Office Depot Inc. (ODP) on Tuesday night said it had reached a settlement agreement with dissident shareholder Starboard Value LP, just ahead of Wednesday's annual shareholder meeting.

Under the agreement, Office Depot Directors Marsha J. Evans and W. Scott Hedrick will step down on Thursday, making way for Starboard nominees Cynthia Jamison, Jeffrey Smith, and Joseph Vassalluzzo, who have agreed to join the Office Depot board.

Office Depot said it will expand the board from 10 to 11 directors to accommodate the additional director.

Mr. Vassalluzzo also will join the company's CEO selection committee, replacing Ms. Evans. If the merger with OfficeMax is completed, Office Depot will include both Mr. Smith and Mr. Vassalluzzo as continuing directors.

Starboard has agreed to withdraw its proxy solicitation and has committed to vote in favor of Office Depot's director nominees.

"We are very pleased to have reached an agreement with Starboard which we believe is in the best interests of all our shareholders," Office Depot Chief Executive Neil Austrian said.

He said the merger with OfficeMax Inc. (OMX) is on track to close on or before the end of the year, and that integration planning and the CEO search are "already well underway."

The deal comes after, earlier on Tuesday, Office Depot released a statement saying negotiations initiated late last week with Starboard had yet to result in an agreement ahead of Wednesday's shareholder meeting.

Starboard, the company's largest shareholder with about a 15% stake, had pushed Office Depot to replace four of its board members with four of the activist investor's own candidates. Office Depot last week offered to expand its 10-member board and to include three of those nominees--as long as two of the company's current directors got re-elected.

On Monday, Office Depot expanded its offer, saying it would have two Starboard directors stay on even after the OfficeMax merger. It also proposed that one of the fund's picks sit on the selection committee charged with finding a new CEO. In return, two of Office Depot's existing directors would resign.

Starboard rejected this, saying it wanted three current board members to step down. It also criticized the company for seeking "onerous standstill provisions" that would essentially bar proxy fights for a few years.

Office Depot's shares closed Tuesday at $4.24 and were inactive premarket. The stock has risen 1.7% in the past three months.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

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