Under increasing pressure from investors Carl Icahn and Mark Rachesky, Navistar International Corp. has agreed to add three people to its board of directors. The three will replace existing board members, Navistar said.

The company also announced the retirement of Jim Hebe, senior vice president, North America Sales Operations.

Rachesky and Vincent J. Intrieri will join the board and the third member will be a mutually-agreed upon director between Navistar, Icahn’s Icahn Partners (Icahn) and Rachesky’s MHR Fund Management (MHR).

“We are pleased to have reached an agreement with Icahn and MHR as we believe it is in the best interest of the company and all of its shareholders,” said Michael N. Hammes, Navistar’s independent lead director. 

Rachesky and Intrieri will replace directors Steven J. Klinger and Eugenio Clariond, who have agreed to retire, Navistar said. The third unnamed director will also replace an existing board member. All three will be up for election at the company’s 2013 Annual Meeting of Shareholders.

According to Navistar, the board will remain at 10 members so long as either Icahn or MHR continues to have a designee on the board.

“Vince and Mark will provide meaningful shareholder representation on the board, and we welcome their insights and look forward to working with them constructively as we continue to execute on our plan to drive long-term profitability and deliver shareholder value,” said Lewis B. Campbell, Navistar’s chairman & CEO. “On behalf of the board, I would also like to thank Eugenio and Steven for their contributions and service to Navistar during their time as directors.”

As of June 30, 2012, MHR held 13.61% of all outstanding shares of Navistar and Icahn 11.91%. A third investment firm, Franklin Resources, holds 18.82%.

“I am glad to have reached an agreement that provides strong shareholder representation on the board and look forward to working diligently with the board to enhance value at Navistar,” Icahn said.

The appointment of the new directors is part of an agreement Navistar has reached with Icahn and MHR. As part of the deal, Icahn and MHR have agreed that they will not run a proxy contest at the 2013 annual meeting and will support the board’s nominees, as well as certain other provisions, Navistar said.

Unhappy with the director of the company, Icahn raised the stakes recently in a letter to Navistar demanding four new board members to help change the performance and board makeup of the Lisle, IL-based company.

Navistar reported a $100 million pre-tax loss in the third quarter, continuing a series of disappointing financial results. Navistar struggled to get its EGR-only engine solution to meet 2010 EPA emissions requirements. This summer it announced it was switching to SCR aftertreatment, which it would purchase from Cummins. The company will also implement Cummins’ ISX15 engine, beginning full production in January.

“I am pleased with the favorable outcome of the process which resulted in giving shareholders meaningful board representation.  I look forward to working closely with management and other members of the board of directors of Navistar to effect the changes necessary to drive value for all shareholders,” said Rachesky.

Intrieri is senior managing director of Icahn Capital, an investment firm owned by Carl Icahn. He has worked for Icahn entities since October 1998.

Hebe, 63, who rejoined the company in 2008, began his career at International Harvester in 1971. After leaving International Harvester, Hebe held leadership roles of increasing responsibility with American LaFrance, Kenworth Truck Co., and Kenworth of Tampa, eventually chairman, president & CEO of Freightliner in 1992.

“Jim Hebe has been a significant figure in our industry for four decades,” said Jack Allen, president, Navistar North America Truck & Parts. “We have benefited greatly from his many contributions, perhaps none more important than Jim’s passion for developing deep customer relationships, which has become embedded within Navistar’s sales and marketing team. We thank him for his service and wish him the best in retirement.”

After leaving Freightliner in 2001, Hebe became head of Seagrave Fire Apparatus, in Clintonville, WI. He returned to the trucking industry in 2006 when he became dealer principal of Co-Van/Cascadia International, before re-joining Navistar, Inc. two years later in his current role.