Execution of Share Exchange Agreement by and between Kirin Holdings Company, Limited and Mercian Corporation

1.Purpose of the Share Exchange

Since the execution of the strategic business alliance agreement in 2006, Kirin Holdings and Mercian have been, with certain positive results, promoting efficiency of managerial resources and improving the profitability by enhancing the sales force, toward the achievement of the long-term management plan of Kirin Holdings Group "Kirin Group Vision 2015" (or "KV2015"), through utilizing the merchandizing function of Kirin Group, effective usage of production and distribution sites, and active exchanges among the employees.

However, Mercian was required to correct its financial statements for the last fiscal year, as announced on August 12, 2010, due to a discovery of an inappropriate transaction in the Department of Fish Feedstuffs in May, 2010. In response to this event, Kirin Holdings determined that Mercian's management base and corporate governance urgently require reinforcement, and decided to make Mercian its wholly owned subsidiary.
Through becoming the wholly owned subsidiary of Kirin Holdings, Mercian will establish a stable revenue/business base at an early stage, and provide products and services of higher quality, as well as seek sustainable growth and development through increasing business efficiency by speeding decision making and execution and by strengthening the ability to respond to changes in the external environment with a focus on the wine/alcoholic beverage business.

Furthermore, Mercian and Kirin group will strive to improve corporate value through synergies and improved competitiveness by enhancing the group alliance in the domestic alcohol business and strive to realize dramatic growth in the "food and health" area proposed in KV2015.

2.Outline of Share Exchange

(1)Schedule for Share Exchange

(2)Method of Share Exchange

Kirin Holdings will become the wholly owning parent of Mercian and Mercian will become a wholly owned subsidiary of Kirin Holdings. Pursuant to the short-form share exchange procedures provided in Paragraph 3 of Article 796 of Japanese Corporate Law, Kirin Holdings intends to implement the Share Exchange without obtaining the approval of a general meeting of Kirin Holdings shareholders regarding the Share Exchange Agreement. Mercian intends to implement the Share Exchange, which is to become effective as of December 1, 2010, upon obtaining the approval by resolution of the extraordinary general meeting of Mercian shareholders scheduled to be held on November 5, 2010.

(3)Contents of Allotment with Respect to Share Exchange

(Note 1)  Allotment ratio of shares

0.14 shares of common stock of Kirin Holdings will be delivered by allotment for each one (1) share of common stock of Mercian. However, no shares will be allotted under the Share Exchange for the 67,000,000 shares of Mercian common stock held by Kirin Holdings.

(Note 2)  Number of Kirin Holdings' shares to be delivered in the Share Exchange

Kirin Holdings will deliver 9,336,502 shares of common stock by allotment under the Share Exchange on the Effective Date. Mercian will, pursuant to a resolution at a board of directors meeting to be held at least one day prior to the Effective Date, cancel treasury stock that it holds prior to the allotment and delivery of Kirin Holdings common stock pursuant to the Share Exchange (shares for which any shareholders who oppose the Share Exchange demand purchase by Mercian as provided in Paragraph 1 of Article 785 of Japanese Corporate Law; such cancellations of treasure stock will occur after the effectiveness of such purchases and prior to the allotment and delivery of Kirin Holdings common stock pursuant to the Share Exchange). The aggregate number of shares to be delivered by allotment under the Share Exchange may be amended due to cancellation of treasury stock by Mercian, etc.

(Note 3)  Handling of shares representing less than one unit

As a result of the Share Exchange, it is expected that there will be some shareholders who come to hold shares in a number that represents less than one unit of Kirin Holdings stock (i.e., one thousand (1,000) shares). In particular, shareholders of Mercian who hold less than 7,143 shares of Mercian's common stock will only hold a number of shares that represents less than one unit of Kirin Holdings' stock, and such shareholders are expected to be more than 90% of the total number shareholders of Mercian (such percentage is based on data in the shareholders' registry of Mercian as of June 30, 2010, and it may be different from the current percentage). Although it will not be possible to sell such shares representing less than one unit in the stock exchange markets, shareholders holding shares representing less than one unit of Kirin Holdings' stock may take advantage of the systems as described below:

1. (1)  Purchase of shares representing less than one unit (sale of shares representing less than one thousand (1,000) shares)
   Pursuant to Paragraph 1 of Article 192 of Japanese Corporate Law, shareholders holding shares representing less than one unit of Kirin Holdings' stock may demand Kirin Holdings to purchase such shares; and
2. (2)  Additional purchase relating to shares representing less than one unit (additional purchase to make a whole unit of one thousand (1,000) shares)
   Pursuant to Paragraph 1 of Article 194 of the Japanese Corporate Law and provisions of the Articles of incorporation of Kirin Holdings, shareholders holding shares representing less than one unit of Kirin Holdings' stock may demand that Kirin Holdings sell to them the number of shares that, when added to such shareholder's shares representing less than one unit, will equal one thousand (1,000) shares.

As a result of the Share Exchange, it is expected that there will be some shareholders who come to hold shares in a number that represents less than one unit of Kirin Holdings stock. However, Kirin Holdings will consider reducing the number of shares that represent one unit (i.e., one thousand (1,000) shares as of today), in view of the balancing costs and effects, future movement of the stock market, etc.

(Note 4)  Treatment of fractional shares

Current shareholders of Mercian who, as a result of the Share Exchange, will be allotted a fraction of a share (i.e., representing less than one (1) share of Kirin Holdings common stock) will be paid an amount equivalent to such fractional share in accordance with Article 234 of the Japanese Corporate Law.

(4)Handling of share warrants and convertible bonds

Mercian has not issued any share warrants or convertible bonds.

(5)Others

(i)  Cancellation of the Share Exchange etc.

From the execution date of the Share Exchange Agreement through the Effective Date, if a material change occurs to Kirin Holdings' or Mercian's property or financial health which may materially affect the implementation of the Share Exchange or if achievement of the purpose of the Share Exchange Agreement otherwise becomes difficult, whether as a result of an act of God or otherwise, Kirin Holdings and Mercian may, upon consultation and agreement by and between Kirin Holdings and Mercian, amend the terms of the Share Exchange or terminate the Share Exchange by terminating the Share Exchange Agreement.

(ii) Record Date

In order to confirm which shareholders are entitled to exercise the right to demand purchase of shares in connection with the Share Exchange, Kirin Holdings intends to designate September 27, 2010 as the record date ("Record Date"). The shareholders registered or recorded on the final shareholders' registry as of such date are intended to be shareholders who are entitled to exercise rights to demand such purchase of shares.

3.Calculation Basis etc. Concerning Allotment Under the Share Exchange

(1)Calculation Basis

In order to ensure fairness and reasonableness of the share exchange ratio for the Share Exchange, each of the parties decided to request a separate independent third party valuation institution to calculate a share exchange rate. For this purpose, Kirin Holdings appointed Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. ("Mitsubishi UFJ Morgan Stanley") and Mercian appointed Frontier Management, Inc. ("Frontier Management").

Mitsubishi UFJ Morgan Stanley determined that the value of Kirin Holdings' common stock should be analyzed using the market price analysis based on the fact that Kirin Holdings' common stock, which is listed on the Tokyo Stock Exchange (the "TSE"), Osaka Securities Exchange ("OSE"), Nagoya Stock Exchange (the "Nagoya Stock Exchange"), Sapporo Securities Exchange (the "Sapporo Securities Exchange") and Fukuoka Stock Exchange (the "Fukuoka Stock Exchange"), has a very large market capitalization and is highly liquid. Mitsubishi UFJ Morgan Stanley generally analyzed the value of Kirin Holdings' common stock using the market price analysis (i.e., the closing price as of the calculation base date (which was August 23, 2010), the average closing prices for the one (1) month period prior to the calculation base date and for the three (3) month period prior to the calculation base date).

For the common stock of Mercian, based on the fact that the market price of Mercian's common stock is available, as it is listed on the TSE and OSE, Mitsubishi UFJ Morgan Stanley employed the market price analysis (i.e., the average closing prices for the one (1) month period prior to the calculation base date (which is August 23, 2010), the average closing prices for the three (3) month period prior to the calculation base date and, in order to reflect the impact of the "Internal Investigation Report Concerning Inappropriate Trade by the Department of Fish Feedstuffs and Interim Report by Third Party Committee" and the "Differences from Second Quarter Consolidated Performance Forecast and Modification of Consolidated Performance Forecasts for the Year and Dividend Forecast" published by Mercian on August 12, 2010, the average closing price for the period starting on the business day immediately following the publication of the above announcements through the calculation base date), and also employed both the comparable companies analysis, based on the fact that several listed companies in similar industries are available for comparison, and the discounted cash flow analysis ("DCF Analysis") in order to reflect the status of future business activities. According to Mitsubishi UFJ Morgan Stanley, the outline of the calculation results for the share exchange rate is as follows (showing the value range of one Mercian share in terms of Kirin Holdings shares, calculated based on each of the above valuation methods for Kirin Holdings' per share stock price).

In calculating the above share exchange rates, Mitsubishi UFJ Morgan Stanley generally relied on the information provided by both companies and publicly available information, and assumed that all such information was accurate and complete without independent verification of the accuracy or completeness of such information. Mitsubishi UFJ Morgan Stanley has not independently valued or appraised, nor has it requested a third party institution to value or appraise, assets or liabilities (including off-balance sheet assets and liabilities, and other contingent liabilities) of either company or their affiliated companies. In addition, Mitsubishi UFJ Morgan Stanley assumed that the information relating to Mercian's financial forecasts has been reasonably prepared by Mercian's management based on the best estimates and judgments of Mercian's management available at the time. The calculation results provided by Mitsubishi UFJ Morgan Stanley reflect the above information, among other information, that was available as of August 23, 2010.

Frontier Management valued common stock of Kirin Holdings and Mercian using the market price average method and a discounted cash flow method ("DCF Method"). Setting the calculation base date for the market price average method at August 25, 2010, Frontier Management calculated average closing prices for the period starting on August 13, 2010 (the business day immediately following the day on which "Second Quarter Results for the Year Ending in December 2010 (Japanese Standards) (Consolidated)" and "Internal Investigation Report Concerning Inappropriate Trade by the Department of Fish Feedstuffs and Interim Report by Third Party Committee" were published by Mercian) through the calculation base date, for the one (1) month period starting on July 26, 2010 through the calculation base date, and for the period starting on June 14, 2010 (the business day immediately following the day on which "Report Concerning Inappropriate Trade by the Department of Fish Feedstuffs (Second Report)" was published by Mercian) through the calculation base date. The calculation results for the share exchange rate are as follows (showing share exchange rates as the number of Kirin Holdings shares that would be exchanged for one share of Mercian stock calculated using each of the above valuation methods for Mercian's per share stock price ).

Frontier Management calculated the share exchange rates assuming that all the publicly disclosed information, financial information and other information provided by both companies that Frontier Management examined in calculating the share exchange rate was accurate and complete, and has not independently verified the accuracy or completeness of such information. Frontier Management has not independently valued or assessed, nor has it requested a third party institution to appraise or assess (including analysis and valuations of each separate asset and liability), assets or liabilities (including financial derivatives, off-balance sheet assets and liabilities, and other contingent liabilities) of either company or their affiliated companies. In addition, Frontier Management assumed that the information relating to the financial forecasts and other information regarding future standing provided by both companies had been reasonably prepared by the respective companies' management based on the best forecasts and determinations available at the time and that the financial situation of both companies would fluctuate in line with such forecasts, and relied on such forecasts and related materials without independent examination.

(2)Calculation Background

Kirin Holdings and Mercian engaged in repeated negotiations and discussions based on the analysis provided by the above third party valuation institutions, and bearing in mind their respective financial conditions, performance trends and stock price movements, etc. As a result, Kirin Holdings and Mercian determined that the share exchange rate set forth in 2.(3) above was advantageous to the shareholders of both Kirin Holdings and Mercian, and resolved the share exchange rate for the Share Exchange upon approval obtained at meetings of their respective boards of directors held today.

(3)Relationships with the Valuation Institutions

Mitsubishi UFJ Morgan Stanley and Frontier Management are both independent from Kirin Holdings or Mercian, and neither of them is a related party of Kirin Holdings or Mercian nor does either have a material interest that needs to be disclosed in connection with the Share Exchange.

(4)Expectation of Delisting and the Reason

Upon the Share Exchange, Mercian will become Kirin Holdings' wholly owned subsidiary as of December 1, 2010 and the stock of Mercian will be delisted on November 26, 2010 (the last trading date will be November 25, 2010) in accordance with the delisting standards of the TSE and the OSE.

After the delisting, Mercian stock may not be traded on the TSE or the OSE.

As mentioned in 1. above, the purpose of the Share Exchange is to improve the corporate value of both Kirin Holdings and Mercian by having Mercian become a wholly-owned subsidiary of Kirin Holdings, but the purpose of the Share Exchange is not the delisting of Mercian's common stock itself. However, the common stock of Mercian will be delisted as a result of the contemplated transaction.

Since the Kirin Holdings common stock that will be delivered as consideration of the Share Exchange is listed on the TSE, OSE, Nagoya Stock Exchange, Fukuoka Stock Exchange and Sapporo Securities Exchange, we expect that shareholders receiving an allotment of 1,000 or more shares of Kirin Holdings' common stock (1,000 shares = 1 unit) as a result of the Share Exchange will still able to trade their units of shares on the TSE, OSE, Nagoya Stock Exchange, Fukuoka Stock Exchange and Sapporo Securities Exchange after the Share Exchange and the liquidity of their stock will be secured, although they may receive an allotment of shares less than one unit in proportion to the number of shares held.

Shareholders receiving allotment of less than one thousand (1,000) shares of Kirin Holdings' common stock (which represents one unit of Kirin Holdings' stock) as a result of the Share Exchange may not trade their odd shares on share exchange markets but will be entitled to use the buyback program or additional acquisition program for odd shares in Kirin Holdings. For the details of these programs, please refer to 2. (3) (Note 3) above.

For the allotment of a fraction of a share (i.e., representing less than one (1) share of Kirin Holdings common stock) as a result of the Share Exchange, please refer to 2. (3) (Note 4) above.

Until the last trading date, which will (tentatively) be November 25, 2010, shareholders of Mercian may trade their Mercian shares on the TSE and OSE as before and are entitled to exercise their rights specified under Japanese Corporate Law and other related laws and regulations.

(5)Measures to Ensure Fairness

Since Kirin Holdings already holds 50.12% of the total outstanding shares of Mercian, in order to ensure the fairness of the share exchange rate for the Share Exchange, Kirin Holdings and Mercian each retained independent third party valuation institutions. Kirin Holdings requested Mitsubishi UFJ Morgan Stanley to calculate the share exchange rate for the Share Exchange, and negotiated and discussed the share exchange rate with Mercian based on such calculation result, and the Board of Directors of Kirin Holdings resolved the Share Exchange at the share exchange rate specified in 2. (3) above at their meeting held on August 27, 2010. Please note, however, that the results of the calculation of the share exchange rate submitted by Mitsubishi UFJ Morgan Stanley do not constitute its opinion regarding the fairness of such share exchange rate for the Share Exchange.

Mercian requested Frontier Management as an independent third party valuation institution to calculate the share exchange rate for the Share Exchange, and negotiated and discussed the share exchange rate with Kirin Holdings based on such calculation result, and the Board of Directors of Mercian resolved the Share Exchange at the share exchange rate specified in 2. (3) above at their meeting held on August 27, 2010. Mercian has obtained a fairness opinion dated August 26, 2010 from Frontier Management stating that the share exchange rate specified in 2.(3) above is reasonable for the shareholders of Mercian's common stock (other than Kirin Holdings) from a financial perspective.

In addition, Mercian has retained Nagashima Ohno & Tsunematsu as their legal advisor and was advised regarding decision making procedures, methods and processes for the Share Exchange.

(6)Measures to Avoid Conflict of Interests

In order to avoid conflicts of interest, the following directors of Mercian did not participate in the discussions or resolutions regarding the Share Exchange nor did they participate in the discussions or negotiations regarding the Share Exchange with Kirin Holdings as officers of Mercian: Mr. Hiroshi Ueki, who is a director of Kirin Brewery Company, Limited, a wholly owned subsidiary of Kirin Holdings, and Mr. Koichi Matsuzawa, who is the representative director of Kirin Brewery Company, Limited and a director of Kirin Beverage Company, Limited, also a wholly owned subsidiary of Kirin Holdings. Furthermore, in order to avoid conflicts of interest, the following statutory auditors of Mercian did not participate in the discussions or resolutions regarding the Share Exchange, nor did they participate in the discussions or negotiations regarding the Share Exchange with Kirin Holdings as statutory auditors of Mercian, or express any opinion regarding the Share Exchange: Mr. Hitoshi Oshima, a statutory auditor of Kirin Holdings and Kirin Brewery Company, Limited, and Mr. Naoki Hyakutake, an employee of Kirin Holdings.

Because there is no director of Kirin Holdings who also serves or served as officer or employee of Mercian, Kirin Holdings did not take specific measure to avoid conflict of interests.

6.Outline of Accounting Procedures

The Share Exchange constitutes an additional acquisition by Kirin Holdings of its subsidiary's stock from minority shareholders of Mercian, which falls under the category of a transaction under common control. As a result of the Share Exchange, goodwill (or negative goodwill) is expected to be reported on the consolidated financial statements of Kirin Holdings, which amount has not yet been determined.

7.Forecasts

Because Kirin Holdings has already acquired Mercian as its consolidated subsidiary, the impact of the Share Exchange on the business performance of both Kirin Holdings and Mercian is expected to be minor on both a consolidated and unconsolidated basis.

8.Matters Relating to Transactions with Controlling Shareholder

The Share Exchange constitutes a transaction by Mercian with its controlling shareholder. Please see below for a description of the Share Exchange's compliance with the "Guidelines Concerning Minority Shareholders Protection Policy in a Transaction with Controlling Shareholder" stipulated in the Corporate Governance Report published by Mercian on March 30, 2010 ("Corporate Governance Report").

Mercian is not subject to restrictions on free business activity imposed by its parent company, Kirin Holdings, or its group companies, and is recognized to have secured certain independence from its parent company and group companies. Mercian has been trading with Kirin Holdings and Kirin Holdings' group companies using the same standards as those employed in transactions with other companies and is not under restrictions due to its capital relationship with Kirin Holdings.

Mercian's decision to enter into the Share Exchange has been made upon securing business independence as referred to in the above paragraph, ensuring fairness as described in 3.(5) and (6) by, inter alia, obtaining a fairness opinion from Frontier Management, dated as of August 26, 2010, stating that from a financial perspective the share exchange rate for the Share Exchange is reasonable for the shareholders of Mercian's common stock (other than Kirin Holdings), which indicates that the Share Exchange is not disadvantageous to the minority shareholders, and taking measures to avoid conflict of interests as explained in 3.(6), which complies with the "Guidelines Concerning Minority Shareholders Protection Policy in a Transaction with Controlling Shareholder".

Furthermore, the details of "Guidelines Concerning Minority Shareholders Protection Policy in a Transaction with Controlling Shareholder" in the Corporate Governance Report is that "We enter into transactions with controlling shareholders reasonably with reference to the terms of the transaction and market terms, etc., as well as terms of ordinary transactions".

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