Midfielder Tom Cleverley is to join Watford on a permanent deal at the end of his current loan spell.
Watford have exercised an option in the initial loan agreement to sign the 27-year-old for an undisclosed fee.
The transfer will be completed on 1 July 2017.
Cleverley, who has made eight appearances for the Hornets since moving to Vicarage Road in January, joined the Blues on a free transfer in July 2014 after leaving Manchester United.
In total, the England international made 42 appearances for the Toffees, scoring two goals, with his last appearance coming in the 2-0 win at Leicester City on Boxing Day.