988 1995 94.00 92.04 89.98 89.13
Phoenix (Camelback), AZ...... Embassy Suites(3) 233 1985 1996 147.14 140.12 130.49 121.73
Phoenix (Crescent), AZ....... Sheraton 342 1986 1997 112.00 107.71 95.53 72.94
Anaheim, CA.................. Embassy Suites(3) 222 1987 1996 100.59 91.48 85.94 85.04
Burlingame (S.F. Airport
So.), CA.................... Embassy Suites(2)(3) 339 1986 1995 127.39 114.58 102.42 99.41
Covina, CA................... Embassy Suites(5) 264 1980 1997 79.63 79.13 75.64 79.91
Dana Point, CA............... Doubletree Guest Suites 198 1992 1997 93.10 82.12 79.09 68.56
El Segundo (LAX Airport
South), CA.................. Embassy Suites(3) 350 1985 1996 84.95 80.76 83.55 85.67
Los Angeles (LAX Airport
North), CA.................. Embassy Suites(2)(3) 215 1990 1997 104.59 102.67 102.72 100.12
Milpitas, CA................. Embassy Suites(3) 267 1987 1996 126.65 108.11 93.57 88.03
Napa, CA..................... Embassy Suites(3) 205 1985 1996 127.62 115.84 111.52 112.72
Oxnard (Mandalay Beach),
CA.......................... Embassy Suites(3) 249 1986 1996 126.81 120.36 117.25 116.73
San Rafael (Marin Co.), CA... Embassy Suites(5) 235 1990 1996 117.27 111.78 108.49 101.64
South San Francisco (Airport
North), CA.................. Embassy Suites 312 1988 1996 124.61 108.33 93.80 92.43
Avon (Beaver Creek Resort),
CO.......................... Embassy Suites(3) 72 1989 1996 203.91 185.60 150.72 149.21
Boca Raton (Doubletree),
FL.......................... Doubletree Guest Suites(3) 182 1989 1995 80.10 78.26 79.83 83.02
Boca Raton (Embassy), FL..... Embassy Suites(3) 263 1989 1996 90.23 85.67 86.26 83.36
Deerfield Beach, FL.......... Embassy Suites(3) 244 1987 1996 126.34 119.06 119.93 122.46
Ft. Lauderdale, FL........... Embassy Suites(3) 359 1986 1996 112.59 105.92 106.44 105.47
Jacksonville, FL............. Embassy Suites 210 1985 1994 110.14 106.17 96.43 84.41
Lake Buena Vista (Disney
World), FL.................. Doubletree Guest Suites(2) 229 1987 1997 133.70 121.25 113.40 114.91
Miami (Airport), FL.......... Embassy Suites(3) 314 1987 1996 100.72 86.07 88.52 84.99
Orlando (North), FL.......... Embassy Suites 210 1985 1994 113.29 103.56 97.49 93.47
Orlando (South), FL.......... Embassy Suites 244 1985 1994 120.98 114.74 109.37 103.61
Tampa (Busch Gardens), FL.... Doubletree Guest Suites(3) 129 1985 1995 90.57 85.08 80.66 79.58
Tampa (Rocky Point), FL...... Doubletree Guest Suites 203 1986 1997 109.37 98.35 90.25 85.63
Atlanta (Airport), GA........ Sheraton 395 1986 1997 93.54 102.13 82.20 71.01
Atlanta (Buckhead), GA....... Embassy Suites 317 1988 1996 133.13 138.39 120.82 107.40
Atlanta (Galleria), GA....... Sheraton 278 1990 1997 112.55 118.59 104.06 94.65
Atlanta (Perimeter Center),
GA.......................... Embassy Suites(5) 241 1985 1997 112.52 117.93 102.40 92.68
Brunswick, GA................ Embassy Suites(3) 130 1988 1995 73.12 71.03 61.22 49.07
Chicago -- Lombard, IL....... Embassy Suites(5) 262 1990 1995 117.48 109.64 101.28 95.21
Chicago (O'Hare), IL......... Sheraton 297 1986 1997 125.59 119.27 108.43 104.41
Deerfield, IL................ Embassy Suites(3) 237 1987 1996 107.58 100.96 96.74 90.90
Indianapolis (North), IN..... Embassy Suites(5) 222 1985 1996 103.76 100.22 98.60 90.93
Overland Park, KS............ Embassy Suites(5) 199 1984 1997 109.39 102.94 97.93 91.73
Lexington, KY................ Hilton Suites(3) 174 1987 1996 99.50 96.71 88.12 82.70
Baton Rouge, LA.............. Embassy Suites(3) 224 1985 1996 96.15 87.27 81.08 79.57
New Orleans, LA.............. Embassy Suites(3) 282 1984 1994 126.77 119.90 114.48 105.76

<CAPTION>
REVPAR($) OCCUPANCY(%)
----------------------------------- ----------------------------
TWELVE YEAR ENDED DECEMBER TWELVE YEAR ENDED
MONTHS 31, MONTHS DECEMBER 31,
ENDED ------------------------- ENDED ------------------
LOCATION 9/30/97 1996 1995 1994 9/30/97 1996 1995 1994
- ----------------------------- ------- ------- ------ ------ ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT HOTELS(1):
Birmingham, AL............... $69.98 $ 65.20 $64.30 $60.62 62.9% 64.3% 68.3% 68.5%
Flagstaff, AZ................ 63.49 64.23 60.31 61.80 67.5 69.8 67.0 69.3
Phoenix (Camelback), AZ...... 111.21 96.70 95.69 90.40 75.6 69.0 73.3 74.3
Phoenix (Crescent), AZ....... 78.93 76.54 69.61 54.24 70.5 71.1 72.9 74.4
Anaheim, CA.................. 71.14 60.22 59.27 53.76 70.7 65.8 69.0 63.2
Burlingame (S.F. Airport
So.), CA.................... 106.57 89.06 80.66 75.72 83.7 77.7 78.7 76.2
Covina, CA................... 48.82 42.59 40.56 40.84 61.3 53.8 53.6 51.1
Dana Point, CA............... 53.62 51.53 49.92 44.35 57.6 62.8 63.1 64.7
El Segundo (LAX Airport
South), CA.................. 67.31 58.97 52.91 55.10 79.2 73.0 63.3 64.3
Los Angeles (LAX Airport
North), CA.................. 81.77 79.59 72.32 80.09 78.2 77.5 70.4 80.0
Milpitas, CA................. 103.87 81.47 74.44 64.58 82.0 75.4 79.6 73.4
Napa, CA..................... 84.43 77.78 72.53 76.48 66.2 67.1 65.0 67.8
Oxnard (Mandalay Beach),
CA.......................... 78.32 75.43 73.72 77.91 61.8 62.7 62.9 66.7
San Rafael (Marin Co.), CA... 93.35 86.04 85.46 79.92 79.6 77.0 78.8 78.6
South San Francisco (Airport
North), CA.................. 91.48 72.89 63.52 62.37 73.4 67.3 67.7 67.5
Avon (Beaver Creek Resort),
CO.......................... 101.40 95.26 93.21 85.44 49.7 51.3 61.8 57.3
Boca Raton (Doubletree),
FL.......................... 45.42 41.32 40.19 40.19 56.7 52.8 50.4 48.4
Boca Raton (Embassy), FL..... 67.16 62.68 63.48 59.27 74.4 73.2 73.6 71.1
Deerfield Beach, FL.......... 88.73 72.94 78.85 79.42 70.2 61.3 65.7 64.9
Ft. Lauderdale, FL........... 84.40 74.31 70.46 70.14 75.0 70.2 66.2 66.5
Jacksonville, FL............. 85.37 81.40 72.75 64.01 77.5 76.7 75.4 75.8
Lake Buena Vista (Disney
World), FL.................. 112.31 100.77 85.93 85.50 84.0 83.1 75.8 74.4
Miami (Airport), FL.......... 77.76 64.02 67.41 65.43 77.2 74.4 76.1 77.0
Orlando (North), FL.......... 94.81 86.58 77.97 74.04 83.7 83.6 80.0 79.2
Orlando (South), FL.......... 105.89 96.66 86.19 81.83 87.5 84.2 78.8 79.0
Tampa (Busch Gardens), FL.... 60.67 63.20 59.05 63.19 67.0 74.3 73.2 79.4
Tampa (Rocky Point), FL...... 79.17 74.01 66.62 64.38 72.4 75.2 73.8 75.2
Atlanta (Airport), GA........ 58.02 68.13 55.56 51.46 62.0 66.7 67.6 72.5
Atlanta (Buckhead), GA....... 102.83 103.66 98.12 86.95 77.2 74.9 81.2 81.0
Atlanta (Galleria), GA....... 71.54 79.52 71.73 73.07 63.6 67.1 68.9 77.2
Atlanta (Perimeter Center),
GA.......................... 87.32 91.66 79.82 74.74 77.6 77.7 77.9 80.7
Brunswick, GA................ 52.12 52.72 45.30 37.07 71.3 74.2 74.0 75.5
Chicago -- Lombard, IL....... 88.58 85.06 77.94 71.68 75.4 77.6 77.0 75.3
Chicago (O'Hare), IL......... 92.87 82.50 71.44 99.12 73.9 69.2 65.9 94.9
Deerfield, IL................ 81.77 75.05 74.85 67.53 76.0 74.3 77.4 74.3
Indianapolis (North), IN..... 73.31 70.70 72.14 65.77 70.7 70.6 73.2 72.3
Overland Park, KS............ 81.53 77.21 72.81 69.72 74.5 75.0 74.4 76.0
Lexington, KY................ 76.63 74.99 70.16 65.38 77.0 77.5 79.6 79.1
Baton Rouge, LA.............. 67.29 53.86 56.96 55.12 70.0 61.7 70.2 69.3
New Orleans, LA.............. 92.59 90.82 83.42 87.48 73.0 75.7 72.9 82.7
</TABLE>

59
<PAGE> 66
<TABLE>
<CAPTION>
ADR($)
--------------------------------------
TWELVE
# OF MONTHS YEAR ENDED DECEMBER 31,
SUITES/ YEAR YEAR ENDED ---------------------------
LOCATION BRAND ROOMS OPENED ACQUIRED 9/30/97 1996 1995 1994
- ----------------------- -------------------------- ------- ------ -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston -- Marlbourgh,
MA...................... Embassy Suites(3) 229 1988 1995 $112.40 $104.89 $ 89.12 $ 85.26
Baltimore, MD............ Doubletree Guest Suites(4) 251 1987 1997 93.97 89.41 82.03 82.97
Troy, MI................. Doubletree Guest Suites(4) 251 1987 1997 99.58 93.11 84.25 75.03
Bloomington, MN.......... Doubletree Guest Suites 219 1980 1997 108.41 108.83 104.67 97.86
Minneapolis (Airport),
MN...................... Embassy Suites(3) 311 1986 1995 123.23 114.54 102.65 99.08
Minneapolis (Downtown),
MN...................... Embassy Suites(3) 218 1984 1995 103.31 96.37 93.26 93.08
St. Paul, MN............. Embassy Suites(2)(3) 210 1983 1995 97.24 91.20 82.44 79.81
Kansas City (Cntry Club
Plaza), MO.............. Embassy Suites(2)(5) 266 1976 1997 107.53 102.41 98.86 93.47
Charlotte, NC............ Embassy Suites(5) 274 1989 1996 118.46 110.83 100.52 90.49
Raleigh/Durham, NC....... Doubletree Guest Suites 203 1987 1997 106.05 96.60 84.87 79.57
Raleigh, NC.............. Embassy Suites(5) 225 1987 1997 117.46 112.31 103.53 92.74
Omaha, NE................ Doubletree Guest Suites 189 1973 1997 89.49 91.29 89.61 83.35
Parsippany, NJ........... Embassy Suites(5) 274 1989 1996 133.29 126.09 116.02 109.42
Piscataway, NJ........... Embassy Suites(3) 225 1988 1996 115.13 102.28 101.98 96.46
Secaucus, NJ............. Embassy Suites(2)(5) 261 1986 1997 133.00 122.48 111.62 107.92
Syracuse, NY............. Embassy Suites 215 1989 1997 98.59 94.98 95.09 91.70
Cleveland, OH............ Embassy Suites(3) 268 1990 1995 103.89 103.85 99.40 86.98
Tulsa, OK................ Embassy Suites 240 1985 1994 91.30 88.11 82.14 80.16
Philadelphia (Society
Hill),
PA...................... Sheraton 365 1986 1997 134.57 124.92 112.43 107.26
Myrtle Beach (Kingston
Plantation), SC......... Embassy Suites(6) 255 1987 1996 124.87 119.33 110.10 106.27
Nashville (Airport),
TN...................... Doubletree Guest Suites 138 1988 1997 82.53 84.21 79.01 74.77
Nashville, TN............ Embassy Suites 296 1986 1994 106.99 103.00 100.92 94.27
Austin (Airport North),
TX...................... Embassy Suites(5) 261 1984 1997 108.53 108.56 107.92 93.82
Austin (Downtown), TX.... Doubletree Guest Suites(4) 189 1987 1997 115.11 107.27 102.50 91.64
Corpus Christi, TX....... Embassy Suites 150 1984 1995 90.86 82.95 77.66 77.54
Dallas (Love Field),
TX...................... Embassy Suites 248 1986 1995 108.25 104.14 98.95 92.81
Dallas (Market Center),
TX...................... Embassy Suites 244 1980 1997 121.62 117.93 109.72 103.43
Dallas (Park Central),
TX...................... Embassy Suites 279 1985 1994 107.12 105.13 95.50 86.24
Dallas (Park Central),
TX...................... Sheraton 545 1983 1997 105.70 96.01 85.74 77.78
San Antonio (Northwest),
TX...................... Embassy Suites(5) 217 1979 1997 104.54 100.14 100.29 99.96
San Antonio (Airport),
TX...................... Embassy Suites(5) 261 1985 1997 104.28 99.66 97.33 99.90
------
Totals............ 17,486 111.14 105.23 98.20 92.87
======

<CAPTION>
REVPAR($) OCCUPANCY(%)
----------------------------------- ----------------------------
TWELVE YEAR ENDED DECEMBER TWELVE YEAR ENDED
MONTHS 31, MONTHS DECEMBER 31,
ENDED ------------------------- ENDED ------------------
LOCATION 9/30/97 1996 1995 1994 9/30/97 1996 1995 1994
- ----------------------- ------- ------- ------ ------ ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston -- Marlbourgh,
MA...................... $86.99 $ 80.47 $72.29 $68.08 77.4% 76.7% 81.1% 79.9%
Baltimore, MD............ 71.26 67.88 62.09 57.88 75.8 75.9 75.7 69.8
Troy, MI................. 75.34 69.04 61.01 57.85 75.7 74.1 72.4 77.1
Bloomington, MN.......... 75.07 79.12 82.29 78.58 69.2 72.7 78.6 80.3
Minneapolis (Airport),
MN...................... 91.22 79.38 75.52 75.27 74.0 69.3 73.6 76.0
Minneapolis (Downtown),
MN...................... 67.51 53.40 62.04 64.78 65.3 55.4 66.5 69.6
St. Paul, MN............. 69.38 59.88 63.56 64.00 71.3 65.7 77.1 80.2
Kansas City (Cntry Club
Plaza), MO.............. 83.01 78.11 64.47 65.90 77.2 76.3 65.2 70.5
Charlotte, NC............ 86.23 80.28 74.14 69.46 72.8 72.4 73.8 76.8
Raleigh/Durham, NC....... 81.00 71.70 64.76 57.02 76.4 74.2 76.3 71.7
Raleigh, NC.............. 97.43 92.20 83.42 76.73 82.9 82.1 80.6 82.7
Omaha, NE................ 61.64 68.98 70.42 63.52 68.9 75.6 78.6 76.2
Parsippany, NJ........... 104.88 96.45 85.89 80.39 78.7 76.5 74.0 73.5
Piscataway, NJ........... 79.73 74.47 73.90 72.89 69.3 72.8 72.5 75.6
Secaucus, NJ............. 108.86 102.76 90.37 87.54 81.9 83.9 81.0 81.1
Syracuse, NY............. 74.05 70.81 68.58 68.72 75.1 74.6 72.1 74.9
Cleveland, OH............ 76.92 69.63 70.79 60.54 74.0 67.1 71.2 69.6
Tulsa, OK................ 65.50 64.92 59.51 58.18 71.7 73.7 72.4 72.6
Philadelphia (Society
Hill),
PA...................... 96.62 92.70 83.04 82.89 71.8 74.2 73.9 77.3
Myrtle Beach (Kingston
Plantation), SC......... 91.55 88.62 83.27 79.52 73.3 74.3 75.6 74.8
Nashville (Airport),
TN...................... 65.69 62.65 60.02 58.14 79.6 74.4 76.0 77.8
Nashville, TN............ 80.07 75.35 73.67 71.27 74.8 73.2 73.0 75.6
Austin (Airport North),
TX...................... 84.06 79.06 80.00 71.30 77.5 72.8 74.1 76.0
Austin (Downtown), TX.... 90.60 82.34 82.86 71.91 78.7 76.8 80.8 78.5
Corpus Christi, TX....... 67.17 60.80 60.24 64.81 73.9 73.3 77.6 83.6
Dallas (Love Field),
TX...................... 83.07 79.05 69.71 67.64 76.7 75.9 70.4 72.9
Dallas (Market Center),
TX...................... 88.71 86.40 78.96 77.57 72.9 73.3 72.0 75.0
Dallas (Park Central),
TX...................... 81.06 79.63 74.24 68.00 75.7 75.7 77.7 78.8
Dallas (Park Central),
TX...................... 66.23 67.78 63.65 56.48 62.7 70.6 74.2 72.6
San Antonio (Northwest),
TX...................... 73.00 70.69 69.55 71.98 69.8 70.6 69.4 72.0
San Antonio (Airport),
TX...................... 78.56 75.74 73.38 78.28 75.3 76.0 75.4 78.4
Totals............ 81.41 75.97 71.30 68.63 73.3 72.2 72.6 73.9
</TABLE>

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

(1) The information included in this table for periods prior to the acquisition
of a particular hotel by the Company or by FelCor Affiliates was obtained
from the prior owners.

(2) These hotels are situated upon parcels of land subject to ground leases.

(3) This hotel underwent substantial renovation, upgrading and expansion during
1996.

(4) The Company owns a 90% equity interest in the entity that owns these hotels.

(5) The Company owns a 50% equity interest in the entity that owns these hotels.

(6) This hotel was converted by year end to the Embassy Suites brand.

60
<PAGE> 67

Each of the Current Hotels owned by the Company is leased to the Lessee
pursuant to a Percentage Lease. Accordingly, the Company derives substantially
all of its revenues from rents under the Percentage Leases, which rents are
directly affected by changes in suite revenue. See "-- The Percentage Leases."
The following table sets forth comparative suite revenue information for each of
the Current Hotels on a consolidated basis, with respect to historical suite
revenues, as if the hotels had been owned by the Company throughout the periods
presented.

<TABLE>
<CAPTION>
SUITE REVENUE(1) PERCENTAGE CHANGE
-------------------------------------------- ------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------- TWELVE
TWELVE MONTHS
MONTHS ENDED
ENDED 9/30/97
LOCATION 9/30/97 1996 1995 1994 VS. 1996 1996 VS. 1995 1995 VS. 1994
-------- -------- -------- -------- -------- -------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT HOTELS:
Birmingham, AL(2)........... $ 6,181 $ 5,790 $ 5,680 $ 5,371 6.8% 1.9% 5.8%
Flagstaff, AZ(2)............ 2,758 2,614 2,245 2,301 5.5 16.4 (2.4)
Phoenix (Camelback), AZ(2).. 9,418 8,239 8,160 7,666 14.3 1.0 6.4
Phoenix (Crescent), AZ...... 9,853 9,581 8,690 4,619 2.8 10.3 88.1
Anaheim, CA(2).............. 5,768 4,907 4,802 4,356 17.6 2.2 10.2
Burlingame (S.F. Airport
So.), CA(2)............... 13,225 11,070 9,948 9,355 19.5 11.3 6.3
Covina, CA.................. 4,633 4,053 3,908 3,936 14.3 3.7 (0.7)
Dana Point, CA.............. 3,854 3,716 3,571 3,172 3.7 4.1 12.6
El Segundo Airport (LAX
South), CA(2)............. 8,574 7,538 6,760 7,033 13.7 11.5 (3.9)
Los Angeles (LAX Airport
North), CA(2)............. 6,417 6,263 5,675 6,285 2.5 10.4 (9.7)
Milpitas, CA(2)............. 10,085 7,953 7,254 6,290 26.8 9.6 15.3
Napa, CA(2)................. 6,317 5,846 5,427 5,723 8.1 7.7 (5.2)
Oxnard (Mandalay Beach),
CA(2)..................... 7,118 6,893 6,700 7,081 3.3 2.9 (5.4)
San Rafael (Marin Co. ),
CA........................ 8,007 7,400 7,330 6,857 8.2 1.0 6.9
South San Francisco (Airport
North), CA................ 10,418 8,323 7,234 7,103 25.2 15.1 1.8
Avon (Beaver Creek Resort),
CO(2)..................... 2,673 2,480 2,415 2,214 7.8 2.7 9.1
Boca Raton (Doubletree),
FL(2)..................... 3,017 2,753 2,670 2,670 9.6 3.1 0.0
Boca Raton (Embassy),
FL(2)..................... 6,448 6,033 6,093 5,689 6.9 (1.0) 7.1
Deerfield Beach, FL(2)...... 7,902 6,531 7,023 7,073 21.0 (7.0) (0.7)
Ft. Lauderdale, FL(2)....... 11,059 9,788 9,233 9,180 13.0 6.0 0.6
Jacksonville, FL(2)......... 6,544 6,256 5,576 4,907 4.6 12.2 13.6
Lake Buena Vista (Disney
World), FL................ 9,387 8,446 7,183 7,146 11.1 17.6 0.5
Miami (Airport), FL(2)...... 8,969 7,388 7,726 7,498 21.4 (4.4) 3.0
Orlando (North), FL......... 7,267 6,654 5,976 5,675 9.2 11.3 5.3
Orlando (South), FL......... 9,431 8,632 7,676 7,287 9.3 12.5 5.3
Tampa (Busch Gardens),
FL(2)..................... 2,857 2,984 2,781 2,975 (4.3) 7.3 (6.5)
Tampa (Rocky Point), FL..... 5,866 5,499 4,936 4,771 6.7 11.4 3.5
Atlanta (Airport), GA....... 8,457 9,841 8,011 7,419 (14.1) 22.8 8.0
Atlanta (Buckhead), GA...... 11,898 12,026 11,353 10,410 (1.1) 5.9 9.1
Atlanta (Galleria), GA...... 7,339 8,091 7,279 7,415 (9.3) 11.2 (1.8)
Atlanta (Perimeter Center),
GA........................ 7,681 8,085 7,021 6,575 (5.0) 15.2 6.8
Brunswick, GA(2)............ 2,473 2,508 2,149 1,759 (1.4) 16.7 22.2
Chicago -- Lombard, IL...... 8,471 8,156 7,454 6,855 3.9 9.4 8.7
Chicago (O'Hare), IL........ 10,177 8,973 7,796 7,457 13.4 15.1 4.5
Deerfield, IL(2)............ 7,093 6,510 6,457 5,825 9.0 0.8 10.8
Indianapolis (North), IN.... 5,913 5,738 5,845 5,329 3.0 (1.8) 9.7
Overland Park, KS........... 5,922 5,624 5,289 5,064 5.3 6.3 4.4
Lexington, KY(2)............ 4,867 4,776 4,456 4,152 1.9 7.2 7.3
Baton Rouge, LA(2).......... 5,484 4,428 4,657 4,507 23.8 (4.9) 3.3
</TABLE>

61
<PAGE> 68
<TABLE>
<CAPTION>
SUITE REVENUE(1) PERCENTAGE CHANGE
-------------------------------------------- ------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------- TWELVE
TWELVE MONTHS
MONTHS ENDED
ENDED 9/30/97
LOCATION 9/30/97 1996 1995 1994 VS. 1996 1996 VS. 1995 1995 VS. 1994
-------- -------- -------- -------- -------- -------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S> <C> <C> <C> <C> <C> <C> <C>
New Orleans(2).............. $ 9,269 $ 8,346 $ 7,643 $ 8,014 11.1% 9.2% (4.6)%
Boston -- Marlbourgh,
MA(2)..................... 4,093 2,945 2,646 2,485 39.0 11.3 6.5
Baltimore, MD............... 6,529 6,236 5,688 5,303 4.7 9.6 7.3
Troy, MI.................... 6,903 6,342 5,589 5,300 8.9 13.5 5.5
Bloomington, MN............. 6,001 6,342 6,578 6,281 (5.4) (3.6) 4.7
Minneapolis (Airport),
MN(2)..................... 10,321 9,006 8,545 8,531 14.6 5.4 0.2
Minneapolis (Downtown),
MN(2)..................... 5,360 4,260 4,937 5,155 25.8 (13.7) (4.2)
St. Paul, MN(2)............. 5,318 4,602 4,872 4,906 15.5 (5.5) (0.7)
Kansas City (Country Club
Plaza), MO................ 8,059 7,604 6,259 6,398 6.0 21.5 (2.2)
Charlotte, NC............... 8,624 8,051 7,415 6,947 7.1 8.6 6.7
Raleigh/Durham, NC.......... 6,002 5,327 7,498 4,225 12.7 11.0 13.6
Raleigh, NC................. 8,002 7,592 6,851 6,302 5.4 10.8 8.7
Omaha, NE................... 4,230 4,754 4,858 4,382 (11.0) (2.1) 10.9
Parsippany, NJ.............. 10,489 9,673 8,590 8,039 8.4 12.6 6.9
Piscataway, NJ(2)........... 6,528 6,132 6,069 5,986 6.5 1.0 1.4
Secaucus, NJ................ 10,371 9,816 8,609 8,340 5.7 14.0 3.0
Syracuse, NY................ 5,811 5,572 5,381 5,393 4.3 3.5 (0.2)
Cleveland, OH(2)............ 7,525 6,830 6,925 5,922 10.2 (1.4) 16.9
Tulsa, OK................... 5,738 5,703 5,213 5,097 0.6 9.4 2.3
Philadelphia (Society Hill),
PA........................ 13,100 12,384 11,064 11,044 5.8 11.9 0.2
Myrtle Beach (Kingston
(Plantation), SC.......... 8,568 8,270 7,750 7,522 3.6 6.7 3.0
Nashville (Airport), TN..... 3,242 3,164 3,023 2,928 2.5 4.7 3.2
Nashville, TN............... 8,651 8,163 7,960 7,678 6.0 2.6 3.7
Austin (Airport North),
TX........................ 7,977 7,542 7,622 6,792 5.8 (1.0) 12.2
Austin (Downtown), TX....... 6,250 5,696 5,716 4,960 9.7 (0.3) 15.2
Corpus Christi, TX.......... 3,677 3,338 3,298 3,548 10.2 1.2 (7.0)
Dallas (Love Field), TX..... 7,520 7,176 6,327 6,106 4.8 13.4 3.6
Dallas (Market Center),
TX........................ 7,901 7,716 7,032 6,908 2.4 9.7 1.8
Dallas (Park Central), TX... 8,255 8,131 7,560 6,925 1.5 7.6 9.2
Dallas (Park Central), TX... 13,174 13,523 12,662 11,236 (2.6) 6.8 12.7
San Antonio (Northwest),
TX........................ 5,782 5,614 5,509 5,701 3.0 1.9 (3.4)
San Antonio (Airport), TX... 7,484 7,235 6,990 7,457 3.4 3.5 (6.3)
-------- -------- -------- --------
Totals.............. $516,575 $481,471 $450,419 $428,811 7.3% 6.9% 5.0%
======== ======== ======== ========
</TABLE>

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

(1) The information included in this table with respect to suite revenues of the
Current Hotels, for periods prior to their acquisition by the Company, was
obtained from the prior owners. Suite Revenue, as shown, reflects the
Lessee's 100% interest in the Current Hotels, even where the Company owns
less than a 100% interest in such hotels.

(2) This hotel underwent substantial renovation, upgrading or expansion during
1996.

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<PAGE> 69

THE PERCENTAGE LEASES

Pro Forma Lease Revenue

The following table reflects comparative pro forma Percentage Lease Revenue
received by the Company pursuant to the Percentage Leases for the 12 months
ended September 30, 1997 and for the year ended December 31, 1996, as if the
Current Hotels had been subject to the Percentage Leases for the entire periods
presented.

<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE
-----------------------------
TWELVE MONTHS YEAR ENDED
ENDED DECEMBER 31,
LOCATION BRAND 9/30/97 1996
-------- ----- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED HOTELS:
Birmingham, AL........................... Embassy Suites $ 3,546 $ 3,332
Flagstaff, AZ............................ Embassy Suites 1,201 1,138
Phoenix (Camelback), AZ.................. Embassy Suites 5,521 4,711
Phoenix (Crescent), AZ................... Sheraton 3,615 3,525
Anaheim, CA.............................. Embassy Suites 2,799 2,250
Burlingame (S.F. Airport So.), CA........ Embassy Suites 7,486 6,089
Dana Point, CA........................... Doubletree Guest Suites 1,446 1,395
El Segundo (LAX Airport South), CA....... Embassy Suites 3,704 3,057
Los Angeles (LAX Airport North), CA...... Embassy Suites 2,677 2,591
Milpitas, CA............................. Embassy Suites 6,013 4,619
Napa, CA................................. Embassy Suites 2,638 2,335
Oxnard (Mandalay Beach), CA.............. Embassy Suites 3,369 3,258
South San Francisco (Airport North),
CA..................................... Embassy Suites 5,376 4,029
Avon (Beaver Creek Resort), CO........... Embassy Suites 742 631
Boca Raton (Doubletree), FL.............. Doubletree Guest Suites 1,290 1,119
Boca Raton (Embassy), FL................. Embassy Suites 2,494 2,240
Deerfield Beach, FL...................... Embassy Suites 4,070 3,214
Ft. Lauderdale, FL....................... Embassy Suites 6,393 5,600
Jacksonville, FL......................... Embassy Suites 2,597 2,431
Lake Buena Vista (Disney World), FL...... Doubletree Guest Suites 5,068 4,467
Miami (Airport), FL...................... Embassy Suites 4,526 3,507
Orlando (North), FL...................... Embassy Suites 3,538 3,163
Orlando (South), FL...................... Embassy Suites 3,942 3,441
Tampa (Busch Gardens), FL................ Doubletree Guest Suites 1,240 1,326
Tampa (Rocky Point), FL.................. Doubletree Guest Suites 2,930 2,703
Atlanta (Airport), GA.................... Sheraton 3,355 4,156
Atlanta (Buckhead), GA................... Embassy Suites 5,936 6,014
Atlanta (Galleria), GA................... Sheraton 3,123 3,533
Brunswick, GA............................ Embassy Suites 957 982
Chicago (O'Hare), IL..................... Sheraton 5,648 4,709
Deerfield, IL............................ Embassy Suites 3,423 3,066
Lexington, KY............................ Hilton Suites 2,188 2,158
Baton Rouge, LA.......................... Embassy Suites 2,507 1,830
New Orleans, LA.......................... Embassy Suites 4,052 3,470
Boston -- Marlborough, MA................ Embassy Suites 2,227 1,484
Baltimore, MD............................ Doubletree Guest Suites 3,165 2,943
Troy, MI................................. Doubletree Guest Suites 3,656 3,250
Bloomington, MN.......................... Doubletree Guest Suites 2,771 3,049
Minneapolis (Airport), MN................ Embassy Suites 5,883 5,006
Minneapolis (Downtown), MN............... Embassy Suites 2,505 1,797
St. Paul, MN............................. Embassy Suites 2,010 1,561
Raleigh/Durham, NC....................... Doubletree Guest Suites 2,881 2,623
Omaha, NE................................ Doubletree Guest Suites 1,948 2,284
</TABLE>

63
<PAGE> 70
<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE
-----------------------------
TWELVE MONTHS YEAR ENDED
ENDED DECEMBER 31,
LOCATION BRAND 9/30/97 1996
-------- ----- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Piscataway, NJ........................... Embassy Suites 2,588 2,394
Syracuse, NY............................. Embassy Suites 2,227 2,130
Cleveland, OH............................ Embassy Suites 2,564 2,131
Tulsa, OK................................ Embassy Suites 2,497 2,489
Philadelphia (Society Hill), PA.......... Sheraton 6,505 5,753
Myrtle Beach (Kingston Plantation), SC... Embassy Suites 3,337 2,738
Nashville (Airport), TN.................. Doubletree Guest Suites 1,372 1,320
Nashville, TN............................ Embassy Suites 3,646 3,360
Austin (Downtown), TX.................... Doubletree Guest Suites 3,218 2,829
Corpus Christi, TX....................... Embassy Suites 1,680 1,463
Dallas (Love Field), TX.................. Embassy Suites 3,446 3,231
Dallas (Market Center), TX............... Embassy Suites 3,704 3,583
Dallas (Park Central), TX................ Embassy Suites 3,670 3,609
Dallas (Park Central), TX................ Sheraton 5,973 6,031
-------- --------
Total Consolidated Hotels...... $192,883 $173,147
======== ========
UNCONSOLIDATED HOTELS:
Covina, CA............................... Embassy Suites $ 1,688 $ 1,293
San Rafael (Marin Co.), CA............... Embassy Suites 3,994 3,575
Atlanta (Perimeter Center), GA........... Embassy Suites 3,623 3,889
Chicago -- Lombard, IL................... Embassy Suites 3,956 3,767
Indianapolis (North), IN................. Embassy Suites 2,569 2,450
Overland Park, KS........................ Embassy Suites 2,835 2,641
Kansas City (Country Club Plaza), MO..... Embassy Suites 3,890 3,594
Charlotte, NC............................ Embassy Suites 4,193 3,832
Raleigh, NC.............................. Embassy Suites 3,949 3,693
Parsippany, NJ........................... Embassy Suites 5,006 4,471
Secaucus, NJ............................. Embassy Suites 4,444 4,082
Austin (Airport North), TX............... Embassy Suites 4,077 3,792
San Antonio (NW), TX..................... Embassy Suites 2,597 2,488
San Antonio (Airport), TX................ Embassy Suites 3,217 3,114
-------- --------
Total Unconsolidated Hotels.... 50,038 46,681
-------- --------
Total Hotels................... $242,921 $219,828
======== ========
</TABLE>

Lease Terms

Each of the Current Hotels is leased to the Lessee pursuant to a Percentage
Lease generally having a term of 10 years and providing for rent equal to the
greater of Base Rent or Percentage Rent. The terms of each Percentage Lease are
approved by FelCor's Independent Directors, including the Percentage Rent terms
that are typically 17% of suite revenue up to a tier amount (the "Suite Revenue
Breakpoint") and 65% of suite revenue in excess of the Suite Revenue Breakpoint.
Each Percentage Lease also requires the Lessee to pay as rent 5% of the food and
beverage revenues from each Current Hotel in which the restaurant and bar
operations are conducted directly by the Lessee and 98% of the food and beverage
rent revenues from each Current Hotel in which the restaurant and bar operations
are subleased by the Lessee to an unrelated third party.

The amount of Base Rent and of the Suite Revenue Breakpoint in each
Percentage Lease formula is subject to adjustment, annually, based upon a
formula taking into account changes in the Consumer Price Index over the
preceding two years; however, the adjustment in any year may not exceed 7%. An
adjustment of 0.73% was effective January 1, 1996 for the 10 hotels acquired by
the Company prior to July 1, 1995 and an adjustment of 1.42% will be effective
January 1, 1997 for the 37 Current Hotels acquired prior to July 1, 1996.

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<PAGE> 71

The adjustment is calculated at the beginning of each calendar year, for those
hotels acquired prior to July 1 of the preceding year.

Maintenance and Modifications. Under the Percentage Leases, the Company is
required to maintain the underground utilities and the structural elements of
the improvements, including exterior walls (excluding plate glass) and the roof
of each leased hotel. In addition, the Percentage Leases obligate the Company to
fund periodic improvements (in addition to maintenance of structural elements)
to the buildings and grounds comprising the leased hotels, and the periodic
repair, replacement and refurbishment of furniture, fixtures and equipment in
the leased hotels, when and as required to meet the requirements of the
applicable franchise licenses, and to establish and maintain a reserve, which is
available to the Lessee for such purposes, in an amount equal to 4% of hotel
suite revenues, on a cumulative basis. The Company's obligation is not limited
to the amount in such reserve. Otherwise, the Lessee is required, at its
expense, to maintain the leased hotels in good order and repair, except for
ordinary wear and tear, and to make nonstructural repairs, whether foreseen or
unforeseen, ordinary or extraordinary, which may be necessary and appropriate to
keep the leased hotels in good order and repair.

Insurance and Property Taxes. The Company is responsible for paying real
estate and personal property taxes and property and casualty insurance premiums
on the leased hotels (except to the extent that personal property associated
with the leased hotels is owned by the Lessee). The Lessee is required to pay
for all liability insurance on the leased hotels, which must include extended
coverage, comprehensive general public liability, workers' compensation and
other insurance appropriate and customary for properties similar to the leased
hotels.

Indemnification. Under each of the Percentage Leases, the Lessee will
indemnify, and will be obligated to hold harmless, the Company from and against
all liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) incurred by, imposed upon or asserted against the Company on account
of, among other things, (i) any accident or injury to person or property on or
about the leased hotels, (ii) any misuse by the Lessee or any of its agents of
the leased hotels, (iii) any environmental liability resulting from conditions
disclosed in the environmental audits received by the Company before it acquired
the leased hotels or caused or resulting thereafter from any action or
negligence of the Lessee, (iv) taxes and assessments in respect of the leased
hotels (other than real estate and personal property taxes and any income taxes
of the Company on income attributable to the leased hotels), (v) the sale or
consumption of alcoholic beverages on or in the real property or improvements
thereon, or (vi) any breach of the Percentage Leases by the Lessee; provided,
however, that such indemnification will not be construed to require the Lessee
to indemnify the Company against its own grossly negligent acts or omissions or
willful misconduct.

Assignment and Subleasing. The Lessee is not permitted to sublet all or
substantially all of any one or more of the leased hotels or to assign its
interest under any of the Percentage Leases, other than to an affiliate of the
Lessee, without the prior written consent of the Company. The Lessee may,
however, sublet space to operators of gift shops, restaurants, lounges or other
amenities at the leased hotels. No assignment or subletting will release the
Lessee from any of its obligations under the Percentage Leases.

Damage to Current Hotels. In the event of damage to or destruction of any
leased hotel covered by insurance which renders the leased hotel unsuitable for
the Lessee's use and occupancy, the Lessee is generally obligated to repair,
rebuild, or restore the leased hotel or offer to acquire the leased hotel on the
terms set forth in the applicable Percentage Lease. If the Lessee rebuilds the
leased hotel, the Company is obligated to disburse to the Lessee, from time to
time and upon satisfaction of certain conditions, any insurance proceeds
actually received by the Company as a result of such damage or destruction, and
any excess costs of repair or restoration will be paid by the Lessee. If the
Lessee decides not to rebuild and the Company rejects the Lessee's mandatory
offer to purchase the leased hotel on the terms set forth in the Percentage
Lease, the Percentage Lease will terminate and the insurance proceeds will be
retained by the Company. If the Company accepts the Lessee's offer to purchase
the leased hotel, the Percentage Lease will terminate and the Lessee will be
entitled to the insurance proceeds. In the event that damage to or destruction
of a leased hotel which is covered by insurance does not render the leased hotel
wholly unsuitable for the Lessee's use and occupancy, the Lessee generally will
be obligated to repair or restore the leased hotel. In the

65
<PAGE> 72

event of material damage to or destruction of any leased hotel which is not
covered by insurance, the Lessee is obligated to either repair, rebuild, or
restore the leased hotel or offer to purchase the leased hotel on the terms and
conditions set forth in the Percentage Lease. The Percentage Lease shall remain
in full force and effect during the first three months of any period required
for repair or restoration of any damaged or destroyed leased hotel, after which
time, rent will be equitably abated.

Condemnation of Current Hotels. In the event of a total condemnation of a
leased hotel, the relevant Percentage Lease will terminate as of the date of
taking, and the Company and the Lessee will be entitled to their shares of the
condemnation award in accordance with the provisions of the Percentage Lease. In
the event of a partial taking which does not render the leased hotel unsuitable
for the Lessee's use, the Lessee shall restore the untaken portion of the leased
hotel to a complete architectural unit and the Company shall contribute to the
cost of such restoration that part of the condemnation award specified for
restoration.

Events of Default. Events of Default under the Percentage Leases include,
among others, the following:

(i) the occurrence of an Event of Default under any other lease
between the Company and the Lessee or any affiliate of the Lessee;

(ii) the failure by the Lessee to pay Base Rent when due and the
continuation of such failure for a period of 10 days thereafter;

(iii) the failure by the Lessee to pay the excess of Percentage Rent
over Base Rent within 90 days after the end of the calendar year in which
such payment was due;

(iv) the failure by the Lessee to observe or perform any other term of
a Percentage Lease and the continuation of such failure for a period of 30
days after receipt by the Lessee of notice from the Company thereof, unless
such failure cannot be cured within such period and the Lessee commences
appropriate action to cure such failure within said 30 days and thereafter
acts, with diligence, to correct such failure within such time as is
necessary;

(v) if the Lessee shall file a petition in bankruptcy or
reorganization pursuant to any federal or state bankruptcy law or any
similar federal or state law, or shall be adjudicated a bankrupt or shall
make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a
petition or answer proposing the adjudication of the Lessee as a bankrupt
or its reorganization pursuant to any federal or state bankruptcy law or
any similar federal or state law shall be filed in any court and the Lessee
shall be adjudicated a bankrupt and such adjudication shall not be vacated
or set aside or stayed within 60 days after the entry of an order in
respect thereof, or if a receiver of the Lessee or of the whole or
substantially all of the assets of the Lessee shall be appointed in any
proceeding brought by the Lessee or if any such receiver, trustee or
liquidator shall be appointed in any proceeding brought against the Lessee
and shall not be vacated or set aside or stayed within 60 days after such
appointment;

(vi) if the Lessee voluntarily discontinues operations of a leased
hotel for more than 30 days, except as a result of damage, destruction, or
condemnation; or

(vii) if the franchise agreement with respect to a leased hotel is
terminated by the franchisor as a result of any action or failure to act by
the Lessee or its agents.

If an Event of Default occurs and continues beyond any curative period, the
Company has the option of terminating the Percentage Lease or any or all other
Percentage Leases by giving the Lessee 10 days' prior written notice of the date
for termination of the Percentage Lease and, unless such Event of Default is
cured prior to the termination date set forth in said notice, the specified
Percentage Leases shall terminate on the date specified in the Company's notice
and the Lessee is required to surrender possession of the affected leased
hotels.

Termination of Percentage Leases on Disposition of the Current Hotels. In
the event the Company enters into an agreement to sell or otherwise transfer a
leased hotel, the Company has the right to terminate the Percentage Lease with
respect to such leased hotel upon 90 days' prior written notice upon either (i)
paying
66
<PAGE> 73

the Lessee the fair market value of the Lessee's leasehold interest in the
remaining term of the Percentage Lease to be terminated or (ii) offering to
lease to the Lessee a substitute hotel on terms that would create a leasehold
interest in such hotel with a fair market value equal to or exceeding the fair
market value of the Lessee's remaining leasehold interest under the Percentage
Lease to be terminated. The Company also is obligated to pay, or reimburse the
Lessee for, (x) any assignment fees, termination fees or other liabilities
arising under any franchise license agreement solely as a result of the
assignment or termination of such franchise license agreement in connection with
the Company's sale of a leased hotel and termination of the Percentage Lease
with respect thereto and (y) any termination fees payable under any restaurant
sublease solely as a result of the termination thereof upon termination of the
Percentage Lease with respect thereto.

Other Lease Covenants. The Lessee has agreed that during the term of the
Percentage Leases it will maintain a ratio of total debt to consolidated net
worth (as defined in the Percentage Leases) of less than or equal to 50%,
exclusive of capitalized leases. In addition, the Lessee has agreed that it will
not pay fees to any affiliate of the Lessee.

Breach by Company. If the Company fails to cure a breach on its part under
a Percentage Lease, the Lessee may purchase the relevant leased hotel from the
Company for a purchase price equal to the leased hotel's then fair market value.
Upon notice from the Lessee that the Company has breached the Lease, the Company
has 30 days to cure the breach or proceed to cure the breach, which period may
be extended in the event of certain specified, unavoidable delays.

Inventory. The initial standard inventory of goods and supplies necessary
for the operation of the leased hotels has been acquired by the Lessee. The
Lessee is required to purchase, at its expense, any and all replacements and
additions to such inventory as may be necessary for the continued operation of
the leased hotels and, upon the termination of the applicable Percentage Lease,
to surrender such leased hotel to the Company.

SEASONALITY

The Current Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize other cash on hand
or borrowings under the Line of Credit to make distributions to its equity
owners.

COMPETITION

The hotel industry is highly competitive. Each of the Company's hotels is
located in a developed area that includes other hotel properties and competes
for guests primarily with other upscale hotels in its immediate vicinity and
secondarily with other full service hotel properties in its geographic market.
An increase in the number of competitive hotel properties in a particular area
could have a material adverse effect on the occupancy, ADR and RevPAR of the
Company's hotels in that area. The Company believes that brand recognition,
location, the quality of the hotel and services provided, and price are the
principal competitive factors affecting the Company's hotels.

The Company competes for investment opportunities with other entities, some
of which have substantially greater financial resources than the Company. These
larger entities may be able to accept more risk than the Company can prudently
manage. An increase in the number of purchasers for upscale hotel properties may
reduce the number of suitable investment opportunities offered to the Company
and may increase the bargaining power of owners seeking to sell their hotels.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such

67
<PAGE> 74

laws often impose such liability without regard to whether the owner or operator
knew of, or was responsible for, the presence of hazardous or toxic substances
on the property. Furthermore, a person that arranges for the disposal or
treatment of, or transports for disposal or treatment, a hazardous or toxic
substance at any property may be liable for the costs of removal or remediation
of hazardous or toxic substances released into the environment at or from that
property. The costs of removal or remediation of such substances may be
substantial, and the presence of such substances, or the failure to promptly
remediate such substances, may adversely affect the owner's ability to fully
utilize such property without restriction, to sell such property or to borrow
using such property as collateral. In connection with the ownership and
operation of the Company's hotels, FelCor, FelCor LP and the Lessee, as the case
may be, may be potentially liable for any such costs.

Phase I environmental audits, by independent environmental engineers, are
customarily obtained with respect to hotels, prior to the acquisition thereof by
the Company. The principal purpose of Phase I audits is to identify indications
of potential environmental contamination for which such hotels may be
responsible and, secondarily, to assess, to a limited extent, the potential for
environmental regulatory compliance liabilities. The Phase I audits of the
Current Hotels were designed to meet the requirements of the then current
industry standards governing Phase I audits, and consistent with those
requirements, none of the audits involved testing of groundwater, soil or air.
Accordingly, they do not represent evaluations of conditions at the studied
sites that would be revealed only through such testing. In addition, their
assessment of environmental regulatory compliance issues was general in scope
and was not a detailed determination of the Current Hotels' complete compliance
status. Similarly, the audits did not involve comprehensive analysis of
potential off-site liability. The Phase I audit reports did not reveal any
environmental liability that management believes would have a material adverse
effect on the Company's business, assets or results of operations, nor is the
Company aware of any such liability. Nevertheless, it is possible that these
reports do not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware.

No assurances can be given that (i) future or amended laws, ordinances or
regulations or more stringent interpretations or enforcement policies of
existing environmental requirements, will not impose any material environmental
liability or (ii) the environmental condition of the Current Hotels will not be
affected by changes (of which the Company is unaware) occurring subsequent to
the date of such audits, by the condition of properties in the vicinity of such
hotels (such as the presence of leaking underground storage tanks) or by third
parties unrelated to the Company.

The Company believes that its Current Hotels are in compliance, in all
material respects, with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters, the
violation of which would have a material adverse effect on FelCor, FelCor LP or
the Lessee. The Company has not been notified by any governmental authority of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental matters in connection with any of its present
or former properties.

TAX STATUS

FelCor has elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
initial taxable year ending December 31, 1994. As a REIT, FelCor (subject to
certain exceptions) will not be subject to federal income taxation, at the
corporate level, on its taxable income that is distributed to the shareholders
of FelCor. A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute at least 95%
of its taxable income. FelCor may, however, be subject to certain state and
local taxes on its income and property. In connection with FelCor's election to
be taxed as a REIT, FelCor's Charter imposes restrictions on the transfer of
shares of Common Stock. FelCor has adopted the calendar year as its taxable
year.

EMPLOYEES

Messrs. Feldman and Corcoran have each entered into employment agreements
with FelCor, pursuant to which they have agreed to devote substantially all of
their time to the business of the Company through 1999. In addition, FelCor had
28 other employees at September 30, 1997. All persons employed in the day-to-day

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operation of the Company's Current Hotels are employees of the management
companies engaged by the Lessee to operate such hotels.

PERSONNEL AND OFFICE SHARING ARRANGEMENTS

The Company shares executive offices with the Lessee and FelCor, Inc., a
corporation owned by Messrs. Feldman and Corcoran. Each entity bears an
allocated share of the costs thereof, including but not limited to rent,
salaries of all personnel (other than Messrs. Feldman and Corcoran, who are
compensated solely by FelCor), office supplies and telephones. Such allocations
of shared costs are subject to the approval of a majority of the Independent
Directors of FelCor. During 1996, approximately $807,000 (approximately 38% of
all allocable expenses) was borne by the Company under this arrangement.

LEGAL PROCEEDINGS

The Company's Current Hotels are subject to various claims arising in the
ordinary course of business. These claims, exclusive of potential third party
recoveries, are not considered to be material. Furthermore, such claims are
substantially covered by insurance. Management does not believe that any claims
known to it (individually or in the aggregate) will have a material adverse
effect on the Company, without regard to any potential recoveries from insurers
or other third parties.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors currently consists of seven members, four of whom
are not officers or employees of FelCor or any subsidiary or lessee thereof
("Independent Directors"). The Board of Directors is divided into three classes
who serve staggered three-year terms with the term of each director expiring at
the annual meeting of shareholders held three years after his election.

Set forth below is certain information regarding the directors and
executive officers of FelCor. Executive officers of FelCor constitute all of the
managers and officers of the Subsidiary Guarantors and serve in such capacities
without additional compensation.

<TABLE>
<CAPTION>
YEAR
FIRST TERM
NAME POSITION ELECTED CLASS EXPIRES
---- -------- ------- --------- -------
<S> <C> <C> <C> <C>
Hervey A. Feldman.......... Chairman of the Board 1994 Class I 1998
Thomas J. Corcoran, Jr. ... President and Chief Executive
Officer, Director 1994 Class II 1999
Richard S. Ellwood......... Independent Director 1994 Class III 2000
Richard O. Jacobson........ Independent Director 1994 Class III 2000
Charles A. Ledsinger, Independent Director
Jr. ..................... 1997 Class II 1999
Charles N. Mathewson....... Director 1994 Class I 1998
Thomas A. McChristy........ Independent Director 1994 Class III 2000
Randall L. Churchey........ Senior Vice President, Chief
Financial Officer and Treasurer 1997 -- --
Lawrence D. Robinson....... Senior Vice President, General
Counsel and Secretary 1996 -- --
William P. Stadler......... Senior Vice President, Director of
Corporate Acquisitions 1995 -- --
Jack Eslick................ Vice President, Director of Asset
Management 1996 -- --
June H. McCutchen.......... Vice President, Director of Design
and Construction 1995 -- --
</TABLE>

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<PAGE> 76

Hervey A. Feldman (age 60) is the Chairman of the Board of FelCor and has
served in such capacity since its formation in May 1994. He is also a co-founder
of FelCor, Inc. and has served as its Chairman since its formation in 1991.
Prior to that time, he held executive positions with Embassy Suites, Inc.,
serving as its Chairman of the Board from June 1990 until January 1992, and as
its President and Chief Executive Officer from the founding of that company in
January 1983 to April 1990. Prior to 1990, Mr. Feldman had spent over 25 years
in the hotel industry, including serving in various management positions with
Brock Hotel Corporation during a period when that company was one of the largest
franchisees of Holiday Inn(R) hotels in the U.S.; as Executive Vice President
for North American Development of Holiday Inns, Inc.; and President and Chief
Executive Officer of Brock Residence Inns, Inc., which founded the
extended-stay, all-suite chain now known as Residence Inns by Marriott(R).

Thomas J. Corcoran, Jr. (age 49) is the President and Chief Executive
Officer of FelCor and has served in such capacity since its formation in May
1994. He is also a co-founder of FelCor, Inc. and has served as its President
and Chief Executive Officer since its formation in 1991. From October 1990 to
December 1991, he served as the Chairman, President and Chief Executive Officer
of Fiesta Foods, Inc., a manufacturer of tortilla chips and taco shells. From
1979 to 1990, Mr. Corcoran held various positions with Integra -- A Hotel and
Restaurant Company (formerly Brock Hotel Corporation), including serving as the
President and Chief Executive Officer of that company from 1986 to 1990, and
with ShowBiz Pizza Time, Inc., an operator and franchisor of family
entertainment center/pizza restaurants.

Richard S. Ellwood (age 66) is the founder and principal owner of R. S.
Ellwood & Co., Inc., a real estate investment banking firm which was organized
in 1987. Prior to 1987, as an investment banker, Mr. Ellwood was elected
successively in 1968 a general partner of White Weld & Co., in 1978 a managing
director of Warburg Paribas Becker, Incorporated and in 1984 a managing director
and senior banker of Merrill Lynch Capital Markets. Mr. Ellwood has extensive
experience in hotel financing. He was a founder of Hotel Investors Trust, a
REIT, and served as a Trustee from 1970 until its merger with another REIT in
1987. He is currently a director of two additional REITs, Apartment Investment
and Management Company and Corporate Realty Income Trust.

Richard O. Jacobson (age 61) is the President and Chief Executive Officer
of Jacobson Warehouse Company, Inc., a privately-held warehouse company with
facilities in 15 locations in seven states, which Mr. Jacobson founded 29 years
ago. He is also President and Chief Executive Officer of Jacobson Transportation
Company, Inc., a truckload common carrier with authority to operate in 48 states
and Canada. Mr. Jacobson is a member of the Boards of Directors of Advanced
Oxygen Technology, Inc., AlaTenn Resources, Inc., Allied Group, Inc., Firstar
Bank Des Moines, N.A., Firstar Bank of Iowa, N.A. and Heartland Express, Inc.

Charles A. Ledsinger, Jr. (age 47) was recently elected as a director of
FelCor to fill the vacancy created by the resignation of Donald J. McNamara.
Since May 1997, Mr. Ledsinger has served as Senior Vice President and Chief
Financial Officer of St. Joe Corporation. From June 1995 until May 1997, Mr.
Ledsinger was Senior Vice President and Chief Financial Officer of Harrah's
Entertainment, Inc. For more than three years prior, Mr. Ledsinger served as
Senior Vice President and Chief Financial Officer of The Promus Companies
Incorporated, the former parent of Harrah's Entertainment, Inc. Mr. Ledsinger is
also a director of TBC Corporation, Perkins Management Company, Inc. and
Friendly Ice Cream Corporation. He is a member and a past chairman of the Real
Estate Financial Advisory Council of the American Hotel and Motel Association.

Charles N. Mathewson (age 69) has served, for more than the past five
years, in various positions with International Game Technology ("IGT"), a
company engaged in the design and manufacture of microprocessor based gaming
products and gaming monitoring systems. Since February 1988, he has served as
the Chairman of the Board of IGT. He has served as a director of IGT since
December 1985, as President from December 1986 to February 1988, and as Chief
Executive Officer from December 1986 until June 1993 and from February 1996
until the present. Mr. Mathewson also is a member of the Board of Directors of
Baron Asset Fund.

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<PAGE> 77

Thomas A. McChristy (age 71) is the President of T.A. McChristy Co. Inc., a
real estate investment company, and has served in that capacity since 1957. Mr.
McChristy also served as the President and Chief Operating Officer of Syntech
International, Inc., a lottery systems and equipment manufacturing company, from
1986 to 1988 and as its Chief Executive Officer from 1989 to 1992.

Randall L. Churchey (age 37) became the Senior Vice President, Chief
Financial Officer and Treasurer of FelCor on November 1, 1997. For approximately
15 years prior to joining FelCor, Mr. Churchey held various positions with
Coopers & Lybrand, L.L.P. Most recently, Mr. Churchey served as the Chairman of
the Hospitality and Real Estate Practice for the Southwestern United States.

Lawrence D. Robinson (age 54) has served as Senior Vice President, General
Counsel and Secretary of FelCor since May 1996. From 1972 to 1989, Mr. Robinson
was a partner in the Kansas City-based law firm of Stinson, Mag & Fizzell, for
which he founded and managed a Dallas, Texas office from 1982 to 1989. From 1989
through April 1996, Mr. Robinson was a partner in the Houston-based law firm of
Bracewell & Patterson, L.L.P., where he served as the managing partner of its
Dallas office until 1992, as the head of that office's corporate and securities
law section and as chairman of its firm-wide hospitality group.

William P. Stadler (age 42) began his employment with FelCor in July 1995
as Vice President, Director of Acquisition and Development and became Senior
Vice President, Director of Corporate Acquisitions in January 1998. Mr. Stadler
has over 17 years of experience in hotel acquisition and development, having
served as Vice President -- Development for Coastal Hotel Group from 1994 until
he joined FelCor in 1995, as Vice President -- Development for Embassy Suites,
Inc. from 1992 to 1994, as Senior Vice President -- Development for Landmark
Hotels, Inc. from 1989 to 1991 and as Vice President -- Development for Marriott
Corporation from 1985 to 1989.

Jack Eslick (age 45) joined FelCor in April 1996 as its Vice President,
Director of Asset Management. Mr. Eslick has over 20 years experience in hotel
operations. From April 1991 until he joined FelCor, Mr. Eslick served as Vice
President of Operations of Promus, where he had direct responsibility for all
operations in a region that grew from 14 hotels to 26 hotels. Prior to April
1991, he served in various capacities with Holiday Inns, Inc., including serving
as general manager of various hotels and as a Regional Director of Operations.

June H. McCutchen (age 42) joined FelCor in October 1995 as Vice President,
Director of Design and Construction. Her most recent experience was as Account
Executive for Hospitality Restoration & Builders, Inc. since 1994. From 1992 to
1994 she was Project Manager for American General Hospitality, Inc. where she
managed all capital improvement work for over 35 properties each year. Prior to
1992, Ms. McCutchen was Project Manager for Hilton Hotels, Inc. from 1987 to
1992, and prior to 1987, she served as design coordinator and purchasing manager
for Embassy Suites, Inc.

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<PAGE> 78

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the beneficial ownership of FelCor's Common
Stock and Series A Preferred Stock, as of November 1, 1997, by (i) each director
and director nominee, (ii) each named executive officer and (iii) all directors
and executive officers as a group. Unless otherwise indicated, such shares of
Common Stock and Series A Preferred Stock are owned directly and the indicated
person has sole voting and investment power.

<TABLE>
<CAPTION>
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL BENEFICIAL
NAME OF OWNERSHIP OF PERCENT OF OWNERSHIP OF PERCENT OF
BENEFICIAL OWNER COMMON STOCK CLASS(1) PREFERRED STOCK CLASS(1)
---------------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C>
Hervey A. Feldman............... 464,315(2)(3) 1.3% 3,000(10) *
Thomas J. Corcoran, Jr.......... 464,415(2)(4) 1.3% 3,000 *
Richard S. Ellwood.............. 4,500 * 0 0
Richard O. Jacobson............. 21,200 * 0 0
Charles A. Ledsinger, Jr........ 0 0 0 0
Charles N. Mathewson............ 609,777(5) 1.6% 90,000(11) 1.5%
Thomas A. McChristy............. 45,900(6) * 0 0
Lawrence D. Robinson............ 36,500(7) * 0 0
Randall L. Churchey............. 0 0 0 0
William P. Stadler.............. 12,577(8) * 100 *
Jack Eslick..................... 12,000(9) * 0 0
June H. McCutchen............... 4,000 * 0 0
All executive officers and
directors as a group (12
persons)...................... 1,384,869 3.5% 96,100 1.6%
</TABLE>

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

* Represents less than 1% of the outstanding shares of such class.

(1) Based upon 36,588,733 shares outstanding as of November 1, 1997.

(2) Includes 294,915 shares issuable to FelCor, Inc. upon exercise of
redemption rights with respect to Units issued to it in connection with the
IPO. Messrs. Feldman and Corcoran are the sole shareholders and directors
of FelCor, Inc. and each may be deemed to own beneficially all of the Units
owned by FelCor, Inc. Also includes (i) an aggregate of 33,000 shares
issued pursuant to stock grants (9,000 in February 1995, 9,000 in December
1995, and 15,000 in February 1997), which shares vest over a five-year
period from the date of grant at the rate of 20% per year and of which
5,400 shares are fully vested, (ii) 120,000 shares issuable pursuant to
currently exercisable stock options, and (iii) 2,325 shares issuable upon
the conversion of 3,000 shares of Series A Preferred Stock. Does not
include 331,000 shares issuable pursuant to outstanding stock options which
are not currently exercisable.

(3) Includes 200 shares owned of record by Mr. Feldman's minor children.

(4) Includes 300 shares owned of record by Mr. Corcoran's minor children.

(5) Includes 540,009 shares issuable to or for the benefit of Mr. Mathewson
upon exercise of redemption rights with respect to Units, which represents
Mr. Mathewson's pro rata interest in Units issued in connection with the
IPO to partnerships in which Mr. Mathewson is a limited partner. Also
includes 69,768 shares issuable upon conversion of 90,000 shares of Series
A Preferred Stock.

(6) Includes 38,000 shares owned of record by the T.A. McChristy Living Trust,
over which Mr. McChristy has sole investment and voting power, and 3,000
shares owned of record by his spouse's individual retirement account.

(7) Includes (i) 14,500 shares issued pursuant to stock grants, which shares
vest over a five-year period from the date of grant at the rate of 20% per
year and of which 2,400 shares are fully vested, and (ii) 20,000 shares
issuable pursuant to currently exercisable stock options. Does not include
100,000 shares issuable pursuant to outstanding stock options which are not
currently exercisable.

(8) Represents (i) 2,500 shares issued pursuant to a stock grant, which shares
vest over a five-year period from the date of grant at the rate of 20% per
year and of which 1,000 shares are fully vested, (ii) 10,000

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<PAGE> 79

shares issuable pursuant to currently exercisable stock options and (iii)
77 shares issuable upon the conversion of 100 shares of Series A Preferred
Stock. Does not include 30,000 shares issuable pursuant to outstanding
stock options which are not currently exercisable.

(9) Represents (i) 2,000 shares issued pursuant to a stock grant, which shares
are fully vested and (ii) 10,000 shares issuable pursuant to currently
exercisable stock options. Does not include 55,000 shares issuable pursuant
to outstanding stock options which are not currently exercisable.

(10) Includes 1,000 shares owned by Mr. Feldman's spouse and 1,000 shares owned
by trust for the benefit of his minor children.

(11) Represents shares owned of record by the Charles N. Mathewson Trust.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FelCor and FelCor LP have entered into a number of transactions with the
Lessee and certain other affiliates. Mr. Feldman and Mr. Corcoran, who are
officers and directors of FelCor, control and are also officers and directors of
the Lessee.

THE PERCENTAGE LEASES

The Company and the Lessee have entered into the Percentage Leases, each
with a minimum term of ten years, relating to each hotel owned by the Company.
The Company anticipates that similar Percentage Leases will be executed with
respect to any additional hotel properties acquired by it in the future.
Pursuant to the terms of the Percentage Leases, the Lessee is required to pay
the greater of Base Rent or Percentage Rent and certain other additional
charges, and is entitled to all profits from the operation of the hotels after
the payment of operating, management and other expenses. The terms of the
Percentage Leases were not negotiated on an arms-length basis and, accordingly,
may not reflect fair market values or terms. Management of the Company believes,
however, that the terms of such agreements are fair to the Company and are upon
terms as favorable to the Company as could be obtained from a financially
responsible unrelated third party. Lease rent paid by the Lessee under the
Percentage Leases totaled approximately $108 million for the year ended December
31, 1996 and approximately $158 million for the nine months ended September 30,
1997. The Lessee is a Delaware limited liability company, all of the voting
Class A membership interest in which (representing a 50% equity interest) is
beneficially owned one half by Mr. Feldman and one half by Mr. Corcoran. All of
the non-voting Class B membership interest in the Lessee (representing the
remaining 50% equity interest) is owned by RGC Leasing, Inc., a Nevada
corporation owned by the children of Charles N. Mathewson. See "Risk
Factors -- Conflicts of Interest -- No Arms-Length Bargaining on Percentage
Leases.")

EMPLOYMENT AGREEMENTS

FelCor has entered into the Employment Agreements with each of Messrs.
Feldman and Corcoran that will continue in effect until December 31, 1999 and
automatically be renewed for successive one year terms, unless otherwise
terminated. Pursuant to such Employment Agreements, Mr. Feldman serves as
Chairman of the Board, and Mr. Corcoran serves as President and Chief Executive
Officer, of FelCor. Each was paid a base salary of $5,000 per month through
1994, $10,000 per month in 1995 and $10,270 in 1996. Effective January 1, 1997,
Mr. Feldman is entitled to receive $12,500 per month and Mr. Corcoran is
entitled to receive $16,667 per month. Messrs. Feldman and Corcoran have agreed
to devote substantially all of their time to the business of the Company. The
Compensation Committee of the Board of Directors may provide for additional
compensation as a bonus should it determine, in its discretion, based on merit,
the Company's anticipated financial performance and other criteria, that such
additional compensation is appropriate. FelCor maintains a comprehensive medical
plan for the benefit of Messrs. Feldman and Corcoran and their dependents.

OPTION AND RIGHT OF FIRST REFUSAL

In 1994, the Company was granted a two-year option to purchase, at fair
market value, and a right of first refusal with respect to an Embassy Suites
hotel located in St. Louis, Missouri that was developed by a FelCor

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<PAGE> 80

Affiliate and opened for business on December 21, 1994 under the management of
Promus. In anticipation of the December 21, 1996 expiration date of such option
and right of first refusal, the Independent Directors of FelCor, following an
inspection of the hotel and a thorough consideration of all matters deemed
relevant by them determined, at a meeting held at such hotel in June 1996, that
it would be in the best interests of the Company and its equity owners to allow
this option and right of first refusal to expire unexercised. Such decision was
based, in part, upon the fact that the Company had other purchase opportunities,
that the option was only exercisable at fair market value and that the hotel
offered little opportunity for the Company to benefit from additional capital
expenditures, or changes in brand or management. Accordingly, this option and
right of first refusal was not exercised and expired by its terms on December
21, 1996.

SHARING OF OFFICES AND EMPLOYEES

The Company shares the executive offices and certain employees with FelCor,
Inc. and the Lessee, and each company bears its share of the costs thereof,
including an allocated portion of the rent, salaries of certain personnel (other
than Messrs. Feldman and Corcoran, whose salaries are borne solely by FelCor),
office supplies, telephones and depreciation of office furniture, fixtures and
equipment. Any such allocation of shared expenses to the Company must be
approved by a majority of the Independent Directors. During 1996, the Company
paid approximately $807,000 (approximately 38%) of the allocable expenses under
this arrangement.

COMPENSATION OF DIRECTOR FOR SPECIAL SERVICES

In connection with the Company's acquisition, during February 1997, of
interests in 10 hotels at an aggregate cost of approximately $139 million
(including the Company's share of certain assumed indebtedness), Mr. Richard S.
Ellwood, an Independent Director, was paid a one-time fee in the amount of
$200,000 for his services in facilitating this transaction.

DESCRIPTION OF CERTAIN INDEBTEDNESS

The Company's indebtedness consists primarily of the outstanding Old Notes,
amounts borrowed under the Line of Credit, and the Renovation Loan. In addition,
the Company has assumed certain other indebtedness and capitalized lease
obligations in connection with the purchase of certain of the Current Hotels. As
of September 30, 1997, after giving effect to the Private Placement and the
application of the proceeds therefrom, the Company's total Indebtedness would
have been approximately $428 million, of which $300 million would have been
outstanding under the Notes, $91 million would have been outstanding under the
Line of Credit, $25 million would have been outstanding under the Renovation
Loan and $12 million would have been outstanding under other Indebtedness.

Line of Credit. In September 1996, the Company obtained the Line of Credit,
originally a $250 million unsecured revolving credit facility from a group of
lenders co-arranged by The Chase Manhattan Bank and Wells Fargo Bank, National
Association. As subsequently amended and restated, the Line of Credit has been
increased to $550 million. The Line of Credit has a term of three years ending
October 1, 2000. Borrowings under the Line of Credit bear interest, at the
Company's option, (i) at a base rate ("Base Rate") equal to the higher of the
base rate announced from time to time by The Chase Manhattan Bank or 0.5% plus
the Federal funds rate, in either case plus an applicable margin of 0% to 0.25%,
or (ii) at a Eurodollar rate ("Eurodollar Rate") based upon the 30, 60, or 90
day or 6-month LIBOR plus an applicable margin of 1.00% to 1.75%. The applicable
margin varies depending upon the Company's long-term senior unsecured implied
debt rating or its leverage ratio and, at September 30, 1997, was 0.0% in the
case of Base Rate borrowings and 1.4% in the case of Eurodollar Rate borrowings.
The weighted average interest rate in effect for borrowings under the Line of
Credit was 7.22% at September 30, 1997. Up to 10% of the amount available under
the Line of Credit may be used for general corporate or working capital
purposes. The total amount available under the Line of Credit is limited to 50%
of the aggregate value of the Company's eligible hotels, which generally
includes hotels that are unencumbered. The Company's availability under the Line
of Credit, as of September 30, 1997, was $550 million, of which $296 million had
been borrowed.

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<PAGE> 81

The Line of Credit requires FelCor and FelCor LP to comply with certain
financial tests and to maintain certain financial ratios. FelCor and FelCor LP
must maintain: (i) a ratio of Adjusted EBITDA to Gross Interest Expense for the
four most recent quarters of not less than 2.5 to 1.0; (ii) a ratio of Adjusted
EBITDA to Fixed Charges for the four most recent quarters of not less than 2.0
to 1.0; and (iii) Tangible Net Worth of not less than the sum of (a) $825
million plus (b) 50% of the aggregate net proceeds received by the Company after
June 30, 1997 in connection with any offering of stock or stock equivalents.
FelCor and FelCor LP shall ensure that at the end of each fiscal quarter at
least 50% of the aggregate Adjusted NOI generated by all hotels during the
preceding four fiscal quarters shall be generated by hotels wholly owned or
leased by FelCor or FelCor LP or its wholly owned subsidiaries; provided that,
for hotels owned or leased for less than four fiscal quarters only the Adjusted
NOI generated by such hotels since the date of acquisition of such hotel shall
be included in calculating such aggregate Adjusted NOI. In addition, FelCor and
FelCor LP shall not, during each fiscal quarter on a consolidated basis permit
(a) Total Indebtedness to exceed 50% of Total Value or (b) Total Secured
Indebtedness to exceed 20% of Total Value.

For purposes of the financial covenants in the Line of Credit, the
following terms have the definitions set forth below:

"Adjusted EBITDA" means, for any person, EBITDA less the aggregate FF&E
Reserves for such period in respect of each hotel owned or leased by such person
and its subsidiaries.

"Adjusted NOI" means, with respect to any hotel, for any period, the net
operating income for such hotel for such period less the FF&E Reserve for such
hotel.

"EBITDA" means, for any person for any period, the net income (loss) for
such period plus (a) the sum of the following amounts: (i) depreciation expense,
(ii) amortization expense and other non-cash charges, (iii) interest expense,
(iv) income tax expense, (v) extraordinary loses (and other losses on certain
asset sales not otherwise included in extraordinary loses determined on a
consolidated basis in accordance with generally accepted accounting principles)
and (vi) minority interests attributable to FelCor LP's partnership units, less
(b) the sum of the following amounts: (i) extraordinary gains (and in the case
of FelCor and FelCor LP, other gains on certain asset sales not otherwise
included in extraordinary gains), (ii) the applicable share of net income (loss)
of such person's unconsolidated entities; plus (c) such person's pro rata share
of EBITDA of such persons unconsolidated entities.

"FF&E Reserve" means, for any person (or with respect to any hotel) for any
period, a reserve equal to 4% of suite revenues from any hotel owned by such
person for such period plus (a) for any person, such person's pro rata share of
any FF&E Reserve for any hotel owned by such person's unconsolidated entities or
(b) with respect to certain joint venture hotels, the FF&E Reserve for such
joint venture hotel multiplied by the applicable joint venture percentage.

"Fixed Charges" means, for any person for any period, (a) Gross Interest
Expense for such period plus (b) the aggregate amount of scheduled principal
payments on the Total Indebtedness of such person (excluding optional
prepayments and scheduled principal payments in respect of any such Total
Indebtedness which is payable in a single installment at final maturity)
required to be made during such period.

"Gross Interest Expense" means, for any person for any period, the sum of
(a) the total interest expense in respect of all Indebtedness (excluding all
contingent obligations) of such person and its subsidiaries for such period
determined on a consolidated basis in conformity with generally accepted
accounting principles, plus capitalized interest of such person and its
subsidiaries plus (b) such person's pro rata share of Gross Interest Expense of
such person's unconsolidated entities.

"Indebtedness" of any person means, without duplication, the principal
amount of (i) all indebtedness of such person for borrowed money (including,
without limitation, reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured) or for the deferred purchase price of property or services (ii) all
obligations of such person evidenced by notes, bonds, debentures or similar
instruments, (ii) all indebtedness of such person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such person, (iv) all capitalized lease obligations of such person,
(v) all contingent obligations of such person, (vi) all obligations of such
person to
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purchase, redeem, retire, defease or otherwise acquire for value any stock or
stock equivalents of such person, valued, in the case of mandatorily redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (vii) all Indebtedness referred to
in clause (i), (ii), (iii), (iv), (v) or (vi) above secured by any lien upon or
in property owned by such person, even though such person has not assumed or
become liable for the payment of such Indebtedness and (viii) all liabilities of
such person under Title IV of ERISA.

"Tangible Net Worth" means, with respect to FelCor or FelCor LP at any
date, (a) the sum of (i) the total shareholders' equity of FelCor and (ii) the
value of all partnership interests in FelCor LP owned by persons other than
FelCor; minus (b) the sum of all intangible assets of FelCor, each as shown on
the consolidated balance sheet of FelCor as of such date.

"Total Indebtedness" of any person means the sum of the following (without
duplication): (a) all Indebtedness of such person and its subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles, plus (b) such person's pro rata share of Indebtedness
(excluding non-recourse indebtedness) of such person's unconsolidated entities.

"Total Secured Indebtedness" of any person means any Total Indebtedness of
such person for which the obligations thereunder are secured by a pledge of or
other encumbrance on any assets of such person or its subsidiaries or
unconsolidated entities

"Total Value" means the sum of: (A) for hotels owned or leased for four
quarters or more, Adjusted NOI on a consolidated basis from such hotels for the
preceding four quarters divided by ten percent; plus (B) for hotels (x) owned or
leased for less than four quarters (including newly acquired hotels and hotels
to be immediately acquired using the proceeds of any loans under the Line of
Credit) and (y) certain other hotels, but only for the year ending December 31,
1997, FelCor or FelCor LP's investment in such hotels; plus (C) the sum of
$15,000,000, being the agreed aggregate sum of FelCor and FelCor LP's investment
at cost in certain properties; plus (D) FelCor or FelCor LP's pro rata share of
unencumbered cash or cash equivalents held by such person, its subsidiaries or
an unconsolidated entity; all as subject to adjustment in certain limited cases.

Failure to satisfy any of the financial covenants would constitute an Event
of Default, notwithstanding the ability of the Company to meet its debt service
obligations. An Event of Default also includes without limitation, a
cross-default to other indebtedness, bankruptcy and a change of control.

In addition to the financial covenants, the Line of Credit includes certain
other affirmative and negative covenants, including: (a) a requirement that a
certain percentage of the rooms/suites be (i) operated as "suite hotels," (ii)
maintained under "Embassy Suites," "Doubletree" or "Sheraton" licenses and (iii)
managed by Promus, Doubletree or Sheraton; (b) a restriction on the creation or
acquisition of any direct or indirect wholly owned subsidiary unless such
subsidiary becomes a guarantor under the Line of Credit; (c) restrictions on the
declaration or payment of dividends or other distribution of assets, properties,
cash, rights, obligations or securities in respect of any stock or stock
equivalents; (d) restrictions on the sale of assets or merger of the Company or
its subsidiaries and (e) restrictions on construction of new hotels or
investments in budget hotels.

Renovation Loan. The Renovation Loan is a $25 million loan facility which
was used by the Company to fund a portion of the renovation cost of the CSS
Hotels that were converted to Embassy Suites hotels. The facility is guaranteed
by Promus, bears interest at LIBOR plus 45 basis points, requires quarterly
principal payments of $1.25 million beginning in June 1999 and matures in June
2000. At September 30, 1997, the Company had drawn the full $25 million under
this loan facility and the interest rate in effect was 6.39%.

Interest Rate Swaps. During the fourth quarter of 1996, the Company entered
into two separate interest rate swap agreements to manage the relative mix of
its debt between fixed and variable rate instruments. These interest rate swap
agreements modify a portion of the interest characteristics of the Company's
outstanding debt without an exchange of the underlying principal amount and
effectively convert variable rate

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<PAGE> 83

debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and
the variable rate to be received by the Company at September 30, 1997 are
summarized in the following table:

<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
(VARIABLE)
SWAP RATE EFFECTIVE AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 9/30/97 MATURITY
--------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
$50 million................... 6.11125% 7.61125% 6.47625% October 1999
25 million................... 5.95500 7.45500 6.19100 November 1999
</TABLE>

DESCRIPTION OF THE NOTES AND GUARANTEES

Except as otherwise indicated below, the following summary of the material
provisions of the Indenture applies to both the Old Notes and the New Notes. As
used herein, the term "Notes" shall mean the Old Notes and the New Notes, unless
otherwise indicated.

The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the exchange of the New Notes pursuant
to the Exchange Offer will be registered under the Securities Act and,
therefore, the New Notes will not bear any legends restricting transfer thereof.
The New Notes will evidence the same debt as the Old Notes and will be treated
as a single class under the Indenture with any Old Notes that remain
outstanding. Each series of New Notes will be issued solely in exchange for an
equal principal amount of the corresponding series of Old Notes. As of the date
hereof, $175 million in aggregate principal amount of Old 7 3/8% Notes and $125
million aggregate principal amount of Old 7 5/8% Notes, is outstanding. See "The
Exchange Offer." The following summary of certain provisions of the Indenture, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. Whenever
particular defined terms of the Indenture not otherwise defined herein are
referred to, the definitions ascribed to such terms in the Indenture are
incorporated herein by reference. For definitions of certain capitalized terms
used in the following summary, see "-- Certain Definitions."

GENERAL

The Old Notes are, and the New Notes will be, unsecured senior obligations
of FelCor LP. The 7 3/8% Notes will be initially limited to $175 million in
aggregate principal amount and will mature on October 1, 2004. The 7 5/8% Notes
will be initially limited to $125 million in aggregate principal amount and will
mature on October 1, 2007. Each of the 7 3/8% Notes will initially bear interest
at 7 3/8% per annum, and each of the 7 5/8% Notes will initially bear interest
at 7 5/8% per annum, in each case, from October 1, 1997 or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on the September 15
or the March 15 immediately preceding the Interest Payment Date) on October 1
and April 1 of each year, commencing April 1, 1998.

Principal of, premium, if any, and interest on the Notes is payable, and
the Notes may be exchanged or transferred, at the office or agency of FelCor LP
in the Borough of Manhattan, the City of New York (which initially will be the
corporate trust office of the Trustee at First Chicago Trust Company of New
York, 14 Wall Street, Suite 4607, New York, New York 10005, as agent for the
Trustee); provided that, at the option of

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<PAGE> 84

FelCor LP, payment of interest may be made by check mailed to the Holders at
their addresses as they appear in the Security Register.

The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "-- Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but FelCor LP may require payment
of a sum sufficient to cover any transfer tax or other similar governmental
charge payable in connection therewith.

Subject to the covenants described below under "Covenants" and applicable
law, FelCor LP may issue additional Notes under the Indenture. The Notes offered
hereby and any additional notes subsequently issued under the Indenture would be
treated as a single class for all purposes under the Indenture.

GUARANTEES AND SUBSIDIARY GUARANTORS

The Notes will be fully and unconditionally guaranteed on an unsecured
senior basis by FelCor and by the Subsidiary Guarantors. At present, the
Subsidiary Guarantors consist of FelCor/CSS Hotels, L.L.C., FelCor/LAX Hotels,
L.L.C., FelCor Eight Hotels, L.L.C., FelCor/CSS Holdings, L.P., FelCor/St. Paul
Holdings, L.P. and FelCor/LAX Holdings, L.P., each of which is a guarantor with
respect to the Line of Credit. The guarantees will be unconditional regardless
of the enforceability of the Notes and the Indenture. FelCor currently conducts
no other business and has no significant assets other than its general
partnership interest in FelCor LP. None of the three Subsidiary Guarantors that
is a limited liability company owns directly any hotel properties or engages in
any business other than the ownership of partnership and membership interests in
other entities. The three Subsidiary Guarantors that are limited partnerships
own directly an aggregate of 18 of the Current Hotels and own general partner
interests in a partnership that owns directly one additional hotel in which the
Company has an interest. FelCor LP and certain of the Subsidiary Guarantors have
additional subsidiaries, none of which subsidiaries is material to FelCor LP.

Each future Restricted Subsidiary that subsequently guarantees Indebtedness
of FelCor LP or FelCor which is pari passu with or subordinate in right of
payment to the Notes will be required to execute a Subsidiary Guarantee. See
"Limitation on Issuances of Guarantees by Restricted Subsidiaries."

OPTIONAL REDEMPTION

Each series of Notes will be redeemable in whole at any time or in part
from time to time, at the option of FelCor LP, at a redemption price equal to
the greater of (i) 100% of the principal amount of such Notes and (ii) the sum
of the present values of the remaining payments of principal and interest
thereon from the redemption date to the applicable maturity date discounted, in
each case, to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points,
plus, in each case, accrued interest thereon to the date of redemption.

"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.

"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Note to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Note. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with
FelCor LP.

"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite
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<PAGE> 85

3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or
any successor release) is not published or does not contain such prices on such
business day, the average of the Reference Treasury Dealer Quotations actually
obtained by the Trustee for such redemption date. "Reference Treasury Dealer
Quotations" means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Trustee, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to the Trustee by such Reference
Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption
date.

"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, NationsBanc Capital Markets, Inc. and Salomon Brothers Inc and
their respective successors; provided, that if any of the foregoing shall cease
to be a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), FelCor LP shall substitute therefor another Primary Treasury
Dealer.

Notice of any redemption will be mailed at least 30 days but no more than
60 days before the redemption date to each holder of Notes to be redeemed.

Unless FelCor LP defaults in payment of the redemption price, on and after
the redemption date interest will cease to accrue on the Notes or portions
thereof called for redemption.

SINKING FUND

There will be no sinking fund payments for the Notes.

REGISTRATION RIGHTS

In connection with the original issuance and sale of the Old Notes, the
Initial Purchasers and their assignees became entitled to the benefits of the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
FelCor LP and FelCor have agreed to use their best efforts, at their cost, to
file and cause to become effective a registration statement with respect to a
registered offer to exchange each series of Notes for an issue of senior notes
of FelCor LP ("Exchange Notes") with terms identical to such Notes (including
the guarantee by FelCor and the Subsidiary Guarantors), except that the Exchange
Notes will not bear legends restricting the transfer thereof. Upon such
registration statement being declared effective, FelCor LP shall offer the
Exchange Notes in return for surrender of the Notes. Such offer shall remain
open for not less than 20 business days after the date notice of the Exchange
Offer is mailed to Holders. For each Note surrendered to FelCor LP under the
Exchange Offer, the Holder will receive an Exchange Note of equal principal
amount. Interest on each Exchange Note shall accrue from the last Interest
Payment Date on which interest was paid on the Notes so surrendered or, if no
interest has been paid on such Notes, from the Closing Date. In the event that
applicable interpretations of the staff of the Commission do not permit FelCor
LP and FelCor to effect the Exchange Offer, or under certain other
circumstances, FelCor LP and FelCor shall, at their cost, use their best efforts
to cause to become effective a shelf registration statement ("Shelf Registration
Statement") with respect to resales of the Notes and to keep such Shelf
Registration Statement effective until the expiration of the time period
referred to in Rule 144(k) under the Securities Act, or such shorter period that
will terminate when all Notes covered by the Shelf Registration Statement have
been sold pursuant thereto. FelCor LP and FelCor shall, in the event of such a
shelf registration, provide each Holder copies of the prospectus, notify each
Holder when the Shelf Registration Statement for the Notes has become effective
and take certain other actions as are required to permit resales of the Notes. A
Holder that sells its Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by those provisions of the Registration Rights
Agreement that are applicable to such Holder (including certain indemnification
obligations).

In the event that the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to April 1, 1998,
the annual interest rate borne by such Notes will be increased by .5% until the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective.

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<PAGE> 86

RANKING

The indebtedness evidenced by the Notes will be unsecured senior
obligations of FelCor LP, and will rank pari passu in right of payment with
other Senior Indebtedness of FelCor LP, including, without limitation, the
obligations of FelCor LP under the Line of Credit. The Notes will be effectively
subordinated to Secured Indebtedness (as defined herein) of FelCor LP and the
Guarantors and to the Indebtedness of the non-guarantor Subsidiaries. As of
September 30, 1997, after giving effect to the Private Placement and the
application of the proceeds therefrom, the total Indebtedness of FelCor LP and
the Guarantors would have been approximately $428 million (including
approximately $12 million in Secured Indebtedness). Although FelCor LP and the
Guarantors have no immediate plans to incur additional Indebtedness (other than
pursuant to the Line of Credit or in connection with hotel acquisitions), it is
likely they will do so in the future. The non-guarantor Subsidiaries had no
Indebtedness at such date and have no present intention to incur any
Indebtedness. There is currently no outstanding indebtedness of FelCor LP or the
Guarantors that is subordinated in right of payment to the Notes.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.

"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition from such Person by a Restricted Subsidiary and not incurred
by such Person in connection with, or in anticipation of, such Person becoming a
Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
such Person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.

"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of FelCor, FelCor LP and their respective Restricted
Subsidiaries for such period determined on a consolidated basis in conformity
with GAAP plus the minority interest in FelCor LP, if applicable; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income of any Person (other than
FelCor LP, FelCor or a Restricted Subsidiary), except to the extent of the
amount of dividends or other distributions actually paid to FelCor LP, FelCor or
any of their respective Restricted Subsidiaries by such Person during such
period; (ii) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such net income is not at the time permitted by the operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary; (iii) any gains or losses (on an after-tax basis) attributable to
Asset Sales; (iv) for so long as the Notes are not rated Investment Grade, any
amount paid or accrued as dividends on Preferred Stock of FelCor LP, FelCor or
any Restricted Subsidiary owned by Persons other than FelCor or FelCor LP and
any of their respective Restricted Subsidiaries; and (v) all extraordinary gains
and extraordinary losses.

"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of FelCor LP, FelCor and their respective Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation reserves), except to
the extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of FelCor LP, FelCor and their
respective Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recent
quarterly or annual consolidated balance sheet of FelCor LP or FelCor and their
respective Restricted Subsidiaries, prepared in conformity with GAAP and filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant.

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"Adjusted Total Assets" means, for any Person, the sum of (i) Total Assets
for such Person as of the end of the calendar quarter preceding the Transaction
Date as set forth on the most recent quarterly or annual consolidated balance
sheet of FelCor LP or FelCor and their respective Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders" covenant
and (ii) any increase in Total Assets following the end of such quarter
including, without limitation, any increase in Total Assets resulting from the
application of the proceeds of any additional Indebtedness.

"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.

"Asset Acquisition" means (i) an investment by FelCor LP or FelCor or any
of their respective Restricted Subsidiaries in any other Person pursuant to
which such Person shall become a Restricted Subsidiary or shall be merged into
or consolidated with FelCor LP or FelCor or any of their respective Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary, incidental or complementary to the businesses of FelCor LP or FelCor
or any of their respective Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by FelCor LP or FelCor or any of their
respective Restricted Subsidiaries from any other Person that constitutes
substantially all of a division or line of business, or one or more hotel
properties, of such Person; provided that the property and assets acquired are
related, ancillary, incidental or complementary to the businesses of FelCor LP
or FelCor or any of their respective Restricted Subsidiaries on the date of such
acquisition.

"Asset Disposition" means the sale or other disposition by FelCor LP or
FelCor or any of their respective Restricted Subsidiaries (other than to FelCor
LP, FelCor or another Restricted Subsidiary) of (i) all or substantially all of
the Capital Stock of any Restricted Subsidiary or (ii) all or substantially all
of the assets that constitute a division or line of business, or one or more
hotel properties, of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries.

"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by FelCor LP or FelCor or any of their
Restricted Subsidiaries to any Person other than FelCor LP or FelCor or any of
their respective Restricted Subsidiaries of (i) all or any of the Capital Stock
of any Restricted Subsidiary other than sales permitted under clause (iv) of the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant described below, (ii) all or substantially all of the
property and assets of an operating unit or business of FelCor LP or FelCor or
any of their respective Restricted Subsidiaries or (iii) any other property and
assets of FelCor LP or FelCor or any of their respective Restricted Subsidiaries
outside the ordinary course of business of FelCor LP or FelCor or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the Indenture applicable to mergers, consolidations and sales of assets of
FelCor LP and FelCor; provided that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets with a fair market value not in
excess of $1 million in any transaction or series of related transactions or (c)
sales or other dispositions of assets for consideration at least equal to the
fair market value of the assets sold or disposed of, to the extent that the
consideration received would satisfy clause (i)(B) of the second sentence of the
"Limitation on Asset Sales" covenant.

"Average Life" means at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting), including partnership interests, whether
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<PAGE> 88

general or limited, in the equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock, Preferred Stock and Units.

"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.

"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease as reflected on the balance sheet
of such Person in accordance with GAAP.

"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of FelCor or, other
than by FelCor, of FelCor LP on a fully diluted basis; or (ii) individuals who
on the Closing Date constitute the Board of Directors (together with any new or
replacement directors whose election by the Board of Directors or whose
nomination by the Board of Directors for election by FelCor's shareholders was
approved by a vote of at least a majority of the members of the Board of
Directors then still in office who either were members of the Board of Directors
on the Closing Date or whose election or nomination for election was so
approved) cease for any reason to constitute a majority of the members of the
Board of Directors then in office.

"Closing Date" means the date on which the Notes are originally issued
under the Indenture.

"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting), which have no preference on liquidation or with respect
to distributions over any other class of Capital Stock, including partnership
interests, whether general or limited, of such Person's equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of common stock.

"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for FelCor
LP, FelCor and their respective Restricted Subsidiaries in conformity with GAAP;
provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted Subsidiary
multiplied by (B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period by FelCor LP or
FelCor or any of their respective Restricted Subsidiaries.

"Consolidated Interest Expense" means, for any period, without duplication,
the aggregate amount of interest expense in respect of Indebtedness (including,
without limitation, amortization of original issue discount on any Indebtedness
and the interest portion of any deferred payment obligation, calculated in
accordance with GAAP; all commissions, discounts and other fees and expenses
owed with respect to letters of credit and bankers' acceptance financing; the
net costs associated with Interest Rate Agreements and Indebtedness that is
Guaranteed or secured by assets of FelCor LP, FelCor or any of their respective
Restricted Subsidiaries and all but the principal component of rentals in
respect of capitalized lease obligations paid, accrued or scheduled to be paid
or to be accrued by FelCor LP, FelCor and their respective Restricted
Subsidiaries) during such period, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP;
excluding (i) the amount of such interest expense of any Restricted Subsidiary
if the net income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (ii) of the definition
thereof (but only in

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the same proportion as the net income of such Restricted Subsidiary is excluded
from the calculation of Adjusted Consolidated Net Income pursuant to clause (ii)
of the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes or
paid in connection with any other Indebtedness outstanding on August 31, 1997,
all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.

"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.

"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.

"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock, other than Units, at any time prior to
the Stated Maturity of the Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in "Limitation on Asset
Sales" and "Repurchase of Notes upon a Change of Control" covenants described
below and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to FelCor
LP's repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.

"DJONT" means DJONT Operations, L.L.C., a Delaware limited liability
company.

"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.

"Funds From Operations" for any period means the consolidated net income of
FelCor LP, FelCor and their respective Restricted Subsidiaries for such period
in conformity with GAAP excluding gains or losses from debt restructurings and
sales of property, plus depreciation of real property (including furniture and
equipment) and after adjustments for unconsolidated partnerships and joint
ventures plus the minority interest in FelCor LP, if applicable; provided that
for purposes of the payment of any dividend or distribution by FelCor LP or
FelCor, "Funds From Operations" shall be equal to $80 million plus the amount
thereof computed for the period commencing with the first day of the fiscal
quarter in which the Closing Date occurs and ending on the last day of the last
fiscal quarter preceding the payment of such dividend or distribution.

"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.

"Government Securities" means direct obligations of, obligations guaranteed
by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment
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of which obligations or guarantee the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the option of
the issuer thereof.

"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.

"Guarantors" means FelCor and the Subsidiary Guarantors, collectively.

"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.

"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) the face amount of letters
of credit or other similar instruments (excluding obligations with respect to
letters of credit (including trade letters of credit) securing obligations
(other than obligations described in (i) or (ii) above or (v), (vi) or (vii)
below) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if drawn upon, to the
extent such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement), (iv) all unconditional
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all Capitalized
Lease Obligations, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B) the
amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed
by such Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition or the definition
of Consolidated Interest Expense, obligations under Currency Agreements and
Interest Rate Agreements. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
of the type described above and, with respect to obligations under any
Guarantee, the maximum liability upon the occurrence of the contingency giving
rise to the obligation; provided that (A) the amount outstanding at any time of
any Indebtedness issued with original issue discount shall be deemed to be the
face amount with respect to such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at the date of
determination in conformity with GAAP, and (B) Indebtedness shall not include
any liability for federal, state, local or other taxes.

"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (i)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission or provided to the Trustee pursuant to the "Commission Reports
and Reports to Holders" covenant ("Four Quarter Period") to (ii) the aggregate
Consolidated Interest Expense during such Four Quarter Period. In making the
foregoing calculation, (A) pro forma effect shall be given to any Indebtedness
Incurred or repaid (other than in connection with an Asset Acquisition or Asset
Disposition) during the period ("Reference Period") commencing on the first day
of the Four Quarter Period and ending on the Transaction Date (other than
Indebtedness Incurred or repaid under a revolving credit or

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similar arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last day
of such Four Quarter Period unless any portion of such Indebtedness is
projected, in the reasonable judgment of the senior management of FelCor LP or
FelCor, to remain outstanding for a period in excess of 12 months from the date
of the Incurrence thereof), in each case as if such Indebtedness had been
Incurred or repaid on the first day of such Reference Period; (B) Consolidated
Interest Expense attributable to interest on any Indebtedness (whether existing
or being Incurred) computed on a pro forma basis and bearing a floating interest
rate shall be computed as if the rate in effect on the Transaction Date (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months or, if
shorter, at least equal to the remaining term of such Indebtedness) had been the
applicable rate for the entire period; (C) pro forma effect shall be given to
Asset Dispositions and Asset Acquisitions (including giving pro forma effect to
the application of proceeds of any Asset Disposition and any Indebtedness
Incurred or repaid in connection with any such Asset Acquisitions or Asset
Dispositions) that occur during such Reference Period but subsequent to the end
of the related Four Quarter Period as if they had occurred and such proceeds had
been applied on the first day of such Reference Period; and (D) pro forma effect
shall be given to asset dispositions and asset acquisitions (including giving
pro forma effect to the application of proceeds of any asset disposition and any
Indebtedness Incurred or repaid in connection with any such asset acquisitions
or asset dispositions) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into FelCor LP or FelCor or any
of their respective Restricted Subsidiaries during such Reference Period but
subsequent to the end of the related Four Quarter Period and that would have
constituted Asset Dispositions or Asset Acquisitions during such Reference
Period but subsequent to the end of the related Four Quarter Period had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions and had occurred on the first day of such Reference Period;
provided that to the extent that clause (C) or (D) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business, or one or more hotel properties, of the Person that is acquired or
disposed of to the extent that such financial information is available.

"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement with respect to interest rates.

"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including without limitation by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the consolidated balance sheet of FelCor LP, FelCor and their respective
Restricted Subsidiaries) or capital contribution to (by means of any transfer of
cash or other property (tangible or intangible) to others or any payment for
property or services solely for the account or use of others, or otherwise), or
any purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by FelCor LP
or FelCor or any of their respective Restricted Subsidiaries of (or in) any
Person that has ceased to be a Restricted Subsidiary, including without
limitation, by reason of any transaction permitted by clause (iii) of the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant; provided that the fair market value of the Investment
remaining in any Person that has ceased to be a Subsidiary shall be deemed not
to exceed the aggregate amount of Investments previously made in such Person
valued at the time such Investments were made, less the net reduction of such
Investments. For purposes of the definition of "Unrestricted Subsidiary" and the
"Limitation on Restricted Payments" covenant described below, (i) "Investment"
shall include the fair market value of the assets (net of liabilities (other
than liabilities to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries)) of any Restricted Subsidiary at the time such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to FelCor LP or FelCor
or any of their respective Restricted Subsidiaries)) of any
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Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.

"Investment Grade" means a rating of the Notes by both S&P and Moody's,
each such rating being in one of such agency's four highest generic rating
categories that signifies investment grade (i.e. BBB- (or the equivalent) or
higher by S&P and Baa3 (or the equivalent) or higher by Moody's); provided, in
each case, such ratings are publicly available; provided, further, that in the
event Moody's or S&P is no longer in existence for purposes of determining
whether the Notes are rated "Investment Grade," such organization may be
replaced by a nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) designated by FelCor LP and FelCor, notice
of which shall be given to the Trustee.

"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).

"Line of Credit" means the credit facility established pursuant to the
Third Amended and Restated Revolving Credit Agreement dated as of August 14,
1997 among FelCor LP, FelCor, the lenders party thereto, The Chase Manhattan
Bank, as Administrative Agent, Wells Fargo Bank, National Association, as
Documentation Agent, together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith, in
each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time; provided that, with respect to an agreement providing for the refinancing
of Indebtedness under the Line of Credit, such agreement shall be the Line of
Credit under the Indenture only if a notice to that effect is delivered by
FelCor LP and FelCor to the Trustee and there shall be at any time only one
instrument that is (together with the aforementioned related agreements,
instruments and documents) the Line of Credit under the Indenture.

"Moody's" means Moody's Investors Service, Inc. and its successors.

"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes actually paid
or payable as a result of such Asset Sale by FelCor LP, FelCor and their
respective Restricted Subsidiaries, taken as a whole, (iii) payments made to
repay Indebtedness or any other obligation outstanding at the time of such Asset
Sale that either (A) is secured by a Lien on the property or assets sold or (B)
is required to be paid as a result of such sale and (iv) amounts reserved by
FelCor LP, FelCor and their respective Restricted Subsidiaries against any
liabilities associated with such Asset Sale, including without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined on a consolidated basis in
conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to FelCor LP or FelCor or any of
their respective Restricted Subsidiaries) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
attorney's fees, accountants's fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of tax paid or payable as a result
thereof.

"Offer to Purchase" means an offer to purchase Notes by FelCor LP, from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(i) the covenant pursuant to which the offer is being made and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase
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price and the date of purchase (which shall be a Business Day no earlier than 30
days nor later than 60 days from the date such notice is mailed) ("Payment
Date"); (iii) that any Note not tendered will continue to accrue interest
pursuant to its terms; (iv) that, unless FelCor LP defaults in the payment of
the purchase price, any Note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date; (v) that
Holders electing to have a Note purchased pursuant to the Offer to Purchase will
be required to surrender the Note, together with the form entitled "Option of
the Holder to Elect Purchase" on the reverse side of the Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Payment Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. On the Payment Date, FelCor LP shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to an
Offer to Purchase; and (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so accepted; and shall
promptly thereafter deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by FelCor LP. The
Paying Agent shall promptly mail to the Holders of Notes so accepted payment in
an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of any Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. FelCor LP will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. FelCor LP will
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that FelCor LP is required to repurchase Notes pursuant to an Offer
to Purchase.

"Permitted Investment" means (i) an Investment in FelCor LP or FelCor or
any of their Restricted Subsidiaries or a Person which will, upon the making of
such Investment, become a Restricted Subsidiary or be merged or consolidated
with or into or transfer or convey all or substantially all its assets to,
FelCor LP or FelCor or any of their Restricted Subsidiaries; provided that such
person's primary business is related, ancillary, incidental or complementary to
the businesses of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries on the date of such Investment; (ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses in accordances
with GAAP; and (iv) stock, obligations or securities received in satisfaction of
judgments.

"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting), which have a preference on liquidation or with respect to
distributions over any other class of Capital Stock, including preferred
partnership interests, whether general or limited, or such Person's preferred or
preference stock, whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all series and classes of such preferred or
preference stock.

"Restricted Subsidiary" means any Subsidiary of FelCor LP or FelCor other
than an Unrestricted Subsidiary.

"Secured Indebtedness" means an Indebtedness secured by a Lien upon the
property of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries.

"Senior Indebtedness" means the following obligations of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries, whether outstanding
on the Closing Date or thereafter Incurred: (i) all Indebtedness and all other
monetary obligations (including expenses fees and other monetary obligations) of
FelCor LP and FelCor under the Line of Credit; (ii) all Indebtedness and all
other monetary obligations of FelCor LP or

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FelCor or any of their respective Restricted Subsidiaries (other than the
Notes), including principal and interest on such Indebtedness, unless such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued is expressly subordinated in right
of payment to the Notes; and (iii) Subsidiary Debt. Senior Indebtedness will
also include interest accruing subsequent to events of bankruptcy of FelCor LP
and FelCor and their respective Restricted Subsidiaries at the rate provided for
the document governing such Senior Indebtedness, whether or not such interest is
an allowed claim enforceable against the debtor in a bankruptcy case under
bankruptcy law.

"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of FelCor LP and FelCor, accounted for more than 10% of the
consolidated revenues of FelCor LP, FelCor and their respective Restricted
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the consolidated assets of FelCor LP, FelCor and their respective
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements thereof for such fiscal year.

"S&P" means Standard & Poor's Ratings Services and its successors.

"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.

"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person and the accounts of which
would be consolidated with those of such Person in its consolidated financial
statements in accordance with GAAP, if such statements were prepared as of such
date.

"Subsidiary Debt" means all unsecured Indebtedness of which a Restricted
Subsidiary is the primary obligor.

"Subsidiary Guarantee" means a Guarantee by each Subsidiary Guarantor for
payment of the Notes by such Subsidiary Guarantor. The Subsidiary Guarantee will
be an unsecured senior obligation of each Subsidiary Guarantor and will be
unconditional regardless of the enforceability of the Notes and the Indenture.
Notwithstanding the foregoing, each Subsidiary Guarantee by a Subsidiary
Guarantor shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of FelCor LP or FelCor, of all of the Capital Stock
owned by FelCor LP, FelCor and their respective Restricted Subsidiaries in, or
all or substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not then prohibited by the Indenture).

"Subsidiary Guarantor" means each of (i) FelCor/CSS Hotels, L.L.C., a
Delaware limited liability company, (ii) FelCor/LAX Hotels, L.L.C., a Delaware
limited liability company, (iii) FelCor/CSS Holdings, L.P., a Delaware limited
partnership, (iv) FelCor/St. Paul Holdings, L.P., a Delaware limited
partnership, (v) FelCor/LAX Holdings, L.P., a Delaware limited partnership and
(vi) FelCor Eight Hotels, L.L.C., a Delaware limited liability company and each
other Restricted Subsidiary that executes a Subsidiary Guarantee in compliance
with the "Limitation on Issuances of Guarantees by Restricted Subsidiaries"
covenant below.

"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposits accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50 million and
has outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than
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30 days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of FelCor LP or
FelCor) organized and in existence under the laws of the United States of
America, any state thereof with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, and (v) securities with maturities of six months or less from
the date of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by S&P
or Moody's.

"Total Assets" means the sum of (i) Undepreciated Real Estate Assets and
(ii) all other assets of FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis determined in conformity with GAAP (but
excluding intangibles and accounts receivables).

"Total Unencumbered Assets" as of any date means the sum of (i) those
Undepreciated Real Estate Assets not securing any portion of Secured
Indebtedness and (ii) all other assets (but excluding intangibles and accounts
receivable) of FelCor LP, FelCor and their respective Restricted Subsidiaries
not securing any portion of Secured Indebtedness determined on a consolidated
basis in accordance with GAAP.

"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.

"Transaction Date" means, with the respect to the Incurrence of any
Indebtedness by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to
any Restricted Payment, the date such Restricted Payment is to be made.

"Undepreciated Real Estate Assets" means, as of any date, the cost (being
the original cost to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries plus capital improvements) of real estate assets of FelCor LP,
FelCor and their Restricted Subsidiaries on such date, before depreciation and
amortization of such real estate assets, determined on a consolidated basis in
conformity with GAAP.

"Units" means the limited partnership units of FelCor LP, that by their
terms are redeemable at the option of the holder thereof and that, if so
redeemed, at the election of FelCor are redeemable for cash or Common Stock of
FelCor.

"Unrestricted Subsidiary" means (i) any Subsidiary of FelCor LP or FelCor
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below; and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of FelCor LP or FelCor) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, FelCor
LP or FelCor or any of their respective Restricted Subsidiaries; provided that
(A) any Guarantee by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries of any Indebtedness of the Subsidiary being so designated shall be
deemed an "Incurrence" of such Indebtedness and an "Investment" by FelCor LP or
FelCor or such Restricted Subsidiary (or all, if applicable) at the time of such
designation: (B) either (I) the Subsidiary to be so designated has total assets
of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000,
such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that (i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation; and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution

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giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.

"Unsecured Indebtedness" means any Indebtedness of FelCor LP or FelCor or
any of their respective Restricted Subsidiaries that is not Secured
Indebtedness.

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

"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by individuals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.

COVENANTS

The Indenture contains, among others, the following covenants, provided
that the Indenture provides that the "Limitation on Liens," the "Limitation on
Sale-Leaseback Transactions," the "Limitation on Restricted Payments," the
"Limitation on Dividend and other Payment Restrictions Affecting Restricted
Subsidiaries," the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries," the "Limitation on Issuances of Guarantees by
Restricted Subsidiaries," and the "Limitation on Transactions with Affiliates"
will not be applicable in the event, and only for so long as, the Notes are
rated Investment Grade.

Limitation on Indebtedness

(a)(i) Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, Incur any
Indebtedness if, immediately after giving effect to the Incurrence of such
additional Indebtedness, the aggregate principal amount of all outstanding
Indebtedness of FelCor LP, FelCor and their respective Restricted Subsidiaries
on a consolidated basis determined in accordance with GAAP is greater than 60%
of Adjusted Total Assets.

(ii) In addition to the foregoing limitations on the Incurrence of
Indebtedness, neither FelCor LP nor FelCor will, and neither FelCor LP nor
FelCor will permit any of their respective Restricted Subsidiaries to, Incur any
Subsidiary Debt or any Secured Indebtedness if, immediately after giving effect
to the Incurrence of such additional Subsidiary Debt or Secured Indebtedness,
the aggregate principal amount of all outstanding Subsidiary Debt and Secured
Indebtedness of FelCor LP, FelCor and their respective Restricted Subsidiaries
on a consolidated basis is greater than 40% of Adjusted Total Assets.

(b) In addition to the covenants specified in (a) above, neither FelCor LP
nor FelCor will, and neither FelCor LP nor FelCor will permit any of their
respective Restricted Subsidiaries to, Incur any Indebtedness (other than the
Notes, the Subsidiary Guarantees and other Indebtedness existing on the Closing
Date); provided that FelCor LP or FelCor or any of their respective Restricted
Subsidiaries may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio of FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis would be greater than 2.0 to 1.

(c) Notwithstanding paragraphs (a) or (b), FelCor LP or FelCor or any of
their respective Restricted Subsidiaries (except as specified below) may Incur
each and all of the following: (i) Indebtedness outstanding under the Line of
Credit at any time in an aggregate principal amount not to exceed $550 million
less any amount of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below; (ii) Indebtedness owed (A)
to FelCor LP or FelCor evidenced by an unsubordinated promissory note or (B) to
any Restricted Subsidiary; provided that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to FelCor LP or FelCor or any other
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance or refund, outstanding Indebtedness (other
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than Indebtedness Incurred under clause (i), (ii), (iv) or (vi) of this
paragraph) and any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and expenses);
provided that Indebtedness the proceeds of which are used to refinance or refund
the Notes or Indebtedness that is pari passu with or subordinated in right of
payment to, the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is pari passu with or is expressly made subordinate in right of
payment to the remaining Notes, (B) in case the Indebtedness to be refinanced is
subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such New Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded; and
provided further that in no event may Indebtedness of FelCor LP or FelCor that
is pari passu with or subordinated in right of payment to the Notes be
refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to
this clause (iii); (iv) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a) are
designed solely to protect FelCor LP or FelCor or any of their respective
Restricted Subsidiaries against fluctuations in foreign currency exchange rates
or interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder, and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary (other
than Guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis in connection with such disposition; (v)
Indebtedness of FelCor LP or FelCor, to the extent the net proceeds thereof are
promptly (A) used to purchase Notes tendered in an Offer to Purchase made as a
result of a Change in Control or (B) deposited to defease the Notes as described
below under "Defeasance"; or (vi) Guarantees of the Notes and Guarantees of
Indebtedness of FelCor LP or FelCor by any of their respective Restricted
Subsidiaries provided the guarantee of such Indebtedness is permitted by and
made in accordance with the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" covenant described below.

(d) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that FelCor LP or
FelCor or any of their respective Restricted Subsidiaries may Incur pursuant to
this "Limitation on Indebtedness" covenant shall not be deemed to be exceeded,
with respect to any outstanding Indebtedness due solely to the result of
fluctuations in the exchange rates of currencies.

(e) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
Line of Credit on or prior to the Closing Date shall be treated as Incurred
pursuant to clause (i) of paragraph (c) of this "Limitation on Indebtedness"
covenant, (2) Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included and (3) any Liens granted pursuant to
the equal and ratable provisions referred to in the "Limitation on Liens"
covenant described below shall not be treated as Indebtedness. For purposes of
determining compliance with this "Limitation on Indebtedness" covenant, in the
event that an item of Indebtedness meets the criteria of more that one of the
types of Indebtedness described in the above clauses (other than Indebtedness
referred to in clause (2) of the preceding sentence), each of FelCor LP and
FelCor, in its sole discretion, shall classify such

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item of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses; provided that FelCor LP and FelCor must
classify such item of Indebtedness in an identical fashion.

Maintenance of Total Unencumbered Assets

FelCor LP, FelCor and their respective Restricted Subsidiaries will
maintain Total Unencumbered Assets of not less than 150% of the aggregate
outstanding principal amount of the Unsecured Indebtedness of FelCor LP, FelCor
and their respective Restricted Subsidiaries on a consolidated basis.

Limitation on Liens

Neither FelCor LP nor FelCor shall secure any Indebtedness under the Line
of Credit by a Lien unless contemporaneously therewith effective provision is
made to secure the Notes equally and ratably with the Indebtedness under the
Line of Credit for so long as the Indebtedness under the Line of Credit is
secured by a Lien.

Limitation on Sale-Leaseback Transactions

Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby any of them sells or transfers such assets
or properties and then or thereafter leases such assets or properties or any
substantial part thereof.

The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between FelCor LP or
FelCor and any Wholly Owned Restricted Subsidiary or solely between Wholly Owned
Restricted Subsidiaries; or (iv) FelCor LP or FelCor or any of their respective
Restricted Subsidiaries, within 12 months after the sale or transfer of any
assets or properties is completed, applies an amount not less than the net
proceeds received from such sale in accordance with clause (A) or (B) of the
first paragraph of the "Limitation on Asset Sales" covenant described below.

Limitation on Restricted Payments

Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or distributions payable
solely in shares of its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to acquire shares of such Capital Stock and
(y) pro rata dividends or distributions on Common Stock of FelCor LP or any
Restricted Subsidiary held by minority stockholders) held by Persons other than
FelCor LP or FelCor or any of their respective Restricted Subsidiaries, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of (A) FelCor LP, FelCor or an Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by any
Person other than FelCor LP or FelCor or any of their respective Restricted
Subsidiaries unless in connection with such purchase the Unrestricted Subsidiary
is designated as a Restricted Subsidiary or (B) a Restricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by an Affiliate of FelCor LP or FelCor (other than a Wholly Owned
Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or
more of the Capital Stock of FelCor LP or FelCor, (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value, of Indebtedness of
FelCor LP or FelCor that is subordinated in right of payment to the Notes or
(iv) make an Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) above being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) FelCor LP or FelCor could not Incur at
least $1.00 of Indebtedness under the paragraphs (a) and (b) of the "Limitation
on Indebtedness" covenant or (C) the aggregate amount of all Restricted Payments
(the

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amount, if other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date shall exceed the sum of (1) 95% of the
aggregate amount of the Funds From Operations (or, if the Funds From Operations
is a loss, minus 100% of the amount of such loss) (determined by excluding
income resulting from transfers of assets by FelCor LP or FelCor or any of their
respective Restricted Subsidiaries to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter in which the Closing Date occurs and ending
on the last day of the last fiscal quarter preceding the Transaction Date for
which reports have been filed with the Commission or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders" covenant plus (2)
the aggregate Net Cash Proceeds received by FelCor LP or FelCor after the
Closing Date from the issuance and sale permitted by the Indenture of its
Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of FelCor LP or FelCor, including an issuance or sale permitted by
the Indenture of Indebtedness of FelCor LP or FelCor for cash subsequent to the
Closing Date upon the conversion of such Indebtedness into Capital Stock (other
than Disqualified Stock) of FelCor LP or FelCor, or from the issuance to a
Person who is not a Subsidiary of FelCor LP or FelCor of any options, warrants
or other rights to acquire Capital Stock of FelCor LP or FelCor (in each case,
exclusive of any Disqualified Stock or any options, warrants or other rights
that are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Notes), plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments) in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
FelCor LP or FelCor or any of their respective Restricted Subsidiaries or from
the Net Cash Proceeds from the sale of any such Investment (except, in each
case, to the extent any such payment or proceeds are included in the calculation
of Funds From Operations) or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments") not to exceed, in each case, the amount of Investments previously
made by FelCor LP, FelCor and their respective Restricted Subsidiaries in such
Person or Unrestricted Subsidiary, plus (4) the purchase price of noncash
tangible assets acquired in exchange for an issuance of Capital Stock (other
than Disqualified Stock) of FelCor LP or FelCor; provided that in any event
FelCor LP or FelCor may declare or pay any dividend or make any distribution
that is necessary to maintain FelCor's status as a REIT under the Code if (1)
the aggregate principal amount of all outstanding Indebtedness of FelCor LP or
FelCor on a consolidated basis at such time is less than 60% of Adjusted Total
Assets and (2) no Default or Event of Default shall have occurred and be
continuing.

The provisions of the foregoing paragraph shall not be violated by reason
of: (i) the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred under
clause (iii) of paragraph (c) of the "Limitation on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of Capital Stock of FelCor
LP or FelCor or an Unrestricted Subsidiary (or options, warrants or other rights
to acquire such Capital Stock) in exchange for, or out of the proceeds of a
substantially concurrent issuance of, shares of Capital Stock (other than
Disqualified Stock) of FelCor LP or FelCor (or options, warrants or other rights
to acquire such Capital Stock); (iv) the making of any principal payment on, or
the repurchase, redemption, retirement, defeasance or other acquisition for
value of, Indebtedness of FelCor LP or FelCor which is subordinated in right of
payment to the Notes in exchange for, or out of the proceeds of, a substantially
concurrent issuance of, shares of the Capital Stock (other than Disqualified
Stock) of FelCor LP or FelCor (or options, warrants or other rights to acquire
such Capital Stock); (v) payments or distributions, to dissenting stockholders
pursuant to applicable law pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially all
of the property and assets of FelCor LP or FelCor; (vi) Investments in any
Person or Persons in an aggregate amount not to exceed $150 million; or (vii)
the payment of any dividend or distribution on the Capital Stock of FelCor LP or
FelCor declared prior to the Closing Date, provided that, except in the case of
clauses (i), (iii) and (vii), no Default

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or Event of Default shall have occurred and be continuing or occur as a direct
consequence of the actions or payments set forth therein.

Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof, an Investment referred to in clause (vi) thereof
or the dividends or distributions referred to in clause (vii) thereof), and the
Net Cash Proceeds from any issuance of Capital Stock referred to in clauses
(iii) and (iv), shall be included in calculating whether the conditions of
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant have been met with respect to any subsequent Restricted Payments.

Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries

Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Restricted Subsidiary to (i) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary owned by FelCor LP or FelCor or any
of their respective Restricted Subsidiaries, (ii) pay any Indebtedness owed to
FelCor LP, FelCor or any other Restricted Subsidiary, (iii) make loans or
advances to FelCor LP, FelCor or any other Restricted Subsidiary or (iv)
transfer its property or assets to FelCor LP, FelCor or any other Restricted
Subsidiary.

The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or in the Line
of Credit, and any extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that are
then in effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law; (iii) existing with respect
to any Person or the property or assets of such Person acquired by FelCor LP,
FelCor or any Restricted Subsidiary, existing at the time of such acquisition
and not incurred in contemplation thereof, which encumbrances or restrictions
are not applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired; (iv) in
the case of clause (iv) of the first paragraph of this "Limitation on Dividend
and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A)
that restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of, agreement
to transfer, option or right with respect to, or Lien on, any property or assets
of FelCor LP, FelCor or any Restricted Subsidiary not otherwise prohibited by
the Indenture or (C) arising or agreed to in the ordinary course of business,
not relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of FelCor LP, FelCor or
any Restricted Subsidiary in any manner material to FelCor LP, FelCor and their
respective Restricted Subsidiaries taken as a whole; (v) with respect to a
Restricted Subsidiary and imposed pursuant to an agreement that has been entered
into for the sale or disposition of all or substantially all of the Capital
Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if (A) the encumbrance or restriction applies only
in the event of a payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders of the Notes
than is customary in comparable financings (as determined by FelCor LP and
FelCor) and (C) each of FelCor LP and FelCor determines that any such
encumbrance or restriction will not materially affect such Persons' ability to
make principal or interest payments on the Notes. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent FelCor LP, FelCor or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries that secure
Indebtedness of FelCor LP, FelCor or any of their respective Restricted
Subsidiaries.

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Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries

Neither FelCor LP nor FelCor will sell, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except (i) to FelCor LP, FelCor or a Wholly Owned Restricted
Subsidiary; (ii) issuances of director's qualifying shares or sales to
individuals of shares of Restricted Subsidiaries, to the extent required by
applicable law or to the extent necessary to obtain local liquor licenses; (iii)
if, immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Subsidiary and any Investment in such
Person remaining after giving effect to such issuance or sale would have been
permitted to be made under the "Limitation on Restricted Payments" covenant if
made on the date of such issuance or sale or (iv) sales of not greater than 20%
of the Capital Stock of a newly-created Restricted Subsidiary made in connection
with, or in contemplation of, the acquisition or development by such Restricted
Subsidiary of one or more properties to any Person that is, or is an Affiliate
of, the entity that provides, franchise management or other services, as the
case may be, to one or more properties owned by such Restricted Subsidiary.

Limitation on Issuances of Guarantees by Restricted Subsidiaries

Neither FelCor LP nor FelCor will permit any of their respective Restricted
Subsidiaries, directly or indirectly, to Guarantee any Indebtedness of FelCor LP
or FelCor which is pari passu with or subordinate in right of payment to the
Notes ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Subsidiary Guarantee by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against FelCor LP, FelCor or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; provided that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guarantee Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.

Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of FelCor LP or FelCor, of all of Capital Stock
held by FelCor LP, FelCor and their respective Restricted Subsidiaries in, or
all or substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release or
discharge of the Guarantee which resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such
Guarantee.

Limitation on Transactions with Affiliates

Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitations, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of FelCor LP or FelCor or with any
Affiliate of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, except upon fair and reasonable terms no less favorable to FelCor
LP, FelCor or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement, at
the time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.

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The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the independent directors of FelCor
or (B) for which FelCor LP, FelCor or any Restricted Subsidiary delivers to the
Trustee a written opinion of a nationally recognized investment banking firm
stating that the transaction is fair to FelCor LP, FelCor or such Restricted
Subsidiary from a financial point of view; (ii) any transaction solely between
FelCor LP or FelCor and any of their respective Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries; (iii) the
payment of reasonable and customary fees and expenses to directors of FelCor who
are not employees of FelCor; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between FelCor LP or FelCor and any other Person with
which FelCor LP or FelCor files a consolidated tax return or with which FelCor
LP or FelCor is part of a consolidated group for tax purposes; or (v) any
Restricted Payments not prohibited by the "Limitation on Restricted Payments"
covenant. Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "Limitation on Transactions
with Affiliates" covenant and not covered by clauses (ii) through (v) of this
paragraph, (a) the aggregate amount of which exceeds $2 million in value or
relates to the leasing of one or more hotel properties to DJONT, must be
approved or determined to be fair in the manner provided for in clause (i)(A) or
(B) above and (b) the aggregate amount of which exceeds $5 million in value,
must be determined to be fair in the manner provided for in clause (i)(B) above.

Limitation on Asset Sales

Neither FelCor LP nor FelCor will, and neither FelCor LP or FelCor will
permit any of their respective Restricted Subsidiaries to, consummate any Asset
Sale, unless (i) the consideration received by FelCor LP, FelCor or such
Restricted Subsidiary is at least equal to the fair market value of the assets
sold or disposed of and (ii) at least 75% of the consideration received consists
of cash or Temporary Cash Investments; provided, with respect to the sale of one
or more hotel properties that up to 75% of the consideration may consist of
indebtedness of the purchaser of such hotel properties; provided, further, that
such indebtedness is secured by a first priority Lien on the hotel property or
properties sold. In the event and to the extent that the Net Cash Proceeds
received by FelCor LP, FelCor or such Restricted Subsidiary from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of FelCor LP, FelCor and their respective
Restricted Subsidiaries has been filed with the Commission or provided to the
Trustee pursuant to the "Commission Reports and Reports to Holders" covenant),
then FelCor LP or FelCor shall or shall cause the relevant Restricted Subsidiary
to (i) within twelve months after the date Net Cash Proceeds so received exceed
10% of Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to
such excess Net Cash Proceeds to permanently reduce Senior Indebtedness of
FelCor LP, FelCor, or any Restricted Subsidiary or Indebtedness of any other
Restricted Subsidiary, in each case owing to a Person other than FelCor LP,
FelCor or any of their respective Restricted Subsidiaries or (B) invest an equal
amount, or the amount not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to so invest within 12 months after the date of
such agreement), in property or assets (other than current assets) of a nature
or type or that are used in a business (or in a Restricted Subsidiary having
property and assets of a nature or type, or engaged in a business) similar or
related to the nature or type of the property and assets of, or the business of,
FelCor LP or FelCor or any of their respective Restricted Subsidiaries existing
on the date of such investment and (ii) apply (no later than the end of the
12-month period referred to in clause (i)) such excess Net Cash Proceeds (to the
extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."

If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not previously subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, FelCor LP must
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the Payment Date.
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REPURCHASE OF NOTES UPON A CHANGE OF CONTROL

FelCor LP must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.

There can be no assurance that FelCor LP will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
any covenant that may be contained in other securities of FelCor LP or FelCor
which might be outstanding at the time). The above covenant requiring FelCor LP
to repurchase the Notes will, unless consents are obtained, require FelCor LP to
repay all indebtedness then outstanding which by its terms would prohibit such
Note repurchase, either prior to or concurrently with such Note repurchase.

COMMISSION REPORTS AND REPORTS TO HOLDERS

Whether or not FelCor LP or FelCor is then required to file reports with
the Commission, FelCor LP and FelCor shall file with the Commission all such
reports and other information as they would be required to file with Commission
by Sections 13(a) or 15(d) under the Securities Exchange Act of 1934 if they
were subject thereto; provided that, if filing such documents by FelCor LP or
FelCor with the Commission is not permitted under Exchange Act, FelCor LP or
FelCor shall provide such documents to the Trustee and upon written request
supply copies of such documents to any prospective Holder; provided, further,
that if the rules and regulations of the Commission permit FelCor LP and FelCor
to file combined reports or information pursuant to the Securities Exchange Act
of 1934, FelCor LP and FelCor may file combined reports and information. FelCor
LP and FelCor shall supply the Trustee and each Holder or shall supply to the
Trustee for forwarding to each such Holder, without cost to such Holder, copies
of such reports and other information.

EVENTS OF DEFAULT

The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days; (c)
default in the performance or breach of the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially all
of the assets of FelCor LP and FelCor or the failure by FelCor LP to make or
consummate an Offer to Purchase in accordance with the "Limitations on Asset
Sales" or "Repurchase of Notes upon a Change of Control" covenants; (d) FelCor
LP or FelCor defaults in the performance of or breaches any other covenant or
agreement of FelCor LP or FelCor in the Indenture or under the Notes (other than
a default specified in clause (a), (b) or (c) above) and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
FelCor LP or FelCor or any Significant Subsidiary having an outstanding
principal amount of $10 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (f) any final judgment or order (not
covered by insurance) for the payment of money in excess of $10 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not covered by
insurance) shall be rendered against FelCor LP or FelCor or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
60 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $10 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in
the premises enters a decree or order for (A) relief in respect of FelCor LP or
FelCor or any
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Significant Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of FelCor LP or FelCor or any Significant Subsidiary or for all or
substantially all of the property and assets of FelCor LP or FelCor or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
FelCor LP or FelCor or any Significant Subsidiary and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (h) FelCor LP or FelCor or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under such law, (B) consents to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of FelCor LP or FelCor or Significant Subsidiary or for all
or substantially all of the property and assets of FelCor LP or FelCor or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
its creditors.

If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to FelCor LP or FelCor) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
FelCor LP and FelCor (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall, declare the
principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and payable.
In the event of a declaration of acceleration because an Event of Default set
forth in clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied or cured by FelCor LP, FelCor or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event or Default
specified in clause (g) or (h) above occurs with respect to FelCor LP or FelCor,
the principal of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder. The
Holders of at least a majority in principal amount of the outstanding Notes by
written notice to FelCor LP, FelCor and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. As to the waiver of defaults, see "-- Modification and
Waiver."

The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless; (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.

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The Indenture will require certain officers of FelCor LP and FelCor to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of FelCor LP and FelCor
and their respective Restricted Subsidiaries and of their performance under the
Indenture and that FelCor LP and FelCor have fulfilled all obligations
thereunder, or, if there has been a default in fulfillment of any such
obligation, specifying each such default and the nature and status thereof.
FelCor LP and FelCor will also be obligated to notify the Trustee of any default
or defaults in the performance of any covenants or agreements under the
Indenture.

CONSOLIDATION, MERGER AND SALE OF ASSETS

Neither FelCor LP nor FelCor will merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially of its property and
assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into FelCor LP or FelCor unless: (i) FelCor LP or FelCor shall be the
continuing Person, or the Person (if other than FelCor LP or FelCor) formed by
such consolidation or into which FelCor LP or FelCor is merged or that acquired
or leased such property and assets of FelCor LP or FelCor shall be an entity
organized and validly existing under the laws of the United States of America or
any state or jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the obligations of
FelCor LP or FelCor on the Notes and under the Indenture; (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis FelCor LP or FelCor, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under paragraphs (a) and (b) of the "Limitation on Indebtedness"
covenant; provided that this clause (iii) shall not apply to a consolidation or
merger with or into a Wholly Owned Restricted Subsidiary with a positive net
worth; provided that, in connection with any such merger or consolidation, no
consideration (other than Capital Stock (other than Disqualified Stock) in the
surviving Person or FelCor LP or FelCor) shall be issued or distributed to the
holders of Capital Stock of FelCor LP or FelCor; and (iv) FelCor LP or FelCor
delivers to the Trustee an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clause (iii)) and an Opinion of
Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided that clause (iii) above does not apply if, in the good faith
determination of the Board of Directors of FelCor LP or FelCor, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of domicile of FelCor LP or FelCor; and
provided, further, that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.

DEFEASANCE

Defeasance and Discharge. The Indenture provides that FelCor LP, FelCor and
the Subsidiary Guarantors will be deemed to have paid and will be discharged
from any and all obligations in respect of the Notes or any Subsidiary Guarantee
on the 123rd day after the deposit referred to below, and the provisions of the
Indenture will no longer be in effect with respect to the Notes (except for,
among other matters, certain obligations to register the transfer or exchange of
the Notes, to replace stolen, lost or mutilated Notes, to maintain paying
agencies and to hold monies for payment in trust) if, among other things, (A)
FelCor LP has have deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, (B) FelCor LP has have delivered to the Trustee (i)
either (x) an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of FelCor LP's
exercise of its option under this "Defeasance" provision and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit, defeasance and discharge had
not occurred, which Opinion of Counsel must be based upon (and accompanied by a
copy of) a ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law after
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the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which FelCor LP, FelCor or any of their respective Restricted Subsidiaries is
a party or by which FelCor LP, FelCor or any of their respective Restricted
Subsidiaries are bound and (D) if at such time the Notes are listed on a
national securities exchange, FelCor LP has delivered to the Trustee an Opinion
of Counsel to the effect that the Notes will not be delisted as a result of such
deposit, defeasance and discharge.

Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clause (iii) under "Consolidation, Merger and Sale
of Assets" and all the covenants described herein under "Covenants," clause (c)
under "Events of Default" with respect to such clause (iii) under
"Consolidation, Merger and Sale of Assets," clause (d) under "Events of Default"
with respect to such other covenants and clauses (e) and (f) under "Events of
Default" shall be deemed not to be Events of Default upon, among other things,
the deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by
FelCor LP to the Trustee of an Opinion of Counsel to the effect that, among
other things, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred.

Defeasance and Certain Other Events of Default. In the event FelCor LP
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, FelCor LP, FelCor
and the Subsidiary Guarantors will remain liable for such payments.

MODIFICATION AND WAIVER

Subject to certain limited exceptions, modifications and amendments of the
Indenture may be made by FelCor LP, FelCor and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal amount of the
outstanding Notes; provided that no such modification or amendment may, without
the consent of each Holder affected thereby, (i) change the Stated Maturity of
the principal of, or any installment of interest on, any Note, (ii) reduce the
principal amount of, or premium, if any, or interest on, any Note, (iii) change
the place of payment of principal of, or premium, if any, or interest on, any
Note, (iv) impair the right to institute suit for the enforcement of any payment
on or after the Stated Maturity (or, in the case of a redemption, on or after
the Redemption Date) of any Note, (v) reduce the above-stated percentages of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes, (vii) voluntarily release a Guarantor of the
Notes or (viii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.

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NO PERSONAL LIABILITY OF INCORPORATORS, PARTNERS, STOCKHOLDERS, OFFICERS,
DIRECTORS, OR EMPLOYEES

The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of FelCor LP or FelCor in the Indenture, or in
any of the Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, partner, stockholder, officer,
director, employee or controlling person of FelCor LP, FelCor or the Subsidiary
Guarantors or of any successor Person thereof. Each Holder, by accepting the
Notes, waives and releases all such liability.

CONCERNING THE TRUSTEE

The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.

The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of FelCor LP or FelCor, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided that if it acquires any
conflicting interest, it must eliminate such conflict or resign.

BOOK ENTRY; DELIVERY AND FORM

The certificates representing the New Notes will be issued in fully
registered form without interest coupons. Old Notes sold in reliance on Rule
144A are represented by the Global Old Notes. New Notes issued in exchange for
the Global Old Notes will be issued in the form of one or more Global New Notes
and will be deposited with the Trustee as custodian for, and registered in the
name of a nominee of, DTC.

Old Notes originally purchased by or transferred to Institutional
Accredited Investors who are not qualified institutional buyers ("Non-Global
Purchasers") were in registered form without interest coupons and represented by
the Certificated Old Notes. New Notes issued in exchange for the Certificated
Old Notes will be issued in the form of one or more Certificated New Notes.

Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Global Note directly through DTC if they are participants in such
system, or indirectly through organizations that are participants in such
system.

So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.

Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither FelCor LP, FelCor, any Subsidiary Guarantor, the Trustee nor any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.

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FelCor LP expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. FelCor LP also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.

Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.

FelCor LP expects that DTC will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which, in
the case of a Global Old Note, may be legended with respect to the restrictions
on transfer thereof.

FelCor LP understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").

Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among its participants, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither FelCor LP, FelCor, any
Subsidiary Guarantor, nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing its operations.

If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by FelCor LP within
90 days, FelCor LP will issue Certificated Notes, which, in the case of a Global
Old Note, may bear a legend with respect to the restrictions on transfer
thereof, in exchange for the Global Notes. Holders of an interest in a Global
Note may receive Certificated Notes, which, in the case of a Global Old Note,
may bear a legend with respect to the restrictions on transfer thereof, in
accordance with the DTC's rules and procedures in addition to those provided for
under the Indenture.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

GENERAL

In the opinion of Jenkens & Gilchrist, a Professional Corporation, the
following are the material U.S. federal income tax consequences of exchanging
Old Notes for New Notes pursuant to the Exchange Offer. The following opinion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
and proposed regulations thereunder, Internal Revenue Service ("IRS") rulings
and pronouncements, reports of congressional committees, judicial decisions and
current administrative rulings and practice, all as in effect on the date
hereof, all of which are subject to change at any time, and any such change may
be applied retroactively in a manner that could adversely affect the tax
consequences described below.

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This opinion applies only to Notes held as "capital assets" within the
meaning of section 1221 of the Code (generally property held for investment and
not for sale to customers in the ordinary course of a trade or business) by
holders who or which are (i) citizens or residents of the United States, (ii)
domestic corporations, partnerships or other entities or (iii) otherwise subject
to U.S. federal income taxation on a net income basis in respect of income and
gain from the Notes. This opinion does not address aspects of U.S. federal
income taxation that may be applicable to holders that are subject to special
tax rules, such as certain financial institutions, tax-exempt organizations,
insurance companies, dealers in securities, foreign corporations and nonresident
alien individuals. Moreover, this summary does not address any of the U.S.
federal income tax consequences of holders that do not acquire New Notes
pursuant to the Exchange Offer, nor does it address the applicability or effect
of any state, local or foreign tax laws.

The Company has not sought and will not seek any rulings from the IRS with
respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of exchanging Old Notes for New Notes.

EXCHANGE OFFER

The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an "exchange" for U.S. federal income tax purposes because the
New Notes will not be considered to differ materially in kind or extent from the
Old Notes. New Notes received by a holder of Old Notes will be treated as a
continuation of the Old Notes in the hands of such holder. Accordingly, there
will not be any U.S. federal income tax consequences to holders exchanging Old
Notes for New Notes pursuant to the Exchange Offer. A holder's holding period of
New Notes will include the holding period of the Old Notes exchanged therefor.

EACH HOLDER SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED ABOVE TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.

PLAN OF DISTRIBUTION

Except as described below, (i) a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the New Notes, (ii) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes when such Old Notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes. FelCor
LP has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any such
broker-dealer for use in connection with any such resale.

The Company will not receive any proceeds from any sales of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by

103
<PAGE> 110

acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.

For a period of 180 days after the Expiration Date, FelCor LP will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. FelCor LP has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Notes) other than commissions or concessions of any brokers or dealers and
transfer taxes and will indemnify the holders of Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.

The New Notes will constitute a new issue of securities with no established
trading market. FelCor LP does not intend to list the New Notes on any national
securities exchange or to seek approval for quotation through any automated
quotation system. The Company has been advised by the Initial Purchasers that
following completion of the Exchange Offer, the Initial Purchasers intend to
make a market in the New Notes. However, the Initial Purchasers are not
obligated to do so and any market-making activities with respect to the New
Notes may be discontinued at any time without notice. Accordingly, no assurance
can be given that an active public or other market will develop for the New
Notes or as to the liquidity of or the trading market for the New Notes. If a
trading market does not develop or is not maintained, the holders of the New
Notes may experience difficulty in reselling the New Notes or may be unable to
sell them at all. If a market for the New Notes develops, any such market may
cease to continue at any time. If a public trading market develops for the New
Notes, future trading prices of the New Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations and the market for similar securities and other factors, including
the financial condition of the Company.

LEGAL MATTERS

Certain legal matters with respect to the legality of the Notes will be
passed upon for FelCor and FelCor LP by Jenkens & Gilchrist, a Professional
Corporation, Dallas, Texas.

EXPERTS

The consolidated financial statements of FelCor Suite Hotels, Inc., FelCor
Suites Limited Partnership, and DJONT Operations, L.L.C. as of December 31, 1996
and 1995 and for the years ended December 31, 1996 and 1995 and for the period
July 28, 1994 (inception of operations) through December 31, 1994, included in
this Prospectus, have been included herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.

104
<PAGE> 111

INDEX TO FINANCIAL STATEMENTS

FELCOR SUITE HOTELS, INC.

<TABLE>
<S> <C>
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1996 and the nine months ended
September 30, 1997..................................... F-3
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-5
Pro Forma Consolidated Balance Sheet as of September 30,
1997................................................... F-13
Notes to Pro Forma Consolidated Balance Sheet............. F-14
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 1997.......... F-15
Consolidated Statements of Operations for the nine months
ended September 30, 1997
and 1996............................................... F-16
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997
and 1996............................................... F-17
Notes to Consolidated Financial Statements................ F-18
Report of Independent Accountants........................... F-27
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-28
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-29
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996 and 1995 and the period from
May 16, 1994 through December 31, 1994.................... F-30
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-31
Notes to Consolidated Financial Statements.................. F-32
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996...................................... F-49

FELCOR SUITES LIMITED PARTNERSHIP
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1996 and the nine months ended
September 30, 1997..................................... F-50
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-52
Pro Forma Consolidated Balance Sheet as of September 30,
1997................................................... F-60
Notes to Pro Forma Consolidated Balance Sheet............. F-61
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 1997.......... F-62
Consolidated Statements of Operations for the nine months
ended September 30, 1997
and 1996............................................... F-63
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997
and 1996............................................... F-64
Notes to Consolidated Financial Statements................ F-65
Report of Independent Accountants........................... F-75
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-76
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-77
Consolidated Statements of Partners' Capital for the years
ended December 31, 1996 and 1995 and the period from May
16, 1994 through December 31, 1994........................ F-78
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-79
Notes to Consolidated Financial Statements.................. F-80
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996...................................... F-98
</TABLE>

F-1
<PAGE> 112
DJONT OPERATIONS, L.L.C.
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1996 and the nine months ended
September 30, 1997..................................... F-99
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-101
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 1997.......... F-104
Consolidated Statements of Operations for the nine months
ended September 30, 1997
and 1996............................................... F-105
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997
and 1996............................................... F-106
Notes to Consolidated Financial Statements................ F-107
Report of Independent Accountants........................... F-110
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-111
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-112
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996 and 1995 and the period from
July 28, 1994 (inception of operations) through December
31, 1994.................................................. F-113
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-114
Notes to Consolidated Financial Statements.................. F-115

F-2
<PAGE> 113

FELCOR SUITE HOTELS, INC.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

The following unaudited Pro Forma Consolidated Statements of Operations of
FelCor Suite Hotels, Inc. (the "Company") are presented as if the acquisitions
of all hotels owned by the Company at December 31, 1996, those hotels acquired
in 1997 through September 30, 1997 (collectively the "Hotels"), the 1997
placement of the $300 million senior unsecured debt, the preferred stock
offering consummated during 1996 and the common stock offerings consummated
during 1997, and related transactions had occurred as of January 1, 1996 and the
Hotels had all been leased to DJONT Operations, L.L.C. or its consolidated
subsidiaries (the "Lessee") pursuant to Percentage Leases. Such pro forma
information is based in part upon the Consolidated Statements of Operations of
the Company, Pro Forma Statements of Operations of DJONT Operations, L.L.C. and
the historical statements of operations of the acquired hotels. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.

The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed on January 1, 1996, nor does it purport to represent the results of
operations for future periods.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------------------
1996 ACQUISITIONS 1997 ACQUISITIONS,
AND PREFERRED COMMON STOCK OFFERINGS
ACTUAL STOCK OFFERING(A) AND DEBT PLACEMENT(B) PRO FORMA
-------- ----------------- ---------------------- ---------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C)... $ 97,950 $12,127 $63,070 $173,147
Income from unconsolidated
partnerships(D)............. 2,010 805 308 3,123
Other income(E)............... 984 (984)
-------- ------- ------- --------
Total revenues........... 100,944 11,948 63,378 176,270
-------- ------- ------- --------
Expenses:
General and
administrative(F)........... 1,819 76 1,408 3,303
Depreciation(G)............... 26,544 4,559 16,419 47,522
Taxes, insurance and
other(H).................... 13,897 1,292 9,600 24,789
Interest expense(I)........... 9,803 6,100 16,926 32,829
Minority interest in Operating
Partnership(J).............. 5,590 (417) (205) 4,968
Minority interest in other
partnerships(K)............. 236 236
-------- ------- ------- --------
Total expenses........... 57,653 11,610 44,384 113,647
-------- ------- ------- --------
Net income......................... 43,291 338 18,994 62,623
Preferred dividends(L)............. 7,734 4,064 11,798
-------- ------- ------- --------
Net income applicable to common
shareholders(M).................. $ 35,557 $(3,726) $18,994 $ 50,825
======== ======= ======= ========
Net income per common share(M)..... $ 1.54 $ 1.40
======== ========
Weighted average number of common
shares outstanding............... 23,076 36,237
======== ========
</TABLE>

F-3
<PAGE> 114

FELCOR SUITE HOTELS, INC.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------
PRO FORMA ADJUSTMENTS
1997 ACQUISITIONS
COMMON STOCK AND
ACTUAL DEBT OFFERINGS(B) PRO FORMA
-------- ---------------------- ---------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C).................. $122,651 $29,476 $152,127
Income from unconsolidated partnerships(D)... 5,765 (84) 5,681
Other income(E).............................. 283 (283) --
-------- ------- --------
Total revenues.......................... 128,699 29,109 157,808
-------- ------- --------
Expenses:
General and administrative................... 2,743 -- 2,743
Depreciation(G).............................. 35,969 7,274 43,243
Taxes, insurance and other(H)................ 16,912 4,133 21,045
Interest expense(I).......................... 20,097 8,147 28,244
Minority interest in Operating
Partnership(J)............................. 4,584 (7) 4,577
Minority interest in other partnerships(K)... 337 90 427
-------- ------- --------
Total expenses.......................... 80,642 19,637 100,279
-------- ------- --------
Net income........................................ 48,057 9,472 57,529
Preferred dividends(L)............................ 8,848 -- 8,848
-------- ------- --------
Net income applicable to common shareholders(M)... $ 39,209 $ 9,472 $ 48,681
======== ======= ========
Net income per common share(M).................... $ 1.33 $ 1.33
======== ========
Weighted average number of common shares
outstanding..................................... 29,570 36,570
======== ========
</TABLE>

F-4
<PAGE> 115

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(A) Represents pro forma adjustments to reflect the historical results of
operations prior to the acquisition by the Company for those hotels acquired
by the Company in 1996 as adjusted to give effect to the provisions of the
Percentage Leases; the effect of the preferred stock offering prior to the
date issued in May 1996; and other pro forma adjustments reflecting
additional overhead expenses and interest expenses. Those hotels acquired
during 1996 and the dates of acquisition are as follows:

<TABLE>
<S> <C>
Anaheim, California, Embassy Suites......................... January 3, 1996
Baton Rouge, Louisiana, Embassy Suites...................... January 3, 1996
Birmingham, Alabama, Embassy Suites......................... January 3, 1996
Deerfield Beach, Florida, Embassy Suites.................... January 3, 1996
Ft. Lauderdale, Florida, Embassy Suites..................... January 3, 1996
Miami (Airport), Florida, Embassy Suites.................... January 3, 1996
Milpitas, California, Embassy Suites........................ January 3, 1996
Phoenix (Camelback), Arizona, Embassy Suites................ January 3, 1996
Burlingame (S.F. Airport So.), California, Embassy Suites... January 3, 1996
Lexington, Kentucky, Hilton Suites.......................... January 10, 1996
Piscataway, New Jersey, Embassy Suites...................... January 10, 1996
Avon (Beaver Creek Resort), Colorado, Embassy Suites........ February 20, 1996
Boca Raton, Florida, Embassy Suites......................... February 28, 1996
El Segundo (LAX South), California, Embassy Suites.......... March 27, 1996
Oxnard (Mandalay Beach), California, Embassy Suites......... May 8, 1996
Napa, California, Embassy Suites............................ May 8, 1996
Deerfield, Illinois, Embassy Suites......................... June 20, 1996
San Rafael (Marin Co.), California, Embassy Suites.......... July 18, 1996
Parsippany, New Jersey, Embassy Suites...................... August 1, 1996
Charlotte, North Carolina, Embassy Suites................... August 1, 1996
Indianapolis (North), Indiana, Embassy Suites............... August 1, 1996
Atlanta (Buckhead), Georgia, Embassy Suites................. October 17, 1996
Myrtle Beach (Kingston Plantation), South Carolina, Embassy
Suites.................................................... December 5, 1996
</TABLE>

F-5
<PAGE> 116

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(B) Represents pro forma adjustments to reflect the historical results of
operations prior to the acquisition by the Company for those hotels
acquired by the Company in 1997 through September 30, 1997, as adjusted to
give effect to the provisions of the Percentage Leases; the effect of the
Company's common stock offering in the first quarter of 1997; the common
stock offering in June 1997; the placement of the $300 million senior
unsecured debt and other pro forma adjustments reflecting additional
overhead expenses and interest expense. Those hotels acquired during 1997
and dates of acquisition are as follows:

<TABLE>
<S> <C>
Omaha, Nebraska, Doubletree Guest Suites.................... February 1, 1997
Bloomington, Minnesota, Doubletree Guest Suites............. February 1, 1997
Atlanta (Perimeter Center), Georgia, Embassy Suites......... February 1, 1997
Kansas City (Country Club Plaza), Missouri, Embassy
Suites.................................................... February 1, 1997
Overland Park, Kansas, Embassy Suites....................... February 1, 1997
Raleigh, North Carolina, Embassy Suites..................... February 1, 1997
San Antonio (Northwest), Texas, Embassy Suites.............. February 1, 1997
Austin (Airport North), Texas, Embassy Suites............... February 1, 1997
Covina, California, Embassy Suites.......................... February 1, 1997
Secaucus, New Jersey, Embassy Suites........................ February 1, 1997
Los Angeles (LAX Airport North), California, Embassy
Suites.................................................... February 18, 1997
Dana Point, California, Doubletree Guest Suites............. February 21, 1997
Troy, Michigan, Doubletree Guest Suites..................... March 20, 1997
Austin (Downtown), Texas, Doubletree Guest Suites........... March 20, 1997
Baltimore, Maryland, Doubletree Guest Suites................ March 20, 1997
San Antonio (Airport), Texas, Embassy Suites................ May 16, 1997
Nashville (Airport), Tennessee, Doubletree Guest Suites..... June 5, 1997
Dallas (Market Center), Texas, Embassy Suites............... June 30, 1997
Syracuse, New York, Embassy Suites.......................... June 30, 1997
Atlanta (Airport), Georgia, Sheraton Gateway................ June 30, 1997
Atlanta (Galleria), Georgia, Sheraton Suites................ June 30, 1997
Chicago (O'Hare), Illinois, Sheraton Gateway Suites......... June 30, 1997
Dallas (Park Central), Texas, Sheraton...................... June 30, 1997
Phoenix (Crescent), Arizona, Sheraton....................... June 30, 1997
Lake Buena Vista (Disney World), Florida, Doubletree Guest
Suites.................................................... July 28, 1997
Raleigh/Durham, North Carolina, Doubletree Guest Suites..... July 28, 1997
Tampa (Rocky Point), Florida, Doubletree Guest Suites....... July 28, 1997
Philadelphia (Society Hill), Pennsylvania, Sheraton......... September 29, 1997
</TABLE>

F-6
<PAGE> 117

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(C) Represents historical or pro forma lease revenue from the Lessee to the
Company calculated by applying the contractual or anticipated rent
provisions of the Percentage Leases to the historical suite revenues, food
and beverage rents and food and beverage revenues of all the Hotels which
are consolidated for financial reporting purposes. The income from
unconsolidated partnerships is included as a separate line item in the
accompanying Pro Forma Statement of Operations as described in Note D.
Historical suite revenues for the time period prior to the acquisition by
the Company, the date of acquisition, the contractual or anticipated pro
forma Percentage Lease revenue for the time period prior to acquisition by
the Company and a summary of contractual or anticipated Percentage Lease
terms follows (in thousands):
<TABLE>
<CAPTION>

SUITE REVENUE FOR THE PERIOD
PRIOR TO ACQUISITION
BY THE COMPANY
--------------------------------------
NINE MONTHS
DATE OF ENDED YEAR ENDED
DESCRIPTION OF PROPERTY ACQUISITION SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest
Suites.............................. February 1, 1997 $ 379 $ 6,342
Omaha, NE, Doubletree Guest Suites.... February 1, 1997 336 4,754
Los Angeles (LAX Airport North),
Embassy Suites...................... February 18, 1997 826 6,263
Dana Point, CA, Doubletree Guest
Suites.............................. February 21, 1997 485 3,716
Troy, MI, Doubletree Guest Suites..... March 20, 1997 1,489 6,342
Austin (Downtown), TX, Doubletree
Guest Suites........................ March 20, 1997 1,366 5,696
Baltimore, MD, Doubletree Guest
Suites.............................. March 20, 1997 1,167 6,236
Nashville, TN, Doubletree Guest
Suites.............................. June 5, 1997 1,341 3,164
Dallas (Market Center), TX, Embassy
Suites.............................. June 30, 1997 3,938 7,716
Syracuse, NY, Embassy Suites.......... June 30, 1997 2,909 5,572
Dallas (Park Central), TX, Sheraton... June 30, 1997 6,920 13,520
Phoenix (Crescent), AZ, Sheraton...... June 30, 1997 5,738 9,581
Chicago (O'Hare), IL, Sheraton Gateway
Suites.............................. June 30, 1997 4,803 8,973
Atlanta (Airport), GA, Sheraton
Gateway............................. June 30, 1997 4,351 9,841
Atlanta (Galleria), GA, Sheraton
Suites.............................. June 30, 1997 3,700 8,091
Lake Buena Vista (Disney World), FL,
Doubletree Guest Suites............. July 28, 1997 5,993 8,446
Raleigh/Durham, NC, Doubletree Guest
Suites.............................. July 28, 1997 3,497 5,327
Tampa (Rocky Point), FL, Doubletree
Guest Suites........................ July 28, 1997 3,779 5,499
Philadelphia (Society Hill), PA,
Sheraton............................ September 29, 1997 9,464 12,384
------- --------
Total consolidated hotels....... $62,481 $137,463
======= ========
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA,
Embassy Suites...................... February 1, 1997 $ 600 $ 8,084
Austin (Airport North), TX, Embassy
Suites.............................. February 1, 1997 528 7,542
Covina, CA, Embassy Suites............ February 1, 1997 417 4,053
Overland Park, KS, Embassy Suites..... February 1, 1997 403 5,624
Kansas City (Country Club Plaza), MO,
Embassy Suites...................... February 1, 1997 548 7,604
Raleigh, NC, Embassy Suites........... February 1, 1997 624 7,592
San Antonio (Northwest), TX, Embassy
Suites.............................. February 1, 1997 337 5,614
Secaucus, NJ, Embassy Suites.......... February 1, 1997 722 9,816
San Antonio (Airport), TX, Embassy
Suites.............................. May 16, 1997 2,874 7,235
------- --------
Total unconsolidated hotel
partnerships.................. $ 7,053 $ 63,164
======= ========

<CAPTION>
PERCENTAGE LEASE REVENUE
FOR THE PERIOD
PRIOR TO ACQUISITION ANNUAL PERCENTAGE
BY THE COMPANY LEASE TERMS
-------------------------------------- ---------------------------
NINE MONTHS SUITE
ENDED YEAR ENDED FIRST SECOND REVENUE
DESCRIPTION OF PROPERTY SEPTEMBER 30, 1997 DECEMBER 31, 1996 TIER TIER BREAKPOINT
----------------------- ------------------ ----------------- ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest
Suites.............................. $ 152 $ 3,049 17% 65% $2,468
Omaha, NE, Doubletree Guest Suites.... 150 2,285 17 65 1,703
Los Angeles (LAX Airport North),
Embassy Suites...................... 339 2,590 17 65 3,176
Dana Point, CA, Doubletree Guest
Suites.............................. 144 1,395 17 65 2,211
Troy, MI, Doubletree Guest Suites..... 800 3,316 17 65 1,935
Austin (Downtown), TX, Doubletree
Guest Suites........................ 700 2,829 17 65 1,961
Baltimore, MD, Doubletree Guest
Suites.............................. 538 2,943 17 65 2,536
Nashville, TN, Doubletree Guest
Suites.............................. 560 1,320 17 65 1,585
Dallas (Market Center), TX, Embassy
Suites.............................. 1,848 3,583 17 65 3,069
Syracuse, NY, Embassy Suites.......... 1,123 2,130 17 65 3,227
Dallas (Park Central), TX, Sheraton... 3,127 6,031 17 65 6,490
Phoenix (Crescent), AZ, Sheraton...... 2,405 3,525 17 65 6,218
Chicago (O'Hare), IL, Sheraton Gateway
Suites.............................. 2,577 4,709 17 65 2,760
Atlanta (Airport), GA, Sheraton
Gateway............................. 1,725 4,156 17 65 5,033
Atlanta (Galleria), GA, Sheraton
Suites.............................. 1,540 3,533 17 65 3,777
Lake Buena Vista (Disney World), FL,
Doubletree Guest Suites............. 3,305 4,467 17 65 2,272
Raleigh/Durham, NC, Doubletree Guest
Suites.............................. 1,612 2,623 17 65 1,900
Tampa (Rocky Point), FL, Doubletree
Guest Suites........................ 1,951 2,703 17 65 1,939
Philadelphia (Society Hill), PA,
Sheraton............................ 4,880 5,883 17 65 5,143
------- -------
Total consolidated hotels....... $29,476 $63,070
======= =======
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA,
Embassy Suites...................... $ 274 $ 3,889 17% 65% $2,949
Austin (Airport North), TX, Embassy
Suites.............................. 249 3,792 17 65 2,378
Covina, CA, Embassy Suites............ 158 1,293 17 65 3,066
Overland Park, KS, Embassy Suites..... 176 2,641 17 65 2,114
Kansas City (Country Club Plaza), MO,
Embassy Suites...................... 240 3,594 17 65 2,976
Raleigh, NC, Embassy Suites........... 300 3,693 17 65 2,711
San Antonio (Northwest), TX, Embassy
Suites.............................. 120 2,487 17 65 2,474
Secaucus, NJ, Embassy Suites.......... 274 4,082 17 65 4,788
San Antonio (Airport), TX, Embassy
Suites.............................. 1,280 3,113 17 65 3,311
------- -------
Total unconsolidated hotel
partnerships.................. $ 3,071 $28,584
======= =======
</TABLE>

F-7
<PAGE> 118

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(D) Represents historical or pro forma income from unconsolidated partnerships
to the Company calculated by applying the Company's pro rata ownership
percentage to the net income of the unconsolidated partnerships, computed
using the contractual or anticipated rent provisions of the Percentage
Leases to the historical suite revenues, food and beverage rents and food
and beverage revenues of all the hotels; historical taxes, insurance and
other; historical depreciation expense; and historical interest expenses.
The amortization of the Company's cost in excess of net book value of the
partnership assets is deducted to arrive at income from unconsolidated
partnerships. This computation is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Statements of operations information:
Percentage lease revenue........................ $3,071 $28,584
Depreciation.................................... 1,262 12,536
Taxes, insurance and other...................... 509 3,166
Interest expense................................ 1,116 9,725
------- -------
Net income (loss)............................... 184 3,157
50% of income (loss) attributable to the
Company...................................... 92 1,579
Amortization of cost in excess of net book
value........................................ (176) (1,271)
------- -------
Income (loss) from unconsolidated
partnerships................................. $ (84) $ 308
======= =======
</TABLE>

(E) Represents elimination of historical interest income earned on excess cash.

(F) Pro forma general and administrative expenses represent executive
compensation, legal, audit and other expenses. These amounts are based on
historical general and administrative expenses as well as probable 1997
expenses.

F-8
<PAGE> 119

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(G) Represents depreciation on the Hotels. Depreciation is computed based on
estimated useful lives of 40 years for buildings and improvements and five
years for furniture, fixtures and equipment. These estimated useful lives
are based on management's knowledge of the properties and the hotel industry
in general. The pro forma depreciation adjustment for the hotels acquired in
1997 and for the year ended December 31, 1996 is as follows:

FELCOR SUITE HOTELS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET COST
------------------------------------------------
DATE OF BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY ACQUISITION LAND IMPROVEMENTS AND FIXTURES TOTAL
----------------------- ------------------ ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites........... February 1, 1997 $ 2,038 $ 17,731 $ 612 $ 20,381
Omaha, NE, Doubletree Guest Suites................. February 1, 1997 1,876 16,328 563 18,767
Los Angeles (LAX Airport North), Embassy Suites.... February 18, 1997 2,208 19,205 662 22,075
Dana Point, CA, Doubletree Guest Suites............ February 21, 1997 1,787 15,545 536 17,868
Troy, MI, Doubletree Guest Suites.................. March 20, 1997 2,957 25,794 887 29,638
Austin (Downtown), TX, Doubletree Guest Suites..... March 20, 1997 2,506 21,858 752 25,116
Baltimore, MD, Doubletree Guest Suites............. March 20, 1997 2,566 22,381 770 25,717
Nashville, TN, Doubletree Guest Suites............. June 5, 1997 1,071 9,332 322 10,725
Dallas (Market Center), TX, Embassy Suites......... June 30, 1997 2,619 24,299 2,182 29,100
Syracuse, NY, Embassy Suites....................... June 30, 1997 1,597 14,812 1,330 17,739
Atlanta (Airport), GA, Sheraton Gateway............ June 30, 1997 5,110 22,845 2,104 30,059
Atlanta (Galleria), GA, Sheraton Suites............ June 30, 1997 5,049 28,490 2,525 36,064
Chicago (O'Hare), IL, Sheraton Gateway Suites...... June 30, 1997 8,174 37,022 2,885 48,081
Dallas (Park Central), TX, Sheraton................ June 30, 1997 4,511 43,101 2,506 50,118
Phoenix (Crescent), AZ, Sheraton................... June 30, 1997 3,606 29,567 2,885 36,058
Lake Buena Vista (Disney World), FL, Doubletree
Guest Suites..................................... July 28, 1997 2,896 25,196 869 28,961
Raleigh/Durham, NC, Doubletree Guest Suites........ July 28, 1997 2,124 18,476 637 21,237
Tampa (Rocky Point), FL, Doubletree Guest Suites... July 28, 1997 2,142 18,640 643 21,425
Philadelphia (Society Hill), PA, Sheraton hotel.... September 29, 1997 5,120 44,541 1,536 51,197
------- -------- ------- --------
Total consolidated hotels.................... $59,957 $455,163 $25,206 $540,326
======= ======== ======= ========

<CAPTION>
ANNUAL DEPRECIATION EXPENSE
-------------------------------------
BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY IMPROVEMENTS AND FIXTURES TOTAL
----------------------- ------------ ------------ -------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites........... $ 443 $ 122 $ 565
Omaha, NE, Doubletree Guest Suites................. 408 113 521
Los Angeles (LAX Airport North), Embassy Suites.... 480 132 612
Dana Point, CA, Doubletree Guest Suites............ 389 107 496
Troy, MI, Doubletree Guest Suites.................. 645 177 822
Austin (Downtown), TX, Doubletree Guest Suites..... 546 150 696
Baltimore, MD, Doubletree Guest Suites............. 560 154 714
Nashville, TN, Doubletree Guest Suites............. 233 64 297
Dallas (Market Center), TX, Embassy Suites......... 607 436 1,043
Syracuse, NY, Embassy Suites....................... 370 266 636
Atlanta (Airport), GA, Sheraton Gateway............ 571 421 992
Atlanta (Galleria), GA, Sheraton Suites............ 712 505 1,217
Chicago (O'Hare), IL, Sheraton Gateway Suites...... 926 577 1,503
Dallas (Park Central), TX, Sheraton................ 1,078 501 1,579
Phoenix (Crescent), AZ, Sheraton................... 739 577 1,316
Lake Buena Vista (Disney World), FL, Doubletree
Guest Suites..................................... 630 174 804
Raleigh/Durham, NC, Doubletree Guest Suites........ 462 127 589
Tampa (Rocky Point), FL, Doubletree Guest Suites... 466 130 596
Philadelphia (Society Hill), PA, Sheraton hotel.... 1,114 307 1,421
------- ------ -------
Total consolidated hotels.................... $11,379 $5,040 $16,419
======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
ACQUISITION COST ANNUAL
DATE OF ACQUISITION IN EXCESS OF NET AMORTIZATION
ACQUISITION COST BOOK VALUE OF EXCESS COST
------------------ ----------- ----------------- --------------
<S> <C> <C> <C> <C>
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy Suites..... February 1, 1997 $ 9,620 $ 9,199 $ 230
Austin (Airport North), TX, Embassy Suites......... February 1, 1997 8,965 6,486 162
Covina, CA, Embassy Suites......................... February 1, 1997 2,229 (3,329) (83)
Overland Park, KS, Embassy Suites.................. February 1, 1997 5,673 4,928 123
Kansas City (Country Club Plaza), MO, Embassy
Suites........................................... February 1, 1997 8,224 7,161 179
Raleigh, NC, Embassy Suites........................ February 1, 1997 9,739 8,764 219
San Antonio (Northwest), TX, Embassy Suites........ February 1, 1997 4,768 3,445 86
Secaucus, NJ, Embassy Suites....................... February 1, 1997 9,001 7,103 178
San Antonio (Airport), TX, Embassy Suites.......... May 16, 1997 6,916 7,315 177
------- ------- ------
Total unconsolidated hotel partnerships...... $65,135 $51,072 $1,271
======= ======= ======
</TABLE>

F-9
<PAGE> 120

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(H) Pro forma real estate, personal property tax, franchise taxes, property
insurance, ground lease and other expenses for the year ended December 31,
1996 represent expenses to be paid by the Partnership. Such amounts were
primarily derived from historical amounts paid with respect to the Hotels.
The nine months ended September 30, 1997 real estate, personal property tax,
franchise taxes, property insurance, and ground lease expenses are computed
in a similar manner as the year ended December 31, 1996 pro forma
adjustments.

A schedule of property taxes and insurance derived from the historical
amounts paid for the hotels acquired in 1997 follows:

<TABLE>
<CAPTION>
PROPERTY TAXES PROPERTY INSURANCE
----------------------------- -----------------------------
NINE MONTHS TWELVE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
DESCRIPTION OF PROPERTY 1997 1996 1997 1996
----------------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest
Suites............................... $ 59 $ 707 $ 1 $ 17
Omaha, NE, Doubletree Guest Suites...... 15 170 1 13
Los Angeles (LAX Airport North), CA,
Embassy Suites....................... 44 320 20 91
Dana Point, CA, Doubletree Guest
Suites............................... 16 62 3 13
Troy, MI, Doubletree Guest Suites....... 91 354 5 21
Austin (Downtown), TX,
Doubletree Guest Suites.............. 97 466 3 13
Baltimore, MD, Doubletree Guest
Suites............................... 38 223 2 7
Lake Buena Vista (Disney World), FL,
Doubletree Guest Suites.............. 228 399 9 16
Raleigh, NC, Doubletree Guest Suites.... 90 149 7 14
Tampa (Rocky Point), FL,
Doubletree Guest Suites.............. 135 237 21 39
Nashville, TN, Doubletree Guest
Suites............................... 34 75 3 8
Dallas (Market Center), TX,
Embassy Suites....................... 260 505 11 19
Syracuse, NY, Embassy Suites............ 167 329 9 16
Dallas (Park Central), TX, Sheraton..... 310 595 30 70
Phoenix (Crescent), AZ, Sheraton........ 404 748 12 24
Chicago (O'Hare), IL, Sheraton Gateway
Suites............................... 646 1,366 10 20
Atlanta (Airport), GA, Sheraton
Gateway.............................. 216 443 12 25
Atlanta (Galleria), GA, Sheraton
Suites............................... 191 369 7 16
Philadelphia (Society Hill), PA,
Sheraton............................. 443 609 17 24
------ ------ ---- ----
Total consolidated hotels....... $3,484 $8,126 $183 $466
====== ====== ==== ====
</TABLE>

F-10
<PAGE> 121

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PROPERTY TAXES PROPERTY INSURANCE
----------------------------- -----------------------------
NINE MONTHS TWELVE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
DESCRIPTION OF PROPERTY 1997 1996 1997 1996
----------------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy
Suites............................... $ 22 $ 172 $ 2 $ 17
Austin (Airport North), TX,
Embassy Suites....................... 41 435 2 17
Covina, CA, Embassy Suites.............. 14 (810) 8 96
Overland Park, KS, Embassy Suites....... 34 370 1 14
Kansas City (Country Club Plaza), MO,
Embassy Suites....................... 35 359 3 29
Raleigh, NC, Embassy Suites............. 17 171 1 16
San Antonio (Northwest), TX,
Embassy Suites....................... 35 385 1 15
Secaucus, NJ, Embassy Suites............ 47 560 2 22
San Antonio (Airport), TX,
Embassy Suites....................... 174 418 8 18
------ ------ ---- ----
Total unconsolidated hotel
partnerships.................. $ 419 $2,060 $ 28 $244
====== ====== ==== ====
</TABLE>

(I) Represents both historical and pro forma interest expense computed based on
borrowings outstanding for the respective periods multiplied by the
applicable fixed or variable interest rate as stated in the applicable debt
instruments. The pro forma adjustment assumes (i) additional borrowings
against the Line of Credit in the amount of $89.9 million were required in
order to finance the hotels acquired in 1997 through September 30, 1997,
and includes additional interest expense incurred prior to the acquisition
date by the Company, (ii) the placement of the $300 million senior
unsecured debt at the weighted average interest rate of 7.85% per annum and
(iii) repayment of the $85 million term loan. The variable interest rates
used to calculate the pro forma adjustment to interest expense were the
same as the historical rates used to calculate the outstanding borrowings
on the Line of Credit for the same respective periods ended December 31,
1996 and September 30, 1997. The period end pro forma debt balances,
average interest rates and pro forma interest expense for the year end
December 31, 1996 and September 30, 1997 follow:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit.......................................... $ 82,557 7.30% $ 3,206(2)
Debt offering........................................... 300,000 7.85 23,545(2)
Renovation loan......................................... 25,000 7.27 852
Other debt payable...................................... 1,550 6.75 3,520
Capital leases.......................................... 12,875 12.50 1,706
-------- -------
$421,982 $32,829
======== =======
</TABLE>

F-11
<PAGE> 122

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit.......................................... $ 89,861 7.55% $ 8,259
Debt offering........................................... 300,000 7.85 17,659
Renovation loan......................................... 25,000 6.24 1,197
Other debt payable...................................... 650 7.47 40
Capital leases.......................................... 11,527 12.50 1,089
-------- -------
$427,038 $28,244
======== =======
</TABLE>

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

(1) Pro forma interest expense represents interest expense applicable to
the pro forma weighted average borrowings outstanding during the
periods presented which at times exceeds the pro forma borrowings
outstanding at the end of the periods.

(2) Pro forma weighted average borrowings under the Notes exceeded
historical weighted average borrowings under the Line of Credit for
much of 1996, resulting in additional interest expense relating to the
excess amount borrowed that could not be used to repay borrowings under
the Line of Credit. The pro forma statements of operations do not
include a pro forma adjustment to recognize interest income on such
excess cash and cash equivalents.

(J) Calculated as approximately 7.35% and 7.42% of income before minority
interest for pro forma results of operations for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively.

(K) Represents historical and pro forma minority interest expense related to 3
hotels in which the Company has a 90% general partnership interest. Minority
interest is calculated as 10% of net income computed using the rent
provisions of the Percentage Leases to the historical suite revenues;
historical taxes, insurance and other; historical depreciation expense; and
historical interest expenses. This computation is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue............................. $2,040 $9,087
Depreciation......................................... 671 3,521
Taxes, insurance and other........................... 251 1,123
Interest expense..................................... 217 2,081
------- -------
Net income (loss) before minority interest........... $ 901 $2,362
======= =======
Minority interest expense -- 10% of net income....... $ 90 $ 236
======= =======
</TABLE>

(L) The 1996 pro forma adjustment to preferred dividends assumes the Series A
Preferred Stock was issued on January 1, 1996. The adjustment reflects the
additional dividends that would have been paid in 1996 prior to May 6,
1996, the actual date of issuance.

(M) Pro forma income applicable to common shareholders excludes the
extraordinary charge from write-off of deferred financing fees in the amount
of approximately $2,354,000 from the "Actual" for the year ended December
31, 1996.

F-12
<PAGE> 123

FELCOR SUITE HOTELS, INC.

PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)

The following unaudited Pro Forma Consolidated Balance Sheet of FelCor
Suite Hotels, Inc. (the "Company") is presented as if the placement of the $300
million senior unsecured debt and related transactions had occurred on September
30, 1997. Such pro forma information is based in part upon the consolidated
balance sheet of the Company. In management's opinion, all adjustments necessary
to reflect the effects of these transactions have been made.

The following unaudited Pro Forma Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position of the Company
would have been assuming such transactions had been completed as of September
30, 1997, nor does it purport to represent the future financial position of the
Company.

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Investment in hotels................................... $1,447,340 $ $1,447,340
Investment in unconsolidated partnerships.............. 127,606 127,606
Cash and cash equivalents.............................. 18,942 18,942
Deposits............................................... 1,616 1,616
Due from Lessee........................................ 13,419 13,419
Deferred expenses...................................... 3,793 8,861(A) 12,654
Other assets........................................... 3,771 3,771
---------- -------- ----------
Total assets................................. $1,616,487 $ 8,861 $1,625,348
========== ======== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Distributions payable.................................. $ 24,171 $ 24,171
Accrued expenses and other liabilities................. 5,766 5,766
Debt................................................... 406,650 $ 8,861(A) 415,511
Capital lease obligations.............................. 11,527 11,527
Minority interest in Operating Partnership............. 74,175 (31)(B) 74,144
Minority interest in other partnerships................ 8,358 8,358
---------- -------- ----------
Total liabilities............................ 530,647 8,830 539,477
---------- -------- ----------
Shareholders' Equity:
Preferred stock........................................ 151,250 151,250
Common stock........................................... 377 377
Treasury stock......................................... (41,106) (41,106)
Additional paid in capital............................. 1,003,049 31(B) 1,003,080
Unearned officers' and directors' compensation......... (1,942) (1,942)
Distributions in excess of earnings.................... (25,788) (25,788)
---------- -------- ----------
Total shareholders' equity................... 1,085,840 31 1,085,871
---------- -------- ----------
Total liabilities and shareholders' equity... $1,616,487 $ 8,861 $1,625,348
========== ======== ==========
</TABLE>

F-13
<PAGE> 124

FELCOR SUITE HOTELS, INC.

NOTES TO PRO FORMA BALANCE SHEET

(A) Increase represents deferred loan costs associated with the placement of
the $300 million senior unsecured debt.

(B) Increase represents the adjustment necessary to reflect a pro forma 7.35%
minority interest in the Operating Partnership at September 30, 1997.

F-14
<PAGE> 125

FELCOR SUITE HOTELS, INC.

CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Investment in hotels, net of accumulated depreciation of
$72,607 at September 30, 1997............................. $1,447,340
Investment in unconsolidated partnerships................... 127,606
Cash and cash equivalents................................... 18,942
Deposits.................................................... 1,616
Due from Lessee............................................. 13,419
Deferred expenses, net of accumulated amortization of $1,375
at September 30, 1997..................................... 3,793
Other assets................................................ 3,771
----------
Total assets...................................... $1,616,487
==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Distributions payable....................................... $ 24,171
Accrued expenses and other liabilities...................... 5,766
Debt........................................................ 406,650
Capital lease obligations................................... 11,527
Minority interest in Operating Partnership, 2,904 units
issued and outstanding at September 30, 1997.............. 74,175
Minority interest in other partnerships..................... 8,358
----------
Total liabilities................................. 530,647
----------
Commitments and contingencies (Note 2)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized,
6,050 shares issued and outstanding at September 30,
1997................................................... 151,250
Common stock, $.01 par value, 50,000 shares authorized,
36,595 shares issued, including shares in treasury, at
September 30 1997...................................... 377
Additional paid in capital................................ 1,003,049
Unearned officers' and directors' compensation............ (1,942)
Distributions in excess of earnings....................... (25,788)
----------
1,126,946
Less common stock in treasury at cost, 1,200 shares at
September 30, 1997..................................... (41,106)
----------
Total shareholders' equity........................ 1,085,840
----------
Total liabilities and shareholders' equity........ $1,616,487
==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-15
<PAGE> 126

FELCOR SUITE HOTELS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $122,651 $72,648
Income from unconsolidated partnerships................... 5,765 1,412
Other income.............................................. 283 937
-------- -------
Total revenue..................................... 128,699 74,997
-------- -------
Expenses:
General and administrative................................ 2,743 1,307
Depreciation.............................................. 35,969 17,833
Taxes, insurance and other................................ 16,912 9,859
Interest expense.......................................... 20,097 6,273
Minority interest in Operating Partnership................ 4,584 4,619
Minority interest in other partnerships................... 337
-------- -------
Total expenses.................................... 80,642 39,891
-------- -------
Net income before extraordinary charge...................... 48,057 35,106
Extraordinary charge from writeoff of deferred financing
fees...................................................... 2,354
-------- -------
Net income.................................................. 48,057 32,752
Preferred dividends......................................... 8,848 4,784
-------- -------
Net income applicable to common shareholders................ $ 39,209 $27,968
======== =======
Per common share information:
Net income applicable to common shareholders before
extraordinary charge...................................... $ 1.33 $ 1.32
Extraordinary charge........................................ (0.10)
-------- -------
Net income................................................ $ 1.33 $ 1.22
======== =======
Weighted average number of common shares outstanding...... 29,570 22,933
======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-16
<PAGE> 127

FELCOR SUITE HOTELS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 48,057 $ 32,752
Adjustments to reconcile net income to net cash provided
by operating activities, net of effects of
acquisitions:
Depreciation........................................... 35,969 17,833
Amortization of deferred financing fees and
organization costs.................................... 1,011 269
Amortization of unearned officers' and directors'
compensation.......................................... 737 315
Income from unconsolidated partnerships................ (5,765) (1,412)
Cash distributions from unconsolidated partnerships.... 2,849 896
Extraordinary charge for writeoff of deferred financing
fees.................................................. 2,354
Minority interest in Operating Partnership............. 4,584 4,619
Minority interest in other partnerships................ 337
Changes in assets and liabilities:
Due from Lessee........................................ (7,893) (1,359)
Deferred expenses and other assets..................... (4,362) (3,979)
Accrued expenses and other liabilities................. (966) (3,142)
--------- ---------
Net cash flow provided by operating activities.... 74,558 49,146
--------- ---------
Cash flows from investing activities:
Acquisition of hotels..................................... (537,100) (287,715)
Acquisition of interests in unconsolidated partnerships... (59,571) (28,204)
Improvements and additions to hotels...................... (38,413) (44,960)
--------- ---------
Net cash flow used in investing activities........ (635,084) (360,879)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................................. 332,000 185,350
Repayment of borrowings................................... (151,900) (190,954)
Proceeds from sale of common stock........................ 516,700 44,978
Proceeds from sale of preferred stock..................... 144,251
Costs associated with public offerings.................... (27,600)
Purchase of treasury stock................................ (41,106)
Proceeds from exercise of stock options................... 592
Distributions paid to limited partners.................... (4,432) (3,960)
Distributions paid to preferred shareholders.............. (8,848) (1,835)
Distributions paid to common shareholders................. (43,731) (24,835)
--------- ---------
Net cash flow provided by financing activities.... 571,675 152,995
--------- ---------
Net change in cash and cash equivalents..................... 11,149 (158,738)
Cash and cash equivalents at beginning of periods........... 7,793 166,821
--------- ---------
Cash and cash equivalents at end of periods................. $ 18,942 $ 8,083
========= =========
Supplemental cash flow information --
Interest paid............................................. $ 19,907 $ 6,971
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-17
<PAGE> 128

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND ACQUISITIONS

FelCor Suite Hotels, Inc., is a self-administered real estate investment
trust ("REIT"), which commenced operations on July 28, 1994. At the commencement
of operations, FelCor Suite Hotels, Inc. ("FelCor") acquired an equity interest
of approximately 75% in FelCor Suites Limited Partnership (the "Operating
Partnership"), which owned six Embassy Suites(R) hotels (the "Initial Hotels")
with an aggregate of 1,479 suites. The Operating Partnership had acquired the
Initial Hotels through a merger with entities, originally formed in 1991,
controlled by Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the
Board of Directors and Chief Executive Officer of the Company, respectively.

At September 30, 1997, FelCor owned interests in 71 hotels with an
aggregate of 17,486 suites/rooms (collectively the "Hotels") through its 92.7%
aggregate ownership of the Operating Partnership and its subsidiaries
(collectively, the "Company"). FelCor also is the sole general partner of the
Operating Partnership. The Company owns 100% equity interests in 53 of the
Hotels (12,983 suites), a 90% or greater interest in partnerships owning four
hotels (1,041 suites), and 50% interests in separate partnerships that own 14
hotels (3,462 suites). At September 30, 1997, 51 of the Hotels were operated as
Embassy Suites hotels, 12 as Doubletree Guest Suites(R) hotels, one as a Hilton
Suites(R)hotel, one hotel was in the process of conversion to an Embassy Suites
hotel, four hotels were operated as Sheraton(R) hotels and two were operated as
Sheraton Suites(R) hotels. The Hotels are located in 26 states, with 31 hotels
in California, Florida and Texas. The following table provides certain
information regarding the Hotels through September 30, 1997:

<TABLE>
<CAPTION>
NUMBER OF HOTELS
ACQUIRED NUMBER OF SUITES
---------------- ----------------
<S> <C> <C>
1994............................................... 7 1,730
1995............................................... 13 2,649
1996............................................... 23 5,769
1st Quarter 1997................................... 15 3,446
2nd Quarter 1997................................... 9 2,715
3rd Quarter 1997................................... 4 1,000
-- -------
71 17,309
==
Additional suites constructed by the Company......................... 177
-------
17,486
=======
</TABLE>

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

The Company completed construction and placed into service on July 1, 1997,
129 net additional suites, meeting rooms and other public area upgrades at its
Boston-Marlborough, Massachusetts hotel at an approximate cost of $15.9 million.
The Company is constructing 67 additional suites at its Jacksonville, Florida
hotel and 67 additional suites at its Orlando (North), Florida hotel at an
aggregate projected cost of $10.2 million with an expected completion in early
1998.

The Company leases all of the Hotels to DJONT Operations, L.L.C. ("DJONT"),
or a consolidated subsidiary thereof (collectively, the "Lessee"), under
operating leases providing for the payment of percentage rent (the "Percentage
Leases"). Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the
Board and President of the Company, respectively, beneficially own a 50% voting
equity interest in DJONT. The remaining 50% non-voting equity interest in DJONT
is beneficially owned by the children of Charles N. Mathewson, a director of the
Company and shareholder of the predecessor company. The Company's partners in
partnerships owning 12 of the Hotels hold special purpose non-voting equity
interests in the consolidated subsidiary of DJONT which leases such Hotels,
which interests entitle them to 50% of such subsidiary's net income before
overhead with respect to such Hotels. In addition, the Company's partner in a
partnership owning three of the Hotels holds a 50% non-voting equity interest in
the consolidated subsidiary of DJONT leasing those Hotels. See Note 2
Commitments and Related Party Transactions for additional discussion

F-18
<PAGE> 129

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

regarding Lessee consolidated subsidiaries. The Lessee has entered into
management agreements pursuant to which 50 of the Hotels are managed by Promus
Hotels, Inc. ("Promus"), 12 of the Hotels are managed by a subsidiary of
Doubletree Hotel Corporation ("Doubletree"), six of the hotels are managed
directly by, or by a subsidiary of, ITT Sheraton Corporation ("Sheraton"), the
three remaining Hotels are managed by two other management companies.

A brief discussion of the hotels acquired and other significant
transactions occurring in the nine months ended September 30, 1997 follows:

- On February 3, 1997, the Company sold three million shares of Common
Stock to the public, at $35.50 per share, pursuant to the Company's
omnibus shelf registration statement ("Shelf Registration"), which
provides for offerings by the Company from time to time of up to an
aggregate of $500 million in securities, which may include its debt
securities, preferred stock, common stock and/or common stock warrants.
The Company received net proceeds of approximately $100.7 million from
this transaction. The proceeds from this offering were used to
immediately fund the acquisition of 10 hotels acquired on February 4,
1997.

- On February 4, 1997, the Company acquired 50% joint venture interests in
eight existing Embassy Suites hotels located in Atlanta, Georgia; Kansas
City, Missouri; Overland Park, Kansas; Raleigh, North Carolina; San
Antonio, Texas; Austin, Texas; Covina, California; and Secaucus, New
Jersey with a total of 1,934 suites for approximately $58 million,
subject to a 50% share of approximately $86 million in existing
non-recourse debt. Promus holds the remaining 50% joint venture interests
in these properties. The Company also acquired 100% ownership in two
Embassy Suites hotels located in Bloomington, Minnesota and Omaha,
Nebraska with a total of 408 suites for approximately $39 million. These
two hotels were subsequently converted to Doubletree Guest Suites hotels
on May 1, 1997.

- On February 19, 1997, the Company acquired the 215 suite Embassy
Suites -- Los Angeles Airport (LAX North) hotel for approximately $22
million from a Japanese-owned limited partnership which had filed for
bankruptcy. The hotel will remain an Embassy Suites hotel managed by
Promus.

- On February 21, 1997, the Company acquired the 198 suite Hilton Inn hotel
in Dana Point, California for approximately $17.2 million. The Dana Point
hotel was converted to a Doubletree Guest Suites hotel in May 1997 and is
managed by Doubletree.

- On March 10, 1997, the Company increased its unsecured revolving line of
credit ("Line of Credit") from $250 million to $400 million, under
substantially the same terms as the original Line of Credit, and agreed
upon a reduction in unused commitment fees from 35 basis points to 25
basis points. At the end of the first quarter of 1997, the Company had
drawn $243 million under the Line of Credit.

- On March 24, 1997, the Company acquired, through a 90% owned joint
venture, interests in three Doubletree Guest Suites hotels, totaling 691
suites, located in Troy, Michigan; Austin, Texas; and near the Baltimore
Washington International (BWI) Airport for approximately $80 million. The
Company paid approximately $72 million for its 90% ownership interest and
Doubletree paid approximately $8 million for its 10% limited partnership
interest. Doubletree will continue to manage these hotels.

- On May 15, 1997 the Company acquired a 50% partnership interest in the
261-suite Embassy Suites -- San Antonio Airport hotel for $1.7 million
cash and 139,286 Partnership Units, subject to the Company's share of
$12.4 million in existing non-recourse partnership debt. The remaining
50% interest in the hotel is owned by Promus, bringing to 12 the number
of hotels jointly owned with Promus. The hotel is managed by Promus.

- On June 5, 1997 the Company acquired the 138-suite Doubletree Guest
Suites hotel -- Nashville for $10.7 million in cash. This three story
hotel opened in 1988 and is the second hotel acquired by the

F-19
<PAGE> 130

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company in Nashville, the other being the Embassy Suites -- Nashville
Airport hotel acquired by the Company in 1994. The hotel is managed by
Doubletree.

- On June 30, 1997 the Company issued a net of 9 million shares of its
common stock, after giving effect to the 1.2 million shares it
repurchased from Promus, at an offering price of $36.625 per share,
providing net proceeds to the Company of approximately $312.8 million.
The proceeds of this offering were used to fund the acquisition of the
two Embassy Suites hotels and five Sheraton hotels which were acquired on
June 30, 1997 and were used to reduce debt outstanding under its Line of
Credit.

- On June 30, 1997 the Company acquired the 244-suite Embassy
Suites -- Dallas Market Center and the 215-suite Embassy
Suites -- Syracuse hotels from Promus for an aggregate cash purchase
price of $46.7 million. These acquisitions were the Company's first hotel
in New York and third hotel in Dallas, Texas. Both hotels are managed by
Promus.

- On June 30, 1997 the Company acquired five Sheraton hotels with a total
of 1,857 rooms and suites and approximately 85,000 square feet of meeting
space from Sheraton for an aggregate cash purchase price of $200.0
million. This portfolio of hotels included the Sheraton Suites hotels at
Chicago O'Hare Airport and at the Galleria in Atlanta, Georgia. Also
included in this portfolio were three traditional upscale full service
Sheraton hotels located at the Atlanta Airport, Dallas Park Central and
Phoenix Crescent. These three hotels represent the Company's first
acquisition of non-suite hotels. All of these hotels are managed by
Sheraton.

- The Company and Promus announced the execution of a letter of intent
whereby Promus would develop five to ten Embassy Suites hotels in key
markets and the Company would acquire these hotels upon completion at a
price agreed upon prior to the commencement of construction.

- The Company completed the public space renovations at the Embassy Suites
hotels in Mandalay Beach and Napa, California.

- On July 28, 1997 the Company acquired three Doubletree Guest suites
hotels for an aggregate purchase price of $71.2 million in cash. The
hotels total 635 suites and are located in Lake Buena Vista, Florida;
Raleigh/Durham, North Carolina and Tampa (Rocky Point), Florida. These
hotels are managed by a subsidiary of Doubletree.

- On September 30, 1997 the Company acquired the partnership which owns the
365 room Sheraton Society Hill hotel in Philadelphia, Pennsylvania for
$51 million in cash. This hotel is managed by Sheraton.

- On September 30, 1997 the Company declared a third quarter dividend of
$0.55 per common share and $0.4875 per share on its $1.95 Series A
Cumulative Preferred Stock to shareholders of record on October 15, 1997.
This dividend is payable on October 31, 1997.

- On August 14, 1997 the Company announced that it had increased its
unsecured revolving line of credit from $400 million to $550 million,
extended the maturity for an additional year to September 30, 2000 and
reduced the effective interest rate.

- Following the end of the third quarter, the Company announced the
completion of a private placement of $300 million of long term senior
unsecured notes. The notes were issued in two maturities, consisting of
$175 million of 7 3/8% notes due 2004 and $125 million of 7 5/8% notes
due 2007. The proceeds were used to pay off the Company's $85 million
collateralized term loan and to pay down the Line of Credit. The Company
has filed a registration statement with the SEC, which has not yet been
declared effective, to exchange this privately placed debt for registered
debt with identical terms.

F-20
<PAGE> 131

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and
should be read in conjunction with the financial statements and notes thereto of
the Company and the Lessee included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "10-K"). The notes to the
financial statements included herein highlight significant changes to the notes
included in the 10-K and present interim disclosures required by the SEC. The
statements for the nine months ended September 30, 1997 are unaudited; however,
in the opinion of management, all adjustments (which include only normal
recurring accruals) have been made which are considered necessary to present
fairly the operating results and financial position of the Company for the
unaudited periods.

2. SUPPLEMENTAL CASH FLOW INFORMATION

In the first nine months of 1997 the Company purchased certain assets and
assumed certain liabilities of hotels. These purchases were recorded under the
purchase method of accounting. The fair value of the acquired assets and
liabilities recorded at the date of acquisition are as follows:

<TABLE>
<S> <C>
Assets acquired................................... $545,122
Minority interest contribution to other
partnerships.................................... (8,022)
--------
Net cash paid by the Company............ $537,100
========
</TABLE>

In the first nine months of 1997 the Company purchased interests in nine
unconsolidated partnerships that hold hotel properties. The hotels associated
with these unconsolidated subsidiaries are located in Atlanta (Perimeter), GA;
Austin, TX; Covina, CA; Kansas City (Plaza), MO; Overland Park, KS; Raleigh, NC;
San Antonio, TX; San Antonio (Airport), TX; and Secaucus, NJ.

These purchases were recorded under the equity method of accounting. The
value of the assets recorded at the date of acquisition are as follows:

<TABLE>
<S> <C>
Assets acquired.................................... $64,672
Operating partnership units issued................. (5,101)
-------
Net cash paid by the Company............. $59,571
=======
</TABLE>

3. COMMITMENTS AND RELATED PARTY TRANSACTIONS

Upon final completion of the conversion of one hotel, the Hotels will
operate as Embassy Suites (52), Doubletree Guest Suites (12), Sheraton Suites
(2), Sheraton (4) and Hilton Suites (1) hotels. The Embassy Suites hotels and
Hilton Suites hotel will operate pursuant to franchise license agreements which
require the payment of fees based on a percentage of suite revenue. These fees
are paid by the Lessee. There are no separate franchise license agreements with
respect to the Doubletree Guest Suites hotels, Sheraton hotels or Sheraton
Suites hotels, which rights are included in the management agreement.

The Lessee generally pays the managers a base management fee based on a
percentage of total revenue and an incentive management fee based on the
Lessee's net income before overhead expenses. In certain instances the hotel
managers have subordinated fees and committed to make subordinated loans to the
Lessee, if needed, to meet its rental and other obligations under the leases.

F-21
<PAGE> 132

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels), 2006 (19
hotels) and 2007 (19 hotels). The rental income under the Percentage Leases
between the 14 unconsolidated partnerships, of which the Company owns 50%, and
the Lessee are payable to the respective partnerships and as such is not
included in the following schedule of future lease commitments to the Company.
Minimum future rental income (i.e., base rents) to the Company under these
noncancellable operating leases at September 30, 1997 is as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR
----
<S> <C>
Remainder of 1997........................................... $ 26,150
1998........................................................ 104,600
1999........................................................ 104,600
2000........................................................ 104,600
2001........................................................ 104,600
2002 and thereafter......................................... 493,961
--------
$938,511
========
</TABLE>

Minority equity interests in two of DJONT's consolidated subsidiaries,
which relate to a total of 15 of the Hotels, are held by unrelated third parties
that also own an equity interest in such Hotels. Messrs. Feldman and Corcoran,
such unrelated third party owners, and the managers of certain of the Hotels
have agreed, directly or through their affiliates, to make loans to the Lessee
of up to an aggregate of approximately $15.4 million, to the extent necessary to
enable the Lessee to pay rent and other obligations due under the respective
Percentage Leases relating to a total of 32 of the Hotels. Amounts so borrowed
by the Lessee, if any, will be subordinate in right of repayment to the prior
payment in full of rent and other obligations due under the Percentage Leases
relating to such Hotels. No loans were outstanding under such agreements at
September 30, 1997.

4. DEBT AND CAPITAL LEASE OBLIGATIONS

Debt and capital lease obligations at September 30, 1997 consist of the
following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Line of Credit.................................. $296,000
Term loan....................................... 85,000
Renovation loan................................. 25,000
Other debt payable.............................. 650
--------
$406,650
========
</TABLE>

In March 1997, the Company increased its unsecured Line of Credit from $250
million to $400 million under substantially the same terms as the original Line
of Credit obtained in September 1996. As of August 14, 1997, the Company amended
its existing unsecured Line of Credit to increase availability to $550 million,
extend the term by one year to September 30, 2000 and to reduce the effective
interest rate. Interest payable on borrowings under the Line of Credit is
variable, determined from a ratings-based pricing matrix, and at September 30,
1997, was set at LIBOR plus 140 basis points.

The Company had an $85 million collateralized term loan outstanding at
September 30, 1997. This term loan which bore interest at LIBOR plus 150 basis
points. The $85 million collateralized term loan was repaid in full on October
1, 1997 from the proceeds of the long term senior unsecured private placement
debt. This senior unsecured private placement debt, which the Company placed on
October 1, 1997, bears interest at 7 3/8% for the seven year notes and 7 5/8%
for the ten year notes. The Company has filed a registration statement

F-22
<PAGE> 133

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

with the SEC, which has not yet been declared effective, to exchange privately
placed debt for registered debt with identical terms. Also outstanding at
September 30, 1997 was a renovation loan of $25 million that bears interest at
LIBOR plus 45 basis points. At September 30, 1997, 30 day LIBOR was 5.6563%.

Under its loan agreements the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at September 30, 1997.

Capital lease obligations at September 30, 1997 consist of the following
(in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Capital land and building lease obligations..... $ 9,419
Capital equipment lease obligations............. 2,108
-------
$11,527
=======
</TABLE>

Included in investment in hotels at September 30, 1997, are assets under
capital leases with a net book value of approximately $11 million.

The Company leases office space and equipment under operating leases.
Minimum future lease payments under operating leases at September 30, 1997 are
as follows (in thousands):

For the nine months ended September 30, 1997 and 1996 the Company recorded
expenses related to operating leases of approximately $175,000 and $116,000
respectively.

5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS

At September 30, 1997, the Company owned 50% interests in separate
partnerships, including accounting for the acquisition by the Company owning 14
hotels, a parcel of undeveloped land and a condominium management company. The
Company is accounting for its investments in these unconsolidated partnerships
under the equity method.

F-23
<PAGE> 134

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Balance sheet information:
Partnership assets (primarily hotel assets)..... $390,302
Non-recourse mortgage debt...................... $158,455
Equity.......................................... $255,212
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue........................ $35,551 $6,011
Other income.................................... 4,316
------- ------
Total revenue........................... $39,867 $6,011
------- ------
Expenses:
Depreciation................................. 11,431 2,037
Taxes, insurance and other................... 6,314 358
Interest expense............................. 8,216 689
------- ------
Total expenses.......................... 25,961 3,084
------- ------
Net income...................................... $13,906 $2,927
======= ======
50% of net income attributable to the Company... $ 6,953 $1,464
Amortization of cost in excess of book value.... 1,188 52
------- ------
Income from unconsolidated partnerships......... $ 5,765 $1,412
======= ======
</TABLE>

6. TREASURY STOCK

In conjunction with the June 30, 1997 common stock offering of 11.2 million
shares, the Company purchased, at the offering price of $36.625, 1.2 million
shares of its common stock from Promus. The stock was purchased at an aggregate
cost of $41.1 million (after allocation of offering expenses) and is recorded
using the cost method of accounting. All of the acquired shares are held as
common stock in treasury.

7. TAXES, INSURANCE AND OTHER

Taxes, insurance and other is comprised of the following for the nine
months ended September 30, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Real estate and personal property taxes........... $13,848 $7,649
Property insurance................................ 1,347 966
Land lease expense................................ 1,119 869
State franchise taxes............................. 498 333
Other............................................. 100 42
------- ------
Total taxes, insurance and other........ $16,912 $9,859
======= ======
</TABLE>

F-24
<PAGE> 135

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. PRO FORMA INFORMATION (UNAUDITED)

The following unaudited Pro Forma Consolidated Statements of Operations for
the nine months ended September 30, 1997 and 1996 are presented as if the
acquisitions of all hotels owned by the Company at September 30, 1997, the
equity offerings consummated during 1996 and 1997 and the placement of $300
million in senior unsecured notes had occurred as of January 1, 1996 and the
Hotels had all been leased to the Lessee pursuant to Percentage Leases. Such pro
forma information is based in part upon the Consolidated Statements of
Operations of the Company and pro forma Statements of Operations of the Lessee
included elsewhere in these financial statements. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.

F-25
<PAGE> 136

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $152,127 $132,487
Income from unconsolidated partnerships................... 5,681 2,859
-------- --------
Total revenue..................................... 157,808 135,346
-------- --------
Expenses:
General and administrative................................ 2,743 2,707
Depreciation.............................................. 43,243 30,147
Taxes, insurance and other................................ 21,045 18,450
Interest expense.......................................... 28,244 25,642
Minority interest in Operating Partnership................ 4,577 3,870
Minority interest in other partnerships................... 427 242
-------- --------
Total expenses.................................... 100,279 81,058
-------- --------
Net income.................................................. 57,529 54,288
Preferred dividends......................................... 8,848 8,848
-------- --------
Net income applicable to common shareholders................ $ 48,681 $ 45,440
======== ========
Per common share information:
Net income................................................ $ 1.33 $ 1.26
======== ========
Weighted average number of common shares outstanding...... 36,570 36,135
======== ========
</TABLE>

Depreciation and interest expense increased from 1996 to 1997 due to
approximately $71 million in capital expenditures made in 1996 and placed in
service in late 1996 or early 1997.

F-26
<PAGE> 137

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of FelCor Suite Hotels, Inc.

We have audited the accompanying consolidated financial statements and the
financial statement schedule of FelCor Suite Hotels, Inc. These financial
statements and financial statement schedule are the responsibility of the
Company'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 consolidated financial position of
FelCor Suite Hotels, Inc. as of December 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for the years ended December
31, 1996 and 1995 and the period from July 28, 1994 (inception of operations)
through December 31, 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
January 22, 1997
except as to the information
presented in the second paragraph
of Note 5, the first paragraph of
Note 6 and Note 17 for which the
date is March 10, 1997

F-27
<PAGE> 138

FELCOR SUITE HOTELS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)

ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

Distributions payable....................................... $ 16,090 $ 4,918
Accrued expenses and other liabilities...................... 5,235 3,552
Debt........................................................ 226,550 8,410
Capital lease obligations................................... 12,875 11,256
Minority interest in Partnership, 2,786 and 2,695 units
issued and outstanding at December 31, 1996 and 1995,
respectively.............................................. 76,112 58,837
-------- --------
Total liabilities................................. 336,862 86,973
-------- --------
Commitments and contingencies (Notes 5 and 9)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized,
6,050 shares issued and outstanding at December 31,
1996...................................................... 151,250
Common stock, $.01 par value, 50,000 shares authorized,
23,502 and 21,135 shares issued and outstanding at
December 31, 1996 and 1995, respectively.................. 235 211
Additional paid in capital.................................. 505,082 463,524
Unearned officers' and directors' compensation.............. (1,454) (473)
Distributions in excess of earnings......................... (13,187) (1,876)
-------- --------
Total shareholders' equity........................ 641,926 461,386
-------- --------
Total liabilities and shareholders' equity........ $978,788 $548,359
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-28
<PAGE> 139

FELCOR SUITE HOTELS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue.................................. $ 97,950 $23,787 $6,043
Income from unconsolidated partnerships................... 2,010 513
Other income.............................................. 984 1,691 207
-------- ------- ------
Total revenues.................................... 100,944 25,991 6,250
-------- ------- ------
Expenses:
General and administrative................................ 1,819 870 355
Depreciation.............................................. 26,544 5,232 1,487
Taxes, insurance and other................................ 13,897 2,563 881
Interest expense.......................................... 9,803 2,004 109
Minority interest......................................... 5,590 3,131 907
-------- ------- ------
Total expenses.................................... 57,653 13,800 3,739
-------- ------- ------
Income before extraordinary charge.......................... 43,291 12,191 2,511
Extraordinary charge from write off of deferred financing
fees...................................................... 2,354
-------- ------- ------
Net income.................................................. 40,937 12,191 2,511
Preferred dividends......................................... 7,734
-------- ------- ------
Net income applicable to common shareholders................ $ 33,203 $12,191 $2,511
======== ======= ======
Per common share information:
Net income applicable to common shareholders before
extraordinary charge................................... $ 1.54 $ 1.70 $ 0.54
Extraordinary charge...................................... 0.10
-------- ------- ------
Net income................................................ $ 1.44 $ 1.70 $ 0.54
======== ======= ======
Weighted average number of common shares outstanding...... 23,076 7,165 4,690
======== ======= ======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-29
<PAGE> 140

FELCOR SUITE HOTELS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM MAY 16, 1994 THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
---------------- OFFICERS'
NUMBER ADDITIONAL AND DISTRIBUTIONS TOTAL
PREFERRED OF PAID-IN DIRECTORS' IN EXCESS OF SHAREHOLDERS'
STOCK SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
--------- ------- ------ ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common shares, net of
offering expenses and allocation to
minority interest.................. 4,686 $ 47 $ 69,691 $ 69,738
Issuance of directors' shares........ 4 85 $ (85)
Distributions declared:
$0.657 per common share............ $ (3,079) (3,079)
Amortization of unearned directors'
compensation....................... 85 85
Net income........................... 2,511 2,511
-------- ------ ---- -------- ------- -------- --------
Balance at December 31, 1994......... 4,690 47 69,776 (568) 69,255
Issuance of common shares, net
of offering expenses............... 16,411 164 402,124 402,288
Allocation to minority interest...... (9,115) (9,115)
Issuance of officers' and directors'
shares............................. 34 739 (631) 108
Distributions declared:
$1.84 per common share............. (13,499) (13,499)
Amortization of unearned officers'
and directors' compensation........ 158 158
Net income........................... 12,191 12,191
-------- ------ ---- -------- ------- -------- --------
Balance at December 31, 1995......... 21,135 211 463,524 (473) (1,876) 461,386
Issuance of common shares............ 1,913 19 50,952 50,971
Issuance of officers' and directors'
shares............................. 53 1 1,486 (1,487)
Conversion of Partnership units to
common shares...................... 401 4 4
Issuance of preferred stock, net of
offering
expenses........................... $151,250 (6,998) 144,252
Distributions/dividends declared:
$1.92 per common share............. (44,514) (44,514)
$1.2783 per preferred share........ (7,734) (7,734)
Allocation to minority interest...... (3,882) (3,882)
Amortization of unearned officers'
and directors' compensation........ 506 506
Net income........................... 40,937 40,937
-------- ------ ---- -------- ------- -------- --------
Balance at December 31, 1996......... $151,250 23,502 $235 $505,082 $(1,454) $(13,187) $641,926
======== ====== ==== ======== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-30
<PAGE> 141

FELCOR SUITE HOTELS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS) THROUGH
DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 40,937 $ 12,191 $ 2,511
Adjustments to reconcile net income to net cash provided
by operating activities, net of effects of
acquisitions:
Depreciation......................................... 26,544 5,385 1,487
Amortization of deferred financing fees and
organization
costs.............................................. 554 228 24
Amortization of unearned officers' and directors'
compensation....................................... 506 158 85
Income from unconsolidated partnerships.............. (2,010) (513)
Cash distributions from unconsolidated
partnerships....................................... 1,954
Extraordinary charge for write off of deferred
financing fees..................................... 2,354
Fully vested officer stock grant..................... 108
Minority interest.................................... 5,590 3,131 907
Changes in assets and liabilities:
Due from Lessee...................................... (3,130) (1,137) (1,259)
Deferred costs and other assets...................... 353 (2,217) (407)
Accrued expenses and other liabilities............... 280 741 611
--------- --------- ---------
Net cash flow provided by operating
activities.................................... 73,932 18,075 3,959
--------- --------- ---------
Cash flows from investing activities:
Acquisition of hotels................................... (365,907) (219,164) (23,550)
Prepayments under purchase agreements................... (21,701)
Acquisition of unconsolidated partnerships.............. (43,424) (13,166)
Improvements and additions to hotels.................... (71,051) (5,166) (77,243)
--------- --------- ---------
Net cash flow used in investing activities...... (480,382) (259,197) (100,793)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings................................ 303,350 128,600 8,800
Repayment of borrowings................................. (193,954) (129,850)
Deferred financing fees................................. (4,484) (1,072) (721)
Proceeds from sale of common stock...................... 44,978 426,502 99,583
Proceeds from sale of preferred stock................... 151,250
Costs associated with public offerings.................. (6,998) (27,874) (7,973)
Proceeds from sale of partnership units................. 25,000
Distributions paid to limited partners.................. (5,353) (2,993) (462)
Distributions paid to common shareholders............... (36,583) (11,488) (1,275)
Dividends paid to preferred shareholders................ (4,784)
--------- --------- ---------
Net cash flow provided by financing
activities.................................... 247,422 406,825 97,952
--------- --------- ---------
Net change in cash and cash equivalents................... (159,028) 165,703 1,118
Cash and cash equivalents at beginning of periods......... 166,821 1,118
--------- --------- ---------
Cash and cash equivalents at end of years................. $ 7,793 $ 166,821 $ 1,118
========= ========= =========
Supplemental cash flow information -- interest paid....... $ 9,168 $ 1,467
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-31
<PAGE> 142

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

FelCor Suite Hotels, Inc., formed as a self-administered real estate
investment trust ("REIT"), was incorporated on May 16, 1994 and commenced
operations on July 28, 1994. At the commencement of operations, FelCor Suite
Hotels, Inc. ("FelCor") acquired an equity interest of approximately 75% in
FelCor Suites Limited Partnership (the "Partnership"), which owned six Embassy
Suites(R) hotels (the "Initial Hotels") with an aggregate of 1,479 suites. The
Partnership had acquired the Initial Hotels through a merger with entities,
originally formed in 1991, controlled by Hervey A. Feldman and Thomas J.
Corcoran, Jr., the Chairman of the Board of Directors and Chief Executive
Officer of the Company, respectively.

At December 31, 1996, FelCor owned interests in 43 hotels with an aggregate
of 10,196 suites (collectively the "Hotels") through its 89.4% aggregate
ownership of the Partnership and its consolidated subsidiaries (collectively,
the "Company"). FelCor also acts as the sole general partner in the Partnership.
The Company owns 100% equity interests in 37 of the Hotels, a 97% interest in
the partnership that owns the Los Angeles International Airport hotel and 50%
interests in separate partnerships that own five hotels. At December 31, 1996,
39 of the Hotels are operated as Embassy Suites hotels, two as Doubletree Guest
Suites(R) hotels, one as a Hilton Suites(R) hotel and one hotel is in the
process of being converted to an Embassy Suites hotel. The Hotels are located in
16 states, with 17 hotels in California and Florida. The following table
provides certain information regarding the Company's Hotels acquired through
December 31, 1996:

<TABLE>
<CAPTION>
NUMBER NUMBER
OF HOTELS OF AGGREGATE
ACQUIRED SUITES ACQUISITION PRICE
---------------- -------- ---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1994
Initial Hotels.......................... 6 1,479 $ 81.5
4th Quarter............................. 1 251 25.8
1995
1st Quarter............................. 2 350 27.4
2nd Quarter............................. 1 100 9.4
3rd Quarter............................. 3 542 31.3*
4th Quarter............................. 7 1,657 169.0
1996
1st Quarter............................. 14 3,501 383.5
2nd Quarter............................. 3 691 68.1
3rd Quarter............................. 4 1,005 30.8**
4th Quarter............................. 2 572 78.1
-- ------ -------
43 10,148 904.9
==
Additional suites constructed by the
Company at Hotels..................... 48 5.3
------ -------
10,196 $910.2
====== =======
</TABLE>

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

* Includes the purchase price of the Company's 50% interest in the
unconsolidated partnership owning the 262 suite, Chicago-Lombard, Illinois
hotel.

** Represents the purchase price of the Company's 50% interest in separate
unconsolidated partnerships owning hotels in Marin County, California;
Parsippany, New Jersey; Charlotte, North Carolina; and Indianapolis, Indiana,
with an aggregate 1,005 suites.

In addition, the Company has started construction on 129 net additional
suites, meeting rooms and other public area upgrades at one of the Hotels, at an
estimated cost of $15.8 million.

F-32
<PAGE> 143

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company leased all of the Hotels to DJONT Operations, L.L.C. or a
consolidated subsidiary (collectively the "Lessee") under operating leases
providing for the payment of percentage rent (the "Percentage Leases"). Messrs.
Feldman and Corcoran beneficially own 50% of the common equity interest in the
Lessee. The remaining 50% of the Lessee is beneficially owned by the children of
Charles N. Mathewson, a director of the Company. The Lessee has entered into
management agreements pursuant to which 38 of the Hotels are managed by Promus
Hotels, Inc. ("Promus"), two of the Hotels are managed by a subsidiary of
Doubletree Hotel Corporation ("Doubletree"), two of the Hotels are managed by
American General Hospitality, Inc. ("AGHI") and one is managed by Coastal Hotel
Group, Inc. ("Coastal").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation -- The consolidated financial statements
include the accounts of FelCor, the Partnership and the Holdings Partnerships as
described in Note 8. All significant intercompany balances and transactions have
been eliminated.

Investment in Hotels -- Hotels are stated at cost and are depreciated using
the straight-line method over estimated useful lives ranging from 31-40 years
for buildings and improvements and 5 to 7 years for furniture, fixtures and
equipment.

The Company reviews the carrying value of each hotel to determine if
circumstances exist indicating an impairment in the carrying value of the
investment in the hotel or that depreciation periods should be modified. If
facts or circumstances support the possibility of impairment, the Company will
prepare a projection of the undiscounted future cash flows, without interest
charges, of the specific hotel and determine if the investment in such hotel is
recoverable based on the undiscounted future cash flows. If impairment is
indicated, an adjustment will be made to the carrying value of the hotel based
on discounted future cash flows. The Company does not believe that there are any
factors or circumstances indicating impairment of any of its investment in
hotels.

Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the related gain or loss is included in operations.

Investment in Unconsolidated Partnerships -- The Company owns a 50%
interest in various partnerships in which the partners jointly make all material
decisions concerning the business, affairs and operation of the partnerships.
Accordingly, the Company does not control the partnerships and carries its
investment in unconsolidated partnerships at cost, plus its equity in net
earnings, less distributions received since the date of acquisition. Equity in
net earnings is being adjusted for the straight-line amortization, over a 40
year period, of the difference between the Company's cost and its proportionate
share of the underlying net assets at date of acquisition.

Cash and Cash Equivalents -- All highly liquid investments with a maturity
of three months or less when purchased are considered to be cash equivalents.

Deposits and Prepayments -- Deposits and prepayments at December 31, 1996
consist of deposits associated with the capitalized land and building lease
further described in Note 5. At December 31, 1995 the deposits and prepayments
consisted of the aforementioned deposits and prepayments associated with hotel
purchases.

F-33
<PAGE> 144

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred Expenses -- Deferred expenses at December 31, 1996 and 1995
consist of the following (in thousands):

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Organization costs................................. $ 349 $ 172
Deferred financing fees............................ 3,250 1,793
------ ------
3,599 1,965
Accumulated amortization........................... (364) (252)
------ ------
$3,235 $1,713
====== ======
</TABLE>

Amortization of organization costs is computed using the straight-line
method over three to five years. Amortization of deferred financing fees is
computed using the interest method over the maturity of the loans.

Revenue Recognition -- Percentage lease revenue is recognized when earned
from the Lessee under the Percentage Lease agreements (Note 9). The Lessee is in
compliance with its obligations under the Percentage Leases.

Net Income Per Common Share -- Net income per common share has been
computed by dividing net income applicable to common shareholders by the
weighted average number of common shares and equivalents outstanding. Common
share equivalents that have an immaterial dilutive effect include convertible
preferred stock and outstanding common stock options.

Distributions and Dividends -- The Company pays regular quarterly
distributions on its common stock which are dependent on receipt of
distributions from the Partnership. Additionally, the Company pays regular
quarterly dividends on preferred stock in accordance with its preferred stock
dividend requirements.

Minority Interest -- Minority interest in the Partnership represents the
limited partners' proportionate share of the equity in the Partnership. Income
is allocated to minority interest based on the weighted average percentage
ownership throughout the year.

Stock Based Compensation Plans -- The Company applies APB Opinion No. 25
and related interpretations in its accounting for stock based compensation
plans. Accordingly the Company has adopted the disclosure only provisions of
SFAS No. 123, "Accounting for Stock Based Compensation."

Income Taxes -- The Company is qualified as a REIT under Sections 856 to
860 of the Internal Revenue Code. Accordingly, no provision for federal income
taxes has been reflected in the financial statements.

Earnings and profits, which will determine the taxability of distributions
to shareholders, will differ from income reported for financial reporting
purposes primarily due to the differences for federal income tax purposes in the
estimated useful lives used to compute depreciation. Distributions made in 1996
and 1995 represent approximately a 11.5% and 8.7% return of capital,
respectively, for federal income tax purposes.

F-34
<PAGE> 145

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENT IN HOTELS

Investment in hotels at December 31, 1996 and 1995 consist of the following
(in thousands):

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land........................................... $ 89,106 $ 31,123
Building and improvements...................... 744,758 279,349
Furniture, fixtures and equipment.............. 77,526 19,704
Construction in progress....................... 25,019 5,223
-------- --------
936,409 335,399
Accumulated depreciation....................... (36,718) (10,244)
-------- --------
$899,691 $325,155
======== ========
</TABLE>

4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS

The Company owned 50% interests in separate partnerships owning five
hotels, a parcel of undeveloped land and a condominium management company at
December 31, 1996 and one hotel at December 31, 1995. The Company is accounting
for its investments in these unconsolidated partnerships under the equity
method.

Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Balance sheet information:
Investment in hotels......................... $110,394 $ 23,385
Non-recourse mortgage debt................... $ 49,402
Equity....................................... $ 91,156 $ 24,609
Statement of operations information:
Percentage lease revenue..................... $ 9,974 $ 1,420
Net income................................... $ 4,366 $ 1,050
</TABLE>

5. DEBT AND CAPITAL LEASE OBLIGATIONS

Debt at December 31, 1996 and 1995 consists of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- ------
<S> <C> <C>
Line of Credit................................... $115,000
Term loan........................................ 85,000
Renovation Loan.................................. 25,000
Promus note related to CSS purchase.............. $7,500
Other debt payable............................... 1,550 910
-------- ------
$226,550 $8,410
======== ======
</TABLE>

F-35
<PAGE> 146

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

year. Additionally, the Company is required to pay an unused commitment fee
which is variable, determined from a ratings based pricing matrix, initially set
at 35 basis points. The Company paid unused commitment fees of approximately
$164,000 during 1996. At December 31, 1996, the line of credit interest rate was
7.25%.

On March 10, 1997 the Company announced that it increased its Line of
Credit from $250 million to $400 million which included a reduction in unused
commitment fees from 35 basis points to 25 basis points, under substantially the
same terms as the original Line of Credit.

Simultaneous with the closing of the Line of Credit in September, 1996, the
Company retired a $65 million collateralized term loan and replaced an existing
$100 million collateralized revolving credit facility with an $85 million
four-year collateralized term loan. This term loan bears interest at LIBOR plus
150 basis points, interest is paid current throughout the year, and the note is
collateralized by interests in nine of the Company's hotels. Principal payments
commence on October 1, 1997 and are based on a 15 year amortization schedule,
adjusted annually for the then current interest rates. All outstanding principal
and accrued interest is due and payable on September 30, 2000. At December 31,
1996 the term loan interest rate was 7.125%.

The Company has a $25 million loan facility ("Renovation Loan") which has
been used to fund a portion of the renovation cost of the CSS Hotels (Note 8)
converted to Embassy Suites hotels. The facility is guaranteed by Promus, bears
interest at LIBOR plus 45 basis points (6.08% at December 31, 1996), requires
monthly interest payments, and quarterly principal payments of $1.25 million
beginning June 1999 and matures in June 2000.

Under its loan agreements, the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at December 31, 1996.

During the fourth quarter of 1996, the Company entered into two separate
interest rate swap agreements to manage the relative mix of its debt between
fixed and variable rate instruments. These interest rate swap agreements modify
a portion of the interest characteristics of FelCor's outstanding debt without
an exchange of the underlying principal amount and effectively convert variable
rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate,
and the variable rate to be received by FelCor at December 31, 1996 are
summarized in the following table:

<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/96 MATURITY
- --------------- ------------ ---------- ------------- --------
<C> <C> <C> <C> <S>
$50 million 6.11125% 7.61125% 5.53516% October 1999
$25 million 5.95500% 7.45500% 5.5000% November 1999
</TABLE>

The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on its
future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which is limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.

F-36
<PAGE> 147

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Capital lease obligations at December 31, 1996 and 1995 consists of the
following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Capital land and building lease obligations...... $ 9,675 $10,043
Capital equipment lease obligations.............. 3,200 1,213
------- -------
$12,875 $11,256
======= =======
</TABLE>

The Company assumed the obligation for a capital industrial revenue bond
lease for land and building associated with the purchase of the Embassy Suites
hotel -- St. Paul in November 1995. The term of the lease is through August 31,
2011 and contains a provision that allows the Company to purchase the property
at the termination of the lease, under certain conditions, for a nominal amount.

The Company assumed various capital equipment leases associated with hotels
purchased in 1995 and 1996. These capital leases are generally for telephones
and televisions and vary in remaining terms from one year to four years.

Minimum future lease payments under capital leases at December 31, 1996 are
as follows (in thousands):

<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997............................................... $ 3,297
1998............................................... 2,731
1999............................................... 1,464
2000............................................... 1,300
2001............................................... 1,217
2002 and thereafter................................ 11,770
-------
21,779
Executory costs.................................... (846)
Imputed interest................................... (8,058)
-------
Present value of net minimum lease payments........ $12,875
=======
</TABLE>

Included in investment in hotels at December 31, 1996 and 1995 are assets
under capital leases with a net book value of approximately $12.5 million and
$11.3 million respectively.

The Company leases office space and equipment under operating leases.
Minimum future lease payments under operating leases at December 31, 1996 are as
follows (in thousands):

For the twelve months ended December 31, 1996 and 1995 and the period from
July 28, 1994 (inception of operations) through December 31, 1994 the Company
recorded expenses related to operating leases of approximately $153,000, $58,000
and $31,000 respectively.

F-37
<PAGE> 148

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's charter limits consolidated indebtedness to 40% of the
Company's investment in hotels, at cost, on a consolidated basis, after giving
effect to the Company's use of proceeds from any indebtedness. For purposes of
this limitation, the Company's consolidated indebtedness includes borrowings and
capital lease obligations and consolidated investment in hotels, at cost, is its
investment, at cost, in hotels, as reflected in its consolidated financial
statements plus (to the extent not otherwise reflected) the value (as determined
by the Board of Directors at the time of issuance) of any equity securities
issued, otherwise than for cash, by the Company or any of its subsidiaries in
connection with the acquisition of hotels. Under this definition as of December
31, 1996, the Company's investment in hotels at cost was $1.0 billion.
Accordingly, the Company's maximum permitted indebtedness would have been
approximately $400 million (of which $239 million was borrowed at December 31,
1996). Assuming all of this additional debt capacity, and the Company's
available cash and cash equivalents were used for the acquisition of additional
hotels, the Company's investment in hotels would increase to approximately $1.3
billion and the maximum permitted indebtedness would increase to approximately
$525 million.

6. CAPITAL STOCK

At December 31, 1996 the Company had completed the following public
offerings:

<TABLE>
<CAPTION>
OFFERING PRICE
SECURITY DATE COMPLETED PER SHARE SHARES SOLD NET PROCEEDS
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Common Stock (Initial Public
Offering).................. July 28, 1994 $ 21.25 4,686,250 $ 91.6 million
Common Stock................. May 30, 1995 $ 25.00 3,450,000 $ 81.0 million
Common Stock................. December 20, 1995 $ 26.50 12,650,000 $312.6 million
Preferred Stock.............. May 6, 1996 $ 25.00 6,050,000 $144.3 million
</TABLE>

On April 25, 1996, the SEC declared effective the Company's omnibus shelf
registration statement ("Shelf Registration"), which provides for offerings by
the Company from time to time of up to an aggregate of $500 million in
securities, which may include its debt securities, preferred stock, common stock
and/or common stock warrants. The Company had issued approximately $151 million
under the Shelf Registration at December 31, 1996 leaving approximately $349
million available. In February 1997, the Company issued approximately $107
million in common stock under the Shelf Registration.

Preferred Stock

The Board of Directors is authorized to provide for the issuance of up to
10,000,000 shares of Preferred Stock in one or more series, to establish the
number of shares in each series and to fix the designation, powers preferences,
and rights of each such series and the qualifications, limitations or
restrictions thereof. On May 6, 1996, the Company completed an offering,
pursuant to the Shelf Registration of six million shares of its $1.95 Series A
Cumulative Convertible Preferred Stock ("Series A Preferred Stock") at $25 per
share. An additional fifty thousand shares of Series A Preferred Stock were
issued at $25 per share pursuant to the exercise of the underwriters'
over-allotment option. The Series A Preferred Stock bears an annual dividend
equal to the greater of $1.95 per share (yielding 7.8% based on the $25 purchase
price) or the cash distributions declared or paid for the corresponding period
on the number of shares of common stock into which the Series A Preferred Stock
is then convertible and is cumulative from May 6, 1996. Each share of the Series
A Preferred Stock is convertible at the shareholder's option to 0.7752 shares of
common stock, subject to certain adjustments, and may not be redeemed by the
Company before April 30, 2001. At December 31, 1996, all dividends then payable
on the Preferred Stock had been paid.

F-38
<PAGE> 149

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common Stock

In addition to the aforementioned public offerings of Common Stock, Promus
purchased an aggregate of approximately 1.9 million shares of Common Stock,
pursuant to subscription agreements, during 1995 and 1996 at a subscription
price of $26.50 per share for an aggregate cost of $50 million. Promus has
satisfied its commitment to purchase Common Stock under the aforementioned
subscription agreements.

Partnership Units

The outstanding units of limited partnership interests in the Partnership
("Units") are redeemable at the option of the holder for a like number of shares
of Common Stock or, at the option of the Company, for the cash equivalent
thereof.

Pursuant to a subscription agreement with Promus, the Partnership issued an
aggregate 1.0 million Units to Promus in November and December 1995, at the
subscription price of $25.00 per Unit. An aggregate of 491,703 additional
Partnership Units were issued to sellers in conjunction with the purchase of two
hotels and the acquisition of partnership interests in two additional hotels in
1996. Promus has satisfied its commitment to purchase Units under the
aforementioned subscription agreement.

7. TAXES, INSURANCE AND OTHER

Taxes, insurance and other is comprised of the following for the years
ended December 31, 1996 and 1995 and for the period from July 28, 1994
(inception of operations) through December 31, 1994 (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ----
<S> <C> <C> <C>
Real estate and personal property taxes............. $11,110 $2,233 $620
Property insurance.................................. 1,312 155 69
Land lease expense.................................. 952
State franchise taxes............................... 472 175 192
Other............................................... 51
------- ------ ----
Total taxes, insurance and other.......... $13,897 $2,563 $881
======= ====== ====
</TABLE>

8. BUSINESS COMBINATION

On December 29, 1995 the Partnership acquired approximate 99% limited
partnership interests in entities ("Holdings Partnerships") formed to facilitate
the acquisition and financing of up to 18 Crown Sterling Suites(R) hotels ("CSS
Hotels") and certain other hotels pending the completion of a common stock
offering. Such common stock offering was completed on December 20, 1995 and at
that date the Holdings Partnerships had acquired six of the CSS Hotels and one
additional hotel.

F-39
<PAGE> 150

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the fair values of the acquired assets and liabilities of the
Holdings Partnerships recorded at the date of acquisition, at December 29, 1995,
is as follows (in thousands):

<TABLE>
<S> <C>
Investment in hotels.............................. $166,307
Prepayments under Purchase Agreements............. 13,616
Due from Lessee................................... 908
Other assets...................................... 715
--------
181,546
--------
Debt and capital lease obligations................ 11,266
Accrued expenses and other liabilities............ 1,657
--------
12,923
--------
Total purchase price.............................. $168,623
========
</TABLE>

The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of the Holdings Partnerships since acquisition have been
included in the Company's consolidated statements of operations.

9. COMMITMENTS AND RELATED PARTY TRANSACTIONS

After conversion of the Myrtle Beach hotel acquired in December 1996, the
Company will own interests in 40 Embassy Suites hotels, 2 Doubletree Guest
Suites hotels and one Hilton Suites hotel. The Embassy Suites hotels and the
Hilton Suites hotel operate pursuant to franchise license agreements, which
require the payment of fees based on a percentage of suite revenue. These fees
are paid by the Lessee. There are no separate franchise license agreements for
the Doubletree Guest Suites hotels.

The Hotels are managed by Promus, Doubletree, AGHI or Coastal on behalf of
the Lessee. The Lessee pays the managers a base management fee based on a
percentage of suite revenue and an incentive management fee based on the
Lessee's income before overhead expenses for each hotel.

The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels) and 2006 (19
hotels). The rental income under the Percentage Leases between the partnerships
owning five hotels, of which the Company owns 50%, and the Lessee is payable to
the respective partnerships and as such is not included in the following
schedule of future lease commitments to the Company. Minimum future rental
income (base rents) under these noncancellable operating leases (excluding
hotels owned by the previously noted partnerships) at December 31, 1996 is as
follows (in thousands):

<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997.............................................. $ 61,996
1998.............................................. 61,996
1999.............................................. 61,996
2000.............................................. 61,996
2001.............................................. 61,996
2002 and thereafter............................... 240,386
--------
$550,366
========
</TABLE>

At December 31, 1996 and 1995, the Lessee owed the Company approximately
$5.5 million and $2.4 million, respectively, for such Percentage Lease rent to
be paid in March of the subsequent year.

F-40
<PAGE> 151

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Percentage Lease revenue is based on a percentage of suite revenues,
food and beverage revenues, and food and beverage rents of the Hotels. Both the
base rent and the threshold suite revenue in each lease computation are subject
to adjustments for changes in the Consumer Price Index ("CPI"). The adjustment
is calculated at the beginning of each calendar year, for the hotels acquired
prior to July of the previous year. The adjustment in any lease year may not
exceed 7%. The CPI adjustments made in January 1997 and 1996 are 1.42% and 0.73%
respectively.

Under the Percentage Leases, the Partnership is obligated to pay the costs
of real estate and personal property taxes, property insurance, maintenance of
underground utilities and structural elements of the Hotels, and to set aside 4%
of suite revenues per month, on a cumulative basis, to fund therefrom (or from
other sources) capital expenditures for the periodic replacement or
refurbishment of furniture, fixtures and equipment required for the retention of
the franchise licenses with respect to the Hotels. In addition, the Company will
incur certain additional capital expenditures in connection with the conversion
and upgrade of acquired hotels, which may be funded from cash on hand or
borrowings under its line of credit.

At December 31, 1996 the Company is committed to fund capital improvements
to certain of its hotels of approximately $22 million pursuant to product
improvements plans as required by the franchisors. These capital improvements
are expected to be funded in 1997.

The Company has entered into employment contracts with Messrs. Feldman and
Corcoran, that will continue in effect until December 31, 1999 and, unless
terminated, will be automatically renewed for successive one year terms.
Pursuant to such agreements, Messrs. Feldman and Corcoran each received $5,000
per month during 1994, $10,000 per month during 1995 and $10,270 per month in
1996. Effective January 1, 1997, Mr. Feldman is entitled to receive $12,500 per
month and Mr. Corcoran is entitled to receive $16,667 per month. In addition,
the Company is required to maintain a comprehensive medical plan for such
persons.

The Company shares the executive offices and certain employees with FelCor,
Inc. and the Lessee, and each company bears its share of the costs thereof,
including an allocated portion of the rent, compensation of certain personnel
(other than Messrs. Feldman and Corcoran, whose compensation is borne solely by
the Company), office supplies, telephones and depreciation of office furniture,
fixtures and equipment. Any such allocation of shared expenses to the Company
must be approved by a majority of the independent directors. During 1996 and
1995, the Company paid approximately $807,000 (approximately 38%) and $316,000
(approximately 31%), respectively, of the allocable expenses under this
agreement.

10. SUPPLEMENTAL CASH FLOW DISCLOSURE

The Company purchased certain assets and assumed certain liabilities in
connection with the acquisition of hotels. These purchases were recorded under
the purchase method of accounting. The fair values of the acquired assets and
liabilities recorded at the date of acquisition are as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Assets acquired............................ $ 494,354 $221,213 $25,750
Prepayments assumed........................ 13,616
Liabilities assumed........................ (108,744) (910) (2,200)
Capital land lease assumed................. (10,045)
Capital equipment leases assumed........... (2,823) (1,211)
Common stock issued........................ (6,000) (3,499)
Partnership units issued................... (10,880)
--------- -------- -------
Net cash paid.................... $ 365,907 $219,164 $23,550
========= ======== =======
</TABLE>

F-41
<PAGE> 152

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company purchased interests in unconsolidated partnerships during 1996
and 1995. These unconsolidated partnerships separately own five hotels located
in Chicago-Lombard, Illinois; Marin County, California; Parsippany, New Jersey;
Charlotte, North Carolina; and Indianapolis, Indiana, a parcel of undeveloped
land in Myrtle Beach, South Carolina and a condominium management company in
Myrtle Beach, South Carolina. These purchases were recorded under the equity
method of accounting. The value of the assets recorded at the date of
acquisition is as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Acquisition of interests in unconsolidated
partnerships................................... $45,992 $13,166
Partnership units issued......................... (2,568)
------- -------
Net cash paid.......................... $43,424 $13,166
======= =======
</TABLE>

In 1994, limited partnership Units in the Partnership with a net book value
of $25,237 were issued in exchange for the Initial Hotels. In exchange for the
limited partnership Units, the Partnership acquired hotels for approximately
$79,439 (recorded on an historical cost basis) and assumed debt of approximately
$75,992 resulting in a net surplus of approximately $3,447.

Approximately $16,090, $3,813 and $1,804 of aggregate preferred stock
dividends and common stock distributions had been declared as of December 31,
1996, 1995 and 1994, respectively. These amounts were paid in January following
each such year.

11. STOCK BASED COMPENSATION PLANS

The Company sponsors the FelCor Suite Hotels, Inc. 1994 Restricted Stock
and Stock Option Plan ("1994 Plan"), and the FelCor Suite Hotels, Inc. 1995
Restricted Stock and Stock Option Plan (the "1995 Plan" and collectively, the
"Plan"), which are stock based incentive compensation plans as described below.
The Company applies APB Opinion 25 and related interpretations in accounting for
the Plan. In 1995, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 123 Accounting for Stock-Based Compensation ("SFAS 123") which, if
fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of the Plan. Adoption of the cost recognition provisions of
SFAS 123 is optional and the Company has decided not to adopt these provisions
of SFAS 123. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are
presented below.

Stock Options

The Company is authorized to issue 450,000 shares of common stock under the
1994 Plan and 1,200,000 shares of common stock under the 1995 Plan pursuant to
awards granted in the form of incentive stock options qualified under Section
422 of the Internal Revenue Code of 1986, as amended, non-qualified stock
options and restricted stock. All options have 10 year contractual terms and
vest over five years, (20% per year), beginning in the year following the date
of grant. Awards may be made to key executives and other key employees of the
Company, including officers of the Company and its subsidiaries.

A total of 50,000 shares of stock may be issued as restricted stock under
the 1994 Plan and a total of 133,333 shares of stock may be issued as restricted
stock under the 1995 Plan.

Under the Plan, the Company granted a total of 345,000 nonqualified stock
options in 1995 and 327,500 nonqualified stock options in 1996.

F-42
<PAGE> 153

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's nonqualified stock options as of
December 31, 1996 and the changes during the year ended on that date is
presented below:

<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of the year...... 515,000 $24.72 170,000 $20.81
Granted................................... 327,500 $30.08 345,000 $26.64
Exercised................................. 0 n/a 0 n/a
Forfeited................................. 5,000 $30.00 0 n/a
Expired................................... 0 n/a 0 n/a
Outstanding at end of year................ 837,500 $26.78 515,000 $24.72
Exercisable at end of year................ 155,000 $23.17 38,000 $20.59
</TABLE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
NUMBER WGTD. AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WGTD. AVG. EXERCISABLE WGTD. AVG.
EXERCISE PRICES AT 12/31/96 CONTR. LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ---------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$18.75 to $22.00 170,000 6.76 $20.81 86,000 $20.38
$22.00 to $31.37 667,500 9.12 $28.30 69,000 $26.64
- ---------------- ------- ---- ------ ------- ------
$18.75 to $31.37 837,500 8.64 $26.78 155,000 $23.17
</TABLE>

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: dividend yield of 8.00%; risk free interest rates are
different for each grant and range from 5.57% to 6.47%; the expected lives of
options are 6 years; and volatility of 24.42% for all grants. The weighted
average fair value of options granted during 1996 was $3.76 per share and the
weighted average fair value of options granted during 1995 was $3.13 per share.

Restricted Stock

The Company may grant restricted (i.e., nonvested) shares of common stock
under the 1994 Plan and 1995 Plan. Under the 1994 Plan, the Company may grant to
employees (including officers and directors who also are employees and
independent directors), as restricted common stock all or a portion of the
50,000 shares of common stock reserved under the 1994 Plan. Under the 1995 Plan,
the Company may grant to employees (including officers and directors who also
are employees and independent directors), as restricted common stock all or a
portion of the 133,333 shares of common stock reserved under the 1995 Plan.

In 1995, the Company issued 46,500 shares of restricted common stock under
the Plan. A total of 42,500 shares vest over a five year period (20% per year,
beginning in the year following the date of grant), and the remaining 4,000
shares, granted to independent directors in lieu of cash compensation, vested
immediately on the date of grant.

In 1996, the Company issued 33,000 shares of restricted common stock under
the Plan. A total of 26,500 of the shares vest over a five year period (20% per
year, beginning in the year following the first anniversary date of the grant),
4,000 shares granted to independent directors in lieu of cash compensation,
vested immediately on the date of grant, and the remaining 2,500 shares vest
100% on January 1, 1997.

In accordance with APB 25, upon the issuance of restricted shares of common
stock under the Plan, the Company recognized a compensation cost for the
restricted common stock in the amount of $1.5 million for 1996 and $631,000 for
1995. This cost is charged to shareholders' equity and recognized as
amortization expense ratably over the applicable vesting period, in the amount
of $507,000 for 1996 and $158,000 for 1995.

F-43
<PAGE> 154

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average share price at the date of grant for 33,000 restricted
shares of common stock issued in 1996 is $29.99. The weighted average share
price at the date of grant for 46,500 restricted shares of common stock issued
in 1995 is $24.09.

A summary of the status of the Company's restricted stock grants as of
December 31, 1996 and the changes during the year ended on that date is
presented below:

<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FAIR MARKET FAIR MARKET
# SHARES VALUE AT GRANT # SHARES VALUE AT GRANT
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of the year... 46,500 $24.09 0 n/a
Granted:
With 5 year graded vesting........... 26,500 $29.94 42,500 $24.32
Vest 100% at grant date.............. 4,000 $30.00 4,000 $21.63
Vest 100% within 12 months of
grant............................. 2,500 $30.50 0 n/a
Total granted.......................... 33,000 $29.99 46,500 $24.09
Outstanding at end of year............. 79,500 $26.54 46,500 $24.09
Vested at end of year.................. 16,500 $25.05 4,000 $21.63
</TABLE>

Pro Forma Net Income and Net Income Per Common Share

Had the compensation cost for the Company's stock based compensation plans
been determined in accordance with SFAS 123, the Company's net income and net
income per common share for 1996 and 1995 would approximate the pro forma
amounts below (in thousands, except per share data):

<TABLE>
<CAPTION>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
12/31/96 12/31/96 12/31/95 12/31/95
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
SFAS 123 charge......................... $ 882 $ 176
APB 25 charge........................... $ 507 $ 158
Net income.............................. $33,203 $32,828 $12,191 $12,173
Net income per common share............. $ 1.44 $ 1.42 $ 1.70 $ 1.70
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock based
compensation plans.

F-44
<PAGE> 155

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. LESSEE

All of the Company's percentage lease revenues is derived from the
Percentage Leases with the Lessee. Certain information related to the Lessee's
financial statements is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Balance Sheet Information:
Cash and cash equivalents............. $ 5,208 $5,345
Total assets.......................... $18,471 $9,599
Due to FelCor Suite Hotels, Inc. ..... $ 5,526 $2,396
Shareholders' deficit................. $(6,403) $ (773)
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Statement of Operations Information:
Suite revenue..................... $234,451 $65,649 $16,094
Percentage lease expenses......... $107,935 $26,945 $ 6,043
Net income (loss)................. $ (5,430) $ (240) $ 109
</TABLE>

13. PREDECESSOR COMPANY

The Initial Hotels have been determined to be the Predecessor of the
Company and represent the hotels acquired upon the completion of the initial
public offering of Common Stock. Certain information related to the Initial
Hotels financial statements for the period from January 1, 1994 through July 27,
1994 (before the Company's initial public offering) is as follows (in
thousands):

<TABLE>
<S> <C>
Suite revenue........................... $21,884
Net income.............................. $ 1,562
Cash flows provided by operating
activities............................ $ 3,995
Cash flows used in investing
activities............................ $(1,327)
Cash flows used in financing
activities............................ $(1,640)
</TABLE>

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards ("SFAS") 107 requires all
entities to disclose the fair value of certain financial instruments in their
financial statements. Accordingly, the Company reports the carrying amount of
cash and cash equivalents, amounts due from the Lessee, accounts payable and
accrued expenses at cost which approximates fair value due to the short maturity
of these instruments. The carrying amount of the Company's borrowings
approximates fair value due to the Company's ability to obtain such borrowings
at comparable interest rates.

15. PRO FORMA INFORMATION (UNAUDITED)

Due to the impact of the acquisition of hotels in 1996 and 1995, the
historical results of operations may not be indicative of future results of
operations and net income per common share.

The following unaudited Pro Forma Consolidated Statements of Operations for
the years ended December 31, 1996 and 1995 are presented as if the acquisition
of all 43 hotels owned at December 31, 1996, and the consummation of the public
offerings and the application of the net proceeds therefrom had occurred by
January 1, 1995, and all of the hotels had been leased to the Lessee pursuant to
the Percentage Leases.

F-45
<PAGE> 156

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The pro forma consolidated statements of operations do not purport to
present what actual results of operations would have been if the acquisition of
all 43 hotels owned at December 31, 1996 and the consummation of the public
offerings had occurred on such date or to project results for any future period.
For instance, in accordance with SEC regulations, the following unaudited Pro
Forma Consolidated Statements of Operations do not include pro forma earnings
associated with the Company's pro forma cash and short-term investments.

<TABLE>
<CAPTION>
1996 1995
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues:
Percentage lease revenue.............. $110,077 $102,878
Income from unconsolidated
partnerships....................... 2,815 2,160
-------- --------
Total income.......................... 112,892 105,038
Expenses:
General and administrative............ 1,895 1,783
Depreciation.......................... 31,103 26,617
Taxes, insurance and other............ 15,189 13,617
Interest expense...................... 15,903 15,004
Minority interest..................... 5,173 5,090
-------- --------
Net income.............................. 43,629 42,927
Preferred dividends..................... 11,798 11,798
-------- --------
Net income applicable to common
shareholders.......................... $ 31,831 $ 31,129
======== ========
Net income per common share............. $ 1.36 $ 1.33
======== ========
Weighted average number of common shares
outstanding........................... 23,482 23,443
======== ========
</TABLE>

16. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

SFAS No. 128, "Earnings Per Share" ("EPS"), was issued in October 1996.
This statement specifies the computation, presentation, and disclosure
requirements for EPS and is effective for financial statements issued for
periods ending after December 15, 1997. The statement requires restatement of
all prior period EPS data presented, including interim financial statement,
summaries of earnings, and selected financial data, after the effective date.
The Company has determined the effect of adoption will have an immaterial impact
on previously reported EPS numbers.

17. SUBSEQUENT EVENTS

On February 3, 1997 the Company announced the closing of a common stock
offering pursuant to the Company's $500 million Shelf Registration, covering a
variety of debt and equity securities. The offering was for 3 million shares of
common stock to the public at $35.50 per share, providing the Company with net
proceeds of approximately $100.7 million.

The Company used the majority of the proceeds of this common stock offering
to purchase 50% joint venture interests in eight existing Embassy Suite hotels
and to acquire full ownership of two additional hotels. Promus continues to own
the remaining 50% interest in the eight joint venture hotels, which will
continue to operate as Embassy Suites under management by Promus. The two
wholly-owned hotels will be converted to Doubletree Guest Suites hotels by the
end of the second quarter of 1997 and are being managed by a subsidiary of
Doubletree Hotels Corporation. The aggregate purchase price for the Company's
interest in

F-46
<PAGE> 157

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

these 10 hotels was approximately $139 million, including the Company's pro rata
share of approximately $86 million in non-recourse debt held by the joint
ventures.

On February 18, 1997 the Company purchased the 215-suite Embassy Suites Los
Angeles Airport (LAX) North hotel for approximately $22 million cash. Promus
will continue to manage the hotel as an Embassy Suites hotel.

On February 20, 1997 the Company purchased a 198-suite hotel in Dana Point,
CA for approximately $17.2 million cash. The Dana Point hotel will be converted
to a Doubletree Guest Suites hotel and will be managed by a subsidiary of
Doubletree Hotels Corporation.

18. QUARTERLY OPERATING RESULTS (UNAUDITED)

The Company's unaudited consolidated quarterly operating data for the years
ended December 31, 1996 and 1995 follows (in thousands, except per share data).
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of quarterly results have been
reflected in the data. It is also management's opinion, however, that quarterly
operating data for hotel enterprises are not indicative of results to be
achieved in succeeding quarters or years. In order to obtain a more accurate
indication of performance, there should be a review of operating results,
changes in shareholders' equity and cash flows for a period of several years.
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.

F-47
<PAGE> 158

FELCOR SUITE HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.............................. $23,976 $23,409 $25,263 $25,302
Income from unconsolidated partnerships............... 320 165 927 598
Other income.......................................... 146 628 163 47
------- ------- ------- -------
Total revenues................................ 24,442 24,202 26,353 25,947
------- ------- ------- -------
Expenses:
General and administrative............................ 382 466 458 513
Depreciation.......................................... 4,516 5,788 7,529 8,711
Taxes, insurance and other............................ 3,529 3,070 3,260 4,038
Interest expense...................................... 2,424 2,089 1,760 3,530
Minority interest..................................... 1,620 1,523 1,477 970
------- ------- ------- -------
Total expenses................................ 12,471 12,936 14,484 17,762
------- ------- ------- -------
Income before extraordinary charge...................... 11,971 11,266 11,869 8,185
Extraordinary charge from write off of deferred
financing fees........................................ 2,354
------- ------- ------- -------
Net income.............................................. 11,971 11,266 9,515 8,185
Preferred dividends..................................... 1,835 2,949 2,950
------- ------- ------- -------
Net income applicable to common shareholders............ $11,971 $ 9,431 $ 6,566 $ 5,235
======= ======= ======= =======
Per common share information:
Net income applicable to common shareholders before
extraordinary charge............................... $ 0.53 $ 0.41 $ 0.38 $ 0.22
Extraordinary charge.................................. (0.10)
------- ------- ------- -------
Net income............................................ $ 0.53 $ 0.41 $ 0.28 $ 0.22
======= ======= ======= =======
Weighted average number of common shares
outstanding........................................ 22,614 22,905 23,276 23,502
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.............................. $ 5,372 $ 5,977 $ 6,138 $ 6,300
Income from unconsolidated partnerships............... 290 223
Other income.......................................... 8 209 215 1,259
------- ------- ------- -------
Total revenues................................ 5,380 6,186 6,643 7,782
------- ------- ------- -------
Expenses:
General and administrative............................ 184 240 215 231
Depreciation.......................................... 1,058 1,178 1,455 1,541
Taxes, insurance and other............................ 559 580 616 808
Interest expense...................................... 353 566 143 942
Minority interest..................................... 854 814 724 739
------- ------- ------- -------
Total expenses................................ 3,008 3,378 3,153 4,261
------- ------- ------- -------
Net income applicable to common shareholders............ $ 2,372 $ 2,808 $ 3,490 $ 3,521
======= ======= ======= =======
Per common share information:
Net income............................................ $ 0.50 $ 0.48 $ 0.43 $ 0.36
======= ======= ======= =======
Weighted average number of common shares
outstanding........................................ 4,707 5,850 8,170 9,867
======= ======= ======= =======
</TABLE>

F-48
<PAGE> 159

FELCOR SUITE HOTELS, INC.

SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
---------------------------------- -------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
----------------------- ------- ------------ --------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX............... $ 1,497 $ 12,722 $ 647 $ 28 1,091
Nashville, TN........................... 1,118 9,506 961 28 1,093
Jacksonville, FL........................ 1,130 9,608 456 28 627
Orlando (North), FL..................... 1,673 14,218 684 28 664
Orlando (South), FL..................... 1,632 13,870 799 28 967
Tulsa, OK............................... 525 7,344 3,117 139 1,523
New Orleans, LA......................... 2,570 22,300 895 523 890
Flagstaff, AZ........................... 900 6,825 268 1,523 993
Dallas (Love Field), TX................. 1,934 16,674 757 167 899
Boston-Marlborough, MA.................. 948 8,143 325 $761 721
Brunswick, GA........................... 705 6,067 247 431
Corpus Christi, TX...................... 1,113 9,618 390 51 1,268
Burlingame (SF Airport So.), CA......... 39,929 818 55 2,041
Minneapolis (Airport), MN............... 5,417 36,508 602 62 2,052
Boca Raton (Doubletree), FL............. 5,427 3,066 304 29 503
Minneapolis (Downtown), MN.............. 818 16,820 505 56 2,462
St. Paul, MN............................ 1,156 17,315 849 27 2,210
Tampa (Busch Gardens), FL............... 672 12,387 226 5
Cleveland, OH........................... 1,755 15,329 527 129 236
Anaheim, CA............................. 2,548 14,832 607 491 2,517
Baton Rouge, LA......................... 2,350 19,092 525 497 2,140
Birmingham, AL.......................... 2,843 29,286 160 706 2,140
Deerfield Beach, FL..................... 4,523 29,443 917 849 2,088
Ft. Lauderdale, FL...................... 5,329 47,850 903 1,142 2,558
Miami (Airport), FL..................... 4,135 24,950 1,171 684 2,658
Milpitas, CA............................ 4,021 23,677 562 912 2,920
Phoenix (Camelback), AZ................. 39,003 612 810 2,604
So. San Francisco (Airport N.), CA...... 3,418 31,737 527 769 3,378
Lexington, KY........................... 1,955 13,604 587 79
Piscataway, NJ.......................... 1,755 17,563 527 12 168
Avon (Beaver Creek Resort), CO.......... 1,134 9,864 340 162 568
Boca Raton (Embassy), FL................ 1,868 16,253 560 1,604
El Segundo (LAX South), CA.............. 2,660 17,997 798 179 2,595
Oxnard (Mandalay Beach), CA............. 2,930 22,125 879 529 441
Napa, CA................................ 3,287 14,205 494 398 245
Deerfield, IL........................... 2,305 20,054 692 2
Atlanta (Buckhead), GA.................. 7,303 38,996 2,437
Kingston Plantation, SC................. 2,940 24,988 1,470
------- -------- ------- ---- ------- -------
Total........................... $88,294 $733,768 $28,145 $812 $10,990 $49,381
======= ======== ======= ==== ======= =======

<CAPTION>
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK
CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE
---------------------------------- BUILDINGS AND BUILDINGS AND
BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS;
AND AND FURNITURE & FURNITURE AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES
----------------------- ------- ------------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX............... 1,497 $ 12,750 $ 1,738 $ 15,985 $ 1,840 $ 14,145
Nashville, TN........................... 1,118 9,534 2,054 12,706 2,230 10,476
Jacksonville, FL........................ 1,130 9,636 1,083 11,849 1,171 10,678
Orlando (North), FL..................... 1,673 14,246 1,348 17,267 1,916 15,351
Orlando (South), FL..................... 1,632 13,898 1,766 17,296 1,823 15,473
Tulsa, OK............................... 525 7,483 4,640 12,648 3,485 9,163
New Orleans, LA......................... 2,570 22,823 1,785 27,178 1,699 25,479
Flagstaff, AZ........................... 900 8,348 1,261 10,509 687 9,822
Dallas (Love Field), TX................. 1,934 16,841 1,656 20,431 1,118 19,313
Boston-Marlborough, MA.................. 1,709 8,143 1,046 10,898 495 10,403
Brunswick, GA........................... 705 6,067 678 7,450 317 7,133
Corpus Christi, TX...................... 1,164 9,618 1,658 12,440 628 11,812
Burlingame (SF Airport So.), CA......... 39,984 2,859 42,843 1,514 41,329
Minneapolis (Airport), MN............... 5,417 36,570 2,654 44,641 1,378 43,263
Boca Raton (Doubletree), FL............. 5,427 3,095 807 9,329 234 9,095
Minneapolis (Downtown), MN.............. 818 16,876 2,967 20,661 845 19,816
St. Paul, MN............................ 1,156 17,342 3,059 21,557 895 20,662
Tampa (Busch Gardens), FL............... 672 12,387 231 13,290 383 12,907
Cleveland, OH........................... 1,755 15,458 763 17,976 511 17,465
Anaheim, CA............................. 2,548 15,323 3,124 20,995 813 20,182
Baton Rouge, LA......................... 2,350 19,589 2,665 24,604 681 23,923
Birmingham, AL.......................... 2,843 29,992 2,300 35,135 804 34,331
Deerfield Beach, FL..................... 4,523 30,292 3,005 37,820 981 36,839
Ft. Lauderdale, FL...................... 5,329 48,992 3,461 57,782 1,629 56,153
Miami (Airport), FL..................... 4,135 25,634 3,829 33,598 1,031 32,567
Milpitas, CA............................ 4,021 24,589 3,482 32,092 991 31,101
Phoenix (Camelback), AZ................. 39,813 3,216 43,029 1,208 41,821
So. San Francisco (Airport N.), CA...... 3,418 32,506 3,905 39,829 1,085 38,744
Lexington, KY........................... 1,955 13,604 666 16,225 403 15,822
Piscataway, NJ.......................... 1,755 17,575 695 20,025 484 19,541
Avon (Beaver Creek Resort), CO.......... 1,134 10,026 908 12,068 291 11,777
Boca Raton (Embassy), FL................ 1,868 16,253 2,164 20,285 481 19,804
El Segundo (LAX South), CA.............. 2,660 18,176 3,393 24,229 1,394 22,835
Oxnard (Mandalay Beach), CA............. 2,930 22,654 1,320 26,904 512 26,392
Napa, CA................................ 3,287 14,603 739 18,629 318 18,311
Deerfield, IL........................... 2,305 20,054 694 23,053 321 22,732
Atlanta (Buckhead), GA.................. 7,303 38,996 2,437 48,736 122 48,614
Kingston Plantation, SC................. 2,940 24,988 1,470 29,398 29,398
------- -------- ------- -------- ------- --------
Total........................... $89,106 $744,758 $77,526 $911,390 $36,718 $874,672
======= ======== ======= ======== ======= ========

LIFE UPON
WHICH
DEPRECIATION
DATE OF IN STATEMENT
DESCRIPTION OF PROPERTY CONSTRUCTION IS COMPUTED
----------------------- ------------ ------------
<S> <C> <C>
Dallas (Park Central), TX............... 1985 5-40 Yrs
Nashville, TN........................... 1986 5-40 Yrs
Jacksonville, FL........................ 1985 5-40 Yrs
Orlando (North), FL..................... 1985 5-40 Yrs
Orlando (South), FL..................... 1985 5-40 Yrs
Tulsa, OK............................... 1985 5-40 Yrs
New Orleans, LA......................... 1984 5-40 Yrs
Flagstaff, AZ........................... 1988 5-40 Yrs
Dallas (Love Field), TX................. 1986 5-40 Yrs
Boston-Marlborough, MA.................. 1988 5-40 Yrs
Brunswick, GA........................... 1988 5-40 Yrs
Corpus Christi, TX...................... 1984 5-40 Yrs
Burlingame (SF Airport So.), CA......... 1986 5-40 Yrs
Minneapolis (Airport), MN............... 1986 5-40 Yrs
Boca Raton (Doubletree), FL............. 1989 5-40 Yrs
Minneapolis (Downtown), MN.............. 1984 5-40 Yrs
St. Paul, MN............................ 1983 5-40 Yrs
Tampa (Busch Gardens), FL............... 1985 5-40 Yrs
Cleveland, OH........................... 1990 5-40 Yrs
Anaheim, CA............................. 1987 5-40 Yrs
Baton Rouge, LA......................... 1985 5-40 Yrs
Birmingham, AL.......................... 1987 5-40 Yrs
Deerfield Beach, FL..................... 1987 5-40 Yrs
Ft. Lauderdale, FL...................... 1986 5-40 Yrs
Miami (Airport), FL..................... 1987 5-40 Yrs
Milpitas, CA............................ 1987 5-40 Yrs
Phoenix (Camelback), AZ................. 1985 5-40 Yrs
So. San Francisco (Airport N.), CA...... 1988 5-40 Yrs
Lexington, KY........................... 1987 5-40 Yrs
Piscataway, NJ.......................... 1988 5-40 Yrs
Avon (Beaver Creek Resort), CO.......... 1990 5-40 Yrs
Boca Raton (Embassy), FL................ 1989 5-40 Yrs
El Segundo (LAX South), CA.............. 1985 5-40 Yrs
Oxnard (Mandalay Beach), CA............. 1986 5-40 Yrs
Napa, CA................................ 1985 5-40 Yrs
Deerfield, IL........................... 1987 5-40 Yrs
Atlanta (Buckhead), GA.................. 1988 5-40 Yrs
Kingston Plantation, SC................. 1987 5-40 Yrs

Total...........................

(a) Reconciliation of Real Estate:
Balance at July 28, 1994.................................. $ 82,979
Additions during the period............................... 26,847
--------
Balance at December 31, 1994.............................. 109,826
Additions during the period............................... 233,572
--------
Balance at December 31, 1995.............................. 343,398
Additions during the period............................... 568,073
Dispositions during the period............................ (81)
--------
Balance at December 31, 1996.............................. $911,390
========
(b) Reconciliation of Accumulated Depreciation:
Balance at July 28, 1994
Accumulated depreciation assumed with predecessor
historical cost basis................................... $ 3,540
Depreciation expense during the period.................... 1,486
--------
Balance at December 31, 1994.............................. 5,026
Depreciation expense during the period.................... 5,371
--------
Balance at December 31, 1995.............................. 10,397
Depreciation expense during the period.................... 26,321
--------
Balance at December 31, 1996.............................. $ 36,718
========
</TABLE>

F-49
<PAGE> 160

FELCOR SUITES LIMITED PARTNERSHIP

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

The following unaudited Pro Forma Consolidated Statements of Operations of
FelCor Suites Limited Partnership (the "Partnership") are presented as if the
acquisitions of all hotels owned by FelCor Suite Hotels, Inc. and its
consolidated subsidiaries (collectively the "Company") at December 31, 1996,
those hotels acquired in 1997 through September 30, 1997 (collectively the
"Hotels"), the 1997 placement of the $300 million senior unsecured debt, the
preferred stock offering consummated during 1996 and the common stock offerings
consummated during 1997, and related transactions had occurred as of January 1,
1996 and the Hotels had all been leased to DJONT Operations, L.L.C. or its
consolidated subsidiaries (the "Lessee") pursuant to Percentage Leases. Such pro
forma information is based in part upon the Consolidated Statements of
Operations of the Partnership, Pro Forma Statements of Operations of DJONT
Operations, L.L.C. and the historical Statements of Operations of the acquired
hotels. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.

The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Partnership would have been assuming such transactions had
been completed on January 1, 1996, nor does it purport to represent the results
of operations for future periods.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
1997
ACQUISITIONS,
COMMON STOCK
1996 ACQUISITIONS OFFERINGS AND
HISTORICAL AND PREFERRED DEBT
PARTNERSHIP STOCK OFFERING(A) PLACEMENT(B) TOTAL
----------- ----------------- ------------- --------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C)........... $ 97,950 $12,127 $63,070 $173,147
Income from unconsolidated
partnerships(D)..................... 2,010 805 308 3,123
Other income(E)....................... 984 (984)
-------- ------- ------- --------
Total revenues................... 100,944 11,948 63,378 176,270
-------- ------- ------- --------
Expenses:
General and administrative(F)......... 1,819 76 1,408 3,303
Depreciation(G)....................... 26,544 4,559 16,419 47,522
Taxes, insurance and other(H)......... 13,897 1,292 9,600 24,789
Interest expense(I)................... 9,803 6,100 16,926 32,829
Minority interest in other
partnerships(J)..................... 236 236
-------- ------- ------- --------
Total expenses................... 52,063 12,027 44,589 108,679
-------- ------- ------- --------
Net income................................. 48,881 (79) 18,789 67,591
Preferred distributions(K)................. 7,734 4,064 11,798
-------- ------- ------- --------
Net income applicable to unitholders(L).... $ 41,147 $(4,143) $18,789 $ 55,793
======== ======= ======= ========
Net income per unit(L)..................... $ 1.58 $ 1.42
======== ========
Weighted average number of units
outstanding.............................. 26,037 39,407
======== ========
</TABLE>

F-50
<PAGE> 161

FELCOR SUITES LIMITED PARTNERSHIP

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
--------------------------------
PRO FORMA
ADJUSTMENTS: 1997
ACQUISITIONS,
COMMON STOCK
OFFERINGS AND
HISTORICAL DEBT
PARTNERSHIP PLACEMENT(B) TOTAL
----------- ----------------- --------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C)...................... $122,651 $29,476 $152,127
Income from unconsolidated partnerships(D)....... 5,765 (84) 5,681
Other income(E).................................. 283 (283)
-------- ------- --------
Total revenues.............................. 128,699 29,109 157,808
-------- ------- --------
Expenses:
General and administrative....................... 2,743 2,743
Depreciation(G).................................. 35,969 7,274 43,243
Taxes, insurance and other(H).................... 16,912 4,133 21,045
Interest expense(I).............................. 20,097 8,147 28,244
Minority interest in other partnerships(J)....... 337 90 427
-------- ------- --------
Total expenses.............................. 76,058 19,644 95,702
-------- ------- --------
Net income............................................ 52,641 9,465 62,106
-------
Preferred distributions(K)............................ 8,848 8,848
-------- ------- --------
Net income applicable to unitholders(L)............... $ 43,793 $ 9,465 $ 53,258
======== ======= ========
Net income per unit(L)................................ $ 1.35 $ 1.35
======== ========
Weighted average number of units outstanding.......... 32,412 39,481
======== ========
</TABLE>

F-51
<PAGE> 162

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

F-52
<PAGE> 163

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)

(B) Represents pro forma adjustments to reflect the historical results of
operations prior to the acquisition by the Company for those hotels
acquired by the Company in 1997 through September 30, 1997 as adjusted, to
give effect to the provisions of the Percentage Leases; the effect of the
Company's common stock offering in the first quarter of 1997; the common
stock offering in June 1997; the placement of the $300 million senior
unsecured debt; and other pro forma adjustments reflecting additional
overhead expenses and interest expense. Those hotels acquired during 1997
and dates of acquisition are as follows:

F-53
<PAGE> 164

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)

(C) Represents historical or pro forma lease revenue from the Lessee to the
Company calculated by applying the contractual or anticipated rent
provisions of the Percentage Leases to the historical suite revenues, food
and beverage rents and food and beverage revenues of all the Hotels which
are consolidated for financial reporting purposes. The income from
unconsolidated partnerships is included as a separate line item in the
accompanying Pro Forma Statements of Operations as described in Note D.
Historical suite revenues for the time period prior to the acquisition by
the Company, the date of acquisition, the contractual or anticipated pro
forma Percentage Lease revenue for the time period prior to acquisition by
the Company and a summary of contractual or anticipated Percentage Lease
terms follows (in thousands):
<TABLE>
<CAPTION>

SUITE REVENUE FOR THE PERIOD
PRIOR TO ACQUISITION
BY THE COMPANY
----------------------------
NINE MONTHS
ENDED YEAR ENDED
DATE OF SEPTEMBER 30, DECEMBER 31,
DESCRIPTION OF PROPERTY ACQUISITION 1997 1996
----------------------- ------------------ ------------- ------------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites.......... February 1, 1997 $ 379 $ 6,342
Omaha, NE, Doubletree Guest Suites................ February 1, 1997 336 4,754
Los Angeles (LAX North), Embassy Suites........... February 18, 1997 826 6,263
Dana Point, CA, Doubletree Guest Suites........... February 21, 1997 485 3,716
Troy, MI, Doubletree Guest Suites................. March 20, 1997 1,489 6,342
Austin (Downtown), TX, Doubletree Guest Suites.... March 20, 1997 1,366 5,696
Baltimore (BWI), MD, Doubletree Guest Suites...... March 20, 1997 1,167 6,236
Nashville, TN, Doubletree Guest Suites............ June 5, 1997 1,341 3,164
Dallas Market Center, TX, Embassy Suites.......... June 30, 1997 3,938 7,716
Syracuse, NY, Embassy Suites...................... June 30, 1997 2,909 5,572
Dallas (Park Central), TX, Sheraton............... June 30, 1997 6,920 13,520
Phoenix (Crescent), AZ, Sheraton.................. June 30, 1997 5,738 9,581
Chicago (O'Hare), IL, Sheraton Gateway Suites..... June 30, 1997 4,803 8,973
Atlanta (Airport), GA, Sheraton Gateway........... June 30, 1997 4,351 9,841
Atlanta (Galleria), GA, Sheraton Suites........... June 30, 1997 3,700 8,091
Lake Buena Vista, FL, Doubletree Guest Suites..... July 28, 1997 5,993 8,446
Raleigh, NC, Doubletree Guest Suites.............. July 28, 1997 3,497 5,327
Tampa (Rocky Point), FL, Doubletree Guest
Suites.......................................... July 28, 1997 3,779 5,499
Philadelphia (Society Hill), PA, Sheraton......... September 29, 1997 9,464 12.384
------- --------
Total consolidated hotels................... $62,481 $137,463
======= ========
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy Suites.... February 1, 1997 $ 600 $ 8,084
Austin (Airport North), TX, Embassy Suites........ February 1, 1997 528 7,542
Covina, CA, Embassy Suites........................ February 1, 1997 417 4,053
Overland Park, KS, Embassy Suites................. February 1, 1997 403 5,624
Kansas City (Plaza), MO, Embassy Suites........... February 1, 1997 548 7,604
Raleigh, NC, Embassy Suites....................... February 1, 1997 624 7,592
San Antonio (NW I-10), TX, Embassy Suites......... February 1, 1997 337 5,614
Secaucus, NJ, Embassy Suites...................... February 1, 1997 722 9,816
San Antonio (Airport), TX, Embassy Suites......... May 16, 1997 2,874 7,235
------- --------
Total unconsolidated hotel partnerships..... $ 7,053 $ 63,164
======= ========

<CAPTION>
PERCENTAGE LEASE REVENUE
FOR THE PERIOD
PRIOR TO ACQUISITION
BY THE COMPANY ANNUAL PERCENTAGE
---------------------------- LEASE TERMS
NINE MONTHS ---------------------------
ENDED YEAR ENDED SUITE
SEPTEMBER 30, DECEMBER 31, FIRST SECOND REVENUE
DESCRIPTION OF PROPERTY 1997 1996 TIER TIER BREAKPOINT
----------------------- ------------- ------------ ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites.......... $ 152 $ 3,049 17% 65% $2,468
Omaha, NE, Doubletree Guest Suites................ 150 2,285 17 65 1,703
Los Angeles (LAX North), Embassy Suites........... 339 2,590 17 65 3,176
Dana Point, CA, Doubletree Guest Suites........... 144 1,395 17 65 2,211
Troy, MI, Doubletree Guest Suites................. 800 3,316 17 65 1,935
Austin (Downtown), TX, Doubletree Guest Suites.... 700 2,829 17 65 1,961
Baltimore (BWI), MD, Doubletree Guest Suites...... 538 2,943 17 65 2,536
Nashville, TN, Doubletree Guest Suites............ 560 1,320 17 65 1,585
Dallas Market Center, TX, Embassy Suites.......... 1,848 3,583 17 65 3,069
Syracuse, NY, Embassy Suites...................... 1,123 2,130 17 65 3,227
Dallas (Park Central), TX, Sheraton............... 3,127 6,031 17 65 4,997
Phoenix (Crescent), AZ, Sheraton.................. 2,405 3,525 17 65 5,175
Chicago (O'Hare), IL, Sheraton Gateway Suites..... 2,577 4,709 17 65 1,602
Atlanta (Airport), GA, Sheraton Gateway........... 1,725 4,156 17 65 4,215
Atlanta (Galleria), GA, Sheraton Suites........... 1,540 3,533 17 65 3,185
Lake Buena Vista, FL, Doubletree Guest Suites..... 3,305 4,467 17 65 2,272
Raleigh, NC, Doubletree Guest Suites.............. 1,612 2,623 17 65 1,900
Tampa (Rocky Point), FL, Doubletree Guest
Suites.......................................... 1,951 2,703 17 65 1,939
Philadelphia (Society Hill), PA, Sheraton......... 4,880 5,883 17 65 5,143
------- -------
Total consolidated hotels................... $29,476 $63,070
======= =======
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy Suites.... $ 274 $ 3,889 17% 65% $2,949
Austin (Airport North), TX, Embassy Suites........ 249 3,792 17 65 2,378
Covina, CA, Embassy Suites........................ 158 1,293 17 65 3,066
Overland Park, KS, Embassy Suites................. 176 2,641 17 65 2,114
Kansas City (Plaza), MO, Embassy Suites........... 240 3,594 17 65 2,976
Raleigh, NC, Embassy Suites....................... 300 3,693 17 65 2,711
San Antonio (NW I-10), TX, Embassy Suites......... 120 2,487 17 65 2,474
Secaucus, NJ, Embassy Suites...................... 274 4,082 17 65 4,788
San Antonio (Airport), TX, Embassy Suites......... 1,280 3,113 17 65 3,311
------- -------
Total unconsolidated hotel partnerships..... $ 3,071 $28,584
======= =======
</TABLE>

F-54
<PAGE> 165

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)

(D) Represents historical or pro forma income from unconsolidated partnerships
to the Company calculated by applying the Company's pro rata ownership
percentage to the net income of the unconsolidated partnerships, computed
using the contractual or anticipated rent provisions of the Percentage
Leases to the historical suite revenues, food and beverage rents and food
and beverage revenues of all the hotels; historical taxes, insurance and
other; historical depreciation expense; and historical interest expenses.
The Company's cost in excess of net book value of the partnership assets is
deducted to arrive at income from unconsolidated partnerships. This
computation is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Statements of operations information:
Percentage lease revenue....................... $3,071 $28,584
Depreciation................................... 1,262 12,536
Taxes, insurance and other..................... 509 3,166
Interest expense............................... 1,116 9,725
------- -------
Net income (loss).............................. 184 3,157
50% of income (loss) attributable to the
Company..................................... 92 1,579
Amortization of cost in excess of net book
value....................................... (176) (1,271)
------- -------
Income (loss) from unconsolidated
partnerships................................ $ (84) $ 308
======= =======
</TABLE>

(E) Represents elimination of historical interest income earned on excess cash.

F-55
<PAGE> 166

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)

The pro forma depreciation adjustment for the hotels acquired in 1997 and
for the year ended December 31, 1996 is as follows:

FELCOR SUITES LIMITED PARTNERSHIP

REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET COST
-----------------------------------------------
DATE OF BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY ACQUISITION LAND IMPROVEMENTS AND FIXTURES TOTAL
----------------------- ------------------ ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest
Suites.............................. February 1, 1997 $ 2,038 $ 17,731 $ 612 $ 20,381
Omaha, NE, Doubletree Guest Suites.... February 1, 1997 1,876 16,328 563 18,767
Los Angeles (LAX North), Embassy
Suites.............................. February 18, 1997 2,208 19,205 662 22,075
Dana Point, CA, Doubletree Guest
Suites.............................. February 21, 1997 1,787 15,545 536 17,868
Troy, MI, Doubletree Guest Suites..... March 20, 1997 2,957 25,794 887 29,638
Austin (Downtown), TX, Doubletree
Guest Suites........................ March 20, 1997 2,506 21,858 752 25,116
Baltimore (BWI), MD, Doubletree Guest
Suites.............................. March 20, 1997 2,566 22,381 770 25,717
Nashville, TN Doubletree Guest
Suites.............................. June 5, 1997 1,071 9,332 322 10,725
Dallas (Market Center), TX Embassy
Suites.............................. June 30, 1997 2,619 24,299 2,182 29,100
Syracuse, NY Embassy Suites........... June 30, 1997 1,597 14,812 1,330 17,739
Atlanta (Airport), GA Sheraton
Gateway............................. June 30, 1997 5,110 22,845 2,104 30,059
Atlanta (Galleria), GA Sheraton
Suites.............................. June 30, 1997 5,049 28,490 2,525 36,064
Chicago (O'Hare), IL Sheraton Gateway
Suite............................... June 30, 1997 8,174 37,022 2,885 48,081
Dallas (Park Central), TX Sheraton.... June 30, 1997 4,511 43,101 2,506 50,118
Phoenix (Crescent), AZ Sheraton....... June 30, 1997 3,606 29,567 2,885 36,058
Lake Buena Vista, FL, Doubletree Guest
Suites.............................. July 28, 1997 2,896 25,196 869 28,961
Raleigh, NC, Doubletree Guest
Suites.............................. July 28, 1997 2,124 18,476 637 21,237
Tampa (Rocky Point), FL, Doubletree
Guest Suites........................ July 28, 1997 2,142 18,640 643 21,425
Philadelphia (Society Hill), PA,
Sheraton hotel...................... September 29, 1997 5,120 44,541 1,536 51,197
------- -------- ------- --------
Total consolidated hotels....... $59,957 $455,163 $25,206 $540,326
======= ======== ======= ========

<CAPTION>
ANNUAL DEPRECIATION EXPENSE
-------------------------------------
BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY IMPROVEMENTS AND FIXTURES TOTAL
----------------------- ------------ ------------ -------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest
Suites.............................. $ 443 $ 122 $ 565
Omaha, NE, Doubletree Guest Suites.... 408 113 521
Los Angeles (LAX North), Embassy
Suites.............................. 480 132 612
Dana Point, CA, Doubletree Guest
Suites.............................. 389 107 496
Troy, MI, Doubletree Guest Suites..... 645 177 822
Austin (Downtown), TX, Doubletree
Guest Suites........................ 546 150 696
Baltimore (BWI), MD, Doubletree Guest
Suites.............................. 560 154 714
Nashville, TN Doubletree Guest
Suites.............................. 233 64 297
Dallas (Market Center), TX Embassy
Suites.............................. 607 436 1,043
Syracuse, NY Embassy Suites........... 370 266 636
Atlanta (Airport), GA Sheraton
Gateway............................. 571 421 992
Atlanta (Galleria), GA Sheraton
Suites.............................. 712 505 1,217
Chicago (O'Hare), IL Sheraton Gateway
Suite............................... 926 577 1,503
Dallas (Park Central), TX Sheraton.... 1,078 501 1,579
Phoenix (Crescent), AZ Sheraton....... 739 577 1,316
Lake Buena Vista, FL, Doubletree Guest
Suites.............................. 630 174 804
Raleigh, NC, Doubletree Guest
Suites.............................. 462 127 589
Tampa (Rocky Point), FL, Doubletree
Guest Suites........................ 466 130 596
Philadelphia (Society Hill), PA,
Sheraton hotel...................... 1,114 307 1,421
------- ------ -------
Total consolidated hotels....... $11,379 $5,040 $16,419
======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
ACQUISITION COST ANNUAL
DATE OF ACQUISITION IN EXCESS OF NET AMORTIZATION
ACQUISITION COST BOOK VALUE OF EXCESS COST
---------------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy Suites............ February 1, 1997 $ 9,620 $ 9,199 $ 230
Austin (Airport North), TX, Embassy Suites................ February 1, 1997 8,965 6,486 162
Covina, CA, Embassy Suites................................ February 1, 1997 2,229 (3,329) (83)
Overland Park, KS, Embassy Suites......................... February 1, 1997 5,673 4,928 123
Kansas City (Plaza), MO, Embassy Suites................... February 1, 1997 8,224 7,161 179
Raleigh, NC, Embassy Suites............................... February 1, 1997 9,739 8,764 219
San Antonio (NW I-10), TX, Embassy Suites................. February 1, 1997 4,768 3,445 86
Secaucus, NJ, Embassy Suites.............................. February 1, 1997 9,001 7,103 178
San Antonio (Airport), TX, Embassy Suites................. May 16, 1997 6,916 7,315 177
------- ------- -------
Total unconsolidated hotel partnerships............. $65,135 $51,072 $ 1,271
======= ======= =======
</TABLE>

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

(1) Pending acquisition

F-56
<PAGE> 167

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)

A schedule of property taxes and insurance derived from the historical
amounts paid for the hotels acquired in 1997 follows:

<TABLE>
<CAPTION>
PROPERTY TAXES PROPERTY INSURANCE
---------------------------- ----------------------------
TWELVE TWELVE
NINE MONTHS MONTHS NINE MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
DESCRIPTION OF PROPERTY 1997 1996 1997 1996
----------------------- ------------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest
Suites................................. $ 59 $ 707 $ 1 $ 17
Omaha, NE, Doubletree Guest Suites........ 15 170 1 13
Los Angeles (LAX North), CA, Embassy
Suites................................. 44 320 20 91
Dana Point, CA, Doubletree Guest Suites... 16 62 3 13
Troy, MI, Doubletree Guest Suites......... 91 354 5 21
Austin (Downtown), TX, Doubletree Guest
Suites................................. 97 466 3 13
Baltimore (BWI), MD, Doubletree Guest
Suites................................. 38 223 2 7
Lake Buena Vista, FL, Doubletree Guest
Suites................................. 228 399 9 16
Raleigh, NC, Doubletree Guest Suites...... 90 149 7 14
Tampa (Rocky Point), FL, Doubletree Guest
Suites................................. 135 237 21 39
Nashville, TN, Doubletree Guest Suites.... 34 75 3 8
Dallas Market Center, TX, Embassy
Suites................................. 260 505 11 19
Syracuse, NY, Embassy Suites.............. 167 329 9 16
Dallas (Park Central), TX, Sheraton....... 310 595 30 70
Phoenix Crescent, AZ, Sheraton............ 404 748 12 24
Chicago (O'Hare), IL, Sheraton Gateway
Suites................................. 646 1,366 10 20
Atlanta (Airport), GA, Sheraton Gateway... 216 443 12 25
Atlanta (Galleria), GA, Sheraton Suites... 191 369 7 16
Philadelphia (Society Hill), PA,
Sheraton............................... 443 609 17 24
------ ------ ---- ----
Total consolidated hotels......... $3,484 $8,126 $183 $466
====== ====== ==== ====
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy
Suites................................. $ 22 $ 172 $ 2 $ 17
Austin (Airport North), TX, Embassy
Suites................................. 41 435 2 17
Covina, CA, Embassy Suites................ 14 (810) 8 96
Overland Park, KS, Embassy Suites......... 34 370 1 14
Kansas City (Plaza), MO, Embassy Suites... 35 359 3 29
Raleigh, NC, Embassy Suites............... 17 171 1 16
San Antonio (NW I-10), TX, Embassy
Suites................................. 35 385 1 15
Secaucus, NJ, Embassy Suites.............. 47 560 2 22
San Antonio (Airport), TX, Embassy
Suites................................. 174 418 8 18
------ ------ ---- ----
Total unconsolidated hotel
partnerships.................... $ 419 $2,060 $ 28 $244
====== ====== ==== ====
</TABLE>

F-57
<PAGE> 168

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)

(I) Represents both historical and pro forma interest expense computed based on
borrowings outstanding for the respective periods multiplied by the
applicable fixed or variable interest rate as stated in the applicable debt
instruments. The pro forma adjustment assumes (i) additional borrowings
against the Line of Credit in the amount of $89.9 million were required in
order to finance the hotels purchased in 1997 through September 30, 1997,
and includes additional interest expense incurred prior to the acquisition
date by the Partnership, (ii) the placement of the $300 million senior
unsecured debt at the weighted average interest rate of 7.85% per annum and
(iii) repayment of the $85 million term loan. The variable interest rates
used to calculate the pro forma adjustment to interest expense were the
same as the historical rates used to calculate the outstanding borrowings
on the Line of Credit for the same respective periods ended December 31,
1996 and September 30, 1997. The period end pro forma debt balances,
average interest rates and pro forma interest expense for the year end
December 31, 1996 and September 30, 1997 follow:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit....................................... $ 82,557 7.30% $ 3,206(2)
Debt offering........................................ 300,000 7.85 23,545(2)
Renovation loan...................................... 25,000 7.27 852
Other debt payable................................... 1,550 6.75 3,520
Capital leases....................................... 12,875 12.50 1,706
-------- -------
$421,982 $32,829
======== =======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit....................................... $ 89,861 7.55% $ 8,259
Debt Offering........................................ 300,000 7.85 17,659
Renovation loan...................................... 25,000 6.24 1,197
Other debt payable................................... 650 7.47 40
Capital leases....................................... 11,527 12.50 1,089
-------- -------
$427,038 $28,244
======== =======
</TABLE>

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

F-58
<PAGE> 169

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)

(J) Represents historical and pro forma minority interest expense related to 3
hotels in which the Company has a 90% general partnership interest.
Minority interest is calculated as 10% of net income computed using the
rent provisions of the Percentage Leases to the historical suite revenues;
historical taxes, insurance and other; historical depreciation expense; and
historical interest expenses. This computation is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue........................ $2,040 $9,087
Depreciation.................................... 671 3,521
Taxes, insurance and other...................... 251 1,123
Interest expense................................ 217 2,081
------- -------
Net income (loss) before minority interest...... $ 901 $2,362
======= =======
Minority interest expense -- 10% of net
income....................................... $ 90 $ 236
======= =======
</TABLE>

(K) The 1996 pro forma adjustment to preferred distributions assumes the Series
A Preferred Stock was issued on January 1, 1996. The adjustment reflects the
additional distributions that would have been paid in 1996 prior to May 6,
1996, the actual date of issuance.

(L) Pro forma income applicable to unitholders excludes the extraordinary
charge from write-off of deferred financing fees in the amount of
approximately $2,354,000 from the "Historical Partnership" for the year
ended December 31, 1996.

F-59
<PAGE> 170

FELCOR SUITES LIMITED PARTNERSHIP

PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)

The following unaudited Pro Forma Consolidated Balance Sheet of FelCor
Suites Limited Partnership (the "Partnership") is presented as if the placement
of the $300 million senior unsecured debt and related transactions had occurred
on September 30, 1997. Such pro forma information is based in part upon the
consolidated balance sheet of the Partnership. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.

The following unaudited Pro Forma Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position of the Partnership
would have been assuming such transactions had been completed as of September
30, 1997, nor does it purport to represent the future financial position of the
Partnership.

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>

Investment in hotels............................ $1,447,340 $1,447,340
Investment in unconsolidated partnerships....... 127,606 127,606
Cash and cash equivalents....................... 18,942 18,942
Deposits........................................ 1,616 1,616
Due from Lessee................................. 13,419 13,419
Deferred expenses............................... 3,793 $ 8,861(A) 12,654
Other assets.................................... 3,771 3,771
---------- ---------- ----------
Total assets.......................... $1,616,487 $ 8,861 $1,625,348
========== ========== ==========

LIABILITIES AND PARTNERS' CAPITAL

Distributions payable........................... $ 24,171 $ 24,171
Accrued expenses and other liabilities.......... 5,766 5,766
Debt............................................ 406,650 $ 8,861(A) 415,511
Capital lease obligations....................... 11,527 11,527
Minority interest in other partnerships......... 8,358 8,358
---------- ---------- ----------
Total liabilities..................... 456,472 8,861 465,333
---------- ---------- ----------
Redeemable units, at redemption value........... 119,266 119,266
Preferred units................................. 151,250 151,250
Partners' capital............................... 889,499 889,499
---------- ---------- ----------
Total liabilities and partners'
capital............................. $1,616,487 $ 8,861 $1,625,348
========== ========== ==========
</TABLE>

F-60
<PAGE> 171

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET

(A) Increase represents deferred loan costs associated with the placement of the
$300 million senior unsecured debt.

F-61
<PAGE> 172

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
Investment in hotels, net of accumulated depreciation of
$72,607 at September 30, 1997............................. $1,447,340
Investment in unconsolidated partnerships................... 127,606
Cash and cash equivalents................................... 18,942
Deposits.................................................... 1,616
Due from Lessee............................................. 13,419
Deferred expenses, net of accumulated amortization of $1,375
at September 30, 1997..................................... 3,793
Other assets................................................ 3,771
----------
Total assets...................................... $1,616,487
==========

LIABILITIES AND PARTNERS' CAPITAL

The accompanying notes are an integral part of these consolidated financial
statements.

F-62
<PAGE> 173

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $122,651 $72,648
Income from unconsolidated partnerships................... 5,765 1,412
Other income.............................................. 283 937
-------- -------
Total revenue..................................... 128,699 74,997
-------- -------
Expenses:
General and administrative................................ 2,743 1,307
Depreciation.............................................. 35,969 17,833
Taxes, insurance and other................................ 16,912 9,859
Interest expense.......................................... 20,097 6,273
Minority interest in other partnerships................... 337
-------- -------
Total expenses.................................... 76,058 35,272
-------- -------
Net income before extraordinary charge.................... 52,641 39,725
Extraordinary charge from writeoff of deferred financing
fees................................................... 2,354
-------- -------
Net income.................................................. 52,641 37,371
Preferred distributions..................................... 8,848 4,784
-------- -------
Net income applicable to unitholders........................ $ 43,793 $32,587
======== =======
Per unit information:
Net income applicable to unitholders before extraordinary
charge................................................. 1.35 1.35
Extraordinary charge...................................... (0.09)
-------- -------
Net income................................................ $ 1.35 $ 1.26
======== =======
Weighted average number of units outstanding.............. 32,412 25,953
======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-63
<PAGE> 174

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 52,641 $ 37,371
Adjustments to reconcile net income to net cash provided
by
operating activities, net of effects of acquisitions:
Depreciation........................................... 35,969 17,833
Amortization of deferred financing fees and
organization costs.................................... 1,011 269
Amortization of unearned officers' and directors'
compensation.......................................... 737 315
Income from unconsolidated partnerships................ (5,765) (1,412)
Cash distributions from unconsolidated partnerships.... 2,849 896
Extraordinary charge from writeoff of deferred
financing fees........................................ 2,354
Minority interest in other partnerships................ 337
Changes in assets and liabilities:
Due from Lessee........................................ (7,893) (1,359)
Deferred expenses and other assets..................... (4,362) (3,979)
Accrued expenses and other liabilities................. (966) (3,142)
--------- ---------
Net cash flow provided by operating activities.... 74,558 49,146
--------- ---------
Cash flows from investing activities:
Acquisition of hotels..................................... (537,100) (287,715)
Acquisition of interests in unconsolidated partnerships... (59,571) (28,204)
Improvements and additions to hotels...................... (38,413) (44,960)
--------- ---------
Net cash flow used in investing activities........ (635,084) (360,879)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................................. 332,000 185,350
Repayment of borrowings................................... (151,900) (190,954)
Contributions............................................. 448,586 44,978
Contributions from preferred units........................ 144,251
Distributions paid........................................ (48,163) (28,795)
Distributions paid to preferred unitholders............... (8,848) (1,835)
--------- ---------
Net cash flow provided by financing activities.... 571,675 152,995
--------- ---------
Net change in cash and cash equivalents..................... 11,149 (158,738)
Cash and cash equivalents at beginning of periods........... 7,793 166,821
--------- ---------
Cash and cash equivalents at end of periods................. 18,942 8,083
========= =========
Supplemental cash flow information --
Interest paid............................................. $ 19,907 $ 6,971
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-64
<PAGE> 175

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND ACQUISITIONS

FelCor Suites Limited Partnership (the "Partnership"), a Delaware limited
partnership, commenced operations on July 28, 1994. Simultaneously with the
closing of the initial public offering (the "IPO") of FelCor Suite Hotels, Inc.
("FelCor"), which is the sole general partner of the Partnership, contributed
the net proceeds of the IPO to the Partnership in exchange for an approximate
75% general partnership interest.

The Partnership owned six Embassy Suites(R) hotels (the "Initial Hotels")
with an aggregate of 1,479 suites, which it had acquired through a merger with
entities, originally formed in 1991, controlled by Hervey A. Feldman and Thomas
J. Corcoran, Jr., the Chairman of the Board of Directors and Chief Executive
Officer of the Company, respectively.

At September 30, 1997, the Partnership owned interests in 71 hotels with an
aggregate of 17,486 suites/ rooms (collectively the "Hotels") through its
consolidated subsidiaries (collectively, the "Company"). The Company owns 100%
equity interests in 53 of the Hotels (12,983 suites), a 90% or greater interest
in partnerships owning four hotels (1,041 suites), and 50% interests in separate
partnerships that own 14 hotels (3,462 suites). At September 30, 1997, 51 of the
Hotels were operated as Embassy Suites hotels, 12 as Doubletree Guest Suites(R)
hotels, one as a Hilton Suites(R)hotel, one hotel was in the process of
conversion to an Embassy Suites hotel, four hotels were operated as Sheraton(R)
hotels and two were operated as Sheraton Suites(R) hotels. The Hotels are
located in 26 states, with 31 hotels in California, Florida and Texas. The
following table provides certain information regarding the Hotels through
September 30, 1997:

<TABLE>
<CAPTION>
NUMBER OF HOTELS
ACQUIRED NUMBER OF SUITES
---------------- ----------------
<S> <C> <C>
1994................................................. 7 1,730
1995................................................. 13 2,649
1996................................................. 23 5,769
1st Quarter 1997..................................... 15 3,446
2nd Quarter 1997..................................... 9 2,715
3rd Quarter 1997..................................... 4 1,000
-- -------
71 17,309
==
Additional suites constructed by the Company......... 177
-------
17,486
=======
</TABLE>

F-65
<PAGE> 176

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A brief discussion of the hotels acquired and other significant
transactions occurring in the nine months ended September 30, 1997 follows:

- On February 3, 1997, FelCor sold three million shares of Common Stock to
the public, at $35.50 per share, pursuant to their omnibus shelf
registration statement ("Shelf Registration"), which provides for
offerings from time to time of up to an aggregate of $500 million in
securities, which may include its debt securities, preferred stock,
common stock and/or common stock warrants. FelCor received net proceeds
of approximately $100.7 million from this transaction and contributed the
proceeds to the Partnership. The proceeds from this offering were used to
immediately fund the acquisition of 10 hotels acquired on February 4,
1997.

- On February 21, 1997, the Company acquired the 198 suite Hilton Inn hotel
in Dana Point, California for approximately $17.2 million. The Dana Point
hotel will be converted to a Doubletree Guest Suites hotel by May 1997
and is managed by Doubletree.

F-66
<PAGE> 177

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company in Nashville, the other being the Embassy Suites -- Nashville
Airport hotel acquired by the Company in 1994. The hotel is managed by a
subsidiary of Doubletree.

- On June 30, 1997 FelCor issued a net of 9 million shares of its common
stock, after giving effect to the 1.2 million shares it repurchased from
Promus, at an offering price of $36.625 per share, providing net proceeds
of approximately $312.8 million which were contributed to the Company.
The proceeds of this offering were used to fund the acquisition of the
two Embassy Suites hotels and five Sheraton hotels which were acquired on
June 30, 1997 and were used to reduce debt outstanding under its Line of
Credit.

- The Company completed the public space renovations at the Embassy Suites
hotels in Mandalay Beach and Napa, California.

- On July 28, 1997 the Company acquired three Doubletree Guest Suites
hotels for an aggregate cash purchase price of $71.2 million in cash. The
hotels total 635 suites and are located in Lake Buena Vista, Florida;
Raleigh/Durham, North Carolina and Tampa (Rocky Point), Florida. These
hotels are managed by a subsidiary of Doubletree.

F-67
<PAGE> 178

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and
should be read in conjunction with the audited financial statements and notes
thereto of the Company and the Lessee included herein. The notes to the
financial statements included herein highlight significant changes to the notes
included in the audited financial statements and present interim disclosures
required by the SEC. The statement for the nine months ended September 30, 1997
are unaudited; however, in the opinion of management, all adjustments (which
include only normal recurring accruals) have been made which are considered
necessary to present fairly the operating results and financial position of the
Partnership for the unaudited periods.

2. SUPPLEMENTAL CASH FLOW INFORMATION

These purchases were recorded under the equity method of accounting. The
value of the assets recorded at the date of acquisition are as follows:

<TABLE>
<S> <C>
Assets acquired.................................... $64,672
Operating partnership units issued................. (5,101)
-------
Net cash paid by the Partnership......... $59,571
=======
</TABLE>

3. COMMITMENTS AND RELATED PARTY TRANSACTIONS

The Lessee generally pays the managers a base management fee based on a
percentage of total revenue and an incentive management fee based on the
Lessee's net income before overhead expenses. In certain instances, the hotel
managers have subordinated fees and committed to make subordinated loans to the
Lessee, if needed, to meet its rental and other obligations under the leases.

F-68
<PAGE> 179

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

future lease commitments to the Company. Minimum future rental income (i.e.,
base rents) to the Company under these noncancellable operating leases at
September 30, 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR
----
<S> <C>
Remainder of 1997................................. $ 26,150
1998.............................................. 104,600
1999.............................................. 104,600
2000.............................................. 104,600
2001.............................................. 104,600
2002 and thereafter............................... 493,961
--------
$938,511
========
</TABLE>

Minority equity interests in two of DJONT's consolidated subsidiaries,
which relate to a total of 15 of the Hotels, are held by unrelated third
parties. Messrs. Feldman and Corcoran, such unrelated third party owners, and
the managers of certain of the Hotels have agreed, directly or through their
affiliates, to make loans to the Lessee of up to an aggregate of approximately
$15.4 million, to the extent necessary to enable the Lessee to pay rent and
other obligations due under the respective Percentage Leases relating to a total
of 32 of the Hotels. Amounts so borrowed by the Lessee, if any, will be
subordinate in right of repayment to the prior payment in full of rent and other
obligations due under the Percentage Leases relating to such Hotels. No loans
were outstanding under such agreements at September 30, 1997.

4. DEBT AND CAPITAL LEASE OBLIGATIONS

Debt and capital lease obligations at September 30, 1997 consist of the
following (in thousands):

The Company had an $85 million collateralized term loan outstanding at
September 30, 1997. This term loan bore interest at LIBOR plus 150 basis points.
The $85 million collateralized term loan was repaid in full on October 1, 1997
from the proceeds of the long term senior unsecured private placement debt. This
senior unsecured private placement debt, which the Company placed on October 1,
1997, bears interest at 7 3/8% for the notes due 2004 and 7 5/8% for the notes
due 2007. The Company has filed a registration statement with the SEC, which has
not yet been declared effective, to exchange privately placed debt for
registered debt with identical terms. Also outstanding at June 30, 1997 was a
renovation loan of $25 million that bears interest at LIBOR plus 45 basis
points. At September 30, 1997, 30 day LIBOR was 5.6563%.

F-69
<PAGE> 180

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under its loan agreements the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at September 30, 1997.

Capital lease obligations at September 30, 1997 consist of the following
(in thousands):

Included in investment in hotels at September 30, 1997, are assets under
capital leases with a net book value of approximately $11 million.

The Company leases office space and equipment under operating leases.
Minimum future lease payments under operating leases at September 30, 1997 are
as follows (in thousands):

For the nine months ended September 30, 1997 and 1996 the Company recorded
expenses related to operating leases of approximately $175,000 and $116,000
respectively.

5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS

Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Balance sheet information:
Partnership assets (primarily hotel assets)... $390,302
Non-recourse mortgage debt.................... $158,455
Equity........................................ $255,212
</TABLE>

F-70
<PAGE> 181

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue........................ $35,551 $6,011
Other income.................................... 4,316
------- ------
Total revenue........................... 39,867 6,011
Expenses:
Depreciation................................. 11,431 2,037
Taxes, insurance and other................... 6,314 358
Interest expense............................. 8,216 689
------- ------
Total expenses.......................... 25,961 3,084
------- ------
Net income...................................... $13,906 $2,927
======= ======
50% of net income attributable to the Company... $ 6,953 $1,464
Amortization of cost in excess of book value.... 1,188 52
------- ------
Income from unconsolidated partnerships......... $ 5,765 $1,412
======= ======
</TABLE>

6. TAXES, INSURANCE AND OTHER

Taxes, insurance and other is comprised of the following for the nine
months ended September 30, 1997 and 1996 (in thousands):

F-71
<PAGE> 182

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PRO FORMA INFORMATION (UNAUDITED)

The following unaudited Pro Forma Consolidated Statements of Operations for
the nine months ended September 30, 1997 and 1996 are presented as if the
acquisitions of all hotels owned by the Company at September 30, 1997, the
equity offerings (and subsequent contribution of proceeds to the Company)
consummated during 1996 and 1997 and the placement of $300 million of senior
unsecured notes had occurred as of January 1, 1996 and the Hotels had all been
leased to the Lessee pursuant to Percentage Leases. Such pro forma information
is based in part upon the Consolidated Statements of Operations of the Company
and pro forma Statements of Operations of the Lessee included elsewhere in these
financial statements. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $152,127 $132,487
Income from unconsolidated partnerships................... 5,681 2,859
-------- --------
Total revenue..................................... 157,808 135,346
-------- --------
Expenses:
General and administrative................................ 2,743 2,707
Depreciation.............................................. 43,243 30,147
Taxes, insurance and other................................ 21,045 18,450
Interest expense.......................................... 28,244 25,642
Minority interest in other partnerships................... 427 242
-------- --------
Total expenses.................................... 95,702 77,188
-------- --------
Net income.................................................. 62,106 58,158
Preferred distributions..................................... 8,848 8,848
-------- --------
Net income applicable to unitholders........................ $ 53,258 $ 49,310
======== ========
Per unit information:
Net income................................................ $ 1.35 $ 1.26
======== ========
Weighted average number of units outstanding.............. 39,481 39,179
======== ========
</TABLE>

Depreciation and interest expense increased from 1996 to 1997 due to
approximately $71 million in capital expenditures made in 1996 and placed in
service in late 1996 or early 1997.

F-72
<PAGE> 183

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. CONSOLIDATING FINANCIAL INFORMATION

FelCor/CSS Holdings, L.P.; FelCor/CSS Hotels L.L.C.; FelCor/LAX Hotels
L.L.C.; FelCor Eight Hotels L.L.C.; FelCor/St. Paul Holdings, L.P.; and
FelCor/LAX Holdings, L.P. (collectively "Subsidiary Guarantors") are
wholly-owned subsidiaries of the Partnership that are guarantors of the proposed
debt offering. The following tables present consolidating information for the
Subsidiary Guarantors.

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net investment in hotel
properties...................... $ 809,449 $558,059 $79,832 $1,447,340
Equity investment in consolidated
subsidiaries.................... 641,359 $(641,359)
Investment in unconsolidated
partnerships.................... 127,606 127,606
Cash and cash equivalents......... 18,942 18,942
Prepayments....................... 1,616 1,616
Due (to)/from Lessee.............. (7,715) 4,868 836 13,419
Due (to)/from subsidiary.......... (40,944) 37,427 3,517
Other assets...................... 3,771 3,771
Deferred assets................... 3,793 3,793
---------- -------- ------- --------- ----------
Total assets............ $1,571,691 $601,970 $84,185 $(641,359) $1,616,487
========== ======== ======= ========= ==========

LIABILITIES & PARTNERS' CAPITAL

Distributions payable............. $ 24,171 $ 24,171
Accrued expenses and other
liabilities..................... 5,766 5,766
Debt.............................. 381,650 $ 25,000 406,650
Capitalized leases................ 89 11,438 11,527
Minority interest -- other
partnerships.................... $ 8,358 8,358
---------- -------- ------- --------- ----------
Total liabilities....... 411,676 36,438 8,358 456,472
Redeemable units, at redemption
value........................... 119,266 119,266
Preferred units................... 151,250 151,250
Partner's capital................. 889,499 565,532 $75,827 $(641,359) 889,499
---------- -------- ------- --------- ----------
Total liabilities and
partners' capital..... $1,571,691 $601,970 $84,185 $(641,359) $1,616,487
========== ======== ======= ========= ==========
</TABLE>

F-73
<PAGE> 184

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Percent rent.................................. $57,857 $58,937 $5,857 $122,651
Income from unconsolidated partnerships....... 5,765 5,765
Other revenue................................. 200 82 282
------- ------- ------ --------
Total revenue....................... 63,822 59,019 5,857 128,698
------- ------- ------ --------
Expenses:
General and administrative.................... 1,294 1,319 131 2,744
Depreciation.................................. 15,005 19,647 1,316 35,968
Taxes, insurance and other.................... 8,097 8,304 510 16,911
Interest expense.............................. 17,875 2,222 20,097
Minority interest other partnerships.......... 337 337
------- ------- ------ --------
Total expenses...................... 42,271 31,492 2,294 76,057
------- ------- ------ --------
Net income.......................... 21,551 27,527 3,563 52,641
Preferred distributions....................... 8,848 8,848
------- ------- ------ --------
Net income applicable to unitholders.......... $12,703 $27,527 $3,563 $ 43,793
======= ======= ====== ========
</TABLE>

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities............. $ 52,972 $ 20,723 $ 863 $ 74,558
Cash flows from investing activities............. (542,674) (19,284) (73,126) (635,084)
Cash flows from financing activities............. 500,851 (1,439) 72,263 571,675
--------- -------- -------- ---------
Change in cash and cash equivalents.............. 11,149 11,149
Cash and cash equivalents at beginning of
period......................................... 7,793 7,793
--------- -------- -------- ---------
Cash and cash equivalents at end of period....... $ 18,942 $ $ $ 18,942
========= ======== ======== =========
</TABLE>

F-74
<PAGE> 185

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of FelCor Suite Hotels, Inc.

We have audited the accompanying consolidated financial statements and the
financial statement schedule of FelCor Suites Limited Partnership. These
financial statements and financial statement schedule are the responsibility of
FelCor Suite Hotels, Inc.'s (the "Company") management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FelCor Suites Limited Partnership as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996 and 1995 and the period from July 28, 1994 (inception of
operations) through December 31, 1994 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
January 22, 1997
except as to the information
presented in the second paragraph
of Note 5, the first paragraph of
Note 6 and Note 16 for which the
date is March 10, 1997 and Note 18
for which the date is October 1, 1997

F-75
<PAGE> 186

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of
$36,718 in 1996 and $10,244 in 1995....................... $899,691 $325,155
Investment in unconsolidated partnerships................... 59,867 13,819
Cash and cash equivalents................................... 7,793 166,821
Deposits and prepayments.................................... 1,616 35,317
Due from Lessee............................................. 5,526 2,396
Deferred expenses, net of accumulated amortization of $364
in 1996 and $252 in 1995.................................. 3,235 1,713
Other assets................................................ 1,060 3,138
-------- --------
Total assets...................................... $978,788 $548,359
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Distributions payable....................................... $ 16,090 $ 4,918
Accrued expenses and other liabilities...................... 5,234 3,552
Debt........................................................ 226,550 8,410
Capital lease obligations................................... 12,875 11,256
-------- --------
Total liabilities................................. 260,749 28,136
-------- --------
Commitments and contingencies (Notes 5 and 9)
Redeemable units, at redemption value....................... 98,542 74,790
Preferred units............................................. 151,250
Partners' capital........................................... 468,247 445,433
-------- --------
Total liabilities and partners' capital........... $978,788 $548,359
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-76
<PAGE> 187

FELCOR SUITES LIMITED PARTNERSHIP

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue.............................. $ 97,950 $23,787 $6,043
Income from unconsolidated partnerships............... 2,010 513
Other income.......................................... 984 1,691 207
-------- ------- ------
Total revenues................................ 100,944 25,991 6,250
-------- ------- ------
Expenses:
General and administrative............................ 1,819 870 355
Depreciation.......................................... 26,544 5,232 1,487
Taxes, insurance and other............................ 13,897 2,563 881
Interest expense...................................... 9,803 2,004 109
-------- ------- ------
Total expenses................................ 52,063 10,669 2,832
-------- ------- ------
Income before extraordinary charge...................... 48,881 15,322 3,418
Extraordinary charge from write off of deferred
financing
fees.................................................. 2,354
-------- ------- ------
Net income.............................................. 46,527 15,322 3,418
Preferred distributions................................. 7,734
-------- ------- ------
Net income applicable to unitholders.................... $ 38,793 $15,322 $3,418
======== ======= ======
Per unit information:
Net income applicable to unit holders before
extraordinary charge............................... $ 1.58 $ 1.70 $ 0.54
Extraordinary charge.................................. 0.09
-------- ------- ------
Net income............................................ $ 1.49 $ 1.70 $ 0.54
======== ======= ======
Weighted average number of units outstanding.......... 26,037 8,956 6,385
======== ======= ======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-77
<PAGE> 188

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM MAY 16, 1994 THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PARTNERS' CAPITAL
-----------------
<S> <C>
Contributions............................................... $ 59,694
Distributions declared...................................... (4,194)
Allocations to redeemable units............................. 2,967
Net income.................................................. 3,418
--------
Balance, December 31, 1994.................................. 61,885
Contributions............................................... 402,554
Distributions declared...................................... (17,593)
Allocation to redeemable units.............................. (16,735)
Net income.................................................. 15,322
--------
Balance at December 31, 1995................................ 445,433
Contributions............................................... 44,483
Distributions declared...................................... (57,892)
Allocation to redeemable units.............................. (10,304)
Net income.................................................. 46,527
--------
Balance, December 31, 1996.................................. $468,247
========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-78
<PAGE> 189

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 46,527 $ 15,322 $ 3,418
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation...................................... 26,544 5,385 1,487
Amortization of deferred financing fees and
organization costs.............................. 554 228 24
Amortization of unearned officers' and directors'
compensation.................................... 506 158 85
Income from unconsolidated partnerships........... (2,010) (513)
Cash distributions from unconsolidated
partnerships.................................... 1,954
Extraordinary charge for write off of deferred
financing fees.................................. 2,354
Fully vested officer stock grant.................. 108
Changes in assets and liabilities:
Due from Lessee................................... (3,130) (1,137) (1,259)
Deferred costs and other assets................... 353 (2,217) (407)
Accrued expenses and other liabilities............ 280 741 611
--------- --------- ---------
Net cash flow provided by operating
activities................................. 73,932 18,075 3,959
--------- --------- ---------
Cash flows from investing activities:
Acquisition of hotels................................ (365,907) (219,164) (23,550)
Prepayments under purchase agreements................ (21,701)
Acquisition of unconsolidated partnerships........... (43,424) (13,166)
Improvements and additions to hotels................. (71,051) (5,166) (77,243)
--------- --------- ---------
Net cash flow used in investing activities... (480,382) (259,197) (100,793)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings............................. 303,350 128,600 8,800
Repayment of borrowings.............................. (193,954) (129,850)
Deferred financing fees.............................. (4,484) (1,072) (721)
Contributions........................................ 37,980 423,628 91,610
Proceeds from sale of preferred units................ 151,250
Distributions paid to unitholders.................... (41,936) (14,481) (1,737)
Distributions paid to preferred unitholders.......... (4,784)
--------- --------- ---------
Net cash flow provided by financing
activities................................. 247,422 406,825 97,952
--------- --------- ---------
Net change in cash and cash equivalents................ (159,028) 165,703 1,118
Cash and cash equivalents at beginning of periods...... 166,821 1,118
--------- --------- ---------
Cash and cash equivalents at end of years.............. $ 7,793 $ 166,821 $ 1,118
========= ========= =========
Supplemental cash flow information -- interest paid.... $ 9,168 $ 1,467
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-79
<PAGE> 190

FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

At December 31, 1996, FelCor Suite Hotels, Inc. and its consolidated
subsidiaries (collectively the "Company") owned interests in 43 hotels with an
aggregate of 10,196 suites (collectively the "Hotels"). The Company owns 100%
equity interests in 37 of the Hotels, a 97% interest in the partnership that
owns the Los Angeles International Airport hotel and 50% interests in separate
partnerships that own five hotels. At December 31, 1996, 39 of the Hotels are
operated as Embassy Suites hotels, two as Doubletree Guest Suites(R) hotels, one
as a Hilton Suites(R) hotel and one hotel is in the process of being converted
to an Embassy Suites hotel. The Hotels are located in 16 states, with 17 hotels
in California and Florida. The following table provides certain information
regarding the Company's Hotels acquired through December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF NUMBER AGGREGATE
HOTELS ACQUIRED OF SUITES ACQUISITION PRICE
--------------- --------- ---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1994
Initial Hotels............................ 6 1,479 $ 81.5
4th Quarter............................... 1 251 25.8
1995
1st Quarter............................... 2 350 27.4
2nd Quarter............................... 1 100 9.4
3rd Quarter............................... 3 542 31.3*
4th Quarter............................... 7 1,657 169.0
1996
1st Quarter............................... 14 3,501 383.5
2nd Quarter............................... 3 691 68.1
3rd Quarter............................... 4 1,005 30.8**
4th Quarter............................... 2 572 78.1
-- ------ -------
43 10,148 904.9
==
Additional suites constructed by the
Company at Hotels....................... 48 5.3
------ -------
10,196 $910.2
====== =======
</TABLE>

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

* Includes the purchase price of the Company's 50% interest in the
unconsolidated partnership owning the 262 suite, Chicago-Lombard, Illinois
hotel.

In addition, the Company has started construction on 129 net additional
suites, meeting rooms and other public area upgrades at one of the Hotels, at an
estimated cost of $15.8 million.

F-80
<PAGE> 191

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation -- The consolidated financial statements
include the accounts of the Partnership and the Holdings Partnerships as
described in Note 8. All significant intercompany balances and transactions have
been eliminated.

Investment in Unconsolidated Partnerships -- The Company owns a 50%
interest in various partnerships in which the partners jointly make all material
decisions concerning the business, affairs and operations of the partnerships.
Accordingly, the Company does not control the partnerships and carries its
investment in unconsolidated partnerships at cost, plus its equity in net
earnings, less distributions received since the date of acquisition. Equity in
net earnings is being adjusted for the straight-line amortization, over a 40
year period, of the difference between the Company's cost and its proportionate
share of the underlying net assets at date of acquisition.

Cash and Cash Equivalents -- All highly liquid investments with a maturity
of three months or less when purchased are considered to be cash equivalents.

F-81
<PAGE> 192

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred Expenses -- Deferred expenses at December 31, 1996 and 1995
consist of the following (in thousands):

Net Income Per Unit -- Net income per unit has been computed by dividing
net income applicable to unitholders by the weighted average number of units
outstanding.

Distributions -- The Partnership pays regular quarterly distributions on
its units. Additionally, the Partnership pays regular quarterly dividends on
preferred units in accordance with its preferred unit dividend requirements.

Income Taxes -- No provision for income taxes is provided since all taxable
income or loss or tax credits are passed through to the partners.

FelCor qualifies as a real estate investment trust ("REIT") and generally
will not be subject to federal income tax to the extent it distributes its REIT
taxable income to shareholders. REITs are subject to a number of organizational
and operational requirements. If FelCor fails to qualify as a REIT in any
taxable year, FelCor will be subject to federal income tax on its taxable income
at regular corporate rates.

3. INVESTMENT IN HOTELS

Investment in hotels at December 31, 1996 and 1995 consist of the following
(in thousands):

4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS

F-82
<PAGE> 193

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Balance sheet information:
Investment in hotels.......................... $110,394 $23,385
Non-recourse mortgage debt.................... $ 49,402
Equity........................................ $ 91,156 $24,609
Statement of operations information:
Percentage lease revenue...................... $ 9,974 $ 1,420
Net income.................................... $ 4,366 $ 1,050
</TABLE>

5. DEBT AND CAPITAL LEASE OBLIGATIONS

Debt at December 31, 1996 and 1995 consists of the following (in
thousands):

On September 30, 1996 the Company obtained a $250 million unsecured
revolving credit facility ("Line of Credit"). Under this facility, the Company
has the right to borrow up to $250 million based upon its ownership of
qualifying unencumbered hotel assets until October 1, 1999, at which time the
principal amount then outstanding will be due and payable. Interest payable on
borrowings is variable, determined from a ratings based pricing matrix,
initially set at LIBOR plus 175 basis points and is paid current throughout the
year. Additionally, the Company is required to pay an unused commitment fee
which is variable, determined from a ratings based pricing matrix, initially set
at 35 basis points. The Company paid unused commitment fees of approximately
$164,000 during 1996. At December 31, 1996, the line of credit interest rate was
7.25%.

F-83
<PAGE> 194

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

monthly interest payments, and quarterly principal payments of $1.25 million
beginning June 1999 and matures in June 2000.

Under its loan agreements, the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at December 31, 1996.

During the fourth quarter of 1996, the Company entered into two separate
interest rate swap agreements to manage the relative mix of its debt between
fixed and variable rate instruments. These interest rate swap agreements modify
a portion of the interest characteristics of the Company's outstanding debt
without an exchange of the underlying principal amount and effectively convert
variable rate debt to a fixed rate. The fixed rates to be paid, the effective
fixed rate, and the variable rate to be received by FelCor at December 31, 1996
are summarized in the following table:

<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/96 MATURITY
- --------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
50 million 6.11125% 7.61125% 5.53516% October 1999
25 million 5.95500% 7.45500% 5.5000% November 1999
</TABLE>

The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on its
future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which is limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.

Capital lease obligations at December 31, 1996 and 1995 consists of the
following (in thousands):

F-84
<PAGE> 195

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Minimum future lease payments under capital leases at December 31, 1996 are
as follows (in thousands):

Included in investment in hotels at December 31, 1996 and 1995, are assets
under capital leases with a net book value of approximately $12.5 million and
$11.3 million respectively.

The Company leases office space and equipment under operating leases.
Minimum future lease payments under operating leases at December 31, 1996 are as
follows (in thousands):

The Company's charter limits consolidated indebtedness to 40% of the
Company's investment in hotels, at cost, on a consolidated basis, after giving
effect to the Company's use of proceeds from any indebtedness. For purposes of
this limitation, the Company's consolidated indebtedness includes borrowings and
capital lease obligations and consolidated investment in hotels, at cost, is its
investment, at cost, in hotels, as reflected in its consolidated financial
statements plus (to the extent not otherwise reflected) the value (as determined
by the Board of Directors of the general partner at the time of issuance) of any
equity securities issued, otherwise than for cash, by the Company or any of its
subsidiaries in connection with the acquisition of hotels. Under this definition
as of December 31, 1996, the Company's investment in hotels at cost was $1.0
billion. Accordingly, the Company's maximum permitted indebtedness would have
been approximately $400 million (of which $239 million was borrowed at December
31, 1996). Assuming all of this additional debt capacity, and the Company's
available cash and cash equivalents were used for the acquisition of additional
hotels, the Company's investment in hotels would increase to approximately $1.3
billion and the maximum permitted indebtedness would increase to approximately
$525 million.

F-85
<PAGE> 196

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PARTNERS' CAPITAL

At December 31, 1996 FelCor had completed the following public offerings
the proceeds of which were contributed to the Company:

<TABLE>
<CAPTION>
OFFERING PRICE
SECURITY DATE COMPLETED PER SHARE SHARES SOLD NET PROCEEDS
-------- ----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Common Stock (Initial
Public Offering)........ July 28, 1994 $21.25 4,686,250 $91.6 million
Common Stock.............. May 30, 1995 $25.00 3,450,000 $81.0 million
Common Stock.............. December 20, 1995 $26.50 12,650,000 $312.6 million
Preferred Stock........... May 6, 1996 $25.00 6,050,000 $144.3 million
</TABLE>

On April 25, 1996, the SEC declared effective FelCor's omnibus shelf
registration statement ("Shelf Registration"), which provides for offerings by
FelCor from time to time of up to an aggregate of $500 million in securities,
which may include its debt securities, preferred stock, common stock and/or
common stock warrants. FelCor had issued approximately $151 million under the
Shelf Registration at December 31, 1996 leaving approximately $349 million
available. In February 1997, FelCor issued approximately $107 million in common
stock under the Shelf Registration.

Preferred Units

FelCor's Board of Directors is authorized to provide for the issuance of up
to 10,000,000 shares of Preferred Stock in one or more series, to establish the
number of shares in each series and to fix the designation, powers preferences,
and rights of each such series and the qualifications, limitations or
restrictions thereof. On May 6, 1996, FelCor completed an offering, pursuant to
the Shelf Registration of six million shares of its $1.95 Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") at $25 per share. An
additional fifty thousand shares of Series A Preferred Stock were issued at $25
per share pursuant to the exercise of the underwriters' over-allotment option.
The Series A Preferred Stock bears an annual dividend equal to the greater of
$1.95 per share (yielding 7.8% based on the $25 purchase price) or the cash
distributions declared or paid for the corresponding period on the number of
shares of common stock into which the Series A Preferred Stock is then
convertible and is cumulative from May 6, 1996. Each share of the Series A
Preferred Stock is convertible at the shareholder's option to 0.7752 shares of
common stock, subject to certain adjustments, and may not be redeemed by FelCor
before April 30, 2001. At December 31, 1996, all dividends then payable on the
Preferred Stock had been paid. All preferred stock proceeds have been
contributed to the Partnership in exchange for preferred units.

Common Stock

In addition to the aforementioned public offerings of Common Stock, Promus
purchased an aggregate of approximately 1.9 million shares of Common Stock,
pursuant to subscription agreements, during 1995 and 1996 at a subscription
price of $26.50 per share for an aggregate cost of $50 million which was then
contributed to the Partnership. Promus has satisfied its commitment to purchase
Common Stock under the aforementioned subscription agreements. The proceeds of
these subscription agreements were contributed to the Partnership.

Partnership Units

The outstanding units of limited partnership interests in the Partnership
("Units") are redeemable at the option of the holder for a like number of shares
of Common Stock of FelCor Suite Hotels, Inc. or, at the option of FelCor, for
the cash equivalent thereof. Due to these redemption rights, these limited
partnership

F-86
<PAGE> 197

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

units have been excluded from partners' capital included in redeemable units and
measured at redemption value as of the end of the periods presented.

7. TAXES, INSURANCE AND OTHER

8. BUSINESS COMBINATION

A summary of the fair values of the acquired assets and liabilities of the
Holdings Partnerships recorded at the date of acquisition, at December 29, 1995,
is as follows (in thousands):

F-87
<PAGE> 198

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND RELATED PARTY TRANSACTIONS

At December 31, 1996 and 1995, the Lessee owed the Company approximately
$5.5 million and $2.4 million, respectively, for such Percentage Lease rent to
be paid in March of the subsequent year.

F-88
<PAGE> 199

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company shares the executive offices and certain employees with FelCor,
Inc. and the Lessee, and each company bears its share of the costs thereof,
including an allocated portion of the rent, compensation of certain personnel
(other than Messrs. Feldman and Corcoran, whose compensation is borne solely by
the Company), office supplies, telephones and depreciation of office furniture,
fixtures and equipment. Any such allocation of shared expenses to the Company
must be approved by a majority of the independent directors of the general
partner. During 1996 and 1995, the Company paid approximately $807,000
(approximately 38%) and $316,000 (approximately 31%), respectively, of the
allocable expenses under this agreement.

10. SUPPLEMENTAL CASH FLOW DISCLOSURE

<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Assets acquired.............................. $ 494,354 $221,213 $25,750
Prepayments assumed.......................... 13,616
Liabilities assumed.......................... (108,744) (910) (2,200)
Capital land lease assumed................... (10,045)
Capital equipment leases assumed............. (2,823) (1,211)
Units issued................................. (6,000) (3,499)
Partnership units issued..................... (10,880)
--------- -------- -------
Net cash paid...................... $ 365,907 $219,164 $23,550
========= ======== =======
</TABLE>

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Acquisition of interests in unconsolidated
partnerships.................................... $45,992 $13,166
Partnership units issued.......................... (2,568)
------- -------
Net cash paid........................... $43,424 $13,166
======= =======
</TABLE>

F-89
<PAGE> 200

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Approximately $16,090, $3,813 and $1,804 of aggregate preferred unit
distributions and unit distributions had been declared as of December 31, 1996,
1995 and 1994, respectively. These amounts were paid in January following each
such year.

11. LESSEE

All of the Company's percentage lease revenues is derived from the
Percentage Leases with the Lessee. Certain information related to the Lessee's
financial statements is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Balance Sheet Information:
Cash and cash equivalents............. $ 5,208 $5,345
Total assets.......................... $18,471 $9,599
Due to FelCor Suite Hotels Limited
Partnership........................ $ 5,526 $2,396
Shareholders' deficit................. $(6,403) $ (773)
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Statement of Operations Information:
Suite revenue............................. $234,451 $65,649 $16,094
Percentage lease expenses................. $107,935 $26,945 $ 6,043
Net income (loss)......................... $ (5,430) $ (240) $ 109
</TABLE>

12. PREDECESSOR COMPANY

The Initial Hotels have been determined to be the Predecessor of the
Company. Certain information related to the Initial Hotels financial statements
for the period from January 1, 1994 through July 27, 1994 (before the Company's
initial public offering) is as follows (in thousands):

<TABLE>
<S> <C>
Suite revenue..................................... $21,884
Net income........................................ $ 1,562
Cash flows provided by operating activities....... $ 3,995
Cash flows used in investing activities........... $(1,327)
Cash flows used in financing activities........... $(1,640)
</TABLE>

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

14. PRO FORMA INFORMATION (UNAUDITED)

Due to the impact of the acquisition of hotels in 1996 and 1995, the
historical results of operations may not be indicative of future results of
operations and net income per unit.

The following unaudited Pro Forma Consolidated Statements of Operations for
the years ended December 31, 1996 and 1995 are presented as if the acquisition
of all 43 hotels owned at December 31, 1996,

F-90
<PAGE> 201

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and the consummation of the public offerings and the application of the net
proceeds therefrom had occurred by January 1, 1995, and all of the hotels had
been leased to the Lessee pursuant to the Percentage Leases.

<TABLE>
<CAPTION>
1996 1995
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues:
Percentage lease revenue.............. $110,077 $102,878
Income from unconsolidated
partnerships....................... 2,815 2,160
-------- --------
Total income.......................... 112,892 105,038
Expenses:
General and administrative............ 1,895 1,783
Depreciation.......................... 31,103 26,617
Taxes, insurance and other............ 15,189 13,617
Interest expense...................... 15,903 15,004
Net income.............................. 48,802 48,017
Preferred distributions................. 11,798 11,798
-------- --------
Net income applicable to unitholders.... $ 37,004 $ 36,219
======== ========
Net income per unit..................... $ 1.41 $ 1.38
======== ========
Weighted average number of units
outstanding........................... 26,268 26,228
======== ========
</TABLE>

15. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

16. SUBSEQUENT EVENTS

On February 3, 1997 FelCor announced the closing of a common stock offering
pursuant to their $500 million Shelf Registration, covering a variety of debt
and equity securities. The offering was for 3 million shares of common stock to
the public at $35.50 per share, providing FelCor with net proceeds of
approximately $100.7 million which were contributed to the Partnership.

F-91
<PAGE> 202

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

these 10 hotels was approximately $139 million, including the Company's pro rata
share of approximately $86 million in non-recourse debt held by the joint
ventures.

17. QUARTERLY OPERATING RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.......................... $23,976 $23,409 $25,263 $25,302
Income from unconsolidated partnerships........... 320 165 927 598
Other income...................................... 146 628 163 47
------- ------- ------- -------
Total revenues............................ 24,442 24,202 26,353 25,947
------- ------- ------- -------
Expenses:
General and administrative........................ 382 466 458 513
Depreciation...................................... 4,516 5,788 7,529 8,711
Taxes, insurance and other........................ 3,529 3,070 3,260 4,038
Interest expense.................................. 2,424 2,089 1,760 3,530
------- ------- ------- -------
Total expenses............................ 10,851 11,413 13,007 16,792
------- ------- ------- -------
Income before extraordinary charge.................. 13,591 12,789 13,346 9,155
Extraordinary charge from write off of deferred
financing fees.................................... 2,354
------- ------- ------- -------
Net income.......................................... 13,591 12,789 10,992 9,155
Preferred distributions............................. 1,835 2,949 2,950
------- ------- ------- -------
Net income applicable to unitholders................ $13,591 $10,954 $ 8,043 $ 6,205
======= ======= ======= =======
Per unit information:
Net income applicable to unitholders before
extraordinary charge........................... $ 0.53 $ 0.42 $ 0.40 $ 0.24
Extraordinary charge.............................. (0.09)
------- ------- ------- -------
Net income........................................ $ 0.53 $ 0.42 $ 0.31 $ 0.24
======= ======= ======= =======
Weighted average number of units outstanding...... 25,675 26,011 26,172 26,288
======= ======= ======= =======
</TABLE>

F-92
<PAGE> 203

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.......................... $ 5,372 $ 5,977 $ 6,138 $ 6,300
Income from unconsolidated partnerships........... 290 223
Other income...................................... 8 209 215 1,259
------- ------- ------- -------
Total revenues............................ 5,380 6,186 6,643 7,782
------- ------- ------- -------
Expenses:
General and administrative........................ 184 240 215 231
Depreciation...................................... 1,058 1,178 1,455 1,541
Taxes, insurance and other........................ 559 580 616 808
Interest expense.................................. 353 566 143 942
------- ------- ------- -------
Total expenses............................ 2,154 2,564 2,429 3,522
------- ------- ------- -------
Net income applicable to unitholders................ $ 3,226 $ 3,622 $ 4,214 $ 4,260
======= ======= ======= =======
Per unit information:
Net income........................................ $ 0.50 $ 0.48 $ 0.43 $ 0.36
======= ======= ======= =======
Weighted average number of units outstanding...... 6,402 7,545 9,866 11,940
======= ======= ======= =======
</TABLE>

18. CONSOLIDATING FINANCIAL INFORMATION

On October 1, 1997 the Partnership completed a private placement of $300
million of long term senior unsecured notes. The notes were issued in two
maturities, consisting of $175 million of 7 3/8% notes due 2004 and $125 million
of 7 5/8% notes due 2007. The proceeds were used to pay off debt. The
Partnership has filed a registration statement with the SEC, to exchange this
privately placed debt for registered debt with identical terms.

FelCor and all the wholly-owned consolidated subsidiaries of the
Partnership (FelCor/CSS Holdings, L.P.; FelCor/CSS Hotels L.L.C.; FelCor/LAX
Hotels L.L.C.; FelCor Eight Hotels L.L.C.; FelCor/St. Paul Holdings, L.P.; and
FelCor/LAX Holdings, L.P. collectively "Subsidiary Guarantors") are guarantors
of the debt offering. The following table presents consolidating information for
the Subsidiary Guarantors.

F-93
<PAGE> 204

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net investment in hotel properties......... $341,269 $558,422 $899,691
Equity investment in consolidated
subsidiaries............................. 538,004 $(538,004)
Investment in unconsolidated
partnerships............................. 59,867 59,867
Cash and cash equivalents.................. 7,793 7,793
Prepayments................................ 1,616 1,616
Due (to)/from Lessee....................... 614 4,912 5,526
Due to/from subsidiary..................... (10,929) 10,929
Other assets............................... 1,060 1,060
Deferred assets............................ 3,235 3,235
-------- -------- --------- --------
Total assets..................... $940,913 $575,879 $(538,004) $978,788
======== ======== ========= ========

LIABILITIES & PARTNERS' CAPITAL

Distributions payable...................... $ 16,090 $ 16,090
Accrued expenses and other liabilities..... 5,234 5,234
Debt....................................... 201,550 $ 25,000 226,550
Capitalized leases......................... 12,875 12,875
Minority interest - other partnerships.....
-------- -------- --------- --------
Total liabilities................ 222,874 37,875 260,749
Redeemable units, at redemption value...... 98,542 98,542
Preferred units............................ 151,250 151,250
Partner's capital.......................... 468,247 538,004 $(538,004) 468,247
-------- -------- --------- --------
Total liabilities and partners'
capital........................ $940,913 $575,879 $(538,004) $978,788
======== ======== ========= ========
</TABLE>

F-94
<PAGE> 205

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Percent rent............................................ $39,489 $58,461 $ 97,950
Income from unconsolidated partnerships................. 2,010 2,010
Other revenue........................................... 632 352 984
------- ------- --------
Total revenue................................. 42,131 58,813 100,944
------- ------- --------
Expenses:
General and administrative.............................. 733 1,086 1,819
Depreciation............................................ 9,337 17,207 26,544
Taxes, insurance and other.............................. 4,645 9,252 13,897
Interest expense........................................ 7,369 2,434 9,803
------- ------- --------
Total expenses................................ 22,084 29,979 52,063
------- ------- --------
Net income before extraordinary charge................ 20,047 28,834 48,881
Extraordinary charge for write-off of deferred
financing.......................................... 2,354 2,354
------- ------- --------
Net income............................................ 17,693 28,834 46,527
Preferred distributions................................. 7,734 7,734
------- ------- --------
Net income applicable to unitholders.................... $ 9,959 $28,834 $ 38,793
======= ======= ========
</TABLE>

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities................... $ 42,515 $ 31,417 $ 73,932
Cash flows from investing activities................... (68,415) (411,967) (480,382)
Cash flows from financing activities................... (133,128) 380,550 247,422
--------- --------- ---------
Change in cash and cash equivalents.................... (159,028) (159,028)
Cash and cash equivalents at beginning of period....... 166,821 166,821
--------- --------- ---------
Cash and cash equivalents at end of year............... $ 7,793 $ $ 7,793
========= ========= =========
</TABLE>

F-95
<PAGE> 206

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUBSIDIARY TOTAL
FELCOR L.P. GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Net investment in hotel properties................ $164,725 $160,430 $325,155
Equity investment in consolidated subsidiaries.... 152,006 $(152,006)
Investment in unconsolidated partnerships......... 13,819 13,819
Cash and cash equivalents......................... 166,821 166,821
Prepayments....................................... 33,701 1,616 35,317
Due (to)/from Lessee.............................. 1,040 1,356 2,396
Due (to)/from subsidiary.......................... 140 (140)
Other assets...................................... 3,138 3,138
Deferred assets................................... 1,713 1,713
-------- -------- --------- --------
Total assets............................ $537,103 $163,262 $(152,006) $548,359
======== ======== ========= ========

LIABILITIES AND PARTNERS' CAPITAL
Distributions payable............................. $ 4,918 $ 4,918
Accrued expenses and other liabilities............ 3,552 3,552
Debt.............................................. 8,410 8,410
Capitalized leases................................ 11,256 11,256
-------- -------- --------- --------
Total liabilities....................... 16,880 11,256 28,136
Redeemable units, at redemption value............. 74,790 74,790
Preferred units...................................
Partners' capital................................. 445,433 152,006 (152,006) 445,433
-------- -------- --------- --------
Total liabilities and partners'
capital............................... $537,103 $163,262 $(152,006) $548,359
======== ======== ========= ========
</TABLE>

F-96
<PAGE> 207

FELCOR SUITES LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

FELCOR SUITES LIMITED PARTNERSHIP

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTOR TOTAL
FELCOR L.P. SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $ 19,717 $ (1,642) $ 18,075
Cash flows from investing activities (110,023) (149,174) (259,197)
Cash flows from financing activities 256,009 150,816 406,825
--------- --------- ---------
Change in cash and cash equivalents..................... 165,703 165,703
Cash and cash equivalents at beginning of period........ 1,118 1,118
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 166,821 $ $ 166,821
========= ========= =========
</TABLE>

F-97
<PAGE> 208

FELCOR SUITES LIMITED PARTNERSHIP

SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
---------------------------------- -------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
----------------------- ------- ------------ --------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX.............. $ 1,497 $ 12,722 $ 647 $ 28 1,091
Nashville, TN.......................... 1,118 9,506 961 28 1,093
Jacksonville, FL....................... 1,130 9,608 456 28 627
Orlando (North), FL.................... 1,673 14,218 684 28 664
Orlando (South), FL.................... 1,632 13,870 799 28 967
Tulsa, OK.............................. 525 7,344 3,117 139 1,523
New Orleans, LA........................ 2,570 22,300 895 523 890
Flagstaff, AZ.......................... 900 6,825 268 1,523 993
Dallas (Love Field), TX................ 1,934 16,674 757 167 899
Boston-Marlborough, MA................. 948 8,143 325 $761 721
Brunswick, GA.......................... 705 6,067 247 431
Corpus Christi, TX..................... 1,113 9,618 390 51 1,268
Burlingame (SF Airport So.), CA........ 39,929 818 55 2,041
Minneapolis (Airport), MN.............. 5,417 36,508 602 62 2,052
Boca Raton (Doubletree), FL............ 5,427 3,066 304 29 503
Minneapolis (Downtown), MN............. 818 16,820 505 56 2,462
St. Paul, MN........................... 1,156 17,315 849 27 2,210
Tampa (Busch Gardens), FL.............. 672 12,387 226 5
Cleveland, OH.......................... 1,755 15,329 527 129 236
Anaheim, CA............................ 2,548 14,832 607 491 2,517
Baton Rouge, LA........................ 2,350 19,092 525 497 2,140
Birmingham, AL......................... 2,843 29,286 160 706 2,140
Deerfield Beach, FL.................... 4,523 29,443 917 849 2,088
Ft. Lauderdale, FL..................... 5,329 47,850 903 1,142 2,558
Miami (Airport), FL.................... 4,135 24,950 1,171 684 2,658
Milpitas, CA........................... 4,021 23,677 562 912 2,920
Phoenix (Camelback), AZ................ 39,003 612 810 2,604
So. San Francisco (Airport N.), CA..... 3,418 31,737 527 769 3,378
Lexington, KY.......................... 1,955 13,604 587 79
Piscataway, NJ......................... 1,755 17,563 527 12 168
Avon (Beaver Creek Resort), CO......... 1,134 9,864 340 162 568
Boca Raton (Embassy), FL............... 1,868 16,253 560 1,604
El Segundo (LAX South), CA............. 2,660 17,997 798 179 2,595
Oxnard (Mandalay Beach), CA............ 2,930 22,125 879 529 441
Napa, CA............................... 3,287 14,205 494 398 245
Deerfield, IL.......................... 2,305 20,054 692 2
Atlanta (Buckhead), GA................. 7,303 38,996 2,437
Kingston Plantation, SC................ 2,940 24,988 1,470
------- -------- ------- ---- ------- -------
Total.................................. $88,294 $733,768 $28,145 $812 $10,990 $49,381
======= ======== ======= ==== ======= =======

<CAPTION>
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK
CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE
---------------------------------- BUILDINGS AND BUILDINGS AND
BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS;
AND & FURNITURE & FURNITURE AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES
----------------------- ------- ------------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX.............. 1,497 $ 12,750 $ 1,738 $ 15,985 $ 1,840 $ 14,145
Nashville, TN.......................... 1,118 9,534 2,054 12,706 2,230 10,476
Jacksonville, FL....................... 1,130 9,636 1,083 11,849 1,171 10,678
Orlando (North), FL.................... 1,673 14,246 1,348 17,267 1,916 15,351
Orlando (South), FL.................... 1,632 13,898 1,766 17,296 1,823 15,473
Tulsa, OK.............................. 525 7,483 4,640 12,648 3,485 9,163
New Orleans, LA........................ 2,570 22,823 1,785 27,178 1,699 25,479
Flagstaff, AZ.......................... 900 8,348 1,261 10,509 687 9,822
Dallas (Love Field), TX................ 1,934 16,841 1,656 20,431 1,118 19,313
Boston-Marlborough, MA................. 1,709 8,143 1,046 10,898 495 10,403
Brunswick, GA.......................... 705 6,067 678 7,450 317 7,133
Corpus Christi, TX..................... 1,164 9,618 1,658 12,440 628 11,812
Burlingame (SF Airport So.), CA........ 39,984 2,859 42,843 1,514 41,329
Minneapolis (Airport), MN.............. 5,417 36,570 2,654 44,641 1,378 43,263
Boca Raton (Doubletree), FL............ 5,427 3,095 807 9,329 234 9,095
Minneapolis (Downtown), MN............. 818 16,876 2,967 20,661 845 19,816
St. Paul, MN........................... 1,156 17,342 3,059 21,557 895 20,662
Tampa (Busch Gardens), FL.............. 672 12,387 231 13,290 383 12,907
Cleveland, OH.......................... 1,755 15,458 763 17,976 511 17,465
Anaheim, CA............................ 2,548 15,323 3,124 20,995 813 20,182
Baton Rouge, LA........................ 2,350 19,589 2,665 24,604 681 23,923
Birmingham, AL......................... 2,843 29,992 2,300 35,135 804 34,331
Deerfield Beach, FL.................... 4,523 30,292 3,005 37,820 981 36,839
Ft. Lauderdale, FL..................... 5,329 48,992 3,461 57,782 1,629 56,153
Miami (Airport), FL.................... 4,135 25,634 3,829 33,598 1,031 32,567
Milpitas, CA........................... 4,021 24,589 3,482 32,092 991 31,101
Phoenix (Camelback), AZ................ 39,813 3,216 43,029 1,208 41,821
So. San Francisco (Airport N.), CA..... 3,418 32,506 3,905 39,829 1,085 38,744
Lexington, KY.......................... 1,955 13,604 666 16,225 403 15,822
Piscataway, NJ......................... 1,755 17,575 695 20,025 484 19,541
Avon (Beaver Creek Resort), CO......... 1,134 10,026 908 12,068 291 11,777
Boca Raton (Embassy), FL............... 1,868 16,253 2,164 20,285 481 19,804
El Segundo (LAX South), CA............. 2,660 18,176 3,393 24,229 1,394 22,835
Oxnard (Mandalay Beach), CA............ 2,930 22,654 1,320 26,904 512 26,392
Napa, CA............................... 3,287 14,603 739 18,629 318 18,311
Deerfield, IL.......................... 2,305 20,054 694 23,053 321 22,732
Atlanta (Buckhead), GA................. 7,303 38,996 2,437 48,736 122 48,614
Kingston Plantation, SC................ 2,940 24,988 1,470 29,398 29,398
------- -------- ------- -------- ------- --------
Total.................................. $89,106 $744,758 $77,526 $911,390 $36,718 $874,672
======= ======== ======= ======== ======= ========

LIFE UPON
WHICH
DEPRECIATION
DATE OF IN STATEMENT
DESCRIPTION OF PROPERTY CONSTRUCTION IS COMPUTED
----------------------- ------------ ------------
<S> <C> <C>
Dallas (Park Central), TX.............. 1985 5-40 Yrs
Nashville, TN.......................... 1986 5-40 Yrs
Jacksonville, FL....................... 1985 5-40 Yrs
Orlando (North), FL.................... 1985 5-40 Yrs
Orlando (South), FL.................... 1985 5-40 Yrs
Tulsa, OK.............................. 1985 5-40 Yrs
New Orleans, LA........................ 1984 5-40 Yrs
Flagstaff, AZ.......................... 1988 5-40 Yrs
Dallas (Love Field), TX................ 1986 5-40 Yrs
Boston-Marlborough, MA................. 1988 5-40 Yrs
Brunswick, GA.......................... 1988 5-40 Yrs
Corpus Christi, TX..................... 1984 5-40 Yrs
Burlingame (SF Airport So.), CA........ 1986 5-40 Yrs
Minneapolis (Airport), MN.............. 1986 5-40 Yrs
Boca Raton (Doubletree), FL............ 1989 5-40 Yrs
Minneapolis (Downtown), MN............. 1984 5-40 Yrs
St. Paul, MN........................... 1983 5-40 Yrs
Tampa (Busch Gardens), FL.............. 1985 5-40 Yrs
Cleveland, OH.......................... 1990 5-40 Yrs
Anaheim, CA............................ 1987 5-40 Yrs
Baton Rouge, LA........................ 1985 5-40 Yrs
Birmingham, AL......................... 1987 5-40 Yrs
Deerfield Beach, FL.................... 1987 5-40 Yrs
Ft. Lauderdale, FL..................... 1986 5-40 Yrs
Miami (Airport), FL.................... 1987 5-40 Yrs
Milpitas, CA........................... 1987 5-40 Yrs
Phoenix (Camelback), AZ................ 1985 5-40 Yrs
So. San Francisco (Airport N.), CA..... 1988 5-40 Yrs
Lexington, KY.......................... 1987 5-40 Yrs
Piscataway, NJ......................... 1988 5-40 Yrs
Avon (Beaver Creek Resort), CO......... 1990 5-40 Yrs
Boca Raton (Embassy), FL............... 1989 5-40 Yrs
El Segundo (LAX South), CA............. 1985 5-40 Yrs
Oxnard (Mandalay Beach), CA............ 1986 5-40 Yrs
Napa, CA............................... 1985 5-40 Yrs
Deerfield, IL.......................... 1987 5-40 Yrs
Atlanta (Buckhead), GA................. 1988 5-40 Yrs
Kingston Plantation, SC................ 1987 5-40 Yrs

Total..................................

F-98
<PAGE> 209

DJONT OPERATIONS, L.L.C.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)

The following unaudited Pro Forma Consolidated Statements of Operations of
DJONT Operations, L.L.C. (the "Lessee") are presented as if the acquisitions of
all hotels owned by FelCor Suite Hotels, Inc. (the "Company") at December 31,
1996 and those hotels acquired in 1997, through September 30, 1997, and related
transactions had occurred as of January 1, 1996 and the Hotels had all been
leased to the Lessee pursuant to Percentage Leases. Such pro forma information
is based in part upon the Pro Forma Consolidated Statements of Operations of the
Company, the historical Consolidated Financial Statements of the Lessee and the
historical Statements of Operations of the 1997 Acquisitions. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.

The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Lessee would have been assuming such transactions had been
completed on January 1, 1996, nor does it purport to represent the results of
operations for future periods.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
1996 ACQUISITIONS 1997 ACQUISITIONS
AND PREFERRED AND EQUITY PRO FORMA
HISTORICAL STOCK OFFERING(A) OFFERINGS(B) ADJUSTMENTS TOTAL
---------- ----------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Suite revenue.......... $234,451 $46,393 $200,627 $481,471
Food and beverage
revenue............. 15,119 8,194 41,616 64,929
Food and beverage
rent................ 2,334 408 538 3,280
Other revenue.......... 17,340 2,802 14,382 $ (316)(C) 34,208
-------- ------- -------- -------- --------
Total
revenues..... 269,244 57,797 257,163 (316) 583,888
-------- ------- -------- -------- --------
Expenses:
Property operating
costs and
expenses............ 66,236 12,417 60,752 139,405
Other operating
expenses............ 81,045 20,182 90,252 191,479
Management and
franchise fees...... 11,770 5,491 11,480 (2,498)(D) 26,243
Taxes, insurance and
other............... 5,912 (862) 19,212 (13,207)(E) 11,055
Interest expense....... 30,850 (30,850)(F)
Depreciation and
amortization........ 32,953 (32,953)(G)
Percentage lease
payments............ 107,935 20,248 3,396 88,129(H) 219,708
Lessee overhead
expenses............ 1,776 (236) -- 1,540
-------- ------- -------- -------- --------
Income (loss) before
minority interest...... (5,430) 557 8,268 (8,937) (5,542)
Minority interest........ (92)(I) (92)
-------- ------- -------- -------- --------
Net income (loss)........ $ (5,430) $ 557 $ 8,268 $ (8,845) $ (5,450)
======== ======= ======== ======== ========
</TABLE>

F-99
<PAGE> 210

DJONT OPERATIONS, L.L.C.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------
1997
ACQUISITIONS
HISTORICAL AND EQUITY PRO FORMA
COMPANY OFFERING(B) ADJUSTMENTS TOTAL
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Suite revenue....................... $330,545 $ 69,534 $400,079
Food and beverage revenue........... 20,576 19,714 40,290
Food and beverage rent.............. 3,338 55 3,393
Other revenue....................... 26,209 5,335 31,544
-------- --------- --------- --------
Total revenues.............. 380,668 94,638 475,306
-------- --------- --------- --------
Expenses:
Property operating costs and
expenses......................... 110,901 34,333 145,234
Other operating expenses............ 87,670 21,193 108,863
Management and franchise fees....... 17,949 3,930 1,453(D) 23,332
Taxes, insurance and other.......... 5,245 2,833 (472)(E) 7,606
Interest expense.................... 9,157 (9,157)(F)
Depreciation and amortization....... 9,147 (9,147)(G)
Percentage lease payments........... 158,436 49 32,523(H) 191,008
Lessee overhead expenses............ 1,618 1,618
-------- --------- --------- --------
Income (Loss) before minority
interest............................ (1,151) 13,996 (15,200) (2,355)
Minority interest..................... 437 (850)(I) (413)
-------- --------- --------- --------
Net income (loss)..................... $ (1,588) $ 13,996 $ (14,350) $ (1,942)
======== ========= ========= ========
</TABLE>

F-100
<PAGE> 211

DJONT OPERATIONS, L.L.C.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(A) Represents the historical results of operations and pro forma adjustments,
for the period prior to the acquisition by the Company, of the hotels
acquired by the Company in 1996. Those hotels acquired in 1996 and dates
of acquisition are as follows:

<TABLE>
<S> <C>
Anaheim, California, Embassy Suites......................... January 3, 1996
Baton Rouge, Louisiana, Embassy Suites...................... January 3, 1996
Birmingham, Alabama, Embassy Suites......................... January 3, 1996
Deerfield Beach, Florida, Embassy Suites.................... January 3, 1996
Ft. Lauderdale, Florida, Embassy Suites..................... January 3, 1996
Miami (Airport), Florida, Embassy Suites.................... January 3, 1996
Milpitas, California, Embassy Suites........................ January 3, 1996
Phoenix (Camelback), Arizona, Embassy Suites................ January 3, 1996
Burlingame (S.F. Airport So.), California, Embassy Suites... January 3, 1996
Lexington, Kentucky, Hilton................................. January 10, 1996
Piscataway, New Jersey, Embassy Suites...................... January 10, 1996
Avon (Beaver Creek Resort), Colorado, Embassy Suites........ February 20, 1996
Boca Raton, Florida, Embassy Suites......................... February 28, 1996
El Segundo (LAX South), California, Embassy Suites.......... March 27, 1996
Oxnard (Mandalay Beach), California, Embassy Suites......... May 8, 1996
Napa, California, Embassy Suites............................ May 8, 1996
Deerfield, Illinois, Embassy Suites......................... June 20, 1996
San Rafael (Marin Co.), California, Embassy Suites.......... July 18, 1996
Parsippany, New Jersey, Embassy Suites...................... August 1, 1996
Charlotte, North Carolina, Embassy Suites................... August 1, 1996
Indianapolis (North), Indiana, Embassy Suites............... August 1, 1996
Atlanta (Buckhead), Georgia, Embassy Suites................. October 17, 1996
Myrtle Beach (Kingston Plantation), South Carolina, Embassy
Suites.................................................... December 5, 1996
</TABLE>

F-101
<PAGE> 212

DJONT OPERATIONS, L.L.C.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(B) Represents the historical results of operations for the period prior to
the acquisition by the Company, for those hotels acquired by the Company
in 1997. Those hotels acquired during 1997 and dates of acquisition are as
follows:

<TABLE>
<S> <C>
1997 Acquisitions
Omaha, Nebraska, Embassy Suites........................... February 1, 1997
Bloomington, Minnesota, Embassy Suites.................... February 1, 1997
Atlanta (Perimeter Center), Georgia, Embassy Suites....... February 1, 1997
Kansas City (Country Club Plaza), Missouri, Embassy
Suites................................................. February 1, 1997
Overland Park, Kansas, Embassy Suites..................... February 1, 1997
Raleigh, North Carolina, Embassy Suites................... February 1, 1997
San Antonio (I-10), Texas, Embassy Suites................. February 1, 1997
Austin (Downtown), Texas, Embassy Suites.................. February 1, 1997
Covina, California, Embassy Suites........................ February 1, 1997
Secaucus, New Jersey, Embassy Suites...................... February 1, 1997
Los Angeles (LAX Airport North), California, Embassy
Suites................................................. February 18, 1997
Dana Point, California, Hilton Inn........................ February 21, 1997
Troy, Michigan, Doubletree Guest Suites................... March 20, 1997
Austin, Texas, Doubletree Guest Suites.................... March 20, 1997
Baltimore, Maryland, Doubletree Guest Suites.............. March 20, 1997
San Antonio (Airport), Texas, Embassy Suites.............. May 16, 1997
Nashville (Airport), Tennessee, Doubletree Guest Suites... June 5, 1997
Dallas (Market Center), Texas, Embassy Suites............. June 30, 1997
Syracuse, New York, Embassy Suites........................ June 30, 1997
Atlanta (Gateway), Georgia, Sheraton...................... June 30, 1997
Atlanta (Galleria), Georgia, Sheraton Suites.............. June 30, 1997
Chicago (O'Hare), Illinois, Sheraton Suites............... June 30, 1997
Dallas (Park Central), Texas, Sheraton.................... June 30, 1997
Phoenix (Crescent), Arizona, Sheraton..................... June 30, 1997
Lake Buena Vista (Disney World), Florida, Doubletree Guest
Suites................................................. July 28, 1997
Raleigh/Durham, North Carolina, Doubletree Guest Suites... July 28, 1997
Tampa (Rocky Point), Florida, Doubletree Guest Suites..... July 28, 1997
Philadelphia (Society Hill), Pennsylvania, Sheraton....... September 29, 1997
</TABLE>

(D) Represents the elimination of historical management and franchise fees,
and the addition of management and franchise fees to be incurred under the
new management agreements for the 1997 Acquisitions. The management fees
were calculated based on the terms of the management agreements. Also
included in the pro forma adjustment are computations for the incentive
management fee which varies according to the management agreement.

(E) Reflects the elimination of historical real estate and personal property
taxes and property insurance which is to be paid by the Partnership for
the 1997 Acquisitions.

(F) Reflects the elimination of historical interest expense for the 1997
Acquisitions. Any future interest expense related to debt will be paid by
the Partnership.

(G) Reflects the elimination of historical depreciation and amortization for
the 1997 Acquisitions.

F-102
<PAGE> 213

DJONT OPERATIONS, L.L.C.

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(H) Represents lease expenses calculated on a pro forma basis by applying the
contractual or anticipated rent provisions of the Percentage Leases to the
historical suite revenues, pro forma restaurant rent and historical food
and beverage revenues of the Hotels.

(I) Represents minority interest from preferred equity positions in
subsidiaries of DJONT.

F-103
<PAGE> 214

DJONT OPERATIONS, L.L.C.

CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED, IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Cash and cash equivalents................................... $29,171
Accounts receivable, net.................................... 23,970
Inventories................................................. 3,065
Prepaid expenses............................................ 2,444
Other assets................................................ 2,144
-------
Total assets...................................... $60,794
=======

LIABILITIES AND SHAREHOLDERS' DEFICIT

Accounts payable, trade..................................... $ 7,409
Accounts payable, other..................................... 15,162
Due to FelCor Suite Hotels, Inc............................. 13,419
Due to other partnerships................................... 6,156
Accrued expenses and other liabilities...................... 26,639
-------
Total liabilities................................. 68,785
-------
Shareholders' deficit:
Capital..................................................... 1
Distributions in excess of earnings......................... (7,992)
-------
Total shareholders' deficit....................... (7,991)
-------
Total liabilities and shareholders' deficit....... $60,794
=======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-104
<PAGE> 215

DJONT OPERATIONS, L.L.C.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Revenue:
Suite revenue............................................. $330,545 $168,950
Food and beverage revenue................................. 20,576 11,235
Food and beverage rent.................................... 3,338 1,742
Other revenue............................................. 26,209 12,457
-------- --------
Total revenues.................................... 380,668 194,384
-------- --------
Expenses:
Property operating costs and expenses..................... 93,442 46,878
General and administrative................................ 27,694 14,033
Advertising and promotion................................. 26,243 12,807
Repair and maintenance.................................... 18,417 10,031
Utilities................................................. 15,316 8,801
Management fee............................................ 8,121 4,761
Franchise fee............................................. 9,828 3,852
Food and beverage expenses................................ 17,459 11,748
Percentage lease expenses................................. 158,436 78,307
Lessee overhead expenses.................................. 1,618 1,148
Liability insurance....................................... 2,496 1,276
Other..................................................... 2,749 3,634
-------- --------
Total expenses.................................... 381,819 197,276
-------- --------
Income (loss) before minority interest...................... (1,151) (2,892)
Minority interest........................................... 437
-------- --------
Net income (loss)........................................... $ (1,588) $ (2,892)
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-105
<PAGE> 216

DJONT OPERATIONS, L.L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(1,588) $(2,892)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Changes in assets and liabilities:
Accounts receivable.................................. (15,270) (5,722)
Inventories.......................................... (960) (208)
Prepaid expenses..................................... (2,189) (434)
Other assets......................................... 59 (157)
Due to FelCor Suite Hotels, Inc...................... 7,892 1,359
Accounts payable, accrued expenses and other
liabilities......................................... 36,019 11,187
------- -------
Net cash flow provided by operating activities.... 23,963 3,133
------- -------
Net change in cash and cash equivalents..................... 23,963 3,133
Cash and cash equivalents at beginning of periods........... 5,208 5,345
------- -------
Cash and cash equivalents at end of periods................. $29,171 $ 8,478
======= =======
</TABLE>

The accompany notes are an integral part of these consolidated financial
statements.

F-106
<PAGE> 217

DJONT OPERATIONS, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

DJONT Operations, L.L.C. is a Delaware limited liability company ("DJONT")
which began operations on July 28, 1994. All of the voting Class A membership
interest in DJONT (representing a 50% equity interest) is beneficially owned by
Hervey A. Feldman and Thomas J. Corcoran, Jr. who serve as directors and
officers of FelCor Suite Hotels, Inc., (the "Company") and as managers and
officers of DJONT. All of the non-voting Class B membership interest in DJONT
(representing the remaining 50% equity interest) is owned by RGC Leasing, Inc.,
a Nevada corporation owned by the children of Mr. Mathewson, a director of the
Company and shareholder of the predecessor company. Each of the 71 hotels in
which FelCor Suites Limited Partnership (the "Operating Partnership") had an
ownership interest at September 30, 1997 (the "Hotels"), is leased to DJONT or a
consolidated subsidiary thereof (collectively, the "Lessee") pursuant to
percentage leases ("Percentage Leases"). The Company's partners in partnerships
owning interests in 12 of the Hotels hold special purpose non-voting equity
interests in the consolidated subsidiary of DJONT which leases such Hotels,
which interests entitle them to 50% of such subsidiary's net income before
overhead with respect to such Hotels. In addition, the Company's partner in a
partnership owning three of the Hotels holds a 50% non-voting equity interest in
the consolidated subsidiary of DJONT leasing those Hotels. Messrs. Feldman and
Corcoran, such partners, and the managers of certain of the Hotels have agreed,
directly or through their affiliates, to make loans to the Lessee of up to an
aggregate of approximately $15.4 million, to the extent necessary to enable the
Lessee to pay rent and other obligations due under the respective Percentage
Leases relating to a total of 32 of the Hotels. Amounts so borrowed by the
Lessee, if any, will subordinate in right of repayment to the prior payment in
full of rent and other obligations due under the Percentage Leases relating to
such Hotels. No loans were outstanding under such agreements at September 30,
1997.

Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate 50%
of DJONT, have entered into an agreement with the Company pursuant to which they
have agreed that, for a period of ten years from April 15, 1995, any
distributions received by them from DJONT (in excess of their tax liabilities
with respect to the income of DJONT) will be utilized to purchase common stock
from the Company or units of limited partner interest in the Operating
Partnership at then current market prices. The agreement stipulates that Messrs.
Feldman and Corcoran are restricted from selling any stock or unit so acquired
for a period of two years from the date of purchase. RGC Leasing, Inc., which
owns the other 50% of DJONT, may elect to purchase common stock or units upon
similar terms, at its option. The independent directors of the Company may
suspend or terminate such agreement at any time.

Fifty-one of the Hotels are, and the Radisson at Kingston Plantation in
Myrtle Beach, South Carolina will be converted by year end to, Embassy Suites(R)
hotels, 50 of which are being managed for the Lessee by a subsidiary of Promus
Hotel Corporation ("Promus"). Two Embassy Suites hotels are managed for the
Lessee by two other management Companies. Twelve of the Hotels are Doubletree
Guest Suites(R) hotels and are managed by a subsidiary of Doubletree Hotels
Corporation ("Doubletree"). Six of the Hotels are Sheraton Suites (2) or
Sheraton hotels (4) and are being managed for the Lessee directly by, or by a
subsidiary of, ITT Sheraton Corporation ("Sheraton"). One of the Hotels is
operated under a Hilton Suites(R) hotel franchise and managed by an independent
management Company that also manages one of the Company's Embassy Suites.

F-107
<PAGE> 218

DJONT OPERATIONS, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. COMMITMENTS AND RELATED PARTY TRANSACTIONS

The Lessee has future lease commitments under the Percentage Leases which
expire in 2004 (7 hotels), 2005 (13 hotels), 2006 (23 hotels) and 2007 (28
hotels). Minimum future rental payments are computed based on the base rent as
defined under these noncancellable operating leases and are as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
Remainder of 1997........................................... $ 32,896
1998........................................................ 131,586
1999........................................................ 131,586
2000........................................................ 131,586
2001........................................................ 131,586
2002 and thereafter......................................... 627,134
----------
$1,186,374
==========
</TABLE>

The Lessee typically pays a franchise fee ranging from 4% to 5% of room
revenue, and marketing and reservation fees ranging from 1% to 3.5% of room
revenue. In the cases where there is not a separate franchise agreement, the
right to use the brand name is included in the management agreement. Base
management fees typically range from 2% to 3% of total revenues. Incentive
management fees are based upon the hotel's net income before overhead and
typically range from 50% to 75% subject to, in certain cases, a maximum annual
payment of between 2% and 3% of applicable hotel revenues in addition to the
base fee. In many cases managers and franchisors have agreed to subordinate all
or a portion of their fees at a specific hotel or group of hotels, either for a
set period of time, or until the hotel or group of hotels provides a
predetermined return to the Lessee, or both.

3. PRO FORMA INFORMATION (UNAUDITED)

The following unaudited Pro Forma Consolidated Statements of Operations for
the nine months ended September 30, 1997 and 1996 are presented as if Lessee had
leased and operated all of the Hotels, beginning on January 1, 1996. Such
information should be read in conjunction with the financial statements listed
in the Index on page 2. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made. The Pro Forma
Consolidated Statements of Operations do not purport to present what actual
results of operations would have been if such hotels had been operated by Lessee
pursuant to the Percentage Leases since such date or to project the results of
operations for any future periods.

F-108
<PAGE> 219

DJONT OPERATIONS, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Suite revenue............................................. $400,079 $368,557
Food and beverage revenue................................. 40,289 46,355
Food and beverage rent.................................... 3,393 2,552
Other revenue............................................. 31,545 25,972
-------- --------
Total revenues.................................... 475,306 443,436
-------- --------
Expenses:
Property operating costs and expenses..................... 112,007 104,744
General and administrative................................ 35,066 33,490
Advertising and promotion................................. 32,222 30,265
Repair and maintenance.................................... 22,587 22,528
Utilities................................................. 18,988 18,597
Management fee............................................ 11,172 9,823
Franchise fee............................................. 12,160 11,593
Food and beverage expenses................................ 33,227 40,214
Percentage lease payments................................. 191,008 168,011
Lessee overhead expenses.................................. 1,618 1,151
Liability insurance....................................... 3,011 2,922
Other..................................................... 4,595 6,523
-------- --------
Total expenses.................................... 477,661 449,861
-------- --------
Loss before minority interest............................... (2,355) (6,425)
Minority interest......................................... (413) (505)
-------- --------
Net loss.................................................... $ (1,942) $ (5,920)
======== ========
</TABLE>

F-109
<PAGE> 220

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
FelCor Suite Hotels, Inc.

We have audited the accompanying balance sheets of DJONT Operations, L.L.C.
as of December 31, 1996 and 1995 and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1996 and
1995 and the period from July 28, 1994 (inception of operations) through
December 31, 1994. 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 audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DJONT Operations, L.L.C. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995 and the period from July
28, 1994 (inception of operations) through December 31, 1994 in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Memphis, Tennessee
January 22, 1997
except as to the information
presented in Note 7 for which
the date is February 21, 1997

F-110
<PAGE> 221

DJONT OPERATIONS, L.L.C.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash and cash equivalents................................... $ 5,208 $ 5,345
Accounts receivable, net.................................... 8,700 3,129
Inventories................................................. 2,105 532
Prepaid expenses............................................ 255 288
Other assets................................................ 2,203 305
------- -------
Total assets...................................... $18,471 $ 9,599
======= =======

LIABILITIES AND SHAREHOLDERS' DEFICIT

Accounts payable, trade..................................... $ 1,273 $ 1,393
Accounts payable, other..................................... 2,398 605
Due to FelCor Suite Hotels Limited Partnership.............. 5,526 2,396
Accrued expenses and other liabilities...................... 15,677 5,978
------- -------
Total liabilities................................. 24,874 10,372
------- -------
Commitments and contingencies (Note 4)
Shareholders' deficit:
Capital................................................... 1 1
Distributions in excess of earnings....................... (6,404) (774)
------- -------
Total shareholders' deficit....................... (6,403) (773)
------- -------
Total liabilities and shareholders' deficit....... $18,471 $ 9,599
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-111
<PAGE> 222

DJONT OPERATIONS, L.L.C.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues:
Suite revenue............................................. $234,451 $65,649 $16,094
Food and beverage revenue................................. 15,119 2,462 1,112
Food and beverage rent.................................... 2,334 534 61
Other revenue............................................. 17,340 3,924 1,020
-------- ------- -------
Total revenues.................................... 269,244 72,569 18,287
-------- ------- -------
Expenses:
Property operating costs and expenses..................... 66,236 18,455 4,699
General and administrative................................ 20,123 5,547 1,506
Advertising and promotion................................. 18,520 5,410 1,572
Repair and maintenance.................................... 14,453 4,010 994
Utilities................................................. 12,248 3,384 866
Management fee............................................ 6,077 1,561 333
Franchise fee............................................. 5,693 2,473 642
Food and beverage expenses................................ 15,701 2,723 1,143
Percentage lease payments................................. 107,935 26,945 6,043
Lessee overhead expenses.................................. 1,776 834 106
Liability insurance....................................... 1,818 468 106
Conversion cost........................................... 2,165 297
Other expenses............................................ 1,929 702 168
-------- ------- -------
Total Expenses.................................... 274,674 72,809 18,178
-------- ------- -------
Net income (loss)......................................... $ (5,430) $ (240) $ 109
======== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-112
<PAGE> 223

DJONT OPERATIONS, L.L.C

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<S> <C>
Capital contributions.............................. $ 1
Distributions declared............................. (443)
Net income......................................... 109
-------
Balance at December 31, 1994....................... (333)
Distributions declared............................. (200)
Net loss........................................... (240)
-------
Balance at December 31, 1995....................... (773)
Distributions declared............................. (200)
Net loss........................................... (5,430)
-------
Balance at December 31, 1996....................... $(6,403)
=======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-113
<PAGE> 224

DJONT OPERATIONS, L.L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(5,430) $ (240) $ 109
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Changes in assets and liabilities:
Accounts receivable.................................. (5,571) (2,003) (1,126)
Inventories.......................................... (1,573) (205) (327)
Prepaid expenses..................................... 33 (262) (26)
Other assets......................................... (1,898) (141) (164)
Due to FelCor Suite Hotels Limited Partnership....... 3,130 1,137 1,259
Accounts payable, accrued expenses and other
liabilities....................................... 11,372 4,000 3,976
------- ------ -------
Net cash flow provided by operating activities.... 63 2,286 3,701
------- ------ -------
Cash flows from financing activities:
Capital contributions..................................... 1
Distributions paid........................................ (200) (200) (443)
------- ------ -------
Net cash flow used in financing activities........ (200) (200) (442)
------- ------ -------
Net change in cash and cash equivalents..................... (137) 2,086 3,259
Cash and cash equivalents at beginning of periods........... 5,345 3,259
------- ------ -------
Cash and cash equivalents at end of years................... $ 5,208 $5,345 $ 3,259
======= ====== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-114
<PAGE> 225

DJONT OPERATIONS, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

DJONT Operations, L.L.C. is a Delaware limited liability company (together
with its consolidated subsidiaries, the "Lessee") which was formed on June 29,
1994 and began operations on July 28, 1994. All of the voting Class A membership
interest in the Lessee (representing a 50% equity interest) is owned by Hervey
A. Feldman and Thomas J. Corcoran, Jr. who serve as directors and officers of
FelCor Suite Hotels Limited Partnership (the "Company") and as managers and
officers of the Lessee. All of the non-voting Class B membership interest in the
Lessee (representing the remaining 50% equity interest) is owned by RGC Leasing,
Inc., a Nevada corporation owned by the children of Mr. Charles N. Mathewson, a
director of the Company. The Lessee leases each of the 43 hotels (the "Hotels")
in which FelCor Suites Limited Partnership (the "Partnership") had an ownership
interest at December 31, 1996, pursuant to percentage leases ("Percentage
Leases").

Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate 50%
of the Lessee, have entered into an agreement with the Company pursuant to which
they have agreed that, for a period of ten years, any distributions received by
them from the Lessee (in excess of their tax liabilities with respect to the
income of the Lessee) will be utilized to purchase common stock from the Company
annually, at a price based upon a formula approved by the independent directors
of the Company relating to the then current market prices. The agreement
stipulates that Messrs. Feldman and Corcoran are restricted from selling any
stock so acquired for a period of two years from the date of purchase. RGC
Leasing, Inc., which owns the other 50% of the Lessee, may elect to purchase
common stock of the Company or Partnership units upon similar terms, at its
option. The independent directors of the Company may suspend or terminate such
agreement at any time.

At December 31, 1996, 39 of the Hotels are operated as Embassy Suites(R)
hotels, two as Doubletree Guest Suites(R) hotels, one as a Hilton Suites(R)
hotel and one hotel is in the process of being converted to an Embassy Suites
hotel. The Lessee has entered into management agreements pursuant to which 38 of
the Hotels are managed by Promus Hotels, Inc. ("Promus"), two of the Hotels are
managed by a subsidiary of Doubletree Hotel Corporation ("Doubletree"), two of
the Hotels are managed by American General Hospitality, Inc. ("AGHI") and one is
managed by Coastal Hotel Group, Inc. ("Coastal").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents -- All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents.

Inventories -- Inventories are stated at the lower of cost or market.

Revenue Recognition -- Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible. Such losses have been within management's expectations.

Franchise Costs -- The cost of obtaining the franchise licenses is paid by
the Partnership and the ongoing franchise fees are paid by the Lessee. These
fees are generally computed as a percentage of suite revenue for each hotel in
accordance with franchise agreements.

Income Taxes -- The Lessee is a limited liability Company which is taxed
for federal income taxes purposes as a limited partnership and, accordingly, all
taxable income or loss flows through to the shareholders.

3. ACCUMULATED DEFICIT

During 1996, the Lessee incurred a net loss of approximately $5.4 million
and a cumulative shareholder's deficit of approximately $6.4 million.
Management's analyses indicate that a significant portion of such loss is
attributable to the one-time costs of converting the Crown Sterling Suites(R)
hotels to Embassy Suites and

F-115
<PAGE> 226

DJONT OPERATIONS, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Doubletree Guest Suites, and operations of hotels during periods of substantial
renovation. Such renovations are required under the terms of the related
franchise agreements. In accordance with the terms of the Percentage Leases,
although a portion of the suites are not available for guests to rent, the
Lessee is required to pay the full required lease payment. In addition, during
periods of renovation, management believes, and operating data indicates, that
overall the performances of the hotels is impacted as evidenced by improved
operating performances immediately following completion of renovations.
Management is exploring several options to anticipate negative operating cash
flow during renovations, including potential changes to the terms of leases for
future renovation hotels which might mitigate losses for the Lessee during such
renovation periods.

At December 31, 1996 the Lessee had paid all amounts then due the Company
under the Percentage Leases. It is anticipated that a substantial portion of any
future profits of the Lessee will be retained until a positive shareholder's
equity is restored. Although it is currently anticipated that the lessee may
sustain a smaller loss during 1997, it is anticipated that its future earnings
will be sufficient to enable it to continue to make necessary payments when due.
Accordingly, management deems the Lessee to be a viable going concern and, as
such, no adjustments are required to the accompanying financial statements.

4. COMMITMENTS AND RELATED PARTY TRANSACTIONS

The Lessee has future lease commitments under the Percentage Leases which
expire in 2004 (7 hotels), 2005 (13 hotels) and 2006 (23 hotels). Minimum future
rental payments are computed based on the base rent as defined under these
noncancellable operating leases and are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1997.............................................. $ 72,140
1998.............................................. 72,140
1999.............................................. 72,140
2000.............................................. 72,140
2001.............................................. 72,140
2002 and thereafter............................... 285,928
--------
$646,628
========
</TABLE>

The Lessee recognized Percentage Lease rent expense of approximately
$107,935,000, $26,945,000 and $6,043,000 for the years ended December 31, 1996
and 1995 and for the period from July 28, 1994 (inception of operations) through
December 31, 1994 respectively. At December 31, 1996 and 1995, the Lessee owed
the Company $5,526,000 and $2,396,000 for such lease rent. In accordance with
the terms of the lease, the Lessee intends to pay such balances by March of each
subsequent year.

The Percentage Lease expense is based on a percentage of suite revenues,
food and beverage revenues and food and beverage rents of the Hotels. Both the
base rent and the threshold suite revenue in each lease computation is subject
to adjustments in the Consumer Price Index. The adjustment is calculated at the
beginning of each calendar year for the hotels acquired prior to July of the
previous year. The adjustment in any lease year may not exceed 7%. The
adjustments made in January 1997 and 1996 are 1.42% and 0.73% respectively.

Other than real estate and personal property taxes, casualty insurance,
capital improvements and maintenance of underground utilities and structural
elements, which are obligations of the Partnership, the Percentage Leases
require the Lessee to pay rent, liability insurance premiums, all costs,
expenses, utilities and other charges incurred in the operation of the leased
hotels.

F-116
<PAGE> 227

DJONT OPERATIONS, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Lessee is also obligated to indemnify and hold harmless the Partnership
from and against all liabilities, costs and expenses incurred by or asserted
against the Partnership in the normal course of operating the Hotels.

The Lessee is not permitted to sublet all or any substantial part of the
Hotels or assign its interest under any of the Percentage Leases without the
prior written consent of the Partnership.

The Lessee has agreed that during the term of the Percentage Leases it will
maintain a ratio of total debt to consolidated net worth (as defined in the
Percentage Leases) of less than or equal to 50%, exclusive of capital leases. In
addition, the Lessee has agreed that it will not pay fees to any affiliate of
the Lessee.

The Lessee typically pays a franchise fee ranging from 0% to 5% of suite
revenue, and marketing and reservation fees ranging from 1% to 3.5% of suite
revenue. In the cases where there is not a separate franchise agreement, the
right to use the brand name is included in the management agreement. Base
management fees typically range from 2% to 3% of total revenues. Incentive
management fees are based upon the hotel's net income before overhead and
typically range from 50% to 75% subject to a maximum annual payment of between
2% and 3% of total revenues. In many cases managers and franchisors have agreed
to subordinate all or a portion of their fees at a specific hotel either for a
set period of time, or until the hotel provides a predetermined return to the
Lessee, or both.

In the event the Company enters into an agreement to sell or otherwise
transfer a leased hotel, the Company has the right to terminate the Percentage
Lease with respect to such leased hotel upon 90 days' prior written notice upon
either (1) paying the Lessee the fair market value of the Lessee's leasehold
interest in the remaining term of the Percentage Lease to be terminated or (2)
offering to lease to the Lessee a substitute hotel on terms that would create a
leasehold interest in such hotel with a fair market value equal to or exceeding
the fair market value of the Lessee's remaining leasehold interest under the
Percentage Lease to be terminated. The Company also is obligated to pay or
reimburse the Lessee for any assignment fees, termination fees or other
liabilities arising under any franchise license agreement and restaurant
sublease agreements.

The Lessee and the Company share executive offices and the services of
certain employees. Each Company bears its share of the costs including an
allocated portion of the rent, salaries of personnel (other than Messrs. Feldman
and Corcoran), office supplies and telephones.

5. PRO FORMA INFORMATION (UNAUDITED)

Due to the impact of the additional hotels operated by the Lessee pursuant
to the Percentage Leases discussed in Note 1, historical results of operations
may not be indicative of future results of operations.

The following unaudited Pro Forma Statements of Operations for the years
ended December 31, 1996 and 1995 are presented as if the Lessee leased and
operated all Hotels owned by the Partnership at December 31, 1996, from January
1, 1995.

F-117
<PAGE> 228

DJONT OPERATIONS, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Pro Forma Statement of Operations does not purport to present what
actual results of operations would have been if the 43 hotels were operated by
the Lessee pursuant to the Percentage Leases from the beginning of the periods
presented or to project results for any future period.

<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Suite revenue.................................. $280,844 $266,834
Food and beverage rent......................... 2,742 2,967
Food and beverage revenue...................... 23,313 26,160
Other revenue.................................. 20,142 19,463
-------- --------
Total revenues....................... 327,041 315,424
Property operating costs and expenses.......... 78,653 74,894
Other operating costs.......................... 101,227 96,731
Management and franchise fees.................. 17,261 16,225
Taxes, insurance and other..................... 5,050 6,830
Percentage lease expenses...................... 128,183 119,566
Lessee overhead expenses....................... 1,540 1,446
-------- --------
Net income (loss).................... $ (4,873) $ (268)
======== ========
</TABLE>

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Lessee reports the carrying amount of cash and cash
equivalents, accounts payable and accrued expenses at cost which approximate
fair value due to the short maturity of these instruments.

7. SUBSEQUENT EVENTS

On February 3, 1997, DJONT entered into 10-year operating leases with
partnerships owning eight hotel properties, of which the Partnership
concurrently acquired a 50% joint venture partnership interest. These properties
are located in Atlanta, Georgia (241 suites); Austin, Texas (261 suites);
Covina, California (264 suites); Kansas City -- Overland Park, Kansas (199
suites); Kansas City -- Plaza, Missouri (266 suites); Raleigh, North Carolina
(255 suites); San Antonio, Texas (217 suites); and Secaucus -- Meadowlands, New
Jersey (261 suites). On February 3, 1997 the Lessee also entered into 10-year
operating leases with the Partnership with respect to hotels located in Omaha,
Nebraska and Bloomington, Minnesota. On February 19, 1997 the Lessee and the
Partnership entered into a ten year operating lease on the 215 suite Embassy
Suite -- Los Angeles Airport (LAX) North. On February 21, 1997 the Lessee and
the Partnership entered into a ten year operating lease on a 198 suite hotel in
Dana Point, California. The leases are substantially similar to the leases with
the Partnership for the other hotels owned by the Partnership, with a 10-year
term and rental payments according to a formula based on restaurant rents, food
and beverage and suite revenues of the hotels.

F-118
<PAGE> 229

GLOSSARY

The following is a glossary of certain of the defined terms used in this
Prospectus. In addition, certain other terms used in the sections "Description
of Certain Indebtedness" and "Description of the Notes and Guarantees" are
defined in such sections.

"1996 Acquisitions" means the 12 hotels acquired by the Company in 1996
(excluding the CSS Hotels).

"1997 Acquisitions" means the 28 hotels acquired by the Company in 1997
(through September 30).

"ACMs" means asbestos-containing materials.

"ADA" means the Americans with Disabilities Act of 1990.

"Beneficial Owner" means any beneficial owner of the Old Notes.

"Board of Directors" means the board of directors of FelCor.

"Cede" means Cede & Co.

"Certificated New Notes" means New Notes in the form of one or more
physical note certificates.

"Certificated Old Notes" means Old Notes in the form of one or more
physical note certificates.

"Commission" means the Securities and Exchange Commission.

"Common Stock" means the common stock of FelCor, $0.01 par value per share.

"Company" means FelCor, FelCor LP and their respective subsidiaries,
collectively.

"Code" means the Internal Revenue Code of 1986, as amended.

"CPI" means the U.S. Consumer Price Index.

"CSS Hotels" means the 18 former Crown Sterling Suites(R) hotels owned by
the Company.

"Current Hotels" means the 71 full-service, upscale hotels owned by the
Company as of September 30, 1997.

"Depository" means the DTC, in its capacity as the initial depository with
respect to the Global Old Notes.

"Doubletree" means Doubletree Hotels Corporation.

"DTC" means The Depository Trust Company, New York, New York.

"EBITDA" has the meaning found on page 15 of the Prospectus.

"Eligible Institutions" means a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise which is an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act.

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

"Exchange Agent" means SunTrust Bank, Atlanta, in its capacity as exchange
agent.

"Exchange Offer" has the meaning set forth on the cover page of the
Prospectus.

"Exchange Offer Registration Statement" means the Registration Statement of
which this Prospectus is a part.

"Expiration Date" has the meaning found on the cover page of the
Prospectus.

"FelCor" means FelCor Suite Hotels, Inc., a Maryland corporation.

"FelCor LP" means FelCor Suites Limited Partnership, a Delaware limited
partnership.

A-1
<PAGE> 230

"FFO" means Funds From Operations.

"Funds From Operations" has the meaning found on page 13 of the Prospectus.

"Global New Notes" means New Notes in the form of one or more global notes.

"Global Old Notes" means Old Notes in the form of one or more global notes.

"Guarantors" means FelCor and the Subsidiary Guarantors.

"Hotels" means the Current Hotels; also means the Original Hotels, the CSS
Hotels, the 1996 Acquisitions and the 1997 Acquisitions on a combined basis.

"IGT" means International Game Technology.

"Indenture" means the Indenture, dated as of October 1, 1997, among FelCor
LP, FelCor, the Subsidiary Guarantors (as defined in the Indenture) and SunTrust
Bank, Atlanta, as trustee.

"Independent Directors" means those directors who are not officers or
employees of the Company or affiliates of any subsidiary or lessee thereof.

"Initial Hotels" the six Embassy Suite hotels initially acquired by the
Company, in connection with FelCor's IPO.

"Initial Purchasers" means Morgan Stanley & Co. Incorporated, NationsBanc
Capital Markets, Inc. and Salomon Brothers Inc.

"Interest Payment Date" means October 1 and April 1 of each year,
commencing April 1, 1998.

"IPO" means initial public offering.

"IRS" means the Internal Revenue Service.

"Lessee" means DJONT Operations, L.L.C., or a subsidiary thereof.

"Letter of Transmittal" means the letter of transmittal accompanying the
Prospectus.

"Line of Credit" means the Company's $550 million unsecured revolving line
of credit.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"New Notes" means the New 7 3/8% Notes and the New 7 5/8% Notes,
collectively.

"New 7 3/8% Notes" means the 7 3/8% Redeemable Senior Notes Due 2004 of
FelCor LP being offered by the Prospectus.

"New 7 5/8% Notes" means the 7 5/8% Redeemable Senior Notes Due 2007 of
FelCor LP being offered by the Prospectus.

"Non-Global Purchasers" means Institutional Accredited Investors who are
not qualified institutional buyers.

"Notes" means the New Notes and the Old Notes, collectively.

"NYSE" means the New York Stock Exchange.

"Old Notes" means the Old 7 3/8% Notes and the Old 7 5/8% Notes,
collectively.

"Old 7 3/8% Notes" means the outstanding 7 3/8% Redeemable Senior Notes Due
2004 of FelCor LP.

"Old 7 5/8 Notes" means the outstanding 7 5/8% Redeemable Senior Notes Due
2007 of FelCor LP.

"Original Hotels" means the Initial Hotels and the Pre-CSS Hotels combined.

"Partnership" means FelCor Suites Limited Partnership.

A-2
<PAGE> 231

"Percentage Leases" means leases providing for the payment of percentage
rent based primarily upon the room or suite revenues of hotels.

"Placement Agreement" means the Placement Agreement, dated September 26,
1997, among FelCor LP, FelCor and the Initial Purchasers.

"PORTAL" means Private Offering, Resales and Trading through Automatic
Linkages.

"Pre-CSS Hotels" means the seven hotels acquired by the Company after the
Initial Hotels and prior to the CSS Hotels.

"Primary Treasury Dealer" means a primary U.S. Government securities dealer
in New York City.

"Private Placement" has the meaning set forth on the cover page of the
Prospectus.

"Promus" means Promus Hotel Corporation or its subsidiary.

"Record Date" means January , 1998, the date for purposes of determining
the persons to whom this Prospectus and the Letter of Transmittal initially will
be mailed.

"Reference Period" means the period commencing on the first day of the Four
Quarter Period and ending on the Transaction Date, for purposes of calculating
the Interest Coverage Ratio.

"Registrar" means SunTrust Bank, Atlanta, in its capacity as registrar of
the Old Notes.

"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of September 26, 1997, among FelCor LP, FelCor, and the Initial
Purchasers.

"REIT" means a real estate investment trust.

"Renovation Loan" means the Company's $25 million unsecured term loan,
guaranteed by Promus.

"RevPar" means revenue per available room/suite.

"Rule 144A" means Rule 144A of the rules and regulations under the
Securities Act.

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

"SFAS" means Statement of Financial Accounting Standards.

"SFAS 128" means SFAS No. 128, "Earnings Per Share."

"SFAS 129" means SFAS No l29, "Disclosure of Information About Capital
Structure."

"SFAS 130" means SFAS No. 130, "Reporting Comprehensive Income."

"SFAS 131" means SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information."

"Sheraton" means ITT Sheraton Corporation.

"Subsidiary Guarantors" means certain direct or indirect wholly-owned
subsidiaries of FelCor LP that are obligors on other Indebtedness of FelCor or
FelCor LP which is pari passu with or subordinated to the Notes.

"Suite Revenue Breakpoint" means the tier amount used to calculate the
Percentage Rent terms.

"Term Loan" means the Company's $85 million secured term loan.

"Trustee" means SunTrust Bank, Atlanta, in its capacity as trustee under
the Indenture.

"Units" means units of limited partner interest in FelCor LP.

A-3
<PAGE> 232

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

ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DELIVERED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:

BY REGISTERED OR CERTIFIED MAIL,
HAND DELIVERY OR OVERNIGHT COURIER:

SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30302
Attention: David M. Kaye

SunTrust Bank, Atlanta
c/o First Chicago Trust Company
14 Wall Street, 8th Floor
New York, New York 10005

BY FACSIMILE:

(404) 332-3966 (GA)

(212) 240-8938 (NY)

ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE
SHOULD BE SENT PROMPTLY BY HAND, OVERNIGHT
COURIER, OR REGISTERED OR CERTIFIED MAIL.

NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE INITIAL PURCHASERS. 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, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

OFFER TO EXCHANGE ALL OUTSTANDING

7 3/8% REDEEMABLE SENIOR NOTES DUE 2004
AND
7 5/8% REDEEMABLE SENIOR NOTES DUE 2007

FOR

7 3/8% REDEEMABLE SENIOR NOTES DUE 2004
AND
7 5/8% REDEEMABLE SENIOR NOTES DUE 2007

WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933

FELCOR SUITES LIMITED PARTNERSHIP
------------------------------

PROSPECTUS
------------------------------

FEBRUARY 10, 1998
======================================================