March 18, 2014
Company Name: Japan Tissue Engineering Co., Ltd. (J-TEC)
Representative: Yosuke Ozawa, President and CEO(Code: 7774 JQ)
Headquarters: 6-209-1 Miyakitadori, Gamagori, Aichi, Japan
Contact:
Masahito Obayashi
Director, Corporate Management & Administration Dept.
URL:
http://www.jpte.co.jp/english/

Notice Concerning Issue of Subscription Rights Through Private Allocation
Japan Tissue Engineering Co., Ltd. (hereinafter referred to as “J-TEC”) announces that its Board of Directors
passed a resolution at its meeting held on February 14, 2014 to issue subscription rights through private allocation(hereinafter, such Subscription Rights are referred to as “the Subscription Rights,” and the issue of such
Subscription Rights are referred to as “the Subscription Rights Issue”). Note, however, that the Subscription
Rights Issue will be proposed at the Extraordinary Shareholders’ Meeting of J-TEC for approval scheduled on
March 27, 2014 and that the Subscription Rights Issue will be subject to the approval of the Extraordinary
Shareholders’ Meeting.
Description
I.
Issuance of Subscription Rights Through Private Allocation
1. Overview of Allocation(1) Allocation Date

March 31, 2014

(2) Number of Subscription Rights to
be Allotted

18,000 units(3) Issue Price¥30,000 per One Unit of Subscription Rights(Aggregate Value: ¥540,000,000)(4) Number of Potential Common
Stock Shares Attributable to the
Subscription Rights Issue

Number of Potential Common Stock Shares: 18,000 shares(5) Strike Price¥380,000 per share(6) Amount to be Raised from the
Subscription Rights Issue

The sum of the amount paid for the Subscription Rights Issuanceand the amount to be paid for the exercise of the Subscription
Rights : ¥7,380,000,000(7) Offering or Allocation Method(Proposed Allottee and Number ofUnits to be Allocated)

Through private allocation to Fujifilm Corporation: 18,000 units(8) Others

Each of the above items is subject to the condition that the
proposal on the Subscription Rights Issue is approved by the
Extraordinary Shareholders’ Meeting of J-TEC scheduled on
March 27, 2014 and that the filing under the Financial
Instruments and Exchange Act becomes effective.

2. Purpose and Reason for the Allocation
J-TEC is engaged in a “Regenerative Medicine Business” applicable under the Pharmaceutical Affairs Act
and an “R&D Support Business” not applicable under the Pharmaceutical Affairs Act, on the basis of “tissue
engineering” (meaning a technology to artificially create tissues and organs with their original functions as
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much as possible using living cells). As for the Regenerative Medicine Business, J-TEC is currently
promoting the production and sales of an autologous cultured epidermis (product name: JACE) andautologous cultured cartilage (product name: JACC) and is also advancing the development of autologous
cultured corneal epithelium. The progress of each business is as shown below.
Autologous cultured epidermis “JACE” is the first human cell tissue-based product in Japan, which wasapproved for production and sales by the Ministry of Health, Labour and Welfare in October 2007 and thenbecame covered by the National Health Insurance in January 2009. JACE is a medical device for the purposeof treatment of severe burn patients with burns over more than 30 percent of their body surface area.
However, there are some points of consideration imposed on JACE with regard to the coverage of National
Health Insurance (NHI), such as facility criteria and limitation of charges applicable to NHI coverage. J-TEC
focuses on conducting promotional activities to major medical agencies. At the same time, throughcollaboration with the Japanese Society for Regenerative Medicine, etc., J-TEC is also engaged in providing
appropriate instruction to medical agencies about more effective usage of JACE for severe burn treatment. As
for the points of consideration imposed on JACE, the revision of the medical payment system relaxed thefacility criteria in April 2010 and eased the limitation of charges applicable to NHI coverage in April 2012.
Annual revenue of JACE has been increasing over the past several years: ¥12 million for the fiscal year
ended March 31, 2009; ¥110 million for the fiscal year ended March 31, 2010; ¥219 million for the fiscal
year ended March 31, 2011; ¥316 million for the fiscal year ended March 31, 2012; ¥383 million for the
fiscal year ended March 31, 2013. However, the termination of production has frequently occurred due to thelimitation of the number of patients applicable to JACE and the frequent death of patients before theshipment of the product. Such burdens borne by J-TEC have made this business unprofitable. J-TEC is
promoting to expand the application range of JACE in order to secure profitability for the autologous
cultured cartilage business.
The autologous cultured cartilage “JACC” is the first human cell tissue-based product in the field of
orthopedics in Japan, which was approved for production and sales by the Ministry of Health, Labour andWelfare in July 2012 and then became covered by the National Health Insurance in April 2013. The
application target of JACC is traumatic cartilage defects of the knee joint or osteochondrosis dissecans(except knee osteoarthritis). Since there are some points of consideration imposed on JACC with regard to
the NHI coverage, such as facility criteria and regulations for qualified orthopedic surgeons, J-TEC iscurrently conducting promotional activities with a focus on training for medical agencies and qualified
orthopedic surgeons.
In respect of autologous cultured corneal epithelium, J-TEC is summarizing the results of pre-clinical test
and validation studies for the preparation of the clinical trial.
In the R&D Support Business, J-TEC has commenced production and sales of the Research Human Tissue
Culture Laboratory Site Series in April 2005 and posted sales of ¥74 million in the fiscal year ended March
31, 2013.
With regard to J-TEC’s operating results and financial position for the fiscal year ended March 31, 2013,
net sales amounted to ¥563 million, and operating loss, ordinary loss and net loss were ¥1,103 million,¥1,073 million and ¥1,077 million, respectively. Cash and deposits as of March 31, 2013 totaled ¥1,607
million. With regard to J-TEC’s operating results and financial position for the nine months (April 1 December 31, 2013) of the fiscal year ending March 31, 2014, net sales amounted to ¥677 million, andoperating loss, ordinary loss and net loss were ¥744 million, ¥749 million and ¥752 million, respectively.
Cash and deposits as of December 31, 2013 totaled ¥1,012 million. Based on “Medium-Term Management
Plan (Revised)” (from the fiscal year ending March 31, 2014 to the fiscal year ending March 31, 2016) thatwas officially announced on November 13, 2013 (hereinafter referred to as “MTM Plan”), J-TEC plans topost a net loss of ¥803 for the fiscal year ending March 31, 2014 and net loss of ¥520 for the fiscal year
ending March 31, 2015. However, J-TEC projects to turn its financial performance around with a net incomeof ¥520 million for the fiscal year ending March 31, 2016. However, J-TEC currently faces several
challenges, including inherent uncertainty factors for revenues of autologous cultured cartilage that is
expected to serve as a key driver for the turnaround for the fiscal year ending March 31, 2016, and alimitation of the market size of JACE due to its targeting the treatment of severe burns and frequent death ofpatients after the order receipt. In addition, future risk implies that J-TEC could possibly not proceed as2

planned with respect to the development, approval and sales plan of autologous cultured corneal epithelium.
Given the current state of J-TEC as well as the nature of the Regenerative Medicine Business characterized
as a time-consuming business requiring approval under pharmaceuticals legislation, J-TEC has been
considering various financing schemes in order to stabilize its operating base. J-TEC believes that it is ofvital importance to strengthen its financial base for the stabilization of operations in the short run and tosecure new sources of revenue as J-TEC growth strategy in the medium and long terms with a view of
improving its enterprise value and contributing to the interests of its existing shareholders. Out of thefinancing schemes that J-TEC considered this time, J-TEC gave up other alternative schemes as given below
for the following reasons: (a) public stock offering is thought to have potentially direct impact on J-TEC’s
stock prices while fund-raising is available temporarily; (b) rights offerings could become a burden on theexisting shareholders because rights offerings require them to pay additional funds, although this scheme will
enable the maintenance of the shareholding ratio; and (c) a bank loan is not appropriate because it could be
difficult to borrow a large amount of money in consideration of the creditworthiness of J-TEC in the future.
The reasons for selecting the Subscription Rights Issue as an appropriate financing scheme this time are: (a)J-TEC will be able to secure the amount of money required in the foreseeable future by achieving theproceeds of ¥540 million through the Subscription Rights Issue; and (b)this scheme is thought to havevalidity and reasonableness in that stock prices will rise in line with progress in business and improvement inenterprise value in conjunction with the promotion to exercise the Subscription Rights, since J-TEC
envisages that the purpose funds are not temporary. In addition, J-TEC also believes that gradual exercise of
the Subscription Rights will control the impact on dilution of the stock value and accordingly will notundermine the interest of J-TEC shareholders.
As a result of a series of discussions with the proposed allottee after due consideration of these various
elements from every angle, J-TEC decided that the Subscription Rights Issue should be the best financing
scheme at this time as means to meet the fund demands required in the progress of the business in theforeseeable future as well as to accelerate synergies in development, etc.
The Subscription Rights Issue is intended to enhance J-TEC’s financial base and build a stable operatingbase further as well as to strengthen the cooperation with the proposed allottee for creating greater businesssynergies than ever.

6. Reason for Selecting the Proposed Allottee and Others(1) Overview of the Proposed Allottee (as of March 31, 2013)(i) Trade Name
Fujifilm Corporation(ii) Main Office26-30, Nishiazabu 2-chome, Minato-ku, Tokyo(iii) Representative’s Title and Shigetaka Komori, Chairman and Chief Executive Officer
Full Name
Shigehiro Nakajimam, President and Chief Operating Officer(iv) Description of Businesses Development, manufacturing, sales and services regarding (1) Imaging
Solutions (color films, digital cameras, optical devices, photo finishingequipment, color paper for developing prints, chemicals, services, andothers) and (2) Information Solutions (medical systems and life scienceequipment, graphics system equipment, flat panel display materials,
recording media, electronic materials, inkjet material, and others)(v) Capital Stock¥40,000 million(vi) Date of Incorporation
October 2, 2006(vii) Number of Shares Issued 1,000 sharesand Outstanding(viii) Fiscal year-end
March 31(ix) Number of Employees
7,094 (as of March 31, 2013)(x)

Main Customers(xi)

Main Bank

Private businesses in manufacturing, distribution, service and othersectors and government and municipal offices
Sumitomo Mitsui Banking Corporation
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(xii)

Major Shareholders andVoting Right Ratio(Breakdown of SharesHeld)(xiii) Relationship between
J-TEC and the Proposed
Allottee

Fujifilm Holdings Corporation

CapitalRelationships

Transactional
Relationships
Personal
Relationships

100%

As of September 30, 2013, the proposed allottee falls
under the category of “other affiliate company” of
J-TEC and is the largest and major shareholder,holding 41.1% of J-TEC common stock shares.
The proposed allottee has annual business transactionsof approximately ¥1 million with J-TEC.
One (1) outside director of J-TEC concurrently serves
as a director of the proposed allottee, and another one(1) outside director of J-TEC serves as an employee ofthe proposed allottee.
In addition, one (1) staff member is on loan to J-TEC
from the proposed allottee.
The allottee falls under the category of “other affiliatecompany” of J-TEC.

Relevant Facts
Concerning
Related Parties
Operating results and financial position for the past three fiscal years
(xiv)
JPY)
Fiscal year ended MarchFiscal year ended
31, 2011
March 31, 2012
Net Assets
1,295,211
1,286,005
1,501,442
1,483,161
Total Assets(Unit: Millions of
Fiscal year ended
March 31, 2013
1,311,648
1,455,147

Net Assets per Share
1,295
1,286
1,311
Net Sales
692,622649,059
552,013
Operating Income
57,431
7,733(2,535)
Ordinary Income
61,840
6,008
12,434Net Income
84,1182,038
14,394Net Income per Share84
2
14
Dividends per Share
690
J-TEC affirms that the proposed allottee, its officers and its major shareholder (key sponsor) do not have
any relationships with anti-social forces, and J-TEC has submitted a written confirmation thereof to theTokyo Stock Exchange.
(2) Reason for Selecting the Proposed Allottee
J-TEC issued new common stock through private allocation to the proposed allottee in October 2010. At
the same time, J-TEC signed “Capital Alliance Agreement” and Business Alliance Agreement” with theproposed allottee, aiming stabilizing its operating base and strengthening its financial base as well as
accelerating business synergies.
J-TEC decided to select Fujifilm Corporation as the proposed allottee of the Subscription Rights,
considering in a comprehensive manner the points including: (a) the proposed allottee positions “Healthcare
Business” as one of its core businesses in the future; (b) the proposed allottee is ready for the launch of a new
project through the basic agreement with J-TEC on consignment of research and development of regenerative
medicine products using cell scaffold matrices to be developed by the proposed allottee (see “NoticeRegarding Conclusion of Basic Agreement with Fujifilm Corporation” announced on the timely disclosure
information on February 14, 2014); and (c) the proposed allottee has the ability to provide J-TEC with thecapital support necessary on a continuing basis in order to strengthen its financial base, a challenge facing
J-TEC. Fujifilm Corporation has advanced knowledge and a proven track record, mainly in digital X-ray
imaging and diagnostic systems, endoscope systems, and high-performance materials, and advanced into thepharmaceutical business through the acquisition of the controlling shares of Toyama Chemical Co., Ltd. in42008, a shareholder of J-TEC, activating investments in capital and research and development. For thereasons set forth above, J-TEC has determined that, through establishing a stronger collaborative relationshipwith Fujifilm in research and development and business development, J-TEC would be able to createbusiness synergies aiming at “the industrialization of regenerative medicine,” a mission of J-TEC.
(3) Allottee’s Policy on Holding Shares
J-TEC shall receive an explanation from the allottee that it intends to acquire J-TEC common stock sharesby exercising the Subscription Rights in accordance with the principle of holding the shares in the medium
and long terms.
7. Major Shareholders and Their Respective Shareholding Ratio after Allocation
Before Allocation (September 30, 2013)

After Allocation

Fujifilm Corporation

41.10%

Fujifilm Corporation

46.36%

Nidek Co., Ltd.

11.50%

Nidek Co., Ltd.

10.48%

Japan Trustee Services Bank, Ltd.

4.63%

Japan Trustee Services Bank, Ltd.

4.22%

Toyama Chemical Co., Ltd.

4.51%

Toyama Chemical Co., Ltd.

4.11%

LIXIL Corporation

2.44%

LIXIL Corporation

2.22%

The Master Trust Bank of Japan ,Ltd.

2.40%

The Master Trust Bank of Japan ,Ltd.

2.19%

Chubu Shiryo Co., Ltd.

1.08%

Chubu Shiryo Co., Ltd.

0.99%

Yoko Maeda

0.93%

Yoko Maeda

0.84%

Mitsui Sumitomo Insurance Company,
Limited

0.81%

Mitsui Sumitomo Insurance Company,
Limited

0.74%

Gastec Service, Inc.

0.81%

Gastec Service, Inc.

0.74%

(Note)
1. The shareholder ratio is based on the shareholder register as of September 30, 2013.
2. The number of voting shares of J-TEC held by each major shareholder after the allocation and the ratio ofvoting shares held to the total number of voting shares outstanding after the allocation is computed based on
the denominator computed as the number of shares issued and outstanding as of September 30, 2013
(183,664 shares) plus the number of shares to be increased as though all units of the Subscription Rights
were exercised and converted to voting shares (18,000 shares).

8. Future Outlook
The Subscription Rights Issue is intended to improve J-TEC’s enterprise value by enhancing J-TEC’s
financial base and securing new sources of revenue under the growth strategy. Therefore, J-TEC considers
that the Subscription Rights Issue is likely to have minimal impact on the business results for the fiscal year
ending March 31, 2014. J-TEC, however, expects that it could potentially have an impact on earnings
forecasts in the medium and long terms. In the event of any impact on business results in the future, J-TEC
will disclose such information immediately.

(Procedure for Code of Conduct)
J-TEC has decided that the Subscription Rights Issue is reasonable in terms of the number of shares to beissued and scale of dilution of shares. On the other hand, if all units of the Subscription Rights are exercisedand converted into common stock shares, the proposed allottee of Fujifilm Corporation will be the largest
shareholder with a 46.36% of the total voting rights of all stockholders. Since Fujifilm Corporation is awholly-owned subsidiary of Fujifilm Holdings Corporation (hereinafter referred to as “Fujifilm Holdings”)
and Toyama Chemical Co., Ltd. is also a 66% subsidiary of Fujifilm Holdings, the combined voting rights
will account for 50.47% of the total voting rights, which will eventually make Fujifilm Holdings acontrolling shareholder of J-TEC. Therefore, there is a possibility that the Subscription Rights Issue could
affect the governance of the business operations of J-TEC.
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As mentioned above, since the exercise of the Subscription Rights could potentially trigger a change in thecontrolling shareholder, J-TEC needs to undertake a procedure to receive an opinion from an independent
third party or to confirm the intent of shareholders regarding the Subscription Rights Issue, in accordancewith Rule 432 of the Securities Listing Regulations defined by the Tokyo Stock Exchange. In view of thesituation that the Subscription Rights Issue could have a significant impact on the existing shareholders,
J-TEC should want to explain the rationale for the necessity and reasonableness of the Subscription Rights
Issue. On that basis, J-TEC will confirm the intent of the existing shareholders regarding the Subscription
Rights Issue through an ordinary resolution at the extraordinary meeting of shareholders scheduled to be heldon March 27, 2014.

10. Stock Split (Reference)(1) Stock Split Method
Each share of common stock owned by shareholders entered or recorded in the final shareholder registeron Monday, March 31, 2014 as a reference date will be split into 200 shares per one share of J-TEC.
(2) Increase in the Number of Shares due to the Stock Split
Total number of shares issued and outstanding before the stock split:
183,925 shares
Increase in the number of shares due to the stock split:
36,601,075 shares
Total number of shares issued and outstanding after the stock split: 36,785,000 shares
Total number of authorized shares after the stock split:
55,000,000 shares
The number of shares shown above is calculated based on the total number of shares issued andoutstanding as of January 31, 2014. It could be possible that the total number of shares issued andoutstanding will increase due to the exercise of the Subscription Rights from the period between the
resolution date of the Board of Directors’ Meeting and the reference date.
(3) Schedule for the Stock Split
Announcement of the reference date: Friday, March 14, 2014 (electronically notified)
Reference date of the stock split: Monday March 31, 2014
Effective date of the stock split: Tuesday, April 1, 2014
(4) Other(i) There will be no increase in the capital stock of J-TEC as a result of the stock split.
(ii) Adjustment of the exercise price of subscription rights
Due to the forthcoming stock split, the per-share exercise price of subscription rights issued by J-TEC
will be adjusted as follows, effective from Tuesday, April 1, 2014.

No.1 Subscription Rights
No.1 (A) Subscription Rights
No.2 (A) Subscription Rights
No.3 Subscription Rights
No.4 Subscription Rights
No.5 Subscription Rights
No. 6 Subscription Rights(the Subscription Rights Issue)

Resolution Date of theBoard of Directors’Meeting
December 21, 2004
March 18, 2005
June 6, 2005
April 27, 2006
April 27, 2006
June 27, 2007
February 14, 2014

Exercise Price Before
the Adjustment

Exercise Price After
the Adjustment¥100,000¥100,000¥100,000¥250,000¥250,000¥200,000

¥500
¥500
¥500
¥1,250¥1,250¥1,000¥380,000¥1,900

NOTE: This release is an abstract and excerption from the original J-TEC press release, covering the main points of theinformation. Please read the original (Japanese) for full contents. http://www.jpte.co.jp/

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