updated 7/8/2005 7:09:54 PM ET 2005-07-08T23:09:54

The Walt Disney Co. and two ex-directors who waged a bitter two-year fight have agreed to a truce, including dropping a contentious shareholder lawsuit challenging the selection of the company’s new chief executive.

The company said Friday it has named former director Roy E. Disney as a director emeritus and a consultant.

In exchange, Roy Disney and ex-board member Stanley Gold have agreed not to run a challenge slate of directors or submit shareholder resolutions for the next five years. The two also pledged to back the leadership of Robert Iger, who succeeds longtime chief executive Michael Eisner in September.

In a brief statement Friday, the company reaffirmed its commitment to rotate members of the board’s committees as currently required by the company’s corporate governance guidelines.

“In putting aside their differences, the company noted Mr. Disney’s long time devotion to the company and welcomed the re-establishment of a relationship with him and his family,” the statement said.

The two directors also acknowledged Eisner’s “contribution to the company over the years,” the statement said.

The agreement was reached after several meetings between Iger and the two dissidents.

“It ends a lot of turmoil that was needlessly distracting the management of the company from doing its job,” said Harold Vogel, head of the investment firm, Vogel Capital Management.

Roy Disney and Gold resigned from Disney’s board in November 2003 and began a campaign to oust Eisner, who was then serving as chairman and CEO.

The directors complained that Disney’s stock price had underperformed since 1996 and that Eisner’s contentious management style was responsible for the ending of lucrative partnerships with Miramax founders Bob and Harvey Weinstein and with Pixar Animation Studios.

Their campaign culminated in a raucous shareholders’ meeting in March 2004, at which shareholders delivered a stinging vote of no confidence against Eisner and several directors.

In response to the vote, Eisner relinquished his role as chairman and, six months later, announced his retirement from the company after more than 20 years at the helm.

Disney’s performance has improved significantly over the past two years, with the company delivering double-digit earnings growth and projecting similar growth through at least 2007.

Since being named Eisner’s successor, Iger has worked to ease tensions with partners and smooth ruffled feathers among the company’s own executives.

He is credited with helping to negotiate a peaceful end to the Weinsteins’ contract, while retaining Miramax’s profitable film library. He has also restarted dormant talks with Pixar’s CEO Steve Jobs, who ended negotiations with Disney for a new distribution agreement because of a personal falling out with Eisner.

Analysts praised the development, saying it shows Iger’s skills as a negotiator who is able to focus the company’s attention on more pressing matters.

“This is another example of Bob Iger’s ability to build teams and build bridges, which is indicative of the fact that we will get a Pixar agreement,” said Laura Martin, an analyst with Soleil-Media Metrics.

A hearing on the lawsuit filed by Roy Disney and Gold in Delaware, where Disney is incorporated, was scheduled for next month.

The suit alleged that members of Disney’s board made false statements to shareholders about the search for Eisner’s successor. The suit asked the court to void the election of the Disney directors, force another election and disclose all the details of how they selected a new chief executive.

“It’s certainly good to have this gone,” said Janna Sampson, director of portfolio management for Oakbrook Investments. “This was nothing but bad press for Disney.”

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