Tobacco Documents Online

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 • For quarter ended March 31, 1978 Commission file number 0-2992-2 6 THE SEVEN-UP COMPANY (Exact name of registrant as specified in its charter) STATE OF MISSOURI 43-0513480 „ (State or other jurisdiction of ( I. R. S. Employer incorporation or organization) Identification Number 121 S. Meramec, St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code , (314) 889-7777 NOT APPLICABLE ~_ '" (former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to by filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's. classes of common stock as of the close of the period covered by this report. 10, 724, 851 Shares of Common Stock, Par Value $1.00

PART I FINANCIAL INFORMATION THE SEVEN-UP COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (In thousands of dollars, except Per Share data) (Unaudited) Three Months Ended March 31 1978 1977 Net sales $ 60,271 $ 50,416 Cost of products sold 29,878 24,863 30,393 25,553 Selling and admiriistrative expenses 20,004 17,184 10,389 8,369 Other charges (cred its ): Interest expense 139 37 Other deductions, net of other income (799) (579) (660) (542) INCOME BEFORE INCOME TAXES 11,049 8,911 Income taxes 5,278 4,047 NET INCOME 5,771 $ 4,864 Net income per common share: (Exhibit I) $0. 53 $0. 45 Dividends per common share $0. 35 $0. 30 Average shares outstanding 10,739 10,738

I TH$ SEVEN-UP COMPANY AND- SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands of Dollars) (Unaudited) March 31 March 31 ASSETS 1978 1977 LIABILITIES & STOCKHOLDERS' EQUITY 1978 1977 Current Assets Current Liabilities Cash $ 13,723 $ 9,707 Notes payable to foreign banks $ 1,998 $ 2,302 Short-term investments 22,534 29,704 Accounts payable 9,874 9,366 Receivables: Employee compensation 2,264 1,785 Notes and accounts 23,398 19,991 Accrued advertising 10,513 7,761 Allowance for doubtful accounts (220) (289) Other accrued liabilities 3,425 2,101 Total receivables 23,178 19,702 Income taxes 6,333 6,308 Inventories: Current portion of long-term debt 419 352 Finished products 16,880 12;606 Total current liabilities 34, 826 29,975 Extract & raw materials 17,515 16,454 Total inventories 34, 395 29, 060 Prepaid expenses & other current assets 2,679 2,861 Total current assets 96,509 91,034 Other Assets 2,498 2,628 Other Liabilities Property, Plant & Equipment Long-term debt less portion classified as current liability 703 842 Land 6,537 6,464 Deferred income taxes 2,390 2,539 Orchards 2,113 2,146 3,093 3,381 Buildings and improvements 19,254 15,626 Machinery and equipment 31,044 24,512 Orchards under development 1,752 1,446 Construction in progress 3,498 4,639 Allowances for depreciation (19, 557) (16, 459) 44,641 38,374 Stockholders' Equity Intangible Assets 67c Cumulative Preferred Stock 3,076 3,076 Trademarks and formulas 1,250 1,271 Common Stock 10,725 10,720 Cost in excess of net assets of Additional capital 11,389 11,277 subsidiaries acquired, less Retained earnings 90,265 77,688 accumulated amortization -- Note D 8,476 2.R10 115,455 102,761 9,726 4 081 t+ZI?63I8t0z , $153, 374 $136,117 $153, 374 $136,117

THE SEVEN-UP COMPANY AND SUBSIDIARIES STATEMENT OF CHANGES IN FINANCIAL POSITION (in thousands of dollars) (unaudixed) Three Months ended March 31 1978 1977 FUNDS PROVIDED - Net income for the quarter $ 5,771 $ 4,864 Depreciation and amortization 1,001 851 Provision for deferred income tax (cr,edit) 410 (224) From operations 7,182 5,491 Proceeds from exercise of Common Stock Options 47 10 Disposal of property, plant and equipment 82 344 7,311 5,845 FUNDS USED - I Cash dividends 3,800 3,270 Additions to property, plant and equipment 3,466 1,975 Cost In excess of tangible assets - acquisition of Subsidiary (Note D) 5,776 - Reduction (increase) of long-term debt (15) 101 Retirement of 5,120 shares of 6% Cumulative Preferred Stock - 391 Other - net 164 (89) Total funds used 13,191 5,648 Increase (decrease) in net working capital $(5, 880) $ 197 ~ CHANGES IN COMPONENTS OF WORKING CAPITAL Increase (Decrease) Cash $(10; 876) $ (686) Receivables 2,910 1,554 Inventories 7,240 3,005 Prepaid expense & other current assets 44 314 Notes payable 191 (1,814) Accounts payable and accrued liabilities (2,280) (268) Income taxes (2, 94.8) (1,911) Current portion of long-term debt (161) 3 Increase (decrease) in net working capit al $_ (5, 880) $ 197

Notes to Financial Statements: Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and changes in financial position in conformity with generally accepted accounting principles. Although unaudited, the accompanying statements, in the opinion of management, reflect all adjust- ments (which include only normal recurring accruals) necessary to present fairly the information set forth therein. Advertising and promotion costs are accrued and assigned to interim periods based upon the relationship of anticipated annual costs to expected annual, sales. Note B - Net Income Per Share Net income per share of Common Stock is based on the weighted average number of shares outstanding during each year adjusted for dilutive stock options. Recognition is given to the dividend requirements of the 67c Cumulative Preferred Stock in determining net income perr share of Common Stock. Note C - Operating Results for the Twelve Months Ended March 31, Sales and net income for twelve-month period ended March 31, in thousands of dollars: 1978 1977 Sales $260, 853 $234, 669 Net Income 26,696 24,717 Net income per common share $2.46 $2.28 Note D - Acquisition In February, 1978, the Company purchased the outstanding common stock of Oregon Freeze Dry Foods, Inc. for cash of approximately $10, 000, 000. The operations of Oregon Freeze Dry Foods, Inc. are included in the financial statements from date of acquisition. The transaction has been accounted for on the purchase method. The.cost in excess of book value has been included in the balance sheet as Intangible Assets. The amount is subject to reallocation to Property, Plant and Equipment pending the results of an appraisal of the related assets. Oregon Freeze Dry Foods, Inc. is engaged in producing a broad line of freeze dried and convenience foods. Had Oregon Freeze Dry Foods, Inc. been included in the consolidated statements of the Company for the entire three months ended March 31, 1977 and 1978, the proforma results would have been as follows: Three Months Ended March 31, (expressed in thousands, except income per share) 1978 1977 Net sales f~3 $ 62,015 $ 53 434 a Net income , ~ 5,830 4 938 co , I , ~ Income Ivor share of Common Stock $0. 54 $0. 45 ~ 0 -.ri- v a,

Note E - Contingencies At March 31, 1978, the Company was involved in several matters of litigation, none of which, in the opinion of management, will have a material effect upon the conduct of its operations or upon the consolidated financial position of the Company. (refer to Part II, Other Information, of this document)

MANAGEMENTS' DISCUSSION AND ANALYSIS OF OPERATIONS Between First Quarter 1978 and Fourth Quarter 1977 Sales for the first quarter 1978 were $60, 271, 221 as compared with $55, 779, 683 in the fourth quarter 1977, an increase of 8.1 percent. Sales normally decline seasonally between these quarters. Approximately 41.4 percent of the increase was attributable to the inclusion of the operations of recently acquired Oregon Freeze Dry Foods, Inc. The remaining 58.6 percent of the increase was principally due to the sharp increase in unit sales. Gross profit on sales was $30, 393, 552 or 50.4 percent as compared with $28, 423, 436 or 51.0 percent. The dollar increase is a result of increased unit sales and the inclusion of Oregon Freeze Dry Foods, Inc. The difference in gross profit percentage reflects sales mix distribution between the relative importance of high and low margin product classification. Selling, general and administrative expenses were $20, 004, 395 in the first quarter 1978 compared to $18, 950, 391 in the fourth quarter 1977. This was an increase of $1, 054, 004 or 5.6 percent. The increase is principally due to increased personnel and related employment cost plus planned increases in marketing support. First quarter net other income was $659, 348 compared to $504, 671 for the fourth quarter 1977, an increase of $154, 677. The fourth quarter 1977 reflected a write-off in Canada of Sugar Free 7UP containers, made obsolete by the saccharin ban, as well as a non-recurring inventory adjustment of a foreign subsidiary. Adjustments for translation and foreign exchange transactions were not material in either quarter. Comparison of First Quarter 1978 with First Quarter 1977 Consol idated net sales for the current quarter were $60, 271, 221 and increased 19. 55 percent• over the $50, 416, 083 for the same quarter last year. Increased dollar sales reflected the sharp increase in unit sales. The recent acquisition of Oregon Freeze Dry Foods, Inc. accounted for 18. 9 percent of the increase. Selling prices increased moderately on finished goods and lemon products in the beverage segment. Net income for the current three-month period was $5, 770, 703 or 9.6 percent of sales. This compared with $4, 864, 263 or 9.7 percent of sales in 1977. After payment of preferred dividends, earnings per share were 53 cents in 1978 and 45 cents in 1977. Gross profit on sales in the first quarter 1977 was 50.4 percent or $30, 393, 552. In the previous year, gross profit on sales was 50.7 percerit or $25, 553, 301. Operating expenses were $20, 00-1, 395 conipared to $17, 184, 255, an increase of 16.41 percent. This increase was a result of increased personnel and employment costs and an Increase in marketing support. Net other income was $659,348 in 1978 compared to $541,727 in 1977. This increase is primarily a result of high yields on funds invested and increased royalty income. Adjustments for translation and foreign exchange transactions were not material in either quarter. For the first quarter 1978, the Company's tax provision was 47.8 percent of pre-tax income. The tax provision for the same period last year was unusually low due to investment tax credits realized on completed 1977 projects and capital gains from the sale of Canadian properties. These comnicnts should he read in conjunction with the Quarterly Report to Share- holders, Exhibit III attaelu•d hereto. -7-

OTHER FINANCIAL INFORMATION None REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS At our request, the Company's independent accountants, Ernst & Ernst, have performed a limited review of the accompanying financial statements for the three months ended March 31, 1978 and March 31, 1977. Their review was performed in accordance with the standards for such limited reviews established by the American Institute of Certified Public Accountants. No adjustments or additional disclosures were suggested by Ernst & Ernst as a result of their review. The Accountants' Report commenting on their limited review is included herein as an exhibit. EXHIBITS 1. Statement setting forth the computation of per share earnings furnished in accordance w ith Instruction 4 (g). 2. Letter from independent public accountants furnished pursuant to Instruction 7. 3. Quarterly Report to Shareholders.

EXHIBIT I To Part I, Financial Information Computation of L'arnings Per Share The Seven-Up Company and Subsidiaries Three Months Ended March 31, Average shares outstanding Net effect of dilutive stock options - based on the treasury stock method using average market price Total Net income applicable to Common Stock: (In thousands of dollars) Net income Less Preferred dividends 6% Cumulative Preferred Stock -9- 1978 1977 10, 723, 834 10, 719, 668 15,196 19,051 10, 739, 030 10, 738, 719 $5, 771 $4, 864 (46) _ (54) $5,725 $4,810 $0.53 $0.45

PART I EXHIBIT 2 . Report on Review by Independent Accountants Ernst &Ernst 10 Broadway • St. Louis. Missouri 63102 • Phone 314/231 -7700 Shareholders and Board of Directors The Seven-Up Company St. Louis, Missouri We have made a limited review, in accordance with standards established by the American Institute of Certified Public Accountants, of the con- solidated balance sheet of The Seven-Up Company and subsidiaries as of March 31, 1978 and 1977, and the related statements of consolidated income and changes in financial position for the three month periods then ended. Since we did not make an audit, we express no opinion on the financial statements referred to above. To comply with the re- quirements of the Securities and Exchange Conmzission, we confirm the Company's representations concerning proposed adjustments and dis- closures included in the accompanying Form 10-Q for the period ended March 31, 1978, in accordance with the related instruction 7. St. Louis, Missouri April 28, 1978

PART I EXHIBIT 3 Quarterly Report to Shareholders ••.•.••.•.• ••• •.•••.• ::::::~ ;::: :::•';t•: ... ... ••• ••• •. ... ... ... ... ••' :.:' ... ... ••.••;•: .•.. ••• •.•:f•• ... •• ••. ... ~; :••••~: ::: '•:::~• ••• ~ THE SEVEN-UP COMPANY d FINANCIAL REPORT PERIOD ENDING MARCH 31, 1978 .......;... •.....r..., i:J. :i: .• ..• •.. ..• ~~. .. ..• ... ... ~~. •.. ... •.. ... ~.. ... ... .....l.: ..• •.. ... THE SEVEN•UP COMPANY, 121 SOUTH MERAMEC, ST. LOUIS, MO. 63105 -11-

TO OUR SHAREHOLDERS: First quarter 1978 consolidated sales and net income of The Seven-Up Company were the largest first quarter results in Company history. These results incorporate for the first time the operations of our newly acquired sub- sidiary, Oregon Freeze Dry Foods, Inc., Albany, Ore. Oregon Freeze Dry Foods became a part of the 7UP family on February 16, 1978. Net sales were $60,271,221, an increase of 19.5 percent over first quarter 1977 sales of $50,416,083. Net income was $5,770,703, an increase of 18.6 percent over the previous year's re- sult of $4,864,263. Earnings per share of 53 cents were 17.8 percent larger than the 45 cents earned in 1977. Both sales and net in- come results exceeded your management's ob- jectives for the first quarter. Soft drink consolidated unit sales of both regular and Sugar Free 7UP extract and fin- ished goods were up sharply from the de- pressed first quarter of 1977. 1978 unit sales also exceeded significantly the previous record first quarter results of 1976, which had been inflated by an anticipated transportation strike. In the U.S., although severe winter weather affected some major markets, soft drink ex- tract unit sales were up sharply. This reflected not only more normal bottler inventory levels but also improved consumer sales of both 7UP and Sugar Free 7UP. In Canada, unit sales of 7UP continued to accelerate, but first quarter sales of DIET 7UP-the replacement for sac- charin-sweetened Sugar Free 7UP-were below year-earlier levels. Unit sales in international markets were influenced favorably by initial in- ventory requirements for the new Cairo, Egypt 7UP operation scheduled to begin operation in late May. In other international markets, impressive unit sales were achieved, with sales in Central and South America significantly higher than the previous year. Unit sales of lemon products, which con- stitute the balance of the beverage product segment, were up modestly for the quarter. Dollar sales were influenced favorably by in- creased selling prices and expanded production capacity, resulting in a record contribution to reported net income. First quarter unit sales of food flavor, color and specialty products were modestly below 1977 results, but average selling prices in- creased for the period. Improved productivity and operations contributed to sharply higher net income for the quarter. Gross profit on sales for the period ending March 31, 1978, was $30,393,552, increasing 18.9 percent from the first quarter of 1977. During the current quarter, product prices were increased to offset rising raw material and container costs. These increases were primarily in the finished soft drink, lemon and food flavor product groups. Quarterly gross profit for 1978 was 50.4 percent of sales, compared with 50.7 percent in 1977. Operating expenses for the quarter were $20,004,395 in 1978. This is a 16.4 percent increase over 1977 operating expenses of $17,184,255. Increased expenditures accrued for marketing support, higher research and development costs, and employment costs (re- flecting additional personnel) accounted for approximately 85 percent of the $2,820,140 increase in operating expenses. Current quarter operating expenses were 33.2 percent of sales, compared with 34.1 percent in 1977.

Operating profits in 1978 were $10,389,157 or 17.2 percent of sales. This compared with $8,369,046 or 16.6 percent in 1977. The 24.1 percent increase in operating profits reflected not only sales of higher margined soft drink units but also carefully controlled operating expenditures. Net other income for the quarter was $659,348 in 1978, compared with $541,727 in 1977. Both interest income, net of interest expense, and royalty income were sharply higher for the current quarter. This reflected improved investment yields as well as royalties from international business. Adjustments for translation and foreign exchange transactions were not material in either 1978 or 1977. Income before taxes was $11,048,505, an increase of 24.0 percent over the $8,910,773 in 1977. The Company's provision for taxes in the first quarter of 1978, while higher than 1977, is expected to be maintained at these levels for the current 1978 fiscal year. In 1979, we will celebrate the 50th an- niversary of 7UP. In these 50 years, The Seven- Up Company has focused all of its efforts on one soft drink brand, 7UP. We will be breaking from tradition this year ... with the introduction of a new soft drink brand that will meet all of the high standards of quality, flavor and taste appeal that con- sumers expect from products of The Seven-Up Company. This new soft drink brand from The Seven- Up Company is QUIRST. It is a lemonade. It has been developed by our recently created New Products group . . . headed by key people from our marketing and research and development departments. Our taste test work shows that QUIRST meets and exceeds all of the attributes consumers are looking for iA a lemonade ... good-tasting, flavorful, thirst- quenching, less filling and made with natural flavor. QUIRST will be test-marketed beginning in late May in a number of selected markets representing approximately 20% of the U.S. We will be making a public announcement on our marketing plans for the brand only after we have disclosed full details to 7UP Devel- opers. It is our understanding that the Squirt Company has filed a lawsuit alleging that the trademark for our lemonade infringes their trademark Squirt, a grapefruit flavored drink. The Seven-Up Company believes these charges to be untenable and will fully defend its position. After a delay of several years, the Federal Trade Commission has finally decided the Coca- Cola and Pepsi-Cola cases. These are the first in a group of eight soft drink franchising com- pany cases in which the soft drink industry's territorial distribution system is questioned. After presiding over the trial of the Coca-Cola case, Judge DuFresne, the Administrative Law Judge, decided that the system of restricting territories in the soft drink industry-does not violate antitrust laws. The government lawyers appealed Judge DuFresne's opinion to the FTC. The FTC has just overruled Judge DuFresne's opinion indicating that, except for returnable bottles, the territorial system is in violation of the antitrust laws.

I The case has been appealed by Coca-Cola to the U.S. Court of Appeals in Washington, D.C. Pepsi-Cola has appealed to the U.S. Court of Appeals in New York City. The losing side in each Court of Appeals will no doubt try to obtain review of the case by the U.S. Supreme Court. The entire appeal process could take several more years. It is the opinion of The Seven-Up Company that this decision is wrong as a matter of law and not supportable by the record. For these reasons, we are optimistic that it will be set aside on appeal and the Administrative Law Judge's opinion reinstated. In the meantime, The Seven-Up Company intends, for sound business and legal reasons, to continue to comply with its contractual obligations and en- force the territorial restrictions of our franchise agreements. We are gratified to be able to report the solid growth achieved in the first quarter. We regard the balance of 1978 as a year of chal- lenge and opportunity. It will require emphasis on the basic marketing strengths and expertise of The Seven-Up Company. It will require a con- tinuation of the strong support historically pro- vided by 7UP Developers, the people of The Seven-Up Company and you, our shareholders. That is why we are confident about the future. Z_, ., N. W Ben H. Wells Chairman of the Board LJWA. er 0 Z=::~ William E. Winter President and Chief Executive Officer STATEMENT OF INCOME THE SEVEN-UP COMPANY AND SUBSIDIARIES Net sales .................... Cost of sales ................. Gross profit .................. Selling, administrative and general expense .......... Operating profit .............. Net other income ............. Income before taxes ........... Provision for taxes ............ Net income .................. Net income per share of common stock ......... Common shares outstanding based on weighted average.. Net sales .................... Net income .................. Net income per share of common stock ........... $ 60,271,221 $ 50,416,083 29,877,669 24,862,782 30,393,552 25,553,301 20,004,395 17,184,255 10,389,157 8,369,046 659,348 541,727 11,048,505 8,910,773 5,277,802 4,046,510 S 5,770,703 $ 4,864,263 $0.53 $0.45 10,738,719 Twelve Months Ended March 31 1978 1 1977 $260,853,193 26,695,724 $234,669,062 24,717,105 ;2.46 $2.28 In the opinion of management, this information includes aIi adjustments which are necessary for the fair presentation of the results of operations for these periods. .-.

PART II OTHER INFORMATION 1 i2 )5 Item 1. Legal Proceedings (a) On April 7, 1978, The Squirt Company filed suit against The Seven-Up Company and one of its wholly-owned subsidiaries in the United States District Court of the Eastern District of Missouri in St. Louis. This civil action Is filed as No. 78-0375-C (4) and is a trade name and trademark infringement suit alleging unfair competition. The Squirt Company seeks a preliminary and permanent injunction against defendants from introducing a non-carbonated lemonade soft drink by the name "Quirst" into the marketplace. In addition to ifijunctive relief, the plaintiff is seeking unspecified monitary damages and costs. The Registrant believes that the basis for this lawsuit is untenable and based on the opinion of counsel believes it will prevail in this action. The Registrant concludes that this litigation, even if successful, will not materially affect the operations of Registrant. Item 2. Changes in the Rights of the Company's Security Holders On April 10, 1978, at the, Registrant's Annual Meeting of Shareholders, the Shareholders adopted an amendment to the Restated Articles of Incorporation of the Registrant. The effect of this amendment was to provide that the number and manner in which Directors shall be elected shall be provided by the By-Laws of the corporation. Prior to this amendment, the number of Directors of the corporation was specifically set at eleven (11) by the Articles of Incorporation. Exhibit 1 of part 11 attached hereto is a copy of the amendment to the Article FOURTH of the Restated Articles of Incorporation. Item 7. Results of Votes by Security Holders On April 10, 1978, the Annual Meeting of Shareholders of Registrant was held at the World Headquarters of The Seven-Up Company, 121 South Meramec, St. Louis, Missouri 63105. At the Annual Meeting of Shareholders, the Share- holders approved an amendment to' the Article FOURTH of the Company's Restated Articles of Incorporation and elected eleven (11) Classified Board of Directors. Registrant solicited proxies under regulation 14A in the SEC Proxy Rules and incorporates herein by reference Exhibit 2 of Part II as to all proceedings trans- piring at the Annual Meeting of Shareholders. Item 8. Other Material and Important Events On May 1, 1978, PMI, Inc., a wholly owned subsidiary of Hhilip Morris, Inc., filed with the Securities and Exchange Commission schedule 14D-1 regarding its cash tender offer for all the outstanding common stock of The Seven-Up Company. On May 3, 1978, the Registrant filed with the Securities and Exchange Commission form 14-D with respLct to the public tender offer by PMI, Inc. Registrant attaches as exhibits to Part II hereof the following press releases as issued by Registrant with respect to the tender offer by PMI, Inc.: Txhibit 3 Press Release dated May 1, 1978 I3xhihit 4 Press Release dated May 2, 1978 l:xhibit 5 Press Relea:.o dated May 6, 1978 -12-

Item 8 - cont'd On May 10, 1978, The Seven-Up Company filed a lawsuit in the United States District Court, Eastern District of Missouri in St. Louis, against Philip Morris and its wholly owned subsidiary, PMI, Inc., asking the court to order Tfiilip Morris to publish notice of Philip Morris' tender offer to buy Seven-Up Common Stock in complete form as required under the Securities Laws of the United States. On May 11, 1978, The Seven-Up Company, Philip Morris and its wholly owned subsidiary, PMI, Inc. , entered into an agreement of stipulation in lieu of the court entering a temporary restraining order. The agreement of stipulation is as follows: (1) Philip Morris w ill publish the full revised text of its offer no later than Saturday, May 13, 1978, in the New York Times and not later than Saturday, May 13, 1978, in one of the St. Louis newspapaers and not later than Sunday, May 14, 1978, in the other St. Louis newspaper. (2) The revised offer will state that it expires at 5:00 p. m. , Eastern Daylight Time, Monday, May 22, 1978. (3) The revised published offer will state further that any Seven-Up stockholders who have previously tendered the ir Seven-Up common stock in response to Philip Morris' offer or any stockholders who tender their stock in response to the revised offer may withdraw their tendered shares by 5:00 p.m., Eastern Daylight Time, May 22, 1978. (4) If Philip Morris complies with these conditions, The Seven-Up Company will dismiss its lawsuit against Philip Morris. There will be a hearing before the judge to determ ine whether there has been compliance at 9:30 a. m. , Wednesday, May 24, 1978.

Item 9. Exhibits to Part II and Reports on Form 8-K (a) Exhibits 1. Amendment to Article FOURTH of Restated Articles of Incorporation. 2. Proxy Statement dated March 16, 1978 3. Press Release - May 1, 1978 4. Press Release - May 2, 1978 5. Press Release - May 6, 1978 (b) Reports on Form 8-K. There were no reports on Form 8-K filed for the three months ended March 31, 1978.

State of Misrouri ... 0', f ficc o fSccrctary of State JAMES C. KIRKI'ATEtICK., Secretary of State Amendment of Articles of Incorporation (To be submittod in duplicate by an attorney) HONORABLE JAMES C. KIRIfl'ATIiICK SECRETARY OF STATE STATE OF MISSOURI E~ ~ RSON CITY, MO. 65101 Pursuant to the provisions of The General and Business Corporation Law of Missouri, the undersigned Corporation certifies the following: (1) The name of the Corporation is THE SEVEN-UP COMPANY The name under which it was originally organized was THE HOI+IDY COMPANY (2) An amendment to ti,.e Corporation's Articles of Incorporation was adopted by the shareholders on April 10, ig78 . (3) Article r OURTH is amended to read as follows: "FOURTH. The number of Directors of this Corporation shall be fixed by, or in the manner provided in, the By-Laws of the Corporation. Any changes in the number of Directors shall be reported to the Secretary of State of Missouri within thirty (30) days of such change." Ni.ED n1ylD CErzT11Frcf1lE tS~Ij L') ~. . ~c~,~crct:ca Copf. r'^C: r.• q'j -14_, (if nuoro ll1.cii c1itc• tu lic tc• ix Icc l,o :nnc•nclrcl or iiturc. r;ic,crc• is nc•c•cic•d a1ttarit fly ~;hc rt) I

PART II EXHIBIT 2 The Seven-Up Company NOTICE OF ANNUAL MEETING OF SHAREHOLDERS April 10, 1978 TO THE SHAREHOLDERS OF THE SEVEN-UP COMPANY: The annual meeting of shareholders of The Seven-Up Company will be held at the World Head- quarters of the Company at 121 South Meramec, St. Louis, Missouri 63105 on Monday, April 10, 1978 at 10:00 a.m., St. Louis time for the following purposes: 1. To adopt a proposed amendment to Article FOURTH of the Company's Restated Articles of Incorporation as set forth in Exhibit A to the attached Proxy Statement (and corresponding By-Law amendments, as set forth in Exhibit B to the attached Proxy Statement) which in ef- fect will provide that the By-Laws of the Corporation shall determine the number of and manner in which the members of the Board of Directors are to be elected. Furthermore, such By-Law amendments provide that the number of Directors of this Corporation shall be eleven (11) clas- sified into three (3) classes of Directors with one class (Class I) having three (3) members and two classes (Class II and Class III) having four (4) members each. Each member of each class of Directors shall be elected to a term of three (3) years with the election of the respec- tive classes of Directors being staggered so that the term of the members of one of the three classes of Directors shall expire at each annual meeting of shareholders; provided, however, that with respect to the initial election of Directors on April 10, 1978, all eleven (11) Directors shall be elected by class for specific initial terms. (See paragraph 2 below) 2. To elect a Board of Directors, consisting of: (a) Eleven (11) members. If the proposed amendment to Article FOURTH of the Company's Restated Articles of Incorporation, as described in paragraph 1 above, is approved, the eleven (11) Directors shall be elected to their respective classes as shown on page 6 of the accom- panying Proxy Statement with each serving for an initial term as follows: Class I - until the 1979 Annual Meeting of Shareholders Class II - until the 1980 Annual Meeting of Shareholders Class III - until the 1981 Annual Meeting of Shareholders OR (b) Eleven (11) members. If the proposed amendment to Article FOURTH of the Company's Restated Articles of Incorporation, as described in paragraph 1 above, is not approved, the eleven (11) Directors as shown on page 6 of the accompanying Proxy Statement shall be elected to serve until the 1979 Annual Meeting of Shareholders. 3. To elect Auditors. 4. To transact such other business as may properly come before the meeting or any adjourn- ment thereof. Holders of Common Stock of record at the close of business March 1, 1978, will be entitled to vote at the meeting. By Order of the Board of Directors March 16, 1978 ROBERT W. SIMPSON St. Louis, Missouri Secretary If you do not expect to be present personally at the meeting, please sign and date the accompany- ing proxy and return it promptly in the enclosed business reply envelope, which requires no postage if mailed in the United States. It will assist us in preparing for the meeting if shareholders who do not plan to attend in person return their proxies promptly.

PROXY STATEMENT This statement is furnished in connection with a solicitation of proxies by the management of The Seven-Up Company (herein called the "Company") to be used at the annual meeting of share- holders of the Company to be held on April 10, 1978 for the purposes set forth in the accompanying notice of annual meeting of shareholders. If the enclosed form of proxy is executed and returned, it may be revoked at any time by attending the meeting and voting in person or by filing with the Secre- tary of the Company a written notice withdrawing the proxy or by giving a proxy bearing a later date. The Annual Report for the twelve months ending December 31, 1977 is enclosed herewith. Shareholders may receive without charge, upon written request to the Secretary of the Company, a copy of its Form 10-K Annual Report, including the financial statements and schedules thereto, re- quired to be filed with the Securities and Exchange Commission. Copies of the exhibits to the report will be provided upon the payment of a fee of five cents for each page copied. It is estimated that the exhibits to the Form 10-K will approximate ten pages. The only class of voting securities of the Company entitled to vote at the annual meeting is its $1.00 par value Common Stock. Each share is entitled to one vote. Cumulative voting for Directors is required by the laws of Missouri; consequently, each shareholder is entitled to cast as many votes in the aggregate as shall equal the number of voting shares held by him, multiplied by the number of directors to be elected, and he may cast the whole number of votes for one candidate or distribute them among two or more candidates. The record date for determining common shareholders entitled to vote at the annual meeting is March 1, 1978 at which time there were 10,724,151 shares outstanding. Various descendants and relatives (including Margaret B. Grigg, widow of H. C. Grigg, Douglas W. Grigg, Robert A. Ridgway and Katherine G. Wells, wife of Ben H. Wells) of C. L. Grigg, E. G. Ridgway and Frank Y. Gladney, who founded the Company, and trusts in which the foregoing have interests, owned on March 1, 1978 approximately 48% of the Company's outstanding Common Stock. See footnotes, 1, 4, 5, 6 and 8 on pages 8 and 9. No person owns of record, or is known by the Company to own beneficially, more than 10 percent of the Company's outstanding Common Stock. Some or all of the descendants and trusts may be deemed "parents" of the Company under the rules and regulations of the Securities and Exchange Commission. SOLICITATION OF PROXIES Proxies will be solicited by mail. They may also be solicited by officers and regular employees of the Company personally or by telephone or telegraph, but such persons will not be specifically com- pensated for such services. Banks, brokers, nominees and other custodians and fiduciaries may be re- imbursed for their reasonable out-of-pocket expenses in forwarding soliciting material to their princi- pals, the beneficial owners of stock of the Company. The cost of soliciting proxies will be borne by the Company. ADOPTION OF AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION - Item 1 At present, Article FOURTH of the Company's Restated Articles of Incorporation sets the num- ber of Directors at eleven (11). In addition, the present By-Laws of the Company provide for the 3

manner in which Directors are elected and further provide that each Director so elected shall hold office until the next succeeding annual meeting. The Board of Directors has approved the proposed amendment to • Article FOURTH of the Company's Restated Articles of Incorporation as set forth in Exhibit A to this Proxy Statement and recommends to the shareholders that it be adopted at their annual meeting on April 10, 1978 or any adjournment thereof. This amendment to the Restated Articles of Incorporation authorizes the Board of Directors to set the number of Directors from time to time by majority vote.of the Board of Directors. In antici- pation of shareholder approval of this proposed amendment to Article FOURTH of the Restated Articles of Incorporation, the Board of Directors has unanimously adopted certain amendments to the Company's By-Laws, as set forth in Exhibit B to this Proxy Statement which in effect provide for (i) the classification of the eleven (11) member Board into three (3) distinct classes, with one class (Class I) having three (3) members and two classes (Class II and Class III) having four (4) members each; (ii) each Director being elected to a term of three (3) years, with the election of the respective classes of Directors being staggered so that the terms of the members of one of the three classes of Directors shall expire at each annual meeting of shareholders, at which time the successors to that class of Directors shall be elected; (iii) any future increase in the number of Di- rectors from the proposed eleven (11) member Board shall not become effective until such addi- tional Directors are duly elected by the shareholders at the next meeting of shareholders follow- ing the adoption of any amendment to the By-Laws increasing the number of members of the Board of Directors. The amendment of Section 3.3 of the Company's By-Laws providing for the election of all Direc- tors to a term of three (3) years is applicable to all terms subsequent to the initial election of all eleven (11) Board members to the terms indicated at the April 10, 1978 Annual Shareholders Meet- ing as follows: Class I- Term expiring at the 1979 Annual Meeting of Shareholders Class II - Term expiring at the 1980 Annual Meeting of Shareholders Class III - Term expiring at the 1981 Annual Meeting of Shareholders The foregoing amendments to the By-Laws of the Company are contingent upon the approval by the shareholders of the amendment to Article FOURTH of the Restated Articles of Incorporation and shall only become operative and effective upon such approval. If shareholder approval of the amendment of Article FOURTH of the Restated Articles of In- corporation of this Company is obtained, Item 2(b) in the Notice of Annual Meeting of Shareholders will be dispensed with and Item 2(a) thereof, To Elect a Classified Board of Directors consisting of eleven (11) members, shall be the next order of business to come before the meeting. Traditionally the membership of the Board of Directors has been relatively stable, however, management believes that implementation of a classified Board of Directors will be beneficial to shareholders because it will further insure the stability and continuity in the membership of the Board of Directors and management of the Company's affairs. Barring death, resignation or removal of one or more Directors, classification will result in the election of one class of Directors each year, so that, at the next and each ensuing annual meeting of shareholders a majority of the Directors at any time will have been Directors of the Company for at least one year. In addition, the number of Di- rectors to constitute the Board of Directors of this Company shall henceforth be prescribed by the 4 , .

By-Laws of the Company obviating the requirements of repeated shareholder action approving suc- cessive amendments to the Restated Articles of Incorporation. Unless otherwise indicated thereon, it is intended that the persons named in the proxy will vote your stock in favor of adopting the proposed amendment to Article FOURTH of the Company's Re- stated Articles of Incorporation as set forth in Exhibit A hereto thereby rendering operative and effective certain amendments to the Company's By-Laws as set forth in Exhibit B hereto. The affirm- ative vote of the holders of a majority of the shares of the Company's common stock represented at the meeting, in person or by proxy, is required for the approval of the foregoing proposal. PRESENT BOARD MEMBERSHIP CHANGES On January 25, 1978, the Board of Directors accepted the resignations of Messrs. Maurice R. Chambers, Fred L. Kuhlmann and Fred W. Wenzel. These resignations were submitted voluntarily and resulted from a decision made on that same day by the Board of Directors of Anheuser Busch, Inc., to develop and test market a new beverage product which might be in competition with soft drinks. It is the understanding of The Seven-Up Company that the proposed new product will not fall directly into the lemon-lime category of the beverage industry. Messrs. Chambers, Kuhlmann and Wenzel are also members of the Board of Directors of Anheuser Busch, Inc. At the same meeting, the Board of Directors elected three new members to replace the three re- signing members. The new Board members are Robert A. Malin, Senior Vice President and Director, The First Boston Corporation, New York, New York; Robert C. West, Chairman and President, Sverdrup Corporation, St. Louis, Missouri; and Ted C. Wetterau, Chairman and President, Wetterau Incorporated, St. Louis, Missouri. Mr. Malin has been associated with The First Boston Corporation since 1974. He had held similar investment banking positions with Reynolds Securities and Blyth & Company. In addition, Mr. Malin served on the Financial Accounting Standards Advisory' Council from 1973-1977, the SEC Advisory Committee on Corporate Disclosure from 1976-1977 and has been a long-standing member of The Securities Industry Association Accounting Committee and the New York Society of Security Analysts. Mr. West has played a prominent role in the development of Sverdrup Corporation, the new parent corporation for the several Sverdrup & Parcel operating companies. A graduate of Georgia Institute of Technology, he joined Sverdrup & Parcel in 1953. He became president and chief execu- tive officer in 1975, chairman of the board in 1976, and chairman and president of Sverdrup Cor- poration in 1977. He has been associated with the design and building of major construction projects all over the world. Mr. Wetterau joined Wetterau Incorporated in 1952. As vice president-marketing he was elected to the Wetterau board in 1960, named executive vice president in 1963, became president in 1970 and was elected chairman, president and chief executive officer in 1974. ELECTION OF DIRECTORS-Item 2(a) or 2(b) If the proposed amendment to Article FOURTH of the Company's Restated Articles of Incor- poration (Item 1 above ) is: (a) Approved; Item 2(b) shall not be applicable and Item 2(a) shall be the next order of business to come before the meeting. 5

OR (b) Disapproved; Item 2(a) shall not be applicable and Item 2(b) shall be the next order of business to come before the meeting. Item 2(a) -ELECTION OF ELEVEN BOARD MEMBERS TO A CLASSIFIED BOARD If the proposed amendment to the Company's Restated Articles of Incorporation (Item 1) is adopted by the shareholders, the newly effective By-Laws of the Company as set forth in Exhibit B hereto, provide for the Board of Directors consisting of eleven (11) members divided into three distinct classes. Unless authority is withheld, it is intended that the persons named in the proxy will vote your stock in favor of the eleven (11) nominees for election to the Board of Directors divided into the following classes: Class I Class II Class III To serve until the To serve until the To serve until the 1979 Annual Meeting 1980 Annual Meeting 1981 Annual Meeting of Shareholders of Shareholders of Shareholders Dr. B. C. Cole David H. Morey Douglas W. Grigg Robert A. Malin Robert C. West Robert A. Ridgway Garret F. Meyer, Sr. Ted C. Wetterau Ben H. Wells Paul H. Young, Jr. William E. Winter All Directors shall serve the term indicated and until their successors are elected and qualified. All nominees except Messrs. Grigg and Ridgway are presently Directors of the Company. Messrs. Malin, West and «'etterau were appointed to the Board on January 25, 1978. See caption "Nominees" for further information concerning the nominees. Should any nominee become unavailable for any reason before the meeting, an eventuality which is not anticipated, the proxies may be voted for a substitute person to be selected by the management of the Company. Item 2(b) -ELECTION OF ELEVEN BOARD MEMBERS If the proposed amendment (Item 1) is not adopted by the shareholders, the Restated Articles of Incorporation and the By-Laws of the Company provide for a Board of Directors consisting of eleven (11) members to serve until the next annual meeting of shareholders. Therefore, unless authority is withheld, it is intended that the persons named in the proxy will vote your stock in favor of the eleven (11) nominees for election to the Board of Directors hereinafter named to seive one year and until their successors are elected and qualified. All of the nominees, except Messrs. Grigg and Ridgway, are presently Directors of the Company. Messrs. Malin, West and Wetterau were ap- pointed to the Board on January 25, 1978. See caption "Nominees" for further information concern- ing nominees. Should any nominee become unavailable for any reason before the meeting, an even- tuality which is not anticipated, the proxies may be voted for a substitute person to be selected by the management of the Company: Dr. B. C. Cole Douglas W. Grigg Robert A. Malin Garret F. Meyer, Sr. David H. Morey 8 Robert A. Ridgway Ben H. Wells Robert C. West Ted C. Wetterau William E. Winter Paul H. Young, Jr.

NOMINEES Further information concerning these nominees is set forth in the following table: iune of Nominee Principal Occupation or Employment Year First Became Director Dr. B. C. Cole Douglas W. Grigg Senior Vice President, Corporate Technical Director. Self-employed for the past 1975(2) Nominated ~ five years. 1978 Robert A. Malin 1974 to present: Senior Vice President and Director of The First Boston Corpora- tion, New York, N.Y., an investment banking firm. 1972-1974: Senior Vice President and Director of Reynolds Securities, Inc., New York, N.Y. 1978 Garret F. Meyer, Sr. Chairman of the Board, Warner-Jenkinson Company, a manufacturer of food colors and flavors. 1970 David H. Morey obert A. Ridgway Retired Chairman of the Board and Chief Executive Officer of The Boatmen's National Bank of St. Louis, a national bank and trust company. 1977 to present: President of 1965 ominated Ridgco Trusts and Invest- ments, Inc., a private investment service firm. 1972-1977: employed in various capacities by The Seven-Up Company. At the time of his resignation in 1977, Mr. Ridgway was a Vice President and Director of Corporate Real Estate. 1978 Shares of Company Stock Owned Beneficially 3/1/78 6% Cumulative Common Preferred 3,997(1) 16(1) 3,800(3) -0- 170,000~ (56 ) ( 200 8001(6) ) -0- 37,000 (7 ) -0- 800 -0- 661,952(8) 400 7

Principal Occupation Year First or Became Name of Nominee Employment Director Shares of Company Stock Owned Beneficially 3/1/78 6% Cumulative Common Preferred Robert C. West 1977 to present: Chairman of 1978 100 -0- the Board and President of Sverdrup Corporation, a professional service firm in planning, design, construc- tion management and facility operation. 1976-1977: Chair- man of the Board of Sverdrup & Parcel and Associates, Inc., an engi- neering and architectural arm of Sverdrup Corporation. 1975-1976: President and Chief Executive Officer of Sverdrup & Parcel and Associates, Inc. 1973-1974: Executive Vice President of Sverdrup & Parcel and Associates, Inc. Ted C. Wetterau 1974 to present: Chairman of the Board, President and Chief Executive Officer and Director of Wetterau Incorporated, a corporation rincipally engaged in the Sistribution and sale of food and non-food products to individually owned and oper- ated supermarkets under franchise agreements with the Independent Grocers Alliance (IGA) and the Red and White Corporation. 1973 to 1974: President and Chief Executive Officer of Wetterau Incorporated. William E. Winter President and Chief Executive Officer. Paul H. Young, Jr. Executive Vice President, Treasurer. 1978 -0- -0- 1972 3,000(9) -0- 1972 6,500(10) -0- (1) Not including 342,310 shares of Common Stock nor 1,600 shares of Preferred Stodc, owned by Mr. Wells' wife, nor an aggregate of 170,000 shares of Common Stock held equally in two trusts, of which Mr. Wells is trustee, for the benefit of his son and daughter, as to all of which shares Mr. Wells disclaims beneficial ownership. (2) Dr. Cole has been Technical Director since 1945 and a Vice President since 1960. Senior Vice President, Corporate Technical Director since September 1977. 8 I

(6) (7) (8) (9) Not including 3,500 shares of Common Stock to which Dr. Cole holds unexercised options under the Seven-Up Qualified Stock Option Plan. Includes 85,000 shares of Common Stock and 400 shares of Preferred Stock held in Trust in which Mr. Grigg is co-trustee with St. Louis Union Trust Company. Excludes 850,000 shares of Common Stock and 4,000 shares of Preferred Stock held in trust, under the will of Charles L. Grigg, deceased, Mr. Douglas Grigg's grandfather, for the life of Elizabeth Grigg Miller; the remainder equally to trusts for the benefit of Mr. Douglas Grigg and his brother for life, with remainders to their respective descendants. Excludes 750,325 shares of Common Stock and 8,400 shares of Preferred Stock held by the es- tate of Hamblett C. Grigg, deceased, father of Mr. Douglas Grigg. Mr. Douglas Grigg is a devisee under his father's last will and testament. Includes 37,000 shares of Common Stock held in trust of which Mr. Meyer is co-trustee, under the terms of which Mr. Meyer has the right to vote said shares. Includes 544,702 shares of Common Stock, which is held in various trusts, pursuant to which Mr. Ridgway is co-trustee. However, excludes 4,900 shares of Common Stock owned directly by Mr. Ridgway's wife, and 15,000 shares of Common Stock held by Mr. Ridgway's wife, as custodian for their minor children, who share Mr. Ridgway's residence, of which shares Mr. Ridgway disclaims beneficial ownership. Not including 19,000 shares of Common Stock to which Mr. Winter holds unexercised options under the Seven-Up Qualified Stock Option Plan, nor 200 shares of Common Stock held by Mr. Winter's wife. (10) Not including 250 shares of Common Stock held by Mr. Young's wife, as custodian for their son, who shares Mr. Young's residence, of which Mr. Young disclaims beneficial ownership, nor 16,000 shares of Common Stock to which Mr. Young holds unexercised options under the Seven- Up Qualified Stock Option Plan. REMUNERATION OF DIRECTORS AND OFFICERS The following table shows aggregate direct remuneration paid or accrued by the Company and its subsidiaries during 1977 to or for each Director and each of the three highest paid officers of the Company whose remuneration exceeds $40,000, and to all Directors and officers as a group; and for each such person the benefits upon retirement under the Pension Plan and the total benefits accrued to December 31, 1977 under the Profit Sharing Plan. Directors who are not employees of the Com- pany received an annual retainer fee of $2,000 plus a fee of $700 for each Board meeting and $250 for each Board committee meeting attended during 1977. Profit Sharing Plan Name and Capacity in which Remuneration was Received Aggregate Direct Remuneration(1)+(2) Estimated Annual Pension Plan Benefits Upon Retire- ment(3) Amount Set Aside Or Accrued During 1977 Total Benefits Accrued to December 31,1977 Ben H. Wells $ 79,800 $ 40,327 - $ 233,890 Chairman of the Board and Consultant William E. Winter 185,000 68,474 $ 24,750 150,282 President and Chief Executive Officer Paul H. Young, Jr. 145,000 29,078 19,875 126,864 Executive Vice President, Treasurer 9

Profit Sharing Plan Name and Capacity in which Remuneration was Received Aggregate Direct Remuneration (1) + (2) Estimated Annual Pension Plan Benefits Upon Retire- ment (3) Amount Set Aside Or Accrued During 1977 Total Benefits Accrued to December 31, 1977 Dr. B. C. Cole $ 82,600 $ 27,677 $ 12,390 $ 258,092 Senior Vice President, Corporate Technical Director John R. Kidwell 94,000 18,400 14,100 43,862 Senior Vice President, Director of Marketing All Directors and Officers as a 931,600 291,454 114,503 1,123,533 group (17 persons including the above ) (1) Includes additional compensation approved by the Compensation Committee of the Board of Directors paid tinder The Seven-Up Company's Challenge Fund Incentive Plan to certain execu- tives upon the achievement of affiliate or corporate profit goals. The amounts charged to expense for 1977 and 1976 were $324,711 and $322,500 respectively. It is anticipated that the Board of Directors will continue the Challenge Fund in 1978. (2) The Company furnishes certain of its employees (including, but not limited to, officers and Directors ) with Company leased automobiles in the performance of their duties and personal use. The estimated value of such personal use is excluded from the figures shown, as being not determinable by management. (3) Based on the assumption that such persons remain in the employ of the Company until their respective retirement dates, and that their present salaries will continue unchanged until retirement. STOCK OPTIONS On May 13, 1977, options to purchase 151,800 shares of Seven-Up $1.00 par value Common Stock were granted of which options to purchase 42,950 shares were granted to officers and Directors as a group. During the fiscal year ended December 31, 1977 the officers purchased no shares of common stock pursuant to their outstanding options. As of March 1, 1978, the following persons held unexercised options to purchase Seven-Up $1.00 par value Common Stock at an average price per share of $23.20: (1) William E. Winter, Director and President, 19,000 shares. (2) Paul H. Young, Jr., Director and Executive Vice President, Treasurer, 16,000 shares. (3) Dr. B. C. Cole, Director and Senior Vice President, Corporate Technical Director, 3,500 shares. (4) All officers and Directors as a group (9 persons), 64,550 shares. The Company stock option plan is for common shares only. 10

ELECTION OF AUDITORS - Item 3 Upon the approval of a majority of the shareholders, the Board of Directors proposes to adopt a resolution appointing Ernst & Ernst as auditors of The Seven-Up Company for the ensuing year. Ernst & Ernst has audited the Company's books for the past 17 years. The Company has been ad- vised by Ernst & Ernst that neither that firm nor any of its associates has any direct financial interest or any material tndirect financial interest in The Seven-Up Company or any affiliate of the Company. A representative of Ernst & Ernst will be present at the annual meeting and will have the opportunity to make a statement and respond to any appropriate questions which might arise. The membership of the Audit Committee of the Board of Directors is composed of the following Directors: David H. Morey, Chairman, Ted C. Wetterau and William E. Winter. OTHER BUSINESS - Item 4 The management does not intend to bring any other matters before the meeting and, at the date of this Proxy Statement, the management is not informed of any matters that others may bring before the meeting. However, if any other matters properly come before the meeting, it is the inten- tion of the persons named in the form of proxy submitted to vote such proxy in accordance with their judgment on such matters. 11

EXIMIT A Item 1. Amendment to the Restated Articles of Incorporation Article FOURTH of The Seven-Up Company's Presently in force and applicable if Item 1 is not approved by the shareholders. "FOURTH: The number of Directors of this Corporation shall be eleven." Restated Articles of Incorporation: Proposed amendment to be effective upon ap- proval of Item 1 by the shareholders. "FOURTH: The number of Directors of this Corporation shall be fixed by, or in the man- ner provided in, the By-Laws of the Corpora- tion. Any change in the number of Directors shall be reported to the Secretary of State of Missouri within thirty (30) days of such change."

EXHIBIT B Item 2(a) or 2(b). Election of Directors - By-Law Provisions Relevant Sections of Article III - DIRECTO RS of the By-Laws of The Seven-Up Company: Presently in force and applicable if Item 1 is not approved by the Shareholders "Number and Qualification. Section 3:2. The number of Directors shall be as stated in the Articles of Incorporation as amended from time to time. Directors need not be Sharehold- ers unless the Articles of Incorporation, as amended, shall require that Directors be share- holders, in which case any Director who shall cease to be a shareholder of record shall thereby be disqualified and his office as Director shall thereupon automatically become vacant." Presently in force and applicable if Item 1 is not approved by the Shareholders "Term of Office. Section 3:3. At the first meeting of shareholders and at each annual meeting thereafter, the shareholders entitled by law or the Articles of Incorporation to vote for the election of Directors shall elect Directors to hold office until the next succeeding annual meeting. Each Director, unless removed, re- signed, disqualified, or otherwise separated from office, shall hold office for the term for which he is elected or until his successor shall have been elected and qualified." As amended by the Board of Directors to be effective upon approval of Item 1 by the Shareholders "Number and Qualification. Section 3:2. The number of Directors shall be eleven (il). Any change in the number of Directors shall be reported to the Secretary of State of the State of Missouri within thirty (30) calendar days of such change. Directors need not be shareholders unless the Articles of Incorporation shall require that Directors be shareholders, in which case any Director who shall cease to be a shareholder of record shall thereby be disqualified and his office as Director shall thereupon automatically become vacant." As amended by the Board of Directors to be effective upon approval of Item 1 by the Shareholders "Classes of Directors and Term of Office. Section 3:3. The Board of Directors shall con- sist of three (3) classes of Directors with one class (Class I) having three (3) members and two classes (Class II and Class III) having four (4) members each. Each member of each class of Directors shall be elected to a term of three (3) years and the election of the respective classes of Directors shall be staggered so that the terms of the members of one of the three classes of Directors shall expire at each annual meeting of the shareholders, at which time the successors to that class of Directors shall be elected; provided, however, that with respect to the initial election of Directors pursuant to this By-Law in April of 1978, the term of each member of one class of Directors (Class I) shall B-1 0 '

I Presently in force and applicable if Item 1 is not approved by the Shareholders "Increase in the Number of Directors. Sec- tion 3:6. Any increase in the number constitut- ing the Board of Directors by amendment to the Articles of Incorporation shall not be deemed a vacancy for the purposes of Section 3:5, and any such additional Directors may be elected at the meeting of shareholders authorizing and adopt- ing the amendment to the Articles of Incorpora- tion providing for such increase in the number of the Board of Directors; provided, that such election of additional Directors shall be deemed effective concurrently with the effective date of such amendment, and not otherwise." B-2 expire in 1979, the term of each member of the second class of Directors (Class II) shall expire in 1980, and the term of each member of the third class of Directors (Class III) shall expire in 1981. The shareholders entitled by law or the Articles of Incorporation to vote for the election of Directors shall elect the Directors to hold office until the expiration of the term of their respective class. Each Director, unless removed, resigned, disqualified, or otherwise separated from office, shall hold office for the term for which he is elected or until his successor shall be elected and qualified." As amended by the Board of Directors to be effective upon approval of Item 1 by the Shareholders "Increase in the Number of Directors. Sec- tion 3:6. Any increase in the number of Direc- tors constituting the Board of Directors by amendment to these By-Laws shall not be deemed a vacancy for the purposes of Section 3:5, and any such additional Directors shall be elected at the next meeting of the shareholders following the adopting of such amendment."

11N) StwlaI 1111 l:~mq11u1y. t?1 ::cvulh Min:un~rc: Avunun, ::1 1~~~dti. Miqnca~rl ti31U!., (314) HRt/ I!/1 1 0-/ In/aabe )MMl 1 1)A )1 i ti i u~da~•1 rs t aa I aihloo St. Louis, Mo., Mon., May 1, 1978 -- The Seven-Up Company announced that it was informed last evening by Philip Morris Incorporated that Philip Morris intended to make an unsolicited conditional tender offer for Seven-Up common shares at $41 per share. The offer would be conditioned upon the acceptance by holders of a majority of Seven-Up's common stock. About 51% of Seven-Up's common stock is closely held, principally by the Company's three founding families. Last Friday, Philip Morris sought unsuccessfully to purchase Seven-Up shares from the estate of a recently deceased founding fami ly member. All family members contacted last night by Seven-Up, who control in excess of 45% of the Company's outstanding stock, stated that they do not intend to accept the proposed Philip Morris tender offer. At the time Seven-Up was advised of the proposed tender, Philip Morris said it would not proceed if Seven-Up would immediately enter into, and publicly announce jointly, merger negotiations. Seven-Up did not acquiesce in this procedure. The merger plan involved an exchange of a new class of Philip Morris convertible preferred stock or, in lieu thereof, the right to receive $41 in cash for up to 45% of Seven-Up stock. ff# M 0 7UP World Headquarters, Public Relations Department • Western Union TWX 1-910-761-0513, Cable SEVENUPCO PART II EXHIBIT 3 -16-

The Seven-Up Company, 121 South Meramec Avenue, St. Louis, Missouri 63105, (314) 889-7777 1 For release: IMMEDIATELY uuuu 11111P 'l~~~!'IN~~~iniq~i~ Contact: S. Lee Larkin St. Louis, Mo., May 2, 1978--The Seven-Up Company announced today that its Board of Directors has authorized the Company's officers, independent financial advisors and outside legal counsel to evaluate the unsolicited and conditional tender offer by Philip Morris Incorporated to purchase Seven-Up at $41 per share. Ben H. Wells, Chairman of the Board of Seven-Up, said that management and all members of the Company's founding families who are Directors expressed their views that the offer is inadequate. The Board has requested the Company's independent financial advisor, The First Boston Corporation, for its opinion as to the adequacy of the offer. First Boston has indicated that because of its familiarity with the Company, it expects to be able to deliver its opinion in a matter of days. The Board expects to announce its position with re- spect to the offer and to make its recommendation to shareholders promptly after receipt of the First Boston opinion. Since the offer will not expire until May 15, the Board urged all shareholders not to act hastily. Mr. Wells stated, "There is no special benefit to a shareholder who desires cash for his or her shares to tender them to Philip Morris at this time. According to -more- 7UP World Headquarters, Public Relations Department • Western Union TWX 1-910-761-0513, Cable SEVENUPCO PART II EXHIBIT 4 -17-

f Add 1 its terms, the offer will not expire until May 15 and payment for _ shares would not begin until some time thereafter - which Philip Morris characterizes as 'as soon as practicable'. If Philip Morris does not receive 51% of the shares by May 15, it has the right to extend the offer and keep the shares but not pay for them. In that event, shareholders will have no right to get their shares back until June 28, unless they are purchased by Philip then." Morris before Mr. Wells noted that the Board is fully cognizant of the concern of shareholders in this matter. The Board intends to promptly advise shareholders of its position and recommendations as they are formu- lated. The Board will also endeavor to make certain that shareholders are given sufficient time to consider this advice and to react in whatever manner the shareholders deem appropriate. Mr. Wells stated that management was extremely gratified with the strong expressions of support and loyalty received from the members of the Company's founding families, officers and employees, franchised bottlers and many institutional and individual shareholders.

The $even-Up Company, 121 South Meramec Avenue, St. Louis, Missouri 63105, (314) 889-7777 ~ For release: IMMEDIATELY Contact: S. Lee Larkin u St. Louis, Mo., May 6, 1978--The Seven-Up Company announced today that its Board of Directors has unanimously recommended to its shareholders that they reject the unsolicited and conditional offer of Philip Morris Incorporated to purchase Seven-Up common stock at $41 per share. Ben H. Wells, Chairman of the Board of Seven-Up, made this comment: "The Board concluded that the offer is inadequate and not in the best interests of Seven-Up and its shareholders." At their meeting, the Board received the opinion of The First Boston Corporation, independent financial advisor for Seven-Up, that the offer is inadequate. Mr. Wells emphasized that the Board's assessment of the offer was in complete agreement with the position of representatives of the Company's founding families and the Company's management, who had all concluded that the offer is inadequate. "All of us agree", he said, "that $41 per share is not a fair price for Seven-Up common." Also, Mr. Wells noted that the sale would be taxable to the shareholders. Mr. Wells continued, "Based upon assurances given to me by members of the Board, relatives and trusts of the Company's founding families and other closely held interests, I am confident that 51% of Seven-Up shares will not be tendered at the price offered -more- 7UP World Headquarters, Public Relations Department • Western Union TWX 1-910-761-0513, Cable SEVENUPCO t) a PART II ~ Qa ~ EXHIBIT 5 ~ -18- ~ ¢

SIGNATUR ES Pursuant to the requirements' of the Securities Exchange Act of 1934, the regis- trant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE SEVEN-UP COMPANY (Registrant) Date: May 12, 1978 By: 0«~. ~ ~~"~~ asn...~r7i`, Paul H. Young, Jr. ~ Executive Vice President Date: May 12, 1978 William A. Bagot Assistant Treasurer

Add 1 by Philip Morris. Philip Morris' obligation to buy any shares is conditioned on receiving 51% of all Seven-Up shares. If 51% is not reached, under the terms of the offer, Philip Morris is entitled to retain the shares without paying for them until June 28. For these reasons, shareholders should consider seriously whether tendering their shares to Philip Morris is in their best interest. Mr. Wells concluded with this statement: "We think that it would be a mistake for shareholders to jump at this tender offer. m We want the management of The Seven-Up Company to have an opportunity to fulfill its long-range growth plan which is proceeding so well as reflected in the outstanding financial report for the first quarter of 1978. " # # # I