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Lenovo Gets $350 From Equity Firms

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Lenovo announced an agreement with Texas Pacific, General Atlantic, and Newbridge Capital, to provide Lenovo with a US$350 million strategic investment for its acquisition of IBM’s PC business.

Among the total amount to be raised from this placement, approximately US$150 million will be used to finance the acquisition. The balance (approximately US$200 million) will be added to Lenovo’s general working capital and used for general corporate purposes. This strategic transaction provides an alternative funding means to Lenovo. More importantly, Lenovo will benefit from TPG, GA and Newbridge’s recognized expertise in helping technology companies successfully implement their long-term strategies.

Per the agreement, Lenovo will issue to TPG, GA and Newbridge an aggregate 2,730,000 unlisted Series A cumulative convertible preferred shares (“Preferred Shares”) at an issue price of HK$1,000 per share and unlisted warrants to subscribe for 237,417,474 shares for a total of US$350 million cash consideration. TPG is investing US$200 million, GA US$100 million and Newbridge US$50 million.

The Preferred Shares bear a fixed cumulative preferential cash dividend, payable quarterly, at the rate of 4.5% per annum and are redeemable at the option of Lenovo or the holders at any time after the seventh anniversary of the closing of this transaction. In aggregate, the Preferred Shares will be convertible into 1,001,834,862 common shares of Lenovo at a conversion price at HK$2.725 per share. The conversion price represents a premium of 16.7% compared to the average closing price of Lenovo’s common share of HK$2.335 for the 30 consecutive trading days up to and including March 24, 2005. Each warrant carries the right to subscribe for one common share of Lenovo at an exercise price of HK$2.725. The warrants have a maturity of five years. The issue of the Preferred Shares and warrants requires the approval of Lenovo’s shareholders.

Upon full conversion of the Preferred Shares and assuming the issue of shares to IBM upon closing of the acquisition of IBM’s PC business, TPG, GA and Newbridge will own approximately 10.2% of Lenovo’s enlarged issued share capital. Assuming full exercise of the warrants, the investors will own approximately 12.4%.

Yuanqing Yang, current President and Chief Executive Officer and Chairman designate of Lenovo, said “We are delighted that three of the world’s leading private equity firms will be strategic investors in the new Lenovo. TPG, GA and Newbridge have extensive insight into business operations, as well as strong competency in strategic planning. With rich experience helping companies integrate operations, their participation in the new Lenovo will further ensure a smooth transition period and stable development in the future. This agreement represents a strong vote of confidence in Lenovo’s prospects going forward as a global information technology leader.”

Mr. Yang continued, “As leading private equity firms, TPG, GA and Newbridge also have strong understanding of the governance structure of multinational operations as well as rich experience working with IT investors. They have been strong supporters of our acquisition of IBM’s global computer business and, we are pleased that they share the current Board’s view regarding the great potential of the business. Going forward, they will work with us to ensure a seamless flow of communication with the investment community.”

James G. Coulter, Managing Partner of TPG, stated, “TPG is pleased to make this strategic investment and to enter into a strategic partnership with Lenovo. The combination of Lenovo and IBM’s PC business is a powerful one, and we are excited about being part of this landmark transaction. The combined company has a strong global presence, leading technology and the best mobile product in the world in the ThinkPad. In addition, it has the #1 market position in China, the fastest growing PC market in the world. We are excited about Lenovo’s growth prospects and look forward to working with the management team to create additional shareholder value.”

William O. Grabe, a Managing Director of GA, stated, “Having worked alongside Chairman Liu for several years, GA has been honored to work closely with Lenovo over the past year as it planned and prepared for a transformational transaction. We are very pleased now to extend our relationship with this true pioneer of the Chinese information technology sector, and its talented management team, as an investor and board member. Combined with Lenovo’s powerful market position in Asia, its acquisition of IBM’s PC business provides Lenovo with significant new opportunities, through both synergies and by expanding the market for its desktop and laptop PCs globally. We are confident in Lenovo’s growth potential and look forward to helping it to achieve its objectives.”

Weijian Shan, co-Managing Partner of Newbridge, said, “Through this acquisition, Lenovo is leading an important trend of Chinese companies moving onto the global stage. Newbridge is pleased to join with TPG in supporting Lenovo’s management team in making this vision a reality.”

After giving effect to the closing of the IBM PC business acquisition and the closing of the investment, IBM will receive approximately US$800 million in cash and Lenovo common shares representing a value of US$450 million, based on the closing price of shares on the last day of trading prior to the December 2004 announcement.

Upon closing of both the investment and the acquisition, IBM will hold a 13.4% ownership share assuming full conversion of the Preferred Shares. IBM’s voting interest in Lenovo will remain the same. IBM’s Global Financing and Global Services, the number one IT services organization in the world with powerful existing enterprise channels, will be preferred providers to Lenovo for leasing and financing services, and for warranty and maintenance services, respectively. The strong strategic business alliance between Lenovo and IBM formed through the acquisition is taking shape alongside the planned integration process with both parties fully committed to the prospects ahead.

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Lenovo Gets $350 From Equity Firms
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