NEW YORK — Bally Total Fitness is engaged in a proxy fight with its largest shareholder. Pardus Capital Management, a hedge fund that owns five million common shares or 14.4 percent of the stock, is looking to fill the three vacant positions on Bally's board of directors and has begun to secure proxies to make that possible. Karim Samii, the founder of Pardus, would not comment as of press time, but in a letter to Bally, he said he had been disappointed with Bally's response to his concerns over the state of the company and its turnaround strategy as well as Bally's progress on selecting candidates to fill three vacant board positions.

“It is with reluctance that we have begun to spend our money and time pursuing a proxy contest; it would be an utter waste of shareholder money and management time for Bally to object to qualified candidates, especially when broad, existing shareholder sentiment against this management team makes the outcome of an election contest a foregone conclusion,” Samii said in his Oct. 24 letter to the board. “…We firmly believe that little progress will be made absent direct shareholder-to-board interaction.”

Pardus plans to formally nominate candidates for Bally's board of directors at the shareholder meeting on Jan. 26 and has already recommended three candidates to the board. One of these candidates withdrew from consideration, and the other two candidates have allegedly made repeated attempts to meet with the Bally CEO. While Samii said management didn't follow up with these candidates, Bally's board stated that the company made multiple attempts to contact Pardus' two candidates while also evaluating other potential board members.

Bally also recently announced that it implemented a shareholders' rights plan to prevent outside parties from acquiring more than 15 percent of Bally's stock to make near-term gains. Bally declined Pardus' request to acquire more than 15 percent of the stock, and in his letter, Samii said he viewed the plan as a further effort to entrench the management team.

“It only serves to spread the appearance of a ‘bunker’ mentality, which can only detract from the company's recovery,” he said in the letter.

He also said that rumors the company planned to sell itself — possibly to New York-based private equity firm Wellspring Capital Management — before release of audited and restated financial statements is self serving for Bally management and disregards shareholders at large. Bally's restated financials are due to the Securities and Exchange Commission by Nov. 30.

Matt Messinger, Bally spokesman, was not available for comment, but in a letter to Samii, the board stated Bally would not conduct any substantial asset sales or sell the business until the restated financial statements are publicly available. Pardus advised Bally not to sell any assets or undertake any equity or debt financings until shareholders met to elect directors and financials were released. Bally recently sold Crunch for $45 million, but sources say the Pardus request would not affect finalization of that sale.

Consultant Michael Scott Scudder said to pull through its current situation, Bally needs to stabilize its cash flow by selling off unprofitable Bally clubs and taking a close look at its membership financing.

“They can't keep going on this way,” he said. “Something has to happen. They are running out of the most precious commodity, which is time.”