-By Brian Morrissey

NEW YORK Yahoo! reached an agreement with financier Carl Icahn that will expand its board to include Icahn and two of his proposed directors while leaving Yahoo!'s current executive team in control.
 
The agreement, announced this morning, heads off a messy proxy battle at Yahoo!'s annual shareholder meeting on Aug. 1.
 
Under the deal, Yahoo!'s entire current board, other than Robert Kotick, will remain in place, including chairman Roy Bostock and CEO Jerry Yang. After the annual meeting, Icahn will join the board. Yahoo!'s nominating committee will select two extra members from among the names Icahn suggested and former AOL CEO Jon Miller, who was not among those originally submitted by Icahn. All told, the board will grow from nine to 11 members.

Icahn, who owns nearly 5 percent of Yahoo!, will withdraw his slate and support management's nominees.
 
"This agreement will not only allow Yahoo! to put the distraction of the proxy contest behind us, it will allow the company to continue pursuing its strategy of being the starting point for Internet users and a must buy for advertisers," Yang said in a statement.

Yahoo! gained the upper hand in its battle with Icahn last week when top shareholder Legg Mason said it would support current management. The company had dug in its heels for an ugly fight with Icahn, on Friday using its home page to link to a message that lambasted Icahn's track record.
 
The agreement will likely be seen as a defeat for Icahn and Microsoft, which cast its lot with the financier earlier this month. Microsoft said it supported Icahn's position that no deal between the companies was possible with current management in place.
 
"While I continue to believe that the sale of the whole company or its search business in the right transaction must be given full consideration, I share the view that Yahoo!'s considerable collection of assets positions it well to continue expanding its online leadership and enhancing returns to shareholders," Icahn said in a statement.