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                                  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

                  For the fiscal year ended September 30, 2001
           |_|Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                 for the transition period from ______ to _____

                         Commission file number 33-91600

                            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 12b of the Act: None
Securities of the Registrant registered pursuant to Section 12g 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 6, 2001.  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 6, 2001:
Sweetheart Holdings Inc. Class A Common Stock, $0.01 par value- 1,046,000 shares
Sweetheart Holdings Inc. Class B Common Stock, $0.01 par value- 4,393,200 shares

* The Registrant is the guarantor of the 10 1/2% Senior  Subordinated  Notes due
2003  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.  ("Sweetheart  Holdings"),  together with its
wholly owned  subsidiary  Sweetheart Cup Company Inc.  ("Sweetheart  Cup"),  and
collectively with 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  Fiscal  2001,  the  Company  had net  sales of
approximately  $981 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(R), Lily(R), Trophy(R), Jazz(R),
Preference(TM),  and Go Cup(R),  for cups and  plates,  and  Silent  Service(R),
Centerpiece(R),   Basix(R),   Guildware(R),  and  Simple  Elegance(R)  for  foam
dinnerware and plastic cutlery. In addition,  the Company designs,  manufactures
and leases container  filling and lidding 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 its  customers'  plants.  The Company also
sells paper converting equipment used primarily in the manufacture of paper cups
and food containers.

         On March 12, 1998, SF Holdings Group,  Inc. ("SF  Holdings")  purchased
48% of  the  voting  stock  and  100%  of the  non-voting  stock,  or 90% of the
Company's total outstanding stock, from the then existing  shareholders (the "SF
Holdings Investment").  In connection therewith,  the then existing shareholders
continued to hold  approximately 52% of the voting stock of the Company of which
American  Industrial Partners Capital Fund L.P. ("AIP") holds approximately 27%.
In addition,  on March 12, 1998, The Fonda Group, Inc. ("Fonda") became a wholly
owned subsidiary of SF Holdings.  The Company's business is the successor to the
businesses  of  Maryland  Cup  Corporation,  which was founded in 1911 and was a
major supplier of paper and plastic  disposable  foodservice  and food packaging
products, and Lily-Tulip, Inc., a subsidiary of Sweetheart Cup. ("Lily").


Products

         The  Company  has  historically  sold  its  products  to two  principal
customer  groups,  institutional  foodservice and food packaging.  Institutional
foodservice  customers  primarily  purchase  disposable hot and cold drink cups,
lids,  food  containers,  plates,  bowls,  cutlery  and  straws.  The  Company's
institutional  foodservice  customer base focuses on two major customer  groups,
national  accounts  and  distributors.  Products  are sold  directly  as well as
through   distributors  to  quick  service  restaurant   chains,   full  service
restaurants,  convenience stores, hospitals,  airlines, theaters, school systems
and other institutional  customers.  Food packaging customers primarily purchase
paper and plastic containers for the dairy and food processing industries.  Food
packaging  customers  also lease  filling and  packaging  machines  designed and
manufactured  by the Company that fill and seal the Company's  containers in its
customers' plants.  The Company  manufactures and markets its products in Canada
and  Mexico to  national  accounts  and  distributors.  The  Company  also sells
consumer  foodservice products primarily through grocery stores, club stores and
convenience stores.

         Institutional  foodservice  is the Company's  largest  customer  group,
accounting for approximately  78.5% of net sales during Fiscal 2001.  Management
believes  the  Company  is  one  of  the  largest  manufacturers  of  disposable
foodservice products in North America.

         Paper,  foam and plastic  cups,  lids and straws  represent the largest
part of the  Company's  United States  disposable  foodservice  operations.  The
largest single  product type within this category is cups,  which are offered in
various  sizes  (ranging  from 3 to 64 ounces) for both hot and cold  beverages.
Brand  names of the  Company's  principal  beverage  service  products  include:
Sweetheart(R),   Lily(R),  Trophy(R),   Preference(TM),   Jazz(R),   Gallery(R),
Clarity(R), Lumina(R), ClearLight(R), and Go Cups(TM).

                                       2
<PAGE>
         The  Company  offers a  variety  of other  foodservice  products  which
includes  paper,  foam, and plastic plates and bowls,  portion cups and cutlery.
These products are sold to a broad array of commercial  and on-site  foodservice
operators.

         The Company also offers carry-out service products  consisting of paper
and plastic tubs,  containers,  lids,  and hinged foam  containers.  The Company
believes  it is one of the  largest  manufacturers  of paper  tubs for  chicken,
popcorn and  take-out  foods in North  America.  Munchie  Cup(R),  Flexstyle(R),
Highlights(R), Maximizers(TM), and Scoop Cup are some of the Company's carry-out
service brands.

         Other  products  include the  Company's  Flex-E-Form(TM)  straight-wall
paper manufacturing  technology which is a process used to package food products
and Flex-Guard(TM),  a paper spiral wound  tamper-evident lid. In addition,  the
Company  provides  foodservice  customers  with  retail  packages  sold  through
retailers under various Sweetheart and private label brands.

         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 the  Company's  containers  at  customers'  plants.  The
Company's  filling and lidding  equipment is leased to customers under the trade
names Auto-Pak, Flex-E-Fill(R) and FoodPac(R). Types of products packaged in the
Company's machines include ice cream,  factory-filled  jacketed ice cream cones,
cottage  cheese,  yogurt and squeeze-up  desserts.  The Company also designs and
manufactures  cup-making  equipment.  This  equipment  is  manufactured  in  the
Company's machine shop and assembly plants located in Owings Mills, Maryland and
Kensington, Connecticut.


Operations

         As part of the Company's ongoing cost reduction and profit  improvement
initiatives, the Company began a program to rationalize, consolidate and improve
its manufacturing  facilities.  The Company believes the  consolidation  program
will  improve the  efficiency  of its  manufacturing  sites  without any adverse
impact on customer service levels.


Marketing and Sales

         The  Company's  institutional  and  consumer  foodservice  products are
primarily sold to national accounts and through distributors to other end-users.
Food  packaging  customers  include  national  and  regional  dairies  and  food
companies. Consumer products are sold to grocery, convenience and club stores.

         The Company  focuses its marketing  efforts on both the distributor and
the end-user  customer.  The Company tailors  programs,  consisting of products,
price,  promotional and merchandising  materials,  training and  sales/marketing
coverage to effectively meet the specific needs of target customers and markets.
The Company sells these programs  through both a direct sales  organization  and
brokers. The Company supports this process through the development of innovative
new  products,  materials,  and  processes,  while  leveraging  its strong brand
recognition and national network of manufacturing and distribution centers.


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
the seasonality of customer demand,  production is generally greater during late
spring and summer than during fall and winter. See "Item 2. Properties".

                                       3
<PAGE>
Raw Materials and Suppliers

         Raw materials are a critical component of the Company's cost structure.
Principal  raw  materials  for the  Company's  paper  operations  include  solid
bleached  sulfate  paperboard   obtained  directly  from  major  North  American
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 and
high and low density  polyethylene)  purchased directly from major petrochemical
companies  and other resin  suppliers.  Resin is processed and formed into cups,
cutlery, meal service products,  straws, lids and containers.  In addition,  the
Company  manufactures foam products by melting  polystyrene plastic and adding a
blowing  agent that is then  passed  through a die and  extruded  into sheets of
plastic foam material. The foam is then formed into cups, bowls and plates.

         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 who compete across the
full line of the  Company's  products,  as well as those who  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
and have greater access to financial and other resources.  The Company's primary
competitors in its institutional and consumer foodservice customer base include:
Dixie Foodservice Corp. (a division of the Georgia Pacific Corp.), Solo Cup Co.,
International  Paper Food Service  Business (a division of  International  Paper
Co.), Dart Container Corporation,  and Pactiv Corporation.  Major competitors in
its food packaging customer base include:  Hutamaki, Inc., Landis Plastics Inc.,
Norse Dairy Systems Inc., and Berry Plastics, Inc.


Customers

         The Company  markets its products  primarily to customers in the United
States.  During  Fiscal  2001,  sales to the  Company's  customers in Canada and
Mexico constituted  approximately 7.5% and 0.6% of its net sales,  respectively.
During  Fiscal  2001,  net  sales  to  the  Company's  five  largest   customers
represented approximately 32.8% of its total net sales. Of these five customers,
only one customer represents more than 10% of net sales,  Perseco NA Inc., which
accounted for 12.1% of net sales.  The Company has no written contract with this
customer.  Sales are made to Perseco  pursuant to a purchase order, the terms of
which are dependent on market  conditions The loss of one or more large national
customers could adversely affect the Company's  operating  results.  The Company
believes it has strong relationships with its major national accounts which have
been developed over many years.

         The  Company  sells  to  a  diversified  customer  base  consisting  of
primarily of (i) major food service  distributors  such as Sysco Corporation and
Alliant  Foodservice  Inc.,  (ii)  quick  service  chains,  such  as  McDonald's
Corporation  and Burger King  Corporation,  and  convenience  stores,  such as 7
Eleven, Inc., (iii) national catering services,  such as ARAMARK Corporation and
Sodexho Marriott  Services.  Our food packaging  containers and lids are sold to
national and regional dairy and food  companies such as Ben & Jerry's  Homemade,
Inc.,  Blue Bell  Creameries,  L.P.,  Suiza foods  Corporation and Prairie Farms
Dairy, Inc.

                                       4
<PAGE>
Environmental Matters

         The  Company  and its  operations  are  subject  to  comprehensive  and
frequently  changing  federal,   state,  foreign  and  local  environmental  and
occupational  health  and  safety  laws  and  regulations,  including  laws  and
regulations governing emissions of air pollutants,  discharge of waste and storm
water and the disposal of hazardous wastes.  The Company is subject to liability
for the investigation and remediation of environmental  contamination (including
contamination  caused by other  parties) at properties  that it owns or operates
and at other properties where the Company or its predecessors  have arranged for
the disposal of hazardous substances.  As a result, the Company is involved from
time to time in administrative  and judicial  proceedings and inquiries relating
to  environmental  matters.  The Company  believes that,  except as noted below,
there are currently no material pending  investigations  at the Company's plants
and sites relating to environmental matters.  However, there can be no assurance
that the Company will not be involved in any such  proceeding  in the future and
that any  amount of future  clean up costs and other  environmental  liabilities
will not be material.  The Company  spent less than  $200,000 for  environmental
compliance  in Fiscal  2001 and  anticipates  spending  less than  $200,000  for
environmental compliance in Fiscal 2002.

         The  Company   cannot   predict  what   environmental   legislation  or
regulations  will be enacted  in the  future,  how  existing  or future  laws or
regulations will be administered or interpreted or what environmental conditions
may be found to exist. Enactment of more stringent laws or regulations or a more
strict  interpretation  of existing laws and regulations may require  additional
expenditures by the Company, some of which could be material.

         The  Clean  Air Act  mandates  the  phase  out of  certain  refrigerant
compounds,   which  will   require  the  Company  to  upgrade  or  retrofit  air
conditioning  and chilling  systems  during the next few years.  The Company has
decided  to replace  units as they  become  inefficient  or  unserviceable.  The
Company  expects to complete the  replacement  of all such units within the next
five to ten years, at an estimated total cost of less than $800,000.

         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.

         Certain of the  Company's  facilities  are  located in states that have
regulations  governing  emissions of nitrogen oxide.  While the Company believes
that these regulations do not apply to its operations, the Company will continue
to monitor its operations for compliance.

         On July 13, 1999, the Company received a letter from the  Environmental
Protection Agency ("EPA")  identifying the Company,  among numerous others, as a
"potential  responsible party" under the Comprehensive  Environmental  Response,
Compensation  and  Liability Act of 1980,  as amended  ("CERCLA"),  at a site in
Baltimore,  Maryland.  The EPA letter states that it does not constitute a final
determination  by EPA  concerning  the  liability  of the  Company  or any other
entity. The Company responded to the EPA that upon review of its files it had no
information  with respect to any dealings  with that site. On December 20, 1999,
the Company  received an information  request  letter from the EPA,  pursuant to
CERCLA,  regarding a Container  Recycling  Superfund Site in Kansas City, Kansas
and in January 2000 the Company  responded to such inquiry.  In both  instances,
the Company  has  received no further  communication  from the EPA.  The Company
denies  liability  and has no reason to believe the final  outcomes  will have a
material  adverse  effect on the  Company's  financial  condition  or results of
operations.  However, no assurance can be given about the ultimate effect on the
Company.


Technology and Research

         The Company  maintains a facility for the  development  of new products
and  product  line  extensions  in Owings  Mills,  Maryland  and a facility  for
machinery design & building in Kensington,

                                       5
<PAGE>
Connecticut.  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,  equipment,  and processes and technical
assistance  in  adhering to  environmental  rules and  regulations.  The Company
continually  reviews concepts and ideas to expand its proprietary  manufacturing
technology,  further automate its manufacturing  operations and develop improved
manufacturing  processes,  equipment,  and  products.  During  Fiscal 2001,  the
Company initiated a program to automate certain of its manufacturing  operations
which the Company  expects to be  completed in Fiscal  2002.  These  initiatives
include the implementation of a robotic transfer and sorting system for finished
goods;  automatic packaging;  information systems upgrades;  and enhancements to
printing  processes.  The Company  believes that these  initiatives will further
streamline  its  manufacturing  operations.  Also,  the  Company  initiated  new
products  and  new  production  capabilities  which  will  enable  its  plastics
operations to address existing and emerging market opportunities.


Employees

         At September 30, 2001,  the Company  employed  6,370  persons,  of whom
5,265 persons were hourly  employees.  Approximately  92.1% of the employees are
located at facilities in the United States. The Company currently has collective
bargaining  agreements  in effect at its  facilities in  Springfield,  Missouri;
Augusta,  Georgia;  Kensington,  Connecticut;  Toronto,  Canada and  Cuautitlan,
Mexico. The collective bargaining  agreements cover all production,  maintenance
and distribution  hourly-paid  employees at each respective facility and contain
standard  provisions  relating  to,  among  other  things,   management  rights,
grievance,  procedures,  strikes and lockouts, seniority and union rights. As of
September 30, 2001,  approximately  25.5% of the Company's hourly employees were
covered by these collective bargaining agreements.  The current expiration dates
of the  Springfield,  Augusta,  Kensington,  Toronto and  Cuautitlan  collective
bargaining  agreements  are February 24, 2004,  October 31, 2002,  September 30,
2004,  November  30,  2003 and  December  31,  2001,  respectively.  The Company
considers its relationship with its employees to be good.


Item 2.  PROPERTIES

         The Company  has  manufacturing  and  distribution  facilities  located
throughout the United States, Canada and Mexico. All of the Company's facilities
are well maintained,  in good operating condition and suitable for the Company's
operations.   The  table  below  provides  summary  information   regarding  the
properties owned or leased by the Company.

                                       6
<PAGE>
<TABLE>
<CAPTION>
                                                                         Size
                                                      Type of       (Approximate     Owned/
                   Location                         Facility (1)     square feet)    Leased    Lease Expiration
                   --------                        --------------  ---------------  --------  ------------------
<S>                                                <C>             <C>              <C>       <C>

Augusta, Georgia (2 facilities).............           M/W              339,000        O
                                                       W                202,500        L       March 31,2023

Chicago, Illinois (2 facilities)............           M/W              902,000        O
                                                       W                735,500        L       February 28, 2003

Conyers, Georgia (2 facilities).............           M/W              350,000        O
                                                       W                555,000        O

Cuautitlan, Mexico (3 facilities)...........           M                 24,200        L       September 3, 2009
                                                       W                 25,800        L       September 3, 2009
                                                       W                 28,800        L       April 1, 2010

Dallas, Texas ..............................           M/W            1,304,000        O

Hampstead, Maryland.........................           W              1,034,000        L       May 30, 2020

Kensington, Connecticut (4 facilities)......           M/W               96,000        L(2)    May 15, 2010
                                                       M/W              112,000        L(2)    May 15, 2010
                                                       W                 30,000        L(2)    May 15, 2010
                                                       W                 34,100        L(2)    June   1, 2002

Lafayette, Georgia..........................           M/W              147,000        L(3)    April 30, 2003

Manchester, New Hampshire...................           M/W              160,000        O(4)

North Andover, Massachusetts................           M/W              248,500        L       October 31, 2020

North Las Vegas, Nevada (2 facilities)......           M/W               99,100        L       August 31, 2010
                                                                         96,000        L       August 31, 2010

Ontario, California.........................           W                396,000        L       May 1, 2014

Owings Mills, Maryland (2 facilities).......           M/W            1,533,000        O
                                                       M/W              267,000        O

Scarborough, Ontario, Canada ...............           M/W              400,000        O
                                                       W                125,000        L       March 31, 2003

Somerville, Massachusetts...................           M/W              193,000        O(5)

Springfield, Missouri (2 facilities)........           M/W              925,000        O
                                                       W                415,000        L       March 25, 2003
</TABLE>
(1)  M-Manufacturing; W-Warehouse; M/W-Manufacturing and Warehouse in same
     facility.
(2)  Subject to a purchase option which expires May 15, 2005.
(3)  Subject to a purchase option which expires April 30, 2002.
(4)  On  September  25,  2001,  the  Company  entered  into a purchase  and sale
     agreement  pursuant  to which it has  agreed  to sell  this  facility.  The
     Company expects to consummate this sale by the end of December 2001.
(5)  On February 20, 2001, the Company's  Board of Directors  approved plans for
     the closure and sale of the Somerville, Massachusetts facility. The Company
     has reclassified this facility to assets held for sale.


Item 3.  LEGAL PROCEEDINGS

         A lawsuit entitled Aldridge v. Lily-Tulip,  Inc. Salary Retirement Plan
Benefits Committee and Fort Howard Cup Corporation, Civil Action No. CV 187-084,
was filed in state  court in Georgia in April 1987

                                       7
<PAGE>
and later removed to federal court. The Plaintiffs claimed,  among other things,
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.  The  relief  sought  by  Plaintiffs  was to have  the  Plan
termination  declared  ineffective.  The United  States Court of Appeals for the
Eleventh  Circuit  (the  "Circuit  Court")  ruled  that the  Plan  was  lawfully
terminated on December 31, 1986, and judgment was entered dismissing the case in
March 1996.  The Circuit  Court  affirmed the  judgment  entered in favor of the
Company. Plaintiffs filed a petition for writ of certiorari to the United States
Supreme Court, which was denied in January 1999. The Company expects to complete
paying out the termination  liability and associated expenses in connection with
the Plan termination by December 31, 2001. As of September 30, 2001, the Company
disbursed  $19.6  million in  termination  payments.  The  estimate of the total
termination liability and associated expenses, less payments, exceeds the assets
set aside in the Plan by $0.4 million,  which amount has been fully  reserved by
the Company.

         Counsel  for the  Liquidating  Trustee  of Ace Baking  Company  Limited
Partnership,  debtor in  possession,  has advised  the Company  that the Trustee
intends to pursue a claim,  pursuant to the  Uniform  Fraudulent  Transfer  Act,
against the Company,  in  connection  with the sale by the Company of its bakery
business to Ace Baking Company in November  1997. The Company  believes that the
claim is without merit and the Company  intends to vigorously  defend any action
taken by the Trustee. In addition, the Company has no reason to believe that the
final  outcome  of this  matter  will  have a  material  adverse  effect  on its
financial  condition or results of operation.  However,  the Company cannot give
any assurances as to the ultimate effect on the Company, if any, given the early
stage of this matter.

          The Company is subject to legal  proceedings  and other claims arising
in the ordinary course of its business. The Company maintains insurance coverage
of types and in amounts which it believes to be adequate and believes that it is
not presently a party to any litigation,  the outcome of which could  reasonably
be expected to have a material  adverse  effect on its  financial  condition  or
results of operations.


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

           NONE


                                     PART II


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

         Sweetheart  Cup is a wholly owned  subsidiary of  Sweetheart  Holdings,
which is a  privately  held  corporation.  No equity  securities  of  Sweetheart
Holdings  or  Sweetheart  Cup  are  publicly  traded  or  registered  under  the
Securities  Exchange  Act of 1934,  as amended,  and there is no public  trading
market for the stock.

         Payment of cash dividends is restricted under the instruments governing
the Company's indebtedness. The Company has not paid cash dividends and does not
anticipate paying any cash dividends in the foreseeable future.

         As of  December  6, 2001,  there  were  eleven  holders  of  Sweetheart
Holdings'  Class A Common Stock and one holder of Sweetheart  Holdings'  Class B
Common Stock.


Item 6.  SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

         Set forth below are selected historical  consolidated financial data of
the Company at the dates and

                                       8
<PAGE>
for the fiscal years shown. The selected historical  consolidated financial data
at September 30, 2001 and September 24, 2000 and for Fiscal 2001,  2000 and 1999
is derived from historical  consolidated financial statements of the Company and
subsidiaries  for such  periods that have been audited by Deloitte & Touche LLP,
independent  auditors and are included elsewhere herein. The selected historical
consolidated  financial  data at  September  26,  1999,  September  27, 1998 and
September  30,  1997 and for Fiscal  1998 and 1997 is derived  from the  audited
historical consolidated financial statements of the Company and subsidiaries for
such periods.

         During  Fiscal  2000 and Fiscal  1997,  the  Company  accelerated  $0.5
million and $1.6 million,  respectively,  of amortization  for unamortized  debt
issuance costs related to the early  retirement of debt. These charges are shown
as an extraordinary  loss (net of $0.2 million and $0.6 million of income taxes,
respectively)   in  the   Consolidated   Statements  of  Operations   and  Other
Comprehensive  Income (Loss).  During Fiscal 1998,  the Company  recorded a $1.5
million expense as a cumulative effect of change in accounting principle (net of
$1.0  million of income  taxes)  relating to the  implementation  of EITF 97-13,
which  requires  companies to expense any previously  capitalized  reengineering
costs in  connection  with  software  installation.  (See "Item 7.  Management's
Discussion and Analysis of Financial Condition and Results of Operations").

<TABLE>
<CAPTION>
                                                                           Fiscal
                                                -----------------------------------------------------------
(In thousands)                                     2001         2000       1999         1998       1997
                                                ----------- ----------- ----------- ----------- -----------
<S>                                             <C>         <C>         <C>         <C>         <C>
Operating Data:
Net sales                                        $ 981,348   $ 952,728   $ 863,781   $ 843,502   $ 886,017
Cost of sales                                      879,905     833,959     763,750     787,706     822,818
                                                 ----------  ----------  ----------  ----------  ----------
  Gross profit                                     101,443     118,769     100,031      55,796      63,199
Selling, general and administrative expenses        65,943      64,852      67,406      68,818      66,792
Restructuring charge (credit)                            -         503        (512)        897       9,680
Asset impairment expense                             2,244           -           -       5,000      24,550
Other (income) expense, net                         (9,167)     (4,688)     (1,180)     12,400         (73)
                                                 ----------  ----------  ----------  ----------  ----------
  Operating income (loss)                           42,423      58,102      34,317     (31,319)    (37,750)
Interest expense, net                               23,519      36,825      41,671      42,955      40,265
                                                 ----------  ----------  ----------  ----------  ----------
  Income (loss) before taxes, minority
    interest, cumulative effect of change in
    accounting principle and extraordinary loss     18,904      21,277      (7,354)    (74,274)    (78,015)
Income tax expense (benefit)                         7,561       8,492      (2,941)    (29,711)    (31,206)
Minority interest in subsidiary                         68           -           -           -           -
Cumulative effect of change in accounting
  principle                                              -           -           -       1,511           -
Extraordinary loss, net                                  -         313           -          -          940
                                                 ----------  ----------  ----------  ----------  ----------
  Net income (loss)                              $  11,275   $  12,472   $  (4,413)  $ (46,074)  $ (47,749)
                                                 ==========  ==========  ==========  ==========  ==========
Balance Sheet Data (at end of year):
  Property, plant and equipment, net             $ 206,640   $ 205,787   $ 322,967   $ 355,224   $ 382,491
  Total assets                                     604,062     582,833     634,640     665,626     715,589
  Long-term debt *                                 242,176     210,269     118,446     422,438     430,499
  Shareholders' equity                              36,333      30,413      18,274      18,983      70,670
</TABLE>

* - See Note 11 of the Notes to Consolidated Financial Statements.


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

         Forward-looking statements in this filing, including those in the Notes
to  Consolidated  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

                                       9
<PAGE>
and business conditions,  competitive market pricing,  increases in raw material
costs,  energy costs and other manufacturing  costs,  fluctuations in demand for
the Company's products, potential equipment malfunctions and pending litigation.


General

         On March 12, 1998,  SF Holdings  purchased  48% of the voting stock and
100% of the non-voting  stock, or 90% of the Company's total  outstanding  stock
from the then existing shareholders.  The then existing shareholders continue to
hold 52% of the voting  stock of the  Company  of which AIP holds  approximately
27%. The Company's  business is the successor to the  businesses of Maryland Cup
Corporation,  which was  founded in 1911 and was a major  supplier  of paper and
plastic  disposable  foodservice  and food  packaging  products,  and  Lily.  In
addition,  on March 12,  1998,  Fonda  became a wholly  owned  subsidiary  of SF
Holdings  and in  conjunction  with  the SF  Holdings  Investment  AIP  assigned
substantially  all of the  Management  Services  Agreement,  as  amended,  to SF
Holdings which assigned  substantially  all of its interest to Fonda.  See "Item
13. Management Services Agreement with SF Holdings."

         The  Company  has  historically  sold  its  products  to two  principal
customer  groups,  institutional  foodservice and food packaging.  Institutional
foodservice  customers  primarily  purchase  disposable hot and cold drink cups,
lids, food  containers,  plates,  bowls,  cutlery and straws.  Products are sold
directly and through  distributors  to quick  service  restaurant  chains,  full
service restaurants,  convenience stores, hospitals,  airlines, theaters, school
systems and other  institutional  customers.  Food packaging customers primarily
purchase  paper  and  plastic  containers  for the  dairy  and  food  processing
industries.  Food packaging  customers also lease filling and packaging machines
designed  and  manufactured  by the  Company  that  fill and seal the  Company's
containers  in  customers'  plants.  The  Company  manufactures  and markets its
products in Canada to national  accounts and  distributors.  During Fiscal 1999,
the Company  began  selling  consumer  foodservice  products  primarily  through
grocery stores, club stores and convenience stores.

         The Company's  business is seasonal,  as away from home  consumption of
disposable  products  increases  in the late spring and summer.  This results in
disproportionately  higher net income in the last six months of the fiscal  year
as  cost  absorption  improves  resulting  from  a  more  profitable  sales  and
production mix.


Fiscal 2001 Compared to Fiscal 2000

         Net sales increased $28.6 million, or 3.0%, to $981.3 million in Fiscal
2001  compared to $952.7  million in Fiscal 2000  reflecting a 0.5%  increase in
sales  volume and a 2.5%  increase in average  realized  sales  price.  Realized
selling  prices  increased as a result of a shift in product  mix.  Sales volume
increased  as a result of the  incremental  sales  obtained  from the  Company's
acquisition of an 80% interest in Global Cup, S.A. De C.V. and its  subsidiaries
("Global  Cup") in April 2001.  Net sales to Canadian  customers  increased $4.6
million,  or 6.7%,  primarily due to increased sales volume of existing products
to national accounts, while prices remained flat.

         Gross profit  decreased  $17.4 million,  or 14.6%, to $101.4 million in
Fiscal 2001  compared to $118.8  million in Fiscal 2000.  As a percentage of net
sales, gross profit decreased to 10.3% in Fiscal 2001 from 12.5% in Fiscal 2000.
The  decrease in gross profit is  primarily  attributable  to the effects of the
Sale-Leaseback  Transaction whereby, in Fiscal 2000, the Company sold certain of
its production  equipment and is leasing back this equipment  under an operating
lease.  Consequently,  cost of sales  increased due to higher rent expense which
has been partially  offset by lower  depreciation  expense.  Specifically,  rent
expense  increased  by  $12.0  million  net  of  a  reduction  in  depreciation.
Additionally,  gross profit  declined due to an increase in energy costs of $4.4
million and transportation costs of $4.9 million.

                                       10
<PAGE>
         Selling,  general and administrative expense increased $1.0 million, or
1.5%,  to $65.9 million in Fiscal 2001 compared to $64.9 million in Fiscal 2000.
However,  as a  percentage  of net sales,  selling,  general and  administrative
expense decreased to 6.7% in Fiscal 2001 from 6.8% in Fiscal 2000. This increase
resulted  from an increase in wages of $2.5  million,  an increase in  brokerage
fees of $0.8  million  and $0.7  million of on going  operational  expenses as a
result of the Fiscal 2001 Global Cup acquisition. These increases were partially
offset by a $2.3 million  reduction in bad debt expense and a reduction in legal
fees of $0.7 million.

         Asset impairment expense was $2.2 million in Fiscal 2001 as a result of
the Company's  evaluation of the  usefulness of certain  equipment in connection
with  the  proposed   consolidation   of  the  Manchester,   New  Hampshire  and
Springfield, Missouri facilities with other existing facilities.

         Other (income)  expense,  net was $9.2 million of income in Fiscal 2001
compared to $4.7 million of income in Fiscal 2000.  In Fiscal 2001,  the Company
recognized  $10.3  million  due to the  amortization  of the  deferred  gain  in
conjunction with the Sale-Leaseback Transaction.  This gain was partially offset
by $1.6  million  in  expenses  related  to the  relocation  of the  Somerville,
Massachusetts facility to North Andover, Massachusetts.

         Operating income decreased $15.7 million,  or 27.0% to $42.4 million in
Fiscal  2001  compared  to $58.1  million  in  Fiscal  2000  due to the  reasons
described above.

         Interest  expense,  net decreased  $13.3  million,  or 36.1%,  to $23.5
million in Fiscal 2001 compared to $36.8  million in Fiscal 2000.  This decrease
is attributed to lower interest  rates on higher  outstanding  revolving  credit
balances and the June 2000 redemption of the Senior Secured Notes.

         Income tax expense  (benefit)  decreased  $0.9 million to an expense of
$7.6  million in Fiscal 2001  compared  to an expense of $8.5  million in Fiscal
2000 as a result of lower pre-tax  earnings.  The effective rate for Fiscal 2001
and 2000 was 40%.

         Minority  interest was $0.1 million in Fiscal 2001  resulting  from the
acquisition of Global Cup.

         Net income decreased $1.2 million,  or 9.6%, to $11.3 million income in
Fiscal 2001 compared to $12.5  million  income in Fiscal 2000 due to the reasons
described above.


Fiscal 2000 Compared to Fiscal 1999

         Net sales  increased  $88.9  million,  or 10.3%,  to $952.7  million in
Fiscal 2000 compared to $863.8 million in Fiscal 1999 reflecting a 7.1% increase
in sales  volume  and a 2.9%  increase  in  average  sales  prices  to  domestic
customers.  During  Fiscal 2000,  the Company  experienced  an increase in sales
volume of those products with higher  average  selling  prices.  The increase in
average  realized  sales price  reflects a  successful  effort by the Company to
raise prices to institutional  foodservice  customers and to sell a mix of units
with higher average selling prices.  Sales volumes to institutional  foodservice
customers increased 6.4% primarily as a result of the Company's focus on revenue
growth with key customers.  Sales volumes to food packaging  customers increased
0.5% while average realized sales price increased 1.3%, primarily as a result of
increased  pricing  resulting  from raw material  cost  increases.  Net sales to
Canadian customers increased $8.4 million, or 14.1%,  primarily due to increased
sales volume.

         Gross profit  increased  $18.8 million,  or 18.8%, to $118.8 million in
Fiscal 2000  compared to $100.0  million in Fiscal 1999.  As a percentage of net
sales, gross profit increased to 12.5% in Fiscal

                                       11
<PAGE>
2000 from 11.6% in Fiscal 1999.  This  improvement is attributable to a shift in
sales towards a more profitable  product mix in combination with increased sales
volume,  improved manufacturing  efficiencies and higher average selling prices,
partially offset by increased raw material costs.

         Selling,  general and administrative expense decreased $2.5 million, or
3.7%,  to $64.9 million in Fiscal 2000 compared to $67.4 million in Fiscal 1999.
As a  percentage  of net sales,  selling,  general and  administrative  expenses
decreased to 6.8% in Fiscal 2000 from 7.8% in Fiscal 1999.  This decrease is due
primarily  to  lower  spending  in the  areas of legal  and  outside  consulting
services  and is  partially  offset by an  increase  in  executive  compensation
resulting from improved operating results.

         Restructuring  charge (credit) increased to a charge of $0.5 million in
Fiscal 2000  compared  to a credit of $0.5  million in Fiscal  1999.  During the
quarter ended March 2000,  the Company  established a  restructuring  reserve in
conjunction with the planned  elimination of the Company's  centralized  machine
shop,  primarily for severance  and related costs in connection  with  workforce
reductions. See Note 19 of the Notes to Consolidated Financial Statements.

         Other (income)  expense,  net was $4.7 million of income in Fiscal 2000
compared to $1.2 million of income in Fiscal 1999.  In Fiscal 2000,  the Company
recognized  $4.1 million gain on the sale of property,  plant and  equipment and
$2.8 million due to the  amortization  of the deferred gain in conjunction  with
the sale-leaseback transaction (see "--Liquidity and Capital Resources").  These
gains were partially offset by a one-time  write-off of a $1.0 million unsecured
note  receivable  issued in  connection  with the Fiscal 1998 sale of the bakery
business due to the  bankruptcy of the borrower.  The Company also incurred $1.4
million of expense in connection with the Aldridge litigation.

         Operating  income  (loss)  increased  $23.8 million to $58.1 million in
Fiscal  2000  compared  to $34.3  million  in  Fiscal  1999  due to the  reasons
described above.

         Interest  expense,  net  decreased  $4.9  million,  or 11.8%,  to $36.8
million in Fiscal 2000 compared to $41.7  million in Fiscal 1999.  This decrease
is attributable to lower interest rates on lower outstanding  balances under the
Company's  revolving  credit facility and the June 2000 redemption of the Senior
Secured Notes.

         Income tax expense  (benefit)  increased $11.4 million to an expense of
$8.5 million in Fiscal 2000 compared to a benefit of $2.9 million in Fiscal 1999
as a result of increased  pre-tax  earnings.  The effective rate for Fiscal 2000
and 1999 was 40%.

         Extraordinary  loss on debt  extinguishment was $0.3 million net of the
income tax benefit in Fiscal 2000  resulting  from the  redemption of the Senior
Secured Notes.

         Net income (loss) increased $16.9 million,  or 384.1%, to $12.5 million
income in Fiscal 2000  compared to $4.4  million  loss in Fiscal 1999 due to the
reasons described above.


Liquidity And Capital Resources

         Historically,  the Company has relied on cash flow from  operations and
revolving  credit  borrowings to finance its working  capital  requirements  and
capital   expenditures.   In  Fiscal  2001,   the  Company  funded  its  capital
expenditures from the combination of cash generated from operations and the sale
of assets. The Company expects to continue this method of funding for its Fiscal
2002 capital expenditures.

                                       12
<PAGE>
         Net cash  provided  by  operating  activities  in Fiscal  2001 was $1.8
million  compared to net cash used in  operating  activities  of $4.2 million in
Fiscal 2000.  The increase in operating  cash flow in Fiscal 2001 is primarily a
result of the Company's  improved  management of its  receivables  and inventory
levels.  Significant  factors in the use of  operating  cash flow in Fiscal 2000
were increased receivables and inventory levels.

         Net cash used in investing  activities in Fiscal 2001 was $38.7 million
compared  to net cash  provided by  investing  activities  of $185.0  million in
Fiscal 2000.  This decrease is due primarily to the receipt of proceeds from the
Sale-Leaseback  Transaction  on June 15,  2000  whereby  Sweetheart  Cup and the
Company sold certain  production  equipment  located in Owings Mills,  Maryland,
Chicago,  Illinois and Dallas,  Texas to several owner  participants  for a fair
market  value of  $212.3  million.  The  decrease  is  partially  offset  by the
acquisition of Sherwood Industries Inc. for $16.8 million of which $12.1 million
was paid in cash.

         Net cash  provided  by  financing  activities  in Fiscal 2001 was $43.1
million  compared to net cash used in financing  activities of $180.3 million in
Fiscal 2000.  This  decrease is primarily  due to the  redemption  of the $190.0
million  principal  amount of the Senior  Secured Notes in Fiscal 2000.  The net
proceeds  generated  from the  Sale-Leaseback  Transaction  were used in part to
redeem these notes,  repay debt in connection  with the  acquisition of Sherwood
and repay a portion of the outstanding balance under the U.S. Credit Facility.

         Working capital  increased $30.7 million to $160.8 million at September
30, 2001 from $130.1 million at September 24, 2000. This increase  resulted from
current assets increasing $18.6 million and the current  liabilities  decreasing
$12.1 million.  These changes  resulted  primarily from reduced payroll expenses
and the settlement of the Aldridge litigation liability.

         Capital  expenditures  for Fiscal 2001 were $26.5  million  compared to
$23.5 million in Fiscal 2000. Capital  expenditures in Fiscal 2001 included $7.4
million for new production  equipment,  $14.4 million for facility  improvements
and  $0.8  million  for  management  information  systems,  with  the  remaining
consisting  primarily of routine  capital  improvements.  Funding for the Fiscal
2001  capital  expenditures  was  primarily  provided  by  cash  generated  from
operations and the sale of assets.  During Fiscal 2002,  the Company  intends to
continue to rely on this combination of funding.

         On April 5, 2001, the Company  purchased an 80% interest in Global Cup.
Global Cup  manufactures,  distributes  and sells paper cups and lids throughout
Mexico and exports to other Latin American  countries.  The Company  assumed the
liabilities and obligations of Global Cup arising under contracts or leases that
are either  assets  purchased by the Company or a part of the accounts  payable.
The  aggregate  purchase  price for the assets  and  working  capital  was $12.2
million  which  was paid in cash,  subject  to a  post-closing  working  capital
adjustment. The Global Cup acquisition has resulted in goodwill of $3.9 million.
As a result of the potential post closing working capital adjustment,  the final
calculation  of which the  Company  expects  to be  completed  within  one year,
amounts and  allocations  of costs  recorded may require  adjustment  based upon
information  coming  to the  attention  of the  Company  that  is not  currently
available.

         On May 15, 2000,  Sweetheart Cup acquired  Sherwood,  a manufacturer of
paper cups,  containers  and cup making  equipment.  Pursuant to a certain Stock
Purchase  Agreement  among  Sweetheart  Cup and the  stockholders  of  Sherwood,
Sweetheart  Cup acquired all of the issued and  outstanding  capital  stock (the
"Sherwood  Acquisition")  of  Sherwood  and its  subsidiaries  for an  aggregate
purchase price of $16.8 million of which $12.1 million was paid in cash. As part
of the purchase  price,  Sweetheart Cup issued to the  stockholders  of Sherwood
non-interest  bearing  promissory  notes  due May 2005 for  $4.7  million  and a
present  value of $2.7 million  (assuming an interest rate of 10.85%

                                       13
<PAGE>
per annum). Sweetheart Cup also assumed $9.3 million of Sherwood debt, which was
paid in full on June 15, 2000. The Sherwood  Acquisition resulted in recognition
of goodwill of $10.7 million.

         The  Company  has a revolving  credit  facility  as amended  (the "U.S.
Credit  Facility")  that,  subject to borrowing base  limitations,  allows for a
maximum  revolving  credit borrowing of $145 million through June 15, 2005 and a
term loan of $25 million that requires equal monthly principal  payments of $0.4
million through June 2005. Both the term loan and the revolving  credit facility
have an  accelerated  maturity  date of July  1,  2003 if the  Company's  Senior
Subordinated Notes due September 1, 2003 are not refinanced before June 1, 2003.
Borrowings under the revolving  credit facility bear interest,  at the Company's
election,  at a rate equal to (i) LIBOR  plus  2.00% or (ii) a bank's  base rate
plus  0.25%,  plus  certain  other  fees.  Borrowings  under  the term loan bear
interest,  at the Company's election, at a rate equal to (i) LIBOR plus 2.50% or
(ii) a bank's base rate plus 0.50%, plus certain other fees. In Fiscal 2001, the
weighted  average annual  interest rate for the U.S.  Credit Facility was 7.58%.
The  credit  facility  is  collateralized  by  the  Company's   inventories  and
receivables   with  the  term  loan  portion  of  the  credit  facility  further
collateralized by certain production equipment.  As of September 30, 2001, $31.6
million was  available  under the  revolving  credit  facility and the term loan
balance was $12.9 million.  The fee for  outstanding  letters of credit is 2.00%
per annum and there is a commitment fee of 0.375% per annum on the daily average
unused amount of the commitments.  As of September 30, 2001, LIBOR was 2.64% and
the bank's base rate was 6.00%.

         On June 19, 2001,  the Company's  Canadian  subsidiary  refinanced  its
credit agreement (the "Canadian Credit Facility") which provides for a term loan
facility  of Cdn $15 million  (approximately  US $9.5  million)  and a revolving
credit facility of up to Cdn $15 million  (approximately  US $9.5 million).  The
term  borrowings  are payable  quarterly  through May 2004.  Both the  revolving
credit and term loan borrowings have a final maturity date of June 15, 2004. The
Canadian Credit Facility is secured by all existing and thereafter acquired real
and personal  tangible assets of Lily and net proceeds on the sale of any of the
foregoing.  Borrowings  under the Canadian  Credit  Facility bear interest at an
index rate plus 1.75% with respect to the revolving credit facility and an index
rate plus 2.00% with respect to the term loan  borrowings.  As of September  30,
2001, Cdn $1.0 million  (approximately  US $0.6 million) was available under the
revolving   facility   and  the  term  loan   balance  was  Cdn  $14.5   million
(approximately US $9.2 million) under the Canadian Credit Facility.

         In  connection  with a  sale-leaseback  transaction,  on June 15, 2000,
Sweetheart Cup and Sweetheart Holdings sold certain production equipment located
in Owings Mills, Maryland,  Chicago, Illinois and Dallas, Texas to several owner
participants  for a fair market value of $212.3 million.  The proceeds from this
sale  were  used in part to redeem  the  Senior  Secured  Notes,  repay  debt in
connection  with  the  acquisition  of  Sherwood  and  repay  a  portion  of the
outstanding balance under the U.S. Credit Facility.

         Pursuant  to a lease  dated as of June 1,  2000 (the  "Lease")  between
Sweetheart Cup and State Street Bank and Trust Company of Connecticut,  National
Association ("State Street"),  as trustee,  Sweetheart Cup leases the production
equipment sold in connection with the sales  lease-back  transaction  from State
Street as owner  trustee for several  owner  participants,  through  November 9,
2010.  Sweetheart  Cup  has  the  option  to  renew  the  Lease  for up to  four
consecutive renewal terms of two years each.  Sweetheart Cup also has the option
to purchase such equipment for fair market value either at the conclusion of the
Lease term or November 21, 2006. The Company's  obligations  under the Lease are
collateralized  by  substantially  all  of the  Company's  property,  plant  and
equipment owned as of June 15, 2000. The Lease contains various covenants, which
prohibit, or limit, among other things, dividend payments, equity repurchases or
redemption, the incurrence of additional indebtedness and certain other business
activities.

                                       14
<PAGE>
         The Company is  accounting  for the  sale-leaseback  transaction  as an
operating  lease,  expensing the $32.0 million  annualized  rental  payments and
removing  the  property,  plant and  equipment  sold from its balance  sheet.  A
deferred  gain of  $107.0  million  was  realized  from  this  sale  and will be
amortized over 125 months,  which is the term of the Lease.  The taxable gain in
the amount of $147.8  million has  allowed the Company to utilize a  substantial
portion of its net  operating  loss  carry-forward.  See "--Net  Operating  Loss
Carryforwards".

         Sweetheart  Cup is the obligor and  Sweetheart  Holdings the  guarantor
with  respect  to  $110  million  of  Senior   Subordinated  Notes.  The  Senior
Subordinated Notes bear interest at 10.50% per annum,  payable  semi-annually in
arrears on March 1 and  September 1 and mature on September 1, 2003.  The Senior
Subordinated  Notes are subject to redemption  at the option of the Company,  in
whole or in part,  at the  redemption  price  (expressed as  percentages  of the
principal  amount),  plus accrued  interest to the  redemption  date,  at a call
premium  of 100%.  The Senior  Subordinated  Notes are  subordinate  in right of
payment to the prior  payment in full of all  borrowings  under the U.S.  Credit
Facility,  all  obligations  under the  Lease,  and all other  indebtedness  not
otherwise  prohibited.  The Senior  Subordinated Notes contain various covenants
which prohibit,  or limit, among other things,  asset sales,  change of control,
dividend  payments,   equity  repurchases  or  redemption,   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  instruments  governing  the  indebtedness  of the Company  contain
customary  covenants  and  events  of  default,  including  without  limitation,
restrictions on, subject to defined  exceptions,  the payment of dividends,  the
incurrence of additional  indebtedness,  investment  activities and transactions
with affiliates.

         The Company is subject to legal proceedings and other claims arising in
the ordinary course of its business. The Company maintains insurance coverage of
types and in amounts  which it believes to be adequate and  believes  that it is
not presently a party to any litigation,  the outcome of which could  reasonably
be expected to have a material  adverse  effect on its  financial  condition  or
results of operations.

         Management   believes  that  cash  generated  by  operations,   amounts
available under the Company's  credit  facilities and funds generated from asset
sales should be  sufficient  to meet the  Company's  expected  operating  needs,
planned capital  expenditures,  payments in conjunction with the Company's lease
commitments and debt service requirements in the next twelve months.

         The  Company  is  contemplating  various  strategic  options  which may
include a restructuring of its business debt and capital  structure,  including,
among  other  things,  the public  sale or private  placement  of debt or equity
securities of the Company or its subsidiaries,  joint venture transactions,  new
borrowings,  the  refinancing of the Company's  existing debt  agreements,  open
market purchases,  tender offers or exchange offers of the Company's outstanding
securities.  There can be no assurances that any of these strategic options will
be consummated.

         During  Fiscal 2001,  the Company  experienced  a casualty  loss at its
Somerville,  Massachusetts  facility.  The Company carries business interruption
insurance  and has filed a claim with the insurance  company.  Settlement of the
recovery amount is to be determined.


Net Operating Loss Carryforwards

         As of September 30, 2001, the Company had  approximately $28 million of
net operating loss ("NOL") carryforwards for federal income tax purposes,  which
expire in 2018. Although the Company expects that sufficient taxable income will
be generated in the future to realize these NOLs, there can be

                                       15
<PAGE>
no assurance that future taxable income will be generated to utilize such NOLs.


Impact of Recently Issued Accounting Standards

         In June 2001, the Financial  Accounting Standards Board ("FASB") issued
two new pronouncements:  Statement of Financial Accounting Standard ("SFAS") No.
141,  Business  Combinations  and SFAS No. 142,  Goodwill  and Other  Intangible
Assets.  SFAS No. 141  prohibits the use of the  pooling-of-interest  method for
business  combinations  initiated  after June 30,  2001 and also  applies to all
business  combinations  accounted for by the purchase  method that are completed
after June 30, 2001. There are also transition provisions that apply to business
combinations  completed  before  July 1, 2001,  that were  accounted  for by the
purchase  method.  SFAS No. 142 is effective  for fiscal years  beginning  after
December  15,  2001 and  applies to all  goodwill  and other  intangible  assets
recognized in an entity's  balance  sheet.  The Company has adopted SFAS No. 141
and is  currently  evaluating  the  impact of SFAS No.  142 on its  consolidated
financial statements.

         In October 2001, the FASB issued  pronouncement SFAS No. 144 Impairment
or Disposal of Long-Lived Assets. This Statement addresses financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets.  This
Statement  supersedes  FASB Statement No. 121,  Accounting for the Impairment of
Long-Lived  Assets  and  for  Long-Lived  Assets  to Be  Disposed  Of,  and  the
accounting and reporting  provisions of Accounting  Principals Board Opinion No.
30, Reporting the Results of  Operations-Reporting  the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events  and  Transactions,  for the  disposal  of a segment  of a  business  (as
previously  defined in that  Opinion).  This  Statement  also amends  Accounting
Research Bulletin No. 51, Consolidated  Financial  Statements,  to eliminate the
exception to  consolidation  for a subsidiary  for which control is likely to be
temporary. The Company is currently evaluating the impact of SFAS No. 144 on its
consolidated financial statements.

         In June 1998, the FASB issued SFAS No. 133,  Accounting for  Derivative
Instruments and Hedging  Activities as amended by SFAS No. 137 and SFAS No. 138.
SFAS No. 133  establishes  accounting  and reporting  standards  for  derivative
instruments and requires that an entity  recognize all derivatives at fair value
in the balance sheet.  The Company adopted SFAS No. 133 effective  September 25,
2000.  The  adoption of SFAS No. 133 did not have an impact on the  consolidated
financial statements.


Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

          The  Company  is  exposed  to market  risk in the  ordinary  course of
business,  which consists  primarily of interest rate risk  associated  with our
variable  rate debt.  All  borrowing  under the US Credit  Facility and Canadian
Credit  Facility,  each of which contains a revolving and term credit  facility,
bear interest at a variable rate. Borrowings under the revolving credit facility
bear interest,  at the Company's election,  at a rate equal (i) LIBOR plus 2.00%
or (ii) a bank's base rate plus 0.25%,  plus certain fees.  Borrowings under the
term loan bear interest, at the Company's election, at a rate equal to (i) LIBOR
plus 2.50% or (ii) a bank's  base rate plus  0.50%,  plus  certain  other  fees.
Borrowings  under the Canadian  Credit  Facility  bear interest at an index rate
plus 1.75% with respect to the  revolving  credit  borrowings  and an index rate
plus 2.00% with respect to the term loan  borrowings.  As of September 30, 2001,
the outstanding indebtedness under the US Credit Facility was $126.2 million and
the Canadian Credit  Facility was $16.6 million in US dollars.  Based upon these
amounts,  the annual net income would change by  approximately  $0.9 million for
each one  percentage  point  change  in the  interest  rates  applicable  to our
variable  debt.  The  level of the  exposure  to  interest  rate  movements  may
fluctuate  significantly  as a result of changes  in the amount of  indebtedness
outstanding under the revolving credit facilities.

                                       16
<PAGE>
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See the Financial Statements and Schedule attached hereto and listed in
Item 14 (a)(1) and (a)(2) hereof.


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

               NONE

                                    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 and Sweetheart Cup
as of December 6, 2001.  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.

<TABLE>
<CAPTION>
      Name                        Age                                     Position
------------------                ---         ----------------------------------------------------------------
<S>                               <C>         <C>
Dennis Mehiel                     59          Chairman and Chief Executive Officer of Sweetheart  Holdings
                                              and Sweetheart Cup

Thomas Uleau                      57          Executive  Vice  President and Director of  Sweetheart  Holdings
                                              and Sweetheart Cup

W. Richard Bingham                65          Director of Sweetheart Holdings and Sweetheart Cup

Kim A. Marvin                     40          Director of Sweetheart Holdings and Sweetheart Cup

Theodore C. Rogers                67          Director of Sweetheart Holdings and Sweetheart Cup

Michael Hastings                  54          President of Sweetheart Holdings and Sweetheart Cup

Hans H. Heinsen                   48          Senior Vice President - Finance and Chief  Financial  Officer of
                                              Sweetheart Holdings and Sweetheart Cup

Thomas Pasqualini                 44          Senior  Vice   President  -   Manufacturing   and  Logistics  of
                                              Sweetheart Holdings and Sweetheart Cup

Harvey L. Friedman                59          Senior Vice President,  General Counsel and Corporate  Secretary
                                              of Sweetheart Holdings and Sweetheart Cup

Charles E. Busse                  63          Vice   President  -  Research  and   Engineering  of  Sweetheart
                                              Holdings and Sweetheart Cup

Daniel M Carson                   54          Vice  President - Chief  Administrative  Officer for  Sweetheart
                                              Holdings and Sweetheart Cup

William H. Haas                   60          Vice  President - Sales of  Sweetheart  Holdings and  Sweetheart
                                              Cup

Mark B. Kirkwood                  42          Vice  President - Sales and  Marketing for  Sweetheart  Holdings
                                              and Sweetheart Cup

Rick Schneider                    52          Vice  President  -  Manufacturing  of  Sweetheart  Holdings  and
                                              Sweetheart Cup
</TABLE>

                                       17
<PAGE>
         Mr. Mehiel has been Chairman of the Board and Chief  Executive  Officer
of Sweetheart  Holdings and  Sweetheart Cup since March 1998. Mr. Mehiel is also
Chairman and Chief Executive Officer of SF Holdings and its subsidiaries,  Fonda
and Creative Expressions Group ("CEG").  Since July 2000, he has been a director
of Box USA Holdings, Inc. ("Box USA"), formerly Four M Corporation ("Four M"), a
converter and seller of interior  packaging,  corrugated  sheets and  corrugated
containers,  which he co-founded.  From 1966 until July 2000, he was Chairman of
Four M, and since 1977 (except during a leave of absence from April 1994 through
July  1995) he was the Chief  Executive  Officer  of Four M. Mr.  Mehiel is also
currently  Chief  Executive  Officer  and  director  of  Mannkraft   Corporation
(formerly, Box USA of New Jersey), a manufacturer of corrugated containers.

         Mr.  Uleau  has  been  Executive  Vice  President  and  a  Director  of
Sweetheart Holdings and Sweetheart Cup since March 1, 2001 and prior thereto was
President,  Chief  Operating  Officer and a director since March 1998. Mr. Uleau
also has been Vice Chairman and Senior Vice President of SF Holdings since March
1, 2001 and prior thereto was President,  Chief Operating Officer and a Director
of SF Holdings.  He has been  Executive Vice President of Fonda since March 1998
and has been a director of Fonda since 1988.  He has also served in a variety of
executive  officer  positions at Fonda since 1989.  He has been  Executive  Vice
President of CEG since 1996.  He is also  currently a director of CEG. He served
as Executive  Vice  President  and Chief  Financial  Officer of Four M from 1989
through 1993 and as its Chief Operating Officer in 1994.

         Mr. Bingham has been a Director of Sweetheart Holdings  and  Sweetheart
Cup since August 1993. He co-founded  American  Industrial  Partners  Management
Company,  Inc. ("AIPM"), a firm which manages a private equity firm that invests
in private and public companies, and has been a director and officer of the firm
since 1989. He is also a general  partner of AIP. Mr. Bingham also has served as
a director of SF Holdings since March,  1998. Prior to joining AIPM, Mr. Bingham
was  director of the  Corporate  Finance  Department,  a member of the Board and
director of Mergers & Acquisitions at Lehman Brothers Kuhn Loeb Inc. Mr. Bingham
is also  currently  a director  of Bucyrus  International,  Great  Lakes  Carbon
Corporation,  RBX Group, Inc., Standadyne  Automotive  Corporation and Deerfield
Associates.

         Mr.  Marvin has been a Director of Sweetheart  Holdings and  Sweetheart
Cup since May 12, 1999. He joined the San Francisco  office of AIP as a managing
director in 1997 from the Mergers & Acquisition  department at Goldman,  Sachs &
Co where he was employed  since 1994. Mr. Marvin is also currently a director of
Bucyrus International and Great Lakes Carbon Corporation.

         Mr. Rogers has been a Director of Sweetheart  Holdings  and  Sweetheart
Cup since August 1993. He co-founded AIPM and has been a director and officer of
the firm since  1989.  He is also a general  partner of AIP.  From 1980  through
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,  Southwest  Bancshares  and Mcorp.  He is also currently a
director of Bucyrus  International,  Great Lakes Carbon Corporation,  RBX Group,
Inc.,  Standadyne  Automotive   Corporation,   Steele  Heddle  Group  and  Derby
International Corporation.

         Mr.  Hastings has been President of Sweetheart  Holdings and Sweetheart
Cup since March 1, 2001 and prior thereto was Senior Vice  President - Sales and
Marketing  for  Sweetheart  Holdings and  Sweetheart  Cup since March 1998.  Mr.
Hastings was also Senior Vice President of Fonda.  Prior to joining the Company,
Mr. Hastings served as President of the Fonda Division of Fonda, which he joined
in May 1995.  From  December  1990 to April 1995,  Mr.  Hastings  served as Vice
President of Sales and Marketing and as a director of Anchor Packaging  Company,
a manufacturer of institutional films and thermoformed plastic packaging.  Prior
to joining Anchor Packaging Company, Mr. Hastings was employed for over 25 years
in a variety of positions in the paper and plastic industries,  including sales,
marketing  and plant  operations  management at Scott Paper Company and Thompson
Industries.

         Mr.  Heinsen  has served as Senior  Vice  President - Finance and Chief
Financial  Officer of Sweetheart  Holdings and  Sweetheart Cup since March 1998.
Mr. Heinsen also serves as Senior Vice

                                       18
<PAGE>
President,  Chief Financial  Officer and Treasurer of SF Holdings since February
1998,  Senior Vice President and Treasurer of Fonda since  February 1997,  Chief
Financial  Officer of Fonda since June 1996 and Chief  Financial  Officer of CEG
since  November 1998.  Prior to joining  Fonda,  Mr. Heinsen spent 21 years in a
variety of corporate finance positions with The Chase Manhattan Bank, N.A.

         Mr.  Pasqualini has served as Senior Vice President - Manufacturing and
Logistics of  Sweetheart  Holdings  and  Sweetheart  Cup since August 2000.  Mr.
Pasqualini  served as Vice President of Logistics and  Distribution and Director
of  Distribution  over the past five years,  as well as several other  positions
with the Company and its predecessors  since 1981.  Prior to joining  Sweetheart
Cup, Mr.  Pasqualini held a variety of manufacturing  management  positions with
Ampat.

         Mr. Friedman has served as Senior Vice  President,  General Counsel and
Secretary of Sweetheart  Holdings and Sweetheart Cup since March 1, 2001. He has
served as General  Counsel and Secretary of SF Holdings since February 1998, and
as Secretary and General Counsel of Fonda since May 1996. He was also a Director
of Fonda from 1985 to January 1997.  Mr.  Friedman is also Secretary and General
Counsel of CEG and Mannkraft Corporation,  (formerly, Box USA of New Jersey) and
is a director of CEG and Box USA (formerly Four M). He was formerly a partner of
Kramer Levin Naftalis & Frankel LLP, a New York city law firm.

         Mr. Busse  has served as Vice President - Research and  Engineering  of
Sweetheart  Holdings and Sweetheart Cup and their  predecessors  since 1983. Mr.
Busse has held several  other  positions  with the Company and its  predecessors
since 1963.

         Mr. Carson has served as Vice  President - Chief Administrative Officer
for  Sweetheart  Holdings and  Sweetheart  Cup since March 1, 2001.  Mr.  Carson
served as Vice President - General Counsel and Corporate Secretary of Sweetheart
Holdings  from October  1993 until March 1, 2001 and served as Vice  President -
General  Counsel and Corporate  Secretary of  Sweetheart  Cup from February 1993
until March 1, 2001. 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. Haas has served as Vice  President - Sales for Sweetheart  Cup  and
their  predecessors  since  1985 and as Vice  President  - Sales for  Sweetheart
Holdings  since  October 1998.  Prior to joining the Company,  Mr. Haas was Vice
President of Sales with Carnation Co., Inc., a food products  company,  where he
served for 20 years. Prior to joining Carnation Mr. Haas was with Nabisco, Inc.,
a food products company, as Director of National Account Sales.

         Mr.  Kirkwood  has served  as Vice  President - Sales and Marketing for
Sweetheart  Holdings and Sweetheart Cup since March 2001. Mr. Kirkwood served as
Vice President & General  Manager of Sweetheart  Packaging  since November 1998,
Vice  President - Sales of  Sweetheart  Packaging  since April 1997,  as well as
several other sales  positions with the Company since 1992. From January 1989 to
May 1992, Mr. Kirkwood served as President of Grid Corporation,  a marketing and
sales consulting company. Prior to joining Grid Corporation, Mr. Kirkwood held a
variety  of  marketing  and  strategic   planning   management   positions  with
Continental Can Company, Inc. at its Continental White Cap Inc. Division.

         Mr.  Schneider  has  served  as  Vice   President  -  Manufacturing  of
Sweetheart  Holdings and Sweetheart Cup since October 1994. From October 1986 to
September  1994,  Mr.  Schneider  served  in  various  manufacturing  capacities
including, Production Staff Manager, Operations Manager and Plant Manager. Prior
to joining  the  Company,  Mr.  Schneider  was  employed  for ten years by Boise
Cascade Composite Can Division in a variety of manufacturing positions.

                                       19
<PAGE>
Compensation of Directors

         The Directors of Sweetheart  Holdings and Sweetheart Cup do not receive
any direct  compensation from such companies for serving as a Director.  Certain
Directors of Sweetheart  Holdings and Sweetheart Cup are employees of Sweetheart
Holdings  and  Sweetheart  Cup and receive  compensation  as such and others are
employees of AIPM and Fonda, to which  Sweetheart Cup 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 of Directors.


Item 11. EXECUTIVE COMPENSATION

            The  following   table  sets  forth   information   concerning   the
compensation,  for Fiscal Years 2001,  2000,  and 1999,  of the chief  executive
officer and the four most  highly  compensated  officers  and key  employees  of
Sweetheart  Holdings and  Sweetheart  Cup  (collectively,  the "named  executive
officers").  The Company has concluded that the aggregate  amount of perquisites
and other personal benefits paid to each of the named executive officers did not
exceed the lesser of (i) 10% of such officer's  total annual salary and bonus or
(ii) $50,000. Thus, such amounts are not reflected in the following table.

                           Summary Compensation Table


<TABLE>
<CAPTION>
                                                            Annual Compensation
----------------------------------------- -------------------------------------------------- ------------------
                                                                                                  All Other
           Name and Principal                                    Salary           Bonus         Compensation
                Position                       Fiscal             ($)            ($) (1)             ($)
----------------------------------------- ----------------- ---------------- --------------- ------------------
<S>                                       <C>               <C>              <C>             <C>
Dennis Mehiel
   Chairman and Chief Executive  Officer        2001             560,576          140,000          412,540  (2)
   of     Sweetheart     Holdings    and        2000             771,280          400,000            1,507  (3)
   Sweetheart Cup                               1999             349,650          340,000            1,743  (4)

Thomas Uleau
   Executive    Vice    President    and        2001             383,173           86,411           12,724  (5)
   Director of  Sweetheart  Holdings and        2000             370,129          500,000           18,201  (6)
   Sweetheart Cup                               1999             298,654          445,000           78,037  (7)

Harvey L. Friedman
   Senior   Vice   President,    General        2001             151,050           35,000                -
   Counsel and  Corporate  Secretary  of        2000              58,900          100,000                -
   Sweetheart  Holdings  and  Sweetheart        1999                   -                -                -
   Cup

Hans H. Heinsen
   Senior  Vice  President - Finance and        2001             145,288          106,411                -
   Chief     Financial     Officer    of        2000             140,962          235,000                -
   Sweetheart  Holdings  and  Sweetheart        1999             125,000          217,000                -
   Cup

Michael Hastings
   President of Sweetheart  Holdings and        2001             191,602          100,000           11,232  (8)
   Sweetheart Cup                               2000             170,512          235,000           23,182  (9)
                                                1999             124,231          255,000           49,722  (10)

</TABLE>

(1)  Amounts shown were paid based upon the Company's performance.
(2)  Reflects $2,580 of life insurance premiums paid by the Company and $409,960
     for personal expenses paid by the Company.

                                       20
<PAGE>
(3)  Reflects $1,507 of life insurance premiums paid by the Company.
(4)  Reflects $1,743 of life insurance premiums paid by the Company.
(5)  Reflects  $5,724 of life insurance  premiums paid by the Company and $7,000
     contributed under the 401(K) Plan.
(6)  Reflects $5,282 paid for relocation expenses,  $7,625 contributed under the
     401(k) Plan, and $5,294 of life insurance premiums paid by the Company.
(7)  Reflects $67,604 paid for relocation expenses, $4,375 contributed under the
     401(k) Plan, $5,965 of life insurance  premiums paid by the Company and $93
     of long-term disability insurance premiums paid by the Company.
(8)  Reflects  $2,032 of life  insurance  premiums  paid by the Company,  $7,000
     contributed under the 401(k) Plan, and $2,200 paid for car allowances.
(9)  Reflects $14,119 paid for relocation expenses, $7,500 contributed under the
     401(k) Plan, $1,563 of life insurance premiums paid by the Company.
(10) Reflects $41,414 paid for relocation expenses, $6,000 contributed under the
     401(k) Plan, $2,255 of life insurance  premiums paid by the Company and $53
     of long-term disability premiums paid by the Company.


SF Holdings Stock Option Plan

         During Fiscal 2001, SF Holdings  granted  options to purchase shares of
its common stock to certain  employees  of the Company.  The options vest over a
period of three years.  Certain of the exercise prices of the options were below
the fair market  value of SF  Holding's  common  stock at the date of the grant.
During the vesting  period,  these discounts of $0.2 million are being amortized
as  compensation  expense and  credited  to  additional  paid-in  capital by the
Company.  Amortization  expense  relating to SF Holding's stock options was $0.1
million for Fiscal 2001.


Employee Benefit Plans

         A majority  of the  Company's  employees  ("Participants")  are covered
under a 401(k) defined contribution plan. Effective January 1, 2000, the Company
provides  a  matching  contribution  of 100% on the first 2% of a  participant's
salary and 50% on the next 4% of a participant's  salary. The Company's match is
currently limited to participant contributions up to 6% of participant salaries.
In addition, the Company is allowed to make discretionary contributions. Certain
Company employees are covered under defined benefit plans.  Benefits under these
plans are generally based on fixed amounts for each year of service.

         The Company  sponsors  various defined benefit  post-retirement  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 ten  years of  service.  The  majority  of the  Company's  plans are
contributory, with retiree contributions adjusted annually.

         The executive  officers of the Company are not covered under any of the
Company's defined benefit plans.  Rather, such persons are covered under defined
contribution plans only.

                                       21
<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 common stock as of December 6, 2001,
by holders having  beneficial  ownership of more than five percent of Sweetheart
Holdings common stock, by each of the directors of Sweetheart Holdings,  by each
of the named executive  officers and by all directors and executive  officers of
Sweetheart  Holdings  as a  group.  All  of  the  outstanding  common  stock  of
Sweetheart Cup is owned by Sweetheart Holdings.

<TABLE>
<CAPTION>
                                                          Class A Common Stock      Class B Common Stock
                                                        -----------------------    -----------------------
                                                          Number of    Percent      Number of     Percent
Name of Beneficial Owner                                   Shares      of Class      Shares      of Class
------------------------
                                                        ------------  ---------    -----------  ----------
<S>                                                     <C>           <C>          <C>          <C>
American Industrial Partners Capital Fund, L.P.            280,189       26.8%              -           -
         One Maritime Plaza
         Suite 2525
         San Francisco, CA 94111

Kane & Co.,  as nominee  for First  Plaza  Group
Trust (1) ..........................................       182,000        17.4              -           -
         c/o Chase Manhattan Bank
         4 New York Plaza - 11th floor
         New York, NY 10004

Leeway & Co., as nominee for the Long Term Investment
Trust (2)...........................................        30,197         2.9              -           -
         c/o State Street Bank & Trust Co.
         Master Trust Division - W6C
         1 Enterprise Drive
         North Quincy, MA 02171

Ell & Co., as nominee for the Lucent Technologies
Inc. Master Pension
Trust (3)...........................................        47,803         4.6              -           -
         c/o The Northern Trust Company
         40 Broad Street
         8th Floor
         New York, NY 10004

SF Holdings Group, Inc..............................       505,200        48.3      4,393,200      100.0%
              373 Park Avenue South
              New York, NY  10016

W. Richard Bingham(4)...............................       280,189        26.8              -           -
Theodore C. Rogers(4)...............................       280,189        26.8              -           -
Dennis Mehiel(5)....................................       362,734        34.7      3,154,318        71.8
Directors and named  executive  officers as a
group (7 persons) (6)...............................       660,606        63.1      3,308,080        75.3
</TABLE>
(1)  Chase  Manhattan  Bank, 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

                                       22
<PAGE>
     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 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 Long Term Investment Trust.
(3)  The Northern Trust Company acts as trustee for a trust under and for the
     benefit of certain employee benefit plans of Lucent Technologies Inc. These
     shares may deemed to be owned beneficially by the Lucent Technologies  Inc.
     Master Pension Trust.
(4)  All of such shares are held of record by AIP.  Messrs.  Bingham and  Rogers
     are  general  partners  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.
(5)  All of such  shares  are held by SF  Holdings  of which  502,080  are  held
     directly  and  3,120  are held indirectly  through Fonda,  which is  wholly
     owned   by  SF  Holdings.   Mr.  Mehiel  beneficially  owns  71.8%  of  the
     outstanding  common stock.  The  business   address  of Mr.  Mehiel  is 373
     Park Avenue South,  New York, NY, 10016.
(6)  All of such shares are held by either AIP or SF Holdings.


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


Shareholders' Agreement

         Pursuant to the terms and conditions of the SF Holdings Investment, the
Company's  Board  of  Directors  consists  of five  members,  three  of whom are
nominated by the shareholders of the Company prior to the SF Holdings Investment
(the  "Original  Shareholders")  and two of whom are  nominated  by SF Holdings.
Pursuant to the Company's  by-laws,  significant  actions by the Company's Board
require the vote of four  directors  and include,  among  others:  (i) a merger,
consolidation  or other  combination of the Company with or into another entity,
(ii)  the sale of all or a  material  portion  of the  Company's  assets,  (iii)
entering  into any new line of business,  (iv) the issuance or repurchase of any
equity securities,  (v) the incurrence of any indebtedness for money borrowed or
the  refinancing  of any  existing  indebtedness,  (vi)  approval  of the annual
business plans and operating  budgets,  (vii) the  termination  indebtedness  or
modification of any of the terms of the Management  Services  Agreement,  (viii)
the  amendment  or   modification  of  any  provisions  of  the  certificate  of
incorporation,  (ix) the selection of the  Company's  chief  executive  officer,
chief  operating  officer  and  chief  financial  officer,  (x)  any  change  of
accountants  and (xi) the removal of any officers of the Company.  Additionally,
pursuant to a certain Management Services Agreement, as amended, SF Holdings and
Fonda,  a  wholly  owned  subsidiary  of  SF  Holdings,  manage  the  day-to-day
operations of the Company subject to the direction of the Board of Directors.

         The  Original  Shareholders,  after March 12,  2003,  have the right to
exchange  their  shares of Class A Common  Stock  for  warrants  (the  "Exchange
Warrants")  to  purchase,  for nominal  consideration,  shares of Class C Common
Stock of SF Holdings, representing 10% of the total outstanding shares of common
stock of SF Holdings at March 12, 1998, the consummation date of the SF Holdings
Investment,  on a fully diluted

                                       23
<PAGE>
basis.  SF  Holdings  has the  right to cause  such  exchange  and has the right
thereafter  to repurchase  the Exchange  Warrants,  in whole or in part,  for an
aggregate  call price of $50.0  million,  subject to increase at 12.5% per annum
beginning March 12, 1998 until March 12, 2003. Upon occurrence of a merger,  the
Original  Shareholders  will be  required to  exchange  their  shares of Class A
Common Stock for the Exchange  Warrants.  In addition,  in the event SF Holdings
proposes to sell shares of Class A or Class B Common Stock in an amount  greater
than 30% of the outstanding  shares of common stock,  the Original  Shareholders
will have the  right to  participate  in such  sale.  In the  event SF  Holdings
proposes to sell  shares of common  stock in an amount  greater  than 30% of the
outstanding  shares of common stock,  SF Holdings will have the right to require
the Original Shareholders to sell all, but not less than all, of their shares of
common stock.


Management Services Agreement with SF Holdings

         Pursuant to the Management Services Agreement,  as amended, SF Holdings
and AIPM,  which manages AIP, are entitled to receive an aggregate annual fee of
$1.85  million,  payable  semi-annually  45 days  after the  scheduled  interest
payment  dates  for  the  Senior  Subordinated  Notes,  and  is  reimbursed  for
out-of-pocket expenses. Under this agreement, SF Holdings has the right, subject
to the direction of the Company's  Board of Directors,  to manage the day to day
operations  of the Company.  AIPM  provides  substantial  ongoing  financial and
management services to the Company. Fees were split between SF Holdings and AIPM
50/50 during Fiscal 1999, 60/40 during Fiscal 2000 and 70/30 during Fiscal 2001.
During Fiscal 2002 and  thereafter,  SF Holdings will be entitled to 100% of the
fees. SF Holdings has assigned  substantially  all of its  interests  under this
agreement to Fonda,  but retains  $200,000  per year of fees for  administrative
services.


Transactions with Affiliates

         All of the below  referenced  affiliates are under the common ownership
of the  Company's  Chief  Executive  Officer,  except  AIP and  AIPM  which  are
affiliates of a shareholder. The Company believes that transactions entered into
with related parties were negotiated on terms which are at least as favorable as
it could have obtained from  unrelated  third parties and were  negotiated on an
arm's length basis.

         During  Fiscal  2001,  the  Company  sold (i) $21.7  million of cups to
Fonda,  and (ii) $3.1 million of scrap paper to Fibre  Marketing  Group,  LLC, a
waste  paper  recovery  business  in  which  Fonda  has a 25%  interest  ("Fibre
Marketing").  Included in accounts receivable, as of September 30, 2001, is $2.1
million due from Fonda and $1.2 million due from Fibre Marketing.

         During  Fiscal  2001,  the  Company   purchased  (i)  $7.1  million  of
corrugated  containers  other  services  from Box USA,  a  company  in which the
Company's  Chief  Executive  Officer,  owns in excess of 10% of its  outstanding
capital  stock,  (ii) $9.9 million of paper plates and $0.2 million of equipment
rental from Fonda and (iii) $0.5 million of travel  services  from Emerald Lady,
Inc., a company wholly owned by the Company's Chief Executive Officer.  Included
in accounts  payable,  as of September 30, 2001, are $0.6 million due to Box USA
and $0.8  million due to Fonda.  Other  purchases  from and sales to  affiliates
during Fiscal 2001 were not significant.

         During  Fiscal  2000,  the  Company  sold (i) $16.7  million of cups to
Fonda,  and (ii) $0.8  million of scrap  paper to Fibre  Marketing.  Included in
accounts  receivable,  as of September  24, 2000, is $2.2 million due from Fonda
and $0.2 million due from Fibre Marketing.

         During  Fiscal  2000,  the  Company   purchased  (i)  $8.0  million  of
corrugated containers and $0.2 million of other services from Box USA (ii) $11.4
million of paper  plates,  $0.2 million of equipment

                                       24
<PAGE>
rental and $1.0 million of other  services  from Fonda and (iii) $0.4 million of
travel  services from Emerald Lady,  Inc.  Included in accounts  payable,  as of
September  24,  2000,  are $0.1  million due to Box USA and $0.9  million due to
Fonda.  Other purchases from and sales to affiliates during Fiscal 2000 were not
significant.

         During Fiscal 2000,  the Company  purchased  certain paper cup machines
from Fonda at a fair market value of $1.3 million. The equipment was recorded in
property,  plant and equipment at Fonda's net book value,  resulting in a charge
to equity of $1.0 million. Independent appraisals were obtained to determine the
fairness of the purchase price.

         During Fiscal 2000, the Company entered into a lease agreement with D&L
Development,  LLC,  an entity in which the  Company's  Chief  Executive  Officer
indirectly owns 47%, to lease a warehouse  facility in Hampstead,  Maryland.  In
Fiscal 2001 and 2000,  rental  payments  under this lease were $3.6  million and
$0.7 million,  respectively.  Annual rental payments under the 20 year lease are
$3.7  million  for the first 10 years of the lease  and $3.8  million  annually,
thereafter.

         In  November  2000,  the  Company  began  leasing a  facility  in North
Andover,  Massachusetts  from D&L Andover Property,  LLC, an entity in which the
Company's Chief Executive  Officer  indirectly owns 50%. In Fiscal 2001,  rental
payments under this lease were $1.4 million. Annual rental payments under the 20
year lease are $1.5 million in the first year,  which  escalates at a rate of 2%
each year thereafter.

         During  Fiscal  1999,  the  Company  sold  certain  of its paper  plate
manufacturing  assets to Fonda for $2.4 million.  In February  1999, the Company
entered into a five year operating lease with Fonda,  whereby the Company leases
certain paper cup  manufacturing  assets from Fonda,  resulting in equal monthly
payments totaling $0.2 million per year. Independent appraisals were obtained to
determine the fairness of both the purchase price and lease terms.

         During Fiscal 1999, the Company sold (i) $6.8 million of cups to Fonda,
(ii) $0.2  million of paper scrap to Fibre  Marketing  and (iii) $0.1 million of
cups to CEG, a company in which the Chief Executive  Officer owned more than 50%
of the common  stock.  Accounts  receivable  as of September 26, 1999 from these
sales are $0.8 million due from Fonda and $0.1 million due from Fibre Marketing.
Sales to these affiliates in preceding fiscal years were not material.

         During  Fiscal  1999,  the  Company   purchased  (i)  $6.1  million  of
corrugated containers from Box USA, (ii) $3.8 million of paper plates from Fonda
and (iii) $0.4 million of travel  services  from  Emerald  Lady,  Inc.  Accounts
payable, as of September 26, 1999, from these purchases, are $0.5 million due to
Box USA and $0.7 million due to Fonda.


                                     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:

                                       25
<PAGE>
     1.  The financial statements listed in the "Index to Consolidated 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")).
         3.3      Certificate  of  Amendment  to  the  Restated  Certificate  of
                  Incorporation of Sweetheart Holdings Inc. dated March 11, 1998
                  (incorporated  by reference  from Exhibit 3.3 of the Company's
                  report on Form 10-Q dated May 15, 1998).
         3.4      Amended and Restated By-Laws of Sweetheart Holdings Inc. dated
                  March 12, 1998  (incorporated by reference from Exhibit 3.4 of
                  the Company's report on Form 10-Q dated May 15, 1998).
         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).
         10.13    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).
         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).
         10.21    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).
         10.47    Second Restated  Management Services Agreement dated March 12,
                  1998  (incorporated  by reference  from  Exhibit  10.47 of the
                  Company's report on Form 10-Q dated May 15, 1998).
         10.48    Amendment  No. 1 to the Second  Restated  Management  Services
                  Agreement  dated  March 12,  1998  (incorporated  by reference
                  from Exhibit  10.48 of  the  Company's  report  on  Form  10-Q
                  dated May 15, 1998).

                                       26
<PAGE>
         10.51    Credit  Agreement  dated as of June 15,  1998   between   Lily
                  Cups Inc.  as  Borrower  and General Electric  Capital  Canada
                  Inc. as Lender  (incorporated  by reference from Exhibit 10.51
                  of the   Company's report on Form 10-Q dated August 14, 1998).
         10.52    Security  Agreement  made as of June 15,  1998  between   Lily
                  Cups Inc.  as Grantor  and  General    Electric Capital Canada
                  Inc. as Lender (incorporated by reference from Exhibit   10.52
                  of the Company's report on Form 10-Q dated August 14, 1998).
         10.57    Second Amended and Restated Loan and Security  Agreement dated
                  as of  June  15,  2000  among  Sweetheart  Cup,  as  Borrower,
                  Sweetheart  Holdings,  as Parent,  Bank of America,  N.A.,  as
                  Agent, and several  Financial  Institutions,  named therein as
                  Lenders  (incorporated  by reference from Exhibit 10.57 of the
                  Company's report on Form 10-Q dated June 25, 2000).
         10.58    Intercreditor  Agreement  dated as of June 15, 2000 among Bank
                  of America,  N.A., as Agent,  and State Street,  solely in its
                  capacity  as  Owner  Trustee  and  Lessor   (incorporated   by
                  reference  from Exhibit 10.58 of the Company's  report on Form
                  10-Q dated June 25, 2000).
         10.59    Lease  Agreement  dated as  of June  1, 2000   between   State
                  Street,  solely  in  its  capacity  as   Owner   Trustee   and
                  Lessor,  and  Sweetheart  Cup,  as   Lessee  (incorporated  by
                  reference from Exhibit 10. 59 of  the Company's report on Form
                  10-Q dated June 25, 2000).
         10.60    Lease  Supplement  dated  as of  June 1,  2000  between  State
                  Street, solely in its    capacity as Owner Trustee and Lessor,
                  and Sweetheart Cup,  as Lessee (incorporated by reference from
                  Exhibit 10.60 of the  Company's report on Form 10-Q dated June
                  25, 2000).
         10.61    Participation  Agreement  dated  as  of  June  1,  2000  among
                  Sweetheart Cup, as Lessee,  the Company,  as Guarantor,  State
                  Street,  solely in its capacity as Owner Trustee,  and several
                  Owner  Participants  (incorporated  by reference  from Exhibit
                  10.61 of the  Company's  report  on Form 10-Q  dated  June 25,
                  2000).
         10.62    Definitions  and  Rules  of Usage  dated  as of June  1,  2000
                  executed  in  conjunction  with  the  Participation  Agreement
                  (incorporated by reference from Exhibit 10.62 of the Company's
                  report on Form 10-Q dated June 25, 2000).
         10.63    Third Amendment to Credit Agreement dated as of June 19,  2001
                  between Lily Cups, Inc.  as  Borrower  and  General   Electric
                  Capital Canada Inc. as Lender
         10.64    Amendment to Second  Amended and Restated  Loan  and  Security
                  Agreement, dated as of  July 31, 2001, among    Sweetheart Cup
                  Company, Inc.,Sweetheart Holdings Inc., Bank of America, N.A.,
                  Congress Financial Corp., Transamerica Business Credit  Corp.,
                  GMAC Commercial Credit,LLC, PNC Bank, N.A.
         10.65    Fourth Amendment To Credit Agreement, dated as of  August  15,
                  2001,  between  Lily  Cups  Inc.  and General Electric Capital
                  Canada Inc.
         21.1     Subsidiaries of the Company (incorporated by reference from
                  Exhibit 21.1 of the 1994 10-K).
         27.0     Financial Data Schedule

(b)  Current Reports on Form 8-K

         A report on Form 8-K was filed on March 15, 2001 under Item 5.

         A report on Form 8-K was filed on September 17, 2001 under Item 9.

         A report on Form 8-K was filed on September 19, 2001 under Item 9.

                                       27
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page

Independent Auditors' Report                                                  29


Consolidated Balance Sheets as of September 30, 2001
         and September 24, 2000                                               30


Consolidated Statements of Operations and Other Comprehensive Income (Loss)
              for Fiscal Years 2001, 2000 and 1999                            31


Consolidated Statements of Cash Flows for Fiscal Years 2001, 2000, and 1999   32

Consolidated Statements of Shareholders' Equity for Fiscal
              Years 2001, 2000, and 1999                                      33


Notes to Consolidated Financial Statements                                    34

                                       28
<PAGE>
INDEPENDENT AUDITORS' REPORT


To the Board of Directors of
Sweetheart Holdings Inc.


         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Sweetheart  Holdings Inc. and  subsidiaries  (the "Company") as of September 30,
2001  and  September  24,  2000,  and the  related  consolidated  statements  of
operations and other comprehensive income (loss), shareholders' equity, and cash
flows for each of the three fiscal years in the period ended September 30, 2001.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  These 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, such consolidated  financial statements present fairly,
in all material respects,  the financial position of the Company as of September
30, 2001 and September 24, 2000,  and the results of their  operations and their
cash flows for each of the three fiscal years in the period ended  September 30,
2001 in conformity with accounting  principles  generally accepted in the United
States of America.





/s/ DELOITTE & TOUCHE LLP
Baltimore, Maryland
November 19, 2001

                                       29
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                      September 30,    September 24,
                                                                          2001             2000
                                                                     ---------------  ---------------
<S>                                                                  <C>              <C>
                                     Assets
Current assets:
  Cash and cash equivalents                                             $   9,593        $   3,415
  Cash in escrow                                                                8              300
  Receivables, less allowances of $2,445 and $2,072                       114,893          110,077
  Inventories                                                             161,803          162,339
  Deferred income taxes                                                    17,089           16,303
  Assets held for sale                                                      7,368                -
  Other current assets                                                     21,836           21,543
                                                                        ----------       ----------
    Total current assets                                                  332,590          313,977


Property, plant and equipment, net                                        206,640          205,787
Deferred income taxes                                                      30,349           34,183
Spare parts                                                                12,077            8,313
Goodwill, net                                                              13,803           10,969
Other assets                                                                8,603            9,604
                                                                        ----------       ----------

    Total assets                                                        $ 604,062        $ 582,833
                                                                        ==========       ==========

                      Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable                                                     $  82,944        $  76,317
   Accrued payroll and related costs                                       34,147           45,017
   Other current liabilities                                               30,611           36,400
   Current portion of deferred gain on sale of assets                      10,275           10,275
   Current portion of long-term debt                                       13,829           15,841
                                                                        ----------       ----------
    Total current liabilities                                             171,806          183,850

Commitments and contingencies  (See Notes)

Long-term debt                                                            242,176          210,269
Deferred gain on sale of assets                                            83,672           93,948
Other liabilities                                                          67,945           64,353
                                                                        ----------       ----------

    Total liabilities                                                     565,599          552,420
                                                                        ----------       ----------

Minority interest                                                           2,130                -
                                                                        ----------       ----------

Shareholders' equity:
  Class A Common Stock - Par value $.01 per share; 1,100,000 shares
    authorized; 1,046,000 shares issued and outstanding                        10               10
  Class B Common Stock - Par value $.01 per share; 4,600,000 shares
    authorized; 4,393,200 shares issued and outstanding                        44               44
  Additional paid-in capital                                              100,176          100,070
  Accumulated deficit                                                     (56,336)         (67,611)
  Accumulated other comprehensive loss                                     (7,561)          (2,100)
                                                                        ----------       ----------
    Total shareholders' equity                                             36,333           30,413
                                                                        ----------       ----------
    Total liabilities and shareholders' equity                          $ 604,062        $ 582,833
                                                                        ==========       ==========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       30
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      AND OTHER COMPREHENSIVE INCOME (LOSS)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   Fiscal
                                                   -------------------------------------
                                                      2001         2000          1999
                                                   -----------  -----------  -----------
<S>                                                <C>          <C>          <C>
Net sales                                           $ 981,348    $ 952,728    $ 863,781
Cost of sales                                         879,905      833,959      763,750
                                                    ----------   ----------   ----------

  Gross profit                                        101,443      118,769      100,031

Selling, general and administrative expenses           65,943       64,852       67,406
Restructuring charge (credit)                               -          503         (512)
Asset impairment expense                                2,244            -            -
Other income, net                                      (9,167)      (4,688)      (1,180)
                                                    ----------   ----------   ----------

  Operating income                                     42,423       58,102       34,317

Interest expense, net of interest income of
  $70, $1,071 and $122                                 23,519       36,825       41,671
                                                    ----------   ----------   ----------

  Income  (loss)  before  income  tax  expense
  (benefit),     minority     interest     and
  extraordinary loss                                   18,904       21,277       (7,354)

Income tax expense (benefit)                            7,561        8,492       (2,941)
Minority interest in subsidiary                            68            -            -
                                                    ----------   ----------   ----------

  Income (loss) before extraordinary loss              11,275       12,785       (4,413)

Extraordinary loss on debt extinguishment (net of
  income tax benefit of $209)                               -         (313)           -
                                                    ----------   ----------   ----------

  Net income (loss)                                 $  11,275    $  12,472    $  (4,413)
                                                    ==========   ==========   ==========

Other comprehensive income (loss):

  Net income (loss)                                 $  11,275    $  12,472    $  (4,413)
  Foreign currency translation adjustment                (393)        (122)         272
  Minimum  pension  liability  adjustment (net
  of  income  taxes  of  ($3,379),   $539  and
  $2,288)                                              (5,068)         809        3,432
                                                    ----------   ----------   ----------

  Comprehensive income (loss)                       $   5,814    $  13,159    $    (709)
                                                    ==========   ==========   ==========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.



                                       31
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                               Fiscal
                                                                ------------------------------------
                                                                    2001         2000        1999
                                                                -----------  -----------  ----------
<S>                                                             <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES

  Net income (loss)                                              $  11,275    $  12,472    $ (4,413)

  Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
    Depreciation and amortization                                   23,653       40,231      48,270
    Amortization of deferred gain                                  (10,276)      (2,813)          -
    Asset impairment expense                                         2,244            -           -
    Deferred income tax expense (benefit)                            7,191        4,597      (2,941)
    Loss (gain) on sale of assets                                      107       (4,439)     (1,301)
  Changes in operating assets and liabilities (net of
  business acquisitions):
    Receivables                                                     (3,218)     (21,119)     (3,077)
    Inventories                                                      4,023      (27,070)      3,592
    Spare parts                                                     (2,795)        (757)        857
    Accounts payable                                                (7,348)       6,464         449
    Pension termination liability                                   (7,600)      (8,316)       (792)
    Restructuring reserve                                              (68)          68      (2,736)
    Accrued payroll and related costs                              (10,870)        (843)      5,764
    Litigation reserve                                                   -       (2,650)      1,908
    Pensions                                                        (2,499)      (3,662)     (2,711)
    Other, net                                                      (2,030)       3,603       6,903
                                                                 ----------   ----------   ---------
      Net cash provided by (used in) operating activities            1,789       (4,234)     49,772
                                                                 ----------   ----------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES

  Additions to property, plant and equipment                       (26,488)     (23,474)    (30,790)
  Payments for business acquisitions                               (12,198)     (12,411)          -
  Proceeds from sale of property, plant and equipment                    8      220,912       9,058
                                                                 ----------   ----------   ---------
      Net cash provided by (used in) investing activities          (38,678)     185,027     (21,732)
                                                                 ----------   ----------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES

  Net borrowings (repayments) under credit  facilities              42,775        9,957     (31,906)
  Repayments of other debt                                               -     (190,000)          -
  Increase in cash escrow                                              (17)    (206,318)    (10,821)
  Decrease in cash escrow                                              309      206,018      16,285
                                                                 ----------   ----------   ---------
      Net cash provided by (used in) financing activities           43,067     (180,343)    (26,442)
                                                                 ----------   ----------   ---------

NET INCREASE IN CASH AND CASH
  EQUIVALENTS                                                        6,178          450       1,598

CASH AND CASH EQUIVALENTS, beginning of year                         3,415        2,965       1,367
                                                                 ----------   ----------   ---------
CASH AND CASH EQUIVALENTS, end of year                           $   9,593    $   3,415    $  2,965
                                                                 ==========   ==========   =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:

      Interest paid                                              $  21,932    $  37,048    $ 39,828
                                                                 ==========   ==========   =========
      Income taxes paid                                          $     431    $   2,972    $     80
                                                                 ==========   ==========   =========

SUPPLEMENTAL NON-CASH FINANCING ACTIVITY:

      Note payable associated with business acquisition          $       -    $   2,914    $      -
                                                                 ==========   ==========   =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       32
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (In thousands)




<TABLE>
<CAPTION>
                                                                                  Accumulated
                                  Class A   Class B   Additional                     Other          Total
                                  Common    Common     Paid-In     Accumulated   Comprehensive   Shareholders'
                                   Stock     Stock     Capital       Deficit     Income (Loss)      Equity
                                 --------- --------- ------------ ------------- --------------- ---------------
<S>                              <C>       <C>       <C>          <C>           <C>             <C>
Balance, September 28, 1998        $  10     $  44    $ 101,090    $ (75,670)      $ (6,491)       $ 18,983

Net loss                               -         -            -       (4,413)             -          (4,413)
Minimum    pension     liability
  adjustment                           -         -            -            -          3,432           3,432
Translation adjustment                 -         -            -            -            272             272
                                   ------    ------   ----------   ----------      ---------       ---------

Balance, September 26, 1999           10        44      101,090      (80,083)        (2,787)         18,274

Net income                             -         -            -       12,472              -          12,472
Elimination of gain on
  equipment purchased
  from related party                   -         -       (1,020)           -              -          (1,020)
Minimum    pension     liability
  adjustment                           -         -            -            -            809             809
Translation adjustment                 -         -            -            -           (122)           (122)
                                   ------    ------   ----------   ----------      ---------       ---------

Balance, September 24, 2000           10        44      100,070      (67,611)        (2,100)         30,413

Net income                             -         -            -       11,275              -          11,275
Equity based compensation              -         -          106            -              -             106
Minimum    pension     liability
  adjustment                           -         -            -            -         (5,068)         (5,068)
Translation adjustment                 -         -            -            -           (393)           (393)
                                   ------    ------   ----------   ----------      ---------       ---------

 Balance, September 30, 2001       $  10     $  44    $ 100,176    $ (56,336)      $ (7,561)       $ 36,333
                                   ======    ======   ==========   ==========      =========       =========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.

                                       33
<PAGE>
                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

         The  Company  is one of the  largest  producers  of  plastic  and paper
disposable  foodservice and food packaging products in North America.  In Fiscal
2001,  the Company had net sales of  approximately  $981 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(R),  Lily(R),  Trophy(R),  Jazz(R),  Preference(TM) and Go Cup(R) for
cups and plates and Silent Service(R),  Centerpiece(R),  Basix(R),  Guildware(R)
and Simple Elegance(R) 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. One
national customer of the Company accounted for 12.1%, 11.1% and 11.7% of its net
sales in Fiscal 2001, Fiscal 2000, and Fiscal 1999, respectively.


1.       SIGNIFICANT ACCOUNTING POLICIES

         Business  Segments - The Company  operates within one business  segment
and accordingly does not report multiple business segments.  Included within our
reported sales is $1.6 million of lease revenue.  Further  identification of net
sales by product and service or group of similar  products  and  services is not
available.

         Fiscal  year end - The  Company's  fiscal year end is the 52 or 53 week
period ending on the last Sunday in September. Fiscal 2001 is the 53 week period
ended September 30, 2001.  Fiscal 2000 is the 52 week period ended September 24,
2000. Fiscal 1999 is the 52 week period ended September 26, 1999.

         Principles  of   Consolidation   and  Translation  -  The  consolidated
financial  statements  include  the  accounts  of  Sweetheart  Holdings  and its
subsidiaries.  Assets and  liabilities  denominated  in foreign  currencies  are
translated  at the  rates of  exchange  in  effect at the  balance  sheet  date.
Revenues  and  expenses 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 in shareholders'  equity and
comprehensive  income.  All  inter-company  accounts and transactions  have been
eliminated.

         The  accounts of the  Company's  Mexican  subsidiary,  Global Cup,  are
consolidated  as of and for the period  ended  August  31,  2001 due to the time
needed to  consolidate  this  subsidiary.  No events  occurred  related  to this
subsidiary in September 2001 that materially affected the Company's consolidated
financial position or results of operations.

         Cash, including Cash Equivalents,  Restricted Cash and Cash in Escrow -
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash overdrafts are reclassified to
accounts  payable  and  accrued  payroll and  related  costs.  Cash  received as
proceeds from the sale of assets is restricted to qualified capital expenditures
under the terms of a lease  agreement  and is held in  escrow  with the  trustee
until utilized (See Note 10).

         Inventories  -  Inventories  are stated at the lower of cost or market,
using the first-in first-out method.

         Property,  Plant and  Equipment  -  Property,  plant and  equipment  is
recorded  at cost,  less

                                       34
<PAGE>
accumulated depreciation,  or fair market value for business acquisitions 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  improvements  range between 2 and 50
years and have an average useful life of 22 years.  The asset lives of machinery
and equipment  range  between 5 and 13 years and have an average  useful life of
12.5 years.

         Costs related to  construction  in progress are accumulated as incurred
and transferred to property, plant and equipment when put into service, at which
time, the asset is depreciated over its useful life.

         Revenue  Recognition - Revenue is  recognized  upon shipment of product
and when collectability is reasonably  assured.  Also, the Company rents filling
equipment to certain of its customers and  recognizes  this income over the life
of the lease.  The Company's sales are evidenced and the sales price fixed based
upon either a purchase  order,  contract or buying  agreement with the customer.
The Company's  freight terms are either FOB shipping point or freight prepaid by
the customer.  The customer may also be eligible for  promotional  incentives or
rebates.  The  Company  at the time of sale  records a reserve  for  promotional
allowances,  rebates and other discounts based on historical  experience,  which
are charged to net sales.

         Shipping  and  Handling  Costs - Amounts  billed to  customers in sales
transactions  related to shipping  and  handling,  if any,  are  included in net
sales.  Shipping and handling costs incurred by the Company are included in cost
of sales.

         Goodwill - Goodwill  represents  the excess of the purchase  price over
the fair value of tangible and  identifiable  intangible net assets acquired and
is amortized on a straight-line  basis over twenty years.  The carrying value of
goodwill  is  reviewed  when  facts  and  circumstances  suggest  that it may be
impaired.  The Company assesses its  recoverability  by determining  whether the
amortization  of the goodwill  balance over its remaining  life can be recovered
through  undiscounted  projected  future cash flows.  Should the review indicate
that goodwill is not recoverable,  the Company's  carrying value of the goodwill
would be reduced by the estimated shortfall of the cash flows.

         Environmental  Cleanup  Costs  -  The  Company  expenses  environmental
expenditures  related  to  existing  conditions  resulting  from past or current
operations  and from  which no current or future  benefit  is  discernible.  The
Company determines its liability on a site by site basis and records a liability
at the time when it is probable and can be reasonably estimated.

         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.

         Reclassifications  - Certain prior year balances have been reclassified
to conform with the current presentation.

         Concentration of Credit Risk - Financial instruments, which potentially
subject  the  Company  to  credit  risk,  consist  principally  of  receivables.
Concentration  of credit risk with respect to  receivables  is  considered to be
limited due to the Company's  customer base and the diversity of its  geographic
sales areas. The Company  performs ongoing credit  evaluations of its customers'
financial  condition.  The Company  maintains a provision for  potential  credit
losses based upon expected collectibility of all receivables.

         Impact of Recently  Issued  Accounting  Standards  - In June 2001,  the
Financial  Accounting  Standards Board ("FASB")  issued two new  pronouncements:
Statement  of  Financial   Accounting   Standard   ("SFAS")  No.  141,  Business
Combinations and SFAS No. 142,  Goodwill and Other Intangible  Assets.  SFAS No.
141   prohibits  the  use  of  the   pooling-of-interest   method  for  business
combinations  initiated  after June 30,  2001 and also  applies to all  business
combinations  accounted for by the purchase method that are completed after June
30,  2001.  There  are  also  transition   provisions  that  apply  to  business
combinations  completed  before  July 1, 2001,  that were  accounted  for by the
purchase  method.  SFAS No. 142 is effective  for fiscal years  beginning  after
December  15,  2001 and  applies to all  goodwill  and other  intangible  assets

                                       35
<PAGE>
recognized in an entity's  balance  sheet.  The Company has adopted SFAS No. 141
and is  currently  evaluating  the  impact of SFAS No.  142 on its  consolidated
financial statements.

         In October 2001, the FASB issued  pronouncement SFAS No. 144 Impairment
or Disposal of Long-Lived Assets. This Statement addresses financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets.  This
Statement  supersedes  FASB Statement No. 121,  Accounting for the Impairment of
Long-Lived  Assets  and  for  Long-Lived  Assets  to Be  Disposed  Of,  and  the
accounting  and  reporting  provisions of  Accounting  Principals  Board Opinion
("APB") No. 30,  Reporting  the Results of  Operations-Reporting  the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and  Transactions,  for the disposal of a segment of a business
(as previously  defined in that Opinion).  This Statement also amends Accounting
Research Bulletin No. 51, Consolidated  Financial  Statements,  to eliminate the
exception to  consolidation  for a subsidiary  for which control is likely to be
temporary. The Company is currently evaluating the impact of SFAS No. 144 on its
consolidated financial statements.

         In June 1998, the  FASB issued SFAS No. 133,  Accounting for Derivative
Instruments and Hedging  Activities as amended by SFAS No. 137 and SFAS No. 138.
SFAS No. 133  establishes  accounting  and reporting  standards  for  derivative
instruments and requires that an entity  recognize all derivatives at fair value
in the balance sheet.  The Company adopted SFAS No. 133 effective  September 25,
2000.  The  adoption of SFAS No. 133 did not have an impact on the  consolidated
financial statements.

         Use  of  Estimates  -  The  preparation  of  financial   statements  in
conformity with accounting  principles  generally  accepted in the U.S. 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  fiscal years.  Actual  results could differ from
those estimates.


2.       INVENTORIES

         The components of inventories are as follows (in thousands):

                              September 30,    September 24,
                                  2001             2000
                             ---------------  ---------------
Raw materials and supplies      $  38,007        $   47,218
Finished  products                113,639           104,326
Work in progress                   10,157            10,795
                                ---------        ----------
  Total inventories             $ 161,803        $  162,339
                                =========        ==========

                                       36
<PAGE>
3.       INCOME TAXES

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

                                                 Fiscal
                                     --------------------------------
                                       2001       2000        1999
                                     ---------  ---------  ----------
Current:
  Federal                             $   150    $ 2,825    $      -
  State                                   220        800           -
  Foreign                                   -        270           -
                                      --------   --------   ---------
    Total current                         370      3,895           -
                                      --------   --------   ---------

Deferred:
  Federal                               6,841      4,369      (2,549)
  State                                   779        228        (364)
  Foreign                                (429)         -         (28)
                                      --------   --------   ---------
     Total deferred                     7,191      4,597      (2,941)
                                      --------   --------   ---------
Total income tax provision (benefit)  $ 7,561    $ 8,492    $ (2,941)
                                      ========   ========   =========

         The effective tax rate varied from the U.S. Federal tax rate of 35% for
Fiscal 2001, 2000 and 1999 as a result of the following:

                                                  Fiscal
                                      -------------------------------
                                        2001      2000        1999
                                      --------  ---------  ----------

U.S. Federal tax rate                    35%       35%         35%
State income taxes, net of
  U.S. Federal tax impact                 4         4           4
Permanent difference, meals and
  entertainment                           1         1           1
                                         ---       ---         ---
  Effective tax rate                     40%       40%         40%
                                         ===       ===         ===

         Deferred income taxes reflect the net tax effects of net operating loss
carryforwards,  tax credit carryforwards,  and temporary differences between the
carrying amounts of assets and liabilities for financial  reporting purposes and
the amounts used for income tax  purposes.  The  significant  components  of the
Company's net deferred tax assets and liabilities are as follows (in thousands):

                                                 September 30,    September 24,
                                                     2001             2000
                                                ---------------  ---------------
 Assets:
  Post-retirement health and pension benefits     $ 23,551        $  25,437
  Employee benefits                                  5,285            7,165
  Net operating loss carryforwards                   9,980           11,627
  Deferred gain on sale-leaseback transaction       37,766           41,689
  Alternative minimum tax credit carryforward        3,329            3,179
  Deferred rent                                      1,606              345
  Inventory adjustments                              3,496              340
  Other                                              5,117            1,403
                                                  ---------       ----------
                                                    90,130           91,185

 Liabilities:
  Depreciation                                     (42,692)         (40,699)
                                                  ---------       ----------

 Net deferred tax assets                          $ 47,438        $  50,486
                                                  =========       ==========


                              37
<PAGE>
         The Company  has  net  operating loss   carryforwards  for  income  tax
purposes of  approximately  $28  million,  which will  expire in 2018.  Although
future  earnings  cannot  be  predicted  with  certainty,  management  currently
believes that realization of the net deferred tax asset is more likely than not.

         No provision has been made for U.S.  federal  deferred  income taxes on
approximately  $12  million of  accumulated  and  undistributed  earnings of the
Foreign  subsidiaries at September 30, 2001 since it is the present intention of
management  to  reinvest  the  undistributed   earnings  in  foreign  operations
indefinitely.  In addition, the determination of the amount of unrecognized U.S.
federal  deferred  income tax liability for unremitted  earnings  related to the
investments in the Foreign subsidiaries is not practicable.


4.       ASSETS HELD FOR SALE

         On  February  20,  2001 and  August 3,  2001,  the  Company's  Board of
Directors   approved  plans  for  the  closure  and  sale  of  the   Somerville,
Massachusetts facility and the Manchester, New Hampshire facility, respectively.
These  facilities  are being  consolidated  into one location in North  Andover,
Massachusetts.  The  Company  anticipates  the sale of both  facilities  and has
reclassified  the facilities to assets held for sale. On September 25, 2001, the
Company entered into a contract to sell the Manchester,  New Hampshire facility.
The Company expects to consummate the sale by the end of December 2001. The sale
is expected to result in a net gain.


5.       OTHER CURRENT ASSETS

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

                                September 30,    September 24,
                                    2001             2000
                               ---------------  ---------------

Spare parts                       $ 20,574         $ 21,543
Other                                1,262                -
                                  --------        ---------

  Total other current assets      $ 21,836         $ 21,543
                                  ========        =========


6.       PROPERTY, PLANT AND EQUIPMENT, NET

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

                                         September 30,    September 24,
                                              2001             2000
                                        --------------   --------------

Land                                       $  13,333        $  16,780
Buildings and improvements                    85,145           88,577
Machinery and equipment                      255,463          242,746
Construction in progress                      13,084            7,858
                                           ---------        ---------

  Total property, plant and equipment        367,025          355,961

Less - accumulated depreciation              160,385          150,174
                                           ---------        ---------

    Property, plant and equipment, net     $ 206,640        $ 205,787
                                           =========        =========


                                       38
<PAGE>
         Depreciation of property,  plant and equipment was $22.0 million, $37.8
million and $45.9 million in Fiscal 2001, 2000 and 1999, respectively.


7.       ACQUISITIONS

         On April 5, 2001, the Company  purchased an 80% interest in Global Cup,
S.A. De C.V.  and its  subsidiaries  ("Global  Cup").  Global Cup  manufactures,
distributes and sells paper cups and lids throughout Mexico and exports to other
Latin  American   countries.   The  Company  has  assumed  the  liabilities  and
obligations  of Global Cup  arising  under  contracts  or leases that are either
assets purchased by the Company or a part of the accounts payable. The aggregate
purchase  price for the assets and working  capital was $12.2  million which was
paid in cash, subject to a post-closing  working capital adjustment.  The Global
Cup  acquisition  has resulted in goodwill of $3.9  million.  As a result of the
potential post closing  working  capital  adjustment,  the final  calculation of
which  the  Company  expects  to be  completed  within  one  year,  amounts  and
allocations  of costs  recorded may require  adjustment  based upon  information
coming to the attention of the Company that is not currently available.

         On May 15, 2000, the Company acquired Sherwood, a manufacturer of paper
cups, containers and cup making equipment.  Pursuant to a certain Stock Purchase
Agreement among Sweetheart Cup and the stockholders of Sherwood,  Sweetheart Cup
acquired  all of  the  issued  and  outstanding  capital  stock  (the  "Sherwood
Acquisition") of Sherwood and its  subsidiaries for an aggregate  purchase price
of  $16.8  million  of which  $12.1  million  was  paid in cash.  As part of the
purchase  price,   Sweetheart  Cup  issued  to  the   stockholders  of  Sherwood
non-interest  bearing  promissory  notes  due May 2005 for  $4.7  million  and a
present  value of $2.7 million  (assuming an interest rate of 10.85% per annum).
Sweetheart  Cup also assumed $9.3  million of Sherwood  debt,  which was paid in
full on June 15,  2000.  The  Sherwood  acquisition  has resulted in goodwill of
$10.7 million.

         The above  acquisitions  have  been  accounted  for under the  purchase
method and their  results have been included in the  consolidated  statements of
operations since the respective dates of acquisition.  Goodwill  amortization of
the above  acquisitions  was $0.6  million  in Fiscal  2001 and $0.2  million in
Fiscal  2000.  Accumulated  amortization  was $0.8  million and $0.2  million at
September 30, 2001 and September 24, 2000, respectively.  The inclusion of these
acquisitions  within the  consolidated  financial  statements  presented  had an
immaterial impact on the Company's pro forma results.


8.       OTHER ASSETS

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

                                         September 30,    September 24,
                                              2001             2000
                                        ---------------  ---------------

Debt issuance costs, net of
  accumulated amortization                 $   3,673        $   3,988
Intangible pension asset
  (See Note 22)                                1,660              884
Deposits                                       1,461            2,166
Other                                          1,809            2,566
                                           ---------        ---------

         Total other assets                $   8,603        $   9,604
                                           =========        =========

         Amortization of debt issuance costs was $1.2 million,  $2.0 million and
$2.4 million for Fiscal 2001,

                                       39
<PAGE>

2000 and 1999, respectively, and is included in interest expense.


9.       OTHER CURRENT LIABILITIES

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

                                         September 30,    September 24,
                                             2001              2000
                                        ---------------  ---------------

Sales allowances                           $  13,068        $  10,875
Restructuring charges                              -               68
Taxes, other than income taxes                 3,084            3,295
Litigation, claims and assessments
  (See Note 24)                                1,426            9,288
Deferred rent payable                          8,169            8,631
Interest payable                               2,134            1,741
Other                                          2,730            2,502
                                           ---------        ---------

  Total other current liabilities          $  30,611        $  36,400
                                           =========        =========


10.      DEFERRED GAIN ON SALE OF ASSETS

         In  connection  with a  sale-leaseback  transaction,  on June 15, 2000,
Sweetheart Cup and Sweetheart  Holdings Inc. sold certain  production  equipment
located in Owings Mills,  Maryland,  Chicago,  Illinois and Dallas,  Texas for a
fair market value of $212.3 million to several owner participants. Pursuant to a
lease dated as of June 1, 2000 ("the Lease")  between  Sweetheart  Cup and State
Street  Bank and Trust  Company of  Connecticut,  National  Association  ("State
Street"), Sweetheart Cup will lease such production equipment from State Street,
as owner trustee for several owner  participants,  through November 9, 2010. The
associated property,  plant and equipment was removed from the balance sheet and
a deferred gain of $107.0  million was recorded and will be amortized  using the
straight  line  method  over 125 months  which is the term of the Lease.  Annual
rental payments under the Lease will be approximately $31.5 million.


11.      LONG-TERM OBLIGATIONS

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

                                          September 30,    September 24,
                                              2001             2000
                                          -------------    -------------

U.S. Credit Facility                       $ 126,222        $ 102,249
Canadian Credit Facility                      16,630           10,320
10.5% Senior Subordinated Notes              110,000          110,000
Sherwood Industries Notes                      3,153            3,541
                                           ---------        ---------

     Total debt                              256,005          226,110

Less - Current portion of long-term debt      13,829           15,841
                                           ---------        ---------
     Total long-term debt                  $ 242,176        $ 210,269
                                           =========        =========


                                       40
<PAGE>
         The aggregate annual maturities of long-term debt at September 30, 2001
are as follows (in thousands):


Fiscal 2002                                $  13,829
Fiscal 2003                                  116,357
Fiscal 2004                                    9,386
Fiscal 2005                                  116,433
                                           ---------

                                           $ 256,005
                                           =========

         U.S. Credit  Facility - The Company has a revolving  credit facility as
amended  (the  "U.S.   Credit   Facility")  that,   subject  to  borrowing  base
limitations,  allows for a maximum  revolving  credit  borrowing of $145 million
through June 15, 2005 and a term loan of $25 million that requires equal monthly
principal payments of $0.4 million through June 2005. Both the term loan and the
revolving  credit facility have an accelerated  maturity date of July 1, 2003 if
the Company's Senior Subordinated Notes due September 1, 2003 are not refinanced
before  June 1,  2003.  Borrowings  under the  revolving  credit  facility  bear
interest,  at the Company's election, at a rate equal to (i) LIBOR plus 2.00% or
(ii) a bank's base rate plus 0.25%,  plus certain other fees.  Borrowings  under
the term loan bear interest,  at the Company's election,  at a rate equal to (i)
LIBOR plus 2.50% or (ii) a bank's base rate plus 0.50%, plus certain other fees.
In Fiscal 2001, the weighted  average annual  interest rate for the U.S.  Credit
Facility  was 7.58%.  The credit  facility is  collateralized  by the  Company's
inventories  and  receivables  with the term loan portion of the credit facility
further  collateralized  by certain  production  equipment.  As of September 30,
2001,  $31.6 million was available under such facility and the term loan balance
was approximately  $12.9 million.  The fee for outstanding  letters of credit is
2.00% per annum and there is a  commitment  fee of 0.375% per annum on the daily
average unused amount of the  commitments.  As of September 30, 2001,  LIBOR was
2.64% and the bank's base rate was 6.00%.

         The  indebtedness  of Sweetheart Cup under the U.S.  Credit Facility is
guaranteed  by  Sweetheart  Holdings and secured by a first  priority  perfected
security  interest in  inventory,  accounts  receivable  and all proceeds of the
foregoing of Sweetheart Cup, a first priority security interest, shared with the
sale-leaseback owner participants,  in Shared Collateral (as defined in the U.S.
Credit  Facility  to include  primarily  all capital  stock owned by  Sweetheart
Holdings and Sweetheart Cup and of each of their  respective  present and future
direct  subsidiaries,  all  inter-company  indebtedness  payable  to  Sweetheart
Holdings or  Sweetheart  Cup by  Sweetheart  Holdings,  Sweetheart  Cup or their
respective  present and future  subsidiaries,  and any  proceeds  from  business
interruption  insurance) and a first  priority  perfected  security  interest in
certain equipment.

         The U.S.  Credit  Facility  contains  various  covenants that limit, or
restrict,  among  other  things,   indebtedness,   dividends,   leases,  capital
expenditures and 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 U.S.  Credit  Facility.  The U.S. Credit
Facility provides for partial  mandatory  prepayments upon the sale of equipment
collateral unless net proceeds are used to purchase  replacement  collateral and
full repayment upon any change of control (as defined in the Agreement).

         Canadian  Credit  Facility - On June 19, 2001,  the Company's  Canadian
subsidiary  refinanced its credit  agreement (the  "Canadian  Credit  Facility")
which  provides for a term loan  facility of Cdn $15 million  (approximately  US
$9.5  million)  and  a  revolving  credit  facility  of up to  Cdn  $15  million
(approximately  US $9.5  million).  The term  borrowings  are payable  quarterly
through May 2004.  Both the  revolving  credit and term loan  borrowings  have a
final maturity date of June 15, 2004. The Canadian

                                       41
<PAGE>


Credit  Facility is secured by all existing  and  thereafter  acquired  real and
personal  tangible assets of Lily, a subsidiary of Sweetheart Cup,  ("Lily") and
net proceeds on the sale of any of the foregoing.  Borrowings under the Canadian
Credit  Facility  bear  interest at an index rate plus 1.75% with respect to the
revolving  credit facility and an index rate plus 2.00% with respect to the term
loan borrowings.  As of September 30, 2001, Cdn $1.0 million  (approximately  US
$0.6  million)  was  available  under the  revolving  facility and the term loan
balance was Cdn $14.5 million (approximately US $9.2 million) under the Canadian
Credit Facility.

         Senior   Subordinated  Notes  -  Sweetheart  Cup  is  the  obligor  and
Sweetheart  Holdings  the  guarantor  with  respect  to $110  million  of Senior
Subordinated Notes.

         The  Senior  Subordinated  Notes  bear  interest  at 10.50%  per annum,
payable  semi-annually  in  arrears  on March 1 and  September  1 and  mature on
September 1, 2003.  The Senior  Subordinated  Notes are subject to redemption at
the  option  of the  Company,  in  whole  or in part,  at the  redemption  price
(expressed as percentages of the principal amount), plus accrued interest to the
redemption  date, at a call premium of 100%. The Senior  Subordinated  Notes are
subordinate  in right of payment to the prior payment in full of all  borrowings
under the U.S. Credit Facility,  all obligations  under the Lease, and all other
indebtedness not otherwise prohibited.

         The Senior Subordinated Notes contain various covenants which prohibit,
or limit, among other things, asset sales, change of control, dividend payments,
equity repurchases or redemption, the incurrence of additional indebtedness, the
issuance of  disqualified  stock,  certain  transactions  with  affiliates,  the
creation of additional liens and certain other business activities.

         Sherwood Industries Notes - As part of the Sherwood  Acquisition on May
15, 2000, Sweetheart Cup issued to the stockholders of Sherwood promissory notes
due May 2005 in the principal amount of $5.0 million and a present value of $2.9
million.  On March 19, 2001, the principal amount was reduced by $0.3 million as
a result of the working capital  adjustment to $4.7 million and present value of
$2.7 million.


12.      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

         The  carrying  amounts of  financial  instruments  included  in current
assets and current liabilities approximate their estimated fair value because of
the  relatively   short   maturities  of  these   instruments.   Long-term  debt
instruments,  other than the Company's Senior  Subordinated Notes, have variable
interest rates that fluctuate along with current market  conditions and thus the
carrying value approximates their fair value.

         The fair value of the Company's Senior Subordinated Notes are estimated
to be $2.2 million lower than the carrying  value at September 30, 2001 and $7.7
million  lower  than the  carrying  value at  September  24,  2000,  based  upon
independent third party information.

                                       42
<PAGE>
13.      OTHER  LIABILITIES

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

                                          September 30,    September 24,
                                              2001             2000
                                          -------------   -------------

Post-retirement health care benefits
  (See Note 22)                            $  56,968        $  59,318
Pensions (See Note 22)                         8,894            2,349
Other                                          2,083            2,686
                                           ---------        ---------

  Total other liabilities                  $  67,945        $  64,353
                                           =========        =========


14.      SHAREHOLDERS' EQUITY

         SF  Holdings,   Inc.  ("SF  Holdings")   acquired  from  the  Company's
shareholders'  48% of the Company's  outstanding Class A Common Stock and all of
the outstanding  Class B Common Stock. As a result, SF Holdings holds 90% of the
total  number of  outstanding  shares of both  classes of the  Company's  common
stock.

         Pursuant to the terms and conditions of the SF Holdings Investment, the
Company's  Board  of  Directors  consists  of five  members,  three  of whom are
nominated  by the  Original  Shareholders  and two of whom are  nominated  by SF
Holdings.  Pursuant  to  the  Company's  by-laws,  significant  actions  by  the
Company's  Board of Directors  require the vote of four  directors  and include,
among others:  (i) a merger,  consolidation or other  combination of the Company
with or into another entity,  (ii) the sale of all or a material  portion of the
Company's  assets,  (iii)  entering  into  any new  line of  business,  (iv) the
issuance or  repurchase  of any equity  securities,  (v) the  incurrence  of any
indebtedness for money borrowed or the refinancing of any existing indebtedness,
(vi)  approval of the annual  business  plans and operating  budgets,  (vii) the
termination  indebtedness  or modification of any of the terms of the Management
Services  Agreement,  (viii) the amendment or  modification of any provisions of
the  certificate  of  incorporation,  (ix) the selection of the Company's  chief
executive officer,  chief operating officer and chief financial officer, (x) any
change of  accountants  and (xi) the  removal of any  officers  of the  Company.
Additionally,  pursuant to a certain Management Services Agreement,  as amended,
SF Holdings and The Fonda Group, Inc. ("Fonda"), a wholly owned subsidiary of SF
Holdings,  manage  the  day-to-day  operations  of the  Company  subject  to the
direction of the Board of Directors.

         The Class A and Class B Common Stock have the same powers,  preferences
and rights,  except that the Class B Common Stock has no voting rights.  Class A
and Class B Common  Stock share the profits and losses  generated by the Company
on a pro-rata basis.  Each  outstanding  Class A Common Share is entitled to one
vote on any matter  submitted to a vote of  shareholders  and has no  cumulative
voting  rights.  Subject  to  Delaware  law  and  limitations  in  certain  debt
instruments  (Senior  Subordinated  Notes and borrowings  under the U.S.  Credit
Facility),  common shareholders are entitled to receive such dividends as may be
declared  by  Sweetheart  Holdings'  Board of  Directors  out of  funds  legally
available thereof.  In the event of a liquidation,  dissolution or winding up of
Sweetheart  Holdings,  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.

         In addition, the Original Shareholders,  after March 12, 2003, have the
right to  exchange  their  shares  of Class A Common  Stock  for  warrants  (the
"Exchange Warrants") to purchase, for nominal  consideration,  shares of Class C
Common Stock of SF Holdings  representing 10% of the total outstanding shares of

                                       43
<PAGE>
common stock of SF Holdings at the consummation of the SF Holdings Investment on
a fully diluted basis.  SF Holdings has the right to cause such exchange and has
the right thereafter to repurchase the Exchange  Warrants,  in whole or in part,
for an aggregate call price of $50.0  million,  subject to increase at 12.5% per
annum  beginning  March 12,  1998 until March 12,  2003.  Upon  occurrence  of a
merger,  the Original  Shareholders will be required to exchange their shares of
Class A Common Stock for the  Exchange  Warrants.  In addition,  in the event SF
Holdings proposes to sell shares of Class A or Class B Common Stock in an amount
greater  than 30% of the  outstanding  shares  of  common  stock,  the  Original
Shareholders  will have the right to  participate  in such sale. In the event SF
Holdings  proposes to sell shares of common stock in an amount  greater than 30%
of the  outstanding  shares of common stock,  SF Holdings will have the right to
require the Original  Shareholders  to sell all, but not less than all, of their
shares of common stock.


15.      SF HOLDINGS STOCK OPTION PLAN

         During Fiscal 2001, SF Holdings  granted  options to purchase shares of
its common stock to certain  employees  of the Company.  The options vest over a
period of three years.  Certain of the exercise prices of the options were below
the fair market  value of SF  Holding's  common  stock at the date of the grant.
During the vesting  period,  these discounts of $0.2 million are being amortized
as  compensation  expense and  credited  to  additional  paid-in  capital by the
Company.  Amortization  expense  relating to SF Holding's stock options was $0.1
million for Fiscal 2001.

         A summary of SF Holdings stock option transactions  involving employees
of the Company are as follows:

                                          SF Holdings   Weighted Average
                                         Stock Options   Exercised Price
                                         -------------  ----------------
Outstanding, September 25, 2000                  -          $       -
  Granted                                    8,732             118.22
  Forfeited                                   (700)            117.38
                                             ------         ---------
Outstanding, September 30, 2001              8,032          $  118.29
                                             ======         =========

         The following  table  summarizes  information  about SF Holdings  stock
options granted to employees of the Company, outstanding at September 30, 2001:

<TABLE>
<CAPTION>
                                      Options Outstanding                           Options Exercisable
                     ------------------------------------------------------     ----------------------------

                                            Weighted                                              Weighted
                          Number             Average           Weighted             Number        Average
 Range of Exercise    Outstanding as     Remaining Life         Average           Exercisable     Exercise
      Prices           of 09/30/01           (Years)        Exercise Price       as of 9/30/01     Price
-------------------  ----------------   ----------------   ----------------     --------------  -------------
<S>                  <C>                <C>                <C>                  <C>             <C>
     $  93.75             3,872                2.1              $ 93.75                 -          $  -
       141.14             4,160                2.1               141.14                 -             -
                          -----                ---              -------                --           ---

                          8,032                2.1              $118.29                 -           $ -
                          =====                ===              =======                ==           ===
</TABLE>
         The  Company  applies  APB  No.  25  and  related   interpretations  in
accounting  for SF Holdings  stock options  granted to employees of the Company.
Had  compensation  costs for SF Holdings stock options been determined  based on
fair value at the option grant dates,  in accordance with the provisions of SFAS
No. 123, the Company's net income for Fiscal 2001 would have been reduced to the
pro forma amount indicated below (in thousands):

                                       44
<PAGE>
Net income:
  As reported                           $  11,275
  Pro forma                             $  11,254

         The weighted  average fair value of the SF Holdings stock options,  was
$0.3  million  in  Fiscal  2001  estimated  on  the  date  of  grant  using  the
Black-Scholes   options-pricing   model  with  the  following   weighted-average
assumptions:  dividend  yield of zero,  risk-free  interest  rate of 2.75%,  and
expected life of option grants of 3 years.  The effects of applying SFAS No. 123
in this pro forma disclosure are not indicative of future pro forma effects.


16.      RELATED-PARTY TRANSACTIONS

         All of the below  referenced  affiliates are under the common ownership
of the  Company's  Chief  Executive  Officer,  except  AIP and  AIPM  which  are
affiliates of a shareholder. The Company believes that transactions entered into
with related parties were negotiated on terms which are at least as favorable as
it could have obtained from  unrelated  third parties and were  negotiated on an
arm's length basis.

         During  Fiscal  2001,  the  Company  sold (i) $21.7  million of cups to
Fonda,  and (ii) $3.1 million of scrap paper to Fibre  Marketing  Group,  LLC, a
waste  paper  recovery  business  in  which  Fonda  has a 25%  interest  ("Fibre
Marketing").  Included in accounts receivable, as of September 30, 2001, is $2.1
million due from Fonda and $1.2 million due from Fibre Marketing.

         During  Fiscal  2001,  the  Company   purchased  (i)  $7.1  million  of
corrugated  containers  and other  services  from Box USA Holdings,  Inc.  ("Box
USA"),  formerly Four M Corporation ("Four M"), a company in which the Company's
Chief Executive Officer, owns in excess of 10% of its outstanding capital stock,
(ii) $9.9  million of paper  plates and $0.2  million of  equipment  rental from
Fonda and (iii) $0.5  million of travel  services  from  Emerald  Lady,  Inc., a
company  wholly owned by the  Company's  Chief  Executive  Officer.  Included in
accounts payable,  as of September 30, 2001, are $0.6 million due to Box USA and
$0.8 million due to Fonda.  Other purchases from and sales to affiliates  during
Fiscal 2001 were not significant.

         During  Fiscal  2000,  the  Company  sold (i) $16.7  million of cups to
Fonda,  and (ii) $0.8  million of scrap  paper to Fibre  Marketing.  Included in
accounts  receivable,  as of September  24, 2000, is $2.2 million due from Fonda
and $0.2 million due from Fibre Marketing.

         During  Fiscal  2000,  the  Company   purchased  (i)  $8.0  million  of
corrugated containers and $0.2 million of other services from Box USA (ii) $11.4
million of paper  plates,  $0.2 million of equipment  rental and $1.0 million of
other services from Fonda and (iii) $0.4 million of travel services from Emerald
Lady,  Inc.  Included in accounts  payable,  as of September 24, 2000,  are $0.1
million due to Box USA and $0.9 million due to Fonda.  Other  purchases from and
sales to affiliates during Fiscal 2000 were not significant.

         During Fiscal 2000,  the Company  purchased  certain paper cup machines
from Fonda at a fair market value of $1.3 million. The equipment was recorded in
property,  plant and equipment at Fonda's net book value,  resulting in a charge
to equity of $1.0 million. Independent appraisals were obtained to determine the
fairness of the purchase price.

         During Fiscal 2000, the Company entered into a lease agreement with D&L
Development,  LLC,  an entity in which the  Company's  Chief  Executive  Officer
indirectly owns 47%, to lease a warehouse

                                       45
<PAGE>
facility in Hampstead,  Maryland. In Fiscal 2001 and 2000, rental payments under
this lease were $3.6  million  and $0.7  million,  respectively.  Annual  rental
payments  under the 20 year lease are $3.7 million for the first 10 years of the
lease and $3.8 million annually, thereafter.

         During  Fiscal  2000,  the  Company  began  leasing a facility in North
Andover,  Massachusetts  from D&L Andover Property,  LLC, an entity in which the
Company's Chief Executive  Officer  indirectly owns 50%. In Fiscal 2001,  rental
payments under this lease were $1.4 million. Annual rental payments under the 20
year lease are $1.5 million in the first year,  which  escalates at a rate of 2%
each year thereafter.

         During  Fiscal  1999,  the  Company  sold  certain  of its paper  plate
manufacturing  assets to Fonda for $2.4 million.  In February  1999, the Company
entered into a five year operating lease with Fonda,  whereby the Company leases
certain paper cup  manufacturing  assets from Fonda,  resulting in equal monthly
payments totaling $0.2 million per year. Independent appraisals were obtained to
determine the fairness of both the purchase price and lease terms.

         During Fiscal 1999, the Company sold (i) $6.8 million of cups to Fonda,
(ii) $0.2  million of paper scrap to Fibre  Marketing  and (iii) $0.1 million of
cups to CEG, a company in which the Chief Executive  Officer owned more than 50%
of the common  stock.  Accounts  receivable  as of September 26, 1999 from these
sales are $0.8 million due from Fonda and $0.1 million due from Fibre Marketing.
Sales to these affiliates in preceding fiscal years were not material.

         During  Fiscal  1999,  the  Company   purchased  (i)  $6.1  million  of
corrugated containers from Box USA, (ii) $3.8 million of paper plates from Fonda
and (iii) $0.4 million of travel  services  from  Emerald  Lady,  Inc.  Accounts
payable, as of September 26, 1999, from these purchases, are $0.5 million due to
Box USA and $0.7 million due to Fonda.


17.      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.  The full amount of lease rental payments are charged
to expense  using the  straight  line  method  over the term of the lease.  Rent
expense  under such  arrangements  was $54.8  million,  $28.2  million and $18.7
million  for Fiscal  Years 2001,  2000 and 1999,  respectively.  Future  minimum
rental commitments under non-cancelable  operating leases in effect at September
30, 2001 are as follows (in thousands):

Fiscal 2002                                         $   51,761
Fiscal 2003                                             48,962
Fiscal 2004                                             46,781
Fiscal 2005                                             44,315
Fiscal 2006                                             42,446
Thereafter                                             233,166
                                                    ----------

                                                    $  467,431
                                                    ==========

         In  connection  with a  sale-leaseback  transaction,  on June 15, 2000,
Sweetheart Cup and Sweetheart Holdings sold certain production equipment located
in Owings  Mills,  Maryland;  Chicago,  Illinois;  and Dallas,  Texas for a fair
market value of $212.3 million to several owner participants.

         Pursuant to the Lease dated as of June 1, 2000 between  Sweetheart  Cup
and State Street,

                                       46
<PAGE>
Sweetheart Cup will lease such production  equipment from State Street, as owner
trustee for several owner participants through November 9, 2010.  Sweetheart Cup
may renew the Lease at its option for up to four  consecutive  renewal  terms of
two years each.  Sweetheart  may also  purchase  such  equipment for fair market
value either at the  conclusion  of the Lease term or November 21, 2006,  at its
option.   The  Company's   obligations   in   connection   with  the  Lease  are
collateralized  by  substantially  all  of  the  Company's  property,  plan  and
equipment  owned as of June 15, 2000.  This lease  contains  various  covenants,
which  prohibit,  or  limit,  among  other  things  dividend  payments,   equity
repurchases or redemption, the incurrence of additional indebtedness and certain
other business activities.

         The Company is accounting for this  transaction as an operating  lease,
expensing  the $31.5 million  annual rental  payments and removing the property,
plant and  equipment  sold from its  balance  sheet.  A deferred  gain of $107.0
million  was  realized  from this sale and is being  amortized  over 125 months,
which is the term of the Lease.


18.      ASSET IMPAIRMENT EXPENSE

         In the quarter ended September 30, 2001, the Company  approved plans to
consolidate its Manchester,  New Hampshire and Springfield,  Missouri operations
into other existing facilities  throughout the Company. As a result, the Company
evaluated the usefulness of certain  equipment at these facilities and wrote-off
the remaining book value of $2.2 million to operations.


19.      RESTRUCTURING CHARGE (CREDIT)

         During the quarter  ended March 26,  2000,  the Company  established  a
restructuring   reserve  of  $0.7  million  in  conjunction   with  the  planned
elimination  of the Company's  centralized  machine shop operation from which 53
positions would be eliminated. The plan was completed and approved by management
on January 10,  2000 and  announced  to  employees  on March 7, 2000.  Severance
payments  of $0.2  million,  were paid in both the third and fourth  quarters of
Fiscal  2000.  Also,  during the  fourth  quarter of Fiscal  2000,  the  Company
reversed  $0.2 million of this reserve as a result of 12 employees  being placed
into open positions within the Company.  The balance of this reserve is included
within the "Other current liabilities" on the balance sheet. The balance of this
reserve was $0.7 million at the end of the quarter ended March,  26, 2000;  $0.5
million at the end of the quarter  ended June 25, 2000;  and $0.1 million at the
end of the fiscal  year ended  September  24,  2000.  The Company  utilized  the
remaining  $0.1  million of the  restructuring  reserve in the first  quarter of
Fiscal 2001.

         In the quarter ended March 31, 1998,  the Company  reduced its salaried
workforce  by  approximately  15% and  hourly  workforce  by less  than  5%.  In
connection with such plans,  the Company  recognized $5.1 million of charges for
severance  and  related  costs,  of which  $1.4  million  remained  unpaid as of
September 27, 1998 and was included  within the "Other current  liabilities"  on
the balance  sheet.  Severance  payments of $0.6 million,  $0.3  million,  $0.06
million,  and $0.02  million were paid during the quarters  ending  December 27,
1998, March 28, 1999, June 27, 1999, and September 26, 1999, respectively. Also,
during the quarter ending  September 26, 1999, the Company reversed $0.5 million
of this  reserve  as the plan was  completed  and fringe  and  benefit  expenses
associated with such severed employees severed were lower than planned.


20.      OTHER INCOME, NET

         In  Fiscal  2001,  the  Company  realized  $10.3  million  due  to  the
amortization  of the  deferred  gain  in

                                       47
<PAGE>
conjunction  with  the  sale-leaseback  transaction.  This  amortization  of the
deferred  gain was  partially  offset by $1.6 million in expenses in  associated
with the relocation of a manufacturing  facility from Somerville,  Massachusetts
to North Andover, Massachusetts.

         In Fiscal 2000, the Company realized a $4.1 million gain on the sale of
a  warehouse  facility in Owings  Mills,  Maryland  and $2.8  million due to the
amortization  of the  deferred  gain  in  conjunction  with  the  sale-leaseback
transaction.  The  amortization  of the deferred gain was partially  offset by a
one-time  write-off  of a $1.0  million  unsecured  note  receivable  issued  in
connection  with  the  Fiscal  1998  sale  of  the  bakery  business  due to the
bankruptcy of the  borrower.  The Company also incurred $1.4 million of expenses
associated with the Aldridge Liability (See Note 24).

         In Fiscal  1999,  the Company sold certain of its paper plate and paper
cup  equipment  at a net gain of $0.4  million  and  consolidated  a facility in
Canada resulting in a $0.8 million gain on the sale of duplicate assets.


21.      EXTRAORDINARY LOSS

         During Fiscal 2000, in conjunction with the redemption of the Company's
Senior  Secured  Notes and the  refinancing  of the U.S.  Credit  Facility,  the
Company  charged $0.5  million,  or $0.3  million net of income tax benefit,  to
results of operations as an  extraordinary  item,  which amount  represents  the
unamortized deferred financing fees and redemption fees pertaining to such debt.


22.      EMPLOYEE BENEFIT AND POST-RETIREMENT HEALTH CARE PLANS

         The Company  sponsors  various defined benefit  post-retirement  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 ten  years of  service.  The  majority  of the  Company's  plans are
contributory, with retiree contributions adjusted annually. The Company does not
fund the plans.

         A majority  of the  Company's  employees  ("Participants")  are covered
under a 401(k)  defined  contribution  plan.  The  Company  provides  a matching
contribution  of 100% on the first 2% of a  participant's  salary and 50% on the
next 4% of a participant's  salary.  The Company's match is currently 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 $4.8 million,  $4.4 million
and $3.2 million for Fiscal 2001, 2000 and 1999 respectively.  Certain employees
are covered under defined  benefit plans.  Certain  benefits under the plans are
generally based on fixed amounts for each period of service. During Fiscal 2001,
the valuation  date for the plan assets and the  contributions  was changed from
September to June and resulted in no significant effect.

                                       48
<PAGE>
         Net periodic  cost for the  Company's  pension and other  benefit plans
consists of the following (in thousands):

                                               Fiscal
                                     ----------------------------
                                       2001      2000      1999
                                     --------  --------  --------
Pension Benefits
Service cost                         $   682   $   726   $ 1,019
Interest cost                          4,245     4,173     4,013
Return on plan assets                 (4,833)   (4,459)   (3,916)
Amortization of prior service cost       161       178       241
Recognized net actuarial cost             92        73       269
                                     --------  --------  --------
     Net periodic pension cost       $   347   $   691   $ 1,626
                                     ========  ========  ========

Other Benefits
Service cost                         $   747   $   830   $ 1,027
Interest cost                          3,094     3,136     3,271
Amortization of prior service cost      (799)     (799)     (416)
Recognized net actuarial cost         (1,051)     (838)     (299)
                                     --------  --------  --------
  Net periodic benefit cost          $ 1,991   $ 2,329   $ 3,583
                                     ========  ========  ========

         The following table sets forth the change in benefit obligation for the
Company's benefit plans (in thousands):

<TABLE>
<CAPTION>
                                                    Pension Benefits                Other Benefits
                                            ------------------------------- --------------------------------
                                             September 30,   September 24,   September 30,   September 24,
                                                  2001            2000            2001             2000
                                            --------------- --------------- --------------- ----------------
<S>                                         <C>             <C>             <C>             <C>
Change in benefit obligation:
Benefit obligation at beginning of period     $   54,998      $   56,874      $   41,318      $   42,406
Service cost                                         512             726             561             830
Interest cost                                      3,184           4,173           2,320           3,136
Amendments                                           363               -               -               -
Actuarial (gain) or loss                           5,063          (3,161)          1,885          (2,641)
Benefits paid                                     (2,897)         (3,614)         (3,232)         (2,413)
                                              -----------     -----------     -----------     -----------
  Benefit obligation at end of period         $   61,223      $   54,998      $   42,852      $   41,318
                                              ===========     ===========     ===========     ===========
Change in plan assets:
Fair value of plan assets at beginning of
  period                                      $   48,564      $   44,323      $        -      $        -
Actual return on plan assets gain or (loss)         (372)          3,500               -               -
Employer contributions to plan                     2,196           4,355           2,839           1,921
Participant contributions to plan                      -               -             393             492
Benefits paid                                     (2,896)         (3,614)         (3,232)         (2,413)
                                              -----------     -----------     -----------     -----------
  Fair value of plan assets at end of period  $   47,492      $   48,564      $        -      $        -
                                              ===========     ===========     ===========     ===========

Funded status                                 $  (13,731)     $   (6,434)     $  (42,852)     $  (41,318)
Unrecognized prior service cost                    1,660           1,474          (5,604)         (6,403)
Unrecognized (gain) loss                           9,130             170         (12,721)        (14,697)
                                              -----------     -----------     -----------     -----------
  Net liability recognized                    $   (2,941)     $   (4,790)     $  (61,177)     $  (62,418)
                                              ===========     ===========     ===========     ===========
</TABLE>


                                       49
<PAGE>
         The  following  sets forth the amounts  recognized in the  Consolidated
Balance Sheets (in thousands):


                                          Pension Benefits
                                  --------------------------------
                                   September 30,    September 24,
                                       2001             2000
                                  ---------------  ---------------
Funded status                        $ (13,731)       $  (6,434)
Intangible asset                         1,660              884
Other gain                                (452)            (375)
Deferred income taxes                    3,832              453
Accrued other comprehensive loss         5,750              682
                                     ----------       ----------
  Net liability recognized           $  (2,941)       $  (4,790)
                                     ==========       ==========


         The  assumptions  used in computing  the preceding  information  are as
follows:

                                                   Fiscal
                                     ----------------------------------
                                        2001        2000        1999
                                     ----------  ----------  ----------
Pension Benefits
Discount rate                           7.38%       8.00%       7.75%
Rate of return on plan assets          10.00%      10.00%      10.00%
Other Benefits
Discount rate                           7.38%       8.00%       7.75%

         For measurement  purposes,  a 6% annual rate of increase in health care
benefits was assumed for 2001.  The rate is assumed to decrease  gradually to 5%
for 2002 and will remain at that level thereafter.

         A one  percentage  point  change in the assumed  health care cost trend
rate would have the following effects (in thousands):

                                       One Percentage       One Percentage
                                       Point Increase       Point Decrease
                                      ----------------     ----------------
Effect on accumulated post-
     retirement benefit obligation         $2,010              $(1,855)
Effect on net periodic post-
     retirement benefit cost                 $286                $(256)


23.      ACCUMULATED OTHER COMPREHENSIVE LOSS

         The components of accumulated other comprehensive  income (loss) are as
follows (in thousands):

                                        September 30,       September 24,
                                            2001                2000
                                       ---------------     ---------------

Foreign currency translation
     adjustment                           $ (1,811)           $ (1,418)
Minimum pension liability
     adjustment                             (5,750)               (682)
                                          ---------           ---------

Accumulated other comprehensive loss      $ (7,561)           $ (2,100)
                                          =========           =========

                                       50
<PAGE>
24.     CONTINGENCIES

         During  Fiscal 2001,  the Company  experienced  a casualty  loss at its
Somerville,  Massachusetts  facility.  The Company carries business interruption
insurance  and has filed a claim with the insurance  company.  Settlement of the
recovery amount is to be determined.

         A lawsuit entitled Aldridge v. Lily-Tulip,  Inc. Salary Retirement Plan
Benefits Committee and Fort Howard Cup Corporation, Civil Action No. CV 187-084,
was filed in state  court in Georgia in April 1987 and later  removed to federal
court. The Plaintiffs  claimed,  among other things, 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.  The relief
sought by Plaintiffs was to have the Plan termination declared ineffective.  The
United States Court of Appeals for the Eleventh  Circuit (the  "Circuit  Court")
ruled that the Plan was lawfully  terminated on December 31, 1986,  and judgment
was entered  dismissing  the case in March 1996.  The Circuit Court affirmed the
judgment  entered in favor of the Company.  Plaintiffs filed a petition for writ
of certiorari to the United States  Supreme  Court,  which was denied in January
1999. The Company expects to complete  paying out the termination  liability and
associated  expenses in  connection  with the Plan  termination  by December 31,
2001.  As of  September  30,  2001,  the  Company  disbursed  $19.6  million  in
termination  payments.  The  estimate  of the total  termination  liability  and
associated expenses, less payments,  exceeds the assets set aside in the Plan by
$0.4 million, which amount has been fully reserved by the Company.

         Counsel  for the  Liquidating  Trustee  of Ace Baking  Company  Limited
Partnership,  debtor in  possession,  has advised  the Company  that the Trustee
intends to pursue a claim,  pursuant of the  Uniform  Fraudulent  Transfer  Act,
against the  Company,  in  connection  with the sale by the Company of it bakery
business to Ace Baking Company in November  1997. The Company  believes that the
claim is without merit and the Company  intends to vigorously  defend any action
taken by the Trustee. In addition, the Company has no reason to believe that the
final  outcome  of this  matter  will  have a  material  adverse  effect  on its
financial  condition or results of operation.  However,  the Company cannot give
any assurances as to the ultimate effect on the Company, if any, given the early
stage of this matter.

         On July 13, 1999, the Company received a letter from the  Environmental
Protection Agency ("EPA")  identifying the Company,  among numerous others, as a
"potential  responsible party" under the Comprehensive  Environmental  Response,
Compensation  and  Liability Act of 1980,  as amended  ("CERCLA"),  at a site in
Baltimore,  Maryland.  The EPA letter states that it does not constitute a final
determination  by EPA  concerning  the  liability  of the  Company  or any other
entity. The Company responded to the EPA that upon review of its files it had no
information  with respect to any dealings  with that site. On December 20, 1999,
the Company  received an information  request  letter from the EPA,  pursuant to
CERCLA,  regarding a Container  Recycling  Superfund Site in Kansas City, Kansas
and in January 2000 the Company  responded to such inquiry.  In both  instances,
the Company  has  received no further  communication  from the EPA.  The Company
denies  liability  and has no reason to believe the final  outcomes  will have a
material  adverse  effect on the  Company's  financial  condition  or results of
operations.  However, no assurance can be given about the ultimate effect on the
Company.

         The  Company is subject to legal  proceedings  and other claims arising
in the ordinary course of its business. The Company maintains insurance coverage
of types and in amounts which it believes to be adequate and believes that it is
not presently a party to any litigation,  the outcome of which could  reasonably
be expected to have a material  adverse  effect on its  financial  condition  or
results of operations.


25.      SWEETHEART CUP COMPANY INC.

         All of the  outstanding  stock of Sweetheart Cup is owned by Sweetheart
Holdings and thereby

                                       51
<PAGE>
Sweetheart  Holdings  is the full  and  unconditional  guarantor  of the 10 1/2%
Senior  Subordinated  Notes of Sweetheart  Cup. No other entity or subsidiary of
Sweetheart  Holdings   guarantees  these  notes.   Sweetheart  Holdings  has  no
independent  assets or operations other than Sweetheart Cup and its subsidiaries
and there are no significant  restrictions on the ability of Sweetheart Holdings
to  obtain  funds  from  Sweetheart  Cup  and  its  subsidiaries.  In  addition,
Sweetheart Cup is restricted from paying dividends to Sweetheart Holdings.

                                       52
<PAGE>
                      INDEX TO FINANCIAL STATEMENT SCHEDULE




                                                                            Page

Independent Auditors' Report                                                54


Schedule II - Valuation and Qualifying Accounts                             55

                                       53
<PAGE>
INDEPENDENT AUDITORS' REPORT


To the Board of Directors of
Sweetheart Holdings Inc.

         We have audited the  consolidated  financial  statements  of Sweetheart
Holdings  Inc. and  Subsidiaries  (the  "Company")  as of September 30, 2001 and
September  24, 2000,  and for each of the three fiscal years in the period ended
September 30, 2001,  and have issued our report thereon dated November 19, 2001;
such  consolidated  financial  statements  and report are  included in this Form
10-K. Our audits also included the financial  statement  schedule  listed in the
accompanying  index. This financial  statement schedule is the responsibility of
the Company's  management.  Our responsibility is to express an opinion based on
our audits. In our opinion,  such financial statement schedule,  when considered
in relation to the basic  consolidated  financial  statements  taken as a whole,
presents fairly in all material respects, the information set forth therein.


/s/ DELOITTE & TOUCHE LLP
Baltimore, Maryland
November 19, 2001

                                       54
<PAGE>
                                                                     SCHEDULE II


                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                          Additions
                                                  ---------------------------
                                      Balance at
                                      beginning    Charged to    Charged                        Balance at
                                          of        costs and    to other                         end of
      Classifications                   period      expenses    accounts (1)   Deductions (2)     period
      ---------------                ------------ ------------ -------------- ---------------- -------------
<S>                                  <C>          <C>          <C>            <C>              <C>
Allowance for Doubtful Accounts:
Fiscal 2001                            $  2,072      $  449        $ 11          $   87         $  2,445
Fiscal 2000                               1,905       2,442          24           2,299            2,072
Fiscal 1999                               1,817         341          11             264            1,905
</TABLE>

(1)      Includes recoveries on  accounts  previously  written-off,  translation
         adjustments and
         reclassifications.
(2)      Accounts written-off.



<TABLE>
<CAPTION>
                                      Balance at
                                      beginning          Additions                           Balance
                                          of       Charged (credited) to                    at end of
      Classifications                   period      costs and expenses     Deductions (3)     period
      ---------------                ------------ ----------------------- ---------------- -----------
<S>                                  <C>          <C>                     <C>              <C>
Inventory Allowances:
Fiscal  2001                          $ 11,625           $    -              $ 4,552         $ 7,073
Fiscal  2000                             8,574            3,587                  536          11,625
Fiscal  1999                             6,243            4,577                2,246           8,574
</TABLE>
 (3)     Inventory 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 6, 2001.

                                   SWEETHEART HOLDINGS INC.
                                   (Registrant)

                                   By: /s/  DENNIS MEHIEL
                                            -------------
                                            Dennis Mehiel
                                            Chief Executive Officer and Chairman
                                            of the Board



         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed on December 6, 2001, by the following persons in the
capacities indicated:

                    Signature                             Capacity


/s/  DENNIS MEHIEL                        Chief Executive  Officer  and Chairman
------------------                        of the Board
     Dennis Mehiel



/s/  THOMAS ULEAU                         Executive Vice President  and Director
-----------------
     Thomas Uleau



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



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



/s/  KIM A. MARVIN                        Director
------------------
     Kim A. Marvin



/s/  HANS H. HEINSEN                      Senior Vice  President  - Finance  and
--------------------                      Chief   Financial  Officer  (Principal
     Hans H. Heinsen                      Financial   Officer    and   Principal
                                          Accounting Officer)



                                       56