Office Depot Announces $350 Million Preferred Stock Investment by BC Partners

Business Wire, June 23, 2009

Transaction Has Been Completed and Funds Have Been Received

BOCA RATON, Fla. -- Office Depot, Inc. (NYSE: ODP), a leading global provider of office products and services, today announced that funds advised by BC Partners, a leading international private equity firm, had invested $350 million in the Company by purchasing approximately $275 million of the Company’s newly created 10% Series A Redeemable Convertible Perpetual Preferred Stock and approximately $75 million of the Company’s newly created 10% Series B Redeemable Conditional Convertible Perpetual Preferred Stock. The transaction closed this morning with the completion of the sale of the preferred shares to funds advised by BC Partners and the corresponding receipt of proceeds by Office Depot. Office Depot will use the proceeds for general corporate purposes.

The Series A Preferred is immediately convertible into shares of the Company’s common stock at a conversion price of $5.00 per share (subject to a conversion cap). This conversion price represents a 32% premium to the closing price of $3.79 per share on Monday, June 22, 2009, and a 55% premium to the 60-day average closing price of $3.23 per share. The Series B Preferred will become convertible into shares of the Company’s common stock on the same terms as the Series A Preferred if the Company’s shareholders approve the issuance of shares in connection with such conversion as required by the New York Stock Exchange. The investment equates to an initial ownership interest of approximately 20%, assuming the receipt of shareholder approval and the full conversion of each series of preferred stock into the Company’s common stock.

The Company’s board of directors approved the transaction and will recommend that the Company’s shareholders vote to approve the issuance of shares of common stock pursuant to the Series B Preferred and the issuance of the shares of common stock pursuant to the Series A Preferred in excess of the conversion cap.

“We are very pleased that BC Partners has made this investment in Office Depot, and that three representatives from BC Partners have joined our Board. They have a very successful investment track record and consistently demonstrate a commitment to working with companies to implement long-term strategic plans,” said Steve Odland, Office Depot’s Chairman and Chief Executive Officer. “This investment, combined with the continued success of our liquidity and cash flow initiatives, significantly strengthens our balance sheet. Going forward, as business conditions improve we believe this financial flexibility is a strategic advantage as we look to invest in high-return projects to drive profitability.”

“BC Partners invests in high quality businesses, such as Office Depot, that enjoy strong competitive positions, demonstrate high profit and cash flow improvement potential, and have a strong management team in place,” said Raymond Svider, managing partner of BC Partners. “We are impressed with Steve and his leadership team and we look forward to helping them continue to navigate this challenging economic environment and position Office Depot for sustainable long-term profitable growth. We think this is the right time to invest in a fundamentally strong global franchise that is well positioned to succeed when the economic climate improves.”

The initial dividend rate is 10% on both the Series A and Series B Preferred, and dividends are paid quarterly in cash or are added to the liquidation preference at the Company’s option and subject to certain restrictions. After three years, the dividend rate on both the Series A and Series B Preferred will decrease to: (i) 7.87% if the Company’s common stock price is greater than or equal to $6.62 per share and (ii) 5.75% if the Company’s common stock price is greater than or equal to $8.50 per share, in each case for 20 consecutive trading days. If shareholder approval is not obtained within (i) 180 days, the dividend rate on the Series B Preferred will increase to 15%, (ii) 270 days, the dividend rate on the Series B Preferred will increase to 17.125% and (iii) 360 days, the dividend rate on the Series B Preferred will increase to 19%.

After three years, the Company will have the option to redeem both the Series A and Series B Preferred, in whole or in part, at a 7% premium to the liquidation preference, which premium will decline by 1% each year until there is no premium in year 10 and thereafter. In addition, after two years the Company will have the option to redeem both the Series A and Series B Preferred, in whole or in part, at no premium if the Company’s common stock price is greater than or equal to $9.75 per share for 20 consecutive trading days.