SEPARATION AGREEMENT


         This Separation  Agreement  ("Agreement") is made as of the 19th day of
January,  1998 by and between WILLIAM F. McLAUGHLIN  ("Employee") and SWEETHEART
HOLDINGS  INC., a Delaware  corporation  (together  with  Sweetheart Cup Company
Inc., its wholly owned subsidiary, the "Company").

WHEREAS, the Employee and the Company entered into an Employment Agreement dated
May 15,  1994,  a copy of  which  is  attached  as  Exhibit  A (the  "Employment
Agreement"),  pursuant to which the Employee  was hired by the Company,  elected
its President and Chief Executive  Officer,  and granted  certain  benefits with
respect to such position;

WHEREAS,  the Company and Employee have agreed over time to additional  benefits
to be granted to the Employee in consideration for his continued  employment and
in recognition of the various  undertakings  and achievements by the Employee on
behalf of the Company;

WHEREAS, the Company's owners have decided in their discretion to sell an equity
interest in the Company to a third party (the "Transaction");

WHEREAS, as a result of the Transaction, the Employee and Company (hereafter the
"Parties") have agreed to terminate the Employment  Agreement and the employment
relationship between the Parties; and

WHEREAS,  the Parties desire to specify in a single  document  their  respective
rights and obligations relating to the employment of the Employee arising on and
after the termination of Employee's employment with the Company.

NOW,  THEREFORE,  in  recognition  of the  contribution  to the  Company  by the
Employee  during  his term as  President  and  Chief  Executive  Officer  and in
consideration  of the covenants  undertaken  and the releases  contained in this
Agreement,  and for other good and valuable  consideration,  the  sufficiency of
which is hereby acknowledged, the Parties agree as follows:

         1.  Severance  Consideration.  In full  consideration  and as  material
inducement  of  executing  the   Agreement,   subject  to  the  closing  of  the
Transaction, unless this Agreement is revoked as provided below:

         a. On the date of the closing of the Transaction  (the "Closing Date"),
the  Company  will pay to the  Employee  the  following  amounts,  less  legally
required, or otherwise agreed to, withholding:

               (i) A  separation  payment  in the gross  amount of Five  Hundred
Thousand Dollars ($500,000),  which payment shall be made in satisfaction of the
requirements  of Section 6 of the offer letter from the Company  dated April 11,
1994 attached as Exhibit 1 to the Employment Agreement (the "Offer Letter");


<PAGE>



               (ii) A payment in the gross amount of Forty Two Thousand  Dollars
($42,000), as payment for unused vacation time;

               (iii) A payment of Three Hundred Eighty Five Thousand One Hundred
Sixty Six  Dollars  and Thirty  Cents  ($385,166.30),  which  payment is in full
satisfaction  of the Company's  obligations  under the Stock Option and Purchase
Plan in accordance with the provisions of letter  agreement  between the Parties
substantially in the form attached as Exhibit B;

               (iv) A payment of Three  Hundred  Seventy Five  Thousand  Dollars
($375,000),  pursuant to, and in full satisfaction of the Company's  obligations
under, the Special  Incentive  Agreement entered into by the Parties on December
9, 1996, a copy of which is attached as Exhibit C, and

               (v) A payment of Eighty  Five  Thousand  ($85,000),  which is the
grossed up tax liability  expected to be incurred by Employee in the sale of the
Employee's Company stock as part of the Transaction.

        b. On or about the Separation Date, the Employee will notify the trustee
of the Executive  Retention Pay Trust of the  withdrawal of funds payable to the
Executive  pursuant to the Executive  Retention Pay  Agreement  (the  "Retention
Agreement"), a copy of which is attached as Exhibit D. The Company agrees not to
raise any  objection  to such  payment  by the  trustee,  and at the  Employee's
request,  to notify the  trustee  in  writing of a waiver by the  Company of its
right to notice  of  payment  to the  Executive  as  required  by the  Retention
Agreement.

        c. On or after the  Separation  Date,  as defined  below,  Employee  may
exercise his rights as provided  under and in  accordance  with the terms of the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") to continue his
health care coverage by making monthly payments for such coverage.

        d. The Company will,  without  duplication of any benefits  specified in
(a), (b) or (c), above,  also provide Employee with such other benefits to which
Employee is entitled under the terms of any applicable  Company employee benefit
plan,  including any tax-qualified  retirement plan and the Relocation Agreement
dated  December  19, 1997  between the  Parties,  a copy of which is attached as
Exhibit E.

        e.  Effective as of the Separation  Date,  the  Employment  Agreement is
terminated and of no further force or effect in any respect.

        2. Compliance with Law. The Employee hereby acknowledges and agrees that
this  Agreement and the  termination  of his employment and all actions taken in
connection therewith are in compliance with the Age Discrimination in Employment
Act and the Older  Workers'  Benefits  Protection  Act and that the  release set
forth in this Agreement shall apply,  without limitation,  to any claims brought
under those Acts. The Employee further expressly acknowledges and agrees that:

                                      - 2 -

<PAGE>


               a. The release  given by the Employee in this  Agreement is given
solely in exchange for the consideration set forth in this Agreement which is in
addition to anything of value to which he was already entitled to receive before
entering into this Agreement;

               b. By entering into this  Agreement,  the Employee does not waive
rights or claims that may arise under this  Agreement,  or which involve  issues
not covered by this  Agreement and which arise after the date this  Agreement is
executed  provided  that any such  claims  involving  issues not covered by this
Agreement  which arise after the date hereof but before the Separation  Date and
which are  known to the  Employee  shall be deemed  waived  unless  the  Company
receives  notification  from the  Employee in writing of the  existence  of such
claim on or before the Separation Date;

               c. The Employee is hereby advised in writing by this Agreement to
consult with an attorney before signing this Agreement;

               d.  The  Employee  was  given  a copy of  this  Agreement  on its
effective date and has twenty-one (21) days within which to consider  acceptance
of this  Agreement by executing and returning a copy to the Corporate  Secretary
of the Company;

               e. The Employee  also has seven (7) days  following the execution
of this  Agreement  in which to revoke  the  Agreement.  Any  revocation  of the
Agreement  must be in writing and  delivered to the  Corporate  Secretary of the
Company during the revocation  period.  This Agreement will become effective and
enforceable seven (7) days following execution by the Employee unless revoked as
provided herein.

        3. Separation Date, Resignation. The Employee acknowledges that his last
day of  employment  with  the  Company  (the  "Separation  Date')  will,  unless
otherwise  agreed to by the  Parties,  be the  Closing  Date.  On or before  and
effective as of the Separation  Date, the Employee agrees to execute and deliver
to the Company a letter of resignation  from all positions held with the Company
or any of its subsidiaries.

        4. Reason for Separation.  The Employee's  employment  records will show
that the  Employee  resigned  from the Company by mutual  agreement  between the
Parties.  For the purposes of the Severance  Consideration of this Agreement the
Company shall be considered to have terminated the Employee's employment without
cause, as that term may be used in any agreement with the Employee.

        5. Non-Admission. The Employee agrees and acknowledges that neither this
Agreement  nor the  Company's  offer to enter  into  this  Agreement  should  be
construed as an admission  by the Company that it has acted  wrongfully  towards
the Employee or anyone else, and that the Company expressly denies any liability
to or having engaged in any wrongful acts or omissions against the Employee.


                                           - 3 -

<PAGE>

        6.     Statements Regarding the Company or Employee.

        a. Employee agrees not to make any statements in any form concerning the
Company,  his employment with the Company,  or the termination of his employment
with the Company to any person or entity if such  statements  are  injurious  or
inimical to the best interests of the Company.

        b. The  Company  agrees  not to make,  and to use its  best  efforts  to
prevent any party to the  Transaction  from making,  any  statements in any form
concerning the Employee,  his employment with the Company, or the termination of
his employment  with the Company to any person or entity if such  statements are
injurious or inimical to the best interests of the Employee.

        7. Confidentiality.  Prior to any public disclosure required by law, the
Parties  agree  to keep  the  terms,  conditions  and  fact  of  this  Agreement
completely  confidential  and not to disclose any  information  concerning  this
Agreement to any other person, except those employees of the Company who require
such  information to perform their duties and the Employee's  immediate  family,
personal financial advisor, tax advisor and attorney.

        8. Shareholder Rights and Obligations. The terms of this Agreement shall
not affect in any way any rights or  obligations  of the Parties with respect to
the  Employee's  status  as a  shareholder  of  the  Company  or any  rights  or
obligations arising out of the Transaction as a result of Employee's status as a
shareholder of the Company.

        9.     Mutual General Releases.

        a. Except as provided above, the Employee,  on behalf of himself and his
heirs, executors,  administrators,  successors and assigns, hereby covenants not
to sue and hereby fully releases,  dismisses, and forever discharges the Company
and its  affiliated  entities,  as well as its and  their  trustees,  directors,
officers, agents, employees, stockholders, attorneys, insurers, representatives,
predecessors,   assigns,  successors,   transferees,  and  any  parties  to  the
Transaction  (hereinafter  collectively  referred  to as the  "Company  Released
Parties")  from  any  and all  actions,  causes  of  action,  lawsuits,  claims,
counterclaims,  demands, debts,  obligations,  damages,  judgments,  orders, and
liabilities of whatever nature,  whether known or unknown,  which he now owns or
holds or has at any time owned or held or may in the future own or hold, arising
out of or in any way  connected,  directly or  indirectly,  with his  employment
relationship  with  the  Company  or  the  termination   thereof  or  any  other
occurrences, acts, or omissions or any loss, damage, or injury whatsoever, known
or unknown,  including,  without  limiting the generality of the foregoing,  any
claim of breach of contract,  wrongful discharge,  torts of any kind, any common
law claims now or hereafter  recognized,  and any claims  arising under federal,
state or local laws or  ordinances,  including  but not limited to, Title VII of
the Civil Rights Act of 1964, the Age  Discrimination in Employment Act of 1967,
the Older Workers Benefits  Protection Act, the Americans With Disabilities Act,
the  Civil  Rights  Act  of  1991,   the  Family  and  Medical  Leave  Act,  the
Rehabilitation Act of 1973, the Employee Retirement Income Security Act of 1974,
the Consolidated  Omnibus Budget  Reconciliation  Act, the Worker Adjustment and
Retraining  Notification  Act, the  Occupational  Safety and Health Act, and the
False Claims Act which the Employee may have against any of the Company Released
Parties.

                                           - 4 -

<PAGE>

        b. Except as provided  above,  the Company,  on behalf of itself and its
successors and assigns,  hereby covenants and agrees,  and further agrees to use
its best efforts to induce any party to the  Transaction,  not to sue and hereby
fully releases,  dismisses,  and forever  discharges the Employee and his heirs,
executors,  administrators,  successors  and assigns  (hereinafter  collectively
referred to as the "Employee Released Parties") from any and all actions, causes
of  action,  lawsuits,  claims,  counterclaims,   demands,  debts,  obligations,
damages, judgments, orders, and liabilities of whatever nature, whether known or
unknown,  which  they at any time in the past had,  or now or at any time may in
the future have, arising out of or in any way connected, directly or indirectly,
with the Employee's employment  relationship with the Company or the termination
thereof or any other  occurrences,  acts, or omissions or any loss,  damage,  or
injury whatsoever,  known or unknown, including, without limiting the generality
of the foregoing, any claim of breach of contract,  wrongful discharge, torts of
any kind, any common law claims now or hereafter  recognized,  which the Company
or any party to the  Transaction  may have against any of the Employee  Released
Parties, and hereby affirmatively approves and ratifies all actions taken by the
Employee as President and Chief  Executive  Officer of the Company and agrees to
defend and hold Employee  harmless from any claim whatsoever  involving any such
actions.

        10.  Assistance  to the  Company.  Employee  agrees that  following  the
Separation  Date,  except in the event of death or a permanent  disability  that
prevents Employee's cooperation, Employee shall, upon reasonable notice, furnish
such information and give such assistance to the Company in any matter involving
Employee's  former  position as  President  and Chief  Executive  Officer as may
reasonably be requested by the Company. The Company shall compensate Employee in
an amount mutually agreed upon for such services, and reimburse the Employee for
all reasonable expenses incurred while so assisting the Company. Employee is not
obligated to assist in any  controversy  or  litigation  between the Company and
Employee.

        11.  Re-employment.  The  Employee  agrees  not to apply for,  seek,  or
otherwise attempt to obtain employment with the Company or any of its affiliates
and that the Company or any of its  affiliates or  successors  shall be under no
obligation to reemploy the Employee.

        12. Notices. All notices, demands or other communications to be given or
delivered  under or by reason of the  provisions of this  Agreement  shall be in
writing  and shall be deemed to have been given  when  delivered  personally  or
mailed by certified or registered  mail,  return  receipt  requested and postage
prepaid, to the recipient.  Such notices, demands and other communications shall
be sent to the Employee and to the Company at the addresses indicated below:

                             (a)    If to the Employee:

                                    Mr. William F. McLaughlin
                                    12333 Michaelsford Road
                                    Hunt Valley, MD  21030


                                           - 5 -

<PAGE>


                             (b) If to the Company:

                                    Sweetheart Holdings Inc.
                                    10100 Reisterstown Rd.
                                    Owings Mills, MD  21117
                                    Attention: Corporate Secretary

or to such  other  address  or to the  attention  of such  other  person  as the
recipient party has specified by prior written notice to the sending party.

        13. Merger of Understanding.  Except as otherwise  specifically provided
herein,  this  Agreement  constitutes  and  contains  the entire  agreement  and
understanding concerning the Employee's employment,  the termination thereof and
the other matters  addressed  herein  between the parties,  and  supersedes  and
replaces  all prior  negotiations  and all  agreements  proposed  or  otherwise,
whether  written or oral,  concerning the subject matter hereof.  This Agreement
shall not be  modified,  altered,  changed or amended in any  respect  unless in
writing and signed by the Parties.

        14.  Savings  Clause.   If  any  provision  of  this  Agreement  or  the
application  thereof is held  invalid,  the  invalidity  will not  affect  other
provisions or  applications  of this Agreement which can be given effect without
the invalid  provisions or  applications  and to this end the provisions of this
Agreement are declared to be severable.

        15.    Governing Law, Arbitration.

               a.  This  Agreement  will be deemed  to have  been  executed  and
delivered  within the State of Maryland,  and the rights and  obligations of the
parties  hereunder  will be  construed  and  enforced in  accordance  with,  and
governed by, the laws of the State of Maryland  without  regard to principles of
conflict of laws.

               b. Any dispute arising under this Agreement shall be submitted to
binding  arbitration  initiated  in  accordance  with the rules of the  American
Arbitration Association in Baltimore,  Maryland. The results of such proceedings
shall be  conclusive  and shall not be subject to judicial  review.  The Company
agrees to pay the entire cost of any  arbitration  or legal  proceeding  arising
from  any  dispute  hereunder,  including  the  legal  fees of  Employee  or his
beneficiary,  regardless  of the  outcome  of any such  proceeding,  unless  the
arbitrators or the court hearing such proceeding  determines that the Employee's
or  beneficiary's  claim was submitted in bad faith,  in which event the Company
shall not pay any legal fees and expenses of the Employee or beneficiary.

        16.  Execution  in  Counterparts.  This  Agreement  may be  executed  in
counterparts,  and each counterpart,  when executed, will have the efficacy of a
signed original.  Photographic copies of such signed counterparts may be used in
lieu of the originals for any purpose.


                                      - 6 -

<PAGE>

        17.  Waiver.  The  failure  of  either  party to  enforce  strictly  any
provision of this  Agreement  shall not be  construed as a waiver  thereof or as
excusing the other party from future performance.

         THE EMPLOYEE  ACKNOWLEDGES  AND REPRESENTS THAT HE HAS READ AND ACCEPTS
AND AGREES TO THE PROVISIONS OF THIS  AGREEMENT AND HAS HAD SUFFICIENT  TIME AND
OPPORTUNITY TO CONSULT WITH INDIVIDUALS OF THE EMPLOYEE'S OWN CHOICE,  EXCEPT AS
LIMITED  BY THE  CONFIDENTIALITY  PROVISIONS  OF THIS  AGREEMENT.  THE  EMPLOYEE
EXECUTES THIS AGREEMENT VOLUNTARILY WITH FULL UNDERSTANDING OF ITS CONSEQUENCES.

                                            EMPLOYEE



                                            /s/ William F. McLaughlin
                                            -------------------------
                                            William F. McLaughlin



                                            SWEETHEART HOLDINGS INC.
ATTEST:


                                            By: /s/ Burnell R. Roberts
                                                ----------------------
/s/ Daniel M. Carson                                Burnell R. Roberts
--------------------
Daniel M. Carson                                    Its Chairman
Corporate Secretary
[CORPORATE SEAL]

                                      - 7 -

<PAGE>

                                EXHIBITS OMITTED


                                      - 8 -

<PAGE>


                                 ACKNOWLEDGEMENT


I, William F.  McLaughlin,  hereby  acknowledge that I was given twenty-one (21)
days to consider  the  foregoing  Agreement  and  voluntarily  chose to sign the
Agreement  prior to the expiration of the 21-day period.  I further  acknowledge
that the seven (7) day period for revocation of this Agreement  commences on the
date set forth below.

               Executed this 22nd day of January, 1998

                                            EMPLOYEE


                                            /s/ William F. McLaughlin
                                            -------------------------
                                            Name:  William F. McLaughlin

                                      - 9 -