BALLY TOTAL FITNESS HOLDING CORP, DEF 14A, 1999-04-14

BALLY TOTAL FITNESS HOLDING CORP
DEF 14A, 1999-04-14
MEMBERSHIP SPORTS & RECREATION CLUBS

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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>

BALLY TOTAL FITNESS HOLDING CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies: .......

(2) Aggregate number of securities to which transaction applies: ..........

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............

(4) Proposed maximum aggregate value of transaction: ......................

(5) Total fee paid: .......................................................

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: ...............................................

(2) Form, Schedule or Registration Statement No.: .........................

(3) Filing Party: .........................................................

(4) Date Filed: ...........................................................

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LOGO
LOGO

BALLY TOTAL FITNESS HOLDING CORPORATION
8700 WEST BRYN MAWR AVENUE
CHICAGO, ILLINOIS 60631

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999

To our stockholders:

The annual meeting of stockholders of Bally Total Fitness Holding
Corporation will be held at 9:00 a.m. (local time) on June 10, 1999 at Bally's
fitness center located at 2000 L Street NW, Washington, D.C. 20036 for the
following purposes:

1. The election of two Class III directors for three-year terms
expiring in 2002;

2. The approval of an amendment to Bally's 1996 Long-Term Incentive
Plan to increase the number of shares available for grant under the
plan; and

3. Such other business as may properly come before the annual meeting
or any adjournment thereof.

Stockholders of record as of the close of business on April 12, 1999 will
be entitled to notice of and to vote at the annual meeting and any adjournment
thereof. The transfer books will not be closed.

The board of directors of Bally desires to have the maximum stockholder
representation at the annual meeting and respectfully requests that you execute,
date and return promptly the enclosed proxy card in the postage-paid envelope
provided. In order to attend the annual meeting, you must bring the enclosed
entrance pass with you. No one will be admitted without the entrance pass.

By order of the board of directors,

Cary A. Gaan, Secretary

Chicago, Illinois
April 12, 1999

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

YOUR VOTE IS IMPORTANT!

PLEASE EXECUTE, DATE AND RETURN PROMPTLY THE ENCLOSED
PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
<PAGE> 3

LOGO
LOGO

BALLY TOTAL FITNESS HOLDING CORPORATION
8700 WEST BRYN MAWR AVENUE
CHICAGO, ILLINOIS 60631

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999

This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the board of directors of Bally for use at the annual
meeting of stockholders to be held on June 10, 1999, at Bally's fitness center
located at 2000 L Street NW, Washington, D.C. 20036, at 9:00 a.m. (local time)
and at any adjournment or postponement of the meeting. This statement and the
accompanying proxy, together with our annual report to stockholders for the
fiscal year ended December 31, 1998, are being mailed to stockholders on or
about April 14, 1999.

ABOUT THE MEETING

WHAT IS THE PURPOSE OF THE ANNUAL MEETING?

At the annual meeting, stockholders will act upon the matters outlined in
the accompanying notice of meeting, including the election of directors and an
amendment to the 1996 Long-Term Incentive Plan. In addition, after the meeting,
management will report on our performance during fiscal 1998 and respond to
questions from stockholders.

WHO IS ENTITLED TO VOTE?

Only stockholders of record at the close of business on the record date,
April 12, 1999, are entitled to receive notice of the annual meeting and to vote
the shares of common stock that they held on that date at the meeting or any
postponement or adjournment of the meeting. Each outstanding share entitles its
holder to cast one vote on each matter to be voted upon.

WHO CAN ATTEND THE MEETING?

All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Registration will begin at 8:00 a.m.

WHAT CONSTITUTES A QUORUM?

The presence at the meeting, in person or by proxy, of the holders of a
majority of the common stock outstanding on April 12, 1999 will constitute a
quorum, permitting the meeting to conduct its business. As of the record date,
23,260,110 shares of common stock were outstanding. Proxies received but marked
as
<PAGE> 4

abstentions and broker non-votes will be included in the calculation of the
number of shares considered to be present at the meeting.

HOW DO I VOTE?

If you complete and properly sign the accompanying proxy card and return it
to LaSalle National Bank, our transfer agent and registrar, it will be voted as
you instruct on the proxy card. If you attend the meeting, you may deliver your
completed proxy card in person or you may vote in person. At the meeting, the
results of stockholder voting will be tabulated by LaSalle National Bank, the
independent inspector of elections appointed by Bally for the meeting.

CAN I CHANGE MY VOTE OR REVOKE MY PROXY AFTER I RETURN MY PROXY CARD?

Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of Bally
either a notice of revocation or a duly executed proxy bearing a later date. If
you vote in person at the meeting, your proxy will be revoked. However,
attendance at the meeting will not by itself revoke a previously granted proxy.

WHAT ARE THE BOARD'S RECOMMENDATIONS?

Unless you give other instructions on your proxy card, the person(s) named
as proxy holder(s) on the proxy card will vote in accordance with the
recommendations of the board of directors. In summary, the board recommends a
vote:

- FOR election of the nominated slate of directors (see page 3); and

- FOR approval of the amendment to our 1996 Long-Term Incentive Plan
to increase the number of shares available for grant under the plan
(see pages 15 through 18).

With respect to any other matters that properly come before the meeting,
the proxy holders will vote using their own discretion.

WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?

- Election of Directors. The affirmative vote of the holders of a
majority of the shares represented in person or by proxy at the
meeting and entitled to vote on the election of directors is
required for the election of directors. A properly executed proxy
marked "WITHHOLD ALL" with respect to the election of one or more
directors will not be noted with respect to the director or
directors indicated, although it will be counted for purposes of
determining whether there is a quorum.

- Other Items. For each other item, including the amendment to our
1996 Long-Term Incentive Plan, the affirmative vote of the holders
of a majority of the shares represented in person or by proxy and
entitled to vote on the item will be required for approval. A
properly executed proxy marked "ABSTAIN" with respect to any such
matter will not be voted, although it will be counted for purposes
of determining whether there is a quorum. Accordingly, an abstention
will have the effect of a negative vote.

If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.

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ELECTION OF DIRECTORS AND SECURITY OWNERSHIP

At the annual meeting, two Class III directors are to be elected to serve
for three-year terms expiring in 2002 or until their successors have been duly
elected and qualified. Set forth below are the names of, and certain information
with respect to, the persons nominated by the board of directors for election as
Class III directors. It is intended that all duly executed proxies in the
accompanying form will be voted for the election of such nominees (or such
substitute nominees as provided below), unless such authorization has been
withheld.

Authority granted to the persons named in the proxy to vote for nominees is
limited to the two nominees proposed by the board of directors and named below,
and proxies cannot be voted for a greater number of persons than the number of
nominees named. The board of directors is not aware that any of the nominees
will be unavailable for service at the date of the annual meeting. If, for any
reason, any of the nominees shall become unavailable for election, an event
which is not presently anticipated, discretionary authority may be exercised by
the persons named in the proxy to vote for substitute nominees proposed by the
board of directors.

In general, "beneficial ownership" includes those shares a stockholder has
the power to vote or transfer and stock options or warrants that are exercisable
currently or within 60 days. Unless otherwise indicated, all information with
respect to ownership of common stock is as of March 31, 1999. On March 31, 1999,
Bally had outstanding 23,259,670 shares of common stock. The Shares Owned column
includes, in certain circumstances, shares of common stock held in the name of
the director's or executive officer's spouse, minor children, or relatives
sharing the director's or executive officer's home and, in the case of Mr.
Goldberg, shares held by Nugget Partners, L.P., a New Jersey limited
partnership, whose sole general partner is Mr. Goldberg, the reporting of which
is required by applicable rules of the Securities and Exchange Commission, but
as to which shares of common stock the director or executive officer may have
disclaimed beneficial ownership. As used in the following tables, an asterisk in
the Percentage of Outstanding Stock column means less than 1%.

NOMINEES

CLASS III

TERM EXPIRING IN 2002

<TABLE>
<CAPTION>
HAS SERVED COMMON OPTIONS/WARRANTS TOTAL PERCENTAGE OF
NAME, AGE, PRINCIPAL OCCUPATION AS DIRECTOR SHARES EXERCISABLE BENEFICIAL OUTSTANDING
AND ADDITIONAL INFORMATION SINCE OWNED WITHIN 60 DAYS OWNERSHIP STOCK
- ---------------------------------------- ----------- ------ ---------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Arthur M. Goldberg, 57 1990 384,075 2,207,104 2,591,179 10.2%
Chairman of the board of directors of
Bally. Mr. Goldberg is President and
Chief Executive Officer and a director
of Park Place Entertainment Corp. (an
operator of hotel-casinos) since
January 1999. Prior to that he was a
Director and Executive Vice President
- Gaming Operations, Hilton Hotels
Corporation, since December 1996. He
was Chairman and Chief Executive
Officer of Bally Entertainment
Corporation from October 1990 to
December 1996 and President from
January 1993 to December 1996. Mr.
Goldberg also serves as Chairman of
the board of directors, President and
Chief Executive Officer of Di Giorgio
Corporation (a food distributor). Mr.
Goldberg is also a director of First
Union Corporation (a financial
services company) and Managing Partner
of Arveron Investments L.P. (an
investment partnership)
J. Kenneth Looloian, 76 1995 2,500 6,667 9,167 *
Executive Vice President of Di Giorgio
Corporation since 1990. Mr. Looloian
is also a director of Continucare
Corporation (a manager of outpatient
rehabilitation programs) and Park
Place Entertainment Corp.
</TABLE>

3
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DIRECTORS CONTINUING IN OFFICE

CLASS II

TERM EXPIRING IN 2001

CLASS I

TERM EXPIRING IN 2000

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NAMED EXECUTIVE OFFICERS AND CERTAIN OTHER BENEFICIAL OWNERS

<TABLE>
<CAPTION>
COMMON OPTIONS /WARRANTS TOTAL PERCENTAGE OF
SHARES EXERCISABLE BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNED WITHIN 60 DAYS OWNERSHIP STOCK
- ------------------------------------------------ --------- ----------------- ---------- -------------
<S> <C> <C> <C> <C>
John W. Dwyer 69,920 50,001 119,921 *
Executive Vice President,
Chief Financial Officer
William G. Fanelli 6,000 25,000 31,000 *
Senior Vice President, Operations
Cary A. Gaan 270 40,000 40,270 *
Senior Vice President,
Secretary and General Counsel
John H. Wildman 77,500 50,000 127,500 *
Senior Vice President,
Sales and Marketing
All directors and executive officers 815,481 3,326,142 4,141,623 15.6%
as a group (12 persons)
Alliance Capital Management L.P. (1)(2) 2,366,470 2,366,470 10.2%
Donaldson, Lufkin & Jenrette
Securities Corporation (1)(2)
The Equitable Companies Incorporated (1)(2)
1290 Avenue of the Americas
New York, New York 10104
Janus Capital Corporation (1)(3) 2,161,850 2,161,850 9.3%
Thomas H. Bailey (1)(3)
Janus Special Situations Fund (1)(3)
100 Fillmore Street
Denver, Colorado 80206
Kingdon Capital Management Corporation (1) 1,321,200 1,321,200 5.7%
152 West 57th Street
New York, New York 10019
</TABLE>

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(1) Represents a beneficial owner of more than 5% of the common stock based on
the owner's reported ownership of shares of common stock in filings made
with the Commission pursuant to Section 13(d) and 13(g) of the Securities
Exchange Act of 1934, as amended. Information with respect to each
beneficial owner is generally as of the date of the most recent filing by
the beneficial owner with the Commission and is based solely on information
contained in such filings.

(2) Represents 2,365,400 shares of common stock held by Alliance Capital
Management L.P., a subsidiary of The Equitable Companies Incorporated, which
acquired the shares of common stock solely for investment purposes on behalf
of client discretionary investment advisory accounts. Alliance Capital has
sole power to dispose of these shares. It has sole power to vote 758,900 of
these shares of common stock and shares power to vote 1,590,700 of these
shares of common stock. Also represents 1,070 shares of common stock held by
Donaldson, Lufkin & Jenrette Securities Corporation, a subsidiary of The
Equitable Companies Incorporated, which holds these shares of common stock
for investment purposes. Each of these subsidiaries operates under
independent management and makes independent voting and investment
decisions. The Equitable Companies Incorporated, a parent holding company in
accordance with Rule 13d-1, may be deemed to be the beneficial owner of
these shares of Bally's common stock. AXA, a French parent holding company,
beneficially owns a majority interest in The Equitable Companies
Incorporated but does not admit beneficial ownership of any shares of
Bally's common stock. AXA Conseil Vie Assurance Mutuelle, AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage Assurance
Mutuelle, as a group acting as a parent holding company, control AXA but do
not admit beneficial ownership of any shares of Bally's common stock.

(3) Janus Capital Corporation is a registered investment adviser which furnishes
investment advice to several investment companies registered under Section 8
of the Investment Company Act of 1940 and individual and institutional
clients. These investment companies and other clients hold the shares of
common stock that are reported in this chart. Janus Capital may be deemed to
be the beneficial owner of common stock held by these investment companies
and clients, but disclaims any ownership of the common stock. Mr. Bailey
owns approximately 12.2% of Janus Capital and serves as its President and
Chairman of the Board. Mr. Bailey may be deemed to be the beneficial owner
of common stock held by the investment companies and other clients of Janus
Capital, but disclaims any ownership of the common stock. Janus Special
Situations Fund is an investment company registered under the Investment
Company Act and is one of the investment companies to which Janus Capital
renders advice. Janus Special Situations Fund beneficially owns 1,897,600
shares.

5
<PAGE> 8

INFORMATION RELATING TO THE BOARD OF DIRECTORS
AND CERTAIN COMMITTEES OF THE BOARD

The board of directors held five meetings during 1998. Each director
attended at least 75% of the aggregate number of meetings of the board of
directors and all committees on which the director served during 1998.

The board of directors has established an executive committee, an audit
committee, a compensation committee and a nominating committee. The general
functions of such committees, the identity of each committee member and the
number of committee meetings held by each committee during 1998 are set forth
below.

EXECUTIVE COMMITTEE

The current members of the executive committee are Mr. Goldberg (Chairman),
Mr. Hillman and Mr. Looloian. The executive committee is granted all the powers
and rights necessary to exercise the full authority of the board of directors in
the management of the business and affairs of Bally when necessary between
meetings of the board of directors. The executive committee held one meeting
during 1998.

AUDIT COMMITTEE

The current members of the audit committee are Mr. Looloian (Chairman), Mr.
Lewis and Dr. Mc Anally. The general functions of the audit committee include
(i) selecting the independent auditors (or recommending such action to the board
of directors), (ii) evaluating the performance of the independent auditors and
their fees for services, (iii) reviewing the scope of the annual audit with the
independent auditors and the results of the audit with management and the
independent auditors, (iv) consulting with management, the internal auditors and
the independent auditors as to the systems of internal accounting controls, and
(v) reviewing the nonaudit services performed by the independent auditors and
considering the effect, if any, on their independence. The audit committee held
four meetings during 1998.

COMPENSATION COMMITTEE

The current members of the compensation committee are Ms. Walsh (Chairman),
Mr. Lewis and Dr. Mc Anally. The compensation committee is authorized and
directed to (i) review and approve the compensation and benefits of Bally's
executive officers, (ii) review and approve the annual salary plans, (iii)
review management organization and development, (iv) review and advise
management regarding the benefits, including bonuses, and other terms and
conditions of employment of other employees, (v) administer Bally's 1997 Bonus
Plan, Bally's 1996 Long-Term Incentive Plan, Bally's 1996 Non-Employee
Directors' Stock Option Plan and any other plans that may be established, and
(vi) review and recommend for the approval of the board of directors the
compensation of directors. The compensation committee held four meetings during
1998.

NOMINATING COMMITTEE

The current members of the nominating committee are Mr. Goldberg
(Chairman), Mr. Hillman and Mr. Lewis. The general functions of the nominating
committee include recommending to the board of directors nominees for election
as directors, consideration of the performance of incumbent directors in
determining whether to nominate them for reelection and making recommendations
with respect to the organization and size of the board of directors and its
committees. The nominating committee did not hold any meetings during 1998.

The nominating committee will consider nominees recommended by
stockholders. Such a recommendation will be considered if submitted in writing
addressed to Bally in care of "Chairman, Nominating Committee," accompanied by a
description of the proposed nominee's qualifications and other relevant
biographical information, and a written indication of the consent of the
proposed nominee. Candidates for nomination as director are considered on the
basis of their broad business, financial and public service

6
<PAGE> 9

experience, and should not represent any particular constituency, but rather the
stockholders generally. The nominees should be highly regarded for capability
and integrity within their fields or professions. In addition, the activities or
associations of the nominees should not constitute conflicts of interest or
legal impediments that might preclude service as a director. Moreover, nominees
must be able, and must have expressed a willingness, to devote the time required
to serve effectively as a director and as a member of one or more committees of
the board of directors.

COMPENSATION OF DIRECTORS

Members of the board of directors who are also employees of Bally do not
receive any additional compensation for service on the board of directors or any
committees of the board of directors. Members of the board of directors who are
not employees of Bally presently receive an annual retainer of $27,500 plus a
$1,000 stipend for each board of directors meeting attended. Non-employee
directors presently receive additional stipends for service on committees of the
board of directors of $500 per year for committee members and $1,000 per year
for committee chairmen. Also, pursuant to Bally's 1996 Non-Employee Directors'
Stock Option Plan (the "Directors' Plan"), each non-employee director of Bally
is granted an option to purchase 5,000 shares of common stock upon the
commencement of service on the board of directors, with another option to
purchase 5,000 shares of common stock granted on the second anniversary thereof.
Options under the Directors' Plan are generally granted with an exercise price
equal to the fair market value of the common stock at the date of grant. Option
grants under the Directors' Plan become exercisable in three equal annual
installments commencing one year from the date of grant and have a 10-year term.
Under the Directors' Plan, each of the non-employee directors of Bally was
granted options to purchase 5,000 shares of common stock in both January 1996
and January 1998.

7
<PAGE> 10

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth, for each of the years indicated, the
compensation paid by Bally to its Chief Executive Officer during 1998, and the
four other most highly compensated executive officers of Bally as of December
31, 1998 (collectively, the "Named Executive Officers"). During these years, the
Named Executive Officers were compensated in accordance with the plans and
policies of Bally. All references to securities in the following table relate to
awards of options to purchase common stock.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
BONUS COMPENSATION STOCK AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) ($)(3) OPTIONS(#) ($)
- ---------------------------------------- ---- --------- ------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lee S. Hillman (4) 1998 450,000 325,000 28,635(6)
President and Chief 1997 375,000 125,000 3,499,700(5) 721,875 125,000 19,704
Executive Officer 1996 34,000 150,000
John W. Dwyer (7) 1998 300,000 200,000 655,900 35,000 19,635(6)
Executive Vice President, 1997 225,000 75,000 1,407,381(5) 288,750 45,000 12,204
Chief Financial Officer 1996 170,600 35,000
and Treasurer
William G. Fanelli 1998 183,200 85,000 468,500 20,000 11,813(6)
Senior Vice President, 1997 134,000 35,000 30,000 10,056
Operations 1996 12,600 10,000 15,000
Cary A. Gaan 1998 225,000 95,000 140,550 15,000 1,000(6)
Senior Vice President, 1997 225,000 45,000 1,407,381(5) 288,750 15,000 954
Secretary and General 1996 225,000 40,000 35,000 12,091
Counsel
John H. Wildman 1998 240,000 80,000 140,550 15,000
Senior Vice President, 1997 200,000 70,000(8) 1,407,381(5) 288,750 15,000
Sales and Marketing 1996 200,000 40,000 45,000
</TABLE>

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

(1) The 1998 bonus represents 50% of bonus earned in 1998 and 50% of bonus
earned in 1997; both paid in March 1999. The remaining 50% of the 1998 bonus
is to be paid by March 15, 2000, subject to certain forfeiture provisions.
The 1997 bonus represents 50% of bonus earned in 1997 and paid in March
1998. See "1997 Bonus Plan."

(2) Certain incidental personal benefits to executive officers of Bally may
result from expenses incurred by Bally in the interest of attracting and
retaining qualified personnel. These incidental personal benefits made
available to the Named Executive Officers during 1998 are not described
herein because the incremental cost to Bally of such benefits is below the
required disclosure threshold.

(3) In 1998, the number of shares of restricted stock awarded to Messrs. Dwyer,
Fanelli, Gaan and Wildman was 35,000, 25,000, 7,500 and 7,500, respectively.
The value of such shares was determined by the closing price of the common
stock at the date of grant, net of consideration paid by each recipient.
These shares were issued in the recipient's name and are held by Bally until
the restrictions lapse. The restrictions on these shares lapse upon change
in control of Bally, the recipient's death, termination of employment due to
disability or the first date prior to December 31, 2000 which follows seven
consecutive trading days on which the trading price equals or exceeds the
targeted stock price of $42 per share. If the restrictions do not lapse
prior to December 31, 2000, the shares will be forfeited to Bally.

In 1996, the number of shares of restricted stock awarded to Messrs.
Hillman, Dwyer, Gaan and Wildman was 150,000, 60,000, 60,000 and 60,000,
respectively. The value of such shares was determined by the closing price
of the common stock at the date of grant. Restrictions on these shares
generally lapsed based upon the market price of the common stock reaching
certain targeted stock prices unless less than half of such shares awarded
vested within two years after the date of grant, at which time a number of
shares would vest so that the total number of vested shares equaled 50% of
the original grants. In addition, a recipient of these restricted stock
awards receives a cash payment from Bally upon the lapse

8
<PAGE> 11

of restrictions in an amount sufficient to insure that the recipient
receives the common stock net of all taxes imposed upon the recipient
because of the receipt of such common stock and cash payment.

(4) Mr. Hillman served as Executive Vice President and Treasurer of Bally
through October 7, 1996, when he became President and Chief Executive
Officer of Bally. For serving in such capacities, Mr. Hillman received (i)
an annual base salary of $22,500 through December 18, 1996 pursuant to his
former employment agreement with Bally and (ii) an annual base salary of
$375,000 from December 19, 1996 through December 31, 1997 pursuant to his
former employment agreement with Bally. In addition, Mr. Hillman served as
Executive Vice President, Chief Financial Officer and Treasurer of Bally
Entertainment until December 18, 1996, when Bally Entertainment merged with
and into Hilton Hotels Corporation. For serving in such capacities, Mr.
Hillman received compensation from Bally Entertainment and was awarded
non-qualified options to purchase shares of Bally Entertainment common stock
during 1996. The compensation paid to Mr. Hillman by Bally Entertainment for
1996 was for services rendered to Bally Entertainment and all of its
subsidiaries. Bally was a wholly owned subsidiary of Bally Entertainment
until Bally Entertainment spun off Bally (the "Spin-off") to its
stockholders on January 9, 1996.

(5) Represents amount paid by Bally for the tax gross-up upon the final vesting
in August 1997 of the restricted stock awards described in Note (3) above.

(6) Represents amounts matched by Bally in connection with participation in
Bally's savings plans.

(7) Mr. Dwyer also served as Vice President and Corporate Controller of Bally
Entertainment until December 18, 1996. For serving in such capacities, Mr.
Dwyer received compensation from Bally Entertainment and was awarded
non-qualified options to purchase shares of Bally Entertainment common stock
during 1996. Pursuant to the Transitional Services Agreement with Bally
Entertainment, 75% of Mr. Dwyer's salary was allocated to Bally through
December 18, 1996, at which time Bally began paying all of Mr. Dwyer's
salary.

(8) Represents a $40,000 bonus earned in and paid to Mr. Wildman in 1997 and 50%
($30,000) of the bonus for 1997 for Mr. Wildman under Bally's 1997 Bonus
Plan, which was paid in March 1998. The remaining 50% was paid in March
1999.

EMPLOYMENT AGREEMENTS

Mr. Hillman and Bally entered into an employment agreement effective as of
January 1, 1998. The agreement was for a three-year term through December 31,
2000 and provided for a base salary of $450,000, participation in Company bonus
plans and a bonus payable at the discretion of Bally. Bally and Mr. Hillman
reached an agreement in principle in February 1999 to extend the term through
December 31, 2001 and increase his base salary to $550,000 effective January 1,
1999. In the event a change in control of Bally occurs and Mr. Hillman is asked
to leave the employ of Bally or, absent cause, Mr. Hillman elects to terminate
his employment because he has been constructively terminated, Mr. Hillman will
be entitled to receive a lump sum payment equal to 36 months base salary and two
times the average of bonuses (other than for 1996), if any, paid to Mr. Hillman
by Bally for the three prior years, and assignment of insurance policies and
health protection plans provided by Bally. In addition, if any of these payments
precipitate an excise tax, Mr. Hillman is entitled to be paid the amount of
those excise taxes plus a tax gross-up payment with respect to the excise tax
payment. If a change in control of Bally had occurred on March 31, 1999 and Mr.
Hillman was subsequently asked to leave the employ of Bally or, absent cause,
constructively terminated, Mr. Hillman would be entitled to a payment of
$2,100,000 under his employment agreement, as modified. Additionally, if a
change in control of Bally had occurred on March 31, 1999, Mr. Hillman could
elect, at his option, to terminate his employment and receive a lump sum of six
months' salary ($275,000). The employment also provides that Mr. Hillman receive
a demand registration right requiring Bally to file a shelf registration
statement under the Securities Act of 1933, as amended, registering the 735,701
shares of common stock underlying the warrant held by Mr. Hillman.

Mr. Dwyer and Bally entered into an employment agreement effective as of
January 1, 1998 for a term of three years. The agreement provides for a base
salary of $300,000 and a bonus payable at the discretion of

9
<PAGE> 12

Bally. In the event there is a change in control of Bally and the successor in
control, without cause, terminates the agreement, Mr. Dwyer will be paid a lump
sum equal to 24 months base salary or an amount equal to his base salary for the
balance of the three-year term, whichever is greater, and the greater of twice
the bonuses paid by Bally to Mr. Dwyer for 1997 or the bonus, if any, for the
prior year. In addition, if any of these payments precipitate an excise tax, Mr.
Dwyer is entitled to be paid the amount of those excise taxes plus a tax
gross-up payment with respect to the excise tax payment. If Mr. Dwyer is
constructively terminated by the successor in control, the successor in control
shall be deemed to have terminated Mr. Dwyer without cause, and Mr. Dwyer would
be entitled to payment under his employment agreement. If a change in control of
Bally had occurred on March 31, 1999 and Mr. Dwyer was subsequently asked to
leave the employ of Bally, Mr. Dwyer would be entitled to a payment of $850,000
under his employment agreement. Additionally, if a change in control of Bally
had occurred on March 31, 1999, Mr. Dwyer could elect, at his option, to
terminate his employment and receive a lump sum payment equal to six months'
salary ($150,000).

Mr. Fanelli and Bally entered into an employment agreement effective as of
September 1, 1998 for a term of three years and one month. The agreement
provides for a base salary of $200,000 per year and a bonus payable at the
discretion of Bally. In the event of a change in control of Bally and the
successor in control, without cause, terminates the agreement, Mr. Fanelli will
be paid a lump sum equal to 24 months base salary or an amount equal to his base
salary for the balance of the three-year term, whichever is greater, and the
greater of twice the bonuses paid by Bally to Mr. Fanelli for 1997 or the bonus,
if any, for any year after 1997 but prior to the change in control. If Mr.
Fanelli is constructively terminated by the successor in control, the successor
in control shall be deemed to have terminated Mr. Fanelli without cause, and Mr.
Fanelli would be entitled to payment under his employment agreement. If a change
in control of Bally had occurred on March 31, 1999 and Mr. Fanelli was
subsequently asked to leave the employ of Bally, Mr. Fanelli would be entitled
to a payment of $662,500 under his employment agreement. Additionally, if a
change in control of Bally had occurred on March 31, 1999, Mr. Fanelli could
elect, at his option, to terminate his employment and receive a lump sum payment
equal to six months' salary ($112,500).

Mr. Gaan and Bally entered into an employment agreement effective as of
March 20, 1997 for an initial term of three years, after which the agreement
will continue from year to year unless terminated by either party in its
discretion on six months' notice given prior to the expiration of the term. The
agreement provides for a base salary of $225,000 per year and a bonus payable at
the discretion of Bally. In the event of a change in control of Bally and the
successor in control, without cause, terminates the agreement, Mr. Gaan will be
paid a lump sum equal to 24 months base salary or an amount equal to his base
salary for the balance of the three-year term, whichever is greater, and the
greater of the average of the bonuses, if any, paid by Bally to Mr. Gaan for the
three prior years and the bonus, if any, for the prior year. If Mr. Gaan is
constructively terminated by the successor in control, the successor in control
shall be deemed to have terminated Mr. Gaan without cause, and Mr. Gaan would be
entitled to payment under his employment agreement. If a change in control of
Bally had occurred on March 31, 1999 and Mr. Gaan was subsequently asked to
leave the employ of Bally or was constructively terminated, Mr. Gaan would be
entitled to a payment of $550,000 under his employment agreement.

Mr. Wildman and Bally entered into an employment agreement effective as of
January 1, 1998 for an initial term of three years. The agreement provides for
an annual base salary of $240,000 and a bonus payable at the discretion of
Bally. In the event of a change in control of Bally and the successor in
control, without cause, terminates the agreement, Mr. Wildman will be paid a
lump sum equal to 24 months base salary or an amount equal to his base salary
for the balance of the three-year term, whichever is greater, and the greater of
twice the bonuses, if any, paid by Bally to Mr. Wildman for 1997 or the bonus,
if any, for any year after 1997 but prior to a change in control. For purposes
of the agreement, if Mr. Wildman is constructively terminated by the successor
in control, the successor in control shall be deemed to have terminated Mr.
Wildman without cause. If a change in control of Bally had occurred on March 31,
1999 and Mr. Wildman was subsequently asked to leave the employ of Bally, Mr.
Wildman would be entitled to a payment of $620,000 under his employment
agreement. Additionally, if a change in control of Bally had occurred on March
31, 1999, Mr. Wildman could elect, at his option, to terminate his employment
and receive a lump sum payment equal to six months' salary ($120,000).

10
<PAGE> 13

MANAGEMENT RETIREMENT SAVINGS PLAN

The board of directors has adopted the Bally Total Fitness Holding
Corporation Management Retirement Savings Plan (the "Retirement Plan"). The
Retirement Plan is a deferred compensation plan designed to permit a select
group of management or highly compensated employees to enhance the security of
themselves and their beneficiaries following retirement or other termination of
their employment. The Retirement Plan is intended to be an unfunded "employee
pension benefit plan" under the Employee Retirement Income Security Act of 1974,
as amended, and is maintained by Bally. The Retirement Plan is not intended to
be qualified under the Internal Revenue Code of 1986, as amended (the "Code").
The board of directors, in its sole discretion, designates those members of
management or highly compensated employees who are eligible to participate in
the Retirement Plan.

The amount of compensation that may be deferred is presently limited
pursuant to a schedule based upon the age of the participant at the beginning of
or during the compensation year. For participants who are less than 50 years of
age, a maximum of 25% of compensation may be deferred; for those who are 50 to
54 years of age, a maximum of 50% of compensation may be deferred; for those who
are 55 to 59 years of age, a maximum of 75% of compensation may be deferred; and
for those participants who are 60 years of age or older, a maximum of 100% of
compensation may be deferred. During 1998, Bally provided a matching
contribution of 50% of the first 10% of eligible compensation the participant
deferred and 0% thereafter. Matching contributions are credited to a
participant's matching account and become vested as follows: after one but less
than two Years of Deferral (as defined) they become 33 1/3% vested, after two
but less than three Years of Deferral they become 66 2/3% vested, and after more
than three Years of Deferral they become fully vested. For this purpose, a "Year
of Deferral" is credited with respect to a matching contribution for each
completed calendar year commencing after the calendar year for which the
matching contribution was made. A participant who separates from service will
receive his benefits under the Retirement Plan in a lump sum. As soon as
possible (but not later than five business days) after a change in control of
Bally (as defined), all of the participants' accounts will become 100% vested.

For 1998, Bally contributed $466,495 to the accounts of all participants in
the Retirement Plan, of which $78,067 will be allocated to the accounts of all
executive officers of Bally as a group. Named Executive Officers receiving
allocations are as follows: Mr. Hillman, $28,635, Mr. Dwyer, $18,635, and Mr.
Fanelli, $10,813.

1997 BONUS PLAN

In February 1997, the compensation committee of the board of directors
adopted the Bally Total Fitness Holding Corporation 1997 Bonus Plan (the "Bonus
Plan"). The purpose of the Bonus Plan is to provide an additional performance
incentive for certain senior executive and area management of Bally for 1997,
1998 and 1999 (the "Plan Years"). The compensation committee, based upon the
recommendation of Bally's management, determines those employees who participate
in the Bonus Plan.

Two pools of participants are designated, with Pool One limited to Bally's
senior executive management and Pool Two limited to Bally's senior area
management. The bonuses for each of the pools of participants are based on
increases in Bally's earnings for a Plan Year before interest, taxes,
depreciation and amortization ("EBITDA") from the immediately preceding year
(without giving effect, for Plan Year 1997, to the restatement of Bally's 1996
consolidated financial statements). Pool One and Pool Two receive allocations of
10% and 6% of the EBITDA increases for a Plan Year, respectively. Each
participant in a pool has a determined participation percentage of the amount
allocated to the respective pool, which is based upon the participant's
responsibilities and contributions for the Plan Year. The participation
percentages are designated by the compensation committee and are awarded in a
manner such that the sum of the participation percentages relating to each pool
will not exceed 100% of that pool. Each participant's share of the bonus amount
for a Plan Year will equal the individual's participation percentage for the
Plan Year multiplied by the amount allocated to the respective pool for such
Plan Year. The bonus amounts are payable by March 15th of the calendar year
following the Plan Year as follows: Plan Year 1997 bonus -- 50% of the bonus for
1997 to be paid by March 15, 1998; Plan Year 1998 bonus -- 50% of the bonus for
1997 and 50% of the bonus for 1998 to

11
<PAGE> 14

be paid by March 15, 1999; and Plan Year 1999 bonus -- 50% of the bonus for 1998
and 100% of the bonus for 1999 to be paid by March 15, 2000; provided, however,
if Bally's EBITDA for the year following a Plan Year does not equal or exceed
the EBITDA for that Plan Year, any unpaid bonus relating to that Plan Year (the
50% to be paid in the second year following the Plan Year) is limited by a
Carryover Maximum (as defined), and any excess of the unpaid bonus over the
Carryover Maximum shall be forfeited. To the extent that Bally's federal income
tax deduction for remuneration to a participant is limited by Section 162(m) of
the Code, payments under the Bonus Plan are deferred (with interest) until
Section 162(m) no longer limits the deduction.

The determination of the participants and their participation percentages
by the compensation committee remains in effect until participation ceases. A
person ceases to be a participant immediately upon termination of employment
with Bally for any reason whatsoever. A person who ceases to be a participant
forfeits entitlement to future payments under the plan, other than amounts
deferred because of the Section 162(m) limitation.

STOCK OPTION AND SAR GRANTS

The following table sets forth certain information regarding options to
purchase common stock granted to the Named Executive Officers during 1998. There
have been no stock appreciation rights granted by Bally to date.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR
---------------------------------------------------------- OPTION TERM(2)
OPTIONS % OF TOTAL -----------------------
GRANTED(#) OPTIONS GRANTED EXERCISE PRICE EXPIRATION 5% 10%
NAME (1) TO EMPLOYEES ($/SH) DATE ($) ($)
- --------------------------------- ---------- --------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lee S. Hillman

John W. Dwyer 35,000 5.3 18.50 09/15/08 407,209 1,031,948

William G. Fanelli 20,000 3.0 18.50 09/15/08 232,691 589,685

Cary A. Gaan 15,000 2.3 18.50 09/15/08 174,518 442,264

John H. Wildman 15,000 2.3 18.50 09/15/08 174,518 442,264
</TABLE>

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

(1) One-third of the options granted may be exercised on the first anniversary
of the date of grant, two-thirds after two years from the date of grant and
100% after three years from the date of grant. Each grant was made on the
date which is ten years prior to the date of expiration set forth in the
table.

(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1998 dollars. The dollar amounts included
in these columns are the result of calculations at assumed rates set by the
Commission for illustration purposes. These rates are not intended to be a
forecast of the common stock price and are not necessarily indicative of the
values that may be realized by the Named Executive Officer. The potential
realizable values are based on arbitrarily assumed annualized rates of stock
price appreciation of 5% and 10% over the full ten-year term of the options.
For example, in order for an individual named above who received options
with an exercise price of $18.50 per share to realize the potential values
set forth in the 5% and 10% columns in the table above, the price per share
of the common stock would have to be approximately $30.14 and $47.98,
respectively.

12
<PAGE> 15

STOCK OPTION AND SAR EXERCISES

The following table sets forth certain information concerning exercises of
stock options during 1998 by each of the Named Executive Officers and their
stock options outstanding as of December 31, 1998. There have been no SARs
granted by Bally to date.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT END OF LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
ACQUIRED ON VALUE --------------------------------- ---------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ----------------- ----------- ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Lee S. Hillman 141,667 133,333 2,279,690 1,596,873
John W. Dwyer 38,335 76,665 570,018 636,857
William G.
Fanelli 20,000 45,000 244,063 304,375
Cary A. Gaan 28,334 36,666 484,181 337,695
John H. Wildman 35,000 40,000 622,500 406,875
</TABLE>

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

(1) Based on the closing price of common stock on the New York Stock Exchange on
December 31, 1998, which was $24.875 per share.

13
<PAGE> 16

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

Bally was a wholly owned subsidiary of Bally Entertainment until the
Spin-off in January 1996. Prior to the Spin-off and the formation of the
compensation committee, Bally had entered into compensation arrangements with a
number of its key executives. Following the Spin-off and considering Bally's
situation at that time (historical losses and a need to improve cash flows), the
compensation committee determined that compensation should be tied to increasing
stockholder value and improving Bally's cash flows. Consequently, the
compensation committee has made significant grants of stock awards and adopted
the Bonus Plan, pursuant to which bonuses are granted based on improvements in
Bally's cash flow. Most of the bonus compensation paid to key executives for
1997 and 1998 was pursuant to the Bonus Plan. Allocation among the key
executives of the amounts available under the Bonus Plan, including allocation
to Lee S. Hillman, President and Chief Executive Officer of Bally, was based on
the compensation committee's subjective evaluation of each executive's
contribution to Bally during the periods. The prime factors considered for 1998
were contribution toward accomplishing Bally's strategic plan, including
improvement in Bally's financial position through operational improvements, the
completion of an equity offering and debt offering, and contribution toward
Bally's new initiatives and growth and expansion programs. The compensation
committee felt that Mr. Hillman's contributions in these areas were substantial
and, with the contributions of other key executives, were reflected in Bally's
improved results.

It was the compensation committee's view upon the Spin-off, and it remains
the view of the compensation committee today, that the use of stock options,
other stock awards and bonus compensation tied to improvements in operating
performance aligns the interests of Bally's officers and other key employees
with those of Bally's stockholders. The objective of these awards is to provide
incentive to management to advance the long-term interests of Bally and its
stockholders. Stock options and other stock awards produce value to management
as the price of the common stock appreciates, thereby directly linking the
interests of management with those of Bally's stockholders. Long-term bonus
compensation based on the improvements in operating results provides incentive
to management to advance those same long-term interests.

The compensation committee believes that the improvement in Bally's
operations and results since January 9, 1996 (the date the Spin-off was
completed), supports the success of Bally's approach to compensation.

Compensation Committee,

Liza M. Walsh, Chairman
Aubrey C. Lewis
James F. Mc Anally, M.D.

14
<PAGE> 17

PERFORMANCE GRAPH

Comparison of Cumulative Total Return
from January 9, 1996 to March 31, 1999*
Bally Total Fitness Holding Corporation, S&P 500 Index and
Russell 2000 Consumer Discretionary and Services Index

<TABLE>
<CAPTION>
BALLY S&P 500 RUSSELL 2000
----- ------- ------------
<S> <C> <C> <C>
1/9/96 100 100 100
12/31/96 165 124 117
12/31/97 455 165 142
12/31/98 517 210 148
3/31/99 496 220 150
</TABLE>

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

* Assumes $100 invested in Bally Total Fitness Holding Corporation common stock,
the S&P 500 Index and the Russell 2000 Consumer Discretionary and Services
Index on January 9, 1996, the date the Spin-off was completed. Total return
for the S&P 500 Index and the Russell 2000 Consumer Discretionary and Services
Index assumes reinvestment of dividends; there were no dividends declared on
Bally Total Fitness Holding Corporation common stock.

PROPOSED AMENDMENT TO BALLY'S 1996 LONG-TERM INCENTIVE PLAN

The board of directors has adopted, subject to stockholder approval, an
amendment solely to increase the number of shares of common stock available for
grant under the 1996 Long-Term Incentive Plan of Bally Total Fitness Holding
Corporation (the "Incentive Plan") to an aggregate of 4,600,000 shares. The
current number of shares of common stock which may be granted under the
Incentive Plan is 3,600,000 shares, of which 204,783 shares remained available
for grant as of March 31, 1999.

The amendment increasing the number of shares of common stock available for
grant has been proposed by the board of directors in the belief that the
Incentive Plan is accomplishing its goal of providing additional incentive to
persons who can contribute significantly to the success of the business of Bally
and that Bally should be in a position to continue to make grants under the
Incentive Plan. Bally anticipates making additional grants of stock options or
other awards in the future, thus making it necessary to amend the Incentive Plan
by increasing the number of shares available for grant under the Incentive Plan.
As of March 31, 1999, the closing price of a share of common stock as reported
on the New York Stock Exchange was $23.875.

DESCRIPTION OF THE INCENTIVE PLAN

In January 1996, the board of directors of Bally adopted the Incentive
Plan. The Incentive Plan is intended to encourage ownership of common stock by
officers and other key employees of Bally, to encourage their continued
employment with Bally and to provide them with additional incentives to promote
the success of Bally.

15
<PAGE> 18

The Incentive Plan authorizes the grant to officers and key employees of
awards ("Awards") consisting of "incentive stock options," as that term is
defined under the provisions of Section 422 of the Code, nonqualified stock
options and restricted stock awards. The compensation committee administers the
Incentive Plan and has sole discretion to determine those employees to whom
Awards are granted, the number of Awards granted, the provisions applicable to
each Award and the time periods during which Awards may be exercisable;
provided, however, that no employee may receive options, and/or restricted stock
subject to performance-based vesting, to acquire more than 500,000 shares of
common stock during any given year.

The compensation committee may grant incentive stock options, non-qualified
stock options, or a combination of the two. The exercise price of each incentive
stock option may not be less than the fair market value of the common stock on
the date the option is granted. Under the Incentive Plan, fair market value is
generally the closing price of the common stock on the New York Stock Exchange
on the last business day prior to the date on which the value is to be
determined. Unless the compensation committee determines otherwise, the option
price per share of any non-qualified stock option shall be the fair market value
of the common stock on the date the option is granted. The exercise price of
each incentive stock option granted to any stockholder possessing more than 10%
of the combined voting power of all classes of capital stock of Bally, or, if
applicable, a parent or subsidiary of Bally, on the date of grant must not be
less than 110% of the fair market value on that date, and no such option may be
exercisable more than five years after the date of grant.

Options granted will be exercisable for a term of not more than ten years
from the date of grant. In addition, no employee may be granted an incentive
stock option to the extent the aggregate fair market value, as of the date of
grant, of the common stock with respect to which incentive stock options are
first exercisable by such employee during any calendar year exceeds $100,000.

Restricted stock awards are rights granted by the compensation committee to
receive shares of common stock subject to forfeiture and other restrictions
determined by the compensation committee. Until the restrictions with respect to
any restricted stock award lapse, the shares will be held by Bally and may not
be sold or otherwise transferred by the employee. Except as otherwise determined
by the compensation committee, until the restrictions lapse, the shares will be
forfeited if the employee's employment is terminated for any reason other than
death, disability or retirement on or after the employee's attainment of 65
years of age. Except as otherwise determined by the compensation committee, all
restrictions shall lapse upon the earliest of the death, disability or
retirement of the recipient employee on or after the employee's attainment of 65
years of age. Unless the compensation committee determines otherwise, one-third
of the shares subject to a restricted stock award will vest on each anniversary
of the date of grant. Certain grants of restricted stock awards will vest, in
part or in whole, on the achievement of specified performance targets.

Bally may make cash payments to an employee who receives an Award of
restricted stock in an amount equal to the aggregate amount of federal, state
and local income taxes which such employee would be required to pay as a result
of (i) the receipt or vesting of shares of common stock pursuant to any Award of
restricted stock and (ii) his receipt of any such cash payment.

Awards granted under the Incentive Plan are subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend, or other similar event affecting the common
stock. An Award is not transferable other than to immediate family members,
trusts or corporations for their benefit or certain charities or, other than by
will or the laws of descent and distribution or, in certain circumstances,
pursuant to a qualified domestic relations order, and an Award may be exercised,
during the lifetime of the holder of the Award, only by the holder, or the
holder's personal representative in the event of disability.

In the case of a change in control of Bally, the board of directors may, in
its sole discretion, determine, on a case-by-case basis, taking into account the
purposes of the Incentive Plan, that each Award granted under the Incentive Plan
will terminate 90 days after the occurrence of such change in control, but, in
the event of any such termination (i) an option holder will generally have the
right, commencing at least five days prior to the change in control and subject
to any other limitation on the exercise of the option in effect on the date of
exercise, to immediately exercise any options in full to the extent they
previously have not been exercised and (ii) restricted stock awards will vest.
16
<PAGE> 19

The Incentive Plan will terminate on January 3, 2006, and Awards shall not
be granted under the Incentive Plan after that date although the terms of any
Award may be amended in accordance with the Incentive Plan at any date prior to
the end of the term of such Award. Any Awards outstanding at the time of
termination of the Incentive Plan will continue in full force and effect
according to the terms and conditions of the Award and the Incentive Plan.

The Incentive Plan may be amended by the board of directors, provided that
stockholder approval may be necessary pursuant to Section 422 of the Code or
Rule 16b-3 of the regulations of the Exchange Act, and provided further that no
amendment may impair any rights of any holder of an Award previously granted
under the Incentive Plan without the holder's consent.

FEDERAL INCOME TAX CONSEQUENCES -- NON-QUALIFIED STOCK OPTIONS

The issuance of a non-qualified stock option under the Incentive Plan will
not result in any taxable income to the recipient employee or a tax deduction to
Bally at the time of grant. Generally, an employee to whom a non-qualified stock
option has been granted will recognize ordinary income at the time the employee
exercises the option and receives shares of common stock in an amount equal to
the excess of the fair market value of such shares on the date of exercise over
the option price.

Notwithstanding the foregoing, upon the exercise of a non-qualified stock
option by a person subject to Section 16 of the Exchange Act ("Section 16"), the
acquisition date of the shares of common stock for federal income tax purposes
and the time of recognition of income will be postponed as long as the sale of
the shares of common stock could subject the person to suit under the "short
swing profit" provisions of Section 16, unless such person elects to be taxed on
the date of exercise. Furthermore, the amount of income recognized by the
recipient employee will be the excess of the fair market value of such shares of
common stock at the end of the postponement period (rather than at the date of
exercise) over the option price.

Generally, under the Section 16 regulations, a person subject to Section 16
(a "Section 16 person") may exercise an option and sell the underlying stock
immediately without being subject to suit under the "short swing profit"
provisions as long as such person has held the option and/or the underlying
stock for an aggregate of six months. Generally, if the Section 16 person
exercises a stock option within the first six months following the date of
grant, then (except in certain cases involving death or incompetence) taxation
will be deferred, and the amount of income will generally be measured six months
following the date of grant (unless the person elects to be taxed on the date of
exercise) because the sale of the underlying stock before this date would
subject the Section 16 person to suit under the "short swing profit" provisions.

Bally is entitled to a tax deduction corresponding to the amount of income
recognized by the employee as a result of the exercise of a non-qualified stock
option for the year in which the employee recognizes such income for federal
income tax purposes.

FEDERAL INCOME TAX CONSEQUENCES -- INCENTIVE STOCK OPTIONS

Neither the receipt nor exercise of an incentive stock option is a taxable
event to the employee, and if the recipient employee does not dispose of the
shares of common stock acquired under an incentive stock option prior to the
expiration of the requisite holding periods described below, any gain resulting
from the sale of such shares will be long-term capital gain. In such case, Bally
would not be entitled to any tax deduction with respect to the grant or exercise
of the option. The difference between the fair market value of the shares of the
common stock on the date of exercise and the option price is a tax preference
item which may cause the employee to incur an alternative minimum tax in the
year of exercise. The minimum statutory holding periods are two years from the
date the option is granted and one year from the date the employee receives his
shares of common stock pursuant to the exercise of the incentive stock option.
The statutory holding period for incentive stock options is waived in the event
of the employee's death.

If the shares of common stock are disposed of before the end of either of
such statutory holding periods (a "disqualifying disposition"), the lesser of
(i) the difference between the option price and the fair market value of such
shares on the date of exercise, or (ii) the total amount of gain realized on the
sale must be

17
<PAGE> 20

reported by the employee as ordinary income, and Bally would be entitled to a
tax deduction in that amount. The remaining gain, if any, would be taxed to the
employee as capital gain.

Notwithstanding the foregoing, if the employee is subject to Section 16 at
the time of a disqualifying disposition, the acquisition date of the shares and
the time of recognition of income will be postponed as long as the sale of
shares could subject the employee to suit for "short swing profit," unless he
elects to be taxed immediately. In addition, the amount of income recognized
will be the lesser of (i) the difference between the option price and the fair
market value of such shares at the end of the postponement period (rather than
at the date of exercise), or (ii) the total amount of gain realized on the sale.
See "Federal Income Tax Consequences -- Non-Qualified Stock Options" for a
discussion of options and Section 16.

FEDERAL INCOME TAX CONSEQUENCES -- RESTRICTED STOCK AWARDS

Generally, an employee to whom a restricted stock award is made will
recognize ordinary income for federal income tax purposes in an amount equal to
the excess of the fair market value of the shares of common stock received at
the time the shares first become transferable or are no longer subject to a
substantial risk of forfeiture over the purchase price, if any, paid by the
employee for such common stock, and such amount will then be deductible for
federal income tax purposes by Bally. For tax purposes, in addition to other
restrictions, the common stock is considered to be subject to a substantial risk
of forfeiture as long as the sale of the shares could subject the employee to
suit under the "short swing profit" provisions of Section 16. Alternatively, if
the recipient of a restricted stock or stock bonus award so elects, the
recipient will recognize ordinary income on the date of grant in an amount equal
to the excess of the fair market value of the shares of common stock (without
taking into account any lapse restriction) on such date, over the purchase
price, if any, paid by the employee for such common stock, and such amount will
then be deductible by Bally. In the event of the forfeiture of the common stock
included in a restricted stock award, the employee will not be entitled to any
deduction except to the extent the employee paid for such common stock. Upon a
sale of the common stock included in the restricted stock award, the employee
will recognize capital gain or loss, as the case may be, equal to the difference
between the amount realized from such sale and the employee's tax basis for such
shares of common stock.

Under Section 16, the grant of a restricted stock award pursuant to the
Incentive Plan will generally be exempt from the "short swing profit" provisions
only if the common stock is held at least six months prior to its sale.
Therefore, the taxation of a restricted stock award to a Section 16 person will
generally be deferred for such six-month period unless the Section 16 person
elects to be taxed immediately. The vesting of restricted stock is exempt for
Section 16 purposes.

FEDERAL INCOME TAX CONSEQUENCES -- CASH GROSS-UP PAYMENTS

Any cash payment received in conjunction with an Award of restricted stock
under the Incentive Plan will be taxed to the employee as ordinary income at the
time he receives it, and Bally will be entitled, subject to the limitations of
Sections 280G and 162(m) of the Code, to a corresponding tax deduction at such
time.

The affirmative vote of holders of a majority of the shares of common stock
represented in person or by proxy at the annual meeting is required to approve
this amendment. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR GRANT
UNDER THE INCENTIVE PLAN FROM 3,600,000 SHARES TO 4,600,000 SHARES.

18
<PAGE> 21

TRANSACTIONS WITH MANAGEMENT

A partnership in which Mr. Goldberg is a 20% limited partner purchased a
facility in February 1993 from the Federal Deposit Insurance Corporation and
sold the facility in March 1998. Bally leases this facility for one of its
fitness centers. Rent paid through March 1998 was approximately $169,000. The
proportionate share of this rent for Mr. Goldberg was approximately $34,000.
During 1998, Bally paid approximately $793,000 for goods and services from a
company which employed a relative of Mr. Hillman. Based on Bally's receipt of
competitive bids for similar items, Bally believes that the terms of these
arrangements are at least as favorable to Bally as those which could be obtained
from unrelated parties.

AUDITORS

The board of directors, upon the recommendation of the audit committee, has
approved the selection of Ernst & Young LLP as Bally's independent auditors for
1999. Representatives of Ernst & Young LLP will be present at the annual meeting
with the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.

OTHER BUSINESS

In addition to the matters described above, there will be a brief
presentation by the President and Chief Executive Officer and a general
discussion period during which stockholders will have an opportunity to ask
questions.

Management knows of no other business to be presented for action at the
annual meeting. If other matters properly come before the annual meeting or any
adjournment thereof, the persons named as proxies will vote upon them in
accordance with their best judgment.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Bally is required to identify any director, executive officer, beneficial
owner of more than ten percent of the common stock or any other person subject
to Section 16 of the Exchange Act that failed to file on a timely basis, as
disclosed in their forms, reports required by Section 16(a) of the Exchange Act.
Based on a review of forms submitted to Bally, Bally believes that during 1998
all such filing requirements were complied with by its directors and executive
officers.

EXPENSE OF SOLICITATION

The cost of this solicitation will be borne by Bally. In addition to the
use of the mail, proxy solicitation may be made by telephone, telegraph and
personal interviews by regular employees of Bally. Bally has retained MacKenzie
Partners, Inc., 156 Fifth Avenue, New York, New York 10010, to assist in the
soliciting of proxies and will pay that firm a fee of $6,500, plus out-of-pocket
expenses for such services. Bally will also reimburse brokerage houses and
others for their reasonable expenses in forwarding proxy materials to beneficial
owners of common stock.

STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING

Bally expects to hold its next annual meeting of stockholders before June
30, 2000. Accordingly, stockholder proposals for inclusion in the proxy
materials relating to the next annual meeting must be received by Bally at its
principal executive offices on or before January 1, 2000. In accordance with
Bally's bylaws, Bally must receive, in writing, a stockholder proposal at least
sixty days before the annual meeting in order for it to be voted on at the
annual meeting. Stockholder proposals should be directed to Cary A. Gaan,
Secretary, Bally Total Fitness Holding Corporation, 8700 West Bryn Mawr Avenue,
Chicago, Illinois 60631.

19
<PAGE> 22

ANNUAL REPORT

A copy of Bally's 1998 annual report, which contains the consolidated
financial statements of Bally, accompanies this proxy statement. Bally will
provide without charge to any stockholder as of the record date who so requests
in writing copies of its Form 10-K and, if specifically requested, the exhibits
thereto. Requests for such copies should be directed to Cary A. Gaan, Secretary,
Bally Total Fitness Holding Corporation, 8700 West Bryn Mawr Avenue, Chicago,
Illinois 60631.

By order of the board of directors,

Cary A. Gaan, Secretary
Chicago, Illinois
April 12, 1999

PLEASE EXECUTE, DATE AND RETURN PROMPTLY
THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.

20
<PAGE> 23

LOGO
LOGO

BALLY TOTAL FITNESS HOLDING CORPORATION
8700 WEST BRYN MAWR AVENUE
CHICAGO, ILLINOIS 60631
WWW.BALLYFITNESS.COM
<PAGE> 24

PROXY PROXY

BALLY TOTAL FITNESS HOLDING CORPORATION
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Lee S. Hillman and Cary A. Gaan, or either of
them, proxies of the undersigned with full power of substitution, to vote all
shares of the undersigned at the annual meeting of stockholders of Bally Total
Fitness Holding Corporation to be held at 9:00 a.m. (local time) on June 10,
1999 at Bally's fitness center located at 2000 L Street NW, Washington, D.C.
20036 or at any postponement or adjournment thereof.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS NUMBER (1)
AND (2).

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS NUMBER (1) AND (2). SEE REVERSE SIDE.

(Comments/Change of Address)

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

------------------------------
(If you have written in the
above space, please mark the
corresponding box on the
reverse side)

................................................................................

FOLD AND DETACH HERE

ENTRANCE PASS -- 1999 ANNUAL MEETING OF STOCKHOLDERS

THIS IS AN ENTRANCE PASS FOR THE 1999 ANNUAL MEETING
OF STOCKHOLDERS OF BALLY TOTAL FITNESS HOLDING CORPORATION.
IN ORDER TO ATTEND THE ANNUAL MEETING, YOU MUST BRING THIS PASS WITH YOU.
<PAGE> 25

BALLY TOTAL FITNESS HOLDING CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
<TABLE>
<CAPTION>
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>

1. Election of the following Class III [ ] [ ] [ ] 2. Approval of an amendment to Bally's [ ] [ ] [ ]
director nominees for three-year terms 1996 Long-Term Incentive Plan to
expiring in 2002: increase the number of shares
Arthur M. Goldberg available for grant under the plan.
J. Kenneth Looloian THE BOARD OF DIRECTORS RECOMMENDS A
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE AMENDMENT.
VOTE FOR ALL THE ABOVE NOMINEES. 3. In their discretion on all other
matters as may properly come before
---------------------------------------- the annual meeting.
Nominee Exception
</TABLE>

<TABLE>
<S> <C>
Comments/ Date: , 1999
Change --------------------------------
of [ ]
Address
-------------------------------------------
Signature(s)

-------------------------------------------
Signature(s)

Note: Please sign as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, administrator, trustee,
or guardian, please give full title as such.
</TABLE>

................................................................................

FOLD AND DETACH HERE

PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS ABOVE, DATE, AND RETURN PROMPTLY
THIS PROXY FORM IN THE POSTAGE-PAID ENVELOPE PROVIDED.