(Reuters) - Yahoo Inc's board convened on Monday afternoon to discuss the mounting upset surrounding Chief Executive Scott Thompson, who has apologized to employees after being accused last week by activist investor Daniel Loeb of padding his resume, a source with knowledge of the matter said.

The source, who declined to be identified because of the sensitivity of the issue, said the board meeting was expected to address aspects of an internal review, including which board members would participate.

Thompson issued an apology for the fallout from disclosures about his academic credentials in an emailed memo to Yahoo employees on Monday, a copy of which was seen by Reuters.

The memo came hours after Loeb, chief executive of hedge fund Third Point, which holds 5.8 percent of Yahoo's shares, formally demanded in a letter that the Internet company turn over all records related to Thompson's hiring.

"I want you to know how deeply I regret how this issue has affected the company and all of you," Thompson wrote in his first extended memo to employees since the disclosures emerged on May 3. "We have all been working very hard to move the company forward and this has had the opposite effect. For that, I take full responsibility, and I want to apologize to you."

Thompson added that he would "respect" the board's plans to conduct a thorough and independent review.

"I am hopeful that this matter will be concluded promptly," he wrote. "But, in the meantime, we have a lot of work to do."

Yahoo, whose revenue slid by more than a fifth last year, brought in Thompson, former president of eBay Inc subsidiary PayPal, as chief executive in January, five months after Carol Bartz was fired.

BOARD INVESTIGATION

Third Point, which last week revealed the discrepancies in Thompson's education record, wants Yahoo to publicly reveal the process by which Thompson was vetted and disclose all minutes of any board meeting in which his candidacy was discussed.

Yahoo's board has said it is investigating the issue.

"We believe that this internal investigation by this board must not be conducted behind a veil of secrecy and shareholders deserve total transparency," Loeb said in his latest letter on Yahoo.

Loeb cited Delaware corporation law that allows a shareholder to inspect a company's books if that person has a proper purpose and meets procedural requirements.

Loeb started out as a trader. He opened shop in 1995 with just $3.3 million in assets under management and operated in space borrowed from David Tepper's Appaloosa Management, a New Jersey-based hedge fund.

Yahoo's latest troubles come as it is likely weeks away from selling 15 to 25 percent of Alibaba Group's shares back to that company after months of negotiations. The deal with Alibaba, parent of China's largest listed e-commerce company Alibaba.com Ltd, is expected to be designed to avoid the complexities that had hindered earlier talks, a source told Reuters last week.

Loeb has been credited with sparking previous changes on Yahoo's board, namely the resignations of co-founder Jerry Yang and former chairman Roy Bostock.

Yahoo's board has come under fire from investors impatient with the company's persisting inability to effect a turnaround, and indecisiveness over how to handle its investments in Alibaba.

Adam Seessel, director of research at Martin Capital Management, which owns Yahoo shares, said that while he was a fan of Loeb, the move by the hedge fund chief executive to oust Thompson was a "head scratcher".

"If it were normal times, this would warrant a dismissal," Seessel said of Thompson's padded resume. "But he's so new and the company is in such a sensitive spot."

"Sometimes in the heat of the battle, you can't get rid of your commander ... and a battle is going on."

Shares in the company were flat in after hours trade after closing at $15.35 on the Nasdaq.