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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
NOVEMBER 15, 1996 (NOVEMBER 8, 1996)

DELAWARE 0-24392 86-0762415
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)

410 NORTH 44TH STREET, SUITE 700 PHOENIX, ARIZONA 85008
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 220-6666

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2

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

On November 8, 1996, Doubletree Corporation, a Delaware corporation (the
"Company"), completed its acquisition of Red Lion Hotels, Inc., a Delaware
corporation ("Red Lion"), pursuant to the Agreement and Plan of Merger dated as
of September 12, 1996 (the "Merger Agreement"), by and among the Company, RLH
Acquisition Corp. ("Merger Sub") and Red Lion (a copy of which was filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 12,
1996, and is incorporated herein by reference). A copy of the press release
dated November 8, 1996 issued by the Company with respect to the Merger is filed
herewith as Exhibit 99.1 and is incorporated herein by reference.

Merger Consideration. Pursuant to the Merger Agreement, on November 8,
1996, Merger Sub merged with and into Red Lion (the "Merger"), with Red Lion
continuing as the surviving corporation and as a wholly owned subsidiary of the
Company. As a result of the Merger, each outstanding share of common stock, par
value $.01 per share, of Red Lion ("Red Lion Common Stock") was converted into
the right to receive $21.30 in cash, without interest, plus 0.2314 shares of
common stock, par value $.01 per share, of the Company ("Common Stock"). In
addition, each outstanding Red Lion employee stock option was converted as a
result of the Merger into the right to receive the same cash and stock
consideration into which the share or shares of Red Lion Common Stock issuable
upon exercise of such employee stock option would have been converted if such
employee stock option had been exercised immediately prior to the effective time
of the Merger (the "Effective Time"), reduced on a pro rata basis by the
aggregate exercise price for the shares of Red Lion Common Stock then issuable
upon exercise of such employee stock option and the amount of any withholding
taxes required thereon.

Accordingly, the stockholders and optionholders of Red Lion immediately
prior to the Merger became entitled at or following the Effective Time to
receive, in the aggregate, $688,199,723 in cash and 7,381,588 shares of Common
Stock as a result of the Merger (provided that such securityholders will receive
cash in lieu of any fractional shares represented thereby). The amount of such
consideration was determined pursuant to arm's-length negotiations among the
parties to the Merger Agreement.

Sources of Funds. Simultaneously with the consummation of the Merger on
November 8, 1996, the Company (i) issued and sold 2,627,534 shares of Common
Stock, and five-year warrants to purchase an additional 262,753 shares of Common
Stock (the "Warrants"), to PT Investments, Inc. ("PTI"), a wholly owned
subsidiary of General Electric Pension Trust ("GEPT"), for an aggregate purchase
price of $100,000,000 (the "GEPT Equity Investment"), pursuant to a Securities
Purchase Agreement dated as of October 31, 1996 by and between the Company and
the Trustees of GEPT (the "Securities Purchase Agreement"), (ii) issued and sold
5,600,000 shares of Common Stock in a registered public offering for an
aggregate purchase price, after deducting underwriting discounts and
commissions, of $210,672,000 (the "Public Equity Offering"), and (iii) borrowed
$493,200,000 under a bank term loan facility (the "Credit Facility"), pursuant
to a Credit Agreement dated as of November 8, 1996 by and among the Company,
Morgan Stanley Senior Funding, Inc., as syndication agent and arranger, The Bank
of Nova Scotia, as administrative agent, and the lenders identified therein (the
"Credit Agreement"). Copies of the Securities Purchase Agreement, the
certificate evidencing the Warrants, and the Credit Agreement are filed herewith
as Exhibits 10.1, 10.2 and 10.3, respectively, and are incorporated herein by
reference.

Of the $803,872,000 of total proceeds from the foregoing financing
transactions, $688,199,723 was or will be used to pay the aggregate cash
consideration payable to Red Lion securityholders as a result of the Merger, and
the remainder, together with cash on hand of the Company, was used to repay
$124,184,099 of outstanding bank indebtedness of Red Lion as of the Effective
Time.

On November 13, 1996, pursuant to an over-allotment option granted by the
Company to the underwriters of the Public Equity Offering in connection
therewith, the Company issued and sold an additional 840,000 shares of Common
Stock to such underwriters for an aggregate purchase price, after deducting
underwriting discounts and commissions, of $31,600,800. The proceeds from such
sale of additional shares were used to repay an equal amount of the outstanding
indebtedness under the Credit Facility. The total outstanding indebtedness of
the Company under the Credit Facility is currently $461,599,200.
3

Interests of Certain Persons. Upon consummation of the Merger and the
financing transactions described above, (i) the Trustees of GEPT (through GEPT's
wholly owned subsidiary, PTI) and GEPT's affiliate, GE Investment Hotel Partners
I, Limited Partnership ("GEHOP"), together beneficially owned an aggregate of
9,088,402 shares of Common Stock (including 262,753 shares issuable upon
exercise of the Warrants), or 22.83% of the total number of shares of Common
Stock outstanding on a fully diluted basis as of October 11, 1996 (as reported
in the Company's Quarterly Report on Form 10-Q for the period ended September
30, 1996), as adjusted to reflect the issuances of additional shares of Common
Stock pursuant to the Merger and the foregoing financing transactions, and (ii)
Red Lion, a California Limited Partnership (the "Partnership") beneficially
owned 4,836,260 shares of Common Stock, or 12.23% of such total number of shares
outstanding on an adjusted basis as aforesaid.

At the Effective Time, the Board of Directors of the Company was expanded
to include Michael W. Michelson and Edward I. Gilhuly, as designees of the
Partnership. Messrs. Michelson and Gilhuly were each directors of Red Lion until
the Effective Time. Mr. Michelson is a stockholder, director and executive vice
president of RLA-GP, Inc. ("RLA"), the general partner of the Partnership, and
Mr. Gilhuly is a director and executive vice president of RLA. As the sole
general partner of the Partnership, RLA has sole voting and investment power
with respect to the shares of Common Stock owned by the Partnership. Mr.
Michelson and George R. Roberts, who is a stockholder, director and president of
RLA, are each general partners of KKR Associates (Delaware), a limited partner
of the Partnership and an affiliate of Kohlberg Kravis Roberts & Co.

In connection with the Merger, the existing registration rights agreement,
as amended, among the Company and certain of its stockholders (the "1993
Registration Rights Agreement") was amended, among other things, (i) to grant to
the Partnership four demand and unlimited "piggyback" registration rights with
respect to the 4,836,260 shares of Common Stock issued to the Partnership
pursuant to the Merger and (ii) to provide that the 2,627,534 shares of Common
Stock issued to PTI pursuant to the GEPT Equity Investment, and the 262,753
shares of Common Stock issuable upon exercise of the Warrants, will be covered
by the demand and "piggyback" registration rights of GEHOP thereunder. A copy of
such amendment to the 1993 Registration Rights Agreement is filed herewith as
Exhibit 10.4 and is incorporated herein by reference.

Pursuant to the Merger, at the Effective Time, the Company, the
Partnership, Red Lion and certain affiliates of Red Lion entered into a
Partnership Services Agreement (the "Partnership Services Agreement") pursuant
to which the Company has agreed, upon request from the Partnership, to provide
certain support services to the Partnership in return for a fee. In addition,
the Company has agreed thereunder to guaranty, subject to defenses available to
Red Lion, the liabilities and obligations of Red Lion owed to the Partnership
and its affiliates arising out of or related to Red Lion's business. A copy of
Partnership Services Agreement is filed herewith as Exhibit 10.5 and is
incorporated herein by reference.

At the Effective Time, the Company also entered into a Guaranty of Lease
Obligations (the "Partnership Lease Guaranty") with Red Lion and RLH
Partnership, L.P. ("RLH"), a subsidiary of the Partnership, pursuant to which
the Company agreed to guaranty the obligations of Red Lion and its subsidiaries
owed to RLH and its partners and affiliates under a master lease relating to 17
hotel properties leased by RLH to Red Lion (the "Partnership Lease"). Copies of
the Partnership Lease Guaranty and the Partnership Lease are filed herewith as
Exhibits 10.6 and 10.7, respectively, and are incorporated herein by reference.

ITEM 5. OTHER EVENTS

On November 13, 1996, the Company issued a press release (a copy of which
is filed herewith as Exhibit 99.2 and is incorporated herein by reference),
announcing the appointment of Richard M. Kelleher as President and Chief
Executive Officer of the Company.

On the same date, the Company issued a second press release (a copy of
which is filed herewith as Exhibit 99.3 and is incorporated herein by
reference), announcing the appointment of William L. Perocchi as a director of
the Company, thereby increasing the size of the Board of Directors of the
Company to eleven members. Mr. Perocchi is the Executive Vice President, Chief
Financial Officer and Treasurer of the Company.
4

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial statements of businesses acquired.

The following financial statements of the acquired businesses referred
to in Item 2 above are filed as a part of this report:

Consolidated Balance Sheets of Red Lion Hotels, Inc. and its
subsidiaries at December 31, 1995 and September 30, 1996;

Consolidated Statements of Income of Red Lion Hotels, Inc. and its
subsidiaries for the ten months ended December 31, 1995, seven
months ended September 30, 1995 and nine months ended September
30, 1996;

Consolidated Statements of Stockholders' Equity of Red Lion
Hotels, Inc. and its subsidiaries for the ten months ended
December 31, 1995 and nine months ended September 30, 1996;

Consolidated Statements of Cash Flows of Red Lion Hotels, Inc. and
its subsidiaries for the ten months ended December 31, 1995, seven
months ended September 30, 1995 and nine months ended September
30, 1996;

Notes to above Consolidated Financial Statements of Red Lion
Hotels, Inc. and its subsidiaries;

Consolidated Balance Sheet of Red Lion, a California Limited
Partnership and its subsidiaries at December 31, 1994;

Consolidated Statements of Operations of Red Lion, a California
Limited Partnership and its subsidiaries for the years ended
December 31, 1994 and 1993 and the seven months ended July 31,
1995;

Consolidated Statements of Partners' Equity of Red Lion, a
California Limited Partnership and its subsidiaries for the years
ended December 31, 1994 and 1993 and the seven months ended July
31, 1995;

Consolidated Statements of Cash Flows of Red Lion, a California
Limited Partnership and its subsidiaries for the years ended
December 31, 1994 and 1993 and the seven months ended July 31,
1995; and

Notes to above Consolidated Financial Statements of Red Lion, a
California Limited Partnership and its subsidiaries.

(b) Pro forma financial information.

The following unaudited pro forma financial information of Doubletree
Corporation and its subsidiaries, relating to the Merger and the other
transactions described in Item 2 above, is filed as a part of this report:

Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1995 and the nine
months ended September 30, 1995 and September 30, 1996, assuming
the Merger and certain other transactions had occurred as of
January 1, 1995;

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996, assuming the Merger and certain other
transactions had occurred as of September 30, 1996; and

Notes to above Unaudited Pro Forma Condensed Consolidated
Financial Information.
5

2.1- Agreement and Plan of Merger dated as of September 12, 1996,
by and among Doubletree Corporation, RLH Acquisition Corp. and
Red Lion Hotels, Inc.

10.1 Securities Purchase Agreement dated as of October 31, 1996 by
and between the Company and the Trustees of General Electric
Pension Trust.

10.2 Warrants to purchase 262,753 shares of Common Stock of
Doubletree Corporation.

10.3 Credit Agreement dated as of November 8, 1996 by and among the
Company, Morgan Stanley Senior Funding, Inc., as syndication
agent and arranger thereunder, The Bank of Nova Scotia, as
administrative agent thereunder, and the lenders identified
therein.

10.4 Amendment No. 3 to the Incorporation and Registration Rights
Agreement dated as of November 8, 1996 by and among Doubletree
Corporation, GE Investment Hotel Partners I, Limited
Partnership, Metpark Funding Inc., The Ueberroth Family Trust,
Ueberroth Investment Trust, Richard J. Ferris, Ridge Partners,
L.P., Robert M. Solmson (for himself and as attorney-in-fact
for the RFS Shareholders, as defined therein), Canadian
Pacific Hotel Holdings (U.S.) Inc. and Red Lion, a California
Limited Partnership.

10.5 Partnership Services Agreement dated as of November 8, 1996 by
and among Doubletree Corporation, Red Lion Hotels, Inc., Red
Lion, a California Limited Partnership and the affiliates
thereof identified therein.

10.6 Guaranty of Lease Obligations dated as of November 8, 1996 by
and among Doubletree Corporation, Red Lion Hotels, Inc. and
RLH Partnership, L.P.

10.7 Master Lease dated August 1, 1995 between RLH Partnership,
L.P. and Red Lion Hotels, Inc.

99.1 Press Release of Doubletree Corporation dated November 8,
1996.

99.2 Press Release of Doubletree Corporation dated November 13,
1996.

99.3 Second Press Release of Doubletree Corporation dated November
13, 1996.
- ---------------
- - Incorporated by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated September 12, 1996.
6

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

DOUBLETREE CORPORATION

/s/ William L. Perocchi
--------------------------------------
William L. Perocchi
Executive Vice President, Chief
Financial Officer and Treasurer

Dated: November 21, 1996
7

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets of Red Lion Hotels, Inc. and its subsidiaries at December
31, 1995 and September 30, 1996..................................................... F-3
Consolidated Statements of Income of Red Lion Hotels, Inc. and its subsidiaries for
the ten months ended December 31, 1995, seven months ended September 30, 1995 and
nine months ended September 30, 1996................................................ F-4
Consolidated Statements of Stockholders' Equity of Red Lion Hotels, Inc. and its
subsidiaries for the ten months ended December 31, 1995 and nine months ended
September 30, 1996.................................................................. F-5
Consolidated Statements of Cash Flows of Red Lion Hotels, Inc. and its subsidiaries
for the ten months ended December 31, 1995, seven months ended September 30, 1995
and nine months ended September 30, 1996............................................ F-6
Notes to above Consolidated Financial Statements of Red Lion Hotels, Inc. and its
subsidiaries........................................................................ F-7
Independent Auditors' Report.......................................................... F-21
Consolidated Balance Sheet of Red Lion, a California Limited Partnership and its
subsidiaries at December 31, 1994................................................... F-23
Consolidated Statements of Operations of Red Lion, a California Limited Partnership
and its subsidiaries for the years ended December 31, 1994 and 1993 and the seven
months ended July 31, 1995.......................................................... F-24
Consolidated Statements of Partners' Equity of Red Lion, a California Limited
Partnership and its subsidiaries for the years ended December 31, 1994 and 1993 and
the seven months ended July 31, 1995................................................ F-25
Consolidated Statements of Cash Flows of Red Lion, a California Limited Partnership
and its subsidiaries for the years ended December 31, 1994 and 1993 and the seven
months ended July 31, 1995.......................................................... F-26
Notes to above Consolidated Financial Statements of Red Lion, a California Limited
Partnership and its subsidiaries.................................................... F-28
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended
December 31, 1995 and the nine months ended September 30, 1995 and September 30,
1996, assuming the Merger and certain other transactions had occurred as of January
1, 1995............................................................................. F-38
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996,
assuming the Merger and certain other transactions had occurred as of September 30,
1996................................................................................ F-42
Notes to above Unaudited Pro Forma Condensed Consolidated Financial Information....... F-43

F-1
8

INDEPENDENT AUDITORS' REPORT

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

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

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

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

Deloitte & Touche LLP
Portland, Oregon
February 24, 1996

F-2
9

RED LION HOTELS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 68,355 $ 18,706
Accounts receivable, net......................................... 19,709 23,436
Accounts receivable -- affiliates................................ 12,096 4,662
Inventories...................................................... 6,339 6,317
Prepaid expenses and other current assets........................ 5,461 4,250
Deferred income taxes............................................ 2,306 2,616
-------- --------
Total current assets..................................... 114,266 59,987
Property and Equipment, net........................................ 336,269 401,550
Investment in and Advances to Unconsolidated Joint Ventures........ 16,429 18,194
Goodwill, net...................................................... 21,508 32,197
Deferred Income Taxes.............................................. 6,571 2,098
Due from Affiliate................................................. 20,828 22,261
Other Assets, net.................................................. 11,049 11,420
-------- --------
$526,920 $547,707
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................. $ 23,618 $ 16,277
Accrued expenses................................................. 37,197 42,157
Current portion of long-term debt................................ 7,759 48,620
-------- --------
Total current liabilities................................ 68,574 107,054
Long-Term Debt, net of current portion............................. 215,608 164,686
Other Long-Term Obligations........................................ 11,169 11,697
Joint Venturers' Interest.......................................... 1,290 --
-------- --------
Total liabilities........................................ 296,641 283,437
-------- --------
Commitments and Contingencies (Notes 5 and 11)
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
0 shares issued and outstanding (unaudited)................... -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
31,315,000 shares issued and outstanding (unaudited).......... 313 313
Additional paid-in capital and net assets contributed............ 214,361 214,408
Retained earnings................................................ 15,605 49,549
-------- --------
Total stockholders' equity............................... 230,279 264,270
-------- --------
$526,920 $547,707
======== ========

See notes to consolidated financial statements.

F-3
10

RED LION HOTELS, INC.

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

SEVEN NINE
TEN MONTHS ENDED MONTHS ENDED
MONTHS ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
DECEMBER 31, 1995 (UNAUDITED) (UNAUDITED)
----------------- ------------------ ------------------

Revenues:
Rooms........................................ $ 115,370 $ 53,332 $ 236,017
Food and beverage............................ 72,711 26,351 120,278
Other........................................ 26,688 13,012 43,510
----------- ---------- -----------
Total revenues....................... 214,769 92,695 399,805
Operating Costs and Expenses:
Departmental direct expenses:
Rooms..................................... 28,723 11,805 57,419
Food and beverage......................... 54,181 19,791 94,349
Other..................................... 7,996 3,146 14,999
Property indirect expenses................... 43,668 17,241 84,004
Other costs.................................. 17,111 6,502 26,331
Depreciation and amortization................ 8,715 3,918 14,637
Payments due to owners of managed hotels..... 19,428 9,124 39,983
Expenses resulting from the Formation and
Offering.................................. 14,662 14,662 --
----------- ---------- -----------
Operating Income............................. 20,285 6,506 68,083
Equity in Earnings of Unconsolidated Joint
Ventures..................................... 685 271 1,277
Other Income (Expense):
Interest income.............................. 1,600 637 1,630
Interest expense............................. (9,707) (5,295) (13,396)
----------- ---------- -----------
Total other expense.................. (8,107) (4,658) (11,766)
----------- ---------- -----------
Income Before Joint Venturers' Interests..... 12,863 2,119 57,594
Joint Venturers' Interests..................... (1,365) (1,070) (1,354)
----------- ---------- -----------
Income Before Income Taxes................... 11,498 1,049 56,240
Income Tax Benefit (Expense)................... 4,107 8,287 (22,296)
----------- ---------- -----------
Net Income..................................... $ 15,605 $ 9,336 $ 33,944
=========== ========== ===========
Earnings Per Common Share...................... $ 1.00 $ 1.04 $ 1.08
=========== ========== ===========
Weighted Average Common Shares Outstanding..... 15,656,300 8,946,500 31,312,500
=========== ========== ===========

See notes to consolidated financial statements.

F-4
11

RED LION HOTELS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

ADDITIONAL
PAID-IN
COMMON STOCK CAPITAL AND
----------------- NET ASSETS RETAINED
SHARES AMOUNT CONTRIBUTED EARNINGS TOTAL
------ ------ ----------- -------- --------

Balance at February 28, 1995............. -- $ -- $ -- $ -- $ --
Net assets contributed................... 20,900 209 34,427 -- 34,636
Net proceeds from initial public
offering............................... 10,063 101 173,287 -- 173,388
Issuance of shares in conjunction with
termination of an incentive unit
plan................................... 350 3 6,647 -- 6,650
Net income............................... -- -- 15,605 15,605
------ ---- -------- ------- --------
Balance at December 31, 1995............. 31,313 313 214,361 15,605 230,279
Stock options exercised (unaudited)...... 2 -- 47 -- 47
Net income (unaudited)................... -- -- -- 33,944 33,944
------ ---- -------- ------- --------
Balance at September 30, 1996
(unaudited)............................ 31,315 $313 $214,408 $49,549 $264,270
====== ==== ======== ======= ========

See notes to consolidated financial statements.

F-5
12

RED LION HOTELS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SEVEN MONTHS NINE MONTHS
TEN MONTHS ENDED ENDED
ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
DECEMBER 31, 1995 (UNAUDITED) (UNAUDITED)
----------------- ------------------ ------------------

Cash Flows from Operating Activities:
Net income.................................................... $ 15,605 $ 9,336 $ 33,944
Adjustments to reconcile net income to cash provided by
operating activities:
Income attributable to joint venturers' interest............ 1,365 1,070 1,354
Distributions to joint venturers............................ (1,702) (830) (933)
Equity in earnings of unconsolidated joint ventures......... (685) (271) (1,277)
Depreciation and amortization............................... 8,715 3,918 14,637
Amortization of other assets................................ 1,092 763 969
Deferred income tax provision (benefit)..................... (8,877) (11,264) 4,163
Issuance of common stock in connection with termination of
the incentive unit plan................................... 6,650 6,650 --
Changes in assets and liabilities:
Accounts receivable....................................... (1,097) (1,451) (3,727)
Accounts receivable -- affiliates......................... (2,015) (3,591) 7,434
Inventories............................................... (413) (247) 22
Prepaid expenses and other current assets................. (427) (332) 1,211
Accounts payable, accrued expenses and other long-term
obligations............................................ 17,683 11,880 (3,143)
--------- ---------- --------
Net cash provided by operating activities.............. 35,894 15,631 54,654
--------- ---------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment, net....................... (16,499) (4,601) (80,259)
Additions to goodwill......................................... -- -- (11,236)
Net decrease (increase) in due from affiliates................ (8,017) 348 (1,433)
Net increase in other assets.................................. 4,153 (1,449) (452)
Net decrease (increase) in advances to and investments in
unconsolidated joint ventures............................... (3,271) 341 (1,118)
Distributions from unconsolidated joint ventures.............. 160 80 209
--------- ---------- --------
Net cash used in investing activities.................. (23,474) (5,281) (94,289)
--------- ---------- --------
Cash Flows from Financing Activities:
Cash received from contribution of assets..................... 10,480 10,480 --
Net proceeds from common stock issued in the Offering......... 173,388 177,279 --
Net proceeds from exercise of stock options................... -- -- 47
Proceeds from long-term borrowings............................ 135,000 135,000 9,000
Repayments of long-term borrowings............................ (256,467) (255,051) (19,381)
Increase in note payable...................................... 230 65 320
Increase in deferred loan costs............................... (6,696) (6,957) --
--------- ---------- --------
Net cash provided by (used in) financing activities.... 55,935 60,816 (10,014)
--------- ---------- --------
Net Increase (Decrease) in Cash and Cash Equivalents............ 68,355 71,166 (49,649)
Cash and Cash Equivalents at Beginning of Period................ -- -- 68,355
--------- ---------- --------
Cash and Cash Equivalents at End of Period...................... $ 68,355 $ 71,166 $ 18,706
========= ========== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest.................................................... $ 8,133 $ 1,732 $ 11,873
Income taxes................................................ 2,945 -- 16,155
Noncash Investing and Financing Activities:
Net assets (other than cash) contributed by Historical Red
Lion (Note 1), including property and equipment of
$327,928 and $45,006 (unaudited), long-term debt of
$344,500 and $45,000 (unaudited), investments in and
advances to unconsolidated joint ventures of $12,790 and
$0 (unaudited), other assets and amounts receivable from
affiliates of $54,644 and $859 (unaudited), other
long-term obligations of $7,396 and $0 (unaudited), joint
venturers' interests of $1,742 and $412 (unaudited),
current assets or $29,572 and $0 (unaudited) and current
liabilities of $47,140 and $546 (unaudited) for the ten
months ended December 31, 1995 and the seven months ended
September 30, 1995, respectively.......................... $ 24,156 $ 93 $ --

See notes to consolidated financial statements.

F-6
13

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

Red Lion Hotels, Inc. together with its subsidiaries ("Red Lion" or the
"Company") is a full service hospitality company operating 56 hotels in 10
western states. A typical Red Lion property is a full service hotel located in
close proximity to a business or commercial center, airport, major highway or
tourist destination. Red Lion hotels target the business traveler (both
individual and group) and compete primarily in the upscale segment of the
lodging industry.

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

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

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

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

Pursuant to the contribution agreement entered into between the Company and
the Partnership at the time of Formation, the Partnership exercised its right to
require the Company to purchase the Partnership's retained joint venture
interests. On September 12, 1996, the Company purchased the Partnership's joint
venture interests in seven joint ventures for approximately $1.3 million.

On September 12, 1996, the Company entered into an Agreement and Plan of
Merger ("Merger Agreement") with Doubletree Corporation ("Doubletree"), pursuant
to which the Company was acquired by Doubletree through the merger of a wholly
owned subsidiary with and into the Company. Consummation of the transaction was
completed during the fourth quarter of 1996 (refer to Note 14, subsequent
event).

Basis of Presentation

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

F-7
14

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for ten and seven months and the results of the other hotels and operations
contributed pursuant to the Formation for five and two months.

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

The accompanying consolidated financial statements for the seven months
ended September 30, 1995 reflect the results of the interest in the Santa
Barbara Joint Venture only for approximately five months. Beginning August 1,
1995, the consolidated financial statements reflect the results of the Formation
and Offering and full commencement of the Company's operations.

The consolidated financial statements include four joint ventures in which
the interests of the Company exceed 50%. In addition, the Company consolidates
one of its 50% owned joint ventures because the Company controls the joint
venture through contractual arrangements, has the majority of capital at risk
through its significant ownership percentage and has guaranteed 100% of the
joint venture's third party debt. The unconsolidated joint ventures, including
two 50% and one 10% owned joint venture, are accounted for on the equity method
of accounting.

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

Operating revenues, expenses and current assets and current liabilities of
the MLP and other management contract hotels (including the three unconsolidated
joint ventures which are also managed by the Company) are included in the
accompanying consolidated financial statements because the operating
responsibilities associated with these hotels are substantially the same as
those for owned hotels. The operating profit, net of management fee income
earned by the Company for managed hotels, is recorded as an expense in the
accompanying consolidated statements of income. The consolidated financial
statements include current assets and current liabilities of $9,933,000 and
$8,638,000 (unaudited) at December 31, 1995 and September 30, 1996,
respectively, and operating revenues of $73,685,000, $30,408,000 (unaudited) and
$143,897,000 (unaudited) and operating expenses of $49,263,000, $19,249,000
(unaudited) and $94,323,000 (unaudited) for the ten months ended December 31,
1995, seven months ended September 30, 1995 and nine months ended September 30,
1996, respectively, related to the operation of the MLP and other management
contract hotels.

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

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,

F-8
15

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

revenues and expenses and the disclosure of contingent assets and liabilities.
While management endeavors to make accurate estimates, actual results could
differ from estimates.

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

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, time
deposits, commercial paper and U.S. government and other short-term securities
with maturities of three months or less when purchased. The carrying amount
approximates fair value because of the short-term maturity of these instruments.
The balance at December 31, 1995 and September 30, 1996 includes commercial
paper of $6,991,000 and $0 (unaudited) and government obligations of $58,443,000
and $15,823,000 (unaudited), respectively.

Accounts Receivable

Accounts receivable are shown net of allowances for doubtful accounts of
$361,000 and $223,000 (unaudited) at December 31, 1995 and September 30, 1996,
respectively.

Inventories

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

Property and Equipment

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

SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

Land.................................................. $ 48,126 $ 56,032
Buildings and improvements............................ 321,940 369,159
Furnishings and equipment............................. 122,351 135,898
Construction in progress.............................. 14,834 19,735
--------- ---------
507,251 580,824
Accumulated depreciation.............................. (170,982) (179,274)
--------- ---------
$ 336,269 $ 401,550
========= =========

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

F-9
16

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

Building and improvements.................... 10 to 40 years
Furnishings and equipment.................... 5 to 15 years

Investment in and Advances to Unconsolidated Joint Ventures

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

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

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

DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------

ASSETS

Property and equipment, net............................. $ 35,263 $ 36,674
Goodwill, net........................................... 678 661
Deferred loan costs..................................... 541 559
-------- --------
$ 36,482 $ 37,894
======== ========

LIABILITIES AND PARTNERS' DEFICIT

Net working capital..................................... $ 1,741 $ 292
Long-term debt, excluding current portion............... 21,841 24,778
Company advances........................................ 27,384 27,720
Partners' deficit....................................... (14,484) (14,896)
-------- --------
$ 36,482 $ 37,894
======== ========

F-10
17

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TEN MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------

Revenues (payments from the Company representing gross
operating profit, net of management fees)............. $2,729 $7,793
Expenses (principally depreciation and interest on
outside debt and Company advances).................... 3,276 7,753
------ ------
Net..................................................... $ (547) $ 40
====== ======

Goodwill

Historical Red Lion acquired interests in certain hotels, motor inns and
supporting auxiliary enterprises in 1985. Goodwill resulted from the acquisition
and represents the excess of purchase price over the fair value of net assets
acquired. Goodwill relates primarily to the hotels contributed to the Company by
Historical Red Lion and is being amortized on a straight-line basis over its
estimated useful life of approximately 40 years. Amortization expense was
$301,000 and $548,000 (unaudited) for the ten months ended December 31, 1995 and
nine months ended September 30, 1996, respectively. Accumulated amortization
aggregated $7,219,000 and $7,767,000(unaudited) at December 31, 1995 and
September 30, 1996, respectively.

Deferred Loan Costs

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

Accrued Expenses

Accrued expenses include the following items (in thousands):

SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

Accrued payroll and related costs....................... $22,253 $21,500
Accrued interest........................................ 2,311 2,203
Other................................................... 12,633 18,454
------- -------
$37,197 $42,157
======= =======

Other Long-Term Obligations

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

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

F-11
18

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

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

Property Indirect Expenses

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

Other Costs

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

Payments Due to Owners of Managed Hotels

Payments due to owners of managed hotels is analogous to rent owed to
outside owners due to the nature of the management contracts and the control the
Company has over operations. The amounts shown in the consolidated statement of
income are net of management fee income of $4,994,000 and $9,340,000 (unaudited)
earned by the Company for the ten months ended December 31, 1995 and nine months
ended September 30, 1996, respectively.

Joint Venturers' Interests

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

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

Earnings per Share and Stock Options

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

Impairment of Long-Lived Assets

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

F-12
19

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from its fair value measured on a discounted cash flow basis. No impairment
losses were recorded for the ten months ended December 31, 1995 or the nine
months ended September 30, 1996.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

4. LONG-TERM DEBT AND CREDIT FACILITIES

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

SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

Term loan, LIBOR plus 2% (8.0% at December 31, 1995 and
7.7% at September 30, 1996) payable through 2002....... $133,750 $123,869
Mortgages, variable rates (7.0% - 8.3% at December 31,
1995 and 6.5% - 7.0% at September 30, 1996) payable
through 1998........................................... 84,900 84,418
Note payable, 8.69%, payable through 2022................ 4,717 5,019
-------- --------
223,367 213,306
Current portion of long-term debt........................ (7,759) (48,620)
-------- --------
Long-term debt, net of current portion................... $215,608 $164,686
======== ========

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

1997............................................. $ 48,620
1998............................................. 60,650
1999............................................. 20,000
2000............................................. 20,000
2001............................................. 29,500
Thereafter....................................... 34,536
--------
$213,306
========

The Company has available a $130 million credit line facility of which $80
million is available for acquisitions and $50 million is available for working
capital requirements. The credit line facility has a term of seven years. The
term loan and credit line facility (collectively the "Credit Facility") carry a
variable interest rate based on LIBOR plus 2% (8.0% at December 31, 1995 and
7.5% at September 30, 1996). Quarterly mandatory prepayments which increase over
the term of the Credit Facility are required. In addition, in

F-13
20

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

March of each year a mandatory prepayment of the Credit Facility is required in
an amount equal to 50% of annual excess cash flow (as defined in the credit
agreement) for the prior fiscal year. The $80.0 million available for
acquisitions is anticipated to be utilized by the Company to finance the
addition of hotels to the Red Lion chain through acquisitions, management
contracts, joint ventures or leases. At September 30, 1996, there was no
outstanding balance on the credit line facility. All debt and credit facilities
are secured by the hotels owned by the Company or by its joint venture
interests.

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

Interest Rate Swap Agreements

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

At December 31, 1995 and September 30, 1996, the Company had three interest
rate swap agreements outstanding which have substantially converted $75 million
of debt from floating LIBOR based rates to fixed rates ranging from 5.19% to
5.57%. The agreements expire from September 1997 to March 1998. Interest income
earned by the Company relating to interest rate swap agreements for the ten
months ended December 31, 1995 and nine months ended September 30, 1996, was
$215,000 and $49,000 (unaudited), respectively, and is included as an adjustment
to interest expense.

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

5. LEASES

Certain hotels are located on leased land. Certain leases contain rental
provisions and renewal options which are based on a percentage of revenues,
changes in the Consumer Price Index or changes in property values. All land
leases extend over the remaining estimated useful lives of the buildings
situated thereon. The Company also leases certain office space and equipment
under operating leases. The Company leases 17 hotels (Leased Hotels) from the
Partnership. The Leased Hotels are leased for an initial term of 15 years. The
Company may extend the lease on a hotel-by-hotel basis for five additional
five-year periods at comparable terms. Total land, office and equipment and
Leased Hotels rent expense was $6,676,000 and $12,588,000 (unaudited) for the
ten months ended December 31, 1995 and nine months ended September 30, 1996,
respectively. Future minimum rental payments required under land, office and
equipment leases and Leased Hotels for the five years subsequent to September
30, 1996 are as follows (in thousands and unaudited):

1997..................................... $ 16,479
1998..................................... 16,244
1999..................................... 16,061
2000..................................... 16,027
2001..................................... 15,997
Thereafter............................... 151,491
--------
$232,299
========

F-14
21

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution 401(k) retirement plan for all full
time, non-union employees who have completed one year of service and who have
attained the age of 21 years. Under the 401(k) plan, the Company contributes
amounts equal to each participant's elected contributions up to 6% of eligible
compensation. Pension expense under this plan was $723,000 and $2,033,000
(unaudited) for the ten months ended December 31, 1995 and nine months ended
September 30, 1996, respectively.

The Company also has a non-qualified supplemental employee retirement plan.
The SERP was designed to complement the 401(k) plan by restoring benefits
otherwise lost by certain employees due to the statutory limits in the 401(k)
plan. The pension expense under the SERP was $80,000 and $167,000 (unaudited)
for the ten months ended December 31, 1995 and nine months ended September 30,
1996, respectively.

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

SHARES UNDER OPTION PRICE
OPTION PER SHARE
------------ ------------------

Options outstanding at February 28, 1995............. -- --
Options granted, at fair market value on date of
grant.............................................. 2,250,833 $19.00 to $21.50
Options forfeited.................................... (15,000) $19.00
---------
Options outstanding at December 31, 1995............. 2,235,833 $19.00 to $21.50
Options granted, at fair market value on date of
grant (unaudited).................................. 170,000 $18.25 to $22.875
Options exercised (unaudited)........................ (2,500) $19.00
Options forfeited (unaudited)........................ (161,000) $19.00
---------
Options outstanding at September 30, 1996
(unaudited)........................................ 2,242,333 $18.25 to $22.875
=========

At December 31, 1995 and September 30, 1996, there were 696,667 and
1,171,208 (unaudited) options exercisable and 1,064,167 and 1,055,167
(unaudited) shares available for grant under the Incentive Plan, respectively.

7. RELATED PARTY TRANSACTIONS

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

Investments in and advances to unconsolidated joint ventures includes two
notes receivable from one joint venture in the amounts of $1,500,000 and
$2,009,000 at December 31, 1995 and $1,405,000 and $5,603,000 (unaudited) at
September 30, 1996. The notes bear interest at a fixed rate of 10.0% and prime
plus 1.0% (9.5% at December 31, 1995 and 9.25% at September 30, 1996),
respectively. The $1,405,000 note matures on November 21, 2003. The $5,603,000
note has an unspecified term and is to be repaid based on cash flow available
for distribution, as defined. In addition, other assets, net, includes a note
receivable from a joint venture partner in the amount of $1,628,000 and
$1,759,000 (unaudited) at December 31, 1995 and September 30, 1996,
respectively, which bears interest at a rate based on prime (10.5% at December
31, 1995 and 10.2% at September 30, 1996) and has an unspecified term with
repayment amounts based on cash flow available for distribution, as defined. In
addition, accounts receivable-affiliates includes $4,120,000 and

F-15
22

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2,821,000 (unaudited) at December 31, 1995 and September 30, 1996,
respectively, receivable from the management contract hotels and other related
parties other than Red Lion Inns Limited Partnership.

The Company leases the Leased Hotels from the Partnership. Annual lease
payments aggregate $15,000,000. Lease expense for the period from the Formation
through December 31, 1995 and for the nine months ended September 30, 1996
totaled $6,250,000 and $11,250,000 (unaudited), respectively.

Transactions with Red Lion Inns Limited Partnership

A wholly owned subsidiary of the Company serves as general partner and owns
1.99 percent of the MLP. The general partner is responsible for management and
administration of the MLP. In accordance with the partnership agreement, the MLP
reimburses the Company for related administrative costs.

Under a management agreement, the MLP pays base and incentive management
fees to the Company. Base management fees payable to the Company are equal to 3%
of the annual gross revenues of the MLP hotels. Incentive management fees
payable to the Company are equal to the sum of 15% of adjusted gross operating
profit up to $36 million (operating profit target) and 25% of adjusted gross
operating profit in excess of the operating profit target. Adjusted gross
operating profit is gross operating profit less base management fees.

Incentive management fees are only payable to the extent that cash flow
available for distributions and incentive management fees exceeds the amount
required to pay the annual priority distribution to the MLP's limited partners.
Cash flow is defined as pre-tax income (or loss) before noncash charges
(primarily depreciation and amortization) and incentive management fees, but
after the reserve for capital improvements and principal payments on certain
debt.

The Company also charges the MLP hotels for their pro rata share of support
services such as computer, advertising, public relations, promotional and sales
and central reservation services.

All MLP personnel are employees of the Company. All costs for services of
such employees are reimbursed to the Company by the MLP. These costs include
salaries, wages, payroll taxes and other employee benefits. Additionally,
auxiliary enterprises owned by the Company sell operating supplies, furnishings
and equipment to the MLP.

The aggregate amounts, excluding personnel related expenses, charged by the
Company to the MLP under the arrangements described above are as follows (in
thousands):

NINE MONTHS
TEN MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

Management fees....................................... $3,614 $6,906
Support services...................................... 1,732 5,211
Purchases from auxiliary enterprises.................. 6,064 8,691
General Partner administrative expenses............... 197 411

Included in accounts receivable-affiliates and due from affiliate is
$19,078,000 and $19,675,000 (unaudited) at December 31, 1995 and September 30,
1996, respectively, representing amounts receivable from the MLP primarily for
advances made by the Company and Historical Red Lion for capital improvements
which exceeded the 3% reserve established in accordance with the provisions of
the management agreement. Such amounts are presented net of current assets and
current liabilities related to the managed MLP hotels of $2,194,000 and
$2,490,000 (unaudited) at December 31, 1995 and September 30, 1996,
respectively. The current balance of $2,823,000 and $1,841,000 (unaudited) at
December 31, 1995 and September 30, 1996, respectively, is included in accounts
receivable-affiliates. The remaining balance of

F-16
23

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$16,255,000 and $17,834,000 (unaudited) at December 31, 1995 and September 30,
1996, respectively, is classified as due from affiliate. Amounts receivable from
the MLP earn interest at the rate of prime plus 0.5% (9.0% at December 31, 1995
and 8.75% at September 30, 1996).

Accounts receivable-affiliates and due from affiliate also include certain
other advances to and deferred incentive management fees receivable from the
MLP. A total of $3,726,000 was advanced to the MLP to fund distributions during
the first 36 months of the MLP's operations. The advance is non-interest
bearing, has an unspecified term and is to be repaid out of available cash flow
or refinancing proceeds. Additionally, non-interest bearing deferred incentive
management fees receivable of $6,000,000 were contributed to the Company in the
Formation. At December 31, 1995, $5,153,000 and $847,000 are classified as
accounts-receivable-affiliates and due from affiliate, respectively. The Company
received $5,299,000 (unaudited) of such fees during the nine months ended
September 30, 1996. The remaining balance of $701,000 (unaudited) is classified
as due from affiliate at September 30, 1996.

Summarized income statement information for the MLP is as follows (in
thousands and unaudited):

AUGUST 1 NINE MONTHS
THROUGH ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------

Revenues................................................ $16,884 $31,765
Net income.............................................. 2,364 4,146

Revenues of the MLP represent the gross operating profit (operating
revenues less operating expenses) of the MLP hotels as this amount is similar to
gross rent received from the Company to manage the hotels. As discussed in Note
1, the operating revenues and expenses of the MLP hotels are consolidated.
Consolidation of the operating revenues and expenses of the MLP does not affect
the Company's cash flow or net income except to the extent that management fees
were earned.

Summarized balance sheet information for the MLP, not included in the
accompanying consolidated balance sheets (including amounts due to the Company)
is as follows (in thousands and unaudited):

DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------

Cash.................................................... $ 229 $ 1,405
Noncurrent assets, primarily property and equipment..... 166,038 167,516
Current liabilities..................................... 29,094 24,917
Long-term obligations, net of current portion........... 117,266 126,600
Deferred income taxes................................... 1,673 2,010
Partners' equity........................................ 18,234 15,394

F-17
24

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

Income tax benefit (expense) consists of the following (in thousands):

NINE MONTHS
TEN MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

Current
Federal............................................... $(3,928) $(16,391)
State................................................. (842) (3,083)

Deferred
Federal............................................... 7,767 (2,257)
State................................................. 1,110 (565)
------- --------
Total tax benefit (expense)........................... $ 4,107 $(22,296)
======= ========

The effective tax rate varies from the statutory rate due to the following
(in thousands):

NINE MONTHS
TEN MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

Expected tax expense at federal statutory rates......... $(4,007) $(19,684)
Deferred income tax benefit due to the difference
between the book and tax bases of net assets
contributed........................................... 9,736 --
Nondeductible Formation and Offering Costs.............. (879) --
State income taxes...................................... (586) (2,812)
Other................................................... (157) 200
------- --------
Total tax benefit (expense)................... $ 4,107 $(22,296)
======= ========

Since Historical Red Lion was a partnership, no deferred tax benefits had
been provided on the net assets contributed to the Company. In accordance with
SFAS No. 109, "Accounting for Income Taxes," the Company recorded net deferred
tax assets of $1.2 million and $8.5 million related to the contribution of the
Santa Barbara Joint Venture and the Formation, respectively.

F-18
25

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the net deferred income tax assets are as follows (in
thousands):

SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -------------

DEFERRED TAX ASSETS:
Basis difference in joint ventures.................... $ 9,720 $ 9,900
Accrued expenses...................................... 5,851 5,153
Payroll related costs and other....................... 1,734 1,834
------- --------
Total deferred tax assets..................... 17,305 16,887

DEFERRED TAX LIABILITIES:
Basis difference in property and equipment............ (8,428) (12,173)
------- --------
Net deferred tax asset................................ $ 8,877 $ 4,714
======= ========
Net deferred tax assets are presented as follows (in
thousands):
Current deferred tax asset.............................. $ 2,306 $ 2,616
Noncurrent deferred tax asset........................... 6,571 2,098
------- --------
Net deferred tax asset........................ $ 8,877 $ 4,714
======= ========

9. INSURANCE PROCEEDS (UNAUDITED)

On February 8, 1996, three of the Company's hotels were evacuated due to
flooding in northwestern Oregon and southwestern Washington. Two of the hotels
were damaged by flood waters, have reopened and have been repaired. The third
hotel was undamaged and reopened quickly. As the Company maintains flood and
business interruption insurance, management does not believe that the ultimate
outcome will have a material adverse effect on the results of operations or
financial position of the Company. Moreover, as the Company's flood insurance
policy covers the replacement cost of the damaged property, insurance proceeds
will likely exceed the net book value of the underlying property, resulting in
the recognition of gains when such proceeds are received.

10. EXPENSES RESULTING FROM THE FORMATION AND OFFERING

Expenses resulting from the Formation and Offering include certain
Formation costs of $1,314,000 and expenses resulting from the Offering of
$11,348,000 and $2,000,000 related to the termination of an incentive unit plan
and assumption of the obligation of a supplemental income retirement agreement,
respectively, for the ten months ended December 31, 1995 and seven months ended
September 30, 1995.

11. COMMITMENTS AND CONTINGENCIES

At September 30, 1996, the Company had commitments relating to capital
improvement projects aggregating approximately $10,395,000 (unaudited).

In connection with the Formation, the Company agreed to indemnify the
Partnership with respect to any potential obligations arising out of the
transfer to the Company of certain assets and the assumption of certain
liabilities. Management is not aware of any such obligations.

The Company is party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a material
adverse effect, if any, on the Company's financial position, results of
operations or liquidity.

F-19
26

RED LION HOTELS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments and the
methods and assumptions used to estimate such fair values at December 31, 1995,
are as follows (in thousands):

CARRYING ESTIMATED
AMOUNT FAIR VALUE
--------- ----------

Accounts receivable-affiliates (Note 7)...................... $ 12,096 $ 11,990
Due from affiliate (Note 7).................................. 20,828 20,080
Long-term debt............................................... (223,367) (223,367)
Interest rate swaps.......................................... -- 24

The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and other long-term obligations is a
reasonable approximation of their fair value.

The carrying value of accounts receivable-affiliates approximates fair
value due to the short-term nature of the receivable. The carrying value of due
from affiliate includes non-interest bearing receivables at December 31, 1995
aggregating $4,573,000, as discussed in Note 7. The fair value of due from
affiliate is determined using estimated rates for similar notes, based on
anticipated repayment dates. Based on borrowing rates currently quoted by
financial institutions for debt with similar terms and remaining maturities, the
carrying value of long-term debt approximates fair value.

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

The quarterly results of the Company are not comparable since the quarter
ended June 30, 1995 only includes the operations of one joint venture
contributed by Historical Red Lion in March 1995. The quarter ended September
30, 1995 includes the operations of that joint venture for the quarter as well
as the results of the Company subsequent to the Formation. The quarter ended
December 31, 1995 was the first full quarter of operations subsequent to the
Formation. Summarized quarterly financial data are as follows (in thousands,
except share and per share amounts, room and occupancy statistics):

QUARTER ENDED
----------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1996 1996 1996
-------- ------------- ------------ ----------- ----------- -------------

Revenues................. $ 2,764 $ 89,274 $ 122,074 $ 120,650 $ 137,317 $ 141,838
Operating income......... $ 1,800 $ 4,290 $ 13,779 $ 14,384 $ 24,343 $ 29,356
Net income............... $ 220 $ 7,902 $ 6,269 $ 6,448 $ 12,388 $ 15,108
Earnings per share....... $ 2,200 $ 0.38 $ 0.20 $ 0.21 $ 0.40 $ 0.48
Weighted average common
shares outstanding..... 100 20,875,033 31,312,500 31,312,500 31,312,500 31,312,600
Occupancy percentage..... -- 80.7% 65.5% 66.6% 75.3% 79.3%
Average room rate........ $ -- $ 76.93 $ 73.51 $ 78.16 $ 81.12 $ 82.39

14. SUBSEQUENT EVENT (UNAUDITED)

Effective November 8, 1996, the Company became a wholly owned subsidiary of
Doubletree pursuant to a merger transaction in which a wholly owned subsidiary
of Doubletree was merged with and into the Company. The purchase price for
acquisition of all of the outstanding common stock of the Company was paid in a
combination of approximately $688 million of cash and approximately 7.4 million
shares of Doubletree common stock.

F-20
27

INDEPENDENT AUDITORS' REPORT

To the Partners of Red Lion, a California Limited Partnership:

We have audited the accompanying consolidated statements of operations,
partners' equity and cash flows of Red Lion, a California Limited Partnership
("Historical Red Lion"), and subsidiaries for the seven month period ended July
31, 1995. These financial statements are the responsibility of Historical Red
Lion's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Historical Red Lion and subsidiaries for the seven month period ended
July 31, 1995, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Portland, Oregon
February 24, 1996

F-21
28

INDEPENDENT AUDITORS' REPORT

To the Partners of Red Lion, a California Limited Partnership:

We have audited the accompanying consolidated balance sheet of Red Lion, a
California Limited Partnership ("Historical Red Lion"), and subsidiaries as of
December 31, 1994, and the related consolidated statements of operations,
partners' equity and cash flows for each of the two years in the period ended
December 31, 1994. These financial statements are the responsibility of
Historical Red Lion's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Historical
Red Lion and subsidiaries as of December 31, 1994, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, Historical
Red Lion has given retroactive effect to the changes in accounting for their
investment in two joint ventures and its accounting for joint venturers'
interests. Also, as discussed in Note 1 to the consolidated financial
statements, effective January 1, 1993, Historical Red Lion changed their
accounting method for measuring impairment of hotel properties.

ARTHUR ANDERSEN LLP

Portland, Oregon
February 7, 1995

F-22
29

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(In thousands)

DECEMBER 31,
1994
------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 27,804
Short-term debt securities.................................................... 40,891
Accounts receivable, net...................................................... 17,486
Accounts receivable, affiliates............................................... 13,138
Inventories................................................................... 6,361
Prepaid expenses and other current assets..................................... 3,729
--------
Total current assets.................................................. 109,409
--------
PROPERTY AND EQUIPMENT, NET..................................................... 514,807
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES..................................... 14,281
OTHER ASSETS:
Goodwill, net................................................................. 36,453
Other, net.................................................................... 18,394
--------
Total assets.......................................................... $693,344
========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 19,290
Accrued expenses.............................................................. 33,007
Current portion of long-term debt............................................. 108,358
--------
Total current liabilities............................................. 160,655
--------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION..................................... 388,944
OTHER LONG-TERM OBLIGATIONS................................................... 7,682
JOINT VENTURERS' INTEREST..................................................... 905
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4 & 5)
PARTNERS' EQUITY.............................................................. 135,158
--------
Total liabilities and partners' equity................................ $693,344
========

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

F-23
30

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)

YEARS ENDED DECEMBER
SEVEN MONTHS 31,
ENDED JULY 31, ---------------------
1995 1994 1993
-------------- -------- --------

REVENUES:
Rooms................................................. $161,834 $257,699 $242,193
Food and beverage..................................... 92,570 159,154 156,242
Other................................................. 27,802 46,035 41,582
-------- -------- --------
Total revenues................................ 282,206 462,888 440,017
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Departmental direct expenses:
Rooms.............................................. 39,670 64,121 60,785
Food and beverage.................................. 73,269 124,070 123,518
Other.............................................. 10,592 17,586 16,935
Property indirect expenses............................ 60,342 99,673 95,118
Other costs........................................... 10,787 19,570 18,346
Depreciation and amortization......................... 17,053 31,313 31,144
Payments due to owners of managed hotels.............. 32,073 42,841 41,722
-------- -------- --------
OPERATING INCOME........................................ 38,420 63,714 52,449
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES..... 1,614 1,327 1,213
OTHER EXPENSE:
Interest expense, net................................. (20,316) (32,737) (30,065)
Loss on sale of property.............................. -- -- (1,701)
-------- -------- --------
Total other expense........................... (20,316) (32,737) (31,766)
-------- -------- --------
INCOME BEFORE JOINT VENTURERS' INTERESTS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE........................... 19,718 32,304 21,896
JOINT VENTURERS' INTERESTS.............................. 411 (1,321) (323)
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.... 20,129 30,983 21,573
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(NOTE 1).............................................. -- -- (29,878)
-------- -------- --------
NET INCOME (LOSS)....................................... $ 20,129 $ 30,983 $ (8,305)
======== ======== ========

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

F-24
31

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND SEVEN MONTHS ENDED JULY 31, 1995
(In thousands)

PARTNERS' ACCUMULATED
CAPITAL DEFICIT TOTAL
--------- ----------- --------

BALANCE, December 31, 1992................................ $180,000 $(67,520) $112,480
Net loss.................................................. -- (8,305) (8,305)
-------- -------- --------
BALANCE, December 31, 1993................................ 180,000 (75,825) 104,175
Net income................................................ -- 30,983 30,983
-------- -------- --------
BALANCE, December 31, 1994................................ 180,000 (44,842) 135,158
Net income................................................ -- 20,129 20,129
-------- -------- --------
BALANCE, July 31, 1995.................................... $180,000 $(24,713) $155,287
======== ======== ========

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

F-25
32

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, --------------------
1995 1994 1993
------------ -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 20,129 $ 30,983 $ (8,305)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change................ -- -- 29,878
Loss on sale of property.............................. -- -- 1,701
Income attributable to joint venturers' interests..... (411) 1,321 323
Equity in earnings of unconsolidated joint ventures... (1,614) (1,327) (1,213)
Depreciation and amortization......................... 16,316 31,313 31,144
Amortization of other assets (principally deferred
loan costs)......................................... 737 1,927 1,612
Decrease (increase) in accounts receivable, net....... (1,185) (2,217) 72
Increase in accounts receivable, affiliates........... (1,441) (1,545) (6,253)
Decrease (increase) in inventories.................... 435 (520) 714
Decrease (increase) in prepaid expenses and other
current assets...................................... (1,305) 89 (249)
Increase (decrease) in accounts payable, accrued
expenses and other long-term obligations............ (4,548) 4,920 5,139
-------- -------- --------
Total adjustments........................................ 6,984 33,961 62,868
-------- -------- --------
Net cash provided by operating activities........ 27,113 64,944 54,563
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................... (15,858) (23,959) (20,002)
Proceeds from sale of property and equipment............. -- -- 1,190
Distributions to joint venturers......................... (252) (1,241) (467)
Purchase of short-term debt securities................... (19,694) (44,307) --
Proceeds from sales of short-term debt securities........ 60,585 3,416 --
Other investing activities, net.......................... 1,751 72 1,911
-------- -------- --------
Net cash (used in) provided by investing
activities..................................... 26,532 (66,019) (17,368)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings....................... $ 1,223 $ 1,892 $ 50,430
Net increase (decrease) in revolving lines of credit..... -- 72,000 (14,148)
Repayment of long-term debt.............................. (13,839) (45,523) (71,550)
Other financing activities............................... -- (768) (2,053)
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (12,616) 27,601 (37,321)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 41,029 26,526 (126)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 27,804 1,278 1,404
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 68,833 $ 27,804 $ 1,278
======== ======== ========

F-26
33

HISTORICAL RED LION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(In thousands)

SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, --------------------
1995 1994 1993
-------- -------- --------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest,
net of capitalized portion............................ $ 23,633 $ 28,368 $ 26,738
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property for noncash consideration........... $ -- $ -- $ 1,500

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

F-27
34

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Red Lion, a California Limited Partnership ("Historical Red Lion"),
acquired interests in certain hotels, motor inns and supporting auxiliary
enterprises on April 10, 1985, which were previously operating as Red Lion Inns
and Thunderbird Motor Inns. One of the previous principal owners contributed his
ownership interests in exchange for a limited partnership interest in Historical
Red Lion.

On April 14, 1987, Historical Red Lion sold its interest in 10 hotels to
Red Lion Inns Limited Partnership, a publicly traded limited partnership (the
"MLP"). Red Lion Properties, Inc., a wholly-owned subsidiary of Historical Red
Lion, is the general partner of the MLP. Since completion of this sale, the
MLP's limited partners have had an effective 98.01% ownership interest in the
hotels with the general partner retaining the remaining 1.99% ownership
interest. Historical Red Lion operates the MLP's hotels under a management
agreement.

Basis of Presentation

The accompanying consolidated financial statements include Historical Red
Lion, its wholly-owned subsidiaries and five of its seven partially owned joint
ventures. Historical Red Lion consolidates those entities which it controls.
Historical Red Lion is the managing general partner, controls and owns 75
percent, 66.67 percent, 66.67 percent, 51 percent and 50 percent of the joint
venture interests of the five consolidated joint ventures. Historical Red Lion
consolidates one of its 50 percent owned joint ventures because Historical Red
Lion controls the joint venture through contractual arrangements, has the
majority of capital at risk through its significant ownership percentage and has
guaranteed 100 percent of the joint venture's third party debt. The remaining
two joint ventures are accounted for using the equity method of accounting. Each
of the seven joint ventures is a single purpose venture whose only business is
the operation of one Red Lion hotel.

Operating revenues and expenses and current assets and current liabilities
of the MLP and other management contract hotels (including the two
unconsolidated joint ventures which are also managed by Historical Red Lion) are
included in the accompanying consolidated financial statements because the
operating responsibilities associated with these hotels are substantially the
same as those for owned hotels. The operating profit net of management fee
income for managed hotels is recorded as an expense in the accompanying
consolidated statements of operations. The consolidated financial statements
also include the following amounts related to managed hotels (including the two
unconsolidated joint ventures which are also managed by Historical Red Lion):
current assets and current liabilities of $8,121,000 at December 31, 1994;
operating revenues of $155,668,000, $166,283,000 and $110,684,000 for the years
ended December 31, 1993 and 1994 and for the seven month period ended July 31,
1995, respectively; and operating expenses of $107,801,000, $113,131,000 and
$72,216,000 for the years ended December 31, 1993 and 1994 and for the seven
month period ended July 31, 1995, respectively.

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

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

F-28
35

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, certificates
of deposit, time deposits and U.S. government and other short-term securities
with maturities of three months or less when purchased. The carrying amount
approximates fair value because of the short term maturity of these instruments.

Short-Term Debt Securities

Short-term debt securities include treasury bills, commercial paper and
other short-term debt securities with maturities greater than three months when
purchased. All of these securities mature within ten months from December 31,
1994. As the securities are actively traded, Historical Red Lion has classified
these investments as trading securities and these securities are recorded at
market which approximated cost at December 31, 1994.

Accounts Receivable

Accounts receivable are shown net of allowances for doubtful accounts of
$357,000 at December 31, 1994 and approximate fair value.

Inventories

Property and Equipment

Property and equipment consist of the following at December 31, 1994 (in
thousands):

Land............................................................. $ 70,579
Buildings and improvements....................................... 500,922
Furnishings and equipment........................................ 183,506
Construction in progress......................................... 7,878
---------
762,885
Less allowance for depreciation and amortization................. (248,078)
---------
$ 514,807
=========

Additions and improvements are capitalized at cost, including interest
costs incurred during construction. There was no capitalized interest during the
seven month period ended July 31, 1995, or during each of the two years ended
December 31, 1994. Normal repairs and maintenance are charged to expense as
incurred. Upon the sale or retirement of property and equipment, the cost and
related accumulated depreciation and amortization are removed from the
respective accounts and the resulting gain or loss, if any, is included in
income.

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

Depreciation and amortization of property and equipment were computed on a
straight-line basis using the following estimated useful lives:

Buildings....................................................... 40 years
Improvements.................................................... 10-15 years
Furnishings and equipment....................................... 3-15 years

F-29
36

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective January 1, 1993, Historical Red Lion prospectively changed the
estimated useful lives of its buildings to 40 years from lives averaging 32
years. The change was made to align building lives with actual experience and
common industry practice. The effect of the change was to decrease depreciation
expense for 1993 by approximately $2,600,000.

Effective January 1, 1993, Historical Red Lion changed its accounting
method for measuring impairment of hotel properties from using undiscounted
future cash flows to discounted future cash flows. Historical Red Lion made this
change because it believes this is a preferable method of measuring impairment
of hotel properties. As a result of this change, the 1993 consolidated financial
statements include a reduction in the carrying value of one hotel of $29,878,000
reflected as a cumulative effect of accounting change in the accompanying
consolidated statements of operations for the year ended December 31, 1993. The
reduction in depreciation expense as a result of this change was $994,000 in
1993.

Investment in Unconsolidated Joint Ventures

Historical Red Lion is a partner in two joint ventures that are accounted
for on the equity method of accounting. Historical Red Lion's equity in and
advances to these joint ventures are shown under the caption "Investment in
Unconsolidated Joint Ventures" in the accompanying consolidated balance sheets.
Because Historical Red Lion manages these joint ventures, they are accounted for
as managed hotels, and therefore, the operating working capital of the hotels
are consolidated in the accompanying consolidated balance sheets.

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

Summarized financial information for the unconsolidated joint ventures,
excluding the working capital and operating revenues and expenses which are
consolidated in Historical Red Lion's consolidated financial statements, is as
follows (in thousands and unaudited):

DECEMBER 31,
1994
------------

ASSETS
Total current assets............................................ $ 470
Property and equipment, net..................................... 24,161
Goodwill, net................................................... 701
Other assets.................................................... 68
--------
$ 25,400
========
LIABILITIES AND PARTNERS' DEFICIT
Total current liabilities....................................... $ 1,076
Long-term debt, excluding current portion....................... 8,913
Historical Red Lion advances.................................... 26,973
Partners' deficit............................................... (11,562)
--------
$ 25,400
========

F-30
37

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -----------------
1995 1994 1993
------------ ------ ------

Revenues (payments from Historical Red Lion
representing gross operating profit)....... $4,533 $6,642 $5,831
Expenses (principally depreciation and
interest on outside debt and Historical
Red Lion advances)......................... 4,484 6,850 5,817
------ ------ ------
Net income (loss)............................ $ 49 $ (208) $ 14
====== ====== ======

Goodwill

Goodwill resulted from the April 10, 1985 acquisition and represents the
excess of purchase price over the net fair value of assets acquired and is being
amortized on a straight-line basis over 40 years. Accumulated amortization was
$11,177,000 at December 31, 1994. Management evaluates its accounting for
goodwill impairment, considering such factors as historical and future
profitability, annually, or more frequently when events or changes in
circumstances indicate that the carrying amount of goodwill may not be
recoverable. To perform that review, the Company estimates the sum of expected
future discounted cash flows from operating activities. If the estimated net
cash flows are less than the carrying amount of goodwill, the Company will
recognize an impairment loss in an amount necessary to write down goodwill to a
fair value as determined from expected future discounted cash flows. Management
believes that the goodwill at December 31, 1994 is realizable and the
amortization period is appropriate.

Deferred Loan Costs

Deferred loan costs are included in other assets, net and represent prepaid
mortgage financing fees which are amortized over the life of the associated
mortgages.

Other Assets

Other assets include approximately $2.7 million of costs incurred through
December 31, 1994 related to the initial public offering. This amount was
contributed to Red Lion Hotels, Inc. and netted against the proceeds of such
initial public offering.

Accrued Expenses

Accrued expenses include the following items at December 31, 1994 (in
thousands):

Accrued payroll and related costs.................................. $20,682
Accrued interest................................................... 2,676
Other.............................................................. 9,649
-------
$33,007
=======

Insurance Reserves

Historical Red Lion provides for the uninsured costs of medical, property,
liability and workers compensation claims. Such costs are estimated each year
based on historical claim data relating to operations conducted through December
31, 1994. The long-term portion of accrued claims costs relate primarily to
general liability and workers compensation claims and are reflected in other
long-term obligations in the accompanying consolidated balance sheets.

F-31
38

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

Historical Red Lion is a limited partnership. Accordingly, no provision is
made for income taxes as taxes on income are the responsibility of the partners.
The allocation of taxable income or loss and depreciation expense to each
partner is based on the terms of the partnership agreement.

Property Indirect Expenses

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

Other Costs

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

Payments Due to Owners of Managed Hotels

"Payments due to owners of managed hotels" is analogous to rent owed to
outside owners due to the nature of the management contracts and the control
Historical Red Lion has over operations. The amounts shown on the statements of
operations are net of management fee income of $6,145,000 and $10,311,000 for
1993 and 1994, respectively, and $6,395,000 for the seven month period ended
July 31, 1995.

Joint Venturers' Interests

Historical Red Lion is a partner in seven joint ventures, each of which
owns a separate hotel. The assets and liabilities of five of the seven joint
ventures are fully consolidated in the accompanying financial statements. The
other joint ventures are accounted for on the equity method of accounting (see
Investment in Unconsolidated Joint Ventures above). The assets and liabilities
attributable to joint venturers' interests existing at the date of the April 10,
1985 acquisition were valued at historical amounts and were not revalued to
reflect appraised values at that date. The caption "joint venturers' interests"
represents the net equity attributable to the joint venturers' interests,
including their share of income, losses, distributions and contributions.

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

Prior Year Restatements

In 1994, Historical Red Lion retroactively changed two of its accounting
principles for all years presented in the accompanying consolidated financial
statements as follows:

- In prior years, Historical Red Lion generally absorbed losses
attributable to other joint venturers' interests once the equity of
the other joint venturer was reduced to zero. However, certain
distributions and losses attributable to other joint venturers'
interests were not absorbed by Historical Red Lion if such amounts
were deemed recoverable from the fair value of the joint ventures'
assets. Accordingly, these distributions and losses were reflected
as joint ventures' interests in the consolidated balance sheets. In
1994, Historical Red Lion changed its accounting policy to absorb
all losses and distributions to outside joint venturers once a
partner's equity has been reduced to zero. Historical Red Lion
changed its accounting policy for joint ventures'

F-32
39

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest to more closely align with the accounting treatment
discussed in Emerging Issues Task Force No. 94-2 issued in 1994.
This change decreased income before cumulative effect of accounting
change by $515,000 for the year ended December 31, 1993. The change
also increased accumulated deficit at December 31, 1991 by
approximately $11.8 million.

- Two of Historical Red Lion's 50 percent owned joint ventures, which
had been previously consolidated, are now accounted for on the
equity method. Historical Red Lion's five other joint ventures
continue to be consolidated in the accompanying financial
statements. There was no effect of this change on net income or
partners' equity in any year.

Prior Year Reclassifications

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

2. LONG-TERM DEBT

Long-term debt at December 31, 1994 consists of the following (in
thousands):

Mortgages, secured by hotel properties, variable rates, 7.13% to
10%, payable in varying installments through 1999............... $390,750
Mortgages, secured by hotel properties, fixed rates, 8.75% to 11%,
payable in varying installments through 2008.................... 4,211
Note payable, fixed rate, 8.69%, payable through 2022............. 4,341
Bank revolving credit lines, unsecured............................ --
Term loan, unsecured, variable rate, 8.06%, payable through
1997............................................................ 98,000
--------
497,302
Current portion of long-term debt................................. (108,358)
--------
Long-term debt, excluding current portion............... $388,944
========

The annual principal requirements for the five years subsequent to December
31, 1994 are as follows (in thousands):

1995............................................................ $108,358
1996............................................................ 110,328
1997............................................................ 215,120
1998............................................................ 46,992
1999............................................................ 15,298
Thereafter...................................................... 1,206
--------
$497,302
========

The current portion of long-term debt at December 31, 1994 includes $87
million related to balloon payments on four mortgages which are due in 1995.
Management believes that these maturities can be satisfied from existing or
future financing resources.

Loan Extension Options

The above presentation of principal payments due for each of the five years
subsequent to December 31, 1994 and thereafter reflects Historical Red Lion's
plan to exercise certain options under the existing loan agreements to extend
the due dates of various loans.

F-33
40

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revolving Credit Lines and Term Loan

At December 31, 1993, Historical Red Lion had two revolving credit line
facilities, with a combined total amount available of $105 million, of which
$32,218,000 was outstanding, including amounts due under the cash management
system.

Historical Red Lion's primary credit agreement provided a $100 million
three-year revolving credit line with variable interest rates that varied, at
Historical Red Lion's option, on the bank's prime rate, certificate of deposit
rate or the London Interbank Offering Rate (LIBOR). The weighted average
interest rate for 1993 was 5.4%, with the rate at December 31, 1993, equal to
5.3%. At December 31, 1993, $26 million was outstanding under this line.

The credit agreement, with the same interest rate options, converted to a
three-year term loan on September 1, 1994. At December 31, 1994, $98 million was
outstanding under this term loan. Quarterly principal payments, equal to 2% of
the term loan balance as of September 1, 1994, will be required through 1997 at
which time the remaining principal balance will be due and payable. The weighted
average interest rate for 1994 was 6.92% with the rate at December 31, 1994
equal to 8.06%. Historical Red Lion must maintain, among other things, certain
financial covenants over the term of the loan. As of December 31, 1994,
Historical Red Lion was in compliance with these covenants.

Historical Red Lion also had a $5 million line of credit which was
terminated in 1994.

Historical Red Lion had outstanding letters of credit of $10,762,000 at
December 31, 1994. These letters of credit are unsecured.

Interest Rate Swap Agreements

Historical Red Lion enters into interest rate swap agreements in order to
lessen its exposure to interest rate changes. The agreements have effectively
converted floating rate debt, which is tied to LIBOR, to fixed rate debt. The
interest cost relating to interest rate swap agreements for the years ended
December 31, 1993 and 1994 was $1,345,000 and $743,000, respectively, and
interest income for the seven months ended July 31, 1995 was $353,000.

At December 31, 1994, Historical Red Lion had three interest rate swap
agreements outstanding which have substantially converted $75 million of debt
from floating LIBOR based rates to all-in fixed rates ranging from 7.01% to
7.39% in 1994. The terms of the agreements range from four and one half to five
years.

These agreements are with major commercial banks and the exposure to a
credit loss in the event of nonperformance by the banks is minimal.

Disclosures About Fair Value of Financial Instruments

Based on the borrowing rates currently quoted by financial institutions for
bank loans with terms and maturities similar to Historical Red Lion's long-term
debt, the carrying value of such debt approximates its fair value. Based on
quotes obtained from dealers, Historical Red Lion would have had a gain of
approximately $5,375,000 to settle the interest rate swap agreements at December
31, 1994.

3. LEASES

Certain Historical Red Lion hotels are located on leased land. Two of these
leases contain rental provisions which are based on a percentage of revenues.
All land leases extend over the remaining useful lives of the buildings situated
thereon. Historical Red Lion also leases certain office space and equipment
under operating leases. Total land, office and equipment rent expense was
$1,252,000 and $1,350,000 for the years ended December 31, 1993 and 1994,
respectively and $961,000 for the seven months ended July 31, 1995.

F-34
41

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum rental payments subsequent to December 31, 1994 required
under land, office and equipment leases are as follows (in thousands).

1995............................................................... $ 975
1996............................................................... 945
1997............................................................... 898
1998............................................................... 721
1999............................................................... 668
Thereafter......................................................... 12,786
-------
$16,993
=======

4. EMPLOYEE BENEFIT PLANS

Historical Red Lion has a defined contribution 401(k) retirement plan for
all full time, non-union employees who have completed one year of service and
who have attained the age of 21 years.

Under the 401(k) plan, Historical Red Lion contributes amounts equal to
each participants' elected contributions up to 6% of eligible compensation.
Pension expense under this plan was $1,670,000 and $1,758,000 for the years
ended December 31, 1993 and 1994, respectively, and $1,338,000 for the seven
months ended July 31, 1995.

Historical Red Lion also has a non-qualified supplemental employee
retirement plan ("SERP"). The SERP was designed to complement the 401(k) plan by
restoring participants' benefits otherwise lost by certain employees due to the
statutory limits in the 401(k) plan. The pension expense under the SERP was
$287,000 and $322,000 for the years ended December 31, 1993 and 1994,
respectively, and $126,000 for the seven months ended July 31, 1995.

Certain management employees are participants in an incentive unit plan.
Participation units are awarded at the discretion of Historical Red Lion's
general partner. No units have been awarded since 1991. Awarded units vest five
years after the award date and are payable five years after vesting or earlier
under certain circumstances. Unit values are determined by various formulas tied
to cash flow, as defined, and appreciation in value of Historical Red Lion and
partners' equity. No accrual for this plan was required for the years ended
December 31, 1993 or 1994, or the seven month period ended July 31, 1995.

The Chief Executive Officer of Historical Red Lion has an incentive
compensation agreement, the value of which is tied to the increase, if any, in
the value of Historical Red Lion's partners' equity. No accrual for this
agreement was required for the years ended December 31, 1993 or 1994, or the
seven month period ended July 31, 1995.

5. COMMITMENTS AND CONTINGENCIES

At December 31, 1994, Historical Red Lion had commitments, relating to
capital improvement projects, of $7,994,000.

Historical Red Lion is party to litigation arising in the ordinary course
of business. In the opinion of management, these actions will not have a
material adverse effect, if any, on Historical Red Lion's financial position,
results of operations or liquidity.

6. RELATED PARTY TRANSACTIONS

At December 31, 1994, other assets, net, include $1,483,000 of interest
bearing notes receivable from a joint venturer.

F-35
42

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other significant related party transactions are discussed in Notes 1 and
7.

7. TRANSACTIONS WITH RED LION INNS LIMITED PARTNERSHIP

As discussed in Note 1, Red Lion Properties, Inc. ("Properties"), a
wholly-owned subsidiary of Historical Red Lion, serves as general partner and
owns 1.99% of the MLP.

Historical Red Lion manages the MLP hotels pursuant to a management
agreement and receives a base management fee equal to 3% of annual gross
revenues plus an incentive management fee based on adjusted gross operating
profit, as defined in the management agreement. The management agreement, which
began in 1987, has a seventy-five year term including renewal options.
Historical Red Lion also charges the MLP hotels for their pro rata share of
support services such as computer, advertising, public relations, promotional
and sales and central reservation services.

All the MLP personnel are employees of Historical Red Lion and its
affiliates. Additionally, auxiliary enterprises owned by Historical Red Lion
sell operating supplies, furnishings and equipment to the MLP. In the opinion of
management, sales to the MLP by the auxiliary enterprises were made at prices
and terms which approximate arms-length transactions.

The aggregate amounts, excluding personnel related expenses, charged to the
MLP under the arrangements described above were as follows (in thousands):

SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -----------------
1995 1994 1993
------------ ------ ------

Management fees...................................... $4,956 $7,456 $4,029
Support services..................................... 2,409 3,778 3,653
Purchase from auxiliary enterprises.................. 5,184 9,513 9,409

Incentive management fees are subordinate to distributions by the MLP to
facilitate current payment of distributions to the limited partners. The
subordinated fees accrue without interest up to a maximum amount of $6 million.
This ceiling was reached in 1988 and, because management does not anticipate it
will be paid during 1995, such amount has been classified as non-current under
the caption other assets, net, in the consolidated balance sheet at December 31,
1994.

At December 31, 1994, other assets, net, include $3,726,000 which
Properties advanced to the MLP under a $4 million credit facility made available
to facilitate cash distributions to partners during the MLP's first 36 months of
operations. The amount outstanding under this facility will be repaid to
Historical Red Lion out of either (i) cash flow after payment of priority
distributions and incentive management fees or (ii) sale or refinancing proceeds
prior to any distribution to limited partners.

In addition to the incentive management fee and general partner loan
discussed above, Historical Red Lion was due $13,482,000 from the MLP for
services, payroll funding and capital expenditure funding provided as of
December 31, 1994. These amounts are included in accounts receivable, affiliates
in the consolidated balance sheet, net of working capital related to the managed
MLP hotels of $1,160,000, at December 31, 1994.

F-36
43

HISTORICAL RED LION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized income statement information for MLP is as follows (in
thousands):

SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -------------------
1995 1994 1993
------------ ------- -------

Revenues........................................... $22,258 $35,620 $32,511
======= ======= =======
Income before cumulative effect of change in
accounting principle............................. 2,153 2,929 3,206
Cumulative effect of change in accounting for
income taxes..................................... -- -- (1,351)
------- ------- -------
Net income......................................... $ 2,153 $ 2,929 $ 1,855
======= ======= =======

Revenues of the MLP represent the gross operating profit (operating
revenues less operating expenses) of the MLP hotels as this amount is similar to
gross rent received from Historical Red Lion to manage the hotels. As discussed
in Note 1, the operating revenues and expenses of the MLP hotels are
consolidated in Historical Red Lion's consolidated financial statements.

Consolidation of the operating revenues and expenses of the MLP does not
affect Historical Red Lion's cash flow or net income except to the extent that
management fees were paid.

Summarized balance sheet information for the MLP, not included in the
accompanying consolidated balance sheet (including amounts due from and owed to
Historical Red Lion) is as follows (in thousands):

DECEMBER 31,
1994
------------

Cash.................................................... $ --
Noncurrent assets, primarily property and equipment..... 165,205
Current liabilities..................................... 17,343
Long-term obligations, net of current portion........... 123,430
Deferred income taxes................................... 1,401
Partners' equity........................................ 23,031

8. LOSS ON SALE OF PROPERTY

During 1993, Historical Red Lion recorded a loss of $1,701,000 which
resulted from the sale of excess land and other assets.

9. SUBSEQUENT EVENTS (UNAUDITED)

On August 1, 1995, Historical Red Lion contributed substantially all of its
assets (excluding 17 hotels (the "Leased Hotels"), certain minority joint
venture interests and certain current assets) and certain liabilities to Red
Lion Hotels, Inc. ("RLHI") in exchange for 20,899,900 shares of RLHI's common
stock. An additional 10,062,500 shares of RLHI's common stock were sold to the
public at the August 1, 1995 closing of RLHI's initial public offering, raising
net proceeds of $173,388,000.

Also on August 1, 1995, Historical Red Lion paid $50,052,000 of the
remaining indebtedness and contributed the Leased Hotels and the remaining
related debt to a new partnership wholly-owned by Historical Red Lion. Such
debt, aggregating approximately $91,136,000, was repaid with proceeds from a
$97,500,000 refinancing of the Leased Hotels.

F-37
44

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Red Lion was incorporated in March 1994 as a wholly-owned subsidiary of Red
Lion, a California Limited Partnership (prior to August 1, 1995, "Historical Red
Lion" and, on and after August 1, 1995, the "Partnership"). Red Lion's
operations commenced in March 1995 when Historical Red Lion contributed a 49.4%
interest in a joint venture which owns the Santa Barbara Red Lion Hotel to Red
Lion. Red Lion completed an initial public offering of its common stock on
August 1, 1995 (the "Red Lion Offering"). Immediately prior to the closing of
the Red Lion Offering, Historical Red Lion repaid certain of its outstanding
indebtedness with existing cash balances and contributed substantially all of
its assets (excluding 17 hotels (the "Red Lion Leased Hotels"), certain minority
joint venture interests and certain current assets) and certain liabilities to
Red Lion (the "Red Lion Formation"). On August 1, 1995, Red Lion refinanced or
repaid substantially all of the debt contributed pursuant to the Red Lion
Formation with the net proceeds of the Red Lion Offering, borrowings under a new
term loan and existing cash (the "Red Lion Refinancing"). Red Lion also entered
into a long-term master lease with the Partnership for the Red Lion Leased
Hotels. In July 1996, Red Lion acquired a hotel in Houston, Texas, containing
319 rooms. In September 1996, Red Lion purchased the Modesto, California hotel,
which it managed prior to such acquisition. These two acquisitions and the April
1996 acquisition of a hotel in San Antonio, Texas are referred to herein as the
"Red Lion 1996 Hotel Acquisitions."

The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and the nine month periods ended September 30,
1995 and September 30, 1996 present the results of operations of Doubletree
assuming that the Merger, the financing transactions described in Item 2 of the
Doubletree Current Report on Form 8-K of which this Unaudited Pro Forma
Condensed Consolidated Financial Information is a part (the "Financing
Transactions") and the Red Lion Formation and the Red Lion 1996 Hotel
Acquisitions had been completed as of January 1, 1995. All material adjustments
necessary to conform the financial statement presentation of the results of
operations for Red Lion to that of Doubletree and to reflect the foregoing
assumptions are presented in the Reclassification Adjustments and Pro Forma
Adjustments columns, respectively, which are further described in the Notes to
Unaudited Pro Forma Condensed Consolidated Financial Information.

The unaudited pro forma consolidated balance sheet presents the historical
consolidated balance sheets of Doubletree and Red Lion adjusted to reflect the
Merger and the Financing Transactions as if each had occurred on September 30,
1996.

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

Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Current Report on Form 8-K referred
to above.

F-38
45

DOUBLETREE CORPORATION

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

RED LION DOUBLETREE
------------------------------------------------ -----------------------------------
RECLASSIFICATION PRO FORMA
PRO FORMA(1) ADJUSTMENTS(2) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
------------ ------------------- ----------- -------- ----------- --------

Revenues:
Management and franchise fees.......... $ -- $ 11,389 $ 11,389 $ 30,082 $ (299)(a) $ 41,172
Owned hotel revenues................... -- 185,413 185,413 7,081 27,074(a) 219,568
Leased hotel revenues.................. -- 132,213 132,213 141,942 -- 274,155
Purchasing and service fees............ -- 44,634 44,634 16,487 -- 61,121
Other fees and income.................. -- 2,299 2,299 994 -- 3,293
Rooms revenues......................... 277,204 (277,204) -- -- -- --
Food and beverage revenues............. 165,281 (165,281) -- -- -- --
Other revenues......................... 49,884 (49,884) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues....................... 492,369 (116,421) 375,948 196,586 26,775 599,309
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and administrative
expenses............................. -- 10,470 10,470 14,413 -- 24,883
Owned hotel expenses................... -- 122,502 122,502 6,049 20,538(a) 149,089
Leased hotel expenses.................. -- 108,877 108,877 132,644 -- 241,521
Purchasing and service expenses........ -- 42,345 42,345 13,925 -- 56,270
Depreciation and amortization.......... 19,327 -- 19,327 4,686 25,425(a) 49,438
Business combination expenses.......... 14,662 -- 14,662 2,565 -- 17,227
Departmental direct expenses:
Rooms................................ 68,393 (68,393) -- -- -- --
Food and beverage.................... 127,450 (127,450) -- -- -- --
Other................................ 18,588 (18,588) -- -- -- --
Property indirect expenses............. 104,010 (104,010) -- -- -- --
Other costs............................ 36,445 (36,445) -- -- -- --
Payments due to owners of managed
hotels............................... 46,895 (46,895) -- -- -- --
-------- --------- -------- -------- -------- --------
Total operating costs and expenses... 435,770 (117,587) 318,183 174,282 45,963 538,428
-------- --------- -------- -------- -------- --------
Operating income......................... 56,599 1,166 57,765 22,304 (19,188) 60,881
Equity in earnings of unconsolidated
joint ventures....................... 2,299 (2,299) -- -- -- --
Interest income........................ 3,697 1,133 4,830 4,147 -- 8,977
Interest expense....................... (21,759) -- (21,759) (227) (17,429)(b) (39,415)
-------- --------- -------- -------- -------- --------
Income before income taxes and minority
interest............................... 40,836 -- 40,836 26,224 (36,617) 30,443
Minority interest share of income
(loss)............................... (758) -- (758) 35 -- (723)
-------- --------- -------- -------- -------- --------
Income before income taxes............... 40,078 -- 40,078 26,259 (36,617) 29,720
Income tax expense..................... (7,327) -- (7,327) (8,468) 11,198(c) (4,597)
-------- --------- -------- -------- -------- --------
Net income............................... $ 32,751 $ -- $ 32,751 $ 17,791 $(25,419) $ 25,123(3)
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE....................... $ 0.80 $ 0.65(3)
======== ========
Weighted average common and common
equivalent shares outstanding.......... 22,219 38,669
======== ========

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

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

(3) During 1995, Doubletree incurred $2.6 million of business combination
expenses related to the acquisition of RFS, Inc. ("RFS Management"), a hotel
operating company (such acquisition, the "RFS Acquisition"). The pro forma
operating results of Red Lion include non-recurring costs associated with
the Red Lion Formation of $14.7 million and $9.7 million of deferred tax
benefits. Excluding these items and adjusting income taxes to Doubletree's
effective tax rate and the statutory tax rate for Red Lion, net income and
earnings per share on a pro forma basis would have been $26.2 million and
$0.68, respectively.

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

F-39
46

DOUBLETREE CORPORATION

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

RED LION DOUBLETREE
------------------------------------------------ ---------------------------------------
RECLASSIFICATION PRO FORMA
PRO FORMA(1) ADJUSTMENTS(2) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
------------ ------------------- ----------- ------------ ----------- --------

Revenues:
Management and franchise fees..... $ -- $ 8,483 $ 8,483 $ 22,231 $ (221)(a) $ 30,493
Owned hotel revenues.............. -- 138,554 138,554 5,200 20,190(a) 163,944
Leased hotel revenues............. -- 100,278 100,278 104,328 -- 204,606
Purchasing and service fees....... -- 33,031 33,031 11,542 -- 44,573
Other fees and income............. -- 1,885 1,885 941 -- 2,826
Rooms revenues.................... 215,166 (215,166) -- -- -- --
Food and beverage revenues........ 118,921 (118,921) -- -- -- --
Other revenues.................... 36,208 (36,208) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues.................. 370,295 (88,064) 282,231 144,242 19,969 446,442
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and
administrative expenses......... -- 6,083 6,083 10,841 -- 16,924
Owned hotel expenses.............. -- 91,153 91,153 4,403 15,320(a) 110,876
Leased hotel expenses............. -- 81,237 81,237 97,265 -- 178,502
Purchasing and service expenses... -- 30,671 30,671 9,684 -- 40,355
Depreciation and amortization..... 14,530 -- 14,530 3,252 19,034(a) 36,816
Business combination expenses..... 14,662 -- 14,662 -- -- 14,662
Departmental direct expenses:
Rooms........................... 51,475 (51,475) -- -- -- --
Food and beverage............... 93,060 (93,060) -- -- -- --
Other........................... 13,738 (13,738) -- -- -- --
Property indirect expenses........ 77,583 (77,583) -- -- -- --
Other costs....................... 25,836 (25,836) -- -- -- --
Payments due to owners of managed
hotels.......................... 36,591 (36,591) -- -- -- --
-------- --------- -------- -------- -------- --------
Total operating costs and
expenses...................... 327,475 (89,139) 238,336 125,445 34,354 398,135
-------- --------- -------- -------- -------- --------
Operating income.................... 42,820 1,075 43,895 18,797 (14,385) 48,307
Equity in earnings of
unconsolidated
joint ventures.................. 1,885 (1,885) -- -- -- --
Interest income................... 2,735 810 3,545 3,094 -- 6,639
Interest expense.................. (17,348) -- (17,348) (181) (12,043)(b) (29,572)
-------- --------- -------- -------- -------- --------
Income before income taxes and
minority interest................. 30,092 -- 30,092 21,710 (26,428) 25,374
Minority interest share of
(income) loss................... (463) -- (463) 77 -- (386)
-------- --------- -------- -------- -------- --------
Income before income taxes.......... 29,629 -- 29,629 21,787 (26,428) 24,988
Income tax expense................ (3,147) -- (3,147) (6,792) 7,984(c) (1,955)
-------- --------- -------- -------- -------- --------
Net income.......................... $ 26,482 $ -- $ 26,482 $ 14,995 $ (18,444) $ 23,033(3)
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE.................. $ 0.68 $ 0.60(3)
======== ========
Weighted average common and common
equivalent shares outstanding..... 22,137 38,587
======== ========

- ---------------
(1) Presents the pro forma operating results of Red Lion as if the Red Lion
Formation and the Red Lion Refinancing had occurred on January 1, 1995. The
pro forma operating results include the operating results of Historical Red
Lion for the seven months ended July 31, 1995, the operating results of Red
Lion for the seven months ended September 30, 1995 and the following pro
forma adjustments: (i) to record $8.5 million of net lease expenses on the
Red Lion Leased Hotels, (ii) to decrease depreciation and amortization by
$6.4 million related to the Red Lion Leased Hotels, (iii) to decrease
interest expense by $10.4 million reflecting the Red Lion Refinancing, (iv)
to decrease the minority interest in income from joint venturer by $0.2
million, and (v) to increase income tax expense by $11.4 million.

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

(3) RFS Management, as a Subchapter S corporation in 1995 for federal income tax
purposes, was generally not liable for federal income taxes. If income
taxes, at Doubletree's effective rate, are provided on RFS Management's
earnings then net income and earnings per share on a pro forma basis would
have been $22.2 million and $0.58, respectively.

See Notes to Unaudited Pro Forma Condensed
Consolidated Financial Information

F-40
47

DOUBLETREE CORPORATION

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

RED LION DOUBLETREE
-------------------------------------------- ------------------------------------
RECLASSIFICATION PRO FORMA
ACTUAL ADJUSTMENTS(1) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
-------- ------------------- ----------- ---------- ----------- --------

Revenues:
Management and franchise fees............ $ -- $ 9,340 $ 9,340 $ 28,258 $ (190)(a) $ 37,408
Owned hotel revenues..................... -- 150,651 150,651 5,972 14,581(a) 171,204
Leased hotel revenues.................... -- 105,984 105,984 137,701 -- 243,685
Purchasing and service fees.............. -- 40,894 40,894 11,800 -- 52,694
Other fees and income.................... -- 1,277 1,277 2,233 -- 3,510
Rooms revenues........................... 236,017 (236,017) -- -- -- --
Food and beverage revenues............... 120,278 (120,278) -- -- -- --
Other revenues........................... 43,510 (43,510) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues......................... 399,805 (91,659) 308,146 185,964 14,391 508,501
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and administrative
expenses............................... -- 6,914 6,914 12,811 -- 19,725
Owned hotel expenses..................... -- 97,609 97,609 4,740 11,465(a) 113,814
Leased hotel expenses.................... -- 81,927 81,927 127,153 -- 209,080
Purchasing and service expenses.......... -- 39,005 39,005 8,694 -- 47,699
Depreciation and amortization............ 14,637 -- 14,637 4,417 18,927(a) 37,981
Departmental direct expenses:
Rooms.................................. 57,419 (57,419) -- -- -- --
Food and beverage...................... 94,349 (94,349) -- -- -- --
Other.................................. 14,999 (14,999) -- -- -- --
Property indirect expenses............... 84,004 (84,004) -- -- -- --
Other costs.............................. 26,331 (26,331) -- -- -- --
Payments due to owners of managed
hotels................................. 39,983 (39,983) -- -- -- --
-------- --------- -------- -------- -------- --------
Total expenses......................... 331,722 (91,630) 240,092 157,815 30,392 428,299
-------- --------- -------- -------- -------- --------
Operating income........................... 68,083 (29) 68,054 28,149 (16,001) 80,202
Equity in earnings of unconsolidated
joint ventures......................... 1,277 (1,277) -- -- -- --
Interest income.......................... 1,630 1,306 2,936 3,478 -- 6,414
Interest expense......................... (13,396) -- (13,396) (175) (15,995)(b) (29,566)
-------- --------- -------- -------- -------- --------
Income before income taxes and minority
interest................................. 57,594 -- 57,594 31,452 (31,996) 57,050
Minority interest share of (income)
loss................................... (1,354) -- (1,354) 6 -- (1,348)
-------- --------- -------- -------- -------- --------
Income before income taxes................. 56,240 -- 56,240 31,458 (31,996) 55,702
Income tax expense....................... (22,296) -- (22,296) (11,011) 10,212(c) (23,095)
-------- --------- -------- -------- -------- --------
Net income................................. $ 33,944 $ -- $ 33,944 $ 20,447 $ (21,784) $ 32,607
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE....................... $ 0.88 $ 0.82
======== ========
Weighted average common and common
equivalent shares outstanding.......... 23,183 39,633
======== ========

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

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

F-41
48

DOUBLETREE CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)

AS OF SEPTEMBER 30, 1996
------------------------------------------------
HISTORICAL PRO FORMA
DOUBLETREE ADJUSTMENTS(4) PRO FORMA
---------- -------------- ----------

ASSETS
Cash and cash equivalents......................... $ 50,701 $ (6,862)(a)(c) $ 43,839
Accounts receivable, net.......................... 25,054 22,969(b) 48,023
Other............................................. 4,534 7,723(b) 12,257
-------- ---------- ----------
Total current assets......................... 80,289 23,830 104,119
-------- ---------- ----------
Notes and other receivables....................... 33,021 1,800(b) 34,821
Investments....................................... 36,039 43,100(b) 79,139
Due from affiliates............................... -- 29,000(b) 29,000
Property and equipment, net....................... 13,787 636,350(b) 650,137
Management contracts, net......................... 47,560 422,300(b) 469,860
Deferred costs and other assets................... 4,164 21,470(b) 25,634
Goodwill, net..................................... 15,127 344,965(b) 360,092
-------- ---------- ----------
$229,987 $1,522,815 $1,752,802
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses............. $ 47,455 $ 81,204(b)(c) $ 128,659
Current portion of long-term debt................. -- 5,000(d) 5,000
-------- ---------- ----------
Total current liabilities.................... 47,455 86,204 133,659
-------- ---------- ----------
Long-term debt, net of current portion............ -- 545,722(d) 545,722
Other long-term liabilities....................... -- 11,697(b) 11,697
Deferred income taxes............................. 19,885 246,846(b) 266,731
-------- ---------- ----------
Total liabilities............................ 67,340 890,469 957,809
-------- ---------- ----------
Common stock...................................... 231 164(e) 395
Additional paid-in capital........................ 128,191 632,182(e) 760,373
Unearned employee compensation.................... (158) -- (158)
Unrealized gain on marketable securities.......... 44 -- 44
Retained earnings................................. 34,339 -- 34,339
-------- ---------- ----------
Total Stockholders' Equity................... 162,647 632,346 794,993
-------- ---------- ----------
$229,987 $1,522,815 $1,752,802
======== ========== ==========

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

F-42
49

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION

DOUBLETREE CORPORATION

1. ASSUMPTIONS

The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and the nine month periods ended September 30,
1995 and September 30, 1996 are presented as if each of the following events
occurred on January 1, 1995: (1) the Merger, including the issuance of
approximately $291.6 million of Doubletree Common Stock as Merger consideration,
(2) the Red Lion 1996 Hotel Acquisitions (which are further described below),
(3) the borrowing of $461.6 million under the Credit Facility, (4) the sale of
$100.0 million of Doubletree Common Stock pursuant to the GEPT Equity
Investment, (5) the receipt of net proceeds (after deducting underwriting
discounts and offering expenses) of $240.8 million from the Public Equity
Offering, (6) the payment of approximately $688.2 million in cash consideration
to the stockholders and optionholders of Red Lion pursuant to the Merger and (7)
the repayment of existing Red Lion indebtedness of approximately $124.2 million
with a portion of the proceeds obtained from the Financing Transactions and cash
on hand of Doubletree. The Merger has been accounted for as a purchase
transaction in accordance with generally accepted accounting principles and,
accordingly, the assets acquired and liabilities assumed were recorded at their
estimated fair values as of that date. The excess of the purchase price over the
fair value of the net assets acquired, goodwill, is being amortized over 40
years.

2. RECLASSIFICATIONS

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

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

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

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

3. PRO FORMA ADJUSTMENTS -- STATEMENTS OF OPERATIONS

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

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

(b) To eliminate actual interest expense of Red Lion and record
interest expense associated with the Financing Transactions. An effective
interest rate of 7.06% was assumed for all periods on borrowings under the
Credit Facility. The effect of a 1/8 percent change in the interest rate
would be approximately $577,000 for the year ended December 31, 1995 and
$433,000 for the nine months ended September 30, 1995 and 1996,
respectively.

F-43
50

4. PRO FORMA ADJUSTMENTS -- BALANCE SHEET

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

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

Existing Red Lion cash................................... $ 18,706
Proceeds from the GEPT Equity Investment................. 100,000
Net proceeds from the Public Equity Offering............. 240,773
Proceeds from borrowings under the Credit Facility....... 461,600
Expenses paid at closing................................. (15,557)
Repayment of existing notes payable...................... (124,184)
Cash consideration paid pursuant to the Merger........... (688,200)
---------
$ (6,862)
=========

(b) Adjustment to reflect the allocation of the purchase price to the
assets acquired, liabilities assumed, deferred tax liability on the step-up
in the historical basis and the excess of the purchase price over the net
assets acquired.

(c) Adjustment to increase accounts payable and accrued expenses by
the estimated costs to be incurred to complete the transaction of $30.7
million.

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

(e) Adjustment to record the shares issued in connection with the
Merger, the Public Equity Offering and the GEPT Equity Investment.

F-44
51

EXHIBIT INDEX

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------

2.1- Agreement and Plan of Merger dated as of September 12, 1996, by and
among Doubletree Corporation, RLH Acquisition Corp. and Red Lion
Hotels, Inc..........................................................
10.1 Securities Purchase Agreement dated as of October 31, 1996 by and
between the Company and the Trustees of General Electric Pension
Trust................................................................
10.2 Warrants to purchase 262,753 shares of Common Stock of Doubletree
Corporation..........................................................
10.3 Credit Agreement dated as of November 8, 1996 by and among the
Company, Morgan Stanley Senior Funding, Inc., as syndication agent
and arranger thereunder, The Bank of Nova Scotia, as administrative
agent thereunder, and the lenders identified therein.................
10.4 Amendment No. 3 to the Incorporation and Registration Rights
Agreement dated as of November 8, 1996 by and among Doubletree
Corporation, GE Investment Hotel Partners I, Limited Partnership,
Metpark Funding Inc., The Ueberroth Family Trust, Ueberroth
Investment Trust, Richard J. Ferris, Ridge Partners, L.P., Robert M.
Solmson (for himself and as attorney-in-fact for the RFS
Shareholders, as defined therein), Canadian Pacific Hotel Holdings
(U.S.) Inc. and Red Lion, a California Limited Partnership...........
10.5 Partnership Services Agreement dated as of November 8, 1996 by and
among Doubletree Corporation, Red Lion Hotels, Inc., Red Lion, a
California Limited Partnership and the affiliates thereof identified
therein..............................................................
10.6 Guaranty of Lease Obligations dated as of November 8, 1996 by and
among Doubletree Corporation, Red Lion Hotels, Inc. and RLH
Partnership, L.P.....................................................
10.7 Master Lease dated August 1, 1995 between RLH Partnership, L.P. and
Red Lion Hotels, Inc.................................................
99.1 Press Release of Doubletree Corporation dated November 8, 1996.......
99.2 Press Release of Doubletree Corporation dated November 13, 1996......
99.3 Second Press Release of Doubletree Corporation dated November 13,
1996.................................................................

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

* Incorporated by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated September 12, 1996.