JAFCO : (Updated)Corporate Governance Report（PDF：243KB）

April 26, 2016 JAFCO Co., Ltd.

Correction to the Corporate Governance Report

We have corrected the Corporate Governance Report dated April 25, 2016. The updated report follows.

Correction:

The charts of "Structure for Timely Disclosure" on the last two pages of the report were identical, so the very last page was deleted.

We apologize for your inconvenience.

This is an excerpt translation of the Japanese original for convenience only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

Last Update: April 25, 2016

JAFCO Co, Ltd.

Shinichi Fuki, President & CEO Contact: [phone]

Securities Code: 8595 http://www.jafco.co.jp/english/

The corporate governance of JAFCO Co., Ltd. (the "Company") is described below.

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

   With an eye to increasing corporate value over the medium to long term, the Company has established the following basic policies on corporate governance and will make continuous efforts for its enhancement:

   • Build respectful relationships with stakeholders;

   • Maintain transparency and fairness in decision making;

   • Establish an appropriate supervising structure;

   • Establish a corporate structure that ensures effective and swift business execution.

[Reasons for Not Implementing Each Principle of the Corporate Governance Code]

The Company implements all of the principles of the Corporate Governance Code.

[Disclosure Based on the Principles of the Corporate Governance Code]

Based on the above basic views, the Company has established the Corporate Governance Policy (the "Policy") which outlines the Company's concrete corporate governance measures. The Policy is posted on the Company's website as shown below:

http://www.jafco.co.jp/corporate/governance/ (Japanese) http://www.jafco.co.jp/english/corporate/governance/ (English)

Descriptions of the items disclosed based on the principles of the Corporate Governance Code are as follows: Principle 1.4 Cross-Shareholdings Chapter II 1(4) of the Policy

• The Company may hold shares of other listed companies as cross-shareholdings in the following cases:

• When it determines that the holding would be beneficial in maintaining and strengthening cooperative business relationships with the counterparty;

• When it determines that the value of the shares would be financially beneficial for the Company.

• The Board of Directors regularly examines the rationale behind the cross-shareholdings. When it determines that the continuous shareholding lacks rationale after reviewing the risks and returns from a medium- to long-term perspective as well as the objectives given above, the Company will make efforts to sell such stock to the extent possible.

• When executing voting rights, the Company decides whether to vote for or against the proposal by taking into account the counterparty's situation and after discussing whether or not the proposal would contribute to higher corporate value of the counterparty over the medium to long term.

  Principle 1.7 Related Party Transactions Chapter II 1(6) of the Policy

• The Company shall engage in transactions with its directors or corporate officers only with the prior

approval of the Board of Directors (and the Board-Audit Committee if applicable) and in accordance with laws and regulations.

- The Company shall engage in transactions with affiliated firms or major shareholders (including their subsidiaries) on fair terms and conditions with due consideration to market quotations, etc. The Board of Directors, representative directors or other applicable corporate bodies will evaluate and approve such transactions based on the detail and amount.

Principle 3.1(i) Company objectives (e.g., business principles), business strategies and business plans Chapter I 1 of the Policy

1. Business Philosophy

   The business philosophy of the Company is "value creation through private equity". The Company aims to contribute to the society by encouraging corporate growth and industrial regeneration and creating new value.

2. Business Strategy

   The Company aims to achieve sustainable growth by maximizing its fund performance through the implementation of the four-stage "private equity value chain" as outlined below.

   Private Equity Value Chain

3. Creation of risk money

   The Company establishes new private equity funds to secure a large pool of investment capital essential to capturing high-potential investment deals.

4. Intensive investment in carefully selected companies

   The Company builds a portfolio through selective investment in high-potential companies of various sizes and growth stages, including incubation investment, investments in venture and midsize companies, and buyout deals.

5. Business development support

   The Company provides support for building a business base and improving corporate value through its proactive involvement in the management of investees.

6. Promotion of suitable exits

   The Company aims to increase capital gains through IPO, M&A and other optimum exit strategy for each investee company.

   The Company establishes private equity funds and receives fund management fees and success fees, while also committing its own capital to the funds to earn returns on investments.

   Therefore, maximizing fund performance through providing value-adding support for investee companies directly leads to increases in the Company's profit and corporate value. This allows the Company to establish new funds and secure additional investment capital.

   The Company believes that the establishment of a "private equity value chain" is in the interests of all stakeholders of the Company and would provide a benefit for the entire society.

7. Business Plan

8. Due to the nature of the private equity investment business, the Company is greatly impacted by volatility in stock markets and the IPO environment in Japan and overseas. The Company's earnings may fluctuate sharply over the short term as it invests its own money in its investment funds. With the aim of enhancing its corporate value over the medium to long term, the Company strives to achieve long-term targets set for its fund performance.

   Principle 3.1(ii) Basic views and guidelines on corporate governance Chapter I 2 of the Policy

   The Company's basic views on corporate governance are as shown in the section "1. Basic Views" above. The Company has established the Policy and posted it on the Company's website.

   Principle 3.1(iii) Board policies and procedures in determining the remuneration of the senior management and directors Chapter IV 2(3) of the Policy

   • Based on the exchange of views between the Board-Audit Committee (including independent directors) and representative directors, the Board of Directors decides the remuneration of directors and corporate officers by reflecting appropriate evaluation of the Company's performance and the degree of individual contribution.

   • The remuneration of directors and corporate officers comprises a basic salary and an extraordinary compensation. The extraordinary compensation and part of the basic salary are linked to the Company's performance.

   • The Company considers, as necessary, stock-related compensations in relation to medium- to long-term interests of shareholders.

     Principle 3.1(iv) Board policies and procedures in the appointment of the senior management and the nomination of directors candidates Chapter IV 2(4) of the Policy

   • Directors and corporate officers are appointed by the Board of Directors based on the exchange of views between the Board-Audit Committee and representative directors, and by reflecting the evaluation of the Company's performance and the degree of contribution.

   • In accordance with the Company's "Standards for Independence of Independent Directors", the Company shall appoint independent director candidates who have abundant experience and deep insight into corporate management or specialist fields, and will likely fulfill the roles and responsibilities of an independent director.

   Principle 3.1(v) Explanations with respect to the individual appointments and nominations based on (iv) above

   Reasons for the appointment and nomination of individual directors elected at the 43rd Annual General Meeting of Shareholders on June 16, 2015 are as posted on the Company's website as below:

   http://www.jafco.co.jp/english/corporate/governance/

   Reasons for the appointment of five (5) new directors (one executive director and four (4) directors serving as board-audit committee members) are explained in the notice of convocation of the 43rd Annual General Meeting of Shareholders.

   Principle 4.1.1 Matters Delegated to the Management Chapter IV 2(1) of the Policy

   • With due attention to its responsibilities to shareholders, the Board of Directors makes important management decisions and supervises the execution of business with the aim of sustaining growth and enhancing corporate value.

   • The Board of Directors holds a regular monthly meeting, in principle, and an extraordinary meeting as necessary.

   • Matters to be discussed in the Board of Directors meetings are set out in the Regulations on the Board of Directors. The Company's basic policy is that the Board of Directors, including independent directors, makes decisions on important operational issues based on thorough discussions. Therefore, the Company has no provision in the Articles of Incorporation that delegates decisions on important operational matters to a director.

   • The Investment Committee chaired by the President has an authority to make investment decisions to allow quick decision-making. In the situation where a conflict of interest with funds the Company manages may arise, such as in the case of investing its own capital, not only the Investment Committee but also the Board of Directors examine the case and make decisions.

   • The decision-making authority on certain matters is delegated to the representative directors or directors/ officers in charge, depending on the content and degree of importance, based on the Rules on Document Approval.

   Principle 4.8 Effective Use of Independent Directors Chapter IV 5(2) of the Policy

   In order to have independent directors comprise one third or more of the Board of Directors, the Company will make continuous efforts to identify suitable candidates for independent directors to ensure effective corporate governance.

   Principle 4.9 Independence Standards and Qualification for Independent Directors Chapter IV 5(3) of the Policy

   The Board of Directors of the Company has established the "Standards for Independence of Independent Directors" in reference to the independence criteria set out by the Tokyo Stock Exchange. It has been disclosed in the section "Matters relating to Independent Directors" below, the notice of convocation of the Annual General Meeting of Shareholders, and Independent Directors/Auditors Notification.

   Principle 4.11.1 Views on Board Composition Chapter IV 8 of the Policy

   - The Board of Directors elects director candidates based on business skills, insight, experience, and expertise