Keith Meister, managing director of the Icahn investment funds, will serve on the board immediately, Motorola said. Meister, whose nomination by Icahn was earlier rejected by the company, and William Hambrecht, chief executive of WR Hambrecht & Co, will be nominated for election to Motorola's board.
The settlement with Icahn, Motorola's second-largest shareholder whose firm owns about 6.4 percent of Motorola shares, ends what Icahn called a "distracting" proxy fight.
Motorola has also agreed to seek input from the activist investor regarding the company's decision to split off its cell phone business and its search for a new chief executive for the division.
The Motorola board "has also taken an important step forward for corporate governance in that the separated company which includes Mobile Devices will be essentially free from poison pills and staggered boards, both of which, in my opinion, serve to make democracy a travesty in corporate America," Icahn said in a statement.
Motorola shares rose 29 cents to $9.96 in early trading on the New York Stock Exchange.