-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ....................... to ...................... Commission File Number 1-3427 HILTON HOTELS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <TABLE> <S> <C> DELAWARE 36-2058176 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR IDENTIFICATION NUMBER) ORGANIZATION) 9336 CIVIC CENTER DRIVE 90210 BEVERLY HILLS, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) </TABLE> Registrant's telephone number, including area code: (310) 278-4321 Securities registered pursuant to Section 12(b) of the Act: <TABLE> <CAPTION> Name of each exchange Title of each class on which registered ---------------------------------------- -------------------------------------- <S> <C> Common Stock, par value $2.50 per share New York, Pacific </TABLE> Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ Based upon the March 15, 1999 New York Stock Exchange closing price of $15.25 per share, the aggregate market value of Registrant's outstanding Common Stock held by non-affiliates of the Registrant was approximately $3.4 billion. On that date, there were 261,069,367 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of Registrant's annual report to stockholders for the fiscal year ended December 31, 1998 are incorporated by reference under Parts I and II. Certain portions of Registrant's definitive proxy statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the Registrant's fiscal year, are incorporated by reference under Part III. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

TABLE OF CONTENTS <TABLE> <CAPTION> PAGE --------- <S> <C> <C> PART I.................................................................................................... 1 ITEM 1. BUSINESS..................................................................................... 1 General Information....................................................................................... 1 Current Operations...................................................................................... 1 Recent Developments..................................................................................... 1 Ladbroke Alliance....................................................................................... 3 Industry Segments....................................................................................... 3 Hotel Operations.......................................................................................... 4 Wholly and Partially Owned Hotels....................................................................... 4 Managed Hotels.......................................................................................... 7 Franchise Hotels........................................................................................ 9 Expansion Program....................................................................................... 9 Territorial Restrictions................................................................................ 11 Potential Acquisitions.................................................................................. 11 Property Transactions................................................................................... 11 Additional Information.................................................................................... 12 Vacation Ownership...................................................................................... 12 Casino Windsor.......................................................................................... 12 Flamingo Casino-Kansas City............................................................................. 12 Design and Furnishing Services.......................................................................... 12 Reservation System...................................................................................... 13 Marketing............................................................................................... 13 Business Risks.......................................................................................... 13 Competition............................................................................................. 13 Statistical Data........................................................................................ 14 Year 2000............................................................................................... 14 Forward-Looking Statements.............................................................................. 15 Environmental Matters................................................................................... 16 Regulation and Licensing................................................................................ 16 Employees............................................................................................... 17 ITEM 2. PROPERTIES................................................................................... 17 ITEM 3. LEGAL PROCEEDINGS............................................................................ 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 18 Executive Officers of the Company......................................................................... 19 PART II................................................................................................... 20 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................ 20 Rights Agreement.......................................................................................... 20 </TABLE> i

<TABLE> <CAPTION> PAGE --------- <S> <C> <C> ITEM 6. SELECTED FINANCIAL DATA...................................................................... 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................................... 21 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................... 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................. 22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................................... 22 PART III.................................................................................................. 22 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................... 22 ITEM 11. EXECUTIVE COMPENSATION....................................................................... 22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 22 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 22 PART IV................................................................................................... 23 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................. 23 (a) Index to Financial Statements....................................................................... 23 (b) Reports on Form 8-K................................................................................. 23 (c) Exhibits............................................................................................ 23 Report of Independent Public Accountants on Supplemental Schedule......................................... 24 Schedule II--Valuation and Qualifying Accounts............................................................ 25 Signatures................................................................................................ 26 Index to Exhibits......................................................................................... 27 </TABLE> ii

PART I ITEM 1. BUSINESS GENERAL INFORMATION CURRENT OPERATIONS Hilton Hotels Corporation ("Hilton" or the "Company") is primarily engaged, together with its subsidiaries, in the ownership, management and franchising of hotels. As of February 1, 1999, all of these properties were located in the United States, with the exception of ten hotels operated under the Conrad International name, three franchise hotels operated in Canada and three franchise hotels operated in Mexico. On February 1, 1999, Hilton owned an interest in or leased and operated 38 hotels and managed 24 hotels owned by others. In addition, 185 hotels were operated under the Hilton-Registered Trademark-, Hilton Garden Inn-Registered Trademark- and Hilton Suites-TM- names by others pursuant to franchises granted by the Company. The Company is also engaged in various other activities incidental or related to the operation of hotels. See "Additional Information." On December 31, 1998, the Company completed the spin-off of its gaming operations. See "Recent Developments--Separation of Gaming Business." Hilton was organized in the State of Delaware on May 29, 1946. Its principal executive offices are located at 9336 Civic Center Drive, Beverly Hills, California 90210, and its telephone number is (310) 278-4321. For additional information, see the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1998 (the "Stockholder Report"). The Stockholder Report is included as Exhibit 13 to this Form 10-K and, to the extent specific references are made to the Stockholder Report, these provisions are incorporated in this Form 10-K by reference. RECENT DEVELOPMENTS SEPARATION OF GAMING BUSINESS On December 31, 1998, the Company completed the spin-off of its gaming operations, thereby creating a new publicly-held gaming company called Park Place Entertainment Corporation ("Park Place"). The spin-off was accomplished through a tax free distribution to the Company's stockholders, on a one-for-one basis, of the shares of Park Place common stock (the "Park Place Distribution"). Following completion of the Park Place Distribution, a subsidiary of Park Place merged with the Mississippi gaming operations of Grand Casinos, Inc. The Park Place common stock is listed on the New York Stock Exchange and traded under the symbol "PPE." As a result of the Park Place Distribution, effective December 31, 1998, the Company disposed of all of its gaming operations, and all assets and liabilities related to the gaming operations, except as follows: - The Company retained its 50% ownership interest in the consortium that manages Casino Windsor for the Ontario provincial government. See "Additional Information--Casino Windsor." - On February 1, 1999, the Company opened the Conrad International Cairo which features an approximately 6,000 square foot amenity casino. The Company owns a 10% equity interest in, and manages, the Conrad International Cairo. - The Company owns and operates the Flamingo Casino-Kansas City in Kansas City, Missouri. The Company has entered into an agreement to sell this riverboat casino to a third party. Upon completion of such sale, the proceeds of the sale will be allocated between the Company and Park Place pursuant to an agreement entered into in connection with the Park Place Distribution. See "Additional Information--Flamingo Casino-Kansas City."

HOTELS ACQUISITIONS Since January 1, 1998, the Company has increased its ownership of full-service hotels by acquiring 100% ownership interests in the following properties: - In March 1998, the Company acquired the 300-room Hilton Short Hills in Short Hills, New Jersey. - In April 1998, the Company acquired the 407-room Westin Hotel in Charlotte, North Carolina (renamed the Hilton Charlotte & Towers) and the 395-room Hilton DFW Lakes Executive Conference Center in Dallas, Texas. - In July 1998, Hilton acquired the 405-room Hilton East Brunswick & Towers in East Brunswick, New Jersey. - In December 1998, Hilton acquired the 394-room Sheraton Grande Torrey Pines in La Jolla, California (renamed the Hilton La Jolla Torrey Pines). Hilton leases the land underlying the hotel pursuant to a long-term lease. - In February 1999, the Company acquired the 495-room Radisson Plaza Hotel at Mark Center in Alexandria, Virginia (renamed the Hilton Alexandria Mark Center). The Company has also acquired ownership interests in the following full-service hotels since January 1, 1998: - In January 1998, the Company acquired the remaining 92.5% ownership interest in the 458-room Hilton McLean Tysons Corner. - In January 1998, the Company acquired from The Prudential Insurance Company of America ("Prudential") the remaining 17% ownership interest in the 1,543-room Hilton Chicago & Towers and the remaining fractional interest in the 1,895-room Hilton San Francisco & Towers. - In August 1998, the Company acquired a 75% ownership interest in the 585-room Pointe Hilton Tapatio Cliffs Resort in Phoenix, Arizona. - In September 1998, the Company acquired from Prudential an additional 48% ownership interest in the 2,545-room Hilton Hawaiian Village in Honolulu, Hawaii, increasing the Company's ownership interest to 98%. CONSTRUCTION AND RENOVATION The Company is renovating the Hilton New York & Towers, which will include new restaurants, a state-of-the-art business/conference center, a world-class fitness facility, an exclusive Towers Lounge overlooking Manhattan and 37 additional guest rooms. The Company expects to complete this project in late 1999. The Company is also constructing a new 600-room hotel at the center of Boston's Logan Airport, which the Company expects to complete in late 1999. FRANCHISE During 1998, the Company continued to improve its franchise business through the expansion of Hilton Garden Inn properties, the addition of high quality full-service properties and the removal of properties that do not meet the Company's standards. In 1998, the Company added 19 franchises to its system (including nine Hilton Garden Inn properties), while 11 franchise arrangements were terminated. At December 31, 1998, the Company had approximately 125 Hilton Garden Inn properties either open or under construction. The Company anticipates that approximately 200 Hilton Garden Inn properties will be either open or under construction by December 31, 2000. 2

INTERNATIONAL In July 1998, the 400-room Casino Windsor hotel casino opened in Windsor, Ontario, Canada, which replaced a temporary casino. The Company owns a 50% equity interest in the consortium that manages Casino Windsor for the Ontario provincial government. In February 1999, the Company opened the 619-room Conrad International Cairo in Egypt. ADDITIONAL INFORMATION For a more detailed description of the Company's recent developments, see "Hotel Operations" and "Additional Information--Vacation Ownership" and "--Casino Windsor." For a description of the Company's planned expansion activities, see "Hotel Operations--Expansion Program." For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 through 23 in the Stockholder Report. LADBROKE ALLIANCE The Company has entered into agreements with Ladbroke Group PLC ("Ladbroke"), whose wholly owned subsidiary, Hilton International Co. ("HI"), owns the rights to the Hilton name outside the United States. The agreements provide for the reunification of the Hilton brand worldwide through a strategic alliance between the companies, including cooperation on sales and marketing, loyalty programs and other operational matters. The Company and HI have integrated their reservation systems and worldwide sales offices, launched the Hilton HHonors-Registered Trademark- Worldwide loyalty program, developed joint marketing initiatives and adopted a new Hilton brand identity used by both companies. In addition, the alliance permits the Company and Ladbroke to acquire up to 20% of each other's outstanding capital stock and provides for potential mutual participation in certain future hotel development focusing primarily upon management contracts and franchises. To date, neither the Company nor Ladbroke has acquired an interest in each other's capital stock. Stephen F. Bollenbach, the Company's President and Chief Executive Officer, is a non-executive director of Ladbroke and Peter M. George, Chief Executive of Ladbroke, is a non-executive director of the Company. INDUSTRY SEGMENTS Hilton's revenue and income are derived primarily from hotel operations, which include the operation of Hilton's owned, leased, partially owned and managed hotels, and franchise fees. The Company currently manages (and in some cases, partially owns) hotel properties in Belgium, Egypt, England, Hong Kong, Ireland, Singapore, Spain and Turkey. To date, the amounts of revenues, operating profits and identifiable assets attributable to geographic areas other than the United States have not been material. 3

HOTEL OPERATIONS WHOLLY AND PARTIALLY OWNED HOTELS On February 1, 1999, Hilton wholly or partially owned and operated the following hotels. Each of these hotels is wholly owned in fee by Hilton, except as otherwise indicated in the table below. <TABLE> <CAPTION> YEAR NUMBER OF ACQUIRED NAME AND LOCATION ROOMS/SUITES BY HILTON -------------------------------------------------- ------------- --------- <S> <C> <C> DOMESTIC Hilton Anchorage 591 1997 Anchorage, Alaska(1) Hilton Atlanta Airport & Towers 503 1960 Atlanta, Georgia(2) Hilton Charlotte & Towers 407 1998 Charlotte, North Carolina Hilton Chicago O'Hare Airport 858 1991 Chicago, Illinois(3)(4) Hilton Chicago & Towers 1,543 1996 Chicago, Illinois(5) Palmer House Hilton 1,639 1988 Chicago, Illinois(6) Hilton DFW Lakes Executive Conference Center 395 1998 Dallas, Texas Hilton East Brunswick & Towers 405 1998 East Brunswick, New Jersey(7) Hilton Hawaiian Village 2,545 1998 Honolulu, Hawaii(8)(9) Hilton La Jolla Torrey Pines 394 1998 La Jolla, California(3) Hilton McLean Tysons Corner 458 1998 McLean, Virginia(10) Hilton New Orleans Airport 317 1959 New Orleans, Louisiana(2) Hilton New Orleans Riverside 1,600 1994 New Orleans, Louisiana(11) Hilton New York & Towers 2,041 1996 New York, New York(12) Waldorf=Astoria 1,380 1977 New York, New York(13) Hilton Oakland Airport 363 1970 Oakland, California(3) Pointe Hilton Tapatio Cliffs Resort 585 1998 Phoenix, Arizona(9)(14) Hilton Pittsburgh & Towers 714 1959 Pittsburgh, Pennsylvania(3) </TABLE> 4

<TABLE> <CAPTION> YEAR NUMBER OF ACQUIRED NAME AND LOCATION ROOMS/SUITES BY HILTON -------------------------------------------------- ------------- --------- <S> <C> <C> Hilton Portland 455 1963 Portland, Oregon Hilton Rye Town 436 1996 Rye Brook, New York(15) Hilton San Diego Resort 357 1965 San Diego, California(3) Hilton San Francisco & Towers 1,895 1996 San Francisco, California(16) Hilton Seattle Airport 178 1961 Seattle, Washington(3) Hilton Short Hills 300 1998 Short Hills, New Jersey(17) Hilton Tarrytown 236 1993 Tarrytown, New York(3)(18) Hilton Waikoloa Village 1,241 1993 Waikoloa, Hawaii(19) Capital Hilton 543 1996 Washington, D.C.(15) Hilton Washington & Towers 1,123 1996 Washington, D.C.(15) Hilton Garden Inn Southfield 197 1993 Southfield, Michigan(20) Hilton Garden Inn Valencia Six Flags 152 1991 Valencia, California(19) Hilton Suites Auburn Hills 224 1991 Auburn Hills, Michigan Hilton Suites Brentwood 203 1989 Brentwood, Tennessee Hilton Suites Oakbrook Terrace 212 1989 Oakbrook Terrace, Illinois(9)(21) Hilton Suites Anaheim/Orange 230 1989 Orange, California Hilton Suites Phoenix 226 1990 Phoenix, Arizona INTERNATIONAL Conrad International Cairo 619 1999 Cairo, Egypt(19) Conrad International Dublin 191 1989 Dublin, Ireland(19) Conrad International Istanbul 625 1992 Istanbul, Turkey(9)(19)(22) </TABLE> --------- (1) The Company managed the Hilton Anchorage from December 1976 until acquiring the property in February 1997. 5

(2) The Hilton Atlanta Airport & Towers and the Hilton New Orleans Airport were closed and demolished in 1986 and, thereafter, rebuilt and reopened in 1989. (3) The Company leases the land upon which each of these hotels is located. (4) The Company managed the Hilton Chicago O'Hare Airport from 1974 until October 1991, when the Company purchased the then remaining leasehold of the hotel. The Hilton Chicago O'Hare Airport was closed for renovation in October 1991 and reopened in July 1992. (5) The Company owned a 33% interest in the Hilton Chicago & Towers prior to the acquisition of an additional 50% ownership interest in the property from Prudential in 1996 and the acquisition of Prudential's remaining 17% ownership interest in January 1998. (6) The Company owned the Palmer House Hilton from May 1946 to December 1962 and, thereafter, operated the Palmer House Hilton under a lease until acquiring the property in February 1988. (7) The Company managed the Hilton East Brunswick & Towers from May 1993 until acquiring the property in July 1998. (8) The Company owned a 50% interest in the Hilton Hawaiian Village until acquiring an additional 48% interest from Prudential in September 1998. (9) The Company has made loans which are currently outstanding to the entity owning each of the referenced properties. (10) The Company owned a 7.5% interest in the Hilton McLean Tysons Corner until acquiring the remaining 92.5% ownership interest in January 1998. (11) The Company has a 67% ownership interest in the Hilton New Orleans Riverside. The Company owned a 25% interest in this hotel when it opened in 1977 and acquired additional ownership interests through 1994. (12) The Company has an ownership interest in excess of 99% in the joint venture which owns the Hilton New York & Towers. The Company had a 50% ownership interest in this property prior to the 1996 acquisition of substantially all of Prudential's ownership interest. (13) The Company operated the Waldorf=Astoria under a lease from February 1950 until acquiring the property in April 1977. (14) The Company acquired a 75% ownership interest in the Pointe Hilton Tapatio Cliffs Resort in August 1998. (15) The Company had a 50% ownership interest in these properties prior to the acquisition of substantially all of Prudential's ownership interest in such properties in 1996 and the acquisition of the remaining Prudential interest in December 1997. (16) The Company had a 50% ownership interest in the Hilton San Francisco & Towers prior to the acquisition of substantially all of Prudential's ownership interest in the property in 1996 and the acquisition of the remaining Prudential interest in January 1998. (17) The Company managed the Hilton Short Hills from February 1988 until acquiring the property in March 1998. (18) The Company managed and was a joint venture partner with respect to the Hilton Tarrytown from 1975 until August 1993, when it acquired the remaining equity interest in the joint venture leasing the land underlying the hotel. (19) The Company has ownership interests of less than 50% in each of the referenced properties. (20) The Company managed the Hilton Garden Inn Southfield from July 1991 until acquiring the property in July 1993. (21) The Company has a 50% ownership interest in the Hilton Suites Oakbrook Terrace. 6

(22) The Company operated a casino in the Conrad International Istanbul from 1992 until February 1998. MORTGAGE INDEBTEDNESS As of February 1, 1999, none of the majority owned hotels referenced in the table above had any outstanding mortgage indebtedness, except for: (i) Hilton Atlanta Airport & Towers in the amount of $50 million; (ii) Hilton New Orleans Airport in the amount of $32 million; (iii) Hilton New Orleans Riverside in the amount of $97 million; and (iv) Pointe Hilton Tapatio Cliffs Resort in the amount of $48 million. PARTIALLY OWNED HOTELS The owners of the partially owned hotels referenced in the table above are joint ventures in which the Company owns an equity interest. The Company has a right of first refusal to purchase an interest in certain of these hotels. Each of the partially owned hotels is managed by Hilton for the entity owning the hotel. For a description of the Company's management agreements, see "Hotel Operations--Managed Hotels." LEASED HOTELS As indicated in the table above, Hilton leases the land upon which seven hotels are located. Upon the expiration of such leases, the buildings and other leasehold improvements presently owned by Hilton revert to the landlords. See "Leases" in the Notes to the Company's Consolidated Financial Statements on page 35 in the Stockholder Report. Hilton, in all cases, owns all furniture and equipment, is responsible for repairs, maintenance, operating expenses and lease rentals, and retains complete managerial discretion over operations. Generally, Hilton pays a percentage rental based on the gross revenue of the facility. The expiration dates of these leases are as follows: - Hilton Chicago O'Hare Airport -- 2018; - Hilton La Jolla Torrey Pines -- 2042; - Hilton Oakland Airport -- 2033; - Hilton Pittsburgh & Towers -- 2004, with renewal options aggregating 30 years; - Hilton San Diego Resort -- 2019; - Hilton Seattle Airport -- 2004, with renewal options aggregating 30 years; and - Hilton Tarrytown -- 2003, with renewal options aggregating 40 years. During the years ended December 31, 1998, 1997 and 1996, Hilton paid aggregate rentals, primarily consisting of rentals attributable to the properties listed in the above table, of $22 million, $19 million and $16 million, respectively. For information relating to minimum rental commitments in the future, see "Leases" in the Notes to the Company's Consolidated Financial Statements on page 35 in the Stockholder Report. MANAGED HOTELS On February 1, 1999, Hilton managed 17 domestic hotels and seven international hotels which are wholly owned by others. Under its standard management arrangement, Hilton operates a hotel for the benefit of its owner, which either owns or leases the hotel and the associated personal property. Hilton's management fee is generally based on a percentage of each hotel's gross revenue plus, in the majority of properties, an incentive fee based on operating performance. The expiration dates of Hilton's management agreements range from 1999 to 2021 and generally contain renewal options ranging from five to 20 years, subject to certain termination rights. Under the management agreements, all operating and other expenses are paid by the owner, and Hilton is generally reimbursed for its out-of-pocket expenses. In turn, Hilton's managerial discretion is subject to approval by the owner in certain major areas, including adoption of capital budgets. 7

On February 1, 1999, Hilton operated the following hotels under management agreements: <TABLE> <CAPTION> NAME AND LOCATION NUMBER OF ROOMS/SUITES ------------------------------------- ---------------------- <S> <C> DOMESTIC Hilton Anaheim 1,576 Anaheim, California Hilton Atlanta & Towers 1,224 Atlanta, Georgia Hilton Beverly Hills 581 Beverly Hills, California Hilton Burbank Airport & Conference 486 Center Burbank, California Hilton Long Beach 393 Long Beach, California Hilton Los Angeles Airport 1,234 Los Angeles, California Fontainebleau Hilton Resort & Towers 1,206 Miami, Florida Hilton Miami Airport & Towers 500 Miami, Florida Hilton Minneapolis & Towers 814 Minneapolis, Minnesota Hilton Newark Airport 375 Newark, New Jersey Millenium Hilton 561 New York, New York Hilton Turtle Bay Golf & Tennis 485 Resort Oahu, Hawaii Hilton in the Walt Disney World 814 Resort Orlando, Florida Hilton Pasadena 291 Pasadena, California Pointe Hilton South Mountain Resort 636 Phoenix, Arizona Pointe Hilton Squaw Peak Resort 563 Phoenix, Arizona Hilton Palacio del Rio 481 San Antonio, Texas INTERNATIONAL Conrad International Barcelona 412 Barcelona, Spain(1) Conrad International Brussels 269 Brussels, Belgium </TABLE> 8

<TABLE> <CAPTION> NAME AND LOCATION NUMBER OF ROOMS/SUITES ------------------------------------- ---------------------- <S> <C> Conrad International Hong Kong 512 Hong Kong, China Conrad International Hurghada Resort 260 Hurghada, Egypt Conrad International London 159 London, England Conrad International Sharm El Sheikh 350 Resort Sharm El Sheikh, Egypt Conrad International Centennial 508 Singapore Singapore </TABLE> --------- (1) Hilton has made a loan which is currently outstanding to the owner of the Conrad International Barcelona. FRANCHISE HOTELS Pursuant to franchises granted by the Company through a subsidiary, franchise hotels are operated under the Hilton-Registered Trademark-, Hilton Garden Inn-Registered Trademark- or Hilton Suites-TM- names. The franchise hotels operated under the Hilton name are generally smaller than the full-service hotels operated by the Company, average approximately 250 rooms in size and target the mid-market segment of the hotel industry. Franchise hotels bearing the Hilton Garden Inn name are approximately 90 to 250 rooms in size, utilize a modular design constructed around a courtyard containing an indoor or outdoor swimming pool and target the upper mid-market segment. The Hilton Suites properties operated pursuant to franchise agreements utilize an all-suites design with approximately 200 to 250 suites. In general, Hilton approves the plans for, and the location of, franchise hotels and assists in their design. On February 1, 1999, there were 185 franchise hotels, of which 166 were operated under the Hilton name, 17 were operated under the Hilton Garden Inn name and two were operated under the Hilton Suites name. In general, franchisees pay Hilton an initial fee based on the number of rooms in a franchise hotel and a continuing fee based on a percentage of the facility's room revenue. Although Hilton does not directly participate in the management or operation of franchise hotels, it conducts periodic inspections to ensure that Hilton's standards are maintained and renders advice with respect to hotel operations. The Company has continued its ongoing program of monitoring and improving its franchise operations. The Company added 19 franchises to its system in 1998 (including nine Hilton Garden Inn properties), while 11 franchise arrangements were terminated. In addition, the Company expects to open approximately 65 Hilton Garden Inn hotels during 1999. EXPANSION PROGRAM GENERAL Hilton intends to expand its domestic operations through: - the acquisition of ownership interests in existing Hilton and non-Hilton branded hotels; - the conversion of existing hotels into management and franchise properties; - the construction of new Hilton Garden Inn and Hilton Residential Suites properties to be operated as franchise hotels; and - the development and management of vacation ownership resorts. 9

The Company will invest in new domestic hotel projects or conversion properties where the return on investment meets the Company's criteria. HILTON GARDEN INNS Hilton commenced a major expansion of Hilton Garden Inn properties in 1996. The additional Hilton Garden Inn properties are anticipated to be primarily newly constructed facilities which will be operated as franchise hotels. At December 31, 1998, the Company had approximately 125 Hilton Garden Inn properties either open or under construction. The Company anticipates that approximately 200 Hilton Garden Inn properties will be either open or under construction by December 31, 2000. HILTON RESIDENTIAL SUITES In January 1999, the Company announced that it will enter the premier segment of the extended stay market in the United States, Canada and Mexico with the introduction of Hilton Residential Suites-TM- hotels. The Company anticipates that the Hilton Residential Suites properties will be primarily newly constructed facilities to be operated as franchise hotels. These properties will have approximately 95 to 150 guest suites. Construction of the initial Hilton Residential Suites hotel in the United States will commence in 1999, and the Company anticipates that approximately 100 properties will be either open or under construction by December 31, 2003. FULL-SERVICE HOTELS In 1998, the Company continued several major capital projects for hotel properties. The Company is renovating the Hilton New York & Towers, which will include new restaurants, a state-of-the-art business/ conference center, a world-class fitness facility, an exclusive Towers Lounge overlooking Manhattan and 37 additional guest rooms. The Company expects to complete this project in late 1999. The Company is also constructing a new 600-room hotel at the center of Boston's Logan Airport, which the Company expects to complete in late 1999. The Company seeks to maintain its competitive advantage by consistently improving its hotels through renovation and expansion programs. The Company has recently completed, has commenced or is commencing renovation or expansion programs at a number of major properties, including the following: - Hilton Hawaiian Village--completed the renovation of suites and junior suites at its Diamond Head Tower in 1998 and is renovating 310 guest rooms at its Ali'i Tower. - Hilton San Francisco & Towers--completed the renovation of seven presidential suites in 1998 and is renovating 185 guest rooms. - Hilton Seattle Airport--expects to begin construction in 1999 of a 222-room addition to the property, which will include a new conference center and the renovation of existing rooms. - Hilton Portland--expects to begin construction in early 2000 of a 319-room tower addition to the property. - Hilton McLean Tysons Corner--renovating all 458 guest rooms. - Waldorf=Astoria--renovating 299 guest rooms, including 15 of its Waldorf Towers suites, and upgrading the hotel exterior. - Capital Hilton--renovating its top four floors and congressional and senate suites. - Additional renovation programs include: a 400-room renovation at the Hilton Chicago O'Hare Airport, a 340-room renovation at the Hilton Chicago & Towers, a 242-room renovation at the Hilton New Orleans Riverside, a 206-room renovation at the Hilton Atlanta Airport & Towers, a 10

160-room renovation at the Hilton Rye Town and a 148-room renovation at the Hilton Pittsburgh & Towers. INTERNATIONAL HOTELS The Company has entered into management contracts to operate the following new international hotels (with anticipated opening dates indicated): the 400-room Conrad International Bangkok in Thailand (2000); and the 700-room Conrad International Jakarta in Indonesia (2002). The Company has a 10% equity interest in the Conrad International Jakarta. Future development of international hotels by the Company will be subject to agreements entered into between the Company and Ladbroke. Pursuant to such agreements, Ladbroke has rights to future international development using the Conrad brand name and the Company and Ladbroke will have the opportunity to participate in certain of each other's future hotel development focusing primarily upon management contracts and franchises. See "General Information--Ladbroke Alliance" and "Hotel Operations--Territorial Restrictions." The operation of hotels internationally is affected by the political and economic conditions of the countries and regions in which they are located, in addition to factors affecting the hotel industry generally. Certain countries have also restricted, from time to time, the repatriation of funds. The Company considers the foregoing factors, among others, when evaluating a management and/or investment opportunity abroad, but the Company can give no assurances that changes in law or governmental policy will not adversely affect international operations in the future. TERRITORIAL RESTRICTIONS Hilton has entered into agreements which restrict its right to operate hotels in various areas. Pursuant to an agreement entered into in 1964 at the time Hilton distributed to its stockholders all of the issued and outstanding capital stock of HI, Hilton was prohibited from operating facilities outside the United States identified as "Hilton" hotels and HI was prohibited from operating facilities within the United States identified as "Hilton" hotels. The Company conducts its international hotel operations under the Conrad International name. See "Hotel Operations--Wholly and Partially Owned Hotels" and "--Managed Hotels." In January 1997, the Company and Ladbroke, the parent company of HI, entered into agreements to form a strategic alliance which reunites the Hilton name. Pursuant to these agreements, the Company has granted a license to HI to use the Conrad name for future development outside the United States for a period of 20 years. HI has granted a license to the Company to develop franchise properties under the Hilton, Hilton Garden Inn and Hilton Residential Suites names in Canada, Mexico and the Island of St. John, U.S. Virgin Islands for a period of 20 years. Subject to the foregoing restrictions as to the use of the "Hilton" name, Hilton and HI can compete in all, and do compete in certain, markets. POTENTIAL ACQUISITIONS The Company continuously evaluates acquisition opportunities and may, from time to time, negotiate to engage in a business combination transaction or other acquisition. However, there is no assurance that the Company will engage in any such transactions. PROPERTY TRANSACTIONS Hilton continuously evaluates its property portfolio and intends to dispose of its interests in hotels or properties that, in its opinion, no longer yield an adequate return on investment or conform to Hilton's long range plans. 11

ADDITIONAL INFORMATION VACATION OWNERSHIP Hilton Grand Vacations Company and its related entities ("HGVC"), which are wholly owned by the Company, currently operate 19 vacation ownership resorts in Florida and two in Nevada and operate the HGVClub, a points based reservation and exchange system. HGVC is currently developing the following projects: - In 1998, HGVC commenced construction of a 232-unit vacation ownership resort located adjacent to the Las Vegas Hilton, which HGVC expects to open in late 1999. - HGVC has completed 260 units of a 420-unit vacation ownership resort located adjacent to Sea World in Orlando, Florida. - HGVC is developing a 52-unit vacation ownership resort in the South Beach area of Miami Beach, Florida, through the renovation of two historic art deco buildings. HGVC anticipates completing the first 26 units of this resort in mid 1999, with the remaining units scheduled to open in summer 1999. HGVC is actively seeking new management, development and acquisition opportunities in other destination resort locations. CASINO WINDSOR The Company owns a 50% equity interest in Windsor Casino Limited ("WCL") which operates the Casino Windsor in Windsor, Ontario, Canada for the Ontario provincial government. In July 1998, WCL opened the 400-room hotel casino, which features a 75,000 square foot casino and entertainment and meeting facilities. This facility replaced a 50,000 square foot temporary casino that WCL had operated since 1994. See "Additional Information--Regulation and Licensing--Ontario Gaming Laws." FLAMINGO CASINO-KANSAS CITY The Company owns and operates the Flamingo Casino-Kansas City, a dockside casino complex in Kansas City, Missouri. Prior to and in connection with the Park Place Distribution, Park Place applied to the Missouri Gaming Commission for approval to own and operate the Flamingo Casino-Kansas City, which approval was not received prior to the Park Place Distribution. The Company has retained this property and agreed to cooperate with Park Place to take appropriate action to put Park Place in the same economic position it would have been in if the transfer had occurred on December 31, 1998. The Company and Park Place entered into a disposition agreement providing for the sale or other disposition of the Flamingo Casino-Kansas City. Accordingly, on January 13, 1999, the Company entered into an agreement to sell this property to a third party. Upon completion of such sale, the proceeds of the sale will be allocated between the Company and Park Place pursuant to the disposition agreement. See "Additional Information--Regulation and Licensing--Missouri Gaming Laws." DESIGN AND FURNISHING SERVICES Hilton, through its wholly owned subsidiary, Hilton Equipment Corporation, provides design and furnishing services and purchases and distributes furniture, furnishings, equipment and supplies to the Company's hotels and to hotels owned and operated by others. The revenues of this operation depend primarily on the number of new hotels operated or franchised by Hilton and on refurbishing and remodeling of existing Hilton hotels. Electronic Data Systems Corporation provides certain purchasing and distribution services on behalf of Hilton Equipment Corporation under a fee arrangement. 12

RESERVATION SYSTEM Hilton Reservations Worldwide, LLC ("HRW") operates a worldwide reservation system for hotels owned, operated or franchised by Hilton, HI, their affiliates and others. Hilton and HI each own a 50% interest in HRW. In late 1998, HRW began using an updated computerized reservation system called Hilstar. The Company anticipates completing the replacement of the existing computer reservation system used at its hotel properties with Hilstar in spring 1999. Hilstar is managed by Anasazi Inc. See "General Information--Ladbroke Alliance." MARKETING The Company's hotel properties offer multiple product lines to a broad range of customers in many geographic markets. The Company's hotel portfolio includes full-service and limited-service hotels in urban, airport, resort and suburban locations. The Company's metropolitan and airport properties primarily serve the convention and meeting market and the business traveler market (businesspersons traveling as individuals or in small groups). The Company's resort properties primarily serve the tour and leisure market (tourists traveling either as individuals or in groups) and the convention and meeting market. As indicated under "Business Risks" below, these sources of business are sensitive to general economic and other conditions. In addition, the Company participates in certain joint marketing programs with business partners in the airline, car rental and cruise line industries. The Company believes that its alliance with Ladbroke (which currently owns the rights to the Hilton name outside the U.S.) will improve the performance of the Company's operations as its properties benefit from the worldwide integration of the Hilton brand, reservation systems, marketing programs and sales organizations. See "General Information--Ladbroke Alliance." BUSINESS RISKS In 1998, the Company increased average room rates for its owned, leased or managed hotels by seven percent over 1997. The Company's future operating results could be adversely impacted by industry overcapacity and weak demand, which could restrict the Company's ability to raise room rates to keep pace with the rate of inflation. The Company's business could also be adversely affected by increases in transportation and fuel costs or sustained recessionary periods in the U.S. (affecting domestic travel) and internationally (affecting inbound travel from abroad). General economic conditions, competition, work stoppages and other factors affecting particular properties impact Hilton's occupancy ratios. Occupancy ratios at the Company's hotels could also be negatively impacted by a decrease in travel resulting from adverse economic conditions outside the U.S. and by excess industry capacity. COMPETITION The Company seeks to maintain the quality of its lodging business while expanding both domestically and internationally. The Company intends to improve and expand its core business by leveraging its strong brand names, maximizing operating efficiencies, expanding and enhancing properties and acquiring or developing properties as appropriate. 13

Hilton is one of the largest operators of full-service hotels located within the United States. Competition in the industry is based primarily on the level of service, quality of accomodations, convenience of locations and room rates. Competition from other hotels, motels and inns, including facilities owned by local interests and facilities owned by national and international chains, is vigorous in all areas in which Hilton operates its facilities. The Company's hotels also compete generally with facilities offering similar services and located in cities and other locations where the Company's hotels are not present. If hotel capacity is expanded by others in a city where a Hilton hotel is located, competition will increase. STATISTICAL DATA The following table sets forth certain statistical information as of and for the year ended December 31, 1998, with respect to the Company's properties: <TABLE> <CAPTION> PROPERTIES ROOMS OCCUPANCY ROOM RATE REVPAR(1) ------------- --------- ------------- ----------- ----------- <S> <C> <C> <C> <C> <C> Owned and managed hotels: Domestic Pacific/Mountain.................................... 22 15,457 70.8% $ 146.97 $ 104.09 North Central....................................... 7 5,487 74.9 146.59 109.74 South Central....................................... 5 2,996 74.8 142.16 106.30 New England/Middle Atlantic......................... 9 6,448 78.1 207.23 161.91 South Atlantic...................................... 9 6,778 72.6 139.04 100.98 International......................................... 9 3,286 65.2 136.85 89.27 --- --------- --- ----------- ----------- Total................................................. 61 40,452 72.7% $ 155.01 $ 112.69 --- --------- --- ----------- ----------- --- --------- --- ----------- ----------- Franchised hotels....................................... 188 46,562 68.2% $ 97.30 $ 66.36 --- --------- --- ----------- ----------- --- --------- --- ----------- ----------- </TABLE> --------- (1) RevPAR is equal to rooms revenue divided by available rooms. For additional information regarding the Company's properties, number of available rooms and occupancy ratios, see the Five Year Summary on page 39 in the Stockholder Report. YEAR 2000 The Company is currently working to resolve the potential impact of the Year 2000 on the processing of date-sensitive information by its computerized information systems. The Year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the Year 2000, which could result in miscalculations or system failures. The Company has a Year 2000 program, the objective of which is to determine and assess the risks of the Year 2000 issue, and plan and institute mitigating actions to minimize those risks. The Company's standard for compliance requires that for a computer system or business process to be Year 2000 compliant, it must be designed to operate without error in date and date-related data prior to, on and after January 1, 2000. The Company expects to be fully Year 2000 compliant with respect to all significant business sytems prior to December 31, 1999. The Company's various project teams are focusing their attention in the following major areas: INFORMATION TECHNOLOGY ("IT") SYSTEMS Information technology systems account for much of the Year 2000 work and include all computer systems and technology managed by the Company. The Company has assessed these core systems, has plans in place, and is undertaking to test and implement changes where required. The Company has not 14

yet identified any significant remediation. The Company has contacted appropriate vendors and suppliers as to their Year 2000 compliance and their deliverables have been factored into the Company's plans. NON-IT SYSTEMS The Company has completed an inventory of all property level non-IT systems (including elevators, electronic door locks, etc.). The Company has assessed the majority of these non-IT systems, has plans in place, and is undertaking to test and implement changes where required. The Company has contacted appropriate vendors and suppliers as to their Year 2000 compliance and their deliverables have been factored into the Company's plans. SUPPLIERS The Company is communicating with its significant suppliers to understand their Year 2000 issues and how they might prepare themselves to manage those issues as they relate to the Company. To date, no significant supplier has informed the Company that a material Year 2000 issue exists which will have a material effect on the Company. During the remainder of 1999, the Company will continually review its progress against its Year 2000 plans and determine what contingency plans are appropriate to reduce its exposure to Year 2000 related issues. Based on the Company's current assessment, the costs of addressing potential problems are expected to be less than $3 million. However, if the Company is unable to resolve its Year 2000 issues, contingency plans to update existing systems (i.e. reservation, payroll, etc.) are in place for which the Company expects the cost, if any, to be an additional $3 million. If the Company's customers or vendors identify significant Year 2000 issues in the future and are unable to resolve such issues in a timely manner, it could result in a material financial risk. Accordingly, the Company plans to devote the necessary resources to resolve all significant Year 2000 issues in a timely manner. FORWARD-LOOKING STATEMENTS Forward-looking statements in this report, including without limitation, those set forth under the captions "General Information--Recent Developments," "Hotel Operations--Expansion Program" and "--Potential Acquisitions," and "Additional Information--Vacation Ownership," "--Marketing," "--Competition," "--Year 2000," "--Environmental Matters" and "--Regulation and Licensing," and statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance, and are subject to certain risks and uncertainties, including those set forth under the captions "Additional Information--Business Risks" and "--Competition," the effect of economic conditions, and customer demand, which could cause actual results to differ materially from historical results or those anticipated. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. 15

ENVIRONMENTAL MATTERS The Company, like others in its industry, is subject to various federal, state, local and, in some cases, foreign laws, ordinances and regulations that: (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous or toxic wastes, or (ii) may impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous or toxic substances or wastes (together, "Environmental Laws"). The Company endeavors to maintain compliance with Environmental Laws but, from time to time, the Company's operations may have resulted or may result in noncompliance or liability for cleanup pursuant to Environmental Laws. In that regard, the Company has been notified of contamination resulting from past disposals of wastes at two sites to which hazardous or non-hazardous wastes may have been sent from Company facilities in the past. Based on information reviewed by and available to the Company, including: (i) uncertainty whether a Company facility in fact shipped any wastes to one such site, (ii) the number of potentially responsible parties at such sites and (iii) where available, the volume and type of waste sent to each such site, the Company believes that any liability arising from such disposals under Environmental Laws would not have a material adverse effect on its results of operations or financial condition. REGULATION AND LICENSING ONTARIO GAMING LAWS. Ontario, Canada has laws and regulations governing the conduct of casino gaming. Ontario law requires that the operator of a casino must be found suitable and be registered. A registration once issued remains in force until revoked. Ontario law defines the grounds for registration, as well as revocation or suspension of such registration. The Ontario authorities have conducted an investigation of, and have found suitable, the Company and the other shareholder of WCL in connection with the Ontario registration of WCL. See "Additional Information--Casino Windsor." MISSOURI GAMING LAWS. Missouri has enacted the Missouri Gaming Law (the "MGL") and established the Missouri Gaming Commission (the "MGC"), which is responsible for licensing and regulating riverboat gaming in Missouri. The MGL grants specific powers and duties to the MGC to supervise riverboat gaming, implement the MGL and take other action as may be reasonable or appropriate to enforce the MGL. The MGL extensively regulates owning and operating riverboat gaming facilities in Missouri. Generally, a licensed company and its officers, directors, employees, related subsidiaries and significant shareholders are subject to such extensive regulation. In October 1996, the MGC granted a riverboat gaming license to the Company to operate the Flamingo Casino-Kansas City. Prior to and in connection with the Park Place Distribution, Park Place applied to the MGC for approval to own and operate the Flamingo Casino-Kansas City. The approval was not received prior to the Park Place Distribution. On January 13, 1999, the Company entered into an agreement to sell this property to a third party. This sale is subject to approval by the MGC. Upon completion of the sale, the Company expects to cease gaming operations in Missouri and surrender the gaming license to the MGC. See "Additional Information--Flamingo Casino-Kansas City." In 1998, the MGC announced that it would reopen the licensing investigation of the Company regarding alleged actions in 1993 by a former employee of a Company subsidiary. In January 1999, the MGC announced that it would terminate this investigation upon completion of the sale of the Flamingo 16

Casino-Kansas City described above. If this proposed sale is not completed, the Company expects to resolve this matter to the satisfaction of the MGC. OTHER LAWS AND REGULATIONS. Each of the hotels operated by the Company is subject to extensive state and local regulations and, on a periodic basis, must obtain various licenses and permits, including those required to sell alcoholic beverages. Management believes that the Company has obtained all required licenses and permits and its businesses are conducted in substantial compliance with applicable laws. EMPLOYEES At February 1, 1999, Hilton employed approximately 38,000 persons, of whom approximately 16,000 were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Hilton believes that the aggregate compensation benefits and working conditions afforded its employees compare favorably with those received by employees in the hotel industry generally. Although strikes of short duration have from time to time occurred at certain of Hilton's facilities, Hilton believes its employee relations are satisfactory. ITEM 2. PROPERTIES Hilton considers its hotels to be leading establishments with respect to desirability of location, size, facilities, physical condition, quality and variety of services offered in most of the areas in which they are located. Obsolescence arising from age and condition of facilities is a factor in the hotel industry. Accordingly, Hilton spends, and intends to continue to spend, substantial funds to maintain its facilities in first-class condition in order to remain competitive. Hotels owned and operated, leased and managed by Hilton are briefly described under "Item 1" and, in particular, under the caption "Hotel Operations." In addition, contemplated additions to, and major refurbishing and remodeling of, existing properties and new hotels presently under construction that Hilton will operate are briefly described under the caption "Hotel Operations--Expansion Program" under "Item 1." ITEM 3. LEGAL PROCEEDINGS A purported class action against Bally Entertainment Corporation ("Bally"), its directors and Hilton was commenced in August 1996 under the caption PARNES V. BALLY ENTERTAINMENT CORPORATION, ET AL. in the Court of Chancery of the State of Delaware, New Castle County. The plaintiff alleges breaches of fiduciary duty in connection with the merger of Bally with and into Hilton in December 1996 (the "Bally Merger"), including allegedly illegal payments to Arthur M. Goldberg that purportedly denied Bally shareholders other than Mr. Goldberg an opportunity to sell their shares to Hilton or any other bidder at the best possible price. In the complaint, the plaintiff seeks, among other things: (i) an order enjoining the Bally Merger; (ii) an award of damages in an unspecified amount; (iii) an order requiring Mr. Goldberg to disgorge his profits; and (iv) an award of attorneys' fees and expenses. In orders dated May 13, 1997 and February 3, 1998, the Court dismissed this litigation. Plaintiff appealed this dismissal and, on January 25, 1999, the Delaware Supreme Court reversed the dismissal order and remanded the case to the Court of Chancery. 17

In management's opinion, disposition of pending litigation against the Company, including the litigation described above, is not expected to have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's special meeting of stockholders held on November 24, 1998, the Company's stockholders approved each of the proposals relating to the Park Place Distribution. The voting results for each of the Park Place Distribution proposals are as follows: <TABLE> <CAPTION> <S> <C> <C> <C> i) Ratification of the Park Place Distribution, consisting of a special dividend to the holders of the Company's outstanding Common Stock, on a one-for-one basis, of all of the outstanding shares of Park Place common stock. FOR: 185,448,553 AGAINST: 6,380,604 ABSTAIN: 1,019,477 ii) Approval of the Park Place 1998 Stock Incentive Plan, including the grant of options thereunder. FOR: 162,334,266 AGAINST: 29,379,007 ABSTAIN: 1,135,361 iii) Approval of the Park Place 1998 Independent Director Stock Option Plan. FOR: 176,363,522 AGAINST: 15,281,119 ABSTAIN: 1,203,993 iv) Approval of an amendment and restatement of Hilton's 1996 Stock Incentive Plan, including the grant of options thereunder. FOR: 167,326,887 AGAINST: 24,324,629 ABSTAIN: 1,197,118 v) Ratification of the election of ten directors of Park Place, divided into three classes as follows: Term Expiring in 2000 Term Expiring in 2001 Term Expiring in 2002 Lyle Berman A. Steven Crown Stephen F. Bollenbach Clive S. Cummis J. Kenneth Looloian Arthur M. Goldberg Eric M. Hilton Gilbert L. Shelton Barron Hilton Rocco J. Marano FOR: 182,559,908 AGAINST: 9,024,655 ABSTAIN: 1,264,071 </TABLE> 18

EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth certain information with respect to the executive officers of the Company: <TABLE> <CAPTION> NAME POSITIONS AND OFFICES WITH THE COMPANY AGE ------------------------- --------------------------------------------------------------- --------- <S> <C> <C> Barron Hilton Chairman of the Board, and previously served as Chief Executive 71 Officer until February 1996 Stephen F. Bollenbach President and Chief Executive Officer since February 1996 56 Thomas E. Gallagher Executive Vice President and General Counsel since July 1997, 54 and Secretary since May 1998 Matthew J. Hart Executive Vice President and Chief Financial Officer since 46 April 1996, and Treasurer since January 1999 Dieter H. Huckestein Executive Vice President and President--Hotel Operations since 55 May 1994, and Senior Vice President--Hawaii/California/Arizona Region until May 1994 </TABLE> Unless otherwise noted in the table, all positions and offices with the Company indicated have been continuously held since January 1994. The executive officers are responsible for all major policy making functions and all other corporate and divisional officers are responsible to, and are under the supervision of, the executive officers. None of the above named executive officers are related. All of the above named executive officers are directors of the Company, except for Messrs. Gallagher and Hart. Prior to joining Hilton, Mr. Gallagher served as President and Chief Executive Officer of The Griffin Group, Inc. since April 1992, and was a partner with the law firm of Gibson, Dunn & Crutcher prior thereto. During 1995 and 1996, Mr. Gallagher also served as President and Chief Executive Officer of Griffin Gaming & Entertainment, Inc. (formerly Resorts International, Inc.). Prior to joining Hilton, Mr. Hart served as Senior Vice President and Treasurer of The Walt Disney Company since October 1995, and as Executive Vice President and Chief Financial Officer of Host Marriott Corporation prior thereto. Additional information for directors of the Company will be included under "Election of Directors" in the Company's definitive proxy statement to be used in connection with its annual meeting of stockholders scheduled to be held on May 12, 1999, and this information is incorporated in this Form 10-K. See "Cover Page--Documents Incorporated by Reference." 19

PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed on the New York and Pacific Stock Exchanges and is traded under the symbol "HLT." In 1997 and 1998, the Company made quarterly dividend payments of $.08 per share. Following the Park Place Distribution, for the first quarter of 1999, the Company made a dividend payment of $.02 per share. As of December 31, 1998, the Company had approximately 15,200 stockholders of record. The high and low sales prices of the Company's Common Stock are set forth in the following table for the periods indicated: <TABLE> <CAPTION> HIGH LOW --------- --------- <S> <C> <C> 1997 1st Quarter.................................................................................... $ 30.00 $ 24.00 2nd Quarter.................................................................................... 30.13 24.25 3rd Quarter.................................................................................... 34.06 26.75 4th Quarter.................................................................................... 35.81 26.06 1998 1st Quarter.................................................................................... 35.50 27.50 2nd Quarter.................................................................................... 34.00 28.13 3rd Quarter.................................................................................... 28.06 16.56 4th Quarter ................................................................................... 22.81 12.50 1999 1st Quarter (through March 26, 1999)(1)........................................................ 16.69 13.88 </TABLE> --------- (1) Represents the Company's Common Stock trading on a stand alone basis subsequent to the Park Place Distribution. RIGHTS AGREEMENT On July 9, 1998, the Company adopted a new preferred share purchase rights plan (the "Rights Plan") and declared a dividend distribution of one preferred share purchase right (a "Right") on each outstanding share of the Company's Common Stock. The new Rights Plan replaced the Company's prior rights plan which was adopted in 1988 and was set to expire. On September 10, 1998, the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, entered into an Amended and Restated Rights Agreement (the "Rights Agreement"). The Rights are transferred only with the Common Stock, unless and until they become exercisable. The Rights will expire on July 27, 2008, subject to the Company's right to extend, unless earlier redeemed or exchanged by the Company or terminated. Generally, the Rights become exercisable only if a person or group (other than Hilton Interests, as defined below): (i) acquires beneficial ownership of 15% or more of the Company's Common Stock (such person or group, an "Acquiring Person") or (ii) announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the Common Stock. When exercisable, each Right entitles a shareholder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $140, subject to adjustment (the "Purchase Price"). 20

After a person becomes an Acquiring Person, each holder of a Right (other than Rights owned by the Acquiring Person) will have the right to receive upon exercise a number of shares of Common Stock having a market value equal to two times the then current Purchase Price of the Right. After a person becomes an Acquiring Person, if the Company engages in certain mergers or transfers of assets, each holder of a Right (other than Rights owned by the Acquiring Person) will have the right to receive upon exercise, at the Right's exercise price, a number of the acquiring company's common shares having a market value of twice the Right's Purchase Price. Once a person becomes an Acquiring Person, but prior to their acquisition of 50% or more of the outstanding Common Stock, the Company's Board of Directors may cause the Company to exchange the Rights (other than Rights owned by an Acquiring Person), in whole or in part, for shares of Common Stock at an exchange ratio based on the value of the Common Stock at that time, subject to adjustment. Prior to the acquisition by an Acquiring Person of beneficial ownership of 15% or more of the Company's Common Stock, the Rights are redeemable for $.001 per Right at the option of the Company's Board of Directors. "Hilton Interests" refer to Barron Hilton and the Conrad N. Hilton Fund and the shares of Common Stock beneficially owned by them. The Rights Agreement has been filed as Exhibit 4.11 to this Form 10-K, and the foregoing summary is qualified in its entirety by reference to Exhibit 4.11. ITEM 6. SELECTED FINANCIAL DATA The ratio of earnings to fixed charges for the five years ended December 31, 1998 is as follows: 1998 - 3.2 to 1; 1997 - 4.0 to 1; 1996 - 4.2 to 1; 1995 - 2.8 to 1; and 1994 - 2.0 to 1. The ratio of earnings to combined fixed charges and preferred stock dividends for the five years ended December 31, 1998 is as follows: 1998 - 2.9 to 1; 1997 - 3.3 to 1; 1996 - 4.1 to 1; 1995 - 2.9 to 1; and 1994 - 2.0 to 1. The computation of the aforesaid ratios is set forth in Exhibit 12 to this Form 10-K. For additional information, see the Five Year Summary on page 39 in the Stockholder Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See pages 18 through 23 in the Stockholder Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplemental information required by this Item are contained in the Stockholder Report on the pages indicated, which information is incorporated in this Form 10-K by reference. <TABLE> <CAPTION> PAGE ----- <S> <C> Consolidated Statements of Income for the three years ended December 31, 1998.............................................. 24 Consolidated Balance Sheets as of December 31, 1998 and 1997........................... 25 Consolidated Statements of Cash Flow for the three years ended December 31, 1998.............................................. 26 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1998.............................................. 27 Notes to Consolidated Financial Statements............................................. 28 Report of Independent Public Accountants............................................... 36 </TABLE> ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain of the information respecting executive officers required by this Item is set forth under the caption "Executive Officers of the Company" in Part I. Other information respecting certain executive officers, as well as the required information for directors, will be contained in the Company's Proxy Statement, and reference is expressly made to the Proxy Statement for the specific information incorporated in this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item will be set forth under "Executive Compensation" in the Company's Proxy Statement, and except for information set forth in the Proxy Statement under "Personnel and Compensation Committee Report on Executive Compensation" and "Stockholder Return Performance Graph," reference is expressly made to the Proxy Statement for the specific information incorporated in this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item will be set forth under "Security Ownership of Certain Beneficial Owners and Executive Officers" and "Election of Directors" in the Company's Proxy Statement, and reference is expressly made to the Proxy Statement for the specific information incorporated in this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item will be set forth under "Certain Relationships and Interests in Certain Transactions" in the Company's Proxy Statement, and reference is expressly made to the Proxy Statement for the specific information incorporated in this Form 10-K. 22

PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) INDEX TO FINANCIAL STATEMENTS 1. Financial Statements: The index to consolidated financial statements and supplementary data is set forth under Item 8 on page 22 of this Form 10-K. 2. Financial Statement Schedules: <TABLE> <CAPTION> PAGE ----- <S> <C> Report of Independent Public Accountants............................................... 24 Schedule II--Valuation and Qualifying Accounts......................................... 25 </TABLE> All other schedules are inapplicable or the required information is included elsewhere herein. (b) REPORTS ON FORM 8-K The Company filed a Current Report on Form 8-K, dated October 20, 1998, under the caption "Item 5. Other Events," to report results for the three and nine month periods ended September 30, 1998 and disclose certain information relating to Park Place and its merger with Grand Casinos, Inc. ("Grand"). The Company filed a Current Report on Form 8-K, dated November 10, 1998, incorporating the Supplement, dated November 6, 1998, to the Joint Proxy Statement of the Company and Grand, along with the press release of Park Place relating to its tender offer for outstanding Grand debt. The Company filed a Current Report on Form 8-K, dated November 24, 1998, under the caption "Item 5. Other Events," to report that the stockholders of the Company voted in favor of all proposals relating to the Park Place Distribution at the special meeting of stockholders held on November 24, 1998. (c) EXHIBITS Reference is made to the Index to Exhibits immediately preceding the exhibits to this Form 10-K. 23

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE To Hilton Hotels Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Hilton Hotels Corporation and subsidiaries included in the Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 5, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The supplemental schedule II to consolidated financial statements as shown on page 25 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. The supplemental schedule to the consolidated financial statements has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California February 5, 1999 24

HILTON HOTELS CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS) <TABLE> <CAPTION> CHARGED BALANCE AT CHARGED TO (CREDITED) BALANCE AT BEGINNING COSTS AND TO OTHER END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OTHER PERIOD ---------- ---------- ---------- ---------- ----- ---------- <S> <C> <C> <C> <C> <C> <C> YEAR ENDED DECEMBER 31, 1998 Allowance for doubtful accounts........................... $ 6 7 1 3 1(A) 12 Reserve for loss on investments........................... 2 -- -- 2 -- -- YEAR ENDED DECEMBER 31, 1997 Allowance for doubtful accounts........................... $ 7 1 (2) -- -- 6 Reserve for loss on investments........................... 6 -- -- 4 -- 2 YEAR ENDED DECEMBER 31, 1996 Allowance for doubtful accounts........................... $ 8 2 (2) 2 1(A) 7 Reserve for loss on investments........................... 20 6 -- 20 -- 6 </TABLE> --------- (A) Represents balances acquired during the period. 25

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 26, 1999. <TABLE> <S> <C> <C> HILTON HOTELS CORPORATION (Registrant) By: MATTHEW J. HART ----------------------------------------- Matthew J. Hart Executive Vice President, Chief Financial Officer and Treasurer </TABLE> Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 26, 1999. <TABLE> <S> <C> STEPHEN F. BOLLENBACH DIETER H. HUCKESTEIN ------------------------------------------- ------------------------------------------- Stephen F. Bollenbach Dieter H. Huckestein President, Chief Executive Officer Director and Director A. STEVEN CROWN ROBERT L. JOHNSON ------------------------------------------- ------------------------------------------- A. Steven Crown Robert L. Johnson Director Director PETER M. GEORGE DONALD R. KNAB ------------------------------------------- ------------------------------------------- Peter M. George Donald R. Knab Director Director ARTHUR M. GOLDBERG ROBERT M. LA FORGIA ------------------------------------------- ------------------------------------------- Arthur M. Goldberg Robert M. La Forgia Director Senior Vice President and Controller (Chief Accounting Officer) MATTHEW J. HART BENJAMIN V. LAMBERT ------------------------------------------- ------------------------------------------- Matthew J. Hart Benjamin V. Lambert Executive Vice President, Director Chief Financial Officer and Treasurer BARRON HILTON DONNA F. TUTTLE ------------------------------------------- ------------------------------------------- Barron Hilton Donna F. Tuttle Chairman of the Board Director SAM D. YOUNG, JR. ------------------------------------------- Sam D. Young, Jr. Director </TABLE> 26

<TABLE> <CAPTION> INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------- -------------------------------------------------------------------------------------------------- <C> <S> <C> 2.1 Agreement and Plan of Merger, dated as of June 30, 1998, among Registrant, Park Place Entertainment Corporation ("Park Place"), Gaming Acquisition Corporation, GCI Lakes, Inc. and Grand Casinos, Inc. (incorporated herein by reference from Exhibit 2.1 to Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1998) 3.1 Restated Certificate of Incorporation of Registrant, as amended (incorporated herein by reference from Exhibit 4.1 to Registrant's Registration Statement on Form S-3 (File No. 333-18523)) 3.2 Amendment to Restated Certificate of Incorporation of Registrant, relating to Exhibit 3.1 hereto (incorporated herein by reference from Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997) 3.3 By-Laws of Registrant, as amended (incorporated herein by reference from Exhibit 4.2 to Registrant's Registration Statement on Form S-3 (File No. 333-18523)) 3.4 Amendment to By-Laws of Registrant, relating to Exhibit 3.3 hereto................................ 4.1 Indenture, dated as of July 1, 1988, between Registrant and Citibank, N.A., as Trustee, regarding Registrant's Subordinated Debt Securities (incorporated herein by reference from Exhibit 4.1 to Post-Effective Amendment No. 2 to Registrant's Registration Statement on Form S-3 (File No. 2-95746)) 4.2 Indenture, dated as of July 1, 1988, between Registrant and Morgan Guaranty Trust Company of New York, as Trustee, regarding Registrant's Senior Debt Securities (incorporated herein by reference from Exhibit 4.1 to Post-Effective Amendment No. 1 to Registrant's Registration Statement on Form S-3 (File No. 2-99967)) 4.3 First Supplemental Indenture, dated as of June 30, 1992, between Registrant and Morgan Guaranty Trust Company of New York, as Trustee, regarding Registrant's Senior Debt Securities, relating to Exhibit 4.2 hereto (incorporated herein by reference from Exhibit 4.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) 4.4 Indenture, dated as of May 14, 1996, between Registrant and The Bank of New York, as Trustee, regarding Registrant's 5% Convertible Subordinated Notes due 2006 (incorporated herein by reference from Exhibit 4.6 to Registrant's Registration Statement on Form S-4 (File No. 333-10415)) 4.5.1 Indenture, dated as of April 15, 1997, between Registrant and BNY Western Trust Company, as Trustee, regarding Registrant's Debt Securities (incorporated herein by reference from Exhibit 4.3 to Registrant's Current Report on Form 8-K, dated April 15, 1997) 4.5.2 First Supplemental Indenture, dated as of December 31, 1998, among Registrant, Park Place and BNY Western Trust Company, as Trustee, regarding Registrant's Debt Securities, relating to Exhibit 4.5.1 hereto (incorporated herein by reference from Exhibit 4.1 to Registrant's Current Report on Form 8-K, dated January 8, 1999) </TABLE> 27

<TABLE> <CAPTION> INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------- -------------------------------------------------------------------------------------------------- <C> <S> <C> 4.5.3 Officers' Certificate containing terms of 7.95% Senior Notes due 2007 (incorporated herein by reference from Exhibit 99 to Registrant's Current Report on Form 8-K, dated April 15, 1997) 4.5.4 Officers' Certificate containing terms of 7.375% Senior Notes due 2002 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated June 4, 1997) 4.5.5 Officers' Certificate containing terms of 7% Senior Notes due 2004 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated July 17, 1997) 4.5.6 Officers' Certificate containing terms of 7.20% Senior Notes due 2009 and 7.5% Senior Notes due 2017 (incorporated herein by reference from Exhibit 4.1 to Registrant's Current Report on Form 8-K, dated December 17, 1997) 4.6 Credit Agreement, dated as of October 18, 1996, among Registrant, Morgan Guaranty Trust Company of New York, as Documentation Agent, The Bank of New York, as Administrative Agent, and the financial institutions signatory thereto (incorporated herein by reference from Exhibit 4.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996) 4.7 Amendment No. 1 to Credit Agreement, dated as of December 3, 1998, among Registrant, Morgan Guaranty Trust Company of New York, as Documentation Agent, The Bank of New York, as Administrative Agent, and the financial institutions signatory thereto, relating to Exhibit 4.6 hereto............................................................................................ 4.8 Reimbursement Agreement, dated as of November 15, 1990, among Registrant, Swiss Bank Corporation and the financial institutions signatory thereto (incorporated herein by reference from Exhibit 4.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990) 4.9 First Amendment to Reimbursement Agreement, dated as of December 17, 1996, among Registrant, Deutsche Bank AG and the financial institutions signatory thereto, relating to Exhibit 4.8 hereto............................................................................................ 4.10 Second Amendment to Reimbursement Agreement, dated as of May 1, 1998, among Registrant, Deutsche Bank AG and the financial institutions signatory thereto, relating to Exhibits 4.8 and 4.9 hereto............................................................................................ 4.11 Amended and Restated Rights Agreement, dated as of September 10, 1998, between Registrant and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (incorporated herein by reference from Exhibit 1 to Registrant's Registration Statement on Form 8-A, dated September 16, 1998) 10.1 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, together with the Stock Option Agreement relating thereto, both as amended (incorporated herein by reference from Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989)* 10.2 Amendment, dated October 18, 1990, to the 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibit 10.1 hereto (incorporated herein by reference from Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990)* </TABLE> 28

<TABLE> <CAPTION> INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------- -------------------------------------------------------------------------------------------------- <C> <S> <C> 10.3 Amendment, dated November 14, 1996, to the 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.1 and 10.2 hereto (incorporated herein by reference from Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.4 Third Amendment, dated as of December 31, 1998, to the 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.1, 10.2 and 10.3 hereto (incorporated herein by reference from Exhibit 99.8 to Registrant's Current Report on Form 8-K, dated January 8, 1999)* 10.5 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, together with the Stock Option Agreement relating thereto, both as amended (incorporated herein by reference from Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990)* 10.6 Amendment, dated January 20, 1994, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibit 10.5 hereto (incorporated herein by reference from Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993)* 10.7 Amendment, dated January 19, 1995, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.5 and 10.6 hereto (incorporated herein by reference from Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)* 10.8 Amendment, dated November 14, 1996, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.5, 10.6 and 10.7 hereto (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.9 Fourth Amendment, dated as of December 31, 1998, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.5, 10.6, 10.7 and 10.8 hereto (incorporated herein by reference from Exhibit 99.9 to Registrant's Current Report on Form 8-K, dated January 8, 1999)* 10.10 Amended and Restated 1996 Stock Incentive Plan of Registrant (incorporated herein by reference from Annex F to Registrant's Joint Proxy Statement/Prospectus, dated October 23, 1998)* 10.11 1996 Chief Executive Stock Incentive Plan of Registrant (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995)* 10.12 First Amendment, dated as of December 31, 1998, to the Chief Executive Stock Incentive Plan of Registrant, relating to Exhibit 10.11 hereto (incorporated herein by reference from Exhibit 99.10 to Registrant's Current Report on Form 8-K, dated January 8, 1999)* 10.13 1997 Independent Director Stock Option Plan of Registrant (incorporated herein by reference from Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)* 10.14 First Amendment, dated as of December 31, 1998, to the 1997 Independent Director Stock Option Plan of Registrant, relating to Exhibit 10.13 hereto (incorporated herein by reference from Exhibit 99.11 to Registrant's Current Report on Form 8-K, dated January 8, 1999)* </TABLE> 29

<TABLE> <CAPTION> INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------- -------------------------------------------------------------------------------------------------- <C> <S> <C> 10.15 Incentive Compensation Plan of Registrant (incorporated herein by reference from Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1980)* 10.16 Amendment, dated as of January 1, 1994, to the Incentive Compensation Plan of Registrant, relating to Exhibit 10.15 hereto (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993)* 10.17 Retirement Plan of Registrant, as amended and restated (incorporated herein by reference from Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)* 10.18 First Amendment, dated as of November 15, 1995, to the Retirement Plan of Registrant, relating to Exhibit 10.17 hereto (incorporated herein by reference from Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995)* 10.19 Second Amendment, effective December 31, 1996, to the Retirement Plan of Registrant, relating to Exhibits 10.17 and 10.18 hereto (incorporated herein by reference from Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.20 Third Amendment, effective December 31, 1996, to the Retirement Plan of Registrant, relating to Exhibits 10.17, 10.18 and 10.19 hereto (incorporated herein by reference from Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.21 Amendment, effective January 1, 1997, to the Retirement Plan of Registrant, relating to Exhibits 10.17, 10.18, 10.19 and 10.20 hereto (incorporated herein by reference from Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)* 10.22 Supplemental Executive Retirement Plan of Registrant, as amended (incorporated herein by reference from Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991)* 10.23 Amendment, effective April 1, 1994, to the Supplemental Executive Retirement Plan of Registrant, relating to Exhibit 10.22 hereto (incorporated herein by reference from Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)* 10.24 Amendment, effective December 31, 1996, to the Supplemental Executive Retirement Plan of Registrant, relating to Exhibits 10.22 and 10.23 hereto (incorporated herein by reference from Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.25 Directors' Retirement Benefit Plan of Registrant, as amended (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991)* 10.26 First Amendment, dated July 31, 1997, to the Directors' Retirement Benefit Plan of Registrant, relating to Exhibit 10.25 hereto (incorporated herein by reference from Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)* </TABLE> 30

<TABLE> <CAPTION> INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------- -------------------------------------------------------------------------------------------------- <C> <S> <C> 10.27 Retirement Benefit Replacement Plan of Registrant, as amended (incorporated herein by reference from Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992)* 10.28 Amendment, dated as of January 1, 1994, to the Retirement Benefit Replacement Plan of Registrant, relating to Exhibit 10.27 hereto (incorporated herein by reference from Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993)* 10.29 Amendment, effective April 1, 1994, to the Retirement Benefit Replacement Plan of Registrant, relating to Exhibits 10.27 and 10.28 hereto (incorporated herein by reference from Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)* 10.30 Amendment, effective December 31, 1996, to the Retirement Benefit Replacement Plan of Registrant, relating to Exhibits 10.27, 10.28 and 10.29 hereto (incorporated herein by reference from Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.31 Thrift Savings Plan of Registrant, as amended and restated (incorporated herein by reference from Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.32 Amendment, effective January 1, 1996, to the Thrift Savings Plan of Registrant, relating to Exhibit 10.31 hereto (incorporated herein by reference from Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.33 Amendment, effective January 1, 1997, to the Thrift Savings Plan of Registrant, relating to Exhibits 10.31 and 10.32 hereto (incorporated herein by reference from Exhibit 10.29 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)* 10.34 Executive Deferred Compensation Plan of Registrant, as amended (incorporated herein by reference from Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.35 Amendment, effective January 1, 1997, to the Executive Deferred Compensation Plan of Registrant, relating Exhibit 10.34 hereto (incorporated herein by reference from Exhibit 10.28 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.36 Amendment, effective January 1, 1997, to the Executive Deferred Compensation Plan of Registrant, relating to Exhibits 10.34 and 10.35 hereto (incorporated herein by reference from Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)* 10.37 Employee Stock Purchase Plan of Registrant (incorporated herein by reference from Exhibit 10.29 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)* 10.38 Amendment, effective January 1, 1997, to the Employee Stock Purchase Plan of Registrant, relating to Exhibit 10.37 hereto (incorporated herein by reference from Exhibit 10.34 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)* </TABLE> 31

<TABLE> <CAPTION> INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------- -------------------------------------------------------------------------------------------------- <C> <S> <C> 10.39 Second Amendment, dated as of December 31, 1998, to the Employee Stock Purchase Plan of Registrant, relating to Exhibits 10.37 and 10.38 hereto (incorporated herein by reference from Exhibit 99.12 to Registrant's Current Report on Form 8-K, dated January 8, 1999)* 10.40 Form of Change of Control Agreement between Registrant and each of Thomas E. Gallagher, Matthew J. Hart, Barron Hilton and Dieter H. Huckestein (incorporated herein by reference from Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)* 10.41 Employment Agreement, dated as of December 31, 1998, between Registrant and Stephen F. Bollenbach (incorporated herein by reference from Exhibit 99.13 to Registrant's Current Report on Form 8-K, dated January 8, 1999)* 10.42 Employment Agreement, dated as of February 1, 1996, between Registrant and Stephen F. Bollenbach (incorporated herein by reference from Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995)* 10.43 Distribution Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.1 to Registrant's Current Report on Form 8-K, dated January 8, 1999) 10.44 Debt Assumption Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.2 to Registrant's Current Report on Form 8-K, dated January 8, 1999) 10.45 Assignment and License Agreement, dated as of December 31, 1998, between Registrant, Conrad International Royalty Corporation and Park Place (incorporated herein by reference from Exhibit 99.3 to Registrant's Current Report on Form 8-K, dated January 8, 1999) 10.46 Hilton Hotels Corporation Corporate Services Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.4 to Registrant's Current Report on Form 8-K, dated January 8, 1999) 10.47 Park Place Entertainment Corporation Corporate Services Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.5 to Registrant's Current Report on Form 8-K, dated January 8, 1999) 10.48 Employee Benefits and Other Employment Matters Allocation Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.6 to Registrant's Current Report on Form 8-K, dated January 8, 1999) 10.49 Tax Allocation and Indemnity Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.7 to Registrant's Current Report on Form 8-K, dated January 8, 1999) 11 Computation of Earnings Per Share................................................................. 12 Computation of Ratios of Earnings to Fixed Charges................................................ 13 Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1998............ 21 List of Registrant's Subsidiaries................................................................. </TABLE> 32

<TABLE> <CAPTION> INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------- -------------------------------------------------------------------------------------------------- <C> <S> <C> 23 Consent of Independent Public Accountants......................................................... 99 Undertakings...................................................................................... </TABLE> --------- * Management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K, previously filed where indicated and incorporated herein by reference. Pursuant to Regulation Section 229.601, Item 601(b)(4)(iii) of Regulation S-K, upon request of the Securities and Exchange Commission, the Registrant hereby undertakes to furnish a copy of any unfiled instrument which defines the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries (and for any of its unconsolidated subsidiaries for which financial statements are required to be filed) wherein the total amount of securities authorized thereunder does not exceed 10% of the total consolidated assets of the Registrant. 33

Exhibit 3.4 AMENDMENT TO BY-LAWS On March 10, 1999, the Board of Directors of Hilton Hotels Corporation approved an amendment to the Corporation's By-Laws, which added a new article that reads as follows: "Stockholder Communications 43. Notwithstanding anything to the contrary contained in these By-Laws, to the extent permitted under applicable law at any time, the Corporation is authorized to communicate with stockholders electronically using, without limitation, telephone, internet or any other computer based technology, to provide reports, proxy statements and other information to stockholders and to permit voting by stockholders at stockholders meetings."

EXHIBIT 4.7 AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT dated as of December 3, 1998 to the Credit Agreement dated as of October 18, 1996 (the "CREDIT AGREEMENT") among HILTON HOTELS CORPORATION (the "BORROWER"), the BANKS party thereto (the "BANKS"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent (the "DOCUMENTATION AGENT") and THE BANK OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). WITNESSETH: WHEREAS, the Borrower proposes to distribute to its stockholders the stock of Park Place Entertainment Corporation, a Subsidiary formed to hold the Borrower's Gaming Segment; and WHEREAS, in connection therewith, the parties hereto desire to make certain modifications to the Credit Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. COVENANT AMENDMENTS. (a) The following new defined terms are added to Section 1.01 in appropriate alphabetical order: "PARK PLACE" means Park Place Entertainment Corporation, a Delaware corporation, and, immediately prior to the Spin-Off, a Subsidiary holding the assets of the Borrower's Gaming Segment. "PPE ASSUMED NOTES" means the Borrower's $300,000,000 7.375% Notes Due 2002 and $325,000,000 7.00% Notes Due 2004. "SPIN-OFF" means (A) the transfer to Park Place of all or substantially all of the assets of the Borrower and its Subsidiaries

comprising the Borrower's Gaming Segment and (B) the distribution by the Borrower to its stockholders of all capital stock of Park Place held by the Borrower. (b) Paragraph (1) of the definition of Interest Period in Section 1.01 is amended by the addition of "1 week or" immediately before the words "1, 2, 3 or 6 months thereafter". (c) The maximum Leverage Ratio in Section 5.09 is changed from "4:1" to "4.5:1". (d) The definition of Consolidated Debt in Section 5.09 is amended by the addition of the following proviso: ; PROVIDED that Consolidated Debt shall exclude: (A) the PPE Assumed Notes on the conditions that (i) such Debt shall have been assumed by Park Place on terms such that as between the Borrower and Park Place, Park Place is obligated to make payments of principal and interest on such Debt, and to reimburse the Borrower for any such payment made by the Borrower and (ii) the Spin-Off shall have occurred, and (B) Debt of the Borrower or a Subsidiary as to which a sum of cash and cash equivalents sufficient to provide for payment in full of such Debt at its scheduled maturity or at an earlier date at which it shall have been called for redemption shall have been irrevocably deposited in trust for the benefit of the holders of such Debt or a representative of such holders so as to result in legal or in-substance defeasance thereof; PROVIDED, FURTHER, that, notwithstanding clause (A) in the foregoing proviso, if Park Place fails to pay when due any principal of or interest on or any other amount with respect to the PPE Assumed Notes or reimburse the Borrower for payment thereof, and such failure is continuing, on and after the 90th day after such payment default first occurs any of the PPE Assumed Notes then outstanding shall be included in Consolidated Debt, unless such Debt then would be excluded therefrom pursuant to clause (B) in the foregoing proviso. (e) The definition of Consolidated EBITDA in Section 5.09 is amended by the addition of the following proviso: ; PROVIDED that Consolidated EBITDA for any period shall be adjusted on a pro forma basis (i) to include (or exclude) amounts attributable to hotel operations acquired (or sold or otherwise discontinued) during such period as if such acquisition (or disposition) had occurred on the first day of such period and (ii) to include amounts (annualized on a simple arithmetic 2

basis) attributable to hotel projects which commenced operations during such period and were in operation for at least one full fiscal quarter during such period; PROVIDED, FURTHER, that, for purposes of determining Consolidated EBITDA for any period, Consolidated Net Income shall exclude any interest income attributable to the assumption or payment by Park Place of the PPE Assumed Notes. (f) The parties agree that the Spin-Off does not give rise to a Default under Section 5.03 or Section 5.07. SECTION 3. PRICING INCREASE. The table appearing in Exhibit A hereto is substituted for the table appearing in the Pricing Schedule. SECTION 4. REPRESENTATIONS OF BORROWER. The Borrower represents and warrants that (i) the representations and warranties of the Borrower set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 5. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 7. EFFECTIVENESS. This Amendment shall become effective as of the date hereof on the date (the "AMENDMENT EFFECTIVE DATE") when the Documentation Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Documentation Agent) that such party has signed a counterpart hereof. 3

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. HILTON HOTELS CORPORATION By: /s/ Matthew J. Hart ---------------------------------- Name: Matthew J. Hart Title: Executive Vice President & Chief Financial Officer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Diana H. Imhof ---------------------------------- Name: Diana H. Imhof Title: Vice President THE BANK OF NEW YORK By: /s/ Lisa Y. Brown ---------------------------------- Name: Lisa Y. Brown Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Michelle L. Hilse ---------------------------------- Name: Michelle L. Hilse Title: Vice President WELLS FARGO BANK By: /s/ Timothy A. McDevitt ---------------------------------- Name: Timothy A. McDevitt Title: Vice President By: /s/ Donald A. Hartmann ---------------------------------- Name: Donald A. Hartmann Title: Senior Vice President 4

THE BANK OF NOVA SCOTIA By: /s/ M. Van Otterloo ---------------------------------- Name: M. Van Otterloo Title: Senior Relationship Manager BANKERS TRUST COMPANY By: /s/ Alex Johnson ---------------------------------- Name: Alex Johnson Title: Managing Director CIBC INC. By: --------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Mary P. Daly ---------------------------------- Name: Mary P. Daly Title: Vice President DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Stephan A. Wiedemann ---------------------------------- Name: Stephan A. Wiedemann Title: Director By: /s/ Hans-Josef Thiele ---------------------------------- Name: Hans-Josef Thiele Title: Director 5

FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: /s/ John E. Reid -------------------------- Name: John E. Reid Title: Vice Presidnet THE FUJI BANK, LIMITED, LOS ANGELES AGENCY By: -------------------------- Name: Title: SOCIETE GENERALE By: /s/ Alex Y. Kim -------------------------- Name: Alex Y. Kim Title: Vice President DRESDNER BANK AG, NEW YORK AND CAYMAN ISLAND BRANCHES By: /s/ A. R. Morris ----------------------------- Name: A. R. Morris Title: First Vice President By: /s/ B. Craig Erickson -------------------------- Name: B. Craig Erickson Title: Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ Yasushi Satomi -------------------------- Name: Yasushi Satomi Title: Senior Vice President 6

THE NORTHERN TRUST COMPANY By: /s/ John E. Burda ------------------------------ Name: John E. Burda Title: Second Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ Gary W. Wessels ------------------------------ Name: Gary W. Wessels Title: Vice President THE SAKURA BANK LIMITED, LOS ANGELES AGENCY By: /s/ Masayuki Kobayashi ------------------------------ Name: Masayuki Kobayashi Title: Joint General Manager UNITED STATES NATIONAL BANK OF OREGON By: /s/ Dale Parshall ------------------------------ Name: Dale Parshall Title: Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ J. Scott Jessup ------------------------------ Name: J. Scott Jessup Title: Vice President WACHOVIA BANK OF GEORGIA, N.A. By: /s/ Jessica S. Wright ------------------------------ Name: Jessica S. Wright Title: Vice President 7

WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By: /s/ Duncan M. Robertson -------------------------- Name: Duncan M. Robertson Title: Vice President By: /s/ Lisa Walker -------------------------- Name: Lisa Walker Title: Vice President BANK OF HAWAII By: /s/ Robert M. Wheeler III -------------------------- Name: Robert M. Wheeler III Title: Vice President CREDIT SUISSE By: /s/ Chris T. Horgan -------------------------- Name: Chris T. Horgan Title: Vice President By: /s/ Kristin Lepri -------------------------- Name: Kristin Lepri Title: Associate THE DAI-ICHI KANGYO BANK, LTD By: -------------------------- Name: Title: 8

FIRST HAWAIIAN BANK By: /s/ Travis Ruetenik -------------------------- Name: Travis Ruetenik Title: Corporate Banking Officer THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By: /s/ Shunji Sato --------------------------- Name: Shunji Sato Title: Deputy General Manager MELLON BANK, N.A. By: /s/ L. C. Ivey -------------------------- Name: L. C. Ivey Title: Vice President THE MITSUI TRUST & BANKING CO., INC. By: -------------------------- Name: Title: THE SANWA BANK, LIMITED, LOS ANGELES BRANCH By: -------------------------- Name: Title: 9

THE TOYO TRUST & BANKING CO., LTD., LOS ANGELES AGENCY By: -------------------------- Name: Title: BANCA DI ROMA By: /s/ Augusto Bianchi -------------------------- Name: Augusto Bianchi Title: 97911 By: /s/ Richard G. Dietz -------------------------- Name: Richard G. Dietz Title: 97271 BANQUE NATIONALE DE PARIS By: -------------------------- Name: Title: BANK ONE, LOUISIANA, NA By: /s/ Louis Ballero ----------------------------- Name: Louis Ballero Title: Senior Vice President FLEET BANK By: /s/ John T. Harrison -------------------------- Name: John T. Harrison Title: Senior Vice President HIBERNIA BANK By: /s/ Christopher Pitre -------------------------- Name: Christopher Pitre Title: Vice President 10

Exhibit 4.9 FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT This FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT (this "Agreement"), dated as of December 17, 1996, by and among HILTON HOTELS CORPORATION, a Delaware corporation (the "Company"), DEUTSCHE BANK AG, NEW YORK BRANCH, as issuer of the Letter of Credit (in such capacity, the "Issuer"); DEUTSCHE BANK AG, LOS ANGELES BRANCH, THE BANK OF NEW YORK, SOCIETE GENERALE, CIBC INC., THE SUMITOMO BANK, LIMITED, THE MITSUBISHI TRUST & BANKING CORPORATION, AND WESTDEUTSCHE LANDESBANK GIROZENTRALE (herein collectively, the "Banks" and individually a "Bank"); and DEUTSCHE BANK AG, NEW YORK BRANCH, as agent (in such capacity, the "Agent") for the Banks hereunder. Unless otherwise expressly defined herein, any capitalized term used herein and defined in the Reimbursement Agreement (as defined below) shall have the meaning assigned to it in the Reimbursement Agreement. W I T N E S S E T H: WHEREAS, the Issuer has issued that certain letter of credit No. 839-53762, dated May 16, 1996 (the "Letter of Credit"), pursuant to that certain reimbursement agreement, dated as of May 16, 1996 (the "Original Reimbursement Agreement"; as amended from time to time, including by this Agreement, the "Reimbursement Agreement"), by and between the Company, the Agent, the Issuer and the Banks; WHEREAS, the Company, the Issuer, the Agent and the Banks each desire to amend the Original Reimbursement Agreement in the manner and pursuant to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the promises made hereunder by the Company, the Issuer, the Agent and the Banks, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1. AMENDMENTS TO REIMBURSEMENT AGREEMENT. 1.1 CONSENTS. The Company, the Issuer, the Agent and each of the Banks executing this Agreement hereby consent to the following amendments to the Reimbursement Agreement on the terms and subject to the conditions set forth herein. 1.2 DEFINITIONS. 1.2.1 The following definitions are hereby added to the Reimbursement Agreement: "'BENEFIT ARRANGEMENT' means at any time any employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the Controlled Group. 'CONSOLIDATED DEBT' means at any date the Debt of the Company and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. 'CONSOLIDATED NET WORTH' means at any date the consolidated stockholders' equity of the Company and its Consolidated Subsidiaries determined as of such date. 'COVERED SUBSIDIARY' means at any time any Subsidiary of the Company that has consolidated assets in an amount greater than $5,000,000. 'EFFECTIVE DATE' means December 17, 1996. 'FACILITY FEE' has the meaning set forth in Section 2.05. 'FACILITY FEE RATE' has the meaning set forth in the Pricing Schedule. 'LEVERAGE RATIO' means at any date the ratio of Consolidated Debt at such date to Consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended on or prior to such date. 'PRICING SCHEDULE' means the Schedule attached hereto identified as such. -2-

'SIGNIFICANT SUBSIDIARY' means at any time a Subsidiary of the Company having (i) at least 10% of the total consolidated assets of the Company and its Subsidiaries (determined as of the last day of the most recent fiscal quarter of the company) or (ii) at least 10% of the consolidated revenues of the company and its Subsidiaries for the fiscal year of the Company then most recently ended. 'STATUS' has the meaning set forth in the Pricing Schedule." 1.2.2 The following definitions are hereby deleted in their entirety and amended in full to read as follows: "'AUTHORIZED OFFICER' means the Chairman of the Board, the Vice Chairman of the Board, the President, the Treasurer, the Chief Financial Officer, the Secretary or any Assistant Secretary of the Company. 'CONSOLIDATED EBITDA' means, for any period, Consolidated Net Income for such period before (i) income taxes, (ii) interest expense, (iii) depreciation and amortization, (iv) minority interest, (v) extraordinary losses or gains, (vi) discontinued operations and (vii) the cumulative effect of changes in accounting principles. 'CONTROLLED GROUP' means the Company, any Subsidiary and all members of a controlled group of corporations and all trades or business (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. 'FEES' means any or all of the Letter of Credit Fee, the Facility Fee and such other fees as are set forth in the Fee Letter or as may otherwise be agreed to by the Company and the Agent, in writing, from time to time. 'LETTER OF CREDIT FEE RATE' has the meaning set forth in the Pricing Schedule." 1.2.3 The definition of "CONSOLIDATED TANGIBLE NET WORTH" is hereby deleted from the Reimbursement Agreement in its entirety. -3-

1.3 OTHER AMENDMENTS. 1.3.1 SECTION 2.05 Section 2.05 (including the pricing schedule contained therein) is hereby deleted in its entirety and amended in full to read as follows: "Section 2.05. (a) FACILITY FEE. The Company shall pay to the Agent for the account of the Banks ratably a facility fee (the "Facility Fee") at a rate per annum determined daily in accordance with the Pricing Schedule. Such Facility Fee shall accrue from and including the Effective Date to but excluding the Expiration Date, on the daily aggregate amount of the Letter of Credit Commitments (whether used or unused) of the Banks. (b) LETTER OF CREDIT FEE. The Company shall pay to the Agent for the account of the Banks ratably a letter of credit fee (the "Letter of Credit Fee") accruing daily on the aggregate amount then available for drawing under the Letter of Credit at a rate per annum determined in accordance with the Pricing Schedule. (c) PAYMENTS. Accrued fees under this Section shall be payable quarterly in arrears on the first day of each March, June, September and December and on the Expiration Date." 1.3.2 PRICING SCHEDULE. The Pricing Schedule attached to this Agreement as Exhibit A is hereby incorporated into the Reimbursement Agreement by this reference as if originally set forth in full therein. 1.3.3 SECTION 7.02(c). Section 7.02(c) is hereby deleted in its entirety and amended in full to read as follows: "(c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b), a certificate of an Authorized Officer (i) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of clauses (g) and (h) of Section 7.07 and Section 7.10 on the date of such financial statements, (ii) stating whether a Default or Event of Default exists on the date of such certificate and, if any Default or Event of Default then exists, setting forth the details thereof and the -4-

action which the Company is taking or proposes to take with respect thereto and (iii) if the Company elects that Status shall be determined for purposes of the Pricing Schedule on the basis of the Leverage Ratio reflected in such certificate, a statement to such effect." 1.3.4 SECTION 7.02(d)(ii). The language "with respect to the Company's Consolidated Tangible Net Worth" contained in Section 7.02(d)(ii) is hereby deleted in its entirety. 1.3.5 SECTION 7.02(g). Section 7.02(g) is hereby deleted in its entirety and amended in full to read as follows: "(g) if and when any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV or ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer, any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Company setting forth details as to such occurrence and action, if any, -5-

which the Company or applicable member of the Controlled Group is required or proposes to take;" 1.3.6 SECTION 7.02(h), (i). The period at the end of Section 7.02(h) is hereby deleted and replaced with "; and" and a new Section 7.02(i) is hereby added to the Reimbursement Agreement as follows: "(i) forthwith, notice of any change of which the Company becomes aware in the rating by Moody's or Standard & Poor's of the Company's outstanding senior unsecured long-term debt securities." 1.3.7 SECTION 7.03(a). The following is hereby added at the end of Section 7.03(a) after the word "excepted" and prior to the semi-colon: ", except where failure to do so would not have a material adverse effect on the business, financial position, results of operations or prospects of the Company and its Consolidated Subsidiaries, considered as a whole" 1.3.8 SECTION 7.04. (a) All references to "Subsidiary" and "Subsidiaries" contained in Section 7.04 are hereby deleted in their entirety and amended in full to read "Significant Subsidiary" and "Significant Subsidiaries", respectively. (b) The following is hereby added at the end of Section 7.04 after the word "business" and prior to the period: "; provided, that nothing in this Section 7.04 shall prohibit (i) the merger of a Subsidiary into the Company or the merger or the consolidation of a Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or (ii) the termination of the corporate existence of any Subsidiary if the Company in good faith determines that such termination is in the best interest of the Company and is not materially disadvantageous to the Banks" 1.3.9 SECTIONS 7.05 AND 7.06. All references to "Subsidiary" contained in Sections 7.05 and 7.06 are hereby -6-

deleted in their entirety and amended in full to read "Significant Subsidiary". 1.3.10 SECTION 7.07(a). Section 7.07(a) is hereby deleted in its entirety and amended in full to read as follows: "(a) Liens existing as of October 18, 1996." 1.3.11 SECTION 7.07(c). Section 7.07(c) is hereby deleted in its entirety and amended in full to read as follows: "(c) any Lien on any assets securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset (it being understood that, for this purpose, the acquisition of a Person is also an acquisition of the assets of such Person); provided that the Lien attaches to such asset concurrently with or within 180 days after the acquisition thereof, or such longer period, not to exceed 12 months, due to the Company's inability to obtain the requisite governmental approvals with respect to such acquisition; provided further, that, in the case of real estate, (i) the Lien attaches within 12 months after the latest of the acquisition thereof, the completion of construction thereon or the commencement of full operation thereof and (ii) the Debt so secured does not exceed the sum of (x) the purchase price of such real estate plus (y) the costs of such construction;" 1.3.12 SECTION 7.07(f). Section 7.07(f) is hereby deleted in its entirety and amended in full to read as follows: "(f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased (other than to cover any transaction costs of such refinancing, extension, renewal or refunding) and is not secured by any additional assets: 1.3.13 SECTIONS 7.07(g), (h) AND (i). The "and" at the end of Section 7.07(g) is hereby deleted in its entirety. Section 7.07(h) is hereby deleted in its -7-

entirety and amended in full, and a new Section 7.07(i) is hereby added, each to read as follows: "(h) Liens securing Debt of a Subsidiary to the Company or another Subsidiary; and (i) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal amount at any time outstanding not to exceed 15% of Consolidated Net Worth." 1.3.14 SECTION 7.09. The following is hereby added at the end of Section 7.09 immediately prior to the period: "other than 'margin stock' issued by the Company which is retired upon purchase." 1.3.15 SECTION 7.10. Section 7.10 is hereby deleted in its entirety and amended in full to read as follows: "Section 7.10. LEVERAGE RATIO. The Leverage Ratio will at no time exceed 4:1. 1.3.16 SECTIONS 7.11 AND 7.12. Sections 7.11 and 7.12 are hereby deleted in their entirety and amended in full to read "RESERVED". 1.3.17 SECTION 8.01(g) AND (h). Sections 8.01(g) and 8.01(h) are hereby deleted in their entirety and amended in full to read as follows: "(g) the Company or any Covered Subsidiary or any Significant Subsidiary, shall fail to make any payment in respect of any Debt (other than the Debt evidenced by (i) this Agreement, the Related Reimbursement Agreement or the Related Documents or (ii) Non-Recourse Debt) when due or within any applicable grace period and the aggregate principal amount of such Debt is in excess of $100,000,000; (h) any event or condition shall occur which results in the acceleration of the maturity of any Debt (other than Non-Recourse Debt) in excess of $100,000,000 of the Company or any Covered Subsidiary or any Significant Subsidiary or enables the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof;" -8-

1.3.18 SECTIONS 8.01(i) AND (j). All references to "Subsidiary" or "subsidiary" contained in Sections 8.01(i) and 8.01(j) are hereby deleted in their entirety and amended in full to read "Significant Subsidiary". 1.3.19 SECTION 8.01(k). Section 8.01(k) is hereby deleted in its entirety and amended in full to read as follows: "(k) any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the Controlled Group, any plan administrator of any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the Controlled Group to incur a current payment obligation in excess of $25,000,000;" 1.3.20 SECTION 8.01(l). The reference to "Ten Million Dollars ($10,000,000)" contained in Section 8.01(l) is hereby deleted in its entirety and amended in full to read "$25,000,000". 2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Issuer, the Agent and the Banks as follows: 2.1 AUTHORITY. The Company has all necessary power and has taken all corporate action necessary to make this Agreement and all other agreements and instruments executed in connection herewith the legal, valid and binding obligations they purport to be. 2.2 NO LEGAL OBSTACLE TO AGREEMENT. The execution of this Agreement has not constituted or resulted in and will not constitute or result in a breach of any -9-

provision of any contract to which the Company is a party, or the violation of any law, judgment, decree or governmental order, rule or regulation applicable to, or result in the creation under any agreement or instrument of any security interest, lien, charge or encumbrance upon any of the assets of, the Company, except in favor of the Agent and the Banks or as permitted by the Reimbursement Agreement. No approval or authorization of any governmental authority is required to permit the execution, delivery or performance of this Agreement, or the transactions contemplated hereby or thereby. 2.3 INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in Article VI of the Reimbursement Agreement are true and correct in all respects on and as of the date hereof, as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date. 2.4 DEFAULT. Upon this Agreement becoming effective pursuant to Section 4.1 hereof, no Default or Event of Default has occurred and is continuing. 3. MISCELLANEOUS. 3.1 DATE OF EFFECTIVENESS. Upon the execution hereof by the Company, the Issuer, the Agent and the Banks, this Agreement shall become effective as of the date first above written. 3.2 EFFECT OF AGREEMENT ON REIMBURSEMENT. Except as affected hereby, the Reimbursement Agreement, the other Related Documents and any and all other agreements, documents, certificates and other instruments executed in connection therewith, shall remain in full force and effect in accordance with their respective terms. Except as otherwise provided herein, the Reimbursement Agreement, the other Related Documents and any and all other agreements, documents, certificates and other instruments executed in connection therewith, are in all respects ratified and confirmed, and nothing contained in this Agreement shall, or shall be construed to, modify, invalidate or otherwise affect any provision of such agreements, documents, certificates and instruments or any right of the parties thereto. 3.3 EFFECT OF BREACH OF AGREEMENT. The Company hereby acknowledges and agrees that a breach of or -10-

noncompliance with any of the representations, warranties, covenants or terms contained herein shall constitute an Event of Default. 3.4 NO WAIVER OF EVENT OF DEFAULT. The execution of this Agreement by the Issuer, the Agent and the Banks does not constitute a waiver of any Event of Default which now exists or which may occur hereafter. 3.5 LIMITATION OF CONSENTS. The consents given hereby are one-time consents only and are made only with respect to the matters and to the extent described herein. Such consents are not to be construed as consents to anything or for any purpose other than as specifically set forth in this Agreement and shall not constitute an agreement or obligation of the Company, the Issuer, the Agent or the Banks to grant any other or future consent. 3.6 APPLICABLE LAW; ASSIGNMENTS; ETC. This Agreement (i) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, (ii) shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and (iii) may be executed in any number of counterparts, each of which shall be deemed an original hereof. -11-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the date first above written. THE COMPANY HILTON HOTELS CORPORATION By /s/ Scott A. LaPorta ------------------------------- Title: Scott A. LaPorta Senior Vice President and Treasurer Hilton Hotels Corporation 9336 Civic Center Drive Beverly Hills, CA 90210 Attention: Scott La Porta Senior Vice President and Treasurer Telephone: (310) 205-4331 Telecopier: (310) 205-7849 THE AGENT DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent By /s/ Ross A. Howard ------------------------------ Title: Ross A. Howard Director By /s/ J. Scott Jessup ------------------------------ Title: J. Scott Jessup Vice President Deutsche Bank AG, New York Branch 31 West 52nd Street New York, New York 10019 Attention: Doris Braun Telephone: (212) 469-8636 Telecopier: (212) 469-7880 -12-

THE ISSUER DEUTSCHE BANK AG, NEW YORK BRANCH, as Issuer of the Letter of Credit By /s/ Ross A. Howard ----------------------- Title: Ross A. Howard Director By /s/ J. Scott Jessup ----------------------- Title: J. Scott Jessup Vice President Deutsche Bank AG, New York Branch 31 West 52nd Street New York, New York 10019 Attention: Volker Fischer Trade Finance Telephone: (212) 474-7978 Telecopier: (212) 469-7989 THE BANKS DEUTSCHE BANK AG, LOS ANGELES BRANCH By /s/ Ross A. Howard ----------------------- Title: Ross A. Howard Director By /s/ J. Scott Jessup ----------------------- Title: J. Scott Jessup Vice President Deutsche Bank AG, Los Angeles Branch 550 South Hope Street, Suite 1850 Los Angeles, California 90071 Attention: Anne Norwood Telephone: (213) 630-7682 Telecopier: (213) 630-7655 -13-

THE BANK OF NEW YORK By /s/ Lisa Y. Brown ------------------------------ Title: Lisa Y. Brown Vice President The Bank of New York 10990 Wilshire Boulevard Suite 1125 Los Angeles, California 90024 Attention: Lisa Brown Telephone: (310) 996-8656 Telecopier: (310) 996-8667 THE SUMITOMO BANK, LIMITED By /s/ Tatsuo Ueda ------------------------------ Title: Tatsuo Ueda General Manager The Sumitomo Bank, Limited 777 South Figueroa Street Suite 2600 Los Angeles, California 90017 Attention: Al Galluzzo Telephone: (213) 955-0855 Telecopier: (213) 623-6832 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ [ILLEGIBLE] ------------------------------ Title: Vice President By /s/ [ILLEGIBLE] ------------------------------ Title: Associate Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, New York 10036 Attention: Karen Hoplock Telephone: (212) 852-6087 Telecopier: (212) 852-6148 -14-

THE MITSUBISHI TRUST AND BANKING CORPORATION By /s/ Yasushi Satomi ------------------------------- Title: Chief Manager & Senior Vice President The Mitsubishi Trust and Banking Corporation 801 South Figueroa Street Suite 500 Los Angeles, California 90017 Attention: Dean Kawai Telephone: (213) 896-4666 Telecopier: (213) 687-4631 SOCIETE GENERALE By: /s/ [ILLEGIBLE] -------------------------------- Title: Vice President Societe Generale 2029 Century Park East Suite 2900 Los Angeles, California 90067 Attention: Don Schubert Telephone: (310) 788-7104 Telecopier: (310) 551-1537 CIBC INC. By: /s/ [ILLEGIBLE] -------------------------------- Title: Associate, CIBC Wood Gundy Securities Corp., AS AGENT CIBC Inc. 350 South Grand Avenue Suite 2600 Los Angeles, California 90071 Attention: Dean Decker Telephone: (213) 617-6245 Telecopier: (213) 346-0157 -15-

EXHIBIT 4.10 SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT This SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT (this "Amendment"), dated as of May 1, 1998, by and among HILTON HOTELS CORPORATION, a Delaware corporation (the "Company"), DEUTSCHE BANK AG, NEW YORK BRANCH, as issuer of the Letter of Credit (in such capacity, the "Issuer"); DEUTSCHE BANK AG, NEW YORK BRANCH AS SUCCESSOR TO DEUTSCHE BANK AG, LOS ANGELES BRANCH, THE BANK OF NEW YORK, SOCIETE GENERALE, CIBC INC., THE SUMITOMO BANK, LIMITED, THE MITSUBISHI TRUST & BANKING CORPORATION, AND WESTDEUTSCHE LANDESBANK GIROZENTRALE (herein collectively, the "Existing Banks" and individually "Existing Bank"); and DEUTSCHE BANK AG, NEW YORK BRANCH, as agent (in such capacity, the "Agent") and each of the banks listed on Schedule A hereto (each, a "New Bank" and, collectively, the "New Banks"). Unless otherwise expressly defined herein, any capitalized term used herein and defined in the Reimbursement Agreement (as defined below) shall have the meaning assigned to it in the Reimbursement Agreement. WITNESSETH: WHEREAS, the Issuer has issued that certain letter of credit No. 839-53762, dated May 16, 1996 (the "Letter of Credit"), pursuant to that certain reimbursement agreement, dated as of May 16, 1996 as amended by a First Amendment to Reimbursement Agreement, dated as of December 17, 1996 (the "Original Reimbursement Agreement"; as amended from time to time, including by this Agreement, the "Reimbursement Agreement"), by and between the Company, the Agent, the Issuer and the Banks; WHEREAS, the Company, the Issuer, the Agent and the Banks each desire to amend the Original Reimbursement Agreement in the manner and pursuant to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the promises made hereunder by the Company, the Issuer, the Agent and the Banks, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1.1. ASSIGNMENT AND ASSUMPTION. Each Existing Bank hereby sells and assigns to each New Bank without recourse and without representation or warranty (other than as expressly provided herein), and each New Bank hereby purchases and assumes from each Existing Bank, that interest in and to each Existing Bank's rights and obligations in respect of the Letter of Credit Commitment, the Risk Participation and the Loans set forth on Schedule A hereto under the Reimbursement Agreement as of the date hereof which for each such New Bank represents such New Bank's Letter of Credit Commitment as set forth on such Schedule A (calculated after giving effect to this Amendment), and represents all of the outstanding rights and obligations under the Reimbursement Agreement that are being sold and assigned to each such New Bank pursuant to this Amendment. 1.2. EFFECTIVENESS. In accordance with the requirements of Section 11.04(c) of the Reimbursement Agreement, on the Second Amendment Effective Date (as defined below), each New Bank shall be a "Bank" party to the Reimbursement Agreement and shall have all of the rights and obligations of a Bank with a Letter of Credit Commitment as set forth in such Schedule A and each Existing Bank shall be released from its obligations thereunder to a corresponding extent and no further consent or action by any party shall be required. 1.3. REPRESENTATION AND WARRANTIES. Each Existing Bank (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Reimbursement Agreement or the Related Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Reimbursement Agreement or the Related Documents or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance by the Company of any of their respective obligations under the Reimbursement Agreement or the Related Documents to which they are a party or any other instrument or document furnished pursuant thereto. 1.4. CONFIRMATION. Each New Bank (i) confirms that it has received a copy of the Reimbursement Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment; (ii) agrees that it will, independently and without reliance upon the Agent, or any other New Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Reimbursement Agreement; (iii) appoints and authorizes the Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Reimbursement Agreement and Related Documents as are delegated to the Agent and the Collateral Agent by the terms thereof, together with such powers as are reasonably -2-

incidental thereto; and (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Reimbursement Agreement are required to be performed by it as a Bank. 2. EXTENSION OF SCHEDULED EXPIRATION DATE. In accordance with Section 2.01 of the Reimbursement Agreement, on and as of the Second Amendment Effective Date the Scheduled Expiration Date shall be extended to May 16, 1999. The notice requirement of Section 2.01 is hereby waived in respect of such extension. 3. LIMITED EFFECT. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Reimbursement Agreement or any other Related Document. 4. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Agent. 5. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 6. EFFECTIVE DATE. This Amendment shall become effective on the date (the "Second Amendment Effective Date") when the Company, the Agent, each Existing Bank and each New Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent. 7. REFERENCE. From and after the Second Amendment Effective Date, all references in the Reimbursement Agreement and each of the Related Documents to the Reimbursement Agreement shall be deemed to be references to the Reimbursement Agreement as amended hereby. * * * -3-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the date first above written. THE COMPANY HILTON HOTELS CORPORATION By /s/ Scott A. La Porta ----------------------------------------- Title: Senior Vice President and Treasurer Hilton Hotels Corporation 9336 Civic Center Drive Beverly Hills, CA 90210 Attention: Scott La Porta Senior Vice President and Treasurer Tel: (310) 205-4331 Fox: (310) 205-7849 THE AGENT DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent By /s/ Stephan A. Wiedemann ----------------------------------------- Title: Stephan A. Wiedemann Director By /s/ Susan L. Pearson ----------------------------------------- Title: Susan L. Pearson Director Deutsche Bank AG, New York Branch 31 West 52nd Street New York, New York 10019 Attention: Inken Finnamore Tel: (212) 469-8348 Fax: (212) 469-8501 -4-

THE ISSUER DEUTSCHE BANK AG, NEW YORK BRANCH, as Isser of the Letter of credit By /s/ Stephan A. Wiedemann ----------------------------------------- Title: Stephan A. Wiedemann Director By /s/ Susan L. Pearson ----------------------------------------- Title: Susan L. Pearson Director Deutsche Bank AG, New York Branch 31 West 52and Street New York, New York 10019 Attention: Volker Fischer Trade Finance Tel: (212) 469-8636 Fax: (212) 469-7880 -5-

THE EXISTING BANKS DEUTSCHE BANK AG, NEW YORK BRANCH, AS SUCCESSOR TO DEUTSCHE BANK AG, LOS ANGELES BRANCH By /s/ Stephan A. Wiedemann ------------------------------------------ Title: Stephan A. Wiedemann Director By /s/ Susan L. Pearson ------------------------------------------ Title: Susan L. Pearson Director Deutsche Bank AG, New York Branch as Successor to Deutsche Bank AG, Los Angeles Branch 31 West 52nd Street New York, New York 10019 Attention: Thomas Foley Vice President Tel: (212) 469-8636 Fax: (212) 469-7880 THE BANK OF NEW YORK By /s/ Lisa Y. Brown ------------------------------------------ Title: Lisa Y. Brown, Vice President The Bank of New York 10990 Wilshire Boulevard Suite 1125 Los Angeles, California 90024 Attention: Lisa Y. Brown Tel: (310) 996-8656 Fax: (310) 996-8667 -6-

THE SUMITOMO BANK, LIMITED By /s/ Goro Hirai ------------------------------------------ Title: Goro Hirai Joint General Manager The Sumitomo Bank, Limited 777 South Figueroa Street Suite 2600 Los Angeles, California 90017 Attention: Al Galluzzo Tel: (213) 955-0855 Fax: (213) 623-6832 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ [ILLEGIBLE] ------------------------------------------ Title: Director By /s/ Elisabeth R. Wilds ------------------------------------------ Title: Elisabeth R. Wilds Associate Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, New York 10036 Attention: Elisabeth Wilds Tel: (212) 852-6322 Fax: (212) 852-6148 -7-

THE MITSUBISHI TRUST AND BANKING CORPORATION By /s/ [ILLEGIBLE] ------------------------------------------ Title: Deputy General Manager The Mitsubishi Trust and Banking Corporation 801 South Figueroa Street Suite 500 Los Angeles, California 90017 Attention: Dean Kawai Tel: (213) 896-4666 Fax: (213) 687-4631 SOCIETE GENERALE By /s/ Alex Kim ------------------------------------------ Title: Vice President Societe Generale 2029 Century Park East Suite 2900 Los Angeles, California 90067 Attention: Alex Kim Tel: (310) 788-7104 Fax: (310) 551-1537 -8-

CIBC INC. By /s/ Dean J. Decker ------------------------------------------ Dean J. Decker Executive Director CIBC Oppenheimer Corp., AS AGENT CIBC Inc. 350 South Grand Avenue Suite 2600 Los Angeles, California 90071 Attention: Dean Decker Tel: (213) 617-6245 Fax: (213) 346-0157 THE NEW BANKS DEUTSCHE BANK AG, NEW YORK BRANCH, AS SUCCESSOR TO DEUTSCHE BANK AG, LOS ANGELES BRANCH By /s/ Stephan A. Wiedemann ------------------------------------------ Title: Stephan A. Wiedemann Director By /s/ Susan L. Pearson ------------------------------------------ Title: Susan L. Pearson Director Deutsche Bank AG, New York Branch as Successor to Deutsche Bank AG, Los Angeles Branch 31 West 52nd Street New York, New York 10019 Attention: Thomas Foley Vice President Tel: (212) 469-8636 Fax: (212) 469-7880 -9-

THE BANK OF NEW YORK By /s/ Lisa Y. Brown ------------------------------------------ Title: Lisa Y. Brown, Vice President The Bank of New York 10990 Wilshire Boulevard Suite 1125 Los Angeles, California 90024 Attention: Lisa Brown Tel: (310) 996-8656 Fax: (310) 996-8667 SOCIETE GENERALE By /s/ Alex Kim ------------------------------------------ Title: Vice President Societe Generale 2029 Century Park East Suite 2900 Los Angeles, California 90067 Attention: Alex Kim Tel: (310) 788-7104 Fax: (310) 551-1537 -10-

CIBC, INC. By /s/ Dean J. Decker ------------------------------------------ Dean J. Decker Executive Director CIBC Oppenheimer Corp., AS AGENT CIBC Inc. 350 South Grand Avenue Suite 2600 Los Angeles, California 90071 Attention: Dean Decker Tel: (213) 617-6245 Fax: (213) 346-0157 BANCA NAZIONALE DE LAVORO By /s/ Adolph S. Mascari ------------------------------------------ Title: Assistant Vice President By /s/ [Illegible] ------------------------------------------ Title: First Vice President BANCA NAZIONALE DEL LAVORO 25 West 51st Street New York, NY 10019 Attention: Adolph Mascari Tel: (212) 314-0207 Fax: (212) 765-2978 -11-

EXHIBIT 11 HILTON HOTELS CORPORATION AND SUBSIDIARIES Computation of Per Share Earnings <TABLE> <CAPTION> 1998 1997 1996 ------------- ----------- ----------- <S> <C> <C> <C> BASIC Income (in millions) Continuing operations $188 $183 $120 Deduct dividends on preferred shares (10) (13) - ------------- ----------- ----------- Income applicable to common stock from continuing operations 178 170 120 Discontinued gaming operations 109 67 (38) ------------- ----------- ----------- Income applicable to common stock $287 $237 $ 82 ============= =========== =========== Shares Weighted average common shares 250,306,000 249,723,000 197,338,000 ============= =========== =========== Basic earnings per common share Continuing operations $0.71 $0.68 $ 0.61 Discontinued gaming operations 0.44 0.27 (0.20) ------------- ----------- ----------- Net income $1.15 $0.95 $0.41 ============= =========== =========== DILUTED Income (in millions) Continuing operations $188 $183 $120 Add after tax interest applicable to 5% convertible notes 15 15 9 ------------- ----------- ----------- Before extraordinary item, as adjusted 203 198 129 Discontinued gaming operations 109 67 (38) ------------- ----------- ----------- Net income $312 $265 $91 ------------- ----------- ----------- ------------- ----------- ----------- SHARES Weighted average common shares -- basic 250,306,000 249,723,000 197,338,000 Assuming conversion of preferred stock 9,845,000 13,645,000 477,000 Assuming conversion of 5% convertible notes 15,489,000 15,489,000 9,785,000 Dilutive effect of assumed option exercises (as determined by the application of the treasury stock method) 1,909,000 2,374,000 1,756,000 ------------ ----------- ----------- Common and common equivalent shares as adjusted 277,549,000 281,231,000 209,356,000 ------------ ----------- ----------- ------------ ----------- ----------- Diluted earnings per common share Continuing operations $0.73(1) $0.70(1) $ 0.62 (1) Discontinued gaming operations 0.39(1) 0.24(1) (0.18) ------------ ----------- ----------- Net income $1.12 $0.94 $ 0.44 (1) ------------ ----------- ----------- ------------ ----------- ----------- </TABLE> ----------------- (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 13 of Statement of Financial Accounting Standards No. 128 because it produces an anti-dilutive result for continuing operations in all periods and for net income in the 1996 period.

EXHIBIT 12 HILTON HOTELS CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (dollars in millions)(unaudited) <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ------------------------------------------------ 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Income from continuing operations before income taxes and minority interest (1) $332 $309 $179 $136 $60 Add: Interest expense (1) 142 99 59 73 58 Distributions from less than 50% owned companies 3 5 14 7 6 Interest component of rent expense (1)(2) 4 4 2 3 2 ---- ---- ---- ---- ---- Earnings available for fixed charges $481 $417 $254 $219 $126 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Fixed charges: Interest expense (1) $142 $ 99 $ 59 $ 73 $ 58 Capitalized interest 4 2 - 1 2 Interest component of rent expense (1)(2) 4 4 2 3 2 ---- ---- ---- ---- ---- Total fixed charges $150 $105 $ 61 $ 77 $ 62 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges 3.2x 4.0x 4.2x 2.8x 2.0x ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- </TABLE> ---------------- (1) Includes 50% owned companies. (2) Assumed interest component to be one-third of rent expense.

HILTON HOTELS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (dollars in millions)(unaudited) <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Income from continuing operations before income taxes and minority interest (1) $332 $309 $179 $136 $60 Add: Interest expense (1) 142 99 59 73 58 Distributions from less than 50% owned companies 3 5 14 7 6 Interest component of rent expense (1)(2) 4 4 2 3 2 ---- ---- ---- ---- ---- Earnings available for combined fixed charges and preferred stock dividends $481 $417 $254 $219 $126 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Fixed charges and preferred stock dividends: Interest expense (1) $142 $ 99 $ 59 $ 73 $ 58 Capitalized interest 4 2 - 1 2 Interest component of rent expense (1)(2) 4 4 2 3 2 Preferred stock dividends 17 22 1 - - ---- ---- ---- ---- ---- Total combined fixed charges and preferred stock dividends $167 $127 $ 62 $ 77 $ 62 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Ratio of earnings to combined fixed charges and preferred stock dividends 2.9x 3.3x 4.1x 2.9x 2.0x ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- </TABLE> ---------------- (1) Includes 50% owned companies. (2) Assumed interest component to be one-third of rent expense.

FINANCIAL INFORMATION <TABLE> <CAPTION> ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 18 24 25 26 27 Management's Discussion Consolidated Consolidated Consolidated Consolidated Statements and Analysis Statements of Income Balance Sheets Statements of Cash Flow of Stockholders' Equity ------------------------------------------------------------------------------------------------------------------------------- 28 36 37 39 Notes to Consolidated Report of Independent Supplementary Five Year Summary Financial Statements Public Accountants Financial Information </TABLE> <TABLE> <S> <C> <C> [PHOTO] [PHOTO] [PHOTO] HILTON WASHINGTON & TOWERS HILTON GARDEN INN RALEIGH-DURHAM HILTON SAN DIEGO MISSION BAY RESORT </TABLE> 17 Hilton Hotels Corporation

MD+A MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On December 31, 1998, Hilton Hotels Corporation ("Hilton" or the "Company") completed a spin-off that split the Company's operations into two independent public corporations, one for conducting its hotel business and one for conducting its gaming business. Hilton has retained ownership of the hotel business. Hilton transferred the gaming business to a new corporation named Park Place Entertainment Corporation ("Park Place"), and distributed the stock of Park Place tax-free to Hilton stockholders on a one-for-one basis. As a result of the spin-off, Hilton's historical financial statements have been restated to reflect the gaming business as discontinued operations. The following discussion and analysis of financial condition and results of operations is that of Hilton's continuing operations. FINANCIAL CONDITION LIQUIDITY Net cash provided by operating activities totaled $390 million and $229 million for the years ended December 31, 1998 and 1997, respectively. The increase was primarily attributable to continued strength at many of the Company's owned and partially owned full-service hotels and the benefit of cash flow from newly acquired hotel properties. ACQUISITIONS AND CAPITAL SPENDING Net cash used in investing activities was $1,062 million in 1998 compared to $60 million in 1997. The increase was due primarily to new hotel acquisitions and construction costs. In addition, the 1997 period reflects $123 million of cash proceeds from asset sales, primarily the sale of the Company's interest in the Conrad International Hong Kong. Expenditures required to complete acquisitions and capital spending programs in 1999 will be financed through available cash flows and general corporate borrowings. Growth in the hotel segment continues through selective acquisition of large full-service hotels in major market locations. In December 1997 and January 1998, the Company acquired the remaining interests in the Hilton Chicago & Towers, Hilton San Francisco & Towers, Hilton Washington & Towers, Hilton Rye Town and Capital Hilton from The Prudential Insurance Company of America ("Prudential"), thereby increasing the Company's ownership interest in each property to 100%. In January 1998, the Company purchased The Prospect Company's 92.5% ownership interest in the 458-room Hilton McLean Tysons Corner in McLean, Virginia located just outside Washington D.C., thereby increasing the Company's ownership interest to 100%. In March 1998, the Company purchased the 300-room Hilton Short Hills, a "Five Diamond" hotel located in Short Hills, New Jersey. In April 1998, the Company purchased the 407-room Westin Hotel in Charlotte, North Carolina (re-named the Hilton Charlotte & Towers) and the 395-room Hilton DFW Lakes Executive Conference Center at the Dallas-Ft. Worth International Airport. In July 1998, the Company purchased the 405-room Hilton East Brunswick & Towers in East Brunswick, New Jersey. In June 1998, the Company entered into an agreement with Prudential to restructure their joint venture ownership of the 2,545-room Hilton Hawaiian Village, and in September 1998, the Company increased its investment in the joint venture from 50% to 98%. In August 1998, the Company acquired a 75% interest in the 585-room Pointe Hilton Tapatio Cliffs Resort in Phoenix, Arizona. In December 1998, the Company purchased the 394-room Sheraton Grande Torrey Pines (re-named the Hilton La Jolla Torrey Pines). The Company leases the land underlying the hotel. The resort is located adjacent to two world-famous Torrey Pines Golf Courses along the Pacific Coast in La Jolla, California. The hotel acquisitions completed during 1998 totaled approximately $950 million, including the assumption of debt. Each of these acquisitions was completed at a discount to replacement cost. In February 1999, the Company acquired the 495-room Radisson Plaza Hotel at Mark Center in Alexandria, Virginia (re-named the Hilton Alexandria Mark Center) for approximately $52 million. The Company expects to make further acquisitions in 1999. The Company is currently renovating the Hilton New York & Towers. This project, which includes new restaurants, a state-of-the-art business/conference center, a world-class fitness facility and an exclusive Towers Lounge overlooking Manhattan, is expected to be completed in late 1999. Renovation and construction projects are also underway at the Hilton Seattle Airport and the Hilton Portland. The Seattle project includes renovating existing rooms and constructing a 222-room addition, while the Portland project involves construction of a 319-room tower addition. The Company is also in the process of constructing a new 600-room hotel at the center of Boston's Logan Airport and a 232-unit vacation ownership resort adjacent to the Las Vegas Hilton, both of which are expected to open in late 1999. In addition to an estimated $200 million in 1999 expenditures related to the aforementioned renovation and construction projects, the Company intends to spend approximately $140 million in 1999 on normal capital replacements, upgrades and compliance projects. 18 Hilton Hotels Corporation

OTHER DEVELOPMENTS The Company continues to improve its franchise business through the expansion of the Hilton Garden Inn product, the addition of high quality full-service properties and the removal of properties that do not meet the Company's standards. In 1998, 11 franchise contracts, representing some 3,300 rooms, were terminated. Ten full-service properties and approximately 3,200 rooms were added to the franchise system in 1998. The Company added nine Garden Inn properties in 1998, expects to open approximately 65 during 1999 and anticipates having 200 such franchise properties either open or under construction in 2000. FINANCING Long-term debt at December 31, 1998 totaled $3.0 billion, compared with $1.4 billion at December 31, 1997. The 1998 balance includes additional borrowings to fund acquisitions and capital expenditures and increased debt related to the restructuring of the Hilton Hawaiian Village joint venture. Cash provided by financing activities totaled $362 million in 1998 and cash used in financing activities totaled $15 million in 1997. The 1998 debt balance includes $625 million of long-term debt which, although allocated to Park Place under a debt assumption agreement, remains the legal obligation of Hilton. At the time of the spin-off, Park Place assumed and agreed to pay 100% of the amount of each payment required to be made by Hilton under the terms of the indentures governing Hilton's $300 million 7.375% Senior Notes due 2002 and its $325 million 7% Senior Notes due 2004. These notes remain in Hilton's long-term debt balance and a long-term receivable from Park Place in an equal amount is included in the Company's 1998 consolidated balance sheet. In the event of an increase in the interest rate on these notes as a result of certain actions taken by Hilton or in certain other limited circumstances, Hilton will be required to reimburse Park Place for any such increase. Hilton is obligated to make any payment Park Place fails to make, and in such event Park Place shall pay to Hilton the amount of such payment together with interest, at the rate per annum borne by the applicable notes plus two percent, to the date of reimbursement. In order to facilitate the transfer of debt balances in connection with the spin-off, in December 1998 Park Place entered into a long-term credit facility and completed a senior subordinated note offering. Park Place used the proceeds from the new facility and note offering to repay $1,066 million of Hilton's commercial paper borrowings, representing an estimate of Park Place's share of the obligation. The distribution agreement entered into between Hilton and Park Place calls for a final reconciliation and allocation of certain debt and cash balances, as defined. The reconciliation resulted in an additional amount due Hilton from Park Place of $73 million. This balance is reflected in current assets in the accompanying 1998 consolidated balance sheet. A pro rata portion of Hilton's historical outstanding public and corporate bank debt balances and related interest expense has been allocated to Park Place for prior periods. By virtue of the aforementioned agreement with Prudential to restructure the joint venture ownership of the Hilton Hawaiian Village, effective June 1, 1998 the Company was deemed to control the joint venture, thus requiring consolidation of this previously unconsolidated entity. The agreement also called for the refinancing of the joint venture's existing debt under a new joint venture revolving credit facility. In accordance with the terms of the agreement, this new facility was used to borrow an additional $294 million which was loaned to a Prudential affiliate and subsequently redeemed to increase the Company's investment in the joint venture from 50% to 98%. The consolidation of the joint venture, which includes the total borrowings under the new facility, resulted in an increase in consolidated debt of $480 million. At December 31, 1998, $155 million of the aggregate commitment of the Company's five year $1.75 billion revolving credit facility was outstanding, leaving approximately $1.6 billion available to the Company at such date. In October 1997, the Company filed a shelf registration statement ("Shelf") with the Securities and Exchange Commission registering up to $2.5 billion in debt or equity securities. At December 31, 1998, available financing under the Shelf totaled $2.1 billion. The terms of any additional securities offered pursuant to the Shelf will be determined by market conditions at the time of issuance. Pursuant to the Company's stock repurchase program, during the 1998 first quarter the Company repurchased 2.8 million shares of common stock, or 14 percent of the total authorized to be repurchased, for an aggregate purchase price of $81 million. The Company may, at any time, repurchase up to 15.7 million remaining shares authorized for repurchase pursuant to such program. The timing of stock repurchases are made at the discretion of the Company's management, subject to certain business and market conditions. 19 Hilton Hotels Corporation

MD+A MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In accordance with the terms of the indenture governing the Company's $500 million 5% Convertible Subordinated Notes due 2006, effective January 4, 1999, the conversion price was adjusted to $22.17, reflecting the gaming spin-off. STOCKHOLDERS' EQUITY Stockholders' equity totaled $187 million at December 31, 1998, reflecting the spin-off of the gaming operations. Dividends paid on common shares were $.32 per share in 1998 and 1997 and $.305 per share in 1996. Dividends are expected to be $.08 per share in 1999. In October 1998, 14.8 million shares of the Company's Preferred Redeemable Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock were converted into 13.6 million shares of common stock. RESULTS OF OPERATIONS The following discussion presents an analysis of the Company's results of operations for the years ended December 31, 1998, 1997 and 1996. EBITDA (earnings before interest, taxes, depreciation, amortization and non-cash items) is presented supplementally in the tables below and in the discussion of operating results because management believes it allows for a more complete analysis of results of operations. Non-cash items, such as asset write-downs and impairment losses, are excluded from EBITDA as these items do not impact operating results on a recurring basis. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles (such as operating income or net income), nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. FISCAL 1998 COMPARED WITH FISCAL 1997 OVERVIEW A summary of the Company's consolidated revenue and earnings for the years ended December 31, 1998 and 1997 is as follows: <TABLE> <CAPTION> (in millions, except per share amounts) 1998 1997 % Change ---------------------------------------------------------------------------------- <S> <C> <C> <C> Revenue $ 1,769 1,475 20% Operating income 464 395 17 Income from continuing operations 188 183 3 Income from discontinued gaming operations 109 67 63 Net income 297 250 19 Basic EPS Income from continuing operations $ .71 .68 4% Discontinued gaming operations .44 .27 63 ------------------------------- Net income per share $ 1.15 .95 21% ------------------------------- ------------------------------- Diluted EPS Income from continuing operations $ .71 .68 4% Discontinued gaming operations .41 .26 58 ------------------------------- Net income per share $ 1.12 .94 19% ------------------------------- ------------------------------- Other Operating Data -------------------- EBITDA Operations $ 660 561 18% Corporate expense, net (64) (64) -- ------------------------------- Total $ 596 497 20% ------------------------------- ------------------------------- </TABLE> The Company's continuing operations include the consolidated results of the Company's owned, partially owned and leased hotel assets. Consolidated results also include equity income from unconsolidated affiliates, management and franchise fees and earnings from vacation ownership operations. At December 31, 1998 the Company owned or partially owned ("owned"), managed and franchised 37, 24 and 188 hotel properties, respectively, totaling approximately 87,000 rooms worldwide. Total revenue for 1998 was $1.8 billion, an increase of 20 percent over 1997. EBITDA from operations was $660 million for 1998, an 18 percent increase compared to 1997, while total EBITDA was $596 million for 1998, a 20 percent increase over the prior year. Total operating income increased 17 percent to $464 million. The Company's results are significantly influenced by the operating performance of its owned portfolio of major market domestic full-service properties. Operating performance is primarily affected by volume (as measured by occupancy), pricing (as measured by average room rate), the Company's ability to manage costs and the growth in the number of available rooms through acquisition and development. The Company's domestic owned hotels generated $544 million of EBITDA in 1998, with 20 Hilton Hotels Corporation

comparable EBITDA increasing 11 percent over the prior year. EBITDA margins at these hotels improved two points to 34 percent. The comparable EBITDA increase improved to 17 percent when excluding the Hilton Hawaiian Village in Honolulu and the Hilton Waikoloa Village on the island of Hawaii, both of which continue to feel the effects of the Asian economic crisis. Occupancy in 1998 at comparable owned hotels declined 2.5 points to 75 percent, with the average rate increasing 8.3 percent to $166.47, resulting in a 4.8 percent improvement in revenue per available room ("RevPAR"). Without the Company's Hawaii operations, RevPAR for the year at this group of properties increased 7.1 percent. Combined EBITDA from the Waldorf-Astoria and the Hilton New York & Towers increased $24 million or 22 percent over the prior year. RevPAR gains of 10 and 11 percent, respectively, were driven by strong rate gains in both the leisure and individual business traveler ("IBT") segments. Combined EBITDA from the Hilton Chicago & Towers, the Hilton Chicago O'Hare Airport and the Palmer House Hilton increased $20 million or 26 percent over the prior year. All three properties maintained strong volume and achieved double-digit rate growth in the IBT segment. Combined EBITDA margins at these three Chicago properties averaged 35 percent, a five point increase from 1997. Results also benefited from a combined EBITDA increase of $11 million from the San Diego and San Francisco Hiltons. The San Diego property benefited from strong rate increases in all segments and a seven point improvement in EBITDA margin. The impact of reduced leisure demand at the Hilton San Francisco & Towers was offset by an increase in higher rate IBT room nights. EBITDA from the Hilton New Orleans Riverside & Towers increased $4 million or nine percent from the prior year. Occupied rooms at this property remained flat year over year, however decreased leisure volume was replaced with higher rate convention and IBT business. Growth was negatively impacted by results at the Hilton Hawaiian Village and the Hilton Waikoloa Village. On a comparable basis, EBITDA at these properties declined 13 percent and 12 percent, respectively. Acquisition activity, including increased ownership of properties which were previously partially owned and new property acquisitions, added $47 million of EBITDA in 1998. The Company acquired or increased its ownership interest in eight full-service domestic properties during 1998. Results from the Company's vacation ownership operations increased $6 million or 32 percent from the prior year, primarily due to strong interval sales at the Company's Orlando development. Total unit weeks sold increased 34 percent from the prior year. The Company expects the income contribution from its vacation ownership operations to increase in 1999 with the opening of a new development adjacent to the Las Vegas Hilton. Management and franchise fee revenue decreased $11 million in 1998 to $104 million. This decrease is attributable primarily to the acquisition of several previously managed properties during 1998, reduced management fees from the Conrad International Hong Kong, which was negatively impacted by economic conditions in Asia, and a $1 million decrease in initial and termination fees from franchise properties. Fee revenue is based primarily on operating revenue at managed properties and rooms revenue at franchised properties. Depreciation and amortization, including the Company's proportionate share of depreciation and amortization from its unconsolidated affiliates, increased $28 million in 1998 to $132 million due primarily to new acquisitions. Although the supply-demand balance in the Company's major markets generally remains favorable, future operating results could be adversely impacted by increased capacity and weak demand. These conditions could limit the Company's ability to pass through inflationary increases in operating costs in the form of higher rates. Increases in transportation and fuel costs or sustained recessionary periods in the U.S. (affecting domestic travel) and internationally (affecting inbound travel from abroad) could also unfavorably impact future results. However, the Company believes that its financial strength and market presence will enable it to remain extremely competitive. CORPORATE EXPENSE, NET Corporate expense increased $2 million in 1998 to $67 million. The 1998 expense includes the Company's proportionate share of costs associated with the gaming spin-off totaling $13 million. The 1997 expense includes $25 million in costs related to the Company's efforts to acquire ITT Corporation ("ITT"). The 1997 costs were partially offset by a $10 million gain recognized on the sale of ITT stock previously purchased by the Company. FINANCING ACTIVITIES Interest and dividend income decreased $4 million compared with the prior year, primarily due to lower investment balances. Interest expense, net of amounts capitalized, increased $47 million reflecting higher debt levels due to acquisition activity during the year and a higher average cost of debt resulting from the Company issuing long-term notes to replace floating rate debt in 1997. Net interest expense from unconsolidated affiliates decreased $4 million, reflecting the mid-year consolidation of the Hilton Hawaiian Village. INCOME TAXES The effective income tax rate in 1998 increased to 40.5% from 39.5% in 1997. The Company's effective income tax rate is determined by the level and composition of pretax income and the mix of income subject to varying foreign, state and local taxes. 21 Hilton Hotels Corporation

MD+A MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1997 COMPARED WITH FISCAL 1996 OVERVIEW A summary of the Company's consolidated revenue and earnings for the years ended December 31, 1997 and 1996 is as follows: <TABLE> <CAPTION> (in millions, except per share amounts) 1997 1996 % Change --------------------------------------------------------------------------------- <S> <C> <C> <C> Revenue $1,475 947 56% Operating income 395 237 67 Income from continuing operations 183 120 53 Income (loss) from discontinued gaming operations 67 (38) -- Net income 250 82 205 Basic EPS Income from continuing operations $ .68 .61 11% Discontinued gaming operations .27 (.20) -- ----------------------------- Net income per share $ .95 .41 132% ----------------------------- ----------------------------- Diluted EPS Income from continuing operations $ .68 .61 11% Discontinued gaming operations .26 (.20) -- ----------------------------- Net income per share $ .94 .41 129% ----------------------------- ----------------------------- Other Operating Data -------------------- EBITDA Operations $ 561 401 40% Corporate expense, net (64) (40) 60 ----------------------------- Total $ 497 361 38% ----------------------------- ----------------------------- </TABLE> Consolidated revenue increased 56 percent in 1997 to $1.5 billion. EBITDA from operations was $561 million for 1997, a 40 percent increase compared to 1996, while total EBITDA increased 38 percent in 1997 to $497 million. Operating income increased 67 percent to $395 million. Combined EBITDA from the Company's owned domestic properties totaled $454 million, with comparable EBITDA increasing 13 percent over the prior year. The EBITDA increase improved to 16 percent when excluding the Hilton Hawaiian Village. Occupancy in 1997 at comparable owned hotels was flat compared to 1996 at 77.8 percent, with the average rate increasing 8.7 percent to $153.18, resulting in a nine percent improvement in RevPAR. Excluding the Hilton Hawaiian Village, RevPAR for the year at this group of properties increased 10.2 percent. Combined EBITDA from the Waldorf-Astoria and the Hilton New York & Towers increased $22 million compared to 1996. Strong demand, particularly in the leisure and the higher rate IBT segments, contributed to a double-digit RevPAR increase at each of these two properties. Double-digit percentage gains in average room rates and RevPAR led the Hilton San Francisco & Towers to an $8 million or 25 percent increase in EBITDA compared to 1996. Increased convention volume at the Hilton Washington & Towers and strong IBT growth at the Capital Hilton led to a combined EBITDA increase of $8 million at these properties in 1997. Combined EBITDA from the Hilton Hawaiian Village, impacted by the poor economic conditions in Asia, and the Hilton New Orleans Riverside & Towers, impacted by the closure of the Flamingo Casino-New Orleans and a weak city-wide convention year, was even with the prior year. Acquisition activity, including increased ownership of properties which were previously partially owned and new property acquisitions, added $67 million of EBITDA in 1997. The Company acquired or increased its ownership interest in seven full-service domestic properties in late 1996 and 1997. Management and franchise fee revenue increased $10 million in 1997 to $115 million. Initial and termination fees from franchise properties increased $3 million. Depreciation and amortization, including the Company's proportionate share of depreciation and amortization from its unconsolidated affiliates, increased $2 million in 1997 to $104 million. Hotel results were adversely effected by $25 million of non-recurring charges ($22 million non-cash) in 1996. These charges included the write-down of certain investments and notes receivable to estimated fair market value. CORPORATE EXPENSE, NET Corporate expense increased $22 million in 1997 to $65 million. The 1997 expense includes net costs related to the Company's efforts to acquire ITT and increased costs associated with the Company's development of its Hilton Garden Inn product. FINANCING ACTIVITIES Interest and dividend income decreased $9 million compared with the prior year. Interest expense, net of amounts capitalized, increased $38 million primarily due to acquisition activity in late 1996 and early 1997. Net interest expense from unconsolidated affiliates increased $1 million over 1996. INCOME TAXES The effective income tax rate in 1997 was 39.5% compared to 38.7% in 1996. OTHER MATTERS YEAR 2000 The Company is currently working to resolve the potential impact of the Year 2000 on the processing of date-sensitive information by its computerized information systems. The Year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. 22 Hilton Hotels Corporation

The Company has a Year 2000 program, the objective of which is to determine and assess the risks of the Year 2000 issue, and plan and institute mitigating actions to minimize those risks. The Company's standard for compliance requires that for a computer system or business process to be Year 2000 compliant, it must be designed to operate without error in date and date-related data prior to, on and after January 1, 2000. The Company expects to be fully Year 2000 compliant with respect to all significant business systems prior to December 31, 1999. The Company's various project teams are focusing their attention in the following major areas: INFORMATION TECHNOLOGY ("IT") SYSTEMS Information technology systems account for much of the Year 2000 work and include all computer systems and technology managed by the Company. The Company has assessed these core systems, has plans in place, and is undertaking to test and implement changes where required. The Company has not yet identified any significant remediation. The Company has contacted appropriate vendors and suppliers as to their Year 2000 compliance and their deliverables have been factored into the Company's plans. NON-IT SYSTEMS The Company has completed an inventory of all property level non-IT systems (including elevators, electronic door locks, etc.). The Company has assessed the majority of these non-IT systems, has plans in place, and is undertaking to test and implement changes where required. The Company has contacted appropriate vendors and suppliers as to their Year 2000 compliance and their deliverables have been factored into the Company's plans. SUPPLIERS The Company is communicating with its significant suppliers to understand their Year 2000 issues and how they might prepare themselves to manage those issues as they relate to the Company. To date, no significant supplier has informed the Company that a material Year 2000 issue exists which will have a material effect on the Company. During 1999, the Company will continually review its progress against its Year 2000 plans and determine what contingency plans are appropriate to reduce its exposure to Year 2000 related issues. Based on the Company's current assessment, the costs of addressing potential problems are expected to be less than $3 million. However, if the Company is unable to resolve its Year 2000 issues, contingency plans to update existing systems (i.e., reservation, payroll, etc.) are in place for which the Company expects the cost, if any, to be an additional $3 million. If the Company's customers or vendors identify significant Year 2000 issues in the future and are unable to resolve such issues in a timely manner, it could result in a material financial risk. Accordingly, the Company plans to devote the necessary resources to resolve all significant Year 2000 issues in a timely manner. RECENT ACCOUNTING PRONOUNCEMENTS In April 1998, the AICPA issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP requires that all nongovernmental entities expense costs of start-up activities (pre-opening, pre-operating and organizational costs) as those costs are incurred and requires the write-off of any unamortized balances upon implementation. SOP 98-5 is effective for financial statements issued for periods beginning after December 15, 1998. The Company will adopt SOP 98-5 in the first quarter of 1999. Adoption of the SOP is not expected to have a material impact on the 1999 results of operations. OTHER Various lawsuits are pending against the Company. In management's opinion, disposition of these lawsuits is not expected to have a material effect on the Company's financial position or results of operations. FORWARD-LOOKING STATEMENTS Forward-looking statements in this report, including without limitation, those set forth under the captions "Financial Overview," "Financial Condition," "Results of Operations," and "Other Matters," and statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance, and are subject to certain risks and uncertainties, including those identified above under "Results of Operations" and those in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 under the captions "Additional Information - Business Risks," and "Competition," the effect of economic conditions, and customer demand, which could cause actual results to differ materially from historical results or those anticipated. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. 23 Hilton Hotels Corporation

CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> (in millions, except per share amounts) Year Ended December 31, 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> REVENUE Rooms $ 952 779 441 Food and beverage 414 326 188 Management and franchise fees 104 115 105 Other revenue 299 255 213 ------------------------------- 1,769 1,475 947 ------------------------------- EXPENSES Rooms 237 205 127 Food and beverage 315 254 147 Other expenses 686 556 393 Corporate expense, net 67 65 43 ------------------------------- 1,305 1,080 710 ------------------------------- OPERATING INCOME 464 395 237 Interest and dividend income 13 17 26 Interest expense (137) (90) (52) Interest expense, net, from unconsolidated affiliates (4) (8) (7) ------------------------------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 336 314 204 Provision for income taxes 136 124 79 Minority interest, net 12 7 5 ------------------------------- INCOME FROM CONTINUING OPERATIONS 188 183 120 Income (loss) from discontinued gaming operations, net of tax provision (benefit) of $111, $63 and $(25) 109 67 (38) ------------------------------- NET INCOME $ 297 250 82 ------------------------------- ------------------------------- Change in unrealized gains and losses, net of tax (19) 7 11 ------------------------------- Comprehensive income $ 278 257 93 ------------------------------- ------------------------------- BASIC EARNINGS PER SHARE Income from continuing operations $ .71 .68 .61 Discontinued gaming operations .44 .27 (.20) ------------------------------- Net income per share $ 1.15 .95 .41 ------------------------------- ------------------------------- DILUTED EARNINGS PER SHARE Income from continuing operations $ .71 .68 .61 Discontinued gaming operations .41 .26 (.20) ------------------------------- Net income per share $ 1.12 .94 .41 ------------------------------- ------------------------------- </TABLE> See notes to consolidated financial statements 24 Hilton Hotels Corporation

CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> (in millions) December 31, 1998 1997 ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS CURRENT ASSETS Cash and equivalents $ 47 5 Accounts receivable, net of allowance of $12 and $6, respectively 204 155 Receivable from discontinued gaming operations 73 -- Inventories 54 39 Deferred income taxes 48 31 Other current assets 43 32 -------------------- Total current assets 469 262 INVESTMENTS, PROPERTY AND OTHER ASSETS Investments 262 233 Long-term receivable 625 -- Property and equipment, net 2,483 1,373 Net assets of discontinued gaming operations -- 3,381 Other assets 105 29 -------------------- Total investments, property and other assets 3,475 5,016 -------------------- TOTAL ASSETS $ 3,944 5,278 -------------------- -------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 410 268 Current maturities of long-term debt 62 31 Income taxes payable 34 9 -------------------- Total current liabilities 506 308 Long-term debt 3,037 1,437 Deferred income taxes 65 36 Insurance reserves and other 149 114 -------------------- Total liabilities 3,757 1,895 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY 8% PRIDES convertible preferred stock -- 15 Common stock, 261 and 249 shares outstanding, respectively 663 628 Additional paid-in capital -- 1,759 Retained (deficit) earnings (347) 1,040 Other -- 11 -------------------- 316 3,453 Less treasury stock, at cost 129 70 -------------------- Total stockholders' equity 187 3,383 -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,944 5,278 -------------------- -------------------- </TABLE> See notes to consolidated financial statements 25 Hilton Hotels Corporation

CONSOLIDATED STATEMENTS OF CASH FLOW <TABLE> <CAPTION> (in millions) Year Ended December 31, 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> OPERATING ACTIVITIES Net income $ 297 250 82 Adjustments to reconcile net income to net cash provided by operating activities: (Income) loss from discontinued gaming operations (109) (67) 38 Depreciation and amortization 125 93 67 Non-cash items -- (2) 22 Amortization of loan costs 2 1 1 Change in working capital components: Inventories (15) 10 (42) Accounts receivable (42) 5 (44) Other current assets (17) (5) (8) Accounts payable and accrued expenses 124 4 135 Income taxes payable 25 4 (8) Change in deferred income taxes 9 (63) (11) Change in other liabilities 5 (46) (10) Unconsolidated affiliates' distributions (less than) in excess of earnings (17) 6 37 Other 3 39 26 ------------------------------- Net cash provided by operating activities 390 229 285 ------------------------------- INVESTING ACTIVITIES Capital expenditures (171) (93) (49) Additional investments (98) (97) (53) Change in temporary investments -- 25 53 Proceeds from asset sales -- 123 -- Payments on notes and other 49 49 1 Acquisitions, net of cash acquired (842) (67) (432) ------------------------------- Net cash used in investing activities (1,062) (60) (480) ------------------------------- FINANCING ACTIVITIES Change in commercial paper borrowings and revolving loans 355 (1,218) 1,041 Long-term borrowings 400 1,393 492 Reduction of long-term debt (247) (95) (1,457) Issuance of common stock 25 38 31 Purchase of common stock (81) (40) -- Cash dividends (90) (93) (60) ------------------------------- Net cash provided by (used in) financing activities 362 (15) 47 ------------------------------- Net transfers from (to) discontinued gaming operations 352 (191) (110) ------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 42 (37) (258) CASH AND EQUIVALENTS AT BEGINNING OF YEAR 5 42 300 ------------------------------- CASH AND EQUIVALENTS AT END OF YEAR $ 47 5 42 ------------------------------- ------------------------------- </TABLE> See notes to consolidated financial statements 26 Hilton Hotels Corporation

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> 8% PRIDES Convertible Additional Retained Preferred Common Paid-in (Deficit) Treasury (in millions, except per share amounts) Stock Stock Capital Earnings Other Stock ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> BALANCE, DECEMBER 31, 1995 $ -- 494 -- 909 (7) (142) Exercise of stock options -- -- -- -- -- 31 Bally acquisition 15 133 1,735 -- -- -- Cumulative translation adjustment, net of deferred tax -- -- -- -- 6 -- Change in unrealized gain/loss on marketable securities, net of deferred tax -- -- -- -- 5 -- Deferred compensation -- -- 10 -- -- -- Net income -- -- -- 82 -- -- Dividends ($.305 per share) -- -- -- (60) -- -- --------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 15 627 1,745 931 4 (111) Issuance of common stock -- 1 4 -- -- 5 Exercise of stock options -- -- -- (48) -- 76 Treasury stock acquired -- -- -- -- -- (40) Cumulative translation adjustment, net of deferred tax -- -- -- -- (4) -- Change in unrealized gain/loss on marketable securities, net of deferred tax -- -- -- -- 11 -- Deferred compensation -- -- 10 -- -- -- Net income -- -- -- 250 -- -- Dividends PRIDES ($.89 per share) -- -- -- (13) -- -- Common ($.32 per share) -- -- -- (80) -- -- --------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 15 628 1,759 1,040 11 (70) Issuance of common stock -- 1 10 -- -- -- Exercise of stock options -- -- -- (8) -- 22 Treasury stock acquired -- -- -- -- -- (81) Conversion of PRIDES (15) 34 (19) -- -- -- Cumulative translation adjustment, net of deferred tax -- -- -- -- (9) -- Change in unrealized gain/loss on marketable securities, net of deferred tax -- -- -- -- (10) -- Deferred compensation -- -- 10 -- -- -- Net income -- -- -- 297 -- -- Dividends PRIDES ($.67 per share) -- -- -- (10) -- -- Common ($.32 per share) -- -- -- (80) -- -- Spin-off of Park Place Entertainment Corporation -- -- (1,760) (1,586) 8 -- --------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 $ -- 663 -- (347) -- (129) --------------------------------------------------------------- --------------------------------------------------------------- </TABLE> See notes to consolidated financial statements 27 Hilton Hotels Corporation

NOTES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998 BASIS OF PRESENTATION AND ORGANIZATION On December 31, 1998, Hilton Hotels Corporation ("Hilton" or the "Company") completed a spin-off that split the Company's operations into two independent public corporations per an agreement dated June 30, 1998, one for conducting its hotel business and one for conducting its gaming business. Hilton retained ownership of the hotel business. Hilton transferred the gaming business to a new corporation named Park Place Entertainment Corporation ("Park Place") and distributed the stock of Park Place tax-free to Hilton stockholders on a one-for-one basis. As a result of the spin-off, Hilton's financial statements reflect the gaming business as discontinued operations. Also on December 31, 1998, immediately following the spin-off, Park Place acquired, by means of a merger, the Mississippi Gaming Business of Grand Casinos, Inc. ("Grand"). Hilton is primarily engaged in the ownership, management and development of hotels, resorts and vacation ownership properties and the franchising of lodging properties. Hilton operates in select markets throughout the world, predominately in the United States. SPIN-OFF OF GAMING OPERATIONS As discussed above, on December 31, 1998, the Company completed a spin-off of its gaming operations. Accordingly, results of operations and cash flows of Park Place have been reported as discontinued operations for all periods presented in the consolidated financial statements of Hilton. The consolidated balance sheet as of December 31, 1997 also reflects the Company's gaming business as discontinued operations. Summarized financial information of the discontinued operations is presented in the following tables: Net assets of discontinued gaming operations: <TABLE> <CAPTION> (in millions) 1997 ---------------------------------------------------------------------------------- <S> <C> Current assets $ 450 Current liabilities 334 ------- Net current assets 116 Property and equipment, net 3,621 Other assets 1,559 Long-term debt, including allocated debt 1,272 Other liabilities and deferred taxes 643 ------- Net assets of discontinued gaming operations $3,381 ------- ------- </TABLE> Income (loss) from discontinued gaming operations: <TABLE> <CAPTION> (in millions) 1998 1997 1996 ---------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues $2,295 2,145 958 Costs and expenses 1,993 1,944 866 ------------------------------ Operating income 302 201 92 Net interest expense 79 67 29 ------------------------------ Income before income taxes and minority interest 223 134 63 Provision for income taxes 111 63 27 Minority interest, net 3 4 -- ------------------------------ Income before extraordinary item 109 67 36 Extraordinary loss on extinguishment of debt, net of tax benefit of $52 -- -- (74) ------------------------------ Income (loss) from discontinued gaming operations $ 109 67 (38) ------------------------------ ------------------------------ </TABLE> SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Hilton Hotels Corporation and its majority owned and controlled subsidiaries. The Company adopted EITF 97-2 "Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements" in the fourth quarter of 1998, and, as a result, no longer consolidates the operating results and working capital of affiliates operated under long-term management agreements. Application of EITF 97-2 reduced each of revenues and operating expenses by $1.3 billion and $1.6 billion for the years ended December 31, 1997 and 1996, respectively. Application of the standard reduced each of current assets and current liabilities by $240 million at December 31, 1997. Application of EITF 97-2 had no impact on reported operating income, net income, earnings per share or stockholders' equity. All material intercompany transactions are eliminated and net earnings are reduced by the portion of the earnings of affiliates applicable to other ownership interests. There are no significant restrictions on the transfer of funds from the Company's wholly owned subsidiaries to Hilton Hotels Corporation. CASH AND EQUIVALENTS Cash and equivalents include investments with initial maturities of three months or less. 28 Hilton Hotels Corporation

CURRENCY TRANSLATION Assets and liabilities denominated in most foreign currencies are translated into U.S. dollars at year-end exchange rates and related gains and losses, net of applicable deferred income taxes, are reflected in stockholders' equity. Gains and losses from foreign currency transactions are included in earnings. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Interest incurred during construction of facilities is capitalized and amortized over the life of the asset. Costs of improvements are capitalized. Costs of 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 are removed from the respective accounts, and the resulting gain or loss, if any, is included in income. Depreciation is provided on a straight-line basis over the estimated useful life of the assets. Leasehold improvements are amortized over the shorter of the asset life or lease term. The service lives of assets are generally 40 years for buildings and eight years for building improvements and furniture and equipment. The carrying value of the Company's assets are reviewed when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on expected future cash flows, then a loss is recognized in the income statement using a fair value based model. PRE-OPENING COSTS Costs associated with the opening of new properties or major additions to properties are deferred and amortized over the shorter of the period benefited or one year. In April 1998, the AICPA issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP requires that all nongovernmental entities expense costs of start-up activities (pre-opening, pre-operating and organizational costs) as those costs are incurred and requires the write-off of any unamortized balances upon implementation. SOP 98-5 is effective for financial statements issued for periods beginning after December 15, 1998. The Company will adopt SOP 98-5 in the first quarter of 1999. Adoption of the SOP is not expected to have a material impact on the 1999 results of operations. UNAMORTIZED LOAN COSTS Debt discount and issuance costs incurred in connection with the placement of long-term debt are capitalized and amortized to interest expense, principally on the bonds outstanding method. SELF-INSURANCE The Company is self-insured for various levels of general liability, workers' compensation and employee medical and life insurance coverage. Insurance reserves include the present values of projected settlements for claims. EARNINGS PER SHARE ("EPS") Basic EPS is computed by dividing net income available to common stockholders (net income less preferred dividends of $10 million in 1998 and $13 million in 1997) by the weighted average number of common shares outstanding for the period. The weighted average number of common shares outstanding for 1998, 1997 and 1996 were 250 million, 250 million and 197 million, respectively. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The dilutive effect of the assumed exercise of stock options and convertible securities increased the weighted average number of common shares by 28 million, 31 million and 12 million for 1998, 1997 and 1996, respectively. In addition, the increase to net income resulting from interest on convertible securities assumed to have not been paid was $15 million, $15 million and $9 million for 1998, 1997 and 1996, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS The consolidated financial statements for prior years reflect certain reclassifications to conform with classifications adopted in 1998. These classifications have no effect on net income. 29 Hilton Hotels Corporation

NOTES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INVENTORIES Included in inventories at December 31, 1998 and 1997 are unsold intervals at the Company's vacation ownership properties of $42 million and $32 million, respectively. Inventories are valued at the lower of cost or estimated net realizable value. INVESTMENTS Investments at December 31, 1998 and 1997 are as follows: <TABLE> <CAPTION> (in millions) 1998 1997 ---------------------------------------------------------------------------------- <S> <C> <C> Equity investments Hotels (seven in 1998, eight in 1997) $ 33 52 Other 58 41 Vacation ownership notes receivable 107 86 Other notes receivable 40 19 Marketable securities 24 35 ------------------ Total $ 262 233 ------------------ ------------------ </TABLE> PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 and 1997 are as follows: <TABLE> <CAPTION> (in millions) 1998 1997 ---------------------------------------------------------------------------------- <S> <C> <C> Land $ 379 166 Buildings and leasehold improvements 2,296 1,546 Furniture and equipment 540 384 Property held for sale or development 37 39 Construction in progress 71 18 -------------------- 3,323 2,153 Less accumulated depreciation 840 780 -------------------- Total $2,483 1,373 -------------------- -------------------- </TABLE> ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, 1998 and 1997 are as follows: <TABLE> <CAPTION> (in millions) 1998 1997 ---------------------------------------------------------------------------------- <S> <C> <C> Accounts and notes payable $128 87 Accrued compensation and benefits 63 44 Other accrued expenses 219 137 ----------------- Total $410 268 ----------------- ----------------- </TABLE> LONG-TERM DEBT Long-term debt at December 31, 1998 and 1997 is as follows: <TABLE> <CAPTION> (in millions) 1998 1997 --------------------------------------------------------------------------------------------- <S> <C> <C> Industrial development revenue bonds at adjustable rates, due 2015 $ 82 82 Senior notes, with an average rate of 7.6%, due 2001 to 2017 1,117 1,174 Senior notes, with an average rate of 7.2%, due 2002 to 2004 625 623 Mortgage notes, 5.9% to 8.4%, due 1999 to 2016 145 116 5% Convertible subordinated notes due 2006 492 491 Commercial paper -- 280 Revolving loans 635 -- Other 3 8 Debt allocated to discontinued gaming operations -- (1,306) ------------------- 3,099 1,468 Less current maturities 62 31 ------------------- Net long-term debt $ 3,037 1,437 ------------------- ------------------- </TABLE> Interest paid, net of amounts capitalized, was $130 million, $74 million and $55 million in 1998, 1997 and 1996, respectively. Capitalized interest amounted to $4 million and $2 million in 1998 and 1997, respectively. No interest was capitalized in 1996. 30 Hilton Hotels Corporation

Debt maturities during the next five years are as follows: <TABLE> <CAPTION> (in millions) ---------------------------------------------------------------------------------- <S> <C> 1999 $ 62 2000 53 2001 170 2002 572 2003 483 </TABLE> In order to equalize the indebtedness between Hilton and Park Place at the time of the spin-off, pro forma for the merger of Park Place and Grand, Hilton and Park Place agreed to an allocation of the December 31, 1998 debt balances and entered into a debt assumption agreement. Pursuant to the debt assumption agreement, Park Place assumed and agreed to pay 100% of the amount of each payment required to be made by Hilton under the terms of the indentures governing Hilton's $300 million 7.375% Senior Notes due 2002 and its $325 million 7% Senior Notes due 2004. These notes remain in Hilton's long-term debt balance and a long-term receivable from Park Place in an equal amount is included in the Company's 1998 consolidated balance sheet. In the event of an increase in the interest rate on these notes as a result of certain actions taken by Hilton or certain other limited circumstances, Hilton will be required to reimburse Park Place for any such increase. Hilton is obligated to make any payment Park Place fails to make, and in such event Park Place shall pay to Hilton the amount of such payment together with interest, at the rate per annum borne by the applicable notes plus two percent, to the date of such reimbursement. In order to facilitate the transfer of debt balances in connection with the spin-off, in December 1998 Park Place entered into a long-term credit facility and completed a senior subordinated note offering. Park Place used the proceeds from the new facility and note offering to repay $1,066 million of Hilton's commercial paper borrowings, representing an estimate of Park Place's share of the obligation. The distribution agreement entered into between Hilton and Park Place calls for a final reconciliation and allocation of certain debt and cash balances, as defined. The reconciliation resulted in an additional amount due Hilton from Park Place of $73 million. This balance is reflected in current assets in the accompanying consolidated financial statements. A pro rata portion of Hilton's historical outstanding public and corporate bank debt balances and related interest expense has been allocated to Park Place for prior periods. By virtue of an agreement with Prudential to restructure the joint venture ownership of the Hilton Hawaiian Village, effective June 1, 1998 the Company was deemed to control the joint venture, thus requiring consolidation of this previously unconsolidated entity. The agreement also called for the refinancing of the joint venture's existing debt under a new joint venture revolving credit facility. In accordance with the terms of the agreement, this new facility was used to borrow an additional $294 million which was loaned to a Prudential affiliate and subsequently redeemed to increase the Company's investment in the joint venture from 50% to 98%. The consolidation of the joint venture, which includes the total borrowings under the new facility, resulted in an increase in consolidated debt of $480 million. During 1996, the Company entered into a long-term revolving credit facility with an aggregate commitment of $1.75 billion, which expires in 2001. At December 31, 1998, $155 million was outstanding, leaving approximately $1.6 billion of the revolving credit facility available to the Company at such date. Borrowings will generally bear interest at the London Interbank Offered Rate ("LIBOR") plus a spread based on the Company's public debt rating or a leverage ratio. The all in cost of borrowings under the facility was approximately LIBOR plus 60 basis points as of December 31, 1998. In October 1997, the Company filed a shelf registration statement ("Shelf") with the Securities and Exchange Commission registering up to $2.5 billion in debt or equity securities. At December 31, 1998, available financing under the Shelf totaled $2.1 billion. The terms of any additional securities offered pursuant to the Shelf will be determined by market conditions at the time of issuance. In accordance with the terms of the indenture governing the Company's $500 million 5% Convertible Subordinated Notes due 2006, effective January 4, 1999, the conversion price was adjusted to $22.17, reflecting the gaming spin-off. Provisions under various loan agreements require the Company to comply with certain financial covenants which include limiting the amount of outstanding indebtedness. FINANCIAL INSTRUMENTS CASH EQUIVALENTS AND LONG-TERM MARKETABLE SECURITIES The fair value of cash equivalents and long-term marketable securities is estimated based on the quoted market price of the investments. 31 Hilton Hotels Corporation

NOTES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LONG-TERM DEBT The estimated fair value of long-term debt is based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair values of the Company's financial instruments at December 31, 1998 and 1997 are as follows: <TABLE> <CAPTION> 1998 1997 ----------------------------------------------------------------------------------------- Carrying Fair Carrying Fair (in millions) Amount Value Amount Value ----------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Cash and equivalents and long-term marketable securities $ 71 71 40 40 Long-term debt (including current maturities) 3,099 3,123 1,468 1,517 </TABLE> INCOME TAXES The provisions for income taxes for the three years ended December 31 are as follows: <TABLE> <CAPTION> (in millions) 1998 1997 1996 ---------------------------------------------------------------------------------- <S> <C> <C> <C> Current Federal $ 98 168 66 State, foreign and local 31 34 18 ----------------------------- 129 202 84 Deferred 7 (78) (5) ----------------------------- Total $ 136 124 79 ----------------------------- ----------------------------- </TABLE> During 1998, 1997 and 1996 the Company paid income taxes, including amounts paid on behalf of the discontinued gaming operations, of $165 million, $150 million and $83 million, respectively. The income tax effects of temporary differences between financial and income tax reporting that gave rise to deferred income tax assets and liabilities at December 31, 1998 and 1997 are as follows: <TABLE> <CAPTION> (in millions) 1998 1997 --------------------------------------------------------------------------------- <S> <C> <C> Deferred tax assets Accrued expenses $ 2 8 Self-insurance and other reserves 26 29 Benefit plans 23 6 Pre-opening costs 11 -- Foreign tax credit carryovers (expire beginning in 2000) 21 3 Disposition of assets 24 30 Other 4 -- ------------------ 111 76 Valuation allowance (3) (3) ------------------ 108 73 ------------------ Deferred tax liabilities Fixed assets, primarily depreciation (30) (14) Equity investments (80) (59) Other (15) (5) ------------------ (125) (78) ------------------ Net deferred tax liability $ (17) (5) ------------------ ------------------ </TABLE> The reconciliation of the Federal income tax rate to the Company's effective tax rate is as follows: <TABLE> <CAPTION> 1998 1997 1996 ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> Federal income tax rate 35.0% 35.0 35.0 Increase (reduction) in taxes State and local income taxes, net of Federal tax benefits 4.2 4.0 3.9 Foreign taxes, net -- .4 .3 Spin-off costs .8 -- -- Other .5 .1 (.5) ---------------------------- Effective tax rate 40.5% 39.5 38.7 ---------------------------- ---------------------------- </TABLE> 32 Hilton Hotels Corporation

STOCKHOLDERS' EQUITY Four hundred million shares of common stock with a par value of $2.50 per share are authorized, of which 265 million and 251 million were issued at December 31, 1998 and 1997, respectively, including treasury shares of four million and two million in 1998 and 1997, respectively. Authorized preferred stock includes 25 million shares of preferred stock with a par value of $1.00 per share. In October 1998, 15 million shares of 8% PRIDES convertible preferred stock were converted into 14 million shares of common stock. Fifteen million shares of 8% PRIDES were issued and outstanding at December 31, 1997; no preferred shares were issued or outstanding at December 31, 1998. To reflect the spin-off of the gaming business, the $3.3 billion book value of net assets of discontinued gaming operations as of December 31, 1998 was charged against the Company's retained earnings and additional paid-in capital. The Company's Board of Directors has approved the repurchase by the Company of up to 20 million shares of its common stock pursuant to a stock repurchase program. The timing of the stock purchases are made at the discretion of the Company's management. At December 31, 1998, the Company had repurchased 4.3 million shares or 22 percent of the total authorized to be repurchased. The Company may at any time repurchase up to 15.7 million of the remaining shares authorized for repurchase. The Company has a Share Purchase Rights Plan under which a right is attached to each share of the Company's common stock. The rights may only become exercisable under certain circumstances involving actual or potential acquisitions of the Company's common stock by a specified person or affiliated group. Depending on the circumstances, if the rights become exercisable, the holder may be entitled to purchase units of the Company's junior participating preferred stock, shares of the Company's common stock or shares of common stock of the acquiror. The rights remain in existence until July 2008 unless they are terminated, exercised or redeemed. The Company applies APB Opinion 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, compensation expense recognized was different than what would have otherwise been recognized under the fair value based method defined in SFAS No. 123, "Accounting for Stock-Based Compensation." Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below: <TABLE> <CAPTION> (in millions, except per share amounts) 1998 1997 1996 ---------------------------------------------------------------------------------- <S> <C> <C> <C> Income from continuing operations $ 183 178 116 Discontinued gaming operations 92 61 (41) ----------------------------- Net income $ 275 239 75 ----------------------------- ----------------------------- Basic EPS Income from continuing operations $ .69 .66 .59 Discontinued gaming operations .37 .25 (.21) ----------------------------- Net income $1.06 .91 .38 ----------------------------- ----------------------------- Diluted EPS Income from continuing operations $ .69 .66 .59 Discontinued gaming operations .35 .24 (.21) ----------------------------- Net income $1.04 .90 .38 ----------------------------- ----------------------------- </TABLE> At December 31, 1998, 33 million shares of common stock were reserved for the exercise of options under the Company's Stock Incentive Plans. Options may be granted to salaried officers, directors and other key employees of the Company to purchase common stock at not less than the fair market value at the date of grant. Generally, options may be exercised in installments commencing one year after the date of grant. The Stock Incentive Plans also permit the granting of Stock Appreciation Rights ("SARs"). No SARs have been granted as of December 31, 1998. On December 31, 1998, the effective date of the spin-off, all outstanding options under the Stock Incentive Plans were adjusted to represent options to purchase an equivalent number of shares of Hilton common stock and shares of Park Place common stock. The exercise price for options to purchase Hilton common stock were adjusted based on relative values of Hilton and Park Place common stock at the date the Company's stock began trading on an ex-dividend basis. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield of one percent for each of the three years; expected volatility of 34, 32 and 27 percent; risk-free interest rates of 5.51, 6.49 and 6.33 percent and expected lives of six years for each of the three years. 33 Hilton Hotels Corporation

NOTES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the status of the Company's stock option plans as of December 31, 1998, 1997 and 1996, and changes during the years ending on those dates is presented below: <TABLE> <CAPTION> Weighted Options Average Price Range Price Options Available (per share) (per share) Outstanding for Grant ------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Balance at December 31, 1995 $ 4.68 - 12.16 $ 8.71 6,825,740 346,504 Authorized -- 12,000,000 Granted 11.88 - 18.70 13.28 9,777,900 (9,777,900) Exercised 4.68 - 12.16 7.08 (2,135,426) -- Cancelled 4.72 - 17.15 11.03 (668,758) 653,158 ------------------------------------------------------- Balance at December 31, 1996 4.68 - 18.70 12.08 13,799,456 3,221,762 Authorized -- 6,200,000 Granted 15.95 - 21.30 16.73 3,046,990 (3,046,990) Exercised 4.72 - 16.23 9.32 (1,418,185) -- Cancelled 7.46 - 17.15 13.87 (796,642) 795,892 ------------------------------------------------------- Balance at December 31, 1997 4.68 - 21.30 13.23 14,631,619 7,170,664 Authorized -- 12,000,000 Granted 12.17 - 27.53 18.23 9,113,850 (9,113,850) Exercised 4.72 - 18.38 10.04 (692,067) -- Cancelled 10.48 - 21.30 15.71 (2,359,632) 2,359,632 ------------------------------------------------------- Balance at December 31, 1998 $ 4.68 - 27.53 $15.25 20,693,770 12,416,446 ------------------------------------------------------- ------------------------------------------------------- </TABLE> The following table summarizes information about stock options outstanding at December 31, 1998: <TABLE> <CAPTION> Options Outstanding Options Exercisable --------------------------------------------- ----------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $ 4.68 - 11.88 7,999,918 2.73 $11.32 4,867,168 $10.99 12.51 - 16.59 7,554,652 8.91 14.57 1,321,687 15.41 16.65 - 27.53 5,139,200 9.22 22.39 357,750 17.51 ------------------------------------------------------------------------------------------------------------------- $ 4.68 - 27.53 20,693,770 6.60 $15.25 6,546,605 $12.24 ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- </TABLE> Effective January 1, 1997, the Company adopted the 1997 Employee Stock Purchase Plan by which the Company is authorized to issue up to two million shares of common stock to its full-time employees. Under the terms of the Plan, employees can elect to have a percentage of their earnings withheld to purchase the Company's common stock. EMPLOYEE BENEFIT PLANS The Company has a noncontributory retirement plan ("Basic Plan") covering substantially all regular full-time, nonunion employees. The Company also has plans covering qualifying employees and non-officer directors ("Supplemental Plans"). Benefits for all plans are based upon years of service and compensation, as defined. The Company's funding policy is to contribute not less than the minimum amount required under Federal law but not more than the maximum deductible for Federal income tax purposes. After December 31, 1996, employees will not accrue additional benefits for future service under either the Basic or Supplemental Plans. Plan assets will be used to pay benefits due employees for service through that date. The following sets forth the funded status for the Basic Plan as of December 31, 1998 and 1997: <TABLE> <CAPTION> (in millions) 1998 1997 ---------------------------------------------------------------------------------- <S> <C> <C> Actuarial present value of benefit obligation Projected benefit obligation for service rendered to date $(225) (214) Plan assets at fair value, primarily listed securities and temporary investments 257 242 ------------------ Projected benefit obligation less than plan assets 32 28 Unrecognized gain (45) (41) ------------------ Accrued pension cost $ (13) (13) ------------------ ------------------ Pension cost includes the following components Interest cost on projected benefit obligation $ 15 15 Expected return on plan assets (15) (17) ------------------ Net periodic pension cost $ -- (2) ------------------ ------------------ </TABLE> 34 Hilton Hotels Corporation

Included in plan assets at fair value are equity securities of Hilton and Park Place of $21 million and $32 million at December 31, 1998 and 1997, respectively. The following sets forth the funded status for the Supplemental Plans as of December 31, 1998 and 1997: <TABLE> <CAPTION> (in millions) 1998 1997 ---------------------------------------------------------------------------------- <S> <C> <C> Actuarial present value of benefit obligation Projected benefit obligation for service rendered to date $ (8) (17) Plan assets at fair value -- 12 ------------------ Projected benefit obligation in excess of plan assets (8) (5) Unrecognized net loss 4 1 ------------------ Accrued pension cost $ (4) (4) ------------------ ------------------ Pension cost includes the following components Interest cost on projected benefit obligation $ 1 1 Expected return on plan assets (1) (3) ------------------ Net periodic pension cost $ -- (2) ------------------ ------------------ </TABLE> The discount rate used in determining the actuarial present values of the projected benefit obligations was 6.75 percent in 1998 and 7 percent in 1997. The expected long-term rate of return on assets is 7.25 percent. The projected benefit obligation and accumulated benefit obligation were $8 million and $8 million, respectively, as of December 31, 1998. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $17 million, $17 million and $12 million, respectively, as of December 31, 1997. A significant number of the Company's employees are covered by union sponsored, collectively bargained multi-employer pension plans. The Company contributed and charged to expense $11 million, $9 million and $5 million in 1998, 1997 and 1996, respectively, for such plans. Information from the plans' administrators is not sufficient to permit the Company to determine its share, if any, of unfunded vested benefits. The Company also has other employee investment plans whereby the Company contributes certain percentages of employee contributions. The cost of these plans is not significant. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides life insurance benefits to certain retired employees. Under terms of the plan covering such life insurance benefits, the Company reserves the right to change, modify or discontinue these benefits. The Company does not provide postretirement health care benefits to its employees. The cost of the benefits provided is not significant. LEASES The Company operates seven properties under noncancellable operating leases, all of which are for land only, having remaining terms up to 44 years. Upon expiration of three of the leases, the Company has renewal options of 30, 30 and 40 years. Six leases require the payment of additional rentals based on varying percentages of revenue or income. Minimum lease commitments under noncancelable operating leases approximate $13 million annually through 2003 with an aggregate commitment of $215 million through 2042. COMMITMENTS AND CONTINGENCIES At December 31, 1998, the Company had contractual commitments at its wholly owned or leased properties for major expansion and rehabilitation projects of approximately $130 million. Various lawsuits are pending against the Company. In management's opinion, disposition of these lawsuits is not expected to have a material effect on the Company's financial position or results of operations. 35 Hilton Hotels Corporation

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF HILTON HOTELS CORPORATION: We have audited the accompanying consolidated balance sheets of Hilton Hotels Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 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 financial statements referred to above present fairly, in all material respects, the financial position of Hilton Hotels Corporation and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Los Angeles, California February 5, 1999 36 Hilton Hotels Corporation

SUPPLEMENTARY FINANCIAL INFORMATION (unaudited) QUARTERLY FINANCIAL DATA <TABLE> <CAPTION> (dollars in millions, except per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1998 Revenue $ 366 457 450 496 1,769 EBITDA(1) 122 173 150 151 596 Operating income 94 142 116 112 464 Income from continuing operations 38 65 41 44 188 Income from discontinued gaming operations 39 41 38 (9) 109 Net income 77 106 79 35 297 Basic EPS(2) Continuing operations $ .14 .25 .15 .17 .71 Discontinued gaming operations .16 .16 .16 (.03) .44 --------------------------------------------------------- Net income $ .30 .41 .31 .14 1.15 --------------------------------------------------------- --------------------------------------------------------- Diluted EPS Continuing operations $ .14 .25 .15 .17 .71 Discontinued gaming operations .15 .14 .15 (.03) .41 --------------------------------------------------------- Net income $ .29 .39 .30 .14 1.12 --------------------------------------------------------- --------------------------------------------------------- 1997 Revenue $ 321 399 369 386 1,475 EBITDA(1) 103 154 129 111 497 Operating income 76 131 105 83 395 Income from continuing operations 31 67 44 41 183 Income from discontinued gaming operations 37 26 50 (46) 67 Net income 68 93 94 (5) 250 Basic EPS Continuing operations $ .11 .26 .16 .15 .68 Discontinued gaming operations .15 .10 .20 (.18) .27 --------------------------------------------------------- Net income $ .26 .36 .36 (.03) .95 --------------------------------------------------------- --------------------------------------------------------- Diluted EPS(2) Continuing operations $ .11 .25 .16 .15 .68 Discontinued gaming operations .15 .09 .19 (.18) .26 --------------------------------------------------------- Net income $ .26 .34 .35 (.03) .94 --------------------------------------------------------- --------------------------------------------------------- </TABLE> As of December 31, 1998 there were approximately 15,200 stockholders of record. (1) EBITDA is earnings before interest, taxes, depreciation, amortization and non-cash items. Non-cash items, such as asset write-downs and impairment losses, are excluded from EBITDA as these items do not impact operating results on a recurring basis. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles (such as operating income or net income), nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. (2) The sum of EPS for the four quarters may differ from the annual EPS due to the required method of computing weighted average number of shares in the respective periods. 37 Hilton Hotels Corporation

SUPPLEMENTARY FINANCIAL INFORMATION (unaudited) EBITDA(1) <TABLE> <CAPTION> (in millions) Year Ended December 31, 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> EBITDA Operations $ 660 561 401 Corporate expense, net (64) (64) (40) ----------------------------- Total EBITDA $ 596 497 361 ----------------------------- ----------------------------- Reconciliation to income from continuing operations: EBITDA $ 596 497 361 Interest and dividend income 13 17 26 Interest expense (137) (90) (52) Interest expense, net, from unconsolidated affiliates (4) (8) (7) Depreciation and amortization(2) (132) (104) (102) Non-cash items -- 2 (22) Provision for income taxes (136) (124) (79) Minority interest, net (12) (7) (5) ----------------------------- Income from continuing operations $ 188 183 120 ----------------------------- ----------------------------- </TABLE> (1) EBITDA is earnings before interest, taxes, depreciation, amortization and non-cash items. Non-cash items, such as asset write-downs and impairment losses, are excluded from EBITDA as these items do not impact operating results on a recurring basis. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles (such as operating income or net income), nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. (2) Includes proportionate share of unconsolidated affiliates. 38 Hilton Hotels Corporation

FIVE YEAR SUMMARY <TABLE> <CAPTION> (dollars in millions, except per share, average rate and RevPAR amounts) Year Ended December 31, 1998 1997 1996 1995 1994 ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> OPERATING DATA REVENUE $ 1,769 1,475 947 715 622 EBITDA(1) Operations $ 660 561 401 308 244 Corporate expense, net (64) (64) (40) (18) (20) ------------------------------------------------- Total $ 596 497 361 290 224 ------------------------------------------------- ------------------------------------------------- BASIC EARNINGS PER SHARE Income from continuing operations $ .71 .68 .61 .46 .22 Discontinued gaming operations .44 .27 (.20) .44 .42 ------------------------------------------------- Net income $ 1.15 .95 .41 .90 .64 ------------------------------------------------- ------------------------------------------------- DILUTED EARNINGS PER SHARE Income from continuing operations $ .71 .68 .61 .45 .22 Discontinued gaming operations .41 .26 (.20) .44 .41 ------------------------------------------------- Net income $ 1.12 .94 .41 .89 .63 ------------------------------------------------- ------------------------------------------------- GENERAL INFORMATION OCCUPANCY(2) 73.4% 75.8 75.5 73.4 70.1 AVERAGE RATE(2) $ 157.51 146.00 134.59 125.79 120.88 RevPAR(2) $ 115.64 110.61 101.67 92.29 84.69 NUMBER OF PROPERTIES AT YEAR END Owned or partially owned hotels 37 32 31 33 33 Managed hotels 24 27 28 24 24 Franchised hotels 188 180 172 162 161 ------------------------------------------------- Total 249 239 231 219 218 ------------------------------------------------- ------------------------------------------------- AVAILABLE ROOMS AT YEAR END Owned or partially owned hotels 25,762 23,799 23,092 24,098 24,098 Managed hotels 14,690 15,779 16,776 15,096 15,686 Franchised hotels 46,562 45,092 43,694 41,687 40,436 ------------------------------------------------- Total 87,014 84,670 83,562 80,881 80,220 ------------------------------------------------- ------------------------------------------------- </TABLE> (1) EBITDA is earnings before interest, taxes, depreciation, amortization and non-cash items. Non-cash items, such as asset write-downs and impairment losses, are excluded from EBITDA as these items do not impact operating results on a recurring basis. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles (such as operating income or net income), nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. (2) Comparable domestic owned and managed properties. 39 Hilton Hotels Corporation

BOARD OF DIRECTORS BOARD OF DIRECTORS STEPHEN F. BOLLENBACH(3,4) PRESIDENT AND CHIEF EXECUTIVE OFFICER A. STEVEN CROWN(1,2,5) GENERAL PARTNER, HENRY CROWN & COMPANY, CHICAGO, ILLINOIS - DIVERSIFIED MANUFACTURING OPERATIONS, MARINE OPERATIONS AND REAL ESTATE VENTURES PETER M. GEORGE(1,2,3) VICE CHAIRMAN AND GROUP CHIEF EXECUTIVE - LADBROKE GROUP PLC, AND CHAIRMAN - HILTON INTERNATIONAL CO., HERTS, ENGLAND - HOTEL AND GAMING COMPANY ARTHUR M. GOLDBERG PRESIDENT AND CHIEF EXECUTIVE OFFICER, PARK PLACE ENTERTAINMENT CORPORATION LAS VEGAS, NEVADA - CASINO GAMING COMPANY BARRON HILTON(3) CHAIRMAN DIETER H. HUCKESTEIN EXECUTIVE VICE PRESIDENT, HILTON HOTELS CORPORATION, AND PRESIDENT - HOTEL OPERATIONS ROBERT L. JOHNSON(1,2,4,5) CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BET HOLDINGS, INC., WASHINGTON, D.C. - DIVERSIFIED MEDIA HOLDING COMPANY, CHAIRMAN AND PRESIDENT OF DISTRICT CABLEVISION, INC. DONALD R. KNAB(1,2,3,5) PONTE VEDRA BEACH, FLORIDA - INVESTMENT ADVISOR BENJAMIN V. LAMBERT(1,3,5) CHAIRMAN AND CHIEF EXECUTIVE OFFICER, EASTDIL REALTY COMPANY, L.L.C., NEW YORK - REAL ESTATE INVESTMENT BANKERS DONNA F. TUTTLE(1,2,3,4) PRESIDENT, KORN TUTTLE CAPITAL GROUP, LOS ANGELES, CALIFORNIA - FINANCIAL CONSULTING AND INVESTMENTS FIRM SAM D. YOUNG, JR.(1,2) CHAIRMAN, TRANS-WEST ENTERPRISES, INC., EL PASO, TEXAS - INVESTMENTS CORPORATE EXECUTIVE OFFICERS BARRON HILTON CHAIRMAN STEPHEN F. BOLLENBACH PRESIDENT AND CHIEF EXECUTIVE OFFICER THOMAS E. GALLAGHER EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY MATTHEW J. HART EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER DIETER H. HUCKESTEIN EXECUTIVE VICE PRESIDENT, HILTON HOTELS CORPORATION, AND PRESIDENT - HOTEL OPERATIONS CORPORATE SENIOR OFFICERS JAMES M. ANDERSON SENIOR VICE PRESIDENT - LABOR RELATIONS AND PERSONNEL ADMINISTRATION MARC A. GROSSMAN SENIOR VICE PRESIDENT - CORPORATE AFFAIRS ROBERT M. LA FORGIA SENIOR VICE PRESIDENT AND CONTROLLER TED MIDDLETON, JR. SENIOR VICE PRESIDENT - DEVELOPMENT AND FINANCE DOROTHY J. PORTER SENIOR VICE PRESIDENT - DIVERSITY PATRICK B. TERWILLIGER SENIOR VICE PRESIDENT - ARCHITECTURE AND CONSTRUCTION CORPORATE INFORMATION HILTON HOTELS CORPORATION WORLD HEADQUARTERS 9336 CIVIC CENTER DRIVE BEVERLY HILLS, CALIFORNIA 90210 310.278.4321 TRANSFER AGENT AND REGISTRAR FOR COMMON STOCK CHASEMELLON SHAREHOLDER SERVICES, L.L.C. 85 CHALLENGER ROAD OVERPECK CENTRE RIDGEFIELD PARK, NEW JERSEY 07660 www.chasemellon.com 1.888.224.2751 INDEPENDENT PUBLIC ACCOUNTANTS ARTHUR ANDERSEN LLP FORM 10-K STOCKHOLDERS WISHING TO RECEIVE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUSIVE OF THE EXHIBITS THERETO, MAY DO SO WITHOUT CHARGE BY WRITING TO INVESTOR RELATIONS, HILTON HOTELS CORPORATION, 9336 CIVIC CENTER DRIVE, BEVERLY HILLS, CALIFORNIA 90210. ANNUAL MEETING THE ANNUAL MEETING OF STOCKHOLDERS IS SCHEDULED TO BE HELD AT THE HILTON BEVERLY HILLS, 9876 WILSHIRE BOULEVARD, BEVERLY HILLS, CALIFORNIA, ON MAY 12, 1999 AT 10:00 A.M. HOTEL RESERVATION INFORMATION 1.800.HILTONS VISIT OUR WEBSITE AT: http://www.hilton.com (1)Members of the Audit Committee (2)Members of the Personnel and Compensation Committee (3)Members of the Nominating Committee (4)Members of the Diversity Committee (5)Members of the Compliance Committee 40 Hilton Hotels Corporation

Exhibit 21 HILTON HOTELS CORPORATION SUBSIDIARIES, JOINT VENTURES AND AFFILIATES A. WHOLLY OWNED SUBSIDIARIES State or Country Name of Incorporation ---- ---------------- Bally's Grand Property Sub I, Inc. (1) Nevada Capital Hilton, L.L.C. (8) New York Compass Computer Services, Inc. Delaware Conrad International (Belgium) Corporation (4) Nevada Conrad International (Cairo) Corporation (4) Nevada Conrad International Corporation (3) Nevada Conrad International (Egypt) Corporation (2) (4) Nevada Conrad International (Indonesia) Corporation (2) (4) Nevada Conrad International (Spain) Corporation (2) (4) Nevada Conrad International (Thailand) Corporation (2) (4) Nevada Conrad International (Thailand) Limited (4) Thailand Conrad International Hotels (HK) Ltd. (4) Hong Kong Conrad International Hotels Limited (2) (4) Ireland Conrad International Investment (Jakarta) Corporation (4) Nevada Conrad International Management Services (Singapore) Pte Ltd (4) Singapore Conrad International Services (12) Belgium Destination Resorts, Inc. Arizona DFW Bevco, Inc. (10) Texas DFW Hilton, Inc. Nevada Grand Vacations Realty, Inc. (6) Delaware Hapeville Investors, Inc. Delaware Hilton Charlotte, Inc. Nevada Hilton Chicago Corporation Nevada Hilton Dallas, Inc. (11) Nevada Hilton D.C. Corporation Nevada Hilton Employee Relief Fund California Hilton Equipment Corporation Delaware Hilton Finance Corporation Nevada Hilton Fort Worth, Inc. Nevada Hilton Grand Vacations Development Company-Las Vegas, LLC Nevada Hilton Grand Vacations Exchange Company (6) Delaware Hilton Hawaii Corporation Delaware Hilton Holdings, Inc. Nevada Hilton Hotels Partners I, Inc. Delaware Hilton Hotels Partners II, Inc. Delaware Hilton Hotels U.S.A., Inc. Delaware Hilton Illinois Corp. (7) Nevada Hilton Illinois Holdings, Inc. Delaware Hilton Inns, Inc. Delaware Hilton Insurance Corporation Vermont 1

A. WHOLLY OWNED SUBSIDIARIES (CONTINUED) State or Country Name of Incorporation ---- ---------------- Hilton Kansas City Corporation Missouri Hilton New Jersey Corporation New Jersey Hilton New York Corporation Nevada Hilton Pennsylvania Hotel Corporation Delaware Hilton Recreation, Inc. Delaware Hilton Resorts Corporation Delaware Hilton San Diego Corporation California Hilton San Francisco Corporation Nevada Hilton Suites, Inc. Delaware Hilton Systems, Inc. Nevada Hilton Texas, Inc. Nevada Hilton Washington Corporation New York HKC Advertising, Inc. (5) Missouri HKC Partners, Inc. Missouri HLT Corporation Delaware Hotels Statler Company, Inc. Delaware Kenner Investors, Inc. Delaware Rye Hilton, L.L.C. (9) New York The Beverly Hilton Corporation (2) California The Hotel Waldorf-Astoria Corporation (2) New York The New Yorker Hotel Corporation (2) New York The Palmer House Hilton Hotel Company (2) Illinois Washington Hilton, L.L.C. (8) New York -------------------------------------------------------------------------------- (1) Inactive. (2) Nameholding company. (3) Wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (4) Wholly owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (5) Wholly owned by Hilton Kansas City Corporation, which is wholly owned by Hilton Hotels Corporation. (6) Wholly owned by Hilton Grand Vacations Company, a joint venture which is 50% owned by Hilton Hotels Corporation and 50% owned by Hilton Resorts Corporation. (7) Wholly owned by Hilton Illinois Holdings, Inc., which is wholly owned by Hilton Hotels Corporation. (8) 50.05% owned by Hilton Hotels Corporation, and 49.95% owned by Hilton D.C. Corporation, which is wholly owned by Hilton Hotels Corporation. (9) 50.05% owned by Hilton Hotels Corporation, and 49.95% owned by Hilton New York Corporation, which is wholly owned by Hilton Hotels Corporation. 2

A. WHOLLY OWNED SUBSIDIARIES (CONTINUED) (10) Wholly owned by Hilton Dallas, Inc., which is wholly owned by Hilton Fort Worth, Inc., which is wholly owned by Hilton Hotels Corporation. (11) Wholly owned by Hilton Fort Worth, Inc., which is wholly owned by Hilton Hotels Corporation. (12) .04% (four-one-hundredths of one percent) owned by Hilton Hotels Corporation, and 99.96% owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. 3

B. PARTIALLY OWNED SUBSIDIARIES <TABLE> <CAPTION> % State or Country Name Ownership of Incorporation ---- --------- ---------------- <S> <C> <C> 349 West 53rd Street Realty Corp. (1)(13) See (13) below. New York Earlsfort Centre Hotel Proprietors Limited (2) 14.7 Ireland HHC/PTC, LLC (3) 75 Delaware HHV Holdings LLC (4) See (4) below. Nevada HHV Holdings II LLC (4) See (4) below. Nevada Hilton Hawaiian Village LLC (5) 50 Hawaii Hilton HHonors Worldwide, L.L.C. (6) 50 Delaware Hilton Marketing Worldwide, L.L.C. (6) 50 Delaware Hilton Reservations Worldwide, L.L.C. (6) 50 Delaware International Company for Touristic Investments, S.A.E. (7) 10 Egypt MeriTex, LLC (8) See (8) below. Delaware Oakbrook Hilton Suites and Garden Inn LLC (9) 50 Illinois On Command Corporation 8.5 Delaware P.T. Jakarta International Artha (10) 10 Indonesia Windsor Casino Financial Limited (11) 50 Ontario, Canada Windsor Casino Limited (11) 50 Ontario, Canada Windsor Casino Supplies Limited (11) 50 Ontario, Canada Yeditepe Beynelmilel Otelcilik 25 Turkey Turizm Ve Ticaret, A.S. ("Seven Hills International Hotels, Tourism and Trade, A.S.") (12) ----------------------------------------------------------------------------------------------- </TABLE> 4

B. PARTIALLY OWNED SUBSIDIARIES (CONTINUED) (1) Inactive corporation. (2) 14.7% owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (3) 75% owned by Destination Resorts, Inc., which is wholly owned by Hilton Hotels Corporation, and 25% owned by Pointe Tapatio Resort Properties No. 1 Limited Partnership. (4) 48% owned by Hilton Hotels Corporation and 2% owned by Hilton Recreation, Inc. The remaining interest is held by The Prudential Insurance Company of America. (5) 100% owned by Hilton Hawaiian Village LLC, which is 48% owned by Hilton Hotels Corporation, 2% owned by Hilton Recreation, Inc., and 50% owned by The Prudential Insurance Company of America. (6) The remaining ownership interest is held by Hilton International Co. (7) 10% owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (8) Hilton Hotels Corporation owns 100% of the issued and outstanding Class B (equity) shares. P & O, Inc. owns 100% of the issued and outstanding Class A (managing) shares. (9) 50% owned by Hilton Suites, Inc., which is wholly owned by Hilton Hotels Corporation, and 50% owned by Martinique-Drury Lane Oakbrook Partnership. This entity was converted from an Illinois partnership to an LLC effective 5/15/98. (10) 10% owned by Conrad International Investment (Jakarta) Corporation, which is wholly owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (11) 50% owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (12) 25% owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (13) Wholly owned by the New York Hilton Joint Venture, which is 50% owned by Hilton Hotels Corporation, 49.5% owned by Hilton New York Corporation, and .5% owned by The Prudential Insurance Company of America. 5

C. JOINT VENTURES <TABLE> <CAPTION> % State or Country Name Ownership of Incorporation ---- --------- ---------------- <S> <C> <C> Avenue Louise Hotel Partners S.N.C. (1) 100 Belgium Chicago Hilton Joint Venture (2) 100 Illinois Destination Resort Affiliates (3) 50 Arizona DFW Hilton Hotel Limited Partnership (4) 100 Texas Flamingo Hilton Riverboat Casino, L.P. (5) 100 Missouri Global Resort Partners (6) 13.34 Hawaii Grand Vacations Realty, Limited (7) 100 Florida Grand Vacations Title, Limited (7) 100 Florida Hapeville Hotel Limited Partnership (8) 100 Delaware Hilton Grand Vacations Club (9) 100 Florida Hilton Grand Vacations Company (10) 100 Nevada Hilton Grand Vacations Development Company - Las Vegas (10) 100 Nevada Hilton Grand Vacations Development Company - Orlando (10) 100 Florida International Rivercenter Partnership 67.4 Louisiana Kenner Hotel Limited Partnership (11) 100 Delaware Logan Hilton Joint Venture (12) 100 Massachusetts McLean Hotel Associates Limited Partnership (13) 100 Virginia New Orleans International Hotel 26.33 Louisiana New Orleans Rivercenter 38.75 Louisiana New York Hilton Joint Venture (14) 99.5 New York San Francisco Hilton, L.P. (15) 100 California Tarrytown Hilton Joint Venture (16) 100 New York Valencia Hotel Joint Venture (17) 25 California </TABLE> 6

C. JOINT VENTURES (CONTINUED) -------------------------------------------------------------------------------- (1) 50% of this partnership is owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. The remaining 50% is owned by Conrad International (Belgium) Corporation, which is wholly owned by Conrad International Corporation, which is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels Corporation. (2) 40.24% owned by Hilton Hotels Corporation, and 59.76% owned by Hilton Chicago Corporation, which is wholly owned by Hilton Hotels Corporation. (3) 50% of this joint venture is owned by Destination Resorts, Inc., which is wholly owned by Hilton Hotels Corporation. (4) 99% owned by DFW Hilton Inc., which is wholly owned by Hilton Hotels Corporation, and 1% owned by Hilton Texas, Inc., which is wholly owned by Hilton Hotels Corporation. (5) 90% of this partnership is owned by Hilton Kansas City Corporation, which is wholly owned by Hilton Hotels Corporation. The remaining 10% is owned by HKC Partners, Inc., which is wholly owned by Hilton Hotels Corporation. (6) 13.34% owned by Hilton Recreation, Inc., which is wholly owned by Hilton Hotels Corporation (7) 99% owned by Hilton Grand Vacations Company, and 1% owned by Grand Vacations Realty, Inc. (8) 1% owned by Hilton Hotels Partners II, Inc. (the general partner), and 99% owned by Hapeville Investors, Inc. (the limited partner.) Both the general and limited partners are wholly owned by Hilton Hotels Corporation. (9) 99% owned by Hilton Grand Vacations Company, and 1% owned by Hilton Grand Vacations Exchange Company. (10) 50% of this joint venture is owned by Hilton Hotels Corporation. The remaining 50% is owned by Hilton Resorts Corporation, which is wholly owned by Hilton Hotels Corporation. (11) 1% owned by Hilton Hotels Partners I, Inc. (the general partner), and 99% owned by Kenner Investors, Inc. (the limited partner.) Both the general and limited partners are wholly owned by Hilton Hotels Corporation. (12) 35% of this joint venture is owned by Hilton Hotels Corporation. The remaining 65% is owned by Hilton Systems, Inc., which is wholly owned by Hilton Hotels Corporation. (13) 7.5% owned by Hilton Hotels Corporation, and 92.5% owned by Kenner Investors, Inc., which is wholly owned by Hilton Hotels Corporation. (14) The remaining ownership interest is held by The Prudential Insurance Company of America. (15) 50.25% owned by Hilton Hotels Corporation, and 49.75% owned by Hilton San Francisco Corporation, which is wholly owned by Hilton Hotels Corporation. (16) 50% of this joint venture is owned by Hilton Hotels Corporation. The remaining 50% is owned by Hilton Systems, Inc., which is wholly owned by Hilton Hotels Corporation. (17) 25% owned by Hilton Inns, Inc., which is wholly owned by Hilton Hotels Corporation. 7

D. AFFILIATES 1. The following are special purpose corporations formed in connection with the operation of beverage service at particular hotels. Hilton Hotels Corporation does not directly or indirectly own any of the shares of these corporations. State of Name of Corporation Incorporation ------------------- ------------- Hilton Beverage Corporation Louisiana New Orleans Hilton Beverage Corporation Louisiana 2. The following nonprofit corporation serves as the owner of the health club at the Washington Hilton & Towers. It is owned by the members of that hotel's health club. Hilton Hotels Corporation does not have any direct or indirect ownership interest in this corporation. State of Name of Corporation Incorporation ------------------- ------------- Washington Hilton Racquet Club District of Columbia 8

EXHIBIT 23 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 5, 1999, included (or incorporated by reference) in this Form 10-K, for the year ended December 31, 1998, into the Company's previously filed Registration Statements (File Nos. 2-95746, 2-99967, 33-35951, 333-04273, 333-10415, 333-175155, 333-18523, 333-38047 and 333-41447). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Los Angeles, California March 30, 1999

EXHIBIT 99 UNDERTAKINGS For the purposes of complying with the amendments to the rules governing Form S-8 under the Securities Act of 1933 (the "Securities Act"), the Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Statement on Form S-8 Nos. 333-04273 (filed May 22, 1996), 333-175155 (filed December 2, 1996) and 333-41447 (filed December 4, 1997): Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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<ARTICLE> 5 <MULTIPLIER> 1,000,000 <S> <C> <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> DEC-31-1998 <PERIOD-START> JAN-01-1998 <PERIOD-END> DEC-31-1998 <CASH> 47 <SECURITIES> 0 <RECEIVABLES> 216 <ALLOWANCES> 12 <INVENTORY> 54 <CURRENT-ASSETS> 469 <PP&E> 3,323 <DEPRECIATION> 840 <TOTAL-ASSETS> 3,944 <CURRENT-LIABILITIES> 506 <BONDS> 3,037 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 663 <OTHER-SE> (476) <TOTAL-LIABILITY-AND-EQUITY> 3,944 <SALES> 1,769 <TOTAL-REVENUES> 1,769 <CGS> 0 <TOTAL-COSTS> 1,231 <OTHER-EXPENSES> 67 <LOSS-PROVISION> 7 <INTEREST-EXPENSE> 128 <INCOME-PRETAX> 336 <INCOME-TAX> 136 <INCOME-CONTINUING> 188 <DISCONTINUED> 109 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 297 <EPS-PRIMARY> 1.15 <EPS-DILUTED> 1.12 </TABLE>