Text Of Office Depot's Letter To Shareholders - Twice

Text Of Office Depot's Letter To Shareholders

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PROXY ADVISOR RECOMMENDS OFFICE DEPOT’S STOCKHOLDERS VOTE TO REJECT ALAN LEVAN’S AND HIS COMPANY WOODBRIDGE’S DISSIDENT NOMINEES

ISS cites concerns about poor performance of Levan’s companies and lack of qualifications of his nominees, says dissidents have not proven that they would be better able than management to effect positive changes*

Your Board and Management Are Implementing a Strong Turnaround Plan

Dear Fellow Stockholder:

We are pleased to inform you that Institutional Shareholder Services (“ISS”), an institutional proxy advisor, recommends that Office Depot’s stockholders vote to reject Alan Levan’s and his company Woodbridge’s dissident nominees. In its recommendation, ISS cites concerns about the poor performance of Alan Levan’s companies and the lack of qualifications of his nominees, and concludes that Levan and his nominees have not proven that they would be better able than your management to effect positive changes at Office Depot.* We welcome ISS’s support, and your Board and management remain focused on executing a strong turnaround plan designed to increase value for all Office Depot stockholders. Please disregard Alan Levan’s letters and press releases, which we believe contain information that is often untrue, outdated or misrepresents what is really happening at Office Depot, and support your Board and management team by voting the WHITE proxy card today.

YOUR BOARD AND MANAGEMENT SUCCESSFULLY ADDRESSED THE ISSUES FACING OFFICE DEPOT IN 2005 — LEVAN’S CLAIM THAT THE SAME PROBLEMS HAVE EXISTED AT OFFICE DEPOT FOR THREE YEARS IS WITHOUT MERIT

Steve Odland joined Office Depot in 2005 when our business was facing many challenges. Together with your Board, management successfully initiated measures to refocus the Company, and did not simply “cut costs for short term gain” as Levan claims. Since 2005 we have:

• Built a new leadership team.
• Built 253 new stores to enhance retail growth.
• Remodeled stores to improve customers’ shopping experience.
• Expanded high-growth service offerings in Retail and Business Solutions.
• Expanded global reach, including in China, Korea, and Eastern Europe.
• Integrated historical acquisitions.

Primarily as a result of these initiatives, your Board and management created significant value for all of Office Depot’s stockholders and outperformed Staples from April 2005 through March 2007, contrary to Levan’s continued claims of our underperformance. In particular:

• From March 2005 through March 2007, earnings per share grew 59%.
• In the first quarter of 2007, Office Depot had record sales and earnings.
• From March 2005 through March 2007, Office Depot’s share price increased 70%.

YOUR BOARD AND MANAGEMENT ARE IMPLEMENTING A LONG-RANGE STRATEGIC PLAN DESIGNED TO ADDRESS THE NEW CHALLENGES FACING YOUR COMPANY — THERE IS NO MERIT TO LEVAN’S CLAIM THAT OUR PLAN OFFERS NOTHING NEW

Office Depot is facing challenges that are different from those faced in 2005, and your Board and management have developed a strong, strategic plan designed to address these new challenges. Our detailed turnaround plan is clearly distinguishable from the measures we took in 2005 and includes:

• North American Retail – Focusing on micro-business customers with a new product assortment and re-launched loyalty program to provide an even stronger value proposition; improving our value programs Buy More & Save, Private Brands and Worklife Rewards™; and enhancing service offerings to complement product offerings.
• North American Business Solutions – Redesigning a direct marketing program that includes launching a new telephone account management strategy and structure; improving on-line marketing efficiency and effectiveness; and pursuing a detailed contact strategy to optimize penetration of existing customers.
• International – Improving service in the U.K. and actively managing costs and maximizing distribution efficiency; improving productivity by transitioning back-office functions to a shared service center in Eastern Europe and consolidating European call centers and distribution facilities; and leveraging global sourcing to increase direct import and private brand penetration in Europe and Asia.

WE ARE NOT BLAMING MACROECONOMIC CONDITIONS — WE ARE RECOGNIZING THEM AND ADDRESSING THEIR CONSEQUENCES

Today’s difficult macroeconomic environment is undeniably affecting us all. Office Depot’s customers, particularly those that are small and home office businesses, have been especially hard hit. Virtually every retailer and business is impacted by economic issues. The important question is: what are we doing about it? Your Board and management are implementing a strong turnaround plan that is designed to combat head-on the macroeconomic issues that we face and deliver increased value for all stockholders. We are not “blaming” macroeconomic issues, we’re dealing with them. Moreover, our turnaround plan includes specific and detailed margin improvement initiatives that we believe will improve operating margins by 300 basis points by year-end 2010 regardless of macroeconomic conditions.

WE HAVE BEEN IMPLEMENTING OUR NEW PLAN SINCE NOVEMBER 2007 — LEVAN WRONGLY CLAIMS THAT OUR PLAN WAS MADE PUBLIC ONLY AFTER HE COMMENCED HIS PROXY CONTEST

Office Depot’s long-range strategic plan was first announced on November 20, 2007, during Office Depot’s third quarter 2007 earnings conference call, and implementation was already underway. Perhaps Levan missed the conference call, as he did not become a stockholder until March 2008, having bought most of his shares the week before launching his proxy contest.

LEVAN AND HIS HANDPICKED NOMINEES ARE THE WRONG VOICE FOR OFFICE DEPOT’S STOCKHOLDERS AND ADD NOTHING NEW

ISS notes that Mark Begelman has not been in the office supplies business for over 12 years.* Neither Mark Begelman nor Martin Hanaka have experiences from their prior employment at Office Depot or Staples that would help Office Depot today. At the time of their employment, Office Depot and Staples were much smaller, less global and much less complex than today’s Office Depot (55% of which is non-retail). Furthermore, during Mark Begelman’s entire tenure at Office Depot, current Board member David Fuente led the Company and drove results. Begelman’s last retail operating experience resulted in the liquidation of his company in 2002.

ISS raised concerns about Mark Begelman’s independence from Alan Levan and his potential to be “disruptive” in the boardroom.* Mark Begelman has a record of failed business ventures and has made disparaging remarks about our industry. The music superstore chain Mars Music that Begelman founded in 1997, and for which he served as CEO, filed for bankruptcy in 2002 and ended up in liquidation. When he left Office Depot in 1995 he told reporters that he had grown bored with Office Depot, lamenting that his life consisted of staples and paperclips. “I was president by day and rocker by night,” he was reported as saying, “I wanted to be rocker by day and rocker by night.”**

ISS concluded that the poor performance of Martin Hanaka’s prior companies “raises doubts about his ability to improve shareholder value as a CEO or a board member”.* Martin Hanaka has a track record of destroying stockholder value and has engaged in misconduct:

• Sports Authority’s stock price fell by approximately 13% from February 1998, when Hanaka joined as Vice Chairman, through the company’s merger with Gart Sports in August 2003 (in which period he became CEO). 
• Trans World Entertainment’s stock price has fallen approximately 75% since Hanaka joined its board in 1998.
• Golfsmith International’s stock price has fallen by approximately 80% since Hanaka joined its board in 2007. Hanaka is currently Golfsmith’s interim CEO.
• Hanaka resigned from Staples in 1997 after being arrested for assaulting a female co-worker. According to an article published in The Wall Street Journal on October 21, 1997, Hanaka’s victim told police that they had been involved in a two-year extramarital affair.

ISS noted that all the publicly traded companies where Levan is either the CEO or Chairman “have significantly negative return for the past 1-, 2- 3- years” and raised concerns about his lack of experience in retail and as an activist investor.* Levan has no experience in our industry and his companies are performing poorly. Levan has experience in real estate development and banking, not retail. Moreover, his business track record is disconcerting. On a recent earnings call for one of his companies he was even called a “serial killer of public companies.”*** Over the past three years, the stock prices of Levitt Corporation (where Levan is Chairman and CEO), BankAtlantic Bancorp (where Levan is Chairman and CEO and Begelman is an employee), BFC Financial Corporation (where Levan is Chairman and CEO) and Bluegreen Corporation (where Levan is Chairman) have dropped approximately 93%, 75%, 88% and 53%, respectively. In addition, Levitt and Sons, Levitt’s wholly owned subsidiary, is in bankruptcy.

Levan only has a small economic interest in your Company. Levan bought his first 200 shares on the record date last month. Levan and his affiliates have now publicly reported owning less than 1.1% of our outstanding common stock.

Your Board and management team have demonstrated an unwavering commitment to building value for all Office Depot stockholders and are positioning the Company for sustainable and profitable growth. We ask you to carefully consider what expertise Levan and his dissident nominees will provide to your Company.

WE URGE YOU TO SUPPORT YOUR BOARD AND SENIOR MANAGEMENT

BY VOTING THE WHITE PROXY CARD TODAY

We strongly urge all Office Depot stockholders to discard any gold proxy cards you may receive from Alan Levan or Woodbridge and support your Board of Directors and vote “FOR” all of the Company’s directors on the enclosed WHITE proxy card today.

We thank you for your continued support of Office Depot.

On behalf of the Board of Directors,

Sincerely,

Steve Odland Neil R. Austrian
Chairman of the Board and Chief Executive Officer Lead Director  

* ISS Governance Services, US Proxy Advisory Services, April 11, 2008.

** Bethany McLean, Fortune Magazine, April 12, 1999.

*** Bluegreen Corporation fourth quarter 2007 earnings call.

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