Take-Two Shareholders Elect New Board, Replaces CEO

Shareholders elected a new board of directors at the Take-Two Interactive Software annual meeting on Thursday, amid a tussle for control of the besieged maker of the blockbuster "Grand Theft Auto" video game series.

The Take-Two board of directors now consists of Strauss Zelnick, Ben Feder, Jon J. Moses, Michael Dornemann, Michael James Sheresky and John Levy, who is an incumbent, independent director of Take-Two. Grover C. Brown, an incumbent, independent director, was also elected as a director.

Strauss Zelnick, founding partner of ZelnickMedia and a former CEO of BMG Entertainment, was appointed the nonexecutive chairman of Take-Two by the new board. He replaces Chief Executive Paul Eibeler.  

The meeting was led by dissident shareholders which included OppenheimerFunds, Take-Two's largest institutional shareholder, D. E. Shaw Valence Portfolios and S.A.C. Capital Management, owns 46% of Take-Two shares.

Analysts said that finding an effective leader for the controversial video game maker may prove difficult.

"I think the odds of finding the right person who can manage and keep everyone happy and cut all the waste and bad games is 20%," said Wedbush Morgan analyst Michael Pachter.

Investors have long lobbied for new management at the company, which has depended on "Grand Theft Auto" to drive revenue while failing to turn out new hits.

Compounding that, the company has weathered back-to-back scandals prompted by accounting issues, undisclosed sexual content in "Grand Theft Auto: San Andreas" and improper stock options grants.

Stock Up Sharply

Take-Two stock price has increased more than 25% in the past three weeks as Wall Street looked forward to a new crop of directors and executives who could reverse the company's fortunes.

Take-Two's former chairman and chief executive, Ryan A. Brant, became the first CEO to be convicted of backdating stock options. In February, he pleaded guilty in a New York state court to first-degree falsification of business records in a deal that lets him avoid prison.

The company restated past results to account for stock options grants that have been incorrectly booked and expensed, and recorded $42.1 million in additional expenses between 1997 and April 2005.

Some financial analysts are criticizing Take-Two--as well as rivals such as Activision, THQ and top-selling Electronic Arts--for relying too heavily on relatively uncreative sequels, sports games and bloodthirsty "first-person shooters."

While so-called hardcore games remain popular with teens and young men, new online genres-- trivia quizzes, word games and multiplayer role-playing games--are catching on with women, older players and millions of mobile phone users.

Complaints About Games

Child advocacy groups and legislators seem to be Take-Two's biggest foes, complaining that the company produces the industry's most violent, mean-spirited games.

In "Grand Theft Auto," players shoot pedestrians and police with reckless abandon. Another hit is "Bully," about a slingshot-wielding 15-year-old at Bullworth Academy boarding school, whose motto is "Canis Canem Edit," Latin for "dog eat dog."

New York-based Take-Two is best known for a version of "Grand Theft Auto" that included a hidden, lewd scene that sparked a 2005 congressional uproar.

Programmers at many game publishers hide bonus material or tricks that players may unlock with special codes. "Grand Theft Auto: San Andreas" had a modification distributed online known as "Hot Coffee," which allowed players to download modifications to reveal oral sex scenes.

The House voted 355-21 to pass a resolution asking the Federal Trade Commission to investigate Take-Two and its subsidiary, Rockstar Games. Wal-Mart Stores, Target, Best Buy and Circuit City Stores pulled the game, which was the top seller of 2004.

Take Two initially said the scenes were not part of the retail version of the game but were created by third parties. Later the company acknowledged the scenes were contained in its version.

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