================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

                |X| Annual Report Pursuant to Section 13 or 15(d)
              of the Securities Exchange Act of 1934 (Fee required)
                  For the fiscal year ended September 30, 1997

          |_| Transition Report Pursuant to Section 13 or 15(d) of the
                Securities Exchange Act of 1934 (No fee required)
                        for the transition period from to
                         Commission file number 33-64814


                            SWEETHEART HOLDINGS INC.*
             (Exact name of registrant as specified in its charter)


           Delaware                                              06-1281287
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


10100 Reisterstown Road, Owings Mills, Maryland                        21117
   (Address of principal executive office)                           (Zip Code)


        Registrant's telephone number, including area code: 410/363-1111


               Securities of the Registrant registered pursuant to
                         Section 12(b) of the Act: None

               Securities of the Registrant registered pursuant to
                         Section 12(g) of the Act: None


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]   No [ ]


         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|


         The aggregate market value of the voting stock of the Registrant held
by non-affiliates of the Registrant as of December 29, 1997: Not Applicable.
There is no market for the Common Stock of the Registrant.


     The number of shares outstanding of the Registrant's common stock as of
                               December 29, 1997:
    Sweetheart Holdings Inc. Common Stock, $0.01 par value - 1,046,000 shares


*         The Registrant is the guarantor of the 9 5/8% Senior Secured Notes due
2000 and the 10 1/2% Senior Subordinated Notes due 2003 (collectively, the
"Notes") of Sweetheart Cup Company Inc., a wholly owned subsidiary of the
Registrant.

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<PAGE>
                                     PART I

ITEM 1.    BUSINESS


GENERAL

         Sweetheart Holdings Inc., together with its wholly owned subsidiary
Sweetheart Cup Company Inc. (collectively with Sweetheart Holdings Inc. and its
other subsidiaries, the "Company"), is one of the largest producers of plastic
and paper disposable foodservice and food packaging products in North America.
In the year ended September 30, 1997, the Company had net sales of $886 million.
The Company's principal products include cups for both hot and cold drinks,
lids, food containers, bowls, plates, straws, cutlery, and containers for the
food and dairy industries. The brand names for the Company's principal products
include Sweetheart, Lily, Trophy, Jazz and Preference for cups and plates and
Silent Service, Centerpiece, Guildware, and Simple Elegance for foam dinnerware
and plastic cutlery. In addition, the Company designs, manufactures and leases
container filling equipment for use by dairies and other food processors. This
equipment is specifically designed by the Company to fill and seal the Company's
containers in customers' plants.

         The Company's business is the successor to the businesses of Maryland
Cup Corporation ("Maryland Cup"), which was founded in 1911 and was a major
supplier of paper and plastic disposable foodservice and food packaging
products, and Lily-Tulip, Inc. ("Lily-Tulip"), which began operations in the
early 1900s and was a major cup producer and manufacturer of food and dairy
packaging. Fort Howard Corporation ("Fort Howard") acquired Maryland Cup in 1983
and Lily-Tulip in 1986. Sweetheart Holdings Inc. was incorporated as a separate
company in 1989 on behalf of Morgan Stanley Group Inc. ("MSG"), Fort Howard and
other investors, including management, in connection with Sweetheart Holdings
Inc.'s acquisition in 1989 of all of the U.S. and Canadian disposable
foodservice and food packaging operations of Fort Howard, including the
operations of Maryland Cup and Lily-Tulip (the "Fort Howard acquisition"). The
Company's Canadian operations are conducted through Lily Cups, Inc. ("Lily
Canada"). On August 30, 1993, a group of investors (the "Investors") including
American Industrial Partners Capital Fund, L.P. ("AIP") acquired Sweetheart
Holdings Inc. (the "Acquisition"). For information with respect to an agreement
entered into on December 29, 1997 by AIP on behalf of itself and the other
stockholders with an affiliate of The Fonda Group, Inc., see Item 12.


FOODSERVICE AND FOOD PACKAGING PRODUCTS

         The Company operates in two principal business lines: Foodservice and
Food Packaging. Foodservice products include disposable hot and cold drink cups,
lids, food containers, plates, bowls, cutlery and ice cream cones. These
products are sold directly and through distributors to fast food chains, full
service restaurants, hospitals, airlines, theaters and other institutional
customers. Food Packaging products include paper and plastic containers for the
dairy and food processing industries. Food Packaging also designs, manufactures
and leases filling and packaging machines that fill and seal the Company's
containers in customers' plants. Through Lily Canada, the Company manufactures
and markets its products in Canada to national accounts and distributors.

         Foodservice Products. The Company's foodservice business consists of
three end-use categories: beverage service, tabletop service and carryout
service. Foodservice is the Company's largest product group, accounting for
approximately 80% of gross sales during the year ended September 30, 1997.
Management believes that this level of gross sales makes the Company the largest
manufacturer of disposable foodservice products in North America.

         Beverage service products, which consist of paper and plastic cups,
lids and straws, represent the largest segment of the Company's United States
operations. The largest single product type within this category is cups, which
are offered in various sizes (ranging from 3 to 64 ounces) and for both hot and


                                       2
<PAGE>
cold beverages. Brand names of the Company's principal beverage service products
include Sweetheart, Lily, Trophy, Preference, Jazz, Gallery, Clarity and Lumina.

         Tabletop service products include paper and plastic plates, bowls,
portion cups and cutlery. These products are sold primarily to fast-food and
mid-scale restaurants, health care institutions, airlines and educational and
institutional foodservices. The Company's tabletop products include its Silent
Service, Centerpiece, Basix, Guildware and Simple Elegance brands of foam
dinnerware and plastic cutlery.

         The Company's carry-out service products consist of paper and plastic
tubs, containers and hinged plastic containers. The Company is one of the
largest manufacturers of paper tubs for chicken, popcorn and take-out foods in
North America.

         The Company believes it is the largest producer in North America of ice
cream cones, which are marketed under the Eat-It-All and American Dream Cone
brand names. The Company produces ice cream cones in its bakery facilities and
offers several varieties of ice cream cones, including cake cones, sugar roll
cones and waffle cones, to national chains and wholesale distributors for its
foodservice business. The Company sold its bakery operations on November 30,
1997, as noted in Note 15 to the financial statements (Item 8).

         Foodservice Customers. Foodservice products are sold directly to large
national accounts, such as fast-food chains and catering services, which
represented approximately 52% of foodservice sales for the year ended September
30, 1997. Foodservice products are also sold through distributors to other
end-users, such as independent restaurants, school systems and hospitals. The
Company's national accounts include ARAMARK, McDonald's, and Wendy's, and its
major distributor accounts include Alliant, ComSource, Network and Sysco.

         Food Packaging Products. The Company's food packaging operations sell
paper and plastic containers and lids for ice cream, frozen novelty products,
cultured foods (including sour cream, yogurt, cottage cheese and snack dip) and
plastic containers for single-serving chilled juice products. Other products
include the Company's Flex-E-Form straight-wall paper manufacturing technology
and Flex-Guard, a spiral wound tamper-evident lid. Sales of food packaging
products accounted for approximately 11% of the Company's gross sales during the
year ended September 30, 1997. Management believes the Company is the second
largest supplier (in terms of sales) of containers to the frozen dessert and
cultured dairy products segments of the food packaging industry in North
America.

         To enhance product sales, the Company designs, manufactures and leases
container filling and lidding equipment to dairies and other food processors to
package food items in Company containers at their plants. The Company's filling
and lidding equipment is leased to customers under the trade names Auto-Pak,
Flex-E-Fill and Food-Pak. This equipment is manufactured in the Company's
machine shop and assembly plant located in Owings Mills, Maryland. Types of
products packaged in the Company's machines include ice cream, factory-filled
jacketed ice cream cones, cottage cheese, yogurt, squeeze-up desserts and ice
cream sandwiches.

         Food Packaging Customers. Food packaging containers and filling
machines are marketed directly to national and regional dairies and food
companies. Major customers of the Company's food packaging products include Ben
& Jerry's Ice Cream, Blue Bell, Borden and Prairie Farms.

         Canadian Operations. The Company operates in Canada through Lily
Canada, which has been manufacturing and marketing foodservice disposables since
1947. Lily Canada is one of the largest providers of foodservice disposable
products in the Canadian market, primarily as a consequence of its large
portfolio of national account customers. Sales by Lily Canada during the year
ended September 30, 1997 constituted approximately 6% of the Company's gross
sales.


                                       3
<PAGE>
MARKETING AND SALES

         The Company's marketing efforts are directed to maintaining firsthand
knowledge of customer needs and to structuring the Company's manufacturing and
sales efforts to provide superior products and services tailored to those needs.
The Company's sales force allows it to service a large distributor and broker
network that permits even small accounts to receive appropriate coverage.
Distribution facilities are maintained in close proximity to most major markets.

         The Company's sales effort is divided into separate foodservice and
food packaging sales forces. The foodservice sales force targets the disposable
foodservice product market and is organized into distribution and national
account sales forces. The distribution sales force focuses on distributors and
smaller end users such as independent restaurants, schools and hospitals. The
national account sales force focuses on national foodservice accounts and major
bottlers, concessionaires, health care and contract food providers. The food
packaging sales force focuses on national and regional food processors.


PRODUCTION

         The Company's plants operate on a variety of manufacturing schedules.
Paper operations generally run five days per week at 24 hours per day, with
Saturday scheduled as an overtime day when needed to meet customer demand.
Plastic operations generally run seven days per week at 24 hours per day. Due to
customer demand, the Company's plant utilization is substantially higher during
late spring and summer than during fall and winter.


RAW MATERIALS

         Raw materials are critical components of the Company's cost structure.
Principal raw materials for the Company's paper operations include solid
bleached sulfate paperboard obtained directly from major domestic manufacturers,
along with wax, adhesives, coating and inks. Paperboard is purchased in "jumbo"
rolls and then printed and converted into smaller rolls or blanks for processing
into final products. The principal raw material for the Company's plastic
operations is plastic resin (polystyrene, polypropylene, high density
polyethylene and polyethylene terphalate glycol modified) purchased directly
from major petrochemical companies and other resin suppliers. Resin is processed
and formed into cups, cutlery, meal service products, straws and containers. The
Company manufactures foam products by extruding sheets of plastic foam material
that are converted into cups and plates. Principal raw materials for the bakery
operations include flour, sugar and shortening.

         The Company purchases a substantial portion of its requirements for
paperboard and resin from several suppliers. The Company has a number of
potential suppliers for substantially all of its raw materials and believes that
current sources of supply for its raw materials are adequate to meet its
requirements.


COMPETITION

         All of the markets in which the Company sells its products are
extremely competitive. Because of the low barriers to entry for new competitors,
the level of competition has been and may continue to be intense as new entrants
attempt to gain market share. The Company's competitors include large
multinational companies as well as regional manufacturers, some of whom have
greater financial and other resources than the Company. The marketplace for the
Company's products is fragmented and includes competitors that compete across
the full line of the Company's products, as well as those that compete against a
limited number of the Company's products. A few of the Company's competitors are
also vertically integrated into the production of paper or plastic raw
materials.

         The Company believes customers principally evaluate service, price,
product quality and graphics capability when considering the purchase of
products from the Company.


                                       4
<PAGE>
CUSTOMERS

         The Company markets its products primarily to customers in the United
States and Canada. During the year ended September 30, 1997, sales to the
Company's 10 largest customers accounted for approximately 50.3% of the
Company's revenues with one customer, McDonald's, accounting for 13.7% of net
sales. The Company has strong relationships with its major national accounts
which have been developed over many years.


TECHNOLOGY AND RESEARCH

         The Company maintains facilities for the development of new products
and product line extensions in Owings Mills, Maryland. The Company maintains a
staff of engineers and technicians who are responsible for product quality,
process control, improvement of existing products, development of new products
and processes and technical assistance in adhering to environmental rules and
regulations. The Company is continually striving to expand its proprietary
manufacturing technology, further automate its manufacturing operations, and
develop improved manufacturing processes and product designs.


ENVIRONMENTAL MATTERS

         The Company's operations are subject to federal, state, foreign and
local environmental laws and regulations. Although the Company believes it is in
substantial compliance with such laws and regulations, the Company may from time
to time not be in full compliance, and is from time to time involved in
administrative and judicial proceedings and inquiries relating to environmental
matters. The Company has expended, and expects in the future to expend, funds
for compliance with those laws and regulations and penalties for noncompliance.

         The Clean Air Act mandates the phase out of certain refrigerant
compounds, which will require the Company to upgrade or retrofit or air
conditioning and chilling systems during the next few years. The Company has
decided to replace units as they become inefficient or unserviceable. The
upgrade of existing systems would cost approximately $4 million. Approximately
$1 million has been spent on upgrading systems in the last five years, exclusive
of costs of $2.4 million to convert to a new foam blowing agent in 1993. The
Company anticipates that future levels of expenditures for environmental matters
(exclusive of costs relating to the blowing agent conversion and the
retrofitting of air conditioning and chilling systems described above) will be
comparable; however, there can be no assurance that expenditures will not be
higher.

         As noted during the third quarter, the Company received a request for
information from the Environmental Protection Agency ("EPA") pursuant to Section
104 of the Comprehensive Environmental Response, Compensation, and Liability Act
and Section 3007 of the Resource Conservation and Recovery Act, concerning the
Lily-Tulip Brown Fields Site (the "Site") in Old Town, Maine. The Company also
received a demand from the City of Old Town for payment of the Company's alleged
share of the clean-up of the Site. The Company has agreed to settle these claims
by paying $40,000 in the first quarter of fiscal 1998.

         Some of the Company's facilities contain asbestos. Although there is no
current legal requirement to remove such asbestos, the Company has an ongoing
monitoring and maintenance program to maintain and/or remove such asbestos as
appropriate to prevent the release of friable asbestos. The Company does not
believe the costs associated with such program will be material to its business
or financial condition.


EMPLOYEES AND EMPLOYEE RELATIONS

         At September 30, 1997, the Company employed approximately 8000 persons,
with approximately 94% of those employees located at facilities in the United
States. Approximately 990 of the Company's United States hourly employees are


                                       5
<PAGE>
represented by a union. All hourly employees located in Canada are represented
by a union. The Company believes its relationship with its employees is good.


ITEM 2.     PROPERTIES

         The Company has 13 manufacturing facilities in the United States and
two in Canada. The Company owns or leases manufacturing and warehouse facilities
at the locations shown in the following table:


<TABLE>
<CAPTION>
                                                                                               Size
                                                             Type of         Owned/        (Approximate
                        Location                           Facility (1)      Leased        square feet)
                        --------                           ------------      ------        ------------
<S>                                                         <C>              <C>            <C>
Atlanta, Georgia................................              M/W(2)            O             106,000


Augusta, Georgia (2 facilities).................              M/W               O             339,000
                                                              W(3)              L             204,000

Conyers, Georgia................................              M/W               O             350,000
                                                              W                 O             555,000

Chicago, Illinois (3 facilities)................              M/W               O             902,000
                                                              M(2)              O             120,000
                                                              W                 L             587,000

Dallas, Texas (2 facilities)....................              M/W               O           1,316,000
                                                              M(2)              O              59,000

Manchester, New Hampshire.......................              M/W               O             160,000


North Las Vegas, Nevada (2 facilities)..........              M/W               L             128,000
                                                              W                 L              12,000

Ontario, California.............................              W(4)              L             249,000


Owings Mills, Maryland (3 facilities)...........              M/W(5)            O           1,533,000
                                                              W                 O             267,000
                                                              W                 O             406,000

Riverside, California...........................              M/W(6)            O             164,000


Somerville, Massachusetts.......................              M/W               O             193,000


Springfield, Missouri (2 facilities)............              M/W               O             925,000
                                                              W                 L             415,000

Wilmington, Massachusetts.......................              W                 L             407,000


Scarborough, Ontario (2 facilities).............              M/W               O             185,000
                                                              M/W               O             207,000

</TABLE>

---------------------

(1) M-Manufacturing; W-Warehouse; M/W-Manufacturing and Warehouse in same
facility.

(2) Facility is a bakery. The bakery operations were sold on November 30, 1997.
See Note 15 of the financial statements (Item 8) for details.

(3) Facility is closed. The Company is currently subleasing 100% of the property
on a short-term lease and is actively seeking to sublet the remaining space
through the lease termination date, March 31, 2008.

(4) Facility will be closed and returned to the lessor at or prior to the lease
termination date, May 31, 1998. The facility will be replaced by a new 370,000
sq. foot warehousing facility which will also be located in Ontario, CA.

(5) Facility includes a bakery which ceased operations on November 30, 1997.

(6) The Manufacturing operations ceased on September 2, 1997, and the Warehouse
operations will cease by May 31, 1998. The facility will be sold.


                                       6
<PAGE>
ITEM 3.     LEGAL PROCEEDINGS

         Aldridge. An action entitled Allan C. Aldridge, et al. v. Lily-Tulip,
Inc. Salary Retirement Plan Benefits Committee and Fort Howard Cup Corporation,
Civil Action No. CV 187-084, is currently pending against The Lily-Tulip, Inc.
Salary Retirement Plan Benefits Committee and Sweetheart Cup Company Inc. in the
United States District Court for the Southern District of Georgia. See Note 16
of the Notes to Consolidated Financial Statements under Item 8.

         Fort James Corporation. A patent infringement action entitled Fort
James Corporation v. Sweetheart Cup Company Inc., Civil Action No. 97-C-1221,
was filed in the United States District Court for the Eastern District of
Wisconsin on November 21, 1997. The Company has not yet filed an Answer to the
Complaint and is investigating the merits of the claim. In the opinion of
management, the ultimate liability, if any, will not materially affect the
Company's financial position or results of operations.

         Other. The Company is also involved in a number of legal proceedings
arising in the ordinary course of business, none of which is expected to have a
material adverse effect on the Company's business or financial condition.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           Each of the then current members of the Board of Directors was
reelected at the December 10, 1996 Shareholder Meeting. Jerry J. Jasinowski was
elected as Director of the Company commencing August 1, 1997.


                                     PART II


ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
            MATTERS

         Sweetheart Cup Company Inc. is a wholly-owned subsidiary of Sweetheart
Holdings Inc. Sweetheart Holdings Inc. is a privately-held corporation. No
equity securities of Sweetheart Holdings Inc. or Sweetheart Cup Company Inc. are
publicly traded or registered under the Securities Exchange Act of 1934.





                                       7
<PAGE>
ITEM 6.     SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

         Set forth below are selected historical consolidated and combined
financial and other data of the Company at the dates and for the periods shown.

         The selected historical consolidated financial data at September 30,
1997 and 1996, and for the years ended September 30, 1997, 1996 and 1995 are
derived from the historical consolidated financial statements of the Company and
subsidiaries for such periods that have been audited by Arthur Andersen LLP,
independent public accountants, and have been included elsewhere herein. See
Item 8. The selected consolidated and combined historical financial data at
September 30, 1994, September 30, 1993 and August 29, 1993 and for the year
ended September 30, 1994, the period from August 30, 1993 to September 30, 1993
and the period from January 1, 1993 to August 29, 1993 have been derived from
the historical audited consolidated financial statements for such periods.

Certain prior period amounts have been reclassified to conform to current year
presentation.

<TABLE>
<CAPTION>
                                                                                       Period from   
                                                                                        August 30,   
                                                                                            to           Period from  
                                              Year ended September 30,                  September       January 1, to 
                                                                                           30,            August 29,   
(Dollars in thousands)             1997           1996          1995         1994          1993             1993
                               (Successor)    (Successor)    (Successor)  (Successor)   (Successor)     (Predecessor)
                              --------------- -------------  -----------  -----------  --------------   -------------
<S>                           <C>              <C>          <C>           <C>             <C>            <C>
Operating Data:
Net sales                       $886,017        $959,818      $986,618     $898,528        $81,571        $591,258
Cost of sales                    722,539         748,055       779,497      683,429         64,011         460,324
                               ---------       ---------     ---------    ---------       --------       ---------
Gross income                     163,478         211,763       207,121      215,099         17,560         130,934
Transportation                    98,482          98,664        95,096       94,734          7,952          62,291
Selling, general and
   administrative                 66,792          61,788        66,089       67,712          5,787          45,494
Loss on asset disposal and
  impairment                      24,550               -             -            -              -               -
Restructuring expense              9,680                                                         -               -
                               ---------       ---------     ---------    ---------       --------       ---------
                                                       -             -            -
Operating income (loss)          (36,026)         51,311        45,936       52,653          3,821          23,149
Interest expense and other
   related finance charges        41,812          38,832        38,655       37,460          3,327          43,981
Other income (expense), net        1,620          (2,956)        2,442          623           (161)             82
                               ---------       ---------     ---------    ---------       --------       ---------
Income (loss) before taxes       (76,218)          9,523         9,723       15,816            333         (20,750)
Income tax benefit (expense)      30,487          (3,809)       (3,903)      (6,462)          (161)          6,641
Extraordinary loss                   940                 -                                       -                -
                               ---------       ---------     ---------    ---------       --------       ---------
                                                                     -            -
Net income (loss)                (46,671)          5,714         5,820        9,354            172         (14,109)
Accrued dividends on Class B
Common Stock                             -               -                                       -           4,200
                               ---------       ---------     ---------    ---------       --------       ---------
                                                                     -            -
Net income (loss)  applicable
to common shareholders          $(46,671)         $5,714        $5,820       $9,354           $172        $(18,309)
                               =========       =========     =========    =========       ========       =========
Dividends per share                    -               -             -            -              -               -

Balance Sheet Data 
(at end of period):
  Fixed assets                  $382,491        $427,833      $417,563     $400,176       $393,918        $450,362
  Total assets                   719,530         762,610       741,906      728,442        692,772         753,531
  Total long-term debt           426,799         381,879       366,581      366,049        350,232         583,501
  Shareholders' equity (deficit)  74,611         121,415       115,805      109,955        100,548        (121,883)

</TABLE>


                                        8
<PAGE>
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
            RESULTS OF OPERATION

GENERAL

         Sweetheart Cup Company Inc. was formed as the result of the acquisition
by Fort Howard of Maryland Cup in 1983 and Lily-Tulip in 1986. Sweetheart
Holdings Inc. was incorporated as a separate company in 1989 on behalf of Fort
Howard, MSG and other investors, including management, to acquire all of the
U.S. and Canadian disposable foodservice and food packaging operations of Fort
Howard. As a result of the increase in leverage arising from the 1989
acquisition from Fort Howard and the increased operating costs relating to the
establishment of Sweetheart Holdings Inc. as an independent business, the
Company faced substantial capital constraints, which reduced the Company's
manufacturing and operating efficiencies.

         On August 30, 1993, the Investors acquired Sweetheart Holdings Inc. In
connection with the Acquisition, Sweetheart Cup Company Inc. (i) issued
$190,000,000 aggregate principal amount of 9 5/8% Senior Secured Notes due 2000
(the "Senior Secured Notes") and $110,000,000 aggregate principal amount of 10
1/2% Senior Subordinated Notes due 2003 (the "Senior Subordinated Notes"), (ii)
incurred borrowings under a Credit Agreement dated as of August 30, 1993, among
Sweetheart Cup Company Inc., Sweetheart Holdings Inc., various banks and Bankers
Trust Company, as agent (the "Credit Agreement"), (iii) repaid existing
indebtedness of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc., and
(iv) issued equity securities of Sweetheart Holdings Inc. to the Investors.
Pursuant to the Acquisition, the Company's outstanding indebtedness and interest
expense was substantially reduced, giving the Company greater financial
flexibility to pursue its operating strategy.

         On October 6, 1993, the manufacturing assets and manufacturing
employees of Sweetheart Cup Company Inc. located in Illinois, Massachusetts,
Maryland, Missouri, and New Hampshire were transferred to Sweetheart Holdings
Inc. These assets were transferred subject to the mortgage and liens granted in
favor of the trustee under the Senior Secured Notes Indenture. Under such
Indenture, Sweetheart Cup Company Inc. and Sweetheart Holdings Inc. delivered to
such trustee a solvency letter and certain officers' certificates with respect
to the terms of the transfer. The transferred assets are pledged to such trustee
to secure Sweetheart Holdings Inc.'s obligations under its secured guarantee. In
connection with this transfer, Sweetheart Cup Company Inc. contracts with
Sweetheart Holdings Inc. to manufacture certain Sweetheart Cup Company Inc.'s
products. This transfer, as completed, has no effect on the holders of the
Senior Secured or Senior Subordinated Notes.

         The Company operates in two principal business lines: Foodservice and
Food Packaging. Foodservice products include disposable hot and cold drink cups,
lids, food containers, plates, bowls, cutlery and ice cream cones. These
products are sold directly and through distributors to fast food chains, full
service restaurants, hospitals, airlines, theaters and other institutional
customers. During fiscal year 1995, the Company terminated its sales of products
to individuals through supermarkets and other retailers. The elimination of this
sales channel had no adverse effect on the Company's results of operations. Food
Packaging products include paper and plastic containers for the dairy and food
processing industries. Food Packaging also designs, manufactures and leases
filling and packaging machines that fill and seal the Company's containers in
customers' plants.


YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996

         Net sales decreased to $886.0 million for the year ended September 30,
1997 from $959.8 million for the same period in 1996, a decrease of $73.8
million or 7.7%. The decrease in net sales reflects a 2.9% decrease in domestic
sales volume and a 4.4% average decrease in domestic sales price. Foodservice
selling prices decreased 4.5% while Food Packaging selling prices decreased
3.5%. Price has been negatively impacted by falling raw material prices and by
competition in the marketplace. The benefits of lower raw material prices are
generally passed on to customers. Foodservice sales volume decreased 1.7% while
Food Packaging sales volume decreased 11.5%. Sales volume measures the dollar
value of unit sales, assuming constant prices between periods. The decrease in
Foodservice sales volume is primarily attributable to decreases in the national


                                       9
<PAGE>
and clubstore market segments offset by higher foodservice distributor account
volume. The decrease in Food Packaging sales volume is primarily attributable to
decreases in demand experienced by key accounts in their customer base in both
the cultured and frozen segments. Canadian net sales decreased 2.1% from the
prior year.

         Cost of sales decreased to $722.5 million for the year ended September
30, 1997 from $748.1 million for the same period in 1996, a decrease of $25.6
million or 3.4%. As a percentage of net sales, cost of sales increased to 81.5%
for the year ended September 30, 1997 from 77.9% for the same period in 1996.
The Company has implemented initiatives which have reduced variable
manufacturing costs to offset price conditions in the marketplace described
above. As a result, raw material and labor costs have been held constant as a
percentage of sales despite lower selling prices to customers. Although overhead
spending was contained at 1996 levels, this cost as a percentage of sales has
increased. In addition, year-to-date results have been impacted by changes in
overhead absorption relating to planned inventory reductions. Overhead costs are
allocated and absorbed into inventory when inventory is produced and expensed
when inventory is sold. As a result, profit comparisons can be materially
affected when a change in inventory levels during a period differs significantly
from the change in the prior year period. In 1996, inventory levels increased,
resulting in an absorption of fixed costs into inventory. In 1997, inventory
levels declined, and the fixed costs associated with inventories sold were
recognized. This has resulted in a year-to-year unfavorable impact on cost of
sales of $10.5 million.

         Gross income decreased to $163.5 million for the year ended September
30, 1997 from $211.8 million for the same period in 1996, a decrease of $48.3
million or 22.8%, due to the reasons described above.

         Transportation decreased to $98.5 million for the year ended September
30, 1997 from 98.7 million for the same period in 1996, a decrease of $0.2
million, or 0.2% due to lower volume shipped. As a percent of net sales,
transportation expense increased to 11.1% in 1997 from 10.3% in 1996. This
increase, in relation to sales, is primarily the result of the selling price
decreases referred to above.

         Selling, general and administrative expenses increased to $66.8 million
for the year ended September 30, 1997 from $61.8 million for the same period in
1996, an increase of $5.0 million or 8.0%. As a percentage of net sales,
selling, general and administrative expenses increased to 7.5% for the year
ended September 30, 1997 from 6.4% for the same period in 1996. Approximately $3
million of the increase relates to expenditures on the new MIS system, while the
remainder reflects investment in the Foodservice distribution selling activity
and normal inflation in the wage base. All other selling, general and
administrative expenses were held below prior year levels.

         Loss on asset disposal and impairment of $24.6 million was recorded in
the fourth quarter of the year ended September 30, 1997 relating to the review
of the carrying value of the Company's long-lived assets. See Note 14 of the
accompanying financial statements (Item 8).

         Restructuring expense of $9.7 million was recorded in the fourth
quarter relating to plant closures and other expenses as part of the Company's
strategic planning process. See Note 14 of the accompanying financial statements
(Item 8).

         Operating loss was $36.0 million for the year ended September 30, 1997
compared to operating income of $51.3 million for the same period in 1996, a
change of $87.3 million or 170.2%, due to the reasons described above.

         Interest expense increased to $41.8 million for the year ended
September 30, 1997 from $38.8 million for the same period in 1996, an increase
of $3.0 million or 7.7%, due primarily to higher average usage of short-term
borrowings.

         Other income (expense) increased to $1.6 million of income for the year
ended September 30, 1997 from $3.0 million of expense for the same period in
1996, an increase of $4.6 million. 1996 was unfavorably impacted by one-time
expenses incurred by the Company relating to an investigation of the Company's
strategic alternatives.


                                       10
<PAGE>
         Income tax benefit (expense) $30.5 million of benefit for the year
ended September 30, 1997 compared to $3.8 million of expense for the same period
in 1996, a change of $34.3 million. The effective tax rate for the years ended
September 30, 1997 and 1996 was 40.0%.

         Extraordinary loss of $0.9 million (net of $0.6 million in income
taxes) was recorded in the fourth quarter of 1997 relating to the write-off of
deferred financing fees associated with a portion of the Company's debt, which
was refinanced subsequent to September 30, 1997.

         Net loss was $46.7 million for the year ended September 30, 1997
compared to net income of $5.7 million for the same period in 1996, a change of
$52.4 million, due to the reasons described above.


YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995

         Net sales decreased to $959.8 million for the year ended September 30,
1996 from $986.6 million for the same period in 1995, a decrease of $26.8
million or 2.7%. The decrease in net sales reflects a 1.7% decrease in domestic
sales volume and a 1.0% decrease in domestic sales price. Foodservice selling
prices decreased 1.2% while Food Packaging selling prices decreased .5%.
Foodservice sales volume decreased 1.4 % while Food Packaging sales volume
decreased 3.9%. Sales volume measures the dollar value of unit sales, assuming
constant prices between periods. The decrease in Foodservice sales volume is
primarily attributable to decreases in the distributor and clubstore market
segments offset by higher national account volume. The decrease in Food
Packaging sales volume is primarily due to the withdrawal of the Company's
Contour-Pak line from the food packaging market and a decrease in the cultured
products and frozen novelty market segments. Canadian sales increased 2.5% from
the prior year.

         Cost of sales decreased to $ 748.1 million for the year ended September
30, 1996 from $779.5 million for the same period in 1995, a decrease of $31.4
million or 4.0%. As a percentage of net sales, cost of sales decreased to 77.9%
for the year ended September 30, 1996 from 79.0% for the same period in 1995.
The decrease in cost of sales as a percentage of net sales was due primarily to
significant changes between the periods in overhead costs absorbed into
inventory. Overhead costs are allocated and absorbed into inventory when
inventory is produced and expensed when inventory is sold. As a result, profit
comparisons can be affected when a change in inventory levels during a period
differs from the change in the prior year period. Finished goods inventory
levels increased to $137.7 million at September 30, 1996 from $104.6 million at
September 30, 1995, which resulted in a favorable impact on cost of sales of
$10.6 million relating to the absorption of fixed overhead costs. Additionally,
the Company realized a 10.4% decrease in material costs from the prior year,
offset by an unfavorable shift in product mix.

         Gross income increased to $211.8 million for the year ended September
30, 1996 from $207.1 million for the same period in 1995, an increase of $4.7
million or 2.3%, due to the reasons described above.

         Selling, general and administrative expenses decreased to $61.8 million
for the year ended September 30, 1996 from $66.1 million for the same period in
1995, a decrease of $4.3 million or 6.5%. As a percentage of net sales, selling,
general and administrative expenses decreased to 6.4% for the year ended
September 30, 1996 from 6.7% for the same period in 1995.

         Operating income increased to $51.3 million for the year ended
September 30, 1996 from $45.9 million for the same period in 1995, an increase
of $5.4 million or 11.8%, due to the reasons described above.

         Interest expense increased to $38.8 million for the year ended
September 30, 1996 from $38.7 million for the same period in 1995, an increase
of $.1 million or .3%, due primarily to higher average usage of short-term
borrowings.


                                       11
<PAGE>
         Other income (expense) decreased to $3.0 million of expense for the
year ended September 30, 1996 from $2.4 million of income for the same period in
1995, a decrease of $5.4 million. This decrease was due primarily to one-time
expenses relating to the investigation of the Company's strategic alternatives.

         Income tax expense decreased to $3.8 million for the year ended
September 30, 1996 from $3.9 million for the same period in 1995, a decrease of
$.1 million or 2.6%. The effective tax rate for the year ended September 30,
1996 was 40.0% compared to 40.1% for the same period in 1995.

         Net income decreased to $5.7 million for the year ended September 30,
1996 from $5.8 million for the same period in 1995, a decrease of $.1 million or
1.7%, due to the reasons described above.


LIQUIDITY AND CAPITAL RESOURCES

         The Company's business is highly seasonal with the majority of its net
cash inflows from operations realized in the second and third quarters of the
calendar year. The Company builds inventory throughout the year to satisfy the
high seasonal demands of the summer months when away-from-home consumption
increases. As a result, the Company requires access to working capital lines to
meet its production requirements during periods of reduced cash flow.

         On September 28, 1996, the Company received $1.2 million of loans from
the State of Maryland and County of Baltimore Departments of Business and
Economic Development. The loans bear interest at 6.0% per annum with a ten year
life and require repayment in equal quarterly installments starting January 1,
1998. The loans may convert to interest-free grants if the Company meets certain
headcount and capital spending criteria in the Maryland facility. As of December
29, 1997, the Company has met the necessary criteria for the grant conversion.

         For the year ended September 30, 1997, $44.2 million of domestic
revolving loan borrowings, $2.2 million of Canadian operating facility
borrowings, $17.8 million of proceeds from sale and leaseback of property,
plant, and equipment, and a $1.7 million decrease in cash balances were used to
fund $47.8 million of net capital additions, the payment of $0.1 million for
industrial revenue bond principal, $1.4 million of Canadian term loan
reductions, a $0.1 million increase in restricted cash, a $13.3 million increase
in cash in escrow, and $3.2 million of cash used by operations. At September 30,
1997, the Company had approximately $7.4 million of combined availability under
its domestic revolving loan and Canadian operating facilities. The maximum
combined month end outstanding balance of the domestic revolving loan and
Canadian operating facilities during the year ended September 30, 1997 was $65.4
million, while the average balance outstanding totaled approximately $53.0
million.

         The Company's liquidity during the current year has been enhanced
because it has not been subject to current income taxes (other than the
Alternative Minimum Tax) due to the use of net operating loss carryforwards for
income tax purposes. At September 30, 1997, the Company's net operating loss
carryforwards for tax purposes are approximately $170 million. These net
operating loss carryforwards will expire, if not used, beginning in 2004.

         Prior to October 24, 1997, Sweetheart Receivables Corporation ("SRC"),
a wholly owned, limited purpose, finance subsidiary of the Company, had $60.0
million of Series 1994-1 A-V Trade Receivables Backed Notes (the "Notes")
outstanding under an accounts receivable securitization program. These amounts
were invested by the Trustee on behalf of SRC and were only available to the
Company under limited circumstances. The balance of cash in SRC was $29.0
million and $28.9 million at September 30, 1997 and 1996, respectively, and is
reported as restricted cash in the consolidated balance sheet. The balance of
restricted cash fluctuated throughout the year based on the level of receivables
available to collateralize the Notes.

         In connection with the issuance of the Notes, certain terms and
conditions of the Credit Agreement were amended. The Revolving Loan Facility was
limited to 50% of eligible inventory of Sweetheart Cup Company Inc. (up to a
maximum of $150 million of eligible inventory). In addition, the combined


                                       12
<PAGE>
borrowing outstanding under the Revolver plus the Notes less the aggregate
amount of cash on deposit in certain SRC accounts could not exceed $115 million
in aggregate.

         On October 24, 1997, the Company refinanced the Revolving Loan Facility
and the Notes with a new Loan and Security Agreement of $135 million. Under the
terms of the new loan, the need to hold restricted cash under the SRC indentures
was eliminated. As a result, $29 million of restricted cash on deposit at the
time of the refinancing was released. This cash was used to immediately pay down
the Notes. In addition, the terms of the new loan do not require the maintenance
of restricted cash, which significantly improves availability of the line into
the future. See Note 15 of the accompanying financial statements (Item 8).

         In the fourth quarter of 1997, the Company completed negotiations of
its three-year contract renewal with its largest customer, McDonald's. Although
this agreement results in a lower selling price and less total volume, the
Company did retain a majority of the North American volume for cold cups and
lids at McDonald's. In addition, the Company committed to convert McDonald's
cold cup volume to a new raw material substrate (from wax to double-sided
polyethylene) over the life of the contract. This will cause the Company to
incur incremental capital expenditures.

         The Company's principal uses of cash for the next several years will be
capital expenditures, working capital requirements, and debt service
requirements. The reduction in debt service requirements following the
Acquisition has provided the Company with increased flexibility to make
discretionary capital expenditures that management believes will provide an
attractive return on investment. During the year ended September 30, 1997, the
Company made capital expenditures of approximately $47.8 million. New product
development (including conversion from wax to double-sided polyethylene for cold
cups) and cost reduction accounted for approximately 21% and 37%, respectively,
of the total fiscal year 1997 expenditures. Non-discretionary expenditures
represented the balance of the current year spending. The Company anticipates
increased capital spending levels in the future for similar projects, of which
approximately $13 million has been committed for fiscal 1998 as of the filing
date. In addition, the Company may be required to fund various contingent
liabilities at any time, including amounts accrued for litigation, claims and
assessments reflected on the balance sheet as other current liabilities.

         Management believes that cash generated by operations and funds
available from working capital borrowings under the new Loan and Security
Agreement will be sufficient to meet the Company's expected operating needs,
planned capital expenditures and debt service requirements.


NET OPERATING LOSS CARRYFORWARDS

         As of September 30, 1997 the Company had approximately $170 million of
net operating loss ("NOL") carryforwards for federal income tax purposes. The
Acquisition resulted in a significant limitation on the Company's ability to
utilize its NOL carryforwards. Although the Company has taken certain steps to
allow utilization of the NOL carryforwards and anticipates that a substantial
portion of its NOL carryforwards will be available to offset future taxable
income, there can be no assurance that its NOL carryforwards will become
available or that the Company will generate future taxable income. Accordingly,
all or a portion of its NOL carryforwards could expire unutilized, which could
adversely affect the Company's ability to satisfy its obligations as they become
due. The Company believes that future taxable income will be generated to
realize the unreserved portion, due primarily to management's commitment to
revenue enhancing and cost reduction strategies.


YEAR 2000

         The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. System
modifications or replacements are underway or planned which will make all
computer systems in the Company compliant with the year 2000 requirement.
Anticipated spending for these modifications will be expensed as incurred and is
not expected to have a material impact on the Company's ongoing results of
operations.


                                       13
<PAGE>
EFFECT OF INFLATION

         Inflation will increase the Company's costs, including the cost of
borrowing and raw materials. Depending upon business conditions, the Company
attempts to increase the sales price of its products to mitigate the effect of
such increases. There can be no assurance that the Company will be successful in
increasing the prices of its products to offset all, or any portion, of any cost
increases.


FORWARD-LOOKING STATEMENTS

         Forward-looking statements in this filing, including those in the
footnotes to the financial statements, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties and actual
results could differ materially. Such risks and uncertainties include, but are
not limited to, general economic and business conditions, competitive market
pricing, increases in raw material, energy and other manufacturing costs,
fluctuations in demand for the Company's products, potential equipment
malfunctions and pending litigation.


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           The response to this item is submitted as a separate section of this
report, beginning on page 27.


ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE

           None.



                                       14
<PAGE>
                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


         Set forth below are the names, ages and positions of the directors,
executive officers and key employees of Sweetheart Holdings Inc. and Sweetheart
Cup Company Inc. as of December 29, 1997. All directors hold office until the
next annual meeting of shareholders and until their successors are duly elected
and qualified. Officers serve at the discretion of the Board of Directors.

Name                              Age       Position
----                              ---       --------

Burnell R. Roberts                70        Chairman of the Board and Director
                                            of Sweetheart Holdings Inc. and
                                            Sweetheart Cup Company Inc.

William F. McLaughlin             49        President, Chief Executive Officer
                                            and Director of Sweetheart Holdings
                                            Inc. and Sweetheart Cup Company Inc.

W. Richard Bingham                62        Director of Sweetheart Holdings Inc.
                                            and Sweetheart Cup Company Inc.

Jerry J. Jasinowski               58        Director of Sweetheart Holdings Inc.
                                            and Sweetheart Cup Company Inc.

Peter W. C. Mather                62        Director of Sweetheart Holdings Inc.
                                            and Sweetheart Cup Company Inc.

Theodore C. Rogers                63        Director of Sweetheart Holdings Inc.
                                            and Sweetheart Cup Company Inc.

William F. Spengler               43        Vice President, Finance and Chief
                                            Financial Officer of Sweetheart
                                            Holdings Inc. and Sweetheart Cup
                                            Company Inc.

Charles E. Busse                  59        Vice President of Research and
                                            Engineering of Sweetheart Holdings
                                            Inc. and Sweetheart Cup Company Inc.

Daniel M. Carson                  52        Vice President, General Counsel and
                                            Corporate Secretary of Sweetheart
                                            Holdings Inc. and Sweetheart Cup
                                            Company Inc.

James R. Mullen                   54        Vice President of Human Resources of
                                            Sweetheart Holdings Inc. and
                                            Sweetheart Cup Company Inc.

Rickey Schneider                  48        Vice President of Manufacturing of
                                            Sweetheart Holdings Inc. and
                                            Sweetheart Cup Company Inc.

Roger A. Lindahl                  40        Treasurer of Sweetheart Holdings
                                            Inc. and Sweetheart Cup Company Inc.

Marguerite E. Davis               43        Vice President of Sweetheart Cup
                                            Company Inc.

William H. Haas                   56        Vice President of Sweetheart Cup
                                            Company Inc.

Joseph A. Lucas                   58        Vice President of Sweetheart Cup
                                            Company Inc.

Vincent J. Truant                 50        Vice President of Sweetheart Cup
                                            Company Inc.



                                       15
<PAGE>
         Mr. Roberts is the former Chairman and Chief Executive Officer of Mead
Corporation ("Mead"), a paper products and electronic publishing company. Mr.
Roberts joined Mead in 1966 and served in a variety of positions, including
Controller, Vice President of Finance and Executive Vice President. He was named
President of Mead in 1981 and served as Chairman and Chief Executive Officer
from 1982 until May 1992. From May 1992 until May 1993, Mr. Roberts served as a
director of Mead. Mr. Roberts has been a director of AIPM since he joined the
firm in January 1993, and is a limited partner of American Industrial Partners,
L.P. ("AIP-LP"), the general partner of AIP. Mr. Roberts is also a director of
Rayonier Inc., Armco Inc., Perkin Elmer Corporation, DPL Inc. and Universal
Protective Packaging Co.

         Mr. McLaughlin has served as President and Chief Executive Officer of
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. since May 1994. Prior
to joining the Company, he was Executive Vice President of Nestle Brands
Foodservice, a leading supplier of food and beverage products to the foodservice
industry. Prior to 1991, he spent eight years in several positions, including
President of L.J. Minor Corporation, a Nestle subsidiary and specialty producer
of flavors for the foodservice industry.

         Mr. Bingham co-founded AIPM and has been a director and officer of the
firm since 1989. He is also a general partner of AIP-LP. Prior to co-founding
AIPM, Mr. Bingham was a Managing Director of Shearson Lehman Brothers from 1984
until late 1987. Prior to joining Shearson Lehman Brothers, Mr. Bingham was
Director of the Corporate Finance Department, a member of the Board, and head of
Mergers & Acquisitions at Lehman Brothers Kuhn Loeb Inc. Prior thereto, he
directed investment banking operations at Kuhn Loeb & Company where he was a
Partner and member of the Board and Executive Committee. He formerly served on
the Boards of Avis Inc., ITT Life Insurance Corporation and Valero Energy
Corporation.

         Mr. Jasinowski was elected as director of the Company commencing August
1, 1997. He is the President and CEO of the National Association of
Manufacturers, the largest broad-based industrial trade association in the
United States. He became president in 1990 after serving as the association's
executive vice president and chief economist for ten years. Mr. Jasinowski has
also held several governmental positions, including assistant secretary for
policy at the U.S. Department of Commerce. Mr. Jasinowski is also a director of
Atwood Richards and Phoenix Home Life.

         Mr. Mather is the former Vice President Management Information Services
(MIS) of Air Products and Chemicals Inc. (APCI), an industrial gases and
chemical company. Mr. Mather joined APCI in 1967, was appointed Vice President
MIS in 1982, and retired from the company in 1996. Mr. Mather is currently
serving as Assistant Secretary of Commerce for the state of Oklahoma.

         Mr. Rogers co-founded AIPM and has been a director and officer of the
firm since 1989. He is also a general partner of AIP-LP. From 1980 to 1987, he
served as Chairman, President and Chief Executive Officer of NL Industries,
Inc., a petroleum service and chemical company. Prior to 1980, he served as an
executive of Armco Inc., a diversified steel company, where he managed numerous
manufacturing operations in the United States and Mexico. Mr. Rogers is a former
director of Allied Stores Corporation, Allied-Signal Inc., Parsons Corporation
and Southwest Bancshares. He is currently a director of MCorp. and Derby
International Corporation.

         Mr. Spengler has served as Vice President of Finance and Chief
Financial Officer of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
since March 14, 1997. He worked 13 years for Bristol-Myers Squibb in various
financial positions, including Director of Finance for a large segment of their
European business. Mr. Spengler also worked in senior planning and business
development roles at Bristol-Myers Squibb. Prior to joining Sweetheart, Mr.
Spengler worked at Black & Decker from 1993 to March of this year, where he was
the Vice President of Finance for three different divisions, serving most
recently as Vice President of Finance for the North American Power Tools group.

         Mr. Busse has been employed by Sweetheart Cup Company Inc. and its
predecessors since 1963 and has served as Vice President of Research and
Engineering of Sweetheart Cup Company Inc. since 1983.


                                       16
<PAGE>
         Mr. Carson has served as Vice President, General Counsel and Corporate
Secretary of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. since
October 1993 and has served as Vice President, General Counsel, and Corporate
Secretary of Sweetheart Cup Company Inc. and as Corporate Secretary of
Sweetheart Holdings Inc. since February 1993. He served as Assistant General
Counsel and Director of U.S. Legal Affairs of Avon Products, Inc., a consumer
products company, from September 1991 to February 1993 and was Of Counsel to
Bell, Boyd & Lloyd (Chicago, Illinois) from June 1991 to August 1991. From May
1981 until June 1991, Mr. Carson was Associate General Counsel for Continental
Can Company, Inc., a packaging and paper products company.

         Mr. Mullen has served as Vice President of Human Resources of
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. since June 1994. From
October 1984 to October 1993, Mr. Mullen was employed in two divisions of Sara
Lee Corporation, a consumer products company, as Vice President of Human
Resources. Prior to October 1984, Mr. Mullen was employed by Frito-Lay, a food
company, Xerox Corporation, a document company, and General Dynamics, a defense
contractor.

         Mr. Schneider has served as Vice President of Manufacturing since
October 1994. From October 1986 to September 1994, Mr. Schneider served in
various manufacturing capacities in Owings Mills including, Production Staff
Manager, Operations Manager, and Plant Manager. Prior to joining Sweetheart, Mr.
Schneider was employed for ten years by Boise Cascade Composite Can Division,
producing cans and plastic bottles for the food and oil industry. Mr. Schneider
held a number of manufacturing positions during his tenure.

         Mr. Lindahl has served as Treasurer of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc. since October 1994. From November, 1989 to October,
1994, Mr. Lindahl served as Assistant Treasurer of Sweetheart Cup Company Inc.
Prior to 1989, Mr. Lindahl was employed by Fort Howard Corporation, a paper
company, and Bull Information Systems and its predecessors.

         Ms. Davis has served as Vice President of National Accounts of
Sweetheart Cup Company Inc. since October, 1994. From 1990 to September, 1994,
Ms. Davis served as a Director of Marketing for Sweetheart Cup Company Inc.
Prior to joining the Company, Ms. Davis was employed for 15 years by the Quaker
Oats Company, a food company, in a number of marketing management, product
management, field sales and training program development positions.

         Mr. Haas has served as Vice President of Foodservice Distribution of
Sweetheart Cup Company Inc. and its predecessors since 1985. Prior to joining
the Company, Mr. Haas was employed for more than 20 years by Carnation Co.,
Inc., a food products company, in various sales and sales management capacities
and by Nabisco, Inc., a food products company, as Director of National Account
Sales.

         Mr. Lucas has served as Vice President of Packaging of Sweetheart Cup
Company Inc. since 1991. Prior to joining the Company, he was employed for
almost 28 years by Continental Can Company in various positions, including
President of Continental White Cap, Inc., a packaging company, and Vice
President of Sales and Marketing of Continental White Cap, Inc. and Continental
Bondware, Inc.

         Mr. Truant has served as Vice President of McDonald's Sales of
Sweetheart Cup Company Inc. since October, 1994. From April, 1989 to September,
1994, Mr. Truant served as Vice President of National Accounts for Sweetheart
Cup Company. Prior to joining the Company in 1983, Mr. Truant served as Vice
President of Marketing for Century Importers Ltd., a Philip Morris affiliate.
Mr. Truant also held several sales and marketing positions at Miller Brewing
Co., a division of Philip Morris, and Eli Lilly & Co., a pharmaceutical
manufacturer.


                                       17
<PAGE>
COMPENSATION OF DIRECTORS

         Messrs. Mather and Jasinowski have agreements with the Company whereby
they are compensated on a quarterly basis in the amount of $4,500 per quarter,
and receive $500 plus expenses for each meeting attended. The remaining
directors of Sweetheart Holdings Inc. and Sweetheart Cup Company do not receive
any direct compensation from such companies for serving as a director. Certain
directors of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. are
employees of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. and
receive compensation as such, and others are employees of AIPM, to which
Sweetheart Cup Company Inc. pays fees for advisory and management services. See
Item 13 "Certain Relationships and Related Transactions". Directors are
reimbursed for expenses incurred while serving on the Board.

ITEM 11.    EXECUTIVE COMPENSATION

            The following table sets forth information concerning the
compensation for the years ended September 30, 1997, 1996 and 1995, of the chief
executive officer and the four most highly compensated officers and key
employees of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
(collectively, the "named executive officers").

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                                                                  Long-Term
                                                 Annual Compensation            Compensation
                                                                                   Awards
---------------------------------------- ------------------------------------- ---------------- ---------------
                                                                                # of Options      All Other
          Name and Principal                Fiscal       Salary      Bonus         Granted       Compensation
               Position                      Year         ($)       ($) (1)          (2)             ($)
---------------------------------------- ------------- ----------- ----------- ---------------- ---------------
<S>                                       <C>           <C>          <C>          <C>             <C> 
William F. McLaughlin
   President and Chief Executive            1997          491,667           -      10,000           129,805    (3)
   Officer of Sweetheart Holdings Inc.      1996          400,000     498,000           -            18,207    (4)
   and Sweetheart Cup Company Inc.          1995          400,000     684,522           -           222,838    (5)

William H. Haas
   Vice President of Foodservice            1997          180,000           -           -           364,443    (6)
   Distribution of Sweetheart Cup           1996          178,313      89,640         600            35,235    (7)
   Company Inc.                             1995          171,187     103,357           -             6,111    (8)

William F. Spengler  (9)
   Vice President and Chief Financial       1997          159,410     108,333       5,000           100,274    (10)
   Officer of Sweetheart Holdings Inc.
   and Sweetheart Cup Company Inc.

Daniel M. Carson
   Vice President, General Counsel and      1997          172,500           -           -           191,160    (11)
   Corporate Secretary of Sweetheart        1996          170,625      60,133           -            49,214    (12)
   Holdings  Inc. and Sweetheart Cup        1995          162,500      94,476           -             5,721    (13)
   Company Inc.

James R. Mullen
   Vice President of Human Resources        1997          163,500           -           -           150,685    (14)
   of Sweetheart Holdings Inc. and          1996          162,000      56,996           -             7,445    (15)
   Sweetheart Cup Company Inc.              1995          152,500      77,009       1,500             1,562    (16)

</TABLE>


                                       18
<PAGE>
(1)   Amounts shown were paid pursuant to the Company's Management Incentive
      Plans.
(2)   All such grants were made pursuant to the 1994 Stock Option and Purchase
      Plan.
(3)   Reflects $125,000 paid under the Special Incentive Agreement, $4,500
      contributed under the 401(k) Plan and $305 of term life insurance premiums
      paid by the Company.
(4)   Reflects $10,989 paid for relocation expenses, $6,000 contributed under
      the 401(k) Plan and $1,218 of term life insurance premiums paid by the
      Company.
(5)   Reflects $113,563 paid for relocation expenses, $101,963 for the payment
      of taxes on relocation expense reimbursements, $6,000 contributed under
      the Sweetheart 401(k) Retirement Plan (the "401(k) Plan") (to which the
      Company contributes an amount equal to 50% of the participant's
      contributions not in excess of 6% of the participant's eligible earnings)
      and $1,312 of term life insurance premiums paid by the Company.
(6)   Reflects $239,664 paid for relocation expenses, $120,000 paid under the
      Special Incentive Agreement, $4,500 contributed under the 401(k) Plan and
      $279 of term life insurance premiums paid by the Company.
(7)   Reflects $30,000 paid for relocation expenses, $4,219 contributed under
      the 401(k) Plan and $1,016 of term life insurance premiums paid by the
      Company.
(8)   Reflects $5,568 contributed under the 401(k) Plan and $543 of term life
      insurance premiums paid by the Company.
(9)   Mr. Spengler became Vice President, Finance and Chief Financial Officer on
      March 14, 1997. Amounts shown here were paid during the remainder of
      fiscal year 1997.
(10)  Reflects $100,000 paid under an initial employment bonus, and $274 of term
      life insurance premiums paid by the Company
(11)  Reflects $128,994 paid for relocation expenses, $57,500 paid under the
      Special Incentive Agreement $4,500 contributed under the 401(k) Plan and
      $166 of term life insurance premiums paid by the Company.
(12)  Reflects $44,176 paid for relocation expenses, $4,376 contributed under
      the 401(k) Plan and $662 of term life insurance premiums paid by the
      Company.
(13)  Reflects $5,123 contributed under the 401(k) Plan and $598 of term life
      insurance premiums paid by the Company.
(14)  Reflects $96,029 paid for relocation expenses, $54,500 paid under the
      Special Incentive Agreement, and $156 of term life insurance premiums paid
      by the Company. 
(15)  Reflects $2,525 paid for relocation expenses, $4,309 contributed under the
      401(k) Plan, and $611 of term life insurance premiums paid by the Company.
(16)  Reflects $938 contributed under the 401(k) Plan and $624 of term life
      insurance premiums paid by the Company.


    AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUE TABLE



                                                   Unexercised Options (1)
                                                      September 30, 1997
                          Name                 Exercisable      Unexercisable
             -------------------------------  ---------------------------------

             William F. McLaughlin                4,265             16,700

             William H. Haas                        876              1,975

             William F. Spengler                      0              5,000

             Daniel M. Carson                       712              1,119

             James R. Mullen                        333              1,167


         (1) There is no trading value for the Company's stock as it is not
publicly traded.



                                       19
<PAGE>
MCLAUGHLIN EMPLOYMENT AGREEMENT

         The Company entered into an employment agreement with William F.
McLaughlin dated as of May 15, 1994 (the "McLaughlin Agreement") pursuant to
which the Company employed Mr. McLaughlin to serve as president and chief
executive officer of the Company. Pursuant to the McLaughlin Agreement, Mr.
McLaughlin is entitled to participate in, among other things, the Company
Management Incentive Plan, a Stock Option and Purchase Plan and certain other
employee benefit plans and programs made available to other employees of the
Company. Mr. McLaughlin also purchased 1,000 shares of Sweetheart Holdings Inc.
common stock for $100 per share and an additional 5,000 shares at the same price
in exchange for a 5-year promissory note at 6.43% interest per annum. Mr.
McLaughlin's employment is terminable by the Company at any time and by Mr.
McLaughlin upon 30 days prior notice. In the event of termination by the Company
for any reason other than cause, the Company will be obligated to pay Mr.
McLaughlin's base salary for a period of twelve months following the termination
of his employment or until he secures other employment, whichever comes first.


SPENGLER EMPLOYMENT AGREEMENT

         The Company entered into an employment agreement with William F.
Spengler on February 12, 1997 (the "Spengler Agreement") pursuant to which the
Company employed Mr. Spengler to serve as Vice President, Finance and Chief
Financial Officer of the Company. Pursuant to the Spengler Agreement, Mr.
Spengler is entitled to participate in, among other things, the Company
Management Incentive Plan ("MIP"), a Stock Option and Purchase Plan and certain
other employee benefit plans and programs made available to other employees of
the Company. In the event of termination of Mr. Spengler's employment by the
Company for any reason other than for cause, the Company will be obligated to
pay Mr. Spengler's base salary for one year following termination and a pro-rata
bonus under the MIP for the portion of the fiscal year completed prior to the
termination date.


EMPLOYMENT CONTRACTS

         Messrs. McLaughlin, Haas, Spengler, Carson and Mullen each entered into
an executive retention agreement with the Company dated October 1, 1997 which
provides for an incentive payment to the executive if he remains employed by the
Company for a period of two years. Payment of the incentive is accelerated under
certain circumstances, including a change of control or a sale of more than
fifty percent of the equity value of the Company. The amount of the incentive
for Messrs. McLaughlin and Spengler is two year's base salary, and one year's
base salary for each of the other executives. Messrs. McLaughlin, Haas, Carson
and Mullen each entered into an relocation agreement with the Company dated
December 19, 1997 which provides for reimbursement of losses up to a specified
amount by individual in the event of a termination of their employment under
certain specified circumstances and for reasons other than cause, including a
change of control or a sale of more than fifty percent of the equity value of
the Company.


COMPENSATION COMMITTEE

         The Sweetheart Holdings Inc. Compensation Committee of the Board of
Directors consisted of W. Richard Bingham, Burnell R. Roberts, and Theodore C.
Rogers, all of whom are Directors of the Company. Mr. Roberts is an officer but
not an employee of the Company. Neither Mr. Bingham nor Mr. Rogers is an officer
or employee of the Company.


                                       20
<PAGE>
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of Sweetheart Holdings Inc. common stock as of December 29,
1997, by holders having beneficial ownership of more than five percent of
Sweetheart Holdings Inc. common stock and certain other principal holders, by
each of the directors of Sweetheart Holdings Inc., by each of the named
executive officers and by all directors and executive officers of Sweetheart
Holdings Inc. as a group.

<TABLE>
<CAPTION>
                                                                                       Common Stock
                                                                       --------------------------------------------

Name of Beneficial Owner                                                Number of Shares         Percent of Class
----------------------------                                           -------------------       ------------------
<S>                                                                      <C>                           <C>
American Industrial Partners Capital Fund, L.P. ....................        538,825                      51.51%
         One Maritime Plaza
         Suite 2525
         San Francisco, CA 94111

Mellon Bank, N.A., as Trustee for First Plaza Group Trust (1).......        350,000                      33.46
         One Mellon Bank Center
         Pittsburgh, PA 15258

Leeway & Co., as nominee for the AT&T Master Pension Trust (2)......        150,000                      14.34
         c/o State Street Bank & Trust Co.
         Master Trust Division - W6C
         1 Enterprise Drive
         North Quincy, MA 02171

W. Richard Bingham (3)..............................................        538,825                      51.51

Burnell R. Roberts (4)..............................................              -                         -

Theodore C. Rogers (3)..............................................        538,825                      51.51

Peter W.C. Mather...................................................              -                         -

Jerry J. Jasinowski.................................................              -                         -

William F. McLaughlin...............................................          6,000                       0.57

William F. Spengler.................................................              -                         -

William H. Haas.....................................................              -                         -

Daniel M. Carson....................................................              -                         -

James R. Mullen.....................................................              -                         -

Directors and executive officers as a group (16 persons)(5).........        544,825                      52.08

</TABLE>

---------------------

(1)      Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza
         Group Trust ("First Plaza"), a trust under and for the benefit of
         certain employee benefit plans of General Motors Corporation ("GM") and
         its subsidiaries. These shares may be deemed to be owned beneficially
         by General Motors Investment Management Corporation ("GMIMCo"), a
         wholly-owned subsidiary of GM. GMIMCo's principal business is providing
         investment advice and investment management services with respect to


                                       21
<PAGE>
         the assets of certain employee benefit plans of GM and its subsidiaries
         and with respect to the assets of certain direct and indirect
         subsidiaries of GM and associated entities. GMIMCo is serving as First
         Plaza's investment manager with respect to these shares and in that
         capacity it has the sole power to direct the Trustee as to the voting
         and disposition of these shares. Because of the Trustee's limited role,
         beneficial ownership of the shares by the Trustee is disclaimed.

(2)      State Street Bank & Trust Co. acts as trustee for a trust under and for
         the benefit of certain employee benefit plans of American Telephone &
         Telegraph Co. ("AT&T") and its subsidiaries. These shares may be deemed
         to be owned beneficially by the AT&T Master Pension Trust (the
         "Trust").

(3)      All of such shares are held of record by AIP. Messrs. Bingham and
         Rogers are general partners of the general partner of AIP and share
         investment and voting power with respect to the securities owned by
         AIP. The business address of Mr. Bingham is One Maritime Plaza, Suite
         2525, San Francisco, CA 94111, and the business address of Mr. Rogers
         is 551 Fifth Avenue, Suite 3800, New York, NY 10176.

(4)      Mr. Roberts is a limited partner of the general partner of AIP and a
         director of AIPM, but does not share investment or voting discretion
         with respect to the securities held by AIP.

(5)      All of such shares are held of record by AIP, except for the 6,000 
         shares held by Mr. McLaughlin.

         All of the outstanding common stock of Sweetheart Cup Company Inc. is
owned by Sweetheart Holdings Inc.

         On December 29, 1997, AIP, on behalf of itself and the other
stockholders of Sweetheart Holdings Inc. ("Holdings"), entered into an agreement
with Creative Expressions Group, Inc. ("CEG"), an affiliate of The Fonda Group,
Inc. ("Fonda"), a manufacturer of disposable beverage service and food service
products. Both CEG and Fonda are privately held companies controlled by Dennis
Mehiel ("Mehiel"). Pursuant to the agreement, SF Holdings Group, Inc. ("SFH"), a
new holding company formed by Mehiel, will acquire from Holdings' stockholders
48% of Holdings' outstanding common stock and all of a new class of non-voting
common stock, giving SFH 90% of the total number of outstanding Holdings shares.
As part of the consideration for these shares, SFH will issue its own preferred
stock to Holdings' stockholders. Upon consummation of the transaction, Holdings'
Board of Directors will have five members, three of whom will be nominated by
Holdings' existing stockholders and two of whom will be nominated by SFH.
Significant actions by Holdings' Board will require the vote of four directors.
CEG will manage the day-to-day operations of Holdings and Sweetheart Cup
Company Inc. with a view to achieving cost savings and other synergies with the
operations of Fonda. In this connection, Mehiel and Tom Uleau, Fonda's
president, will assume executive roles. Consummation of the transaction is
expected to occur in the first calendar quarter of 1998, subject to the
satisfaction of financing, Hart-Scott-Rodino and other conditions.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCKHOLDERS' AGREEMENT

         In connection with the Acquisition, Sweetheart Holdings Inc. and the
Investors entered into a Stockholders' Agreement pursuant to which the Investors
were granted certain registration rights and participation rights. Pursuant to
the Stockholders' Agreement, each of First Plaza Group Trust and Leeway & Co.
has the right to elect an individual to serve on the Board of Directors of each
of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. so long as it holds
any of the securities issued to it pursuant to the Acquisition. AIP has the
right to elect the majority of the directors of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc. until the earlier of (i) the occurrence of certain
events and (ii) such time as AIP no longer holds any of the securities issued to
it pursuant to the Acquisition.


MANAGEMENT SERVICES AGREEMENT WITH AIPM

         AIP, which is Sweetheart Holdings Inc.'s largest stockholder, is a
private investment partnership that makes equity investments, principally in
industrial and manufacturing companies in the United States. The firm was formed
in 1989. AIP is managed by AIPM, W. Richard Bingham and Theodore C. Rogers, each
general partners of AIP-LP.

         AIPM receives an annual fee of $1.85 million for providing general
management, financial and other corporate advisory services to the Company,
payable semi-annually 45 days after the scheduled interest payment dates for the
Notes, and is reimbursed for out-of-pocket expenses. The fees are paid to AIPM
pursuant to a Management Services Agreement among AIPM, Sweetheart Holdings Inc.
and Sweetheart Cup Company Inc. AIPM, an affiliate of the controlling
shareholder of the Company, expects to provide substantial ongoing financial and
management services to the Company utilizing the extensive operating and
financial experience of the AIPM principals.

         In addition, for the year ended September 30, 1996, the Company
reimbursed AIPM for $950,000 of expenses incurred in connection with an
investigation of the Company's strategic alternatives.


                                       22
<PAGE>
                                     PART IV


ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a) The following documents are filed as a part of this report:

     1.  The financial statements listed in the "Index to Financial Statements."

     2.  The financial statement schedule listed in the "Index to Financial
         Statement Schedules."

     3.  Exhibits

         3.1      Certificate of Incorporation of Sweetheart Holdings Inc.
                  (incorporated by reference from Exhibit 3.1 of the Company's
                  report on Form 10-K dated December 22, 1993 (the "1993
                  10-K")).

         3.2      By-laws of Sweetheart Holdings Inc. (incorporated by reference
                  from Exhibit 3.3 of the 1993 10-K).

         4.1      Indenture for the Senior Secured Notes between Sweetheart Cup
                  Company Inc. and United States Trust Company of New York, as
                  Trustee (incorporated by reference from Exhibit 4.1 of
                  Sweetheart Holdings Inc.'s Report on Form 8-K dated October 6,
                  1993 (the "1993 8-K")).

         4.2      Indenture for the Senior Subordinated Notes between Sweetheart
                  Cup Company Inc. and U.S. Trust Company of Texas, N.A., as
                  Trustee (incorporated by reference from Exhibit 4.2 on the
                  1993 8-K).

         10.1     Employment Agreement dated May 15, 1994 between Sweetheart
                  Holdings Inc. and William F. McLaughlin (incorporated by
                  reference from Exhibit 10.4 of the Company's report on Form
                  10-Q dated August 12, 1994).

         10.2     Receivables Purchase Agreement between Sweetheart Cup Company
                  Inc. and Sweetheart Receivables Corporation dated September
                  20, 1994 (incorporated by reference from Exhibit 10.5 of the
                  Company's report on Form 10-K dated December 9, 1994 (the
                  "1994 10-K")).

         10.3     Indenture and Security Agreement among Sweetheart Receivables
                  Corporation, Sweetheart Cup Company Inc. and Manufacturers and
                  Traders Trust Company dated September 20, 1994 (incorporated
                  by reference from Exhibit 10.6 of the 1994 10-K).

         10.4     Supplemental Indenture for Series 1994-1 A-V Notes among
                  Sweetheart Receivables Corporation, Sweetheart Cup Company
                  Inc. and Manufacturers and Traders Trust Company dated
                  September 20, 1994 (incorporated by reference from Exhibit
                  10.7 of the 1994 10-K).

         10.5     Credit Agreement among Sweetheart Inc., Sweetheart Cup Company
                  Inc., various banks and Bankers Trust Company, as Agent (the
                  "Credit Agreement") (incorporated by reference from Exhibit
                  28.1 of the 1993 8-K).

         10.6     First Amendment to the Credit Agreement dated July 22, 1994
                  (incorporated by reference from Exhibit 10.9 of the 1994
                  10-K).


                                       23
<PAGE>
         10.7     Management Services Agreement dated as of August 30, 1993
                  among the Sweetheart Holdings Inc., Sweetheart Cup Company
                  Inc. and American Industrial Partners Management Company, Inc.
                  (the "Management Services Agreement") (incorporated by
                  reference from Exhibit 28.2 of the 1993 8-K).

         10.8     Restated Management Services Agreement dated August 31, 1993
                  (incorporated by reference from Exhibit 10.11 of the 1994
                  10-K).

         10.9     $1,000,000 Rockdale County, Georgia Industrial Revenue Bonds,
                  Series 1976: Loan Agreement dated as of August 1, 1976 between
                  Development Authority of Rockdale County, Georgia and Maryland
                  Cup Corporation; and Trust Indenture dated as of August 1,
                  1976 between Development Authority of Rockdale County, Georgia
                  and The Citizens and Southern National Bank, as Trustee
                  (incorporated by reference from Exhibit 10.8 of the
                  Registration Statement).

         10.10    $1,000,000 City of Sparks, Nevada Industrial Revenue Bonds,
                  Series 1977: Lease and Agreement dated as of February 1, 1977
                  between City of Sparks, Nevada and Sweetheart Plastics, Inc.;
                  Trust Indenture dated as of February 1, 1977 between City of
                  Sparks, Nevada and First National Bank of Nevada, Reno,
                  Nevada; and Guaranty Agreement dated as of February 1, 1977
                  between Maryland Cup Corporation and First National Bank of
                  Nevada, Reno, Nevada (incorporated by reference from Exhibit
                  10.9 of the Registration Statement).

         10.11    $2,500,000 Manchester, New Hampshire Industrial Revenue Bonds,
                  Series 1979: Loan Agreement and Assignment in Trust dated as
                  of June 1, 1979 between the Industrial Development Authority
                  of the State of New Hampshire and Maryland Cup Corporation and
                  State Street Bank and Trust Company, Trustee; and Assumption
                  Agreement dated as of August 26, 1983 by MC Acquisition Corp.
                  (incorporated by reference from Exhibit 10.10 of the
                  Registration Statement).

         10.12    Term and Revolving Credit Facilities Agreement, dated as of
                  December 20, 1989, among Lily Canada, BT Bank of Canada and
                  The Bank of Nova Scotia and Amendment Agreement, dated as of
                  August 30, 1993 between Lily Canada and The Bank of Nova
                  Scotia (incorporated by reference from Exhibit 10.8 of the
                  1993 10-K).

         10.13    Asset Sale Agreement dated as of October 6, 1993 between
                  Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
                  (incorporated by reference from Exhibit 10.1 of the Company's
                  report on Form 10-Q dated February 11, 1994).

         10.14    Bill of Sale, Assignment and Assumption Agreement dated as of
                  October 6, 1993 between Sweetheart Holdings Inc. and
                  Sweetheart Cup Company Inc. (incorporated by reference from
                  Exhibit 10.2 of the Company's report on Form 10-Q dated
                  February 11, 1994).

         10.15    Wraparound Note dated as of October 6, 1993 made by Sweetheart
                  Holdings Inc. to Sweetheart Cup Company Inc. (incorporated by
                  reference from Exhibit 10.3 of the Company's report on Form
                  10-Q dated February 11, 1994).

         10.16    Asset Distribution Agreement dated as of October 6, 1993
                  between Sweetheart Holdings Inc. and Sweetheart Cup Company
                  Inc. (incorporated by reference from Exhibit 10.4 of the
                  Company's report on Form 10-Q dated February 11, 1994).

         10.17    Manufacturing Agreement dated as of October 6, 1993 between
                  Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. (the
                  "Manufacturing Agreement") (incorporated by reference from
                  Exhibit 10.5 of the Company's report on Form 10-Q dated
                  February 11, 1994).

         10.18    First Amendment to Manufacturing Agreement dated February 25,
                  1994 (incorporated by reference from Exhibit 10.21 of the 1994
                  10-K).


                                       24
<PAGE>
         10.19    Patent/Know-How License Agreement dated as of October 6, 1993
                  between Sweetheart Holdings Inc. and Sweetheart Cup Company
                  Inc. (incorporated by reference from Exhibit 10.6 of the
                  Company's report on Form 10-Q dated February 11, 1994).

         10.20    Sweetheart Holdings Inc. Stock Option and Purchase Plan dated
                  December 17, 1993 (incorporated by reference from Exhibit
                  10.26 of the 1994 10-K).

         10.21    Sweetheart Holdings Inc. Management Incentive Plan dated as of
                  January 27, 1995 (incorporated by reference from Exhibit 10.1
                  of the Company's report on Form 10-Q dated February 9, 1995).

         10.22    Sweetheart Cup Company Inc. Severance Pay Plan (Effective July
                  1, 1994) (incorporated by reference from Exhibit 10.2 of the
                  Company's report on Form 10-Q dated February 9, 1995).

         10.23    Sweetheart Cup Company Inc. Deferred Compensation Plan dated
                  as of January 27, 1995 (incorporated by reference from Exhibit
                  10.3 of the Company's report on Form 10-Q dated February 9,
                  1995).

         10.24    Registration Statement on Form S-8 dated April 17, 1995 for
                  the Sweetheart Cup Company Inc. Deferred Compensation Plan
                  (incorporated by reference from Exhibit 10.1 of the Company's
                  report on Form 10-Q dated May 11, 1995).

         10.25    Separation agreement between Sweetheart Cup Company Inc. and
                  John R. Icke dated May 26, 1995 (incorporated by reference
                  from Exhibit 10.1 of the Company's report on Form 10-Q dated
                  August 10, 1995).

         10.26    Second Amendment to the Credit Agreement dated September 6,
                  1996 (incorporated by reference from Exhibit 10.26 of the
                  Company's report on Form 10-K dated December 20, 1996 (the
                  "1996 10-K")).

         10.27    Loan Agreement dated August 1, 1996 between Sweetheart
                  Holdings Inc. and the State of Maryland Department of Business
                  and Economic Development (incorporated by reference from
                  Exhibit 10.27 of the 1996 10-K).

         10.28    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  McLaughlin dated December 9, 1996 (incorporated by reference
                  from Exhibit 10.28 of the 1996 10-K).

         10.29    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Joseph A.
                  Lucas dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.29 of the 1996 10-K).

         10.30    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William H.
                  Haas dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.30 of the 1996 10-K).

         10.31    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Daniel M.
                  Carson dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.31 of the 1996 10-K).

         10.32    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Charles E.
                  Busse dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.32 of the 1996 10-K).


                                       25
<PAGE>
         10.33    Promissory Note dated September 24, 1996 between Sweetheart
                  Holdings Inc. and the State of Maryland Department of Business
                  and Economic Development (relating to the Loan Agreement filed
                  as exhibit 10.27 to the 1996 10-K, incorporated by reference
                  from Exhibit 10.33 of the Company's report on Form 10-Q dated
                  February 11, 1997).

         10.34    Third Amendment to Credit Agreement dated June 17, 1997
                  (incorporated by reference from Exhibit 10.34 of the Company's
                  report on Form 10-Q dated August 5, 1997).

         10.35    Amended and Restated Loan and Security Agreement dated October
                  24, 1997 between Sweetheart Holdings Inc. as borrower and
                  BankAmerica Business Credit, Inc., as Agent.

         10.36    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and James R.
                  Mullen dated November 18, 1996.

         10.37    Employment Agreement dated March 1, 1997 between Sweetheart
                  Holdings Inc. and William F. Spengler.

         10.38    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  McLaughlin dated October 1, 1997.

         10.39    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William H.
                  Haas dated October 1, 1997.

         10.40    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  Spengler dated October 1, 1997.

         10.41    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Daniel M.
                  Carson dated October 1, 1997.

         10.42    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and James R.
                  Mullen dated October 1, 1997.

         10.43    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  McLaughlin dated December 19, 1997.

         10.44    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and James R.
                  Mullen dated December 19, 1997.

         10.45    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Daniel M.
                  Carson dated December 19, 1997.

         10.46    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William H.
                  Haas dated December 19, 1997.

         21.1     Subsidiaries of the Company (incorporated by reference from
                  Exhibit 21.1 of the 1994 10-K).

         27.0     September 30, 1997 Financial Data Schedule


(b)  Current Reports on Form 8-K

         None.


                                       26
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS

                                                                         PAGE
                                                                         ----

Report of Independent Public Accountants                                  28


Consolidated Balance Sheets as of September 30, 1997
         and September 30, 1996                                           29


Consolidated Statements of Operations for the years ended
         September 30, 1997, 1996 and 1995                                30


Consolidated Statements of Cash Flows for the years ended
         September 30, 1997, 1996 and 1995                                31


Consolidated Statements of Shareholders' Equity for the years ended
         September 30, 1997, 1996 and 1995                                32


Notes to Consolidated Financial Statements                                33



                                       27
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Sweetheart Holdings Inc.:


We have audited the accompanying consolidated balance sheets of SWEETHEART
HOLDINGS INC. (a Delaware corporation) AND SUBSIDIARIES as of September 30, 1997
and 1996 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended September 30, 1997, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sweetheart Holdings Inc. and
Subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended September 30, 1997, 1996 and
1995 in conformity with generally accepted accounting principles.


                                                  /s/ ARTHUR ANDERSEN LLP

Baltimore, Maryland
December 8, 1997
(except with respect to
the matter discussed in 
Note 20, as to which the
date is December 29, 1997)





                                       28
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        AS OF SEPTEMBER 30, 1997 AND 1996
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                September 30,
                       Assets                               1997            1996
                       ------
                                                        -----------------------------
<S>                                                    <C>             <C>
Current assets:
  Cash and cash equivalents                             $    2,650      $    4,371
  Restricted cash                                           29,016          28,870
  Cash in escrow                                            13,323               -
  Receivables, less allowances of $1,740
       and $2,466, respectively                             85,774          88,183
  Inventories                                              148,845         172,838
  Deferred income taxes                                      2,471           1,771
  Assets held for sale, net                                  8,466               -
  Other current assets                                      20,868          20,099
                                                        ----------      ----------
       Total current assets                                311,413         316,132
                                                        ----------      ----------

  Property, plant and equipment                            527,999         527,394
       Less - Accumulated depreciation                     145,508          99,561
                                                        ----------      ----------
       Net property, plant and equipment                   382,491         427,833
                                                        ----------      ----------

  Deferred income taxes                                     12,471               -
  Other assets                                              13,155          18,645
                                                        ----------      ----------

       Total assets                                     $  719,530      $  762,610
                                                        ==========      ==========

        Liabilities and Shareholders' Equity
        ------------------------------------
 Current liabilities:
   Accounts payable                                     $   58,933      $   70,472
   Accrued payroll and related costs                        40,528          47,828
   Other current liabilities                                43,815          33,918
   Current portion of long-term debt and bonds               1,369           1,535
                                                        ----------      ----------
       Total current liabilities                           144,645         153,753
                                                        ----------      ----------

   Long-term debt                                          426,799         381,879
   Long-term bonds                                           3,700           3,700
   Deferred income taxes                                         -          17,803
   Other non-current liabilities                            69,775          84,060

Shareholders' equity:
   Common stock-
    Par value $.01 per share; 3,000,000 shares
    authorized; 1,046,000 shares issued and
    outstanding                                            101,100         101,100
   Cumulative translation adjustment                          (507)           (322)
   Retained earnings (accumulated deficit)                 (25,611)         21,060
   Note receivable related to purchase of common
    stock                                                     (371)           (423)
                                                        -----------     -----------
        Total shareholders' equity                          74,611         121,415
                                                        ----------      ----------

   Total liabilities and shareholders' equity           $  719,530      $  762,610
                                                        ==========      ==========

</TABLE>

         The accompanying notes are an integral part of these consolidated
financial statements.


                                       29
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

                                 (In thousands)
<TABLE>
<CAPTION>
                                            For the year ended September 30,
                                       1997               1996              1995
                                 ----------------  ----------------   ---------------
<S>                               <C>                 <C>                <C>  
Net sales                            $  886,017         $  959,818       $  986,618
Cost of sales                           722,539            748,055          779,497
                                 --------------     --------------   --------------

         Gross income                   163,478            211,763          207,121

Transportation                           98,482             98,664           95,056
Selling, general, and                    66,792             61,788           66,089
   administrative
Loss on asset disposal and
   impairment                            24,550                  -                -
Restructuring charges                     9,680                  -                -
                                 --------------     --------------   --------------

         Operating income (loss)        (36,026)            51,311           45,936


Interest expense                        (41,812)           (38,832)         (38,655)
Other income (expense)                    1,620             (2,956)           2,442
                                 --------------     --------------   --------------

         Income (loss) before
            income taxes and
            extraordinary loss          (76,218)             9,523            9,723

Income tax expense (benefit)            (30,487)             3,809            3,903
                                 --------------     --------------   --------------

         Income (loss) before
            extraordinary loss          (45,731)             5,714            5,820

Extraordinary loss on debt
   extinguishment (net of
   income taxes of $627)                    940                  -                -
                                 --------------     --------------   --------------

         Net income (loss)           $  (46,671)        $    5,714       $    5,820
                                 ==============     ==============   ==============

</TABLE>




         The accompanying notes are an integral part of these consolidated
financial statements.


                                       30
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
                                 (In thousands)

<TABLE>
<CAPTION>
                                             For the year ended September 30,
                                       1997               1996                1995
                                 ------------------ ------------------- ------------------
<S>                                  <C>               <C>                 <C>  
Cash flows from operating activities:
    Net (loss) income                $  (46,671)        $    5,714          $    5,820
    Depreciation and                     47,723             43,373              37,741
      amortization
    Asset impairment expense             24,550                  -                   -
    Extraordinary loss, net of tax          940                  -                   -

    Deferred income taxes               (30,487)             2,645               3,144
    Changes in operating
      assets and liabilities:
        Receivables                      (1,341)            14,103             (17,863)
        Inventories                      23,993            (20,878)             21,055
        Accounts payable                (11,541)             5,259               4,852
        Other                           (10,408)            (6,708)             (3,850)
                                     ----------         ----------          ----------
           Net cash provided
             by (used in)        
             operating           
             activities                  (3,242)            43,508              50,899 
                                     ----------         ----------          ----------
                                 
Cash flows from investing activities:
    Additions to property,
      plant, and equipment              (47,757)           (50,236)            (51,625)
    Proceeds from sales of
      property, plant, and
      equipment                          17,843                  -                 111
                                     ----------         ----------          ----------

           Net cash used in
             investing           
             activities                 (29,914)           (50,236)            (51,514) 
                                     ----------         ----------          ---------- 
                                 
Cash flows from financing activities:
    Proceeds from debt                  331,216            194,160             103,852
    Repayment of debt                  (286,364)          (178,235)           (103,535)
    Payment received on common
      stock note receivable                  52                 77                   -
    Increase in restricted cash            (146)           (12,904)             (3,932)
    Increase in cash in escrow          (13,323)                 -                   -
                                     ----------         ----------          ----------
           Net cash provided
             by (used in)
             financing   
             activities                  31,435              3,098              (3,615)  
                                     ----------         ----------          ----------
                         
Net decrease in cash and cash
  equivalents                            (1,721)            (3,630)             (4,230)

Cash and cash equivalents,
  beginning of year                       4,371              8,001              12,231
                                     ----------         ----------          ----------

Cash and cash equivalents, end
  of year                            $    2,650         $    4,371          $    8,001
                                     ==========         ==========          ==========

Supplemental cash flow
  disclosures:
    Interest paid                    $   38,818         $   35,767          $   35,748
                                     ==========         ==========          ==========
    Income taxes paid                $        -         $    2,226          $    1,061
                                     ==========         ==========          ==========

</TABLE>

         The accompanying notes are an integral part of these consolidated
financial statements.


                                       31
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                 Cumulative                                    Total
                                 Common Stock    Translation     Retained        Note      Shareholders'
                                                 Adjustment      Earnings     Receivable      Equity
                                 ------------------------------------------------------------------------
<S>                              <C>             <C>             <C>           <C>           <C> 
Balance, September 30, 1994         $ 101,100     $      (171)    $   9,526     $    (500)    $ 109,955

Net income                                  -               -         5,820             -         5,820
Translation adjustment                      -              30             -             -            30
                                 ------------  --------------  ------------  ------------  ------------

Balance, September 30, 1995           101,100            (141)       15,346          (500)      115,805

Net income                                  -               -         5,714             -         5,714
Payment received on note
  receivable                                -               -             -            77            77
Translation adjustment                      -            (181)            -             -          (181)
                                 ------------  --------------- ------------  ------------  -------------

Balance, September 30, 1996           101,100            (322)       21,060          (423)      121,415

Net loss                                    -               -       (46,671)            -       (46,671)
Payment received on note
  receivable                                -               -             -            52            52
Translation adjustment                      -            (185)            -             -          (185)
                                 ------------  --------------- ------------  ------------  -------------

Balance, September 30, 1997         $ 101,100     $      (507)    $ (25,611)    $    (371)    $  74,611
                                    =========     ============    ==========    ==========    =========


</TABLE>






         The accompanying notes are an integral part of these consolidated
financial statements.


                                       32
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                    -----------------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                        SEPTEMBER 30, 1997, 1996 AND 1995
                        ---------------------------------

         As used in these notes, unless the context otherwise requires, the
"Company" shall refer to Sweetheart Holdings Inc. and its subsidiaries,
including Sweetheart Cup Company Inc.


(1)  SIGNIFICANT ACCOUNTING POLICIES

         (a)  Principles of Consolidation and Translation -

         The financial statements include all of the accounts of the Company and
its subsidiaries on a consolidated basis as of September 30, 1997 and 1996 and
for the years ended September 30, 1997, 1996 and 1995. For all periods
presented, the consolidated financial statements include all of the accounts of
the Company's United States operations (Sweetheart Holdings Inc. and its
domestic subsidiaries, Sweetheart Cup Company Inc. and Sweetheart Receivables
Corporation) and Lily Cups Inc., a Canadian subsidiary. Assets and liabilities
of Lily Cups Inc. are translated at the rates of exchange in effect at the
balance sheet date. Income amounts are translated at the average of the monthly
exchange rates. The cumulative effect of translation adjustments is deferred and
classified as a cumulative translation adjustment. All significant intercompany
and intergroup accounts and transactions have been eliminated.

         (b)  Cash and Cash Equivalents -

         The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash overdrafts are
reclassified to accounts payable and accrued payroll and related costs. Cash
balances related to Sweetheart Receivables Corporation are restricted from
transfer to other entities within the Company. Restricted cash is shown
separately on the balance sheet. The balance of restricted cash was $29.0
million and $28.9 million at September 30, 1997 and 1996, respectively. Cash
received as proceeds from the sale of assets is restricted to qualified capital
expenditures under the Bond Indentures (see Note 10), and is held in escrow with
the trustee until utilized. The balance of cash in escrow was $13.3 million at
September 30, 1997.

         (c)  Inventories -

         Inventories are carried at the lower of cost or market as described in
Note 2 Spare parts of $20.1 million at September 30, 1996 were reclassified from
inventories to other current assets.

         (d)  Assets held for sale -

         Property, plant, and equipment for the Bakery division was reclassified
as held for sale at September 30, 1997. The Bakery division was sold on November
30, 1997, as discussed in Note 15.

         (e)  Property, Plant and Equipment -

         Property, plant and equipment is recorded at cost, less accumulated
depreciation, and is depreciated on the straight-line method over the estimated
useful lives of the assets, with the exception of property, plant, and equipment
acquired prior to January 1, 1991, which is depreciated on the declining balance
method.

         The asset lives of buildings and fixtures range between 12 and 50 years
and have an average useful life of 38 years. The asset lives of equipment range
between 5 and 18 years and have an average useful life of 13 years.


                                       33
<PAGE>
         (f)  Revenue Recognition -

         Sales of the Company's products are recorded based on shipment of
products.

         (g)  Income Taxes -

         Deferred income taxes are provided to recognize temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. The principal differences relate to depreciation expense,
pension and postretirement benefits and LIFO inventory.

         No deferred income taxes have been provided on the cumulative
undistributed earnings of the Canadian subsidiary of Sweetheart Cup Company Inc.
Those earnings (approximately $12.8 million) are considered permanently
reinvested under Accounting Principles Bulletin No. 23. The incremental U.S. tax
costs (deferred taxes) of repatriating these earnings would not be material.

         (h)  Employee Benefit Plans (also see Note 7) -

         The Company has various defined benefit plans and a defined
contribution plan for substantially all employees who meet eligibility
requirements. Benefits under the defined benefit plans are based on years of
service, and funding is in accordance with actuarial requirements of the plans,
subject to provisions of the Employee Retirement Income Security Act. The
Company makes contributions to the defined contribution plan in accordance with
the plan's provisions.

         (i)  Postretirement Health Care Plans (also see Note 8) -

         The Company sponsors various defined benefit postretirement health care
plans that cover substantially all employees who meet eligibility requirements.
These plans are not funded by the Company.

         (j)  Reclassifications -

         The Company has reclassified certain amounts for current year
presentation from prior year presentation. Spare parts, previously reported as a
component of inventories, is now reported as other current assets.

         Within the statement of operations, freight charges, previously
reported as a component of net sales, are now reported as transportation;
warehousing and fleet costs, previously reported as costs of sales, are now
reported as transportation; plant administration costs, previously reported as
selling, general, and administrative costs, are now reported as costs of sales;
and certain other revenues, previously reported as other income, are now
reported as a component of net sales.

         All prior periods have been restated to conform to the current year
presentation.

         (k)  Impact of Recently Issued Accounting Standards -

         In October 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock Based Compensation, which
provides an alternative to APB Opinion No. 25, Accounting for Stock Issued to
Employees in accounting for stock based compensation issued to employees. The
Company has adopted only the disclosure provisions of Statement 123, and the
impact was not material.

         In October 1996, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of SFAS 121 did not
have a material impact on net income. In the fourth quarter of fiscal year 1997,
the Company recorded a loss on asset disposal and impairment. See Note 14.


                                       34
<PAGE>
         During 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, No. 129, Disclosure of Information about Capital
Structure, No. 130, Reporting Comprehensive Income, and No. 131, Disclosures
about Segments of an Enterprise and Related Information. These statements
address presentation and disclosure matters and will have no impact on the
Company's financial position or results of operations. These statements become
effective during the Company's fiscal years 1998 and 1999 and will be adopted as
applicable.

         On November 20, 1997, the Emerging Issues Task Force (EITF) reached a
consensus on Issue 97-13 regarding reengineering costs. This consensus provides
guidance about what activities constitute business process reengineering in
connection with the development and installation of software for internal use
and concludes that all reengineering costs, including those incurred in
connection with a software installation, should be expensed as incurred. The
Company has capitalized costs such as those described above through fiscal year
1997, and is required to expense these costs as a cumulative change in
accounting principle in the first quarter of fiscal year 1998. The Company has
not yet calculated the impact of this requirement.

         (l)  Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.


(2)  INVENTORIES

         The components of inventories and their valuation methods are as
follows (in thousands):

                                           September 30,          September 30,
                                               1997                   1996
                                          ----------------       ---------------

    Components-
         Raw materials and supplies          $32,302                $35,166
         Finished  and  partly  finished
           products                           116,543                137,672
                                          -----------            -----------
                                             $148,845               $172,838
                                             ========               ========

    Valued at lower of cost or market -
         First in, first out ("FIFO")        $15,300                $17,011
         Last in, first out ("LIFO")          133,545                155,827
                                          -----------            -----------

                                             $148,845               $172,838
                                             ========               ========

         Had inventories valued on the LIFO basis been stated on a FIFO basis,
inventories would have been $889,000 and $4,598,000 higher than reported at
September 30, 1997 and 1996, respectively. Cost of sales on a FIFO basis would
have been lower by $3,709,000 and $12,310,000 for the years ended September 30,
1997 and 1996, respectively, and higher by $17,856,000 for the year ended
September 30, 1995.



                                       35
<PAGE>
(3)  PROPERTY, PLANT AND EQUIPMENT

         The Company's major classes of property, plant and equipment are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                   September 30,                    September 30,
                                                        1997                             1996
                                              -------------------------          ---------------------
<S>                                              <C>                                <C>
       Land                                         $     23,801                      $    26,008
       Buildings                                          85,808                           90,760
       Machinery and equipment                           394,754                          375,404
       Construction in progress                           23,636                           35,222
                                                    ------------                      -----------

                Total                                    527,999                          527,394
                                                    ------------                      -----------

       Accumulated depreciation                          145,508                           99,561
                                                    ------------                      -----------

       Net property, plant and equipment            $    382,491                      $   427,833
                                                    ============                      ===========
</TABLE>


(4)  OTHER ASSETS

         The components of long term other assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                   September 30,                    September 30,
                                                        1997                             1996
                                              -------------------------          ---------------------
<S>                                             <C>                                <C>
       Debt issuance costs, net of
            accumulated amortization               $    8,159                         $   12,874
       Intangible pension asset
            (see Note 7)                                  860                              2,484
       Prepaid assets                                   2,423                              1,299
       Other                                            1,713                              1,988
                                                   ----------                         ----------

                Total long-term                    $   13,155                         $   18,645
                                                   ==========                         ==========

</TABLE>


         Amortization of the above debt issuance costs totaled approximately
$5.2 million, $3.6 million and $3.5 million for the years ended September 30,
1997, 1996 and 1995, respectively, of which $3.6 million of the 1997 costs are
included as interest expense in the accompanying statement of operations. During
the year ended September 30, 1997, the Company accelerated $1.6 million of
amortization for the debt issuance costs related to Sweetheart Receivables
Corporation and the 1993 Credit Agreement, both of which were refinanced
subsequent to year end (See Note 10). This charge is shown as an extraordinary
loss (net of $627,000 of income taxes) on the consolidated statement of
operations.



                                       36
<PAGE>
(5)  OTHER CURRENT LIABILITIES

         The components of other current liabilities are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                   September 30,                    September 30,
                                                        1997                             1996
                                              -------------------------          ---------------------
<S>                                              <C>                                <C>
       Sales allowances                            $     7,052                        $     6,023
       Restructuring costs                              13,201                              4,934
       Taxes other than income taxes                     2,841                              2,288
       Litigation, claims and assessments
            (see Note 16)                               15,445                             15,196
       Interest payable                                  2,806                              2,798
       Other                                             2,470                              2,679
                                                   -----------                        -----------

                Total                              $    43,815                        $    33,918
                                                   ===========                        ===========

</TABLE>


(6)  OTHER NON_CURRENT LIABILITIES

         The components of other non-current liabilities are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                   September 30,                    September 30,
                                                        1997                             1996
                                              -------------------------          ---------------------
<S>                                              <C>                                <C>
       Post retirement health care benefits
            (see Note 8)                           $    57,983                        $    58,725
       Pensions                                          9,761                             13,620
       Other                                             2,031                             11,715
                                                   -----------                        -----------

                Total                              $    69,775                        $    84,060
                                                   ===========                        ===========

</TABLE>







                                       37
<PAGE>
(7)  EMPLOYEE BENEFIT PLANS

         A majority of the employees ("participants") are covered under a 401(k)
defined contribution plan. The Company's annual contributions to this defined
contribution plan represent a 50% match on participant contributions. The
Company's match is limited to participant contributions up to 6% of participant
salaries. In addition, the Company is allowed to make discretionary
contributions. Costs charged against operations for this defined contribution
plan were approximately $3,586,000, $3,715,000 and $3,681,000 for the years
ended September 30, 1997, 1996 and 1995, respectively. Certain employees are
covered under defined benefit plans. Benefits under the plans are generally
based on fixed amounts for each year of service.

         The components of net pension expense for domestic defined benefit
plans are as follows (in thousands):

<TABLE>
<CAPTION>
                             Year ended             Year ended            Year ended
                         September 30, 1997     September 30, 1996    September 30, 1995
                        ---------------------- --------------------- ----------------------
<S>                        <C>                    <C>                    <C>
Service cost                 $    1,111             $    1,078            $      952
Interest cost                     3,720                  3,545                 3,230
Projected return
   on assets                     (3,212)                (2,874)               (1,637)
Net amortization                    262                    188                    16
                             ----------             ----------            ----------

     Net pension
       expense               $    1,881             $    1,937            $    2,561
                             ==========             ==========            ==========

</TABLE>

         The status of defined benefit pension plans using data as of the most
recent actuarial valuation dates is as follows (in thousands):

<TABLE>
<CAPTION>
                                                     September 30,                    September 30,
                                                          1997                            1996
                                                 -----------------------          ----------------------
<S>                                                  <C>                             <C>
       Actuarial present value of
            benefit obligations -
                Vested benefits                        $   41,616                       $   37,231
                Nonvested benefits                         11,094                           10,741
                                                       ----------                       ----------
       Accumulated and projected
            benefit obligation                             52,710                           47,972
       Plan assets at fair value                           39,243                           31,023
                                                       ----------                       ----------

                Funded status                             (13,467)                         (16,949)

       Unrecognized prior service cost                      1,529                            2,484
       Unrecognized net gain                                  473                             (626)
       Adjustment required to recognize
            minimum liability                                (860)                          (2,484)
                                                       -----------                      -----------
                Net pension liability                  $  (12,325)                      $  (17,575)
                                                       ===========                      ===========

</TABLE>



                                       38
<PAGE>
         As required by SFAS No. 87, "Employers' Accounting for Pensions," the
Company recognized additional pension liabilities of $860,000 and $2,484,000 as
of September 30, 1997 and 1996, respectively, and equal amounts as other assets.

         Actuarial assumptions used in calculating the above amounts include a
10% return on plan assets for the years ended September 30, 1997 and 1996, a
7.5% discount rate on benefit obligations as of September 30, 1997, a weighted
average discount rate of 7.5% for the year ended September 30, 1997, a 8.0%
discount rate on benefit obligations as of September 30, 1996, and a 7.75%
weighted average discount rate for the first six months and 8.0% for the second
six months of the year ended September 30, 1996.

         Data with respect to the Lily Cups Inc., Canada defined benefit plan is
not material and is not included in the above data.


(8)  POSTRETIREMENT HEALTH CARE PLANS

         The Company sponsors various defined benefit postretirement health care
plans that cover substantially all full-time employees. The plans, in most
cases, pay stated percentages of most medical expenses incurred by retirees,
after subtracting payments by Medicare or other providers and after a stated
deductible has been met. Participants generally become eligible after reaching
age 60 with one year of participation. The majority of the Company's plans are
contributory, with retiree contributions adjusted annually. The accounting for
the plans anticipates future cost-sharing changes to the written plan that are
consistent with the Company's announced policies. The Company does not fund the
plans.

         The following table analyzes the plans' unfunded, accrued
postretirement health care cost liability as reflected on the balance sheet (in
thousands):


<TABLE>
<CAPTION>
                                                     September 30,                    September 30,
                                                          1997                            1996
                                                 -----------------------          ----------------------
<S>                                                 <C>                               <C>
       Accumulated Postretirement Benefit
            Obligation:
            Retirees                                   $   24,936                       $   25,596
            Other fully eligible participants               5,731                            6,472
            Other active participants                      12,166                           17,577
                                                       ----------                       ----------

                                                           42,833                           49,645

            Unrecognized prior service cost                 4,861                            1,536
            Unrecognized actuarial gain                    13,389                           10,644
                                                       ----------                       ----------
            Accrued postretirement health care
                cost liability                         $   61,083                       $   61,825
                                                       ==========                       ==========

</TABLE>




                                       39
<PAGE>
         The components of net postretirement health care cost are as follows
(in thousands):

<TABLE>
<CAPTION>

                             Year ended             Year ended            Year ended
                         September 30, 1997     September 30, 1996    September 30, 1995
                        ---------------------- -------------------- -----------------------
<S>                         <C>                    <C>                   <C> 
Service cost-
   benefits attributed
   to service during
   the period                 $     859              $   1,533             $   1,497
Interest cost on
   accumulated post-
   retirement benefit
   obligation                     3,098                  3,868                 4,134
Net amortization
   and deferral                  (1,326)                  (187)                 (118)
                              ----------             ----------            ----------
     Net postretirement
       health care cost       $   2,631              $   5,214             $   5,513
                              =========              ==========            ==========

</TABLE>


         The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%, and 8.0% at September 30, 1997 and
1996, respectively. Net postretirement health care cost was computed using a
weighted average discount rate of 8.0% for the year ended September 30, 1997,
7.75% for the year ended September 30, 1996, and 8.5% for the year ended
September 30, 1995. For measuring the expected postretirement benefit
obligation, a 10% annual rate of increase in the per capita claims cost was
assumed for 1997. This rate is assumed to decrease by 1.0% per year to an
ultimate rate of 5.0%. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 30,
1997 and September 30, 1996 by approximately $2.2 million and $2.8 million,
respectively, and the aggregate of the service and interest cost components of
net postretirement health care cost by approximately $0.2 million for the year
ended September 30, 1997, and $0.4 million for each of the years ended September
30, 1996 and 1995.





                                       40
<PAGE>
(9)  INCOME TAXES

         The income tax benefit (provision) includes the following components
(in thousands):

<TABLE>
<CAPTION>
                             Year ended             Year ended            Year ended
                         September 30, 1997     September 30, 1996    September 30, 1995
                        ---------------------- --------------------------------------------
<S>                          <C>                   <C>                   <C>
Current-
   Federal                     $       -              $       -            $       -
   State                               -                      -                    -
   Foreign                             -                 (1,164)                (759)
                               ---------              ----------           ----------

    Total current                      -                 (1,164)                (759)
                               ---------              ----------           ----------

Deferred -
   Federal                        26,165                 (2,315)              (2,829)
   State                           3,738                   (330)                (315)
   Foreign                           584                       -                   -
                               ---------              ----------           ----------

    Total deferred                30,487                 (2,645)              (3,144)
                               ---------              ----------           ----------

                               $  30,487              $  (3,809)           $  (3,903)
                               =========              ==========           ==========

</TABLE>


         The effective tax rate varied from the U.S. Federal tax rate of 35% for
the years ended September 30, 1997, 1996 and 1995 as a result of the following:

<TABLE>
<CAPTION>
                                         Year ended                 Year ended               Year ended
                                        September 30,             September 30,             September 30,
                                            1997                       1996                     1995
                                     --------------------      ---------------------    ----------------------
<S>                                       <C>                        <C>                    <C>
U.S. Federal tax rate                           35%                       35%                      35%
State income taxes, net of
   U.S. Federal tax impact                       4                         4                        4
Other, net                                       1                         1                        1
                                            ------                    ------                   ------

       Effective tax rate                       40%                       40%                      40%
                                             =====                     =====                    =====

</TABLE>

         At September 30, 1997, the Company had deferred tax liabilities of $167
million, of which $32 million are current in nature, and deferred tax assets of
$182 million, of which $35 million are current in nature. Deferred tax assets
and liabilities have been netted as a current asset and a non-current liability
in the accompanying Consolidated Balance Sheets. The principal temporary
differences included above are depreciation, a $75 million liability, LIFO
inventory, a $22 million liability, net operating loss carryforwards, a $67
million asset, postretirement health and pension benefits, a $28 million asset,
and $17 million of other net miscellaneous asset items.

         The Company has net operating loss carryforwards for income tax
purposes of approximately $170 million, of which $5 million expire in 2004, $51
million expire in 2005, $25 million expire in 2006, $13 million expire in 2007,
$28 million expire in 2008, and $48 million expire in 2012.



                                       41
<PAGE>
(10)  LONG-TERM OBLIGATIONS

         Long-term debt, including amounts payable within one year, is as
follows (in thousands):

                                                September 30,      September 30,
                                                    1997               1996
                                               -------------      --------------

(i) Sweetheart Cup Company Inc.

Senior Secured Notes, at 9.625%,
 interest payable semiannually on
 March 1 and September 1 of each
 year, commencing March 1, 1994, due
 on September 1, 2000, and are
 subject to redemption on or after
 September 1, 1997 at the option of
 the Company, in whole or in part,
 at the redemption prices set forth
 below (expressed as percentages of
 the principal amount), plus accrued
 interest to the redemption date,
 for redemptions during the 12 month
 period beginning September 1, of
 the following years:                             $190,000            $190,000
   1997 -- 103.208%, 1998 -- 101.604%, and
   1999 -- 100.000%

Senior Subordinated Notes, at
 10.50%, interest payable
 semiannually on March 1 and
 September 1 of each year,
 commencing March 1, 1994, due on
 September 1, 2003, and are subject
 to redemption on or after September
 1, 1998 at the option of the
 Company, in whole or in part, at
 the redemption prices set forth
 below (expressed as percentages of
 the principal amount), plus accrued
 interest to the redemption date,
 for redemption during the 12 month
 period beginning September 1, of
 the following years:
    1998 -- 103.938%, 1999 -- 102.625%,            110,000             110,000
    2000 -- 101.313%, and 2001 and
    thereafter -- 100.000%


Revolving Loan at Bankers Trust's
 prime rate plus 1.50%, or Bankers
 Trust's Eurodollar rate plus 2.50%,
 subject to certain limitations as
 well as downward adjustment for any
 interest period beginning after
 October 1, 1994 upon the
 satisfaction of certain financial
 criteria, due on August 30, 1998
 (interest rates - 10.0% and 7.91%
 at September 30, 1997 and 1996)                    60,000              15,800

(ii) Sweetheart Receivables Corporation

Sweetheart Receivables Corporation
 Series 1994-1 A-V Trade
 Receivables-Backed Notes, a private
 placement, at Telerate one month
 LIBOR plus .40%. Interest payable
 monthly commencing on October 17,
 1994 through the Scheduled Pay-Out
 Period starting July 31, 1999
 (interest rates-6.06% and 5.90% at
 September 30, 1997 and 1996).                     60,000              60,000



                                       42
<PAGE>
                                                September 30,      September 30,
                                                    1997               1996
                                               -------------      --------------

(iii)  Lily Cups Inc.

Term Facility, at Bank of Nova
 Scotia's prime rate plus 1.25%
 payable quarterly, due in equal
 annual repayments commencing
 October 31, 1994 and ending October
 31, 1998 (interest rates - 6.0% and
 7.0% at September 30, 1997 and
 1996)                                       $     2,737          $     4,210

Operating Facility, at Bank of Nova
 Scotia's prime rate plus 1.25%,
 repaid and reborrowed until October
 31, 1998, subject to satisfaction
 of certain conditions on the date
 of any such borrowing (interest
 rates - 6.0% and 7.0% at                          5,431                3,304
                                               ---------           ----------
   September 30, 1997 and 1996)

                                                 428,168              383,314
                                                 -------              -------

Less - Current portion of long-term debt          (1,369)              (1,435)
                                              -----------           ----------

                                                 $426,799             $381,879
                                                 ========             ========


         The aggregate annual maturities of long-term debt at September 30, 1997
are as follows (in thousands):

               1998                                                $    1,369
               1999                                                    66,799
               2000                                                   250,000
               2001                                                         -
               2002                                                         -
               2003 and thereafter                                    110,000
                                                                    ---------
                                                                     $428,168
                                                                    =========

         Long-term bonds consist of four industrial development bonds and a loan
from the State of Maryland with interest rates ranging from 6.0% to 6.75%, due
in varying amounts through 2006. The aggregate annual maturities of long-term
bonds at September 30, 1997 are as follows (in thousands):


               1998                                             $           -
               1999                                                     2,500
               2000                                                         -
               2001                                                         -
               2002                                                         -
               2003 and thereafter                                      1,200
                                                                      -------
                                                                       $3,700
                                                                      =======

                                       43
<PAGE>
         The maximum month-end balances outstanding, average amounts
outstanding, and the weighted average interest rates on the domestic Revolving
Loan Facility and Canadian Operating Facility during the years ended September
30 were as follows (in thousands, except for interest rates):

<TABLE>
<CAPTION>
                                        Domestic Revolving Loan Facility         Canadian Operating Facility
                                        --------------------------------         ---------------------------
                                            1997                1996               1997               1996
                                      ------------------  -----------------  ------------------ ------------------
<S>                                     <C>                  <C>                  <C>                <C>   
       Maximum month-end balances
       outstanding                         $60,000             $23,000              $6,123             $4,321
                                           =======             =======              ======             ======

       Average amounts outstanding         $48,194              $8,660              $4,843             $3,564
                                           =======              ======              ======             ======

       Weighted average interest rates       8.52%               8.63%               6.10%              8.16%
                                             =====               =====               =====              =====
              
</TABLE>


The 1993 Credit Agreement and the Sweetheart Receivables Corporation Series
1994-1 A-V Trade Receivables-Backed Notes were refinanced subsequent to
September 30, 1997. See Note 15 for details.


1993 Credit Agreement

         On August 30, 1993, the Company entered into the 1993 Credit Agreement,
which provided for a $40 million Term Loan and a $75 million Revolving Loan
Facility. The Company prepaid the $40 million Term Loan on September 20, 1994 in
connection with the issuance of the Sweetheart Receivables Corporation 1994-1
A-V Trade Receivables-Backed Notes and it may not be reborrowed. Additionally,
certain terms and conditions of the Credit Agreement were amended. The Revolving
Loan Facility is limited to 50% of eligible inventory of Sweetheart Cup Company
Inc. (up to a maximum of $150 million of eligible inventory). In addition, the
combined borrowings outstanding under the Revolver plus the Sweetheart
Receivables Corporation 1994-1 A-V Trade Receivables-Backed Notes less the
aggregate amount of cash on deposit in certain Sweetheart Receivables
Corporation accounts may not exceed $115 million in aggregate. The Revolving
Loan borrowings were $60.0 million at September 30, 1997 and $15.8 million at
September 30, 1996.

         The borrowings under the 1993 Credit Agreement bear interest, at
Sweetheart Cup Company Inc.'s option, at Bankers Trust Company's prime rate plus
1.50% or, subject to certain limitations, at Bankers Trust Company's Eurodollar
rate plus 2.50%. Interest rates may be reduced by 0.25% as of October 1, 1994,
and on the first day of any fiscal quarter thereafter, depending upon Sweetheart
Cup Company Inc.'s ratios of cash flow coverage to interest expense. Up to $15
million of the Revolving Loan Facility may be utilized to issue Letters of
Credit. Approximately $9.7 million in Letters of Credit were issued on behalf of
Sweetheart Cup Company Inc. as of September 30, 1997 and 1996. The 1993 Credit
Agreement also provides for the payment of a commitment fee of 0.5% per annum on
the daily average unused amount of the commitments under the Revolving Loan
Facility (approximately $104,600 and $299,600 for the years ended September 30,
1997 and 1996, respectively, as well as a 2.75% per annum fee on outstanding
Letters of Credit (approximately $254,000 and $272,400 for the years ended
September 30, 1997 and 1996, respectively).

         Loans made pursuant to the Revolving Loan Facility can be borrowed,
repaid, and reborrowed from time to time until final maturity on August 30,
1998. The 1993 Credit Agreement provides for partial mandatory prepayments upon
the issuance of equity by Sweetheart Holdings Inc. or any of its subsidiaries,
and full repayment upon any change of control (as defined in the 1993 Credit
Agreement). The Revolving Loan Facility also requires a $20 million clear-down
period between December 1 and January 31 of each year, commencing December 1,
1994, whereby the average unused revolver during any consecutive 31-day period
within the clear-down period must average $20 million; failure to do so results
in an immediate reduction of the Revolving Loan Facility by $20 million
effective immediately succeeding February 1.


                                       44
<PAGE>
         The indebtedness of Sweetheart Cup Company Inc. under the 1993 Credit
Agreement is guaranteed by Sweetheart Holdings Inc. and secured by a first
priority perfected security interest in inventory, spare parts and all proceeds
of the foregoing of Sweetheart Cup Company Inc., a first priority security
interest, shared with the holders of the Senior Secured Notes, in Shared
Collateral (as defined in the 1993 Credit Agreement to include primarily all
capital stock owned by Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
and of each of their respective present and future direct subsidiaries, all
intercompany indebtedness payable to Sweetheart Holdings Inc. or Sweetheart Cup
Company Inc. by Sweetheart Holdings Inc., Sweetheart Cup Company Inc. or their
respective present and future subsidiaries, and any proceeds from business
interruption insurance), and a second priority perfected security interest in
the Senior Secured Note collateral as described below.

Senior Secured Notes and Senior Subordinated Notes

         Sweetheart Cup Company Inc. is the obligor with respect to $190 million
of Senior Secured Notes and $110 million of Senior Subordinated Notes. The
Senior Secured Notes were issued pursuant to an Indenture among Sweetheart Cup
Company Inc., Sweetheart Holdings Inc., as Guarantor, and United States Trust
Company of New York, as Trustee (the "Senior Secured Indenture"). The Senior
Secured Notes bear interest at 9.625% per annum, payable semi-annually in
arrears on March 1 and September 1 each year to holders of record on February 15
or August 15 next preceding the interest payment date. The Senior Secured Notes
mature on September 1, 2000 and were issued in denominations of $1,000 and
integral multiples thereof.

         The Senior Secured Notes are secured by a first priority lien on the
Senior Secured Note collateral (which includes all material properties and
equipment and substantially all of the other assets of Sweetheart Cup Company
Inc., but excludes collateral under the 1993 Credit Agreement, the capital stock
of its subsidiaries, and intercompany indebtedness) and by a second lien on
collateral under the 1993 Credit Agreement (primarily accounts receivable,
inventory, and proceeds thereof as described above). The Senior Secured Notes
and borrowings under the 1993 Credit Agreement are also jointly secured by
Shared Collateral (comprised of pledges of the capital stock of Lily Canada, the
capital stock of any direct subsidiaries formed or acquired in the future,
future intercompany notes, and the proceeds of business interruption insurance).

         The Senior Secured Indenture contains various covenants which prohibit,
or limit, among other things, asset sales, change of control, dividend payments,
equity repurchases or redemptions, the incurrence of additional indebtedness,
the issuance of disqualified stock, certain transactions with affiliates, the
creation of additional liens, and certain other business activities. The Senior
Secured Notes may be redeemed at the dates and prices indicated in the table
above.

         The Senior Subordinated Notes were issued pursuant to an Indenture
among Sweetheart Cup Company Inc., Sweetheart Holdings Inc., as Guarantor, and
U.S. Trust Company of Texas, N.A., as Trustee (the "Senior Subordinated
Indenture"). The Senior Subordinated Notes bear interest at 10.50% per annum,
payable semi-annually in arrears on March 1 and September 1 each year to holders
of record on the February 15 or August 15 next preceding the interest payment
date. The Senior Subordinated Notes mature on September 1, 2003 and were issued
in denominations of $1,000 and integral multiples thereof.

         The Senior Subordinated Notes are subordinate in right of payment to
the prior payment in full of all Senior Secured Notes, all borrowings under the
1993 Credit Agreement, and all other indebtedness not otherwise prohibited. As a
result of the subordination provisions, and in the event of an insolvency or
liquidation proceeding, holders of the Senior Subordinated Notes may recover a
lesser percentage of their investment than other creditors of the Company.

         The Senior Subordinated Indenture contains various covenants which
prohibit, or limit, among other things, asset sales, change of control, dividend
payments, equity repurchases or redemptions, the incurrence of additional
indebtedness, the issuance of disqualified stock, certain transactions with
affiliates, the creation of additional liens, and certain other business
activities. The Senior Subordinated Notes may be redeemed at the dates and
prices indicated in the table above.


                                       45
<PAGE>
Sweetheart Receivables Corporation Series 1994-1 A-V Trade Receivables-Backed
Notes

         Sweetheart Cup Company Inc. securitizes its receivables through its
wholly owned limited purpose, bankruptcy-remote finance subsidiary, Sweetheart
Receivables Corporation ("SRC"). This structure is intended to segregate
receivables from Sweetheart Cup Company Inc.'s other assets or liabilities and
achieve a lower cost of funds based on the credit quality of the receivables.

         On September 20, 1994, SRC issued and sold to Bankers Trust as
Placement Agent, $60 million of Series 1994-1 A-V Trade Receivables-Backed Notes
(the "Notes"), under an indenture and security agreement. The proceeds of the
notes were used to purchase substantially all of the receivables of Sweetheart
Cup Company Inc. on the closing date. SRC's share of the proceeds of collections
on those receivables will be used to purchase newly generated receivables from
Sweetheart Cup Company Inc. on an ongoing basis.

         SRC's purchase of receivables from Sweetheart Cup Company Inc. is
intended to be a "true sale" for bankruptcy law purposes and without recourse to
Sweetheart Cup Company Inc., except that Sweetheart Cup Company Inc. will be
required to make payment to SRC for certain dilution of the receivables and will
remain liable for making payments in connection of certain customary
representations and covenants.

         SRC grants the Trustee, Manufacturer's and Traders Trust, a first
perfected security interest in the receivables and certain other related assets,
subject to certain limited exceptions. The holders of the Notes have no recourse
to the assets of SRC in respect of obligations under the Notes. Noteholders are
protected by over-collateralization of receivables on the Notes requiring
certain amounts to be set aside in an equalization account and four months of
interest set aside in the carrying cost account by the Trustee. These amounts
may be invested by SRC in highly rated liquid investments such as A-1+
commercial paper and AAA moneymarket funds as rated by Standard & Poors
Corporation. These amounts are shown on the consolidated balance sheet as
restricted cash. Restricted cash totaled $29.0 million and $28.9 million at
September 30, 1997 and 1996, respectively. Sweetheart Cup Company Inc. retains a
promissory note which pays interest monthly at prime rate, subject to certain
limitations, on these and other balances due from SRC.

         Sweetheart Cup Company Inc. acts as servicer of the receivables sold.
The interest rate is based on Telerate's one month LIBOR plus .40% and is paid
monthly. The Notes have a first scheduled principal payment date of July 31,
1999 and have a stated maturity date of September 30, 2000. There are certain
early voluntary and involuntary liquidation events. Noteholders are entitled to
certain breakage payments if the Notes are prepaid in part or whole prior to
July 31, 1998. The breakage payment is equal to the present value of the .40%
spread for the period from the prepayment date until the first scheduled
principal payment date, multiplied by the amount of principal prepayment.

         The SRC promissory note and equity held by Sweetheart Cup Company Inc.
constitute Shared Collateral which is a first priority interest shared under the
Credit Agreement and Senior Secured Notes.

Canadian Credit Agreement

         On December 20, 1989, Lily Cups Inc. entered into a Term and Revolving
Credit Facilities Agreement (the "Canadian Credit Agreement"), consisting of CDN
$14.0 million of Term Advances and CDN $6.0 million of Operating Advances.
Effective August 30, 1993, the Canadian Credit Agreement was renegotiated and
extended to provide for equal annual repayments on the remaining CDN $9.5
million Term Facility of CDN $1.9 million beginning October 31, 1994 and ending
October 31, 1998 and to provide for an additional CDN $1.0 million of Operating
Advances in addition to the CDN $6.0 million Operating Facility previously
available. The renegotiated and extended Operating Facility provides for a final
repayment on October 31, 1998. Lily Cups Inc. has pledged substantially all its
assets as collateral for the Canadian Credit Agreement. The Company is charged a
0.5% fee with respect to any unused balance available under the Canadian Credit
Agreement as renegotiated and extended. At September 30, 1997 and 1996, the
available capacity under the Canadian Credit Agreement was CDN $1.4 million and
CDN $2.4 million, respectively (U.S. $1.0 million and U.S. $1.8 million,
respectively).


                                       46
<PAGE>
(11)  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used to estimate the fair
value of each class of financial instruments held by the Company:

         Current assets and current liabilities - The carrying amount
         approximates fair value because of the short maturity of those
         instruments.

         Long-term bonds - The carrying amount approximates fair value based on
the nature of the instrument.

         Long-term debt - The fair value of the Company's Senior Secured Notes
         and the Senior Subordinated Notes are based on the quoted market prices
         at the end of the fiscal years. The other instruments have variable
         interest rates that fluctuate along with current market conditions.

         The estimated fair values of the Company's financial instruments at
September 30 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                     1997                                  1996
                                      ----------------------------------------------------------------------------
                                       Carrying Amount       Fair Value        Carrying Amount      Fair Value
                                      ------------------- ------------------ --------------------------------------
<S>                                      <C>                 <C>                <C>                 <C> 
Cash and cash equivalents                  $   2,650           $   2,650          $   4,371           $   4,371
Other current assets                         308,763             308,763            311,761             311,761
Current portion of long-term debt
     and bonds                                 1,369               1,369              1,535               1,535
Other current liabilities                    163,276             163,276            152,218             152,218
Long-term bonds                                3,700               3,700              3,700               3,700
Long-term debt                               426,799             428,271            381,879             388,792

</TABLE>


         The fair value of the Company's long-term debt is estimated to be
$1,472,000 higher than the carrying value at September 30, 1997 and $6,913,000
higher than the carrying value at September 30, 1996. The differences are
primarily the result of fluctuations in the interest rate market since the
issuance of the Company's Senior Secured Notes and Senior Subordinated Notes.





                                       47
<PAGE>
(12)  LEASE COMMITMENTS

         The Company leases certain transportation vehicles, warehouse and
office facilities, and machinery and equipment under both cancelable and
non-cancelable operating leases, most of which expire within ten years and may
be renewed by the Company. Rent expense under such arrangements totaled
$16,756,000, $15,636,000 and $12,417,000 for the years ended September 30, 1997,
1996 and 1995, respectively. Future minimum rental commitments under
non-cancelable operating leases in effect at September 30, 1997 are as follows
(in thousand of dollars):



             1998                                                   $12,116
             1999                                                    11,207
             2000                                                     9,083
             2001                                                     7,533
             2002                                                     6,767
             2003 and thereafter                                     11,026
                                                                     ------
                                                                    $57,732
                                                                    =======

         Data with respect to Lily Cups Inc.'s rental commitments for the years
1998 and thereafter is not material and is not included in the above table.


(13)  SHAREHOLDERS' EQUITY

         Sweetheart Holdings Inc. has a single-class capital structure
consisting of 3,000,000 shares of common stock, par value $.01 per share. As of
August 30, 1993, 1,040,000 shares of single-class stock were issued to AIP,
First Plaza Group Trust (Mellon Bank, N.A., as Trustee) and AT&T Master Pension
Trust (Leeway and Company as nominee) for approximately $100.5 million. All
outstanding shares of single-class common stock are deemed fully paid and
nonassessable. The single-class common stock is neither redeemable nor
convertible, and the holders thereof have no preemptive or other subscription
rights to purchase any securities of Sweetheart Holdings Inc. There currently is
no public market for this common stock. During the third quarter of fiscal year
1994, the Company issued 6,000 authorized shares of common stock for $100 per
share. The Company received approximately $100,000 in cash and a $500,000
promissory note in consideration for the shares. The promissory note is
reflected as a reduction to shareholders' equity in the consolidated balance
sheet. There were 1,046,000 shares of single-class common stock outstanding as
of September 30, 1997 and 1996.

         Subject to Delaware law and limitations in certain debt instruments
(Senior Secured Notes, Senior Subordinated Notes, and borrowings under the 1993
Credit Agreement), common shareholders are entitled to receive such dividends as
may be declared by Sweetheart Holdings Inc.'s Board of Directors out of funds
legally available thereof. In the event of a liquidation, dissolution or winding
up of Sweetheart Holdings, Inc., common shareholders are entitled to share
ratably in all assets remaining after payment or provision for payment of debts
or other liabilities of Sweetheart Holdings Inc. Each outstanding common share
is entitled to one vote on any matter submitted to a vote of stockholders. This
single-class common stock has no cumulative voting rights.

         The Board of Directors of Sweetheart Holdings Inc. approved the Stock
Option and Purchase Plan (the "Plan") during fiscal year 1994 which provides for
the granting of nonqualified and incentive stock options as defined by the
Internal Revenue Code. The Plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors. The Committee has the authority to
select participants, grant stock purchase options, and make all necessary
determinations for the administration of the Plan. The exercise price per share
of common stock under each option is fixed by the Committee at the time of the
grant of the option and is equal to at least 100% of the fair market value of a
share of common stock on the date of grant, but not less than $100 per share.
The Committee determines the term of each option which may not exceed ten years


                                       48
<PAGE>
from the date of grant of the option. Options are exercisable in equal
increments over fiscal years 1994, 1995, 1996, and 1997, depending on certain
operating results of the Company. Any options not exercisable within the above
years are exercisable on the ninth anniversary of the grant of the option. Under
the provisions of the Plan, the Committee may also grant participants the
short-term option to purchase shares of common stock at a price per share equal
to not less than the fair market value of the common stock on the date of grant.
Short-term options expire 30 days after the date of grant to the extent not
exercised.

         The Plan provides for the issuance of up to 103,000 shares of common
stock in connection with the stock options granted under the Plan. Options that
are canceled or expire unexercised are available for future grants. All options
are granted via approval of the Board of Directors. The Company granted 30,135
and 10,400 options during 1997 and 1996, respectively. Options canceled totaled
11,035 and 6,140 during 1997 and 1996, respectively. At September 30, 1997,
31,827 shares were available for the granting of additional options. As the
Company's stock is privately held, the value of the common stock is assumed to
be $100 per share at all times during the year. Although no options were
exercised during fiscal year 1996, and 13,818 shares were exercisable at
September 30, 1997.


(14)  NON-RECURRING CHARGES

         The Company incurred non-recurring charges in 1997 attributable to
plant restructuring and an impairment of certain long-lived assets.

         In the fourth quarter of fiscal 1997, the Company adopted a
restructuring plan designed to improve efficiency and enhance its
competitiveness. Restructuring charges consist of cash charges primarily related
to severance costs, as well as costs to close and exit the Riverside facility,
and cease paper operations at the Springfield facility, substantially all of
which will be paid in fiscal 1998.
The Company anticipates substantial completion of this restructuring in fiscal
1998.

         As a result of market conditions experienced by the Company and the
decision to close facilities as described above, the Company reviewed the
carrying value of its long-lived assets. Certain assets were identified which
would be disposed of, abandoned or become obsolete prior to the end of their
accounting useful lives, and were written-down accordingly, resulting in a
pre-tax non-cash charge totaling $24.6 million.

         The loss on asset disposal and impairment had no impact on the
Company's 1997 cash flow or its ability to generate cash flow in the future. As
a result of this charge, depreciation expense related to these assets will
decrease in future periods.


(15)  SUBSEQUENT EVENTS

1997 Amended and Restated Credit Agreement

         On October 24, 1997, the Company entered into the 1997 Amended and
Restated Credit Agreement, which provides for a $135 million Revolving Credit
Facility with Bank of America Business Credit, as Agent and various other
Financial Institutions. At closing on October 24, 1997, Bank of America Business
Credit acquired the outstanding amount of loans from Bankers Trust Company, made
under the 1993 Credit Agreement, referred to in Note 10. The 1993 Credit
Agreement was Amended and Restated to increase the facility size to $135
million, and include receivables as collateral, which had previously been sold
to Sweetheart Receivables Corporation as described in Note 10. The Company then
reacquired the receivables at SRC with the proceeds of the 1997 Amended and
Restated Credit Agreement, enabling SRC repay the Sweetheart Receivables
Corporation 1994-1 A-V Trade Receivables-Backed Notes with those proceeds and
existing restricted cash. Additionally, certain other terms and conditions of
the Credit Agreement were amended.

                                       49
<PAGE>
Availability under the Amended and Restated Credit Agreement is limited to 60%
of eligible inventory constituting raw material and work-in-process, and 65% of
eligible inventory constituting finished goods, and 40% of eligible inventory
constituting in-transit inventory of Sweetheart Cup Company Inc. (up to a
maximum of $100 million of eligible inventory). Additionally, eligible accounts
from customers, subject to certain restrictions, are allowed to 85%. These
calculations are subject to an overall maximum 80% of account's not more than 60
days past due, plus 50% of book value of inventory.

         The borrowings under the 1997 Amended and Restated Credit Agreement
bear interest, at Sweetheart Cup Company Inc.'s option, at Bank of America's
prime rate plus 1.00% or, subject to certain limitations, at Bank of America's
Eurodollar rate plus 2.25%. Additionally, the Company must pay certain other
annual and on-going expenses to Bank of America, as Agent. Up to $15 million of
the Facility may be utilized to issue Letters of Credit. The letter of Credit
Fee is 1.75% per annum, plus out of pocket fees and expense. The 1997 Amended
and Restated Credit Agreement also provides for the payment of a commitment fee
of 0.5% per annum on the daily average unused amount of the commitments under
the Facility.

         Loans made pursuant to the Revolving Loan Facility can be borrowed,
repaid, and reborrowed from time to time until final maturity on August 1, 2000.
The 1997 Amended and Restated Credit Agreement provides for partial mandatory
prepayments upon the issuance of equity by Sweetheart Holdings Inc. or any of
its subsidiaries, and full repayment upon any change of control (as defined in
the Agreement).

         The indebtedness of Sweetheart Cup Company Inc. under the 1997 Amended
and Restated Credit Agreement is guaranteed by Sweetheart Holdings Inc. and
secured by a first priority perfected security interest in inventory, spare
parts, accounts receivable and all proceeds of the foregoing of Sweetheart Cup
Company Inc., a first priority security interest, shared with the holders of the
Senior Secured Notes, in Shared Collateral (as defined in the 1993 Credit
Agreement to include primarily all capital stock owned by Sweetheart Holdings
Inc. and Sweetheart Cup Company Inc. and of each of their respective present and
future direct subsidiaries, all intercompany indebtedness payable to Sweetheart
Holdings Inc. or Sweetheart Cup Company Inc. by Sweetheart Holdings Inc.,
Sweetheart Cup Company Inc. or their respective present and future subsidiaries,
and any proceeds from business interruption insurance), and a second priority
perfected security interest in the Senior Secured Note collateral as described
below.

         The 1997 Amended and Restated Credit Agreement contains various
covenants which limit, or restrict, among other things, indebtedness, dividends,
leases, capital expenditures, the use of proceeds from asset sales and certain
other business activities. Additionally, the Company must maintain on a
consolidated basis, certain specified ratios at specified times, including,
without limitation, maintenance of minimum fixed charge coverage ratio. The
Company is currently in compliance with all covenants under the 1997 Amended and
Restated Credit Agreement.

Bakery Sale

         On November 30, 1997, the Company entered into an agreement to sell
assets of its bakery operation to Ace Baking Company Limited Partnership. Assets
sold included property, plant, and equipment, which have been reclassified to
assets held for sale, and inventories. Consideration of $22.3 million was
received, including $20.3 million of cash, and a $2 million non-interest bearing
note. A gain of $4.5 million will be recognized in fiscal year 1998. Bakery
operations represented 3% of net sales in fiscal year 1997.



                                       50
<PAGE>
(16)  RELATED-PARTY TRANSACTIONS

         AIP, which is Sweetheart Holdings Inc.'s largest stockholder and is a
private investment partnership which makes equity investments, principally in
industrial and manufacturing companies in the United States, is managed by AIPM,
an affiliate of AIP. AIPM receives an annual fee of approximately $1.85 million
for providing general management, financial and other corporate advisory
services, and is reimbursed for certain out-of-pocket expenses. The fees are
paid to AIPM pursuant to a management services agreement among AIPM, Sweetheart
Holdings Inc. and Sweetheart Cup Company Inc.

         In addition, for the year ended September 30, 1996, the Company
reimbursed AIPM for $950,000 of expenses incurred in connection with an
investigation of the Company's strategic alternatives.

(17)  BUSINESS SEGMENT AND MAJOR CUSTOMERS

         The Company operates in a single industry which is the manufacture and
distribution of paper and plastic related products in foodservice and food
packaging disposables. Sales to a major customer accounted for 13.7%, 13.6% and
13.0% for the years ended September 30, 1997, 1996 and 1995, respectively.

(18)  CONTINGENCIES

         A lawsuit entitled Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan
Benefits Committee and Fort Howard Cup Corporation was initially filed in state
court in Georgia in April 1987, and is currently pending against the Company in
federal court. The remaining issue involved in the case is a claim that the
Company wrongfully terminated the Lily-Tulip , Inc. Salary Retirement Plan (the
"Plan") in violation of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). In December 1994, the United States Circuit Court of Appeals
for the Eleventh Circuit (the "Circuit Court") ruled that the Plan was
terminated on December 31, 1986. Following that decision, the plaintiffs sought
a rehearing which was denied, and subsequently filed a petition for a writ of
certiorari with the United States Supreme Court, which was also denied.
Following remand, in March 1996 the United States District Court for the
Southern District of Georgia entered a judgment in favor of the Company.
Following denial of a motion for reconsideration, the plaintiffs in April 1997
filed an appeal with the Circuit Court.

         Management believes that the Company will ultimately prevail on the
remaining issues in the Aldridge litigation. Due to the complexity involved in
connection with the claims asserted in this case, the Company cannot determine
at present with any certainty the amount of damages it would be required to pay
should the plaintiffs prevail; accordingly, there can be no assurance that such
amount would not have a material adverse effect on the Company's financial
position or results of operations.

         The Company is subject to a variety of environmental and pollution
control laws and regulations in all jurisdictions in which it operates. The
Company is also involved in various other claims and lawsuits incidental to its
business. In the opinion of management, the ultimate liabilities, if any, after
considering the reserves established relating to these matters, will not
materially affect the Company's financial position or results of operations.





                                       51
<PAGE>
(19)  SUMMARIZED FINANCIAL INFORMATION FOR SWEETHEART CUP COMPANY INC.

         The following tables provide summarized financial information for
Sweetheart Cup Company Inc. and subsidiaries (in thousands):



                               September 30,      September 30,
                                   1997               1996
                             ------------------ ------------------

Current assets                      $562,731           $572,259
Noncurrent assets                    176,382            174,006
Current liabilities                  114,415            127,728
Noncurrent liabilities               563,065            519,635


         Prior year amounts below have been reclassified as noted in Note 1,
item (j):


                                For the            For the            For the
                              year ended          year ended         year ended
                             September 30,      September 30,      September 30,
                                 1997                1996               1995
                           ------------------ ------------------ ---------------

Net sales                         $886,017           $959,819         $986,618
Gross income                       134,401            193,191          166,101

Income (loss) from
  continuing operations
  before extraordinary loss        (36,143)            20,213              766

Net income (loss)                  (37,083)            20,213              766


(20)  SUBSEQUENT EVENT

            On December 29, 1997, the stockholders of the Company entered into
an agreement with two privately held companies ("Buyer"). Pursuant to the
agreement, Buyer will acquire from the Company's stockholders 48% of the
Company's outstanding common stock and all of a new class of non-convertible,
non-voting common stock, as a result of which Buyer will hold 90% of the total
number of outstanding shares of both classes of the Company's common stock. Upon
consummation of the transaction, the Company's existing stockholders will
nominate three of the Company's five directors and Buyer will nominate two
directors. Significant actions by the Company's Board of Directors will require
the vote of four directors. Buyer will manage the day-to-day operations of the
Company. Consummation of the transaction is expected to occur in the first
calendar quarter of 1998, subject to the satisfaction of financing,
Hart-Scott-Rodino and other conditions. Expenses to be paid by the Company in
connection with the transaction are not expected to exceed $4,750,000. The
Company will accelerate expensing of certain executive retention agreements
totalling $3.7 million over a six-month period.


                                       52
<PAGE>
                     INDEX TO FINANCIAL STATEMENT SCHEDULES




                                                                     PAGE
                                                                     ----

Report of Independent Public Accountants                              54

Schedule II - Valuation and Qualifying Accounts                       55









                                       53
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Sweetheart Holdings Inc.:


We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Sweetheart Holdings Inc. and Subsidiaries
included in this Form 10-K and have issued our reports thereon dated December 8,
1997 (except with respect to the matter discussed in Note 20, as to which the
date is December 29, 1997). Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.


                                                       /s/ ARTHUR ANDERSEN LLP

Baltimore, Maryland
December 8, 1997
(except with respect to
the matter discussed in 
Note 20, as to which the
date is December 29, 1997)









                                       54
<PAGE>
                                                                   SCHEDULE II


                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                              Additions
                                                   ------------------------------
                                     Balance at     Charged to        Charged                        Balance at
                                     beginning       costs and       to other                          end of
         Classifications             of period     expenses (1)    accounts (2)    Deductions (3)      period
---------------------------------   -------------  --------------  --------------  ---------------- -------------
<S>                                 <C>             <C>              <C>            <C>            <C> 
Allowance for Doubtful Accounts:
Year ended September 30, 1997         $ 2,466         $  446           $  51           $ 1,223        $ 1,740
Year ended September 30, 1996           2,524            369              46               473          2,466
Year ended September 30, 1995           2,468            556               9               509          2,524

</TABLE>

(1)      Current year provision for doubtful accounts.
(2)      Includes recoveries on accounts previously written off, translation 
         adjustments and reclassifications.
(3)      Accounts written off.






                                       55
<PAGE>
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Owings
Mills, State of Maryland, on December 29, 1997.

     
                                       SWEETHEART HOLDINGS INC.
                                       (Registrant)

                                       By:   /s/ WILLIAM F. McLAUGHLIN
                                             -----------------------------------
                                             William F. McLaughlin
                                             President & Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on December 29, 1997, by the following persons in the capacities
indicated:

        SIGNATURE                           CAPACITY



/s/ BURNELL R. ROBERTS                   Chairman of the Board
--------------------------------
Burnell R. Roberts



/s/ WILLIAM F. McLAUGHLIN                President and Director 
--------------------------------         (Chief Executive Officer)
William F. McLaughlin



/s/ W. RICHARD BINGHAM                   Director
--------------------------------
W. Richard Bingham



/s/ THEODORE C. ROGERS                   Director
--------------------------------
Theodore C. Rogers



/s/ PETER W.C. MATHER                    Director
--------------------------------
Peter W. C. Mather



/s/ JERRY J. JASINOWSKI                  Director
--------------------------------
Jerry J. Jasinowski



/s/ WILLIAM F. SPENGLER                  Vice President, Finance and Chief 
--------------------------------         Financial  Officer (Principal Financial
William F. Spengler                      Officer and Principal  Accounting
                                         Officer)





                                       56
<PAGE>
                                 EXHIBIT INDEX


     Exhibit No.                      Decsription
     -----------                      -----------

         3.1      Certificate of Incorporation of Sweetheart Holdings Inc.
                  (incorporated by reference from Exhibit 3.1 of the Company's
                  report on Form 10-K dated December 22, 1993 (the "1993
                  10-K")).

         3.2      By-laws of Sweetheart Holdings Inc. (incorporated by reference
                  from Exhibit 3.3 of the 1993 10-K).

         4.1      Indenture for the Senior Secured Notes between Sweetheart Cup
                  Company Inc. and United States Trust Company of New York, as
                  Trustee (incorporated by reference from Exhibit 4.1 of
                  Sweetheart Holdings Inc.'s Report on Form 8-K dated October 6,
                  1993 (the "1993 8-K")).

         4.2      Indenture for the Senior Subordinated Notes between Sweetheart
                  Cup Company Inc. and U.S. Trust Company of Texas, N.A., as
                  Trustee (incorporated by reference from Exhibit 4.2 on the
                  1993 8-K).

         10.1     Employment Agreement dated May 15, 1994 between Sweetheart
                  Holdings Inc. and William F. McLaughlin (incorporated by
                  reference from Exhibit 10.4 of the Company's report on Form
                  10-Q dated August 12, 1994).

         10.2     Receivables Purchase Agreement between Sweetheart Cup Company
                  Inc. and Sweetheart Receivables Corporation dated September
                  20, 1994 (incorporated by reference from Exhibit 10.5 of the
                  Company's report on Form 10-K dated December 9, 1994 (the
                  "1994 10-K")).

         10.3     Indenture and Security Agreement among Sweetheart Receivables
                  Corporation, Sweetheart Cup Company Inc. and Manufacturers and
                  Traders Trust Company dated September 20, 1994 (incorporated
                  by reference from Exhibit 10.6 of the 1994 10-K).

         10.4     Supplemental Indenture for Series 1994-1 A-V Notes among
                  Sweetheart Receivables Corporation, Sweetheart Cup Company
                  Inc. and Manufacturers and Traders Trust Company dated
                  September 20, 1994 (incorporated by reference from Exhibit
                  10.7 of the 1994 10-K).

         10.5     Credit Agreement among Sweetheart Inc., Sweetheart Cup Company
                  Inc., various banks and Bankers Trust Company, as Agent (the
                  "Credit Agreement") (incorporated by reference from Exhibit
                  28.1 of the 1993 8-K).

         10.6     First Amendment to the Credit Agreement dated July 22, 1994
                  (incorporated by reference from Exhibit 10.9 of the 1994
                  10-K).


<PAGE>
         10.7     Management Services Agreement dated as of August 30, 1993
                  among the Sweetheart Holdings Inc., Sweetheart Cup Company
                  Inc. and American Industrial Partners Management Company, Inc.
                  (the "Management Services Agreement") (incorporated by
                  reference from Exhibit 28.2 of the 1993 8-K).

         10.8     Restated Management Services Agreement dated August 31, 1993
                  (incorporated by reference from Exhibit 10.11 of the 1994
                  10-K).

         10.9     $1,000,000 Rockdale County, Georgia Industrial Revenue Bonds,
                  Series 1976: Loan Agreement dated as of August 1, 1976 between
                  Development Authority of Rockdale County, Georgia and Maryland
                  Cup Corporation; and Trust Indenture dated as of August 1,
                  1976 between Development Authority of Rockdale County, Georgia
                  and The Citizens and Southern National Bank, as Trustee
                  (incorporated by reference from Exhibit 10.8 of the
                  Registration Statement).

         10.10    $1,000,000 City of Sparks, Nevada Industrial Revenue Bonds,
                  Series 1977: Lease and Agreement dated as of February 1, 1977
                  between City of Sparks, Nevada and Sweetheart Plastics, Inc.;
                  Trust Indenture dated as of February 1, 1977 between City of
                  Sparks, Nevada and First National Bank of Nevada, Reno,
                  Nevada; and Guaranty Agreement dated as of February 1, 1977
                  between Maryland Cup Corporation and First National Bank of
                  Nevada, Reno, Nevada (incorporated by reference from Exhibit
                  10.9 of the Registration Statement).

         10.11    $2,500,000 Manchester, New Hampshire Industrial Revenue Bonds,
                  Series 1979: Loan Agreement and Assignment in Trust dated as
                  of June 1, 1979 between the Industrial Development Authority
                  of the State of New Hampshire and Maryland Cup Corporation and
                  State Street Bank and Trust Company, Trustee; and Assumption
                  Agreement dated as of August 26, 1983 by MC Acquisition Corp.
                  (incorporated by reference from Exhibit 10.10 of the
                  Registration Statement).

         10.12    Term and Revolving Credit Facilities Agreement, dated as of
                  December 20, 1989, among Lily Canada, BT Bank of Canada and
                  The Bank of Nova Scotia and Amendment Agreement, dated as of
                  August 30, 1993 between Lily Canada and The Bank of Nova
                  Scotia (incorporated by reference from Exhibit 10.8 of the
                  1993 10-K).

         10.13    Asset Sale Agreement dated as of October 6, 1993 between
                  Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
                  (incorporated by reference from Exhibit 10.1 of the Company's
                  report on Form 10-Q dated February 11, 1994).

         10.14    Bill of Sale, Assignment and Assumption Agreement dated as of
                  October 6, 1993 between Sweetheart Holdings Inc. and
                  Sweetheart Cup Company Inc. (incorporated by reference from
                  Exhibit 10.2 of the Company's report on Form 10-Q dated
                  February 11, 1994).

         10.15    Wraparound Note dated as of October 6, 1993 made by Sweetheart
                  Holdings Inc. to Sweetheart Cup Company Inc. (incorporated by
                  reference from Exhibit 10.3 of the Company's report on Form
                  10-Q dated February 11, 1994).

         10.16    Asset Distribution Agreement dated as of October 6, 1993
                  between Sweetheart Holdings Inc. and Sweetheart Cup Company
                  Inc. (incorporated by reference from Exhibit 10.4 of the
                  Company's report on Form 10-Q dated February 11, 1994).

         10.17    Manufacturing Agreement dated as of October 6, 1993 between
                  Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. (the
                  "Manufacturing Agreement") (incorporated by reference from
                  Exhibit 10.5 of the Company's report on Form 10-Q dated
                  February 11, 1994).

         10.18    First Amendment to Manufacturing Agreement dated February 25,
                  1994 (incorporated by reference from Exhibit 10.21 of the 1994
                  10-K).


<PAGE>
         10.19    Patent/Know-How License Agreement dated as of October 6, 1993
                  between Sweetheart Holdings Inc. and Sweetheart Cup Company
                  Inc. (incorporated by reference from Exhibit 10.6 of the
                  Company's report on Form 10-Q dated February 11, 1994).

         10.20    Sweetheart Holdings Inc. Stock Option and Purchase Plan dated
                  December 17, 1993 (incorporated by reference from Exhibit
                  10.26 of the 1994 10-K).

         10.21    Sweetheart Holdings Inc. Management Incentive Plan dated as of
                  January 27, 1995 (incorporated by reference from Exhibit 10.1
                  of the Company's report on Form 10-Q dated February 9, 1995).

         10.22    Sweetheart Cup Company Inc. Severance Pay Plan (Effective July
                  1, 1994) (incorporated by reference from Exhibit 10.2 of the
                  Company's report on Form 10-Q dated February 9, 1995).

         10.23    Sweetheart Cup Company Inc. Deferred Compensation Plan dated
                  as of January 27, 1995 (incorporated by reference from Exhibit
                  10.3 of the Company's report on Form 10-Q dated February 9,
                  1995).

         10.24    Registration Statement on Form S-8 dated April 17, 1995 for
                  the Sweetheart Cup Company Inc. Deferred Compensation Plan
                  (incorporated by reference from Exhibit 10.1 of the Company's
                  report on Form 10-Q dated May 11, 1995).

         10.25    Separation agreement between Sweetheart Cup Company Inc. and
                  John R. Icke dated May 26, 1995 (incorporated by reference
                  from Exhibit 10.1 of the Company's report on Form 10-Q dated
                  August 10, 1995).

         10.26    Second Amendment to the Credit Agreement dated September 6,
                  1996 (incorporated by reference from Exhibit 10.26 of the
                  Company's report on Form 10-K dated December 20, 1996 (the
                  "1996 10-K")).

         10.27    Loan Agreement dated August 1, 1996 between Sweetheart
                  Holdings Inc. and the State of Maryland Department of Business
                  and Economic Development (incorporated by reference from
                  Exhibit 10.27 of the 1996 10-K).

         10.28    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  McLaughlin dated December 9, 1996 (incorporated by reference
                  from Exhibit 10.28 of the 1996 10-K).

         10.29    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Joseph A.
                  Lucas dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.29 of the 1996 10-K).

         10.30    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William H.
                  Haas dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.30 of the 1996 10-K).

         10.31    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Daniel M.
                  Carson dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.31 of the 1996 10-K).

         10.32    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Charles E.
                  Busse dated November 18, 1996 (incorporated by reference from
                  Exhibit 10.32 of the 1996 10-K).


<PAGE>
         10.33    Promissory Note dated September 24, 1996 between Sweetheart
                  Holdings Inc. and the State of Maryland Department of Business
                  and Economic Development (relating to the Loan Agreement filed
                  as exhibit 10.27 to the 1996 10-K, incorporated by reference
                  from Exhibit 10.33 of the Company's report on Form 10-Q dated
                  February 11, 1997).

         10.34    Third Amendment to Credit Agreement dated June 17, 1997
                  (incorporated by reference from Exhibit 10.34 of the Company's
                  report on Form 10-Q dated August 5, 1997).

         10.35    Amended and Restated Loan and Security Agreement dated October
                  24, 1997 between Sweetheart Holdings Inc. as borrower and
                  BankAmerica Business Credit, Inc., as Agent.

         10.36    Special Incentive Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and James R.
                  Mullen dated November 18, 1996.

         10.37    Employment Agreement dated March 1, 1997 between Sweetheart
                  Holdings Inc. and William F. Spengler.

         10.38    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  McLaughlin dated October 1, 1997.

         10.39    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William H.
                  Haas dated October 1, 1997.

         10.40    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  Spengler dated October 1, 1997.

         10.41    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Daniel M.
                  Carson dated October 1, 1997.

         10.42    Executive Retention Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and James R.
                  Mullen dated October 1, 1997.

         10.43    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William F.
                  McLaughlin dated December 19, 1997.

         10.44    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and James R.
                  Mullen dated December 19, 1997.

         10.45    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and Daniel M.
                  Carson dated December 19, 1997.

         10.46    Employee Relocation Agreement between Sweetheart Holdings Inc.
                  and its subsidiary, Sweetheart Cup Company Inc. and William H.
                  Haas dated December 19, 1997.

         21.1     Subsidiaries of the Company (incorporated by reference from
                  Exhibit 21.1 of the 1994 10-K).

         27.0     September 30, 1997 Financial Data Schedule


(b)  Current Reports on Form 8-K

         None.