The Children’s Place Inc. and activist investors have reached an agreement to end their acrimonious months-long proxy battle over the performance of the retailer and its board’s oversight of operations just hours before the battle was to take center stage at the retailer’s annual meeting.

Under terms of the agreement with Macellum Advisors GP and Barington Capital Group, retired Macy’s executive Robert Mettler will be added to the board following Friday’s annual meeting. Children’s Place’s board also agreed to appoint a second “mutually agreeable independent director.”

Macellum and Barington’s contention that a board shake-up was necessary received partial support from proxy adviser Institutional Shareholder Services earlier this month when the group recommended that Mettler, but not Seth Johnson, receive an affirmative vote from shareholders.

As part of the agreement, Children’s Place has agreed to reimburse Macellum and Barington for up to $500,000 in out-of-pocket expenses in the battle, which dates back to a letter sent to the retailer’s chairman, Norman Matthews, in March pushing for an exploration of changes at the company, including a possible sale.

In their push for change, the activists took dead aim at the performance of the company since Jane Elfers was appointed chief executive officer in 2010.

Children’s Place in April rejected the activists’ suggestion that Mettler and Johnson be voted onto the board. Matthews, Kenneth Reiss and Stanley Reynolds stood for election to the board today.

Chances of an amicable resolution appeared to diminish earlier this week when the parties failed to reach an agreement on the board’s composition.

At issue, to judge from the differences in statements issued Wednesday by the activists in a regulatory filing with the Securities and Exchange Commission and the settlement reached Friday, was the activists’ objection to Chidren’s Place’s contention that the search for a mutually agreeable independent director might take as long as year.

Children’s Place characterized that argument as “a deliberate attempt to mislead shareholders to sway votes just day before the annual meeting.”

But talks resumed as the mood turned more tense.

“We believe that this settlement is a very positive outcome and will help drive enhanced value for shareholders of The Children’s Place,” said James Mitarotonda, chairman and ceo of Barington.

The two hedge funds together own more than 2 percent of the retailer. Barington has previously held stakes in companies including Dillard’s Inc., The Jones Group Inc., Warnaco Group Inc. and Steven Madden Ltd.

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