Roy Bostock, the chairman of Yahoo!, today hit out at those who had criticised the handling of two multibillion bid approaches from Microsoft, insisting that the board of the internet search engine was always open to a deal and had been in control of the negotiations.

Speaking at the company's annual meeting in San Jose, California, Mr Bostock said: "There was never any doubt about the position of this board and its openness to do a deal. At no point did the board, despite rumour or speculation, did we ever resist [the prospect of a takeover by Microsoft]. We actively engaged with them."

He said: "We called the shots and we were deeply involved in the steps of this process. There was never a conversation in more than 30 meetings when we did not discuss shareholder value."

But he was challenged by a group of investors to resign over his stance during the bid.

Eric Jackson, the Yahoo! shareholder who represents investors with around 3.2 million shares between them, asked Mr Bostock: "You are overpaid, you have overstayed your welcome, overplayed your hand with Microsoft. Will you do the honourable thing and step down?"

Mr Jackson reminded other shareholders that during last year's annual meeting, 34 per cent of investors did not vote for Mr Bostock's re-election.

Mr Bostock retorted that he was not overpaid and insisted that his remuneration was "not half enough for the last six months, I tell you that".

"You cite 34 per cent, I cite the 66 per cent who did want me", he added.

Yahoo! has been criticised for rejecting two approaches from Microsoft, the last of which valued the search engine at $47 billion (£23.7 billion), representing a 72 per cent premium.

Mr Bostock attacked Microsoft's board, claiming that its proposal to raise its offer was never made formally to Yahoo!: "They verbally, in an offhand comment, and this is important — they said 'there may be a few more dollars on the table. They never communicated this to the board or in writing.'"

Mr Bostock told investors that he was baffled as to why Microsoft had abandoned its last $47 billion offer to buy the search engine for $33 a share, in May.

He said: "They withdrew. And, to this day, I do not know why they did that."

Microsoft insiders claimed that they walked away after Yahoo! threatened to hive off the most lucrative parts of its business and introduce a poison pill that imposed excessive compensation packages for Yahoo! employees. Mr Bostock made no reference to such claims.

The chairman also insisted that the Yahoo! board had asked Microsoft to engage in more detailed discussions about a possible tie-up and had asked the software giant for its view of the regulatory implications of such a tie-up. "But they never significantly engaged with us," Mr Bostock said.

Blake Jorgensen, chief financial offer of Yahoo!, sought to reassure Wall Street about the health of the group.

He said: "We have $3.2 billion worth of cash on our balance sheet. That is extremely healthy. Historically, we have used that cash for acquisitions and share repurchases. We will continue to remain active in these areas."

At the meeting, attended by around two hundred shareholders, Jerry Yang, the search engine's co-founder and chief executive, also expressed his confidence in Yahoo's future.

Mr Yang said: "We are very much a growth business. We expect to have a billion and a half users by 2010. We expect to continue to grow over the next few years."

The Yahoo! directors, eight of whom are up for re-election at the meeting, was today rapped by a spokesman for the New York City Pension Funds, which controls 3.7 million shares, for the company's alleged complicity with governments that engage in censorship.

Last year, Yahoo! supplied information about its users to Beijing authorities that led to the imprisonment of a Chinese journalist. The New York fund urged Yahoo! to adopt a code of conduct which would block the company from providing such information which supported repressive governments.

Mr Bostock said that the board believed such a plan would not be in the best interests of shareholders and recommended that investors vote against the formal proposal.

In a letter to shareholders, Mr Yang urged investors to re-elect the board at the meeting, which he described as the "most important in our history".

Last month, the Yahoo! board agreed a truce with Carl Icahn, the billionaire activist shareholder, who had threatened to use his 5 per cent stake to oust the entire Yahoo! board.

Instead, Yahoo! has offered Mr Icahn a board seat, which he will take up next week, and two other non-executive positions for his allies. Yahoo! must choose the remaining two non-executives from a list prepared by Mr Icahn.

It is widely expected that Jonathan Miller, former chief executive of AOL, will get one of the seats. None of the three appointments was voted on by shareholders today and Mr Icahn did not attend the San Jose meeting.

While Mr Icahn indicated on his Wall Street blog yesterday that he hoped he and Mr Yang would begin a firm "friendship", the 72-year-old has in the past indicated that he believes Mr Yang should be replaced by a more experienced executive.

However, Mr Yang remains under pressure to unveil a plan for Yahoo! that will revive its share price and help it grab a bigger piece of the internet advertising market, estimated to be worth $40 billion a year, and expected to double by 2010. Currently, Yahoo! is losing market share to Google and is suffering declining profitability.

Shares in the internet search engine today were virtually unchanged at $19.83, well below the $33 a share offered by Microsoft in May.

Jeannie Loughran, a Yahoo! investor who has held 400 shares since 2003, said before the meeting: "I doubt many people will share the same view but Jerry Yang was absolutely right to reject Microsoft. I hate Microsoft."

Even though Ms Loughran, who lives in San Francisco, has seen the value of her shares tumble 30 per cent since Microsoft withdrew its offer, she told The Times: "My ethics are stronger than my dollar. Yahoo! were right to keep away from them."

Another shareholder, Carla Nagota, from San Jose, said that she believed Yahoo! was right to reject the attentions of Microsoft: "It would have reduced competition," she explained, adding that she, her husband and three sons were shareholders in the internet search engine.

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