================================================================================
                                  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 24, 2000
           |_|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 November 27, 2000.  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 November 27, 2000:
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 (the  "Sweetheart  Notes") of  Sweetheart  Cup Company Inc., a wholly owned
subsidiary of the Registrant.

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

<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  Sweetheart   Holdings  and  its  other   subsidiaries,   the
"Company"),  is one of the largest  producers  of plastic  and paper  disposable
foodservice  and food packaging  products in North America.  In Fiscal 2000, the
Company had net sales of  approximately  $953 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.  During
the third quarter of Fiscal 2000, the Company acquired Sherwood Industries, Inc.
("Sherwood")  which  designs and produces cup making  equipment,  paper cups and
other disposable food service products.

         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"). 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.


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 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. 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 87.9% of gross sales during Fiscal 2000. 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(TM) and Go Cup(R).

         The  Company  offers a variety  of other  foodservice  products,  which
includes  paper, foam, and

<PAGE>
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 carryout 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),  Flexstyles(R),
Highlights(R)  bowls,  Maximizers(TM)  and Scoop  Cup are some of the  Company's
carryout service brands.

         Other products include the Company's Flex-E-Form(R) straight-wall paper
manufacturing  technology and Flex-Guard(R),  a spiral wound tamper-evident lid.
In addition,  the Company  provides  foodservice  customers with retail packages
sold through retailers under various Sweetheart(R) 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 their plants.  The Company's
filling  and  lidding  equipment  is leased to  customers  under the trade names
Auto-Pak(TM),  Flex-E-Fill(R)  and  FoodPac(R).  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.  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.


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
customer demand,  the Company's plant utilization  historically is substantially
higher  during late spring and summer than during fall and winter.  See "Item 2.
Properties".


Raw Materials and Suppliers

         Raw materials are critical  components of the Company's cost structure.
Principal  raw  materials  for the  Company's  paper  operations  include  solid
bleached  sulfate  paperboard   obtained  directly  from  major  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.  The  Company
manufactures foam products by extruding sheets of plastic foam material that are
converted into cups and plates.
<PAGE>
         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
Dart Container Corporation,  Dixie Foodservice (a division of Fort James Corp.),
Solo  Cup  Co.,  International  Paper  Food  Service  Group  and  Pactiv.  Major
competitors in its food packaging  customer base include Berry  Plastics,  Inc.,
Landis Plastics, Inc., Interbake Foods Inc., Polytainer, Ltd. and Sealright Co.,
Inc.


Customers

         The Company  markets its products  primarily to customers in the United
States.  During  Fiscal  2000,  sales  to  the  Company's  customers  in  Canada
constituted  approximately  7.1% of its net sales.  During Fiscal 2000, sales to
the Company's five largest customers represented  approximately 35.2% of its net
sales. One national customer of the Company accounted for 11.1% of its net sales
in Fiscal 2000. 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.


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   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.
<PAGE>
         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.

         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. 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.  The  Company  denies  liability  and has no reason to
believe  the  final  outcomes  will  have a  material  effect  on the  Company's
financial condition or results of operations. However, no assurance can be given
about the ultimate  effect on the Company,  if any, given the early stage of the
investigations.


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,  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   strives  to  expand  its  proprietary
manufacturing  technology,  further  automate its  manufacturing  operations and
develop improved manufacturing processes, equipment, and products.


Employees

         At  September  24,  2000,  the  Company  employed  approximately  6,384
persons,   of  whom   approximately   5,385   persons  were  hourly   employees.
Approximately  93.3% 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,  and Toronto,  Canada  (collectively,  the "Sweetheart  CBAs"). The
Sweetheart CBAs 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 24, 2000,  approximately
24.7% of the Company's hourly employees were covered by the Sweetheart CBAs. The
current  expiration  dates of the Springfield,  Augusta,  Kensington and Toronto
CBAs are March 4, 2001,  October 31, 2002,  September  30, 2001 and November 30,
2003, respectively. The Company considers its relationship with its employees to
be good.
<PAGE>


Item 2.     PROPERTIES

         The Company  has  manufacturing  and  distribution  facilities  located
throughout  the United States and Canada.  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.

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

Augusta, Georgia............................          M/W               O              339,000

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

Chicago, Illinois (2 facilities)............          M/W               O              902,000
                                                      W                 L              741,000

Dallas, Texas ..............................          M/W               O            1,316,000

Hampstead, Maryland.........................          W                 L            1,034,000

Kensington, Connecticut (4 facilities)......          M/W               L               96,000
                                                      M/W               L              112,000
                                                      W                 L               40,000
                                                      W                 L               30,000

Lafayette, Georgia..........................          M/W               L              147,000


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

North Las Vegas, Nevada (2 facilities)......          M/W               L              195,100
                                                      W                 L               58,450

Ontario, California.........................          W                 L              396,000

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

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

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

Wilmington, Massachusetts...................          W                 L              119,000

Scarborough, Ontario, Canada ...............          M/W               O              400,000
--------
(1) M-Manufacturing; W-Warehouse; M/W-Manufacturing and Warehouse in same facility.
</TABLE>

<PAGE>

Item 3.     LEGAL PROCEEDINGS


         Aldridge.  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 initially filed in state court in Georgia in April 1987 and
is currently pending in federal court. The remaining  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 ("ERISA").  The relief sought by plaintiffs was
to have the plan termination declared ineffective.  In December 1994, the United
States Court of Appeals for the Eleventh  Circuit (the  "Circuit  Court")  ruled
that the Plan was  lawfully  terminated  on December 31,  1986.  Following  that
decision,  the plaintiffs sought a rehearing which was denied,  and subsequently
filed a petition for a writ of certiorari  with the United States Supreme Court,
which was also  denied.  Following  remand,  in March  1996,  the United  States
District  Court for the  Southern  District of Georgia  (the  "District  Court")
entered a judgment  in favor of the  Company.  Following  denial of a motion for
reconsideration, the plaintiffs, in April 1997, filed an appeal with the Circuit
Court. On May 21, 1998, the Circuit Court affirmed the judgment entered in favor
of the Company.  On June 10, 1998, the  plaintiffs  petitioned the Circuit Court
for a rehearing of their appeal which  petition was denied on July 29, 1998.  In
October 1998, plaintiffs filed a petition for writ of certiorari with the United
States Supreme Court,  which was denied in January 1999. The Company has been in
the process of paying out the termination  liability and associated expenses and
as of November 27, 2000, the Company has disbursed  $12.3 million in termination
payments.  The  estimate  of the  total  termination  liability  and  associated
expenses,  less payments,  exceeds assets set aside in the Plan by approximately
$8.0 million, which amount has been fully reserved by the Company.

         On April 27, 1999, the plaintiffs  filed a motion in the District Court
for  reconsideration  of the court's dismissal without  appropriate relief and a
motion  for  attorneys'  fees  with a  request  for  delay in  determination  of
entitlement  to such fees. On June 17, 1999,  the District  Court deferred these
motions  and ordered  discovery  in  connection  therewith.  Discovery  has been
completed and the Company is awaiting  further action by the plaintiffs.  Due to
the complexity involved in connection with the claims asserted in this case, the
Company cannot  determine at present with any certainty the amount of damages it
would be required to pay should the plaintiffs prevail;  accordingly,  there can
be no assurance  that such amounts would not have a material  adverse  effect on
the Company's financial position or results of operations.

         Fort James Corporation. A patent infringement action seeking injunctive
relief and damages  relating  to the  Company's  production  and sale of certain
paper plates  entitled Fort James  Corporation  v.  Sweetheart Cup Company Inc.,
Civil Action No.  97-C-1221,  was filed in the United States  District Court for
the  Eastern  District of  Wisconsin  on November  21,  1997.  During the fourth
quarter of Fiscal  1999,  mediation  resulted  in a  settlement  of this  action
whereby the Company agreed to pay damages of $2.6 million.  As of June 29, 2000,
all payments in conjunction with this settlement had been paid.

         Other.  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. 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.  The  Company  denies  liability  and has no reason to
believe  the  final  outcomes  will  have a  material  effect  on the  Company's
financial condition or results of operations. However, no assurance can be given
about the ultimate  effect on the Company,  if any, given the early stage of the
investigations.

         The Company is also involved in a number of legal proceedings arising
in the ordinary course of business, none of which is expected to have a material
adverse effect on the Company's financial position or results of operations.
<PAGE>
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  November  27,  2000,  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 for the fiscal years shown. The selected historical
consolidated  financial  data at  September  24,  2000  September  26,  1999 and
September 27, 1998 and for Fiscal 2000, 1999 and 1998 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 30, 1997 and September 30, 1996 and for Fiscal 1997
and 1996 is derived from the 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)   on  the   Consolidated   Statements  of  Operations   and  Other
Comprehensive  Income  (Loss).  During the quarter ended  December 31, 1997, 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.

<PAGE>
<TABLE>
<CAPTION>

                                                                       Fiscal
                                ------------------------------------------------------------------------------------
(In thousands)                       2000             1999             1998             1997              1996
                                  ----------      ----------       ----------       ----------        ----------
<S>                                <C>             <C>              <C>              <C>               <C>
Operating Data:
Net sales                          $952,728        $863,781         $843,502         $886,017          $959,818
Cost of sales                       833,959         763,750          787,706          822,818           859,029
                                  ---------         -------          -------          -------         ---------
Gross profit                        118,769         100,031           55,796           63,199           100,789
Selling,general and administrative   64,852          67,406           68,818           66,792            61,788
Other (income) expense, net          (4,688)         (1,180)          12,400              (73)            4,271
Asset impairment expense                  -               -            5,000           24,550                 -
Restructuring charge (credit)           503            (512)             897            9,680                 -
                                  ---------       ---------        ---------        ---------         ---------
Operating income (loss)              58,102          34,317          (31,319)         (37,750)           34,730
Interest expense, net                36,825          41,671           42,955           40,265            37,517
                                  ---------       ---------        ---------        ---------         ---------
Income (loss) before taxes,
 cumulative effect of change in
 accounting principle and
 extraordinary loss                  21,277          (7,354)         (74,274)         (78,015)           (2,787)
Income tax benefit (expense)         (8,492)          2,941           29,711           31,206             1,115
Cumulative effect of change in
 accounting principle                     -               -            1,511                -                 -
Extraordinary loss                      313               -                -              940                 -
                                  ---------       ---------        ---------        ---------         ---------
Net income (loss)                   $12,472         $(4,413)        $(46,074)        $(47,749)          $(1,672)
                                  =========       =========        =========        =========         =========
Balance Sheet Data (at end of
 period):
Property,plant and equipment,net   $205,787        $322,967         $355,224         $382,491          $427,833
Total assets                        582,833         634,640          665,626          715,589           757,839
Long-term debt*                     210,269         118,446          422,438          430,499           385,579
Shareholders' equity                 30,413          18,274           18,983           70,670           118,552
</TABLE>
* See Note 9 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 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 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. In conjunction with the SF Holdings Investment,
American  Industrial Partners Capital Fund, L.P. ("AIP") assigned the Management
Services  Agreement,  as amended,  to SF Holdings which assigned its interest to
Fonda Group Inc. ("Fonda"), a wholly owned subsidiary of SF Holdings.
<PAGE>

         On October 22, 1998, the Company's Board of Directors approved a change
in the Company's  fiscal year end from  September 30 to the 52 or 53 week period
ending on the last Sunday in September.  This change became effective for Fiscal
1998,  which is the period from  October 1, 1997  through  September  27,  1998;
Fiscal 1999 is the period from  September  28, 1998 through  September 26, 1999;
Fiscal 2000 is the period from September 27, 1999 through September 24, 2000.

         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.  During Fiscal 1998, the
Company sold its bakery operations.

         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 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 of existing  products to national  accounts and the introduction of
several new products.

         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 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 expenses 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.

         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
<PAGE>
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.

         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 16 of the Notes to Consolidated Financial Statements.

         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. The effective rate for Fiscal 2000 and 1999 was 40%.

         Extraordinary loss on the early extinguishment of debt was $0.3 million
net of the income tax benefit in Fiscal 2000  resulting  from the  redemption of
the Company's 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.


Fiscal 1999 Compared to Fiscal 1998

         Net sales increased $20.3 million, or 2.4%, to $863.8 million in Fiscal
1999  compared to $843.5  million in Fiscal  1998.  Excluding  the impact of the
December 1997 bakery business sale, which resulted in a $3.0 million decrease in
sales, net sales increased $23.3 million, or 2.8%, reflecting a 2.8% increase in
sales  volume to  domestic  customers,  partially  offset by a 0.4%  decrease in
average  realized  domestic sales price.  The decrease in average realized sales
price  reflects a shift in sales from  higher  priced food  packaging  customers
towards  institutional  foodservice  customers.  Sales  volume to  institutional
foodservice  customers  increased  3.9%  primarily as a result of the  Company's
focus on revenue  growth  with key  customers.  Sales  volume to food  packaging
customers decreased 5.2%,  primarily resulting from decreases in demand by large
accounts in the food packaging customer base due to market  conditions,  such as
consolidation  of customers  and  competition.  Net sales to Canadian  customers
increased $4.4 million,  or 8.0%,  primarily due to increased  sales volume from
the introduction of new products.

         Gross profit  increased  $44.2 million,  or 79.3%, to $100.0 million in
Fiscal 1999  compared to $55.8  million in Fiscal 1998.  As a percentage  of net
sales,  gross profit increased to 11.6% in Fiscal 1999 from 6.6% in Fiscal 1998.
This  improvement  is  attributable  to a shift in  sales  to a more  profitable
product mix and the cost reduction initiatives implemented by the Company in the
latter part of Fiscal 1998, including reductions in workforce,  expense controls
and improved manufacturing efficiencies.

         Selling, general and administrative expenses decreased $1.4 million, or
2.1%,  to $67.4 million in Fiscal 1999 compared to $68.8 million in Fiscal 1998.
As a  percentage  of net sales,  selling,  general and  administrative  expenses
decreased to 7.8% in Fiscal 1999 from 8.2% in Fiscal 1998.  This decrease is
<PAGE>
due primarily to cost savings  associated with headcount  reductions made in the
second  quarter of Fiscal  1998,  which is partially  offset by increased  legal
expenses  of $2.0  million  related to the Fort James  settlement.  See "Item 3.
Legal Proceedings".

         Restructuring  charge (credit) was adjusted resulting in income of $0.5
million in Fiscal 1999 compared to an expense of $0.9 million in Fiscal 1998. In
March  1998,  the  Company  established  restructuring  reserves  primarily  for
severance and related costs in connection with workforce  reductions.  This plan
has been completed, resulting in a reversal of $0.5 million.

         Other (income)  expense,  net was $1.2 million of income in Fiscal 1999
compared to $12.4 million of expense in Fiscal 1998. In Fiscal 1999, the Company
recognized $1.2 million gain on the sale of property, plant and equipment.

         Operating  income  (loss)  increased  $65.6 million to $34.3 million in
Fiscal 1999 compared to an operating loss of $31.3 million in Fiscal 1998 due to
the reasons described above.

         Interest expense, net decreased $1.3 million, or 3.0%, to $41.7 million
in Fiscal  1999  compared  to $43.0  million in Fiscal  1998.  This  decrease is
attributable to lower market interest rates on lower outstanding  balances under
the  Company's  revolving  credit  facility,  which  was  partially  offset by a
reduction in interest income on escrow fund balances.

         Income tax expense (benefit)  increased $26.8 million to a $2.9 million
benefit in Fiscal 1999 compared to a $29.7  million  benefit in the Fiscal 1998.
The effective rate for Fiscal 1999 and 1998 was 40%.

         Net income (loss) increased $41.7 million,  or 90.5%, to a loss of $4.4
million in Fiscal 1999 compared to a loss of $46.1 million in Fiscal 1998 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  2000,   the  Company  funded  its  capital
expenditures  from the sale of assets and cash  generated from  operations.  The
Company  expects to continue  this method of funding for its Fiscal 2001 capital
expenditures.

         Net cash used in operating  activities  in Fiscal 2000 was $4.2 million
compared to net cash provided by operating activities of $49.8 million in Fiscal
1999.  This is due  primarily  to an  increase  in  receivables  resulting  from
increased  sales and  management's  decision  to build  inventory  in support of
anticipated  market  expansion.  These  increases were partially  offset by more
favorable income from operating activities.

         Working capital increased $306.3 million to $130.1 million at September
24, 2000 from a deficit of $176.2  million at September 26, 1999.  This increase
resulted  primarily  from the  redemption  of the Senior  Secured  Notes and the
refinancing of the U.S. Credit Facility.

         Capital  expenditures  for Fiscal 2000 were $23.5  million  compared to
$30.8 million in Fiscal 1999. Capital expenditures in Fiscal 2000 included $13.6
million for new production equipment, $3.5 million for facility improvements and
$1.0 million for management  information systems,  with the remaining consisting
primarily of routine capital  improvements.  Funding for the Fiscal 2000 capital
expenditures was provided by cash generated from  operations,  $7.9 million from
the sale of a distribution facility and $0.6 million from the sale of machinery.
During Fiscal 2001, the Company
<PAGE>
intends to continue to rely on a combination of cash generated by operations and
the sale of assets to fund capital expenditures.

         On May  15,  2000,  Sweetheart  Cup  acquired  all of  the  issued  and
outstanding  capital stock of Sherwood and its subsidiaries  pursuant to a Stock
Purchase  Agreement among  Sweetheart Cup and the  stockholders of Sherwood (the
"Sherwood  Agreement") for an aggregate purchase price of $17.4 million of which
$12.4 million was paid in cash, subject to post closing adjustments.  As part of
the  purchase  price,  Sweetheart  Cup issued to the  stockholders  of  Sherwood
non-interest  bearing  promissory  notes due May 2005 in an aggregate  principal
amount of $5.0 million and a present value of $2.9 million.  Sweetheart Cup also
assumed  $9.3  million of  Sherwood's  debt,  which was paid in full on June 15,
2000.

         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.

         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
Carry-forwards".

          On June 15, 2000, the Company refinanced its revolving credit facility
(the  "U.S.  Credit  Facility")  to  extend  the  maturity  of the $135  million
revolving credit facility,  subject to borrowing base limitations,  through June
15,  2005 and to add 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.
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 24, 2000, $56.1
million was available under such facility.  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.
<PAGE>
         The Company's Canadian subsidiary has a Credit Agreement (the "Canadian
Credit  Facility")  which  provides  for a term loan  facility  of up to Cdn $10
million and a revolving  credit  facility  of up to Cdn $10  million.  Term loan
borrowings under the Canadian Credit Facility are payable  quarterly through May
2001 and revolving credit and term loan borrowings have a final maturity date of
June 15,  2001.  The  Canadian  Credit  Facility is secured by all  existing and
thereafter acquired real and personal tangible assets of Lily Cups, a subsidiary
of  Sweetheart  Cup,  and net  proceeds  on the  sale  of any of the  foregoing.
Borrowings  under the Canadian  Credit  Facility  bear interest at an index rate
plus 2.25% with respect to the  revolving  credit  borrowings  and an index rate
plus 2.50% with respect to the term loan  borrowings.  As of September 24, 2000,
Cdn $1.8 million  (approximately  $1.2 million) was available under the Canadian
Credit  Facility.  The  Company  intends  to  refinance  this debt  prior to its
maturity however, there can be no assurances that it will be able to obtain such
refinancing on terms and conditions acceptable to the Company.

         On June 15, 2000, the Company issued a redemption notice to the holders
of its Senior Secured Notes due September 1, 2000. In connection therewith,  the
Company paid $190.0  million plus accrued  interest to the U.S. Trust Company of
New York in settlement of the Senior Secured Notes.

         These  transactions set forth above are expected to increase annual net
income by  approximately  $8.0  million.  This increase will be comprised of (i)
decreased interest expense and (ii) increased other income, as the gain from the
asset sale in conjunction with the sale-leaseback  transaction is amortized over
the lease term,  partially offset by (iii) decreased gross profit,  as increased
rent expense will exceed  depreciation  expense,  and (iv) increased  income tax
expenses.

         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.

         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  initially  filed in state  court in Georgia in April 1987 and is  currently
pending in federal court. The remaining 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 ("ERISA"). The relief sought by plaintiffs was to have the plan
termination declared  ineffective.  In December 1994, the United States Court of
Appeals for the Eleventh  Circuit (the "Circuit  Court") ruled that the Plan was
lawfully  terminated  on  December  31,  1986.  Following  that  decision,   the
plaintiffs  sought a  rehearing  which  was  denied,  and  subsequently  filed a
petition for a writ of certiorari  with the United States Supreme  Court,  which
was also denied.  Following  remand,  in March 1996, the United States  District
Court for the Southern  District of Georgia  (the  "District  Court")  entered a
judgment  in  favor  of  the   Company.   Following   denial  of  a  motion  for
reconsideration, the plaintiffs, in April 1997, filed an appeal with the Circuit
Court. On May 21, 1998, the Circuit Court affirmed the judgment entered in favor
of the Company.  On June 10, 1998, the  plaintiffs  petitioned the Circuit Court
for a rehearing of their appeal which  petition was denied on July 29, 1998.  In
October 1998, plaintiffs filed a petition for writ of certiorari with the United
States Supreme Court,  which was denied in January 1999. The Company has been in
the process of paying out the termination  liability and associated expenses and
as of November 27, 2000, the Company has disbursed  $12.3 million in termination
payments.  The  estimate  of the  total  termination  liability  and  associated
expenses,  less payments,  exceeds assets set aside in the Plan by approximately
$8.0 million, which amount has been fully reserved by the Company.

         On April 27, 1999, the plaintiffs  filed a motion in the District Court
for  reconsideration  of the court's dismissal without  appropriate relief and a
motion  for  attorneys'  fees  with a  request  for  delay in  determination  of
entitlement  to such fees. On June 17, 1999,  the District  Court deferred these
motions  and ordered  discovery  in  connection  therewith.  Discovery  has been
completed and the Company is
<PAGE>
awaiting  further action by the  plaintiffs.  Due to the complexity  involved in
connection with the claims  asserted in this case, the Company cannot  determine
at present with any  certainty the amount of damages it would be required to pay
should the plaintiffs prevail; accordingly,  there can be no assurance that such
amounts  would not have a material  adverse  effect on the  Company's  financial
position or results of operations.

         A patent  infringement  action  seeking  injunctive  relief and damages
relating to the Company's  production and sale of certain paper plates  entitled
Fort  James  Corporation  v.  Sweetheart  Cup  Company  Inc.,  Civil  Action No.
97-C-1221,  was  filed in the  United  States  District  Court  for the  Eastern
District of Wisconsin on November 21, 1997.  During the fourth quarter of Fiscal
1999,  mediation  resulted in a  settlement  of this action  whereby the Company
agreed to pay damages of $2.6  million.  As of June 29,  2000,  all  payments in
conjunction with this settlement had been paid.

         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. 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.  The  Company  denies  liability  and has no reason to
believe  the  final  outcomes  will  have a  material  effect  on the  Company's
financial condition or results of operations. However, no assurance can be given
about the ultimate  effect on the Company,  if any, given the early stage of the
investigations.

         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,
including termination  liabilities under the Plan, planned capital expenditures,
payments in conjunction  with the Company's  lease  commitments and debt service
requirements in the next twelve months.


Net Operating Loss Carry-forwards

         As of September 24, 2000, the Company had  approximately $32 million of
net operating loss ("NOL") carry-forwards 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 no assurance that
future taxable income will be generated to utilize such NOLs.


Impact of Recently Issued Accounting Standards

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standard  ("SFAS") No. 133,  Accounting for Derivative
Instruments  and Hedging  Activities.  SFAS No. 133  establishes  accounting and
reporting  standards  for  derivative  instruments  and requires  that an entity
recognize all derivatives at fair value in the statement of financial  position.
The Company has evaluated  this standard  which is effective for Fiscal 2001 and
has  concluded  that  SFAS  No.133  will not have a  significant  impact  on the
financial statement presentation.

         In December,  1999, the Securities and Exchange Commission issued Staff
Accounting   Bulletin  ("SAB")  No.  101,   Revenue   Recognition  in  Financial
Statements.  SAB No. 101  establishes  accounting  and  reporting  standards for
revenue  recognition and requires that an entity not recognize  revenue until it
is realized or realizable  and earned.  The Company has evaluated  this bulletin
which is effective  for Fiscal 2001 and has  concluded  that SAB No.101 will not
have a significant impact on the financial statement
<PAGE>
presentation.


Item7a.     QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

               NONE


Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

               The response to this item is  submitted as a separate  section of
this report, beginning on page 29.


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

               NONE
<PAGE>

                                    PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below are the names,  ages and  positions  of the  directors,
executive  officers and key employees of Sweetheart  Holdings and Sweetheart Cup
as of November 27, 2000. 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             58          Chairman and Chief Executive Officer of Sweetheart Holdings
                                      and Sweetheart Cup

Thomas Uleau              56          President, Chief Operating Officer and Director of Sweetheart
                                      Holdings and Sweetheart Cup

W. Richard Bingham        64          Director of Sweetheart Holdings and Sweetheart Cup

Kim A. Marvin             39          Director of Sweetheart Holdings and Sweetheart Cup

Theodore C. Rogers        66          Director of Sweetheart Holdings and Sweetheart Cup

Michael Hastings          53          Senior Vice President - Sales and Marketing of Sweetheart
                                      Holdings and Sweetheart Cup

Hans H. Heinsen           47          Senior Vice President - Finance and Chief Financial Officer of
                                      Sweetheart Holdings and Sweetheart Cup

Thomas Pasqualini         43          Senior Vice President - Manufacturing and Logistics of
                                      Sweetheart Holdings and Sweetheart Cup

Daniel M. Carson          54          Vice President - Chief Administrative Officer, General
                                      Counsel and Corporate  Secretary of Sweetheart Holdings and
                                      Sweetheart Cup

Charles E. Busse          62          Vice President - Research and Engineering of Sweetheart
                                      Holdings and Sweetheart Cup

William H. Haas           59          Vice President - Sales of Sweetheart Holdings and Sweetheart
                                      Cup

Rick Schneider            51          Vice President - Manufacturing of Sweetheart Holdings and
                                      Sweetheart Cup

Jeffrey Seidman           46          Vice President - Human Resources of Sweetheart Holdings and
                                      Sweetheart Cup
</TABLE>
         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  August  2000,  he has been a
director of Four M  Corporation  ("Four M"), a converter  and seller of interior
packaging,  corrugated  sheets and corrugated  containers,  which he co-founded.
From 1966 until August  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 a director of Box USA
Holdings, Inc ("BoxUSA").

         Mr. Uleau has been President, Chief Operating Officer and a Director of
Sweetheart  Holdings  and  Sweetheart  Cup since March 1998.  Mr.  Uleau is also
President,  Chief Operating  Officer and a Director of SF Holdings and Executive
Vice President of Fonda. He has been a director of Fonda since 1988. He has also
served in a variety of  executive  officer  positions  at Fonda since  1988.  He
served as Executive  Vice President and Chief  Financial  Officer of Four M from
1989 through 1993 and its Chief Operating Officer in 1994.
<PAGE>
         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")  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 served as Senior Vice President - Sales and Marketing
for Sweetheart  Holdings and  Sweetheart  Cup since March 1998. Mr.  Hastings is
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 member of the Board of  Directors  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 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. Carson has served as Vice President - Chief Administrative  Officer
and  General  Counsel  and  Corporate   Secretary  of  Sweetheart  Holdings  and
Sweetheart  Cup since August 2000. Mr. Carson served as Vice President - General
Counsel and Corporate  Secretary of Sweetheart  Holdings  since October 1993 and
served as Vice President - General Counsel and Corporate Secretary of Sweetheart
Cup and as Corporate  Secretary of Sweetheart  Holdings  since February 1993. He
served as Assistant  General  Counsel and Director of U.S. Legal Affairs of Avon
Products,  Inc., a consumer  products  company,  from September 1991 to February
1993 and was Of Counsel to Bell, Boyd & Lloyd (Chicago, Illinois) from June 1991
to August 1991. From May 1981 until June 1991, Mr. Carson was Associate  General
Counsel for  Continental  Can  Company,  Inc.,  a packaging  and paper  products
company.
<PAGE>
         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.  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.  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.

         Mr.  Seidman  has  served  as  Vice  President  -  Human  Resources  of
Sweetheart  Holdings and Sweetheart Cup since September  1998.  Prior to joining
the  Company,  he was  with  Fonda  from  1995 to 1998,  where  he held  various
positions  including,   Vice  President  of  Human  Resources  and  Director  of
Operations.  Prior to joining  Fonda,  he was employed by Scott Paper in various
human resources positions since 1989.


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 2000,  1999,  and 1998,  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.

<PAGE>
<TABLE>
<CAPTION>
                                               Summary Compensation Table


                                                           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     2000               771,280          400,000            1,507   (2)
   of     Sweetheart     Holdings    and     1999               349,650          340,000            1,743   (3)
   Sweetheart Cup                            1998 (4)           188,775                -                -

Thomas Uleau
   President,  Chief  Operating  Officer     2000               370,129          500,000           18,201   (5)
   and Director of  Sweetheart  Holdings     1999               298,654          445,000           78,037   (6)
   and Sweetheart Cup                        1998 (7)           144,414                -           34,451   (8)

Michael Hastings
   Senior  Vice  President  - Sales  and     2000               170,512          235,000           23,182   (9)
   Marketing of Sweetheart  Holdings and     1999               124,231          255,000           49,722   (10)
   Sweetheart Cup                            1998 (11)           56,664                -           54,387   (12)

Hans H. Heinsen
   Senior  Vice  President - Finance and     2000               140,962          235,000                -
   Chief     Financial     Officer    of     1999 (13)          125,000          217,000                -
   Sweetheart  Holdings  and  Sweetheart     1998                     -                -                -
   Cup

Charles E. Busse
   Vice   President   -   Research   and     2000               188,299          147,954           10,399   (14)
   Engineering  of  Sweetheart  Holdings     1999               177,216          130,199          128,606   (15)
   and Sweetheart Cup                        1998               175,848                -          352,642   (16)
</TABLE>

(1)  Amounts shown were paid based upon the Company's performance.
(2)  Reflects $1,507 of life insurance premiums paid by the Company.
(3)  Reflects $1,743 of life insurance premiums paid by the Company.
(4)  Mr. Mehiel became  Chairman and Chief  Executive  Officer  effective  March
     12, 1998. Amounts shown here were paid during the remainder of Fiscal 1998.
(5)  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.
(6)  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.
(7)  Mr. Uleau became President, Chief  Operating Officer and Director effective
     March 12, 1998. Amounts shown here were paid during the remainder of Fiscal
     1998.
(8)  Reflects $29,167 paid for relocation expenses, $2,785 contributed under the
     401(k) Plan, $2,376 of life insurance premiums paid by the Company and $123
     of long-term disability insurance premiums paid by the Company.
(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.
(11) Mr. Hastings became  Senior Vice President of Sales and Marketing effective
     March 12, 1998.
<PAGE>
     Amounts shown here were paid during the remainder of Fiscal 1998.
(12) Reflects $50,249 paid for relocation expenses, $2,769 contributed under the
     401(k) Plan, $1,296 of life insurance  premiums paid by the Company and $73
     of long-term disability premiums paid by the Company.
(13) Mr. Heinsen became Vice  President of Finance and Chief  Financial  Officer
     effective  March 12, 1998;  however,  it was not until Fiscal 1999 that the
     Company began to pay his salary and bonus.
(14) Reflects $6,673 contributed under the 401(k) Plan and  $3,726 of life
     insurance premiums paid by the Company.
(15) Reflects  $118,600  paid  under the  Special  Incentive  Agreement,  $5,000
     contributed under the 401(k) Plan,  $4,959 of life insurance  premiums paid
     by the Company and $47 of long-term  disability  insurance premiums paid by
     the Company.  (16) Reflects  $190,  077 paid under the Executive  Retention
     Pan,  $118,600  paid under the Special  Incentive  Agreement,  $35,458 paid
     under the Stock Option Repurchase Plan, $4,750 contributed under the 401(k)
     Plan,  $3,651  of life  insurance  premiums  paid by the  Company,  $106 of
     long-term disability insurance premiums paid by the Company.


Stock Option Plan

         On March 12, 1998,  all  outstanding  options to purchase  stock of the
Company  were cashed out in full  pursuant  to the  agreement  governing  the SF
Holdings Investment (the "Stock Option Repurchase Plan"). There are currently no
options to purchase either Class A or Class B common stock outstanding.


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.
<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 November 27,
2000,  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)...................................       370,059            35.4         3,218,019         73.3

Directors and executive officers as a group
(4 persons)(6).....................................       657,220            62.8         3,278,645         74.6
</TABLE>
<PAGE>
(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
     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 73.3% 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,  Fonda,  an
affiliate  of SF  Holdings  manages  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
<PAGE>
Class C Common Stock of SF Holdings,  representing 10% of the total  outstanding
shares of 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.


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   Subordinate  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, and 60/40 during Fiscal 2000. Fees will be split 70/30
during  Fiscal 2001 and paid 100% to SF  Holdings  thereafter.  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 and above  referenced  affiliates are under the common
ownership of the Company's  Chief Executive  Officer,  except AIP and AIPM which
are affiliates of a shareholder.

         During Fiscal 2000, the Company sold (i) $16.7 million of cups to Fonda
(a wholly owned subsidiary of SF Holdings), and (ii) $0.8 million of scrap paper
to  Fibre  Marketing  Group,  LLC  ("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 Four M, (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 Four M and $0.9 million due to Fonda.  Other  purchases  from and
sales to affiliates during Fiscal 2000 were not material.

         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  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
<PAGE>
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.  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 Four M, (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
Four M and $0.7 million due to Fonda.

         During Fiscal 1998, the  Company  purchased $1.8 million of  corrugated
containers  from Four M, of which $0.4 million was payable as of  September  27,
1998. Purchases from Fonda and Emerald Lady, Inc. in preceding fiscal years were
not material.

         During the fourth  quarter of Fiscal 2000,  the Company  entered into a
lease agreement with D&L Development,  LLC, an entity in which the Company's CEO
has an interest, to lease a warehouse facility in Hampstead, Maryland. In Fiscal
2000, rental payments under this lease were $0.7 million. 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 from D&L Andover
Property,  LLC,  an  entity  in which  the CEO has an  interest.  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.


                                     PART IV


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

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

     1.  The financial statements listed in the "Index to 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 Incorp
                  oration of Sweetheart Holdings Inc. dated March 11, 1998 (inco
                  rporated 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
<PAGE>
                  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).
         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 Sweet-
                  heart Cup, as Lessee (incorporated  by reference  from Exhibit
                  10.59 of the Company's report on Form 10-Q dated June 25,
<PAGE>
                  2000).
         10.60    Lease Supplement dated as of June 1,2000 between State Street,
                  solely in its capacity as Owner Trustee and Lessor, and Sweet-
                  heart 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).
         18.0     Preferability Letter  (incorporated by reference from  Exhibit
                  18.0 of the  Company's  report on Form  10-Q  dated August 14,
                  1998).
         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 sale-leaseback transaction,  accounted for as an operating lease, was
         filed as an Item 2 disclosure on Form 8-K on June 27, 2000.

         A  redemption  notice to the holders of the  Company's  Senior  Secured
         Notes was filed as an Item 5 disclosure on Form 8-K on June 27, 2000.

         An amended and restated U.S. Credit Facility  agreement was filed as an
         Item 5 disclosure on Form 8-K on June 27, 2000.
<PAGE>

                                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page

Independent Auditors' Report                                                  29


Consolidated Balance Sheets as of September 24, 2000
         and September 26, 1999                                               30


Consolidated Statements of Operations and Other Comprehensive
         Income (Loss)for Fiscal Years 2000, 1999 and 1998                    31


Consolidated Statements of Cash Flows for Fiscal Years 2000,
         1999, and 1998                                                       32


Consolidated Statements of Shareholders' Equity for Fiscal
         Years 2000, 1999, and 1998                                           33


Notes to Consolidated Financial Statements                                    34

<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 24,
2000  and  September  26,  1999,  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 24, 2000.
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, the consolidated financial statements referred to above
present fairly, in all material respects,  the financial position of the Company
as of  September  24,  2000 and  September  26,  1999,  and the  results  of its
operations  and its cash flows for each of the three  fiscal years in the period
ended  September 24, 2000 in conformity  with  accounting  principles  generally
accepted in the United States of America.

         As  discussed  in Note  16 to the  consolidated  financial  statements,
during 1998, the Company  changed its method for  accounting  for  reengineering
costs in connection with software installation.



/s/ DELOITTE & TOUCHE LLP
Baltimore, Maryland
November 15, 2000

<PAGE>

                                       SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                                              CONSOLIDATED BALANCE SHEETS
                                           (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                   September 24,     September 26,
                                                                                        2000             1999
                                                                                  ---------------   --------------
<S>                                                                               <C>               <C>
                                          Assets
                                          ------
         Current assets:
           Cash and cash equivalents                                                    $  3,415         $  2,965
           Cash in escrow                                                                    300                -
           Receivables,less allowances of $2,072 and $1,905,respectively                 110,077           88,325
           Inventories                                                                   162,339          129,473
           Deferred income taxes                                                          16,303           12,962
           Spare parts - current                                                          21,543           16,278
                                                                                        --------         --------
                Total current assets                                                     313,977          250,003
                                                                                        --------         --------

         Property, plant and equipment, net                                              205,787          322,967

         Deferred income taxes                                                            34,183           41,055
         Spare parts                                                                       8,313           10,852
         Goodwill, net                                                                    10,969                -
         Other assets                                                                      9,604            9,763
                                                                                        --------         --------

                Total assets                                                            $582,833         $634,640
                                                                                        ========         ========

                           Liabilities and Shareholders' Equity
                           ------------------------------------
         Current liabilities:
           Accounts payable                                                             $ 76,317         $ 66,654
           Accrued payroll and related costs                                              45,017           45,089
           Other current liabilities                                                      36,400           39,045
           Current portion of deferred gain on sale of assets                             10,275                -
           Current portion of long-term debt                                              15,841          275,446
                                                                                        --------         --------

                Total current liabilities                                                183,850          426,234
                                                                                        --------         --------

         Commitments and contingencies (See Note 20)                                           -                -

         Long-term debt                                                                  210,269          118,446
         Deferred gain on sale of assets                                                  93,948                -
         Other liabilities                                                                64,353           71,686
                                                                                        --------         --------
                Total liabilities                                                        552,420          616,366
                                                                                        --------         --------

         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                                                    100,070          101,090
           Accumulated deficit                                                           (67,611)         (80,083)
           Accumulated other comprehensive income (loss)                                  (2,100)          (2,787)
                                                                                        ---------        ---------
                Total shareholders' equity                                                30,413           18,274
                                                                                        ---------        ---------

                Total liabilities and shareholders' equity                              $582,833         $634,640
                                                                                        ========         ========


                                  See accompanying Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>


                                    SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                      AND OTHER COMPREHENSIVE INCOME (LOSS)
                                                 (In thousands)
<TABLE>
<CAPTION>
                                                                            Fiscal
                                                        --------------- --------------- ---------------
                                                              2000           1999            1998
                                                        --------------- --------------- ---------------
<S>                                                     <C>               <C>             <C>
Net sales                                                  $  952,728      $  863,781      $  843,502
Cost of sales                                                 833,959         763,750         787,706
                                                           -----------     -----------     -----------

         Gross profit                                         118,769         100,031          55,796

Selling, general and administrative expenses                   64,852          67,406          68,818
Other  (income) expense, net                                   (4,688)         (1,180)         12,400
Asset impairment expense                                            -               -           5,000
Restructuring charge (credit)                                     503            (512)            897
                                                           -----------     -----------     -----------

         Operating income (loss)                               58,102          34,317         (31,319)

Interest  expense,   net  of  interest  income  of
  $1,071, $122 and $755, respectively                          36,825          41,671          42,955
                                                           -----------     -----------     -----------

         Income  (loss)  before income tax expense
         (benefit),  cumulative  effect  of change
         in      accounting      principle     and
         extraordinary loss                                    21,277          (7,354)        (74,274)


Income tax expense (benefit)                                    8,492          (2,941)        (29,711)
                                                           -----------     -----------     -----------

         Income  (loss) before  cumulative  effect
         of change  in  accounting  principle  and
         extraordinary loss                                    12,785          (4,413)        (44,563)

Cumulative   effect  of   change   in   accounting
  principle (net of income taxes of $1,007)                         -               -           1,511

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

         Net income (loss)                                 $   12,472      $   (4,413)     $  (46,074)
                                                           ===========     ===========     ===========

Other comprehensive income (loss), net of tax:
         Foreign Currency translation adjustment                 (122)            272          (1,062)
         Minimum  pension   liability   adjustment
         (net of income taxes of ($539),($2,288)
         and $3,281, respectively)                                809           3,432          (4,922)
                                                           -----------     -----------     -----------

Other comprehensive income (loss)                                 687           3,704          (5,984)
                                                           -----------     -----------     -----------

         Comprehensive income (loss)                       $   13,159      $     (709)     $  (52,058)
                                                           ===========     ===========     ===========


                             See accompanying Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>


                                       SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (In thousands)
<TABLE>
<CAPTION>
                                                                                             Fiscal
                                                                            ----------------------------------------
                                                                               2000           1999           1998
                                                                            ----------     ----------     ----------
<S>                                                                         <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

      Net income (loss)                                                      $ 12,472       $ (4,413)      $(46,074)

      Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
        Depreciation and amortization                                          40,231         48,270         46,738
        Amortization of deferred gain                                          (2,813)             -              -
        Deferred income tax expense (benefit)                                   8,492         (2,941)       (29,711)
        Gain on sale of assets                                                 (4,439)        (1,301)        (4,245)
        Cumulative effect of change in accounting principle, net                    -              -          1,511
        Asset impairment expense                                                    -              -          5,000

      Changes in operating assets and liabilities:
        Receivables                                                           (21,119)        (3,077)           526
        Inventories                                                           (27,070)         3,592          9,212
        Accounts payable                                                        6,464            449          7,272
        Pension termination liability                                          (8,316)          (792)         3,326
        Other, net                                                             (8,136)         9,985        (11,349)
                                                                             ---------      ---------      ---------
            Net cash provided by (used  in) operating activities               (4,234)        49,772        (17,794)
                                                                             ---------      ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES

      Additions to property, plant and equipment                              (23,474)       (30,790)       (37,534)
      Acquisition of a business                                               (12,411)             -              -
      Proceeds from sale of bakery                                                  -              -         14,718
      Proceeds from sale of property, plant and equipment                     220,912          9,058          7,719
                                                               -             ---------      ---------      ---------
            Net cash provided by (used in) investing activities               185,027        (21,732)       (15,097)
                                                                             ---------      ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES

      Net borrowings (repayments) under credit  facilities                      9,957        (31,906)        (4,129)
      (Repayments) of other debt                                             (190,000)             -              -
      Decrease in restricted cash                                                   -              -         29,016
      (Increase)/decrease in cash escrow                                         (300)         5,464          7,859
      Payment of financing fees                                                     -              -         (1,509)
      Other                                                                         -              -            371
                                                                             ---------      ---------      ---------
            Net cash provided by (used in) financing activities              (180,343)       (26,442)        31,608
                                                                            ----------      ---------      ---------

NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                                                  450          1,598         (1,283)

CASH AND CASH EQUIVALENTS, beginning of period                                  2,965          1,367          2,650
                                                                             ---------      ---------      ---------

CASH AND CASH EQUIVALENTS, end of period                                     $  3,415       $  2,965       $  1,367
                                                                             =========      =========      =========

SUPPLEMENTAL CASH FLOW DISCLOSURES:

            Interest paid                                                    $ 37,048       $ 39,828       $ 39,866
                                                                             =========      =========      =========

            Income taxes paid                                                $  2,972       $     80       $    711
                                                                             =========      =========      =========

SUPPLEMENTAL NON-CASH INVESTING ACTIVITY:

            Note payable associated with business acquisition                $  2,914       $      -       $      -
                                                                             =========      =========      =========


                                  See accompanying Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>

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


                                                                                 Accumulated    Retained
                                            Class A      Class B   Additional       Other       Earnings/                  Total
                                 Common     Common       Common      Paid-In    Comprehensive (Accumulated     Note    Shareholders'
                                 Stock    Stock (par)  Stock (par)   Capital    Income (Loss)   Deficit)    Receivable    Equity
                               -----------------------------------------------------------------------------------------------------
<S>                             <C>         <C>          <C>        <C>            <C>          <C>          <C>         <C>
Balance, September 30, 1997     $101,100    $     -      $     -    $      -       $  (507)     $ (29,552)   $   (371)   $ 70,670

Net (loss)                             -          -            -           -             -        (46,074)          -     (46,074)
Stock dividend                         -          -           44           -             -            (44)          -           -
Common stock exchange           (101,100)        10            -     101,090             -              -           -           -
Payment received on note
  receivable                           -          -            -           -             -              -         371         371
Minimum pension liability
  adjustment                           -          -            -           -        (4,922)             -           -      (4,922)
Translation adjustment                 -          -            -           -        (1,062)             -           -      (1,062)
                                ---------   -------      --------   ---------      --------     ----------   ---------   ---------

Balance, September 27, 1998            -         10           44     101,090        (6,491)       (75,670)          -      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        (2,787)       (80,083)          -      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       $(2,100)     $ (67,611)   $      -    $ 30,413
                                ==================================================================================================

                                         See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<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
2000,  the Company had net sales of  approximately  $953 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 11.1% of its net sales in Fiscal
2000.


1.  SIGNIFICANT ACCOUNTING POLICIES

         Business Segments - Sweetheart operates within one business segment and
accordingly does not report multiple business segments.

         Fiscal year end - In Fiscal  1998,  the  Company's  Board of  Directors
approved a change in the Company's  fiscal year from the year ended September 30
to the 52 or 53 week period ending on the last Sunday in September.  Fiscal 2000
is the 52 week  period  ended  September  24,  2000.  Fiscal 1999 is the 52 week
period ended September 26, 1999.  Fiscal 1998 is the period from October 1, 1997
through September 27, 1998.

         Principles of Consolidation and Translation - The financial  statements
include the accounts of the Company and its subsidiaries on a consolidated basis
as of September  24, 2000,  September  26, 1999 and  September  27, 1998 and for
Fiscal Years 2000, 1999 and 1998. Assets and liabilities denominated in Canadian
dollars are  translated  at the rates of exchange in effect at the balance sheet
date.  Income  amounts are  translated  at the  average of the monthly  exchange
rates.  The  cumulative  effect  of  translation  adjustments  is  deferred  and
classified as a cumulative  translation  adjustment.  All inter-company accounts
and transactions have been eliminated.

         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 8)

         Inventories - The Company  accounts for inventories  using the first-in
first-out (FIFO) method.  Management believes that the FIFO method is preferable
because it accurately  presents the Company's  financial position as it reflects
more recent costs at the balance sheet date and more accurately matches revenues
with costs reported during the period presented.

         Property,  Plant and  Equipment  -  Property,  plant and  equipment  is
recorded at cost,  less  accumulated  depreciation,  and is  depreciated  on the
straight-line  method over the  estimated  useful lives of the assets,  with the
exception of property,  plant and equipment  acquired  prior to January 1, 1991,
which is depreciated on the declining balance method.
<PAGE>
         The asset lives of buildings and fixtures range between 12 and 50 years
and have an average  useful  life of 37.4 years.  The asset  lives of  equipment
range between 5 and 18 years and have an average useful life of 9.6 years.

         Revenue  Recognition - Revenue is recognized  upon shipment of product.
Also,  the Company  rents  filling  equipment  to certain of its  customers  and
recognizes this income over the life of the lease.

         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.

         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.

         No  deferred   income  taxes  have  been  provided  on  the  cumulative
undistributed  earnings of the Canadian  subsidiary  of  Sweetheart  Cup.  Those
earnings  (approximately  $12.5 million) are considered  permanently  reinvested
under Accounting Principles Bulletin No. 23.

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

         Impact of Recently  Issued  Accounting  Standards  - In June 1998,  the
Financial  Accounting  Standards Board issued Statement of Financial  Accounting
Standard  ("SFAS") No. 133,  Accounting for Derivative  Instruments  and Hedging
Activities.  SFAS No. 133  establishes  accounting  and reporting  standards for
derivative  instruments and requires that an entity recognize all derivatives at
fair value in the  statement of financial  position.  The Company has  evaluated
this process which is effective for Fiscal 2001 and has concluded  that SFAS No.
133 has no significant impact on the financial statement presentation.

         In December,  1999, the Securities and Exchange Commission issued Staff
Accounting   Bulletin  ("SAB")  No.  101,   Revenue   Recognition  in  Financial
Statements.  SAB No. 101  establishes  accounting  and  reporting  standards for
revenue  recognition and requires that an entity not recognize  revenue until it
is realized or realizable  and earned.  The Company has evaluated  this bulletin
which is effective  for Fiscal 2001 and has  concluded  that SAB No.101 will not
have a significant impact on the financial statement presentation.

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


2.  INVENTORIES

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

                                     September 24,        September 26,
                                         2000                 1999
                                    --------------       --------------

 Raw materials and supplies           $  47,218              $  30,092
 Finished  products                     104,326                 92,193
 Work in progress                        10,795                  7,188
                                      ---------              ---------
          Total inventories           $ 162,339              $ 129,473
                                      =========              =========
<PAGE>

3.  INCOME TAXES

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

                                                   Fiscal
                     -----------------------------------------------------------
                             2000                 1999                1998
                     -----------------------------------------------------------
Current-
   Federal              $  (2,825)             $       -             $       -
   State                     (800)                     -                     -
   Foreign                   (270)                     -                     -
                        ----------             ---------             ---------
    Total current          (3,895)                     -                     -
                        ----------             ---------             ---------

Deferred -
   Federal                 (4,369)                 2,549                25,588
   State                     (228)                   364                 3,656
   Foreign                      -                     28                   467
                        ---------              ---------             ----------

    Total deferred         (4,597)                 2,941                29,711
                        ----------             ---------             ---------
                        $  (8,492)             $   2,941             $  29,711
                        ==========             =========             =========

         The effective tax rate varied from the U.S. Federal tax rate of 35% for
Fiscal 2000, 1999 and 1998 as a result of the following:

                                                 Fiscal Years
                               -------------------------------------------------
                                    2000            1999             1998
                               -------------------------------------------------

U.S. Federal tax rate               35%             35%              35%
State income taxes, net of
  U.S. Federal tax impact            4               4                4
Other, net                           1               1                1
                                 ------          ------           ------

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


         Deferred income taxes reflect the net tax effects of net operating loss
carry-forwards, tax credit carry-forwards, 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:

<PAGE>
<TABLE>
<CAPTION>
                                                   September 24,       September 26,
                                                       2000                1999
                                                  --------------      --------------
<S>                                               <C>                 <C>
Assets
   Post-retirement health and pension benefits         $ 25,437           $ 26,947
   Employee benefits                                      7,165              7,987
   Net operating loss carry-forwards                     11,627             84,410
   Deferred gain on sale-leaseback transaction           41,689                  -
   Alternative minimum tax credit carry-forward           3,179                354
   Other                                                  7,617              8,810
                                                       ---------          ---------
                                                         96,714            128,508
Liabilities
   Depreciation                                         (40,699)           (63,433)
   Inventory adjustments                                 (5,529)           (11,058)
                                                       ---------          ---------
                                                        (46,228)           (74,491)
                                                       ---------          ---------
Net deferred tax assets                                $ 50,486           $ 54,017
                                                       =========          =========
</TABLE>

         The  Company  has net  operating  loss  carry-forwards  for  income tax
purposes of  approximately  $32  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.


4.  PROPERTY, PLANT AND EQUIPMENT, NET

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

<TABLE>
<CAPTION>
                                                   September 24,              September 26,
                                                        2000                      1999
                                                 ----------------          ----------------
<S>                                             <C>                         <C>
     Land                                           $     16,780             $     19,051
     Buildings and improvements                           88,577                   89,933
     Machinery and equipment                             242,746                  435,593
     Construction in progress                              7,858                    5,575
                                                    -------------            -------------

         Total property, plant and equipment             355,961                  550,152
                                                    -------------            -------------

     Accumulated depreciation                           (150,174)                (227,185)
                                                    -------------            -------------

         Property, plant and equipment, net         $    205,787             $    322,967
                                                    =============            =============
</TABLE>

         Depreciation  of property,  plant and equipment  totaled $37.8 million,
$45.9 million and $43.9 million in Fiscal 2000, 1999 and 1998, respectively.


5.  ACQUISITION

         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
<PAGE>

(the "Sherwood  Acquisition")  of Sherwood and its subsidiaries for an aggregate
purchase price of $17.4 million of which $12.4 million was paid in cash, subject
to post closing  adjustments.  As part of the  purchase  price,  Sweetheart  Cup
issued  to the  stockholders  of  Sherwood  promissory  notes due May 2005 in an
aggregate  principal amount of $5.0 million and a present value of $2.9 million.
Sweetheart  Cup also assumed $9.3  million of Sherwood  debt,  which was paid in
full on June 15, 2000. The Sherwood  Acquisition has  preliminarily  resulted in
goodwill as of September  24, 2000 of $11.2  million,  which is being  amortized
over 20 years.  The acquisition has been accounted for using the purchase method
of accounting.  Amounts and allocations of costs recorded may require adjustment
based  upon  information  coming to the  attention  of the  Company  that is not
currently  available.  The  consolidated  financial  statements  of the  Company
include the activity for Sherwood from May 15, 2000 to September  24, 2000.  The
inclusion of this acquisition  within the financial  statements  presented had a
minimal impact on the Company's results.


6.  OTHER ASSETS

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

                                            September 24,         September 26,
                                                 2000                 1999
                                           --------------       --------------

    Debt issuance costs, net of
         accumulated amortization           $    3,988             $    4,077
    Intangible pension asset
         (See Note 18)                             884                  2,217
    Prepaid assets                               3,076                    989
    Other                                        1,656                  2,480
                                             ----------             ----------

         Total other assets                 $    9,604             $    9,763
                                            ==========             ==========

         Amortization of debt issuance costs totaled $2.0 million,  $2.4 million
and $2.8 million for Fiscal 2000, 1999 and 1998,  respectively,  and is included
in interest expense.


7.  OTHER CURRENT LIABILITIES

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

<TABLE>
<CAPTION>
                                                   September 24,          September 26,
                                                        2000                  1999
                                                 ----------------       ---------------
<S>                                              <C>                    <C>
    Sales allowances                              $    10,875             $     8,980
    Restructuring charges                                  68                       -
    Taxes, other than income taxes                      3,295                   4,434
    Litigation, claims and assessments
         (See Note 20)                                  9,288                  20,004
    Deferred rent payable                               8,631                       -
    Interest payable                                    1,741                   3,616
    Other                                               2,502                   2,011
                                                   -----------             -----------

         Total other current liabilities          $    36,400             $    39,045
                                                  ===========             ===========
</TABLE>
<PAGE>

8.  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  over 125
months which is the term of the Lease.  Annual rental  payments  under the Lease
will be approximately $32.0 million.


9.  LONG-TERM OBLIGATIONS

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


                                               September 24,      September 26,
                                                   2000                1999
                                              --------------     --------------

U.S. Credit Facility                            $  102,249         $  84,476

Canadian Credit Facility                            10,320             9,416

10.5% Senior Subordinated Notes                    110,000           110,000

Sherwood Industries Notes                            3,541                 -

9.625% Senior Secured Notes                              -           190,000
                                                -----------        ----------

     Total debt                                    226,110           393,892

Less - Current portion of long-term debt           (15,841)         (275,446)
                                                -----------        ----------

     Total long-term debt                       $  210,269         $ 118,446
                                                ===========        ==========


         The aggregate annual maturities of long-term debt at September 24, 2000
are as follows (in thousands):

         Fiscal 2001                                            $15,841
         Fiscal 2002                                              5,007
         Fiscal 2003                                            115,004
         Fiscal 2004                                              5,004
         Fiscal 2005 and thereafter                              85,254
                                                               --------
                                                               $226,110
                                                               ========

         U.S. Credit Facility - On June 15, 2000, the Company's revolving credit
facility  (the "U.S.  Credit  Facility")  was amended and restated to extend the
maturity of the $135 million  revolving  credit  facility,  subject to borrowing
base  limitations,  through  June 15, 2005 and to add 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 will now 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 will
<PAGE>

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
2000, the weighted average annual interest rate for the U.S. Credit Facility was
9.57%. The credit facility is  collateralized  by the Company's  inventories and
receivable  with  the  term  loan  portion  of  the  credit   facility   further
collateralized by certain production equipment.  As of September 24, 2000, $56.1
million was available under such facility.  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.

         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 - A Canadian subsidiary has a Credit Agreement
(the "Canadian Credit Facility").  which provides for a term loan facility of up
to Cdn $10  million and a revolving  credit  facility of up to Cdn $10  million.
Term loan borrowings  under the Canadian  Credit Facility are payable  quarterly
through  May 2001 and  revolving  credit and term loan  borrowings  have a final
maturity date of June 15, 2001. The Canadian  Credit  Facility is secured by all
existing and thereafter acquired real and personal tangible assets of Lily Cups,
a  subsidiary  of  Sweetheart  Cup,  and net  proceeds on the sale of any of the
foregoing.  Borrowings  under the Canadian  Credit  Facility bear interest at an
index rate plus 2.25% with respect to the  revolving  credit  borrowings  and an
index rate plus 2.50% with respect to the term loan borrowings.  As of September
24, 2000, Cdn $1.8 million  (approximately $1.2 million) was available under the
Canadian  Credit  Facility.  The Company intends to refinance this debt prior to
its maturity however,  there can be no assurances that it will be able to obtain
such refinancing on terms and conditions acceptable to the Company.

         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 101.313% until September 1, 2001 and 100%
thereafter. 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
<PAGE>
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.

         Senior  Secured  Notes  - On  June  15,  2000,  the  Company  issued  a
redemption  notice to the holders of its Senior  Secured  Notes due September 1,
2000.  In  connection  therewith,  the Company paid $190.0  million plus accrued
interest  with the U.S.  Trust  Company of New York in  settlement of the Senior
Secured Notes.

         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 an  aggregate  principal  amount of $5.0  million  and a present
value of $2.9 million.


10. 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 $7.7 million lower than the carrying value at September 24, 2000 and $12.1
million lower than the carrying value at September 26, 1999.


11. OTHER  LIABILITIES

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

                                               September 24,       September 26,
                                                    2000               1999
                                              --------------      --------------

Post-retirement health care benefits
     (See Note 18)                            $    59,318          $   59,401
Pensions (See Note 18)                              2,349               9,044
Prepaid vendor credits                                750               1,500
Other                                               1,936               1,741
                                              -----------          ----------

         Total other liabilities              $    64,353          $   71,686
                                              ===========          ==========


12. SHAREHOLDERS' EQUITY

         Prior to March 12, 1998, Sweetheart Holdings had a single-class capital
structure  consisting of 3,000,000  shares of common  stock,  par value $.01 per
share, of which 1,046,000 shares were issued and outstanding. Of the outstanding
shares, 1,040,000 were issued in conjunction with the acquisition of the Company
on August 30, 1993. In fiscal 1994, the Company sold an additional  6,000 shares
of stock,  for which it received  approximately  $100,000 in cash and a $500,000
promissory  note.  The  promissory  note that was  reflected  as a reduction  to
shareholders' equity in the consolidated balance sheet at September 30, 1997 was
paid in full on March 12, 1998.

         On March 12, 1998, the  shareholders of the Company  consummated the SF
Holdings Investment.

<PAGE>
In  connection  with this  transaction,  the Board of  Directors  of  Sweetheart
Holdings authorized two new classes of common stock: 1,100,000 shares of Class A
Common  Stock,  $0.01 par value and  4,600,000  shares of Class B Common  Stock,
$0.01 par value. On March 11, 1998, the  shareholders of record  exchanged their
shares  of common  stock  for a new Class A Common  Stock in a one for one stock
exchange.  In addition,  a stock  dividend of 4.2 shares of a new Class B Common
Stock was declared to the  shareholders of record on March 11, 1998. 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,
Fonda,  an affiliate of SF Holdings  manages 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
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.

         The Board of Directors of Sweetheart Holdings approved the Stock Option
and Purchase Plan (the "Option Plan") during fiscal year 1994 which provides for
the  granting of  nonqualified  and  incentive  stock
<PAGE>

options as defined by the Internal Revenue Code. The Option Plan is administered
by the Compensation  Committee (the "Committee") of the Board of Directors.  The
Committee has the authority to select participants, grant stock purchase options
and make all necessary determinations for the administration of the Option Plan.
The  exercise  price per share of common stock under each option is fixed by the
Committee  at the time of the grant of the  option and is equal to at least 100%
of the fair market  value of a share of common  stock on the date of grant,  but
not less than $100 per share.  The Committee  determines the term of each option
that may not exceed ten years from the date of grant of the  option.  The Option
Plan  provides  for the  issuance  of up to  103,000  shares of common  stock in
connection  with the stock options  granted under the Option Plan.  Options that
are canceled or expire  unexercised are available for future grants. All options
are granted via approval of the Board of Directors.  In conjunction  with the SF
Holdings  Investment,  all options  outstanding as of March 12, 1998 were cashed
out in full and canceled.


13. 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.

         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  Subordinate  Notes,  and  are  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, and 60/40 during Fiscal 2000. Fees will be split 70/30
during  Fiscal 2001 and paid 100% to SF  Holdings  thereafter.  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.

         During  Fiscal 2000,  the Company sold (i) $16.7 million of cups to The
Fonda Group, Inc. ("Fonda", a wholly owned subsidiary of SF Holdings),  and (ii)
$0.8 million of scrap paper to Fibre Marketing Group,  LLC ("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 Four M Corporation
("Four M"), (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 Four M and $0.9 million due to Fonda.  Other
purchases  from and sales to  affiliates,  if any,  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  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
<PAGE>
paper  scrap to Fibre  Marketing  and (iii)  $0.1  million  of cups to  Creative
Expressions Group ("CEG").  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, if any, were not
material.

         During  Fiscal  1999,  the  Company   purchased  (i)  $6.1  million  of
corrugated  containers from Four M, (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
Four M and $0.7 million due to Fonda.

          During Fiscal 1998,  the Company  purchased $1.8 million of corrugated
containers  from Four M, of which $0.4 million was payable as of  September  27,
1998. Purchases from Fonda and Emerald Lady, Inc. in preceding fiscal years were
not material.

         During the fourth  quarter of Fiscal 2000,  the Company  entered into a
lease agreement with D&L Development,  LLC, an entity in which the Company's CEO
has an interest, to lease a warehouse facility in Hampstead, Maryland. In Fiscal
2000, rental payments under this lease were $0.7 million. 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 from D&L Andover
Property,  LLC,  an  entity  in which  the CEO has an  interest.  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.


14. LEASE COMMITMENTS

         The Company  leases  certain  transportation  vehicles,  warehouse  and
office  facilities  and  machinery  and  equipment  under  both  cancelable  and
non-cancelable  operating leases,  most of which expire within ten years and may
be renewed by the Company.  Rent expense under such  arrangements  totaled $28.2
million,  $18.7 million and $16.6 million for Fiscal Years 2000,  1999 and 1998,
respectively.  Future minimum rental commitments under non-cancelable  operating
leases in effect at September 24, 2000 are as follows (in thousands):

       Fiscal 2001                                      $  48,949
       Fiscal 2002                                         47,571
       Fiscal 2003                                         45,461
       Fiscal 2004                                         43,195
       Fiscal 2005                                         40,935
       Fiscal 2006 and thereafter                         235,418
                                                        ---------
                                                        $ 461,529
                                                        =========

         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, 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
<PAGE>
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  $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.


15. OTHER EXPENSE (INCOME)

         In Fiscal 2000, the Company realized a $4.1 million gain on the sale of
a warehouse  facility in Owings  Mills,  Maryland  and a $2.8 million due to the
amortization  of the  deferred  gain  in  conjunction  with  the  sale-leaseback
transaction. 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 liability.

         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.

         In Fiscal 1998, the Company recognized certain  non-recurring  charges,
consisting  primarily  of $4.4  million  of  financial  advisory  and legal fees
associated with the SF Holdings  Investment,  $3.7 million of severance expenses
as a result of the  termination of certain  officers of the Company  pursuant to
executive separation  agreements and retention plans for certain key executives,
$3.4 million of expense  based on actuarial  estimates  associated  with pending
litigation and asset write-downs of $1.8 million associated with the sale of the
Riverside,  California facility.  These expenses were offset in part by the $3.3
million gain on the sale of the bakery business.


16. NON-RECURRING CHARGES

         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. During the quarter ended, September 24, 2000, the
Company  reversed $0.2 million of this reserve as a result of 12 employees being
placed into open positions within the Company. Approximately $0.1 million of the
restructuring  reserve remained at September 24, 2000, which the Company expects
to utilize through December 2000.

         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 of cash expenditures remained
unpaid as of September  27,  1998.  During  Fiscal  1999,  the Company paid $1.0
million of  severance  and  related  costs.  In  addition,  $0.4  million of the
restructuring reserve was decreased as the restructuring plan was completed.

         In the quarter ended March 31, 1998, the Company decided to rationalize
certain product lines. As a result,  the Company evaluated the recoverability of
the carrying  value of the equipment and other assets  utilized for such product
lines, which resulted in a $5.0 million charge to write-down the assets to their
fair
<PAGE>
market value.

         In the  quarter  ended  September  30,  1997,  the  Company  adopted  a
restructuring   plan   designed   to  improve   efficiency   and   enhance   its
competitiveness.   Restructuring   charges  of  $9.7  million  were  recognized,
consisting  of cash charges  primarily  related to severance  costs,  as well as
costs to close and exit the Riverside facility. Including the unspent portion of
these  charges,  the Company had total  restructuring  reserves of $13.2 million
classified  as "Other  current  liabilities"  as of September  30, 1997.  During
Fiscal  1998,  the Company  paid $8.8 million of  severance,  plant  closure and
related  costs.  In  addition,  $4.2  million of the  restructuring  reserve was
decreased due to a change in the  restructuring  plan as a result of a change in
senior management in connection with the SF Holdings  Investment.  During Fiscal
1999,  the company  paid $0.1  million of  severance  and related  expenses.  In
addition,  $0.1  million  of the  restructuring  reserve  was  decreased  as the
restructuring plan was completed.

         During the quarter ended December 31, 1997, 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.


17. 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,  prepaid  interest and  redemption  fees
pertaining to such debt.


18. 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. 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.  Costs
charged against operations for this defined contribution plan were $4.4 million,
$3.2  million and $3.4  million  for Fiscal  2000,  1999 and 1998  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.

         Net periodic  cost for the  Company's  pension and other  benefit plans
consists of the following (in thousands):
<PAGE>
<TABLE>
<CAPTION>
                                                             Fiscal
                                           -------------- -------------- --------------
                                               2000           1999           1998
                                           -------------- -------------- --------------
<S>                                        <C>            <C>              <C>
      Pension Benefits
      Service Cost                          $    726         $  1,019        $    989
      Interest Cost                            4,173            4,013           3,881
      Return on plan assets                   (4,459)          (3,916)         (3,883)
      Amortization of prior service cost         178              241             222
      Recognized net actuarial cost               73              269              41
                                            ---------        ---------       ---------
           Net periodic pension cost        $    691         $  1,626        $  1,250
                                            ---------        ---------       ---------

      Other Benefits
      Service Cost                          $    830         $  1,027        $    898
      Interest Cost                            3,136            3,271           3,056
      Amortization of prior service cost        (799)            (416)           (432)
      Recognized net actuarial cost             (838)            (299)           (978)
                                            ---------        ---------       ---------
           Net periodic benefit cost        $  2,329         $  3,583        $  2,544
                                            ---------        ---------       ---------
</TABLE>

         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 24,    September 26,    September 24,   September 26,
                                                      2000            1999             2000             1999
                                                 --------------- ---------------- ---------------- ---------------
<S>                                              <C>              <C>              <C>             <C>
  Change in benefit obligation:
  Benefit obligation at beginning of period        $  56,874        $  58,653        $  42,406       $  48,771
  Service cost                                           726            1,019              830           1,027
  Interest cost                                        4,173            4,013            3,136           3,271
  Amendments                                               -              202                -          (3,520)
  Actuarial (gain) or loss                            (3,161)          (3,469)          (2,641)         (4,962)
  Benefits paid                                       (3,614)          (3,544)          (2,413)         (2,181)
                                                   ----------       ----------       ----------      ----------
    Benefit obligation at end of period            $  54,998        $  56,874        $  41,318       $  42,406
  Change in plan assets:
  Fair value of plan assets at beginning of
       period                                      $  44,323        $  38,600        $       -       $       -
  Actual return on plan assets                         3,500            5,737                -               -
  Employer contributions to plan                       4,355            3,530            1,921           1,746
  Participant contributions to plan                        -                -              492             435
  Benefits paid                                       (3,614)          (3,544)          (2,413)         (2,181)
                                                   ----------       ----------       ----------      ----------
    Fair value of plan assets at end of period     $  48,564        $  44,323        $       -       $       -

  Funded status                                    $  (6,434)       $ (12,551)       $ (41,318)      $ (42,406)
  Unrecognized prior service cost                      1,474            2,217           (6,403)         (7,202)
  Unrecognized (gain) loss                               170            2,444          (14,697)        (12,893)
                                                   ----------       ----------       ----------      ----------
    Net liability recognized                       $  (4,790)       $  (7,890)        $(62,418)       $(62,501)
                                                   ----------       ----------       ----------      ----------
</TABLE>
<PAGE>

         The following  sets forth the amounts  recognized  in the  Consolidated
Balance Sheets:

                                                        Pension Benefits
                                                        ----------------
                                                 September 24,    September 26,
                                                     2000             1999
                                                --------------   --------------
 Funded status                                    $ (6,434)        $ (12,551)
 Intangible asset                                      884             2,217
 Other (gain) loss                                    (375)              (40)
 Deferred income taxes                                 454               994
 Accrued other comprehensive (income) loss             681             1,490
                                                 ----------        ----------
    Net liability recognized                      $ (4,790)        $  (7,890)
                                                 ----------        ----------


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

                                                         Fiscal
                                        ------------ ------------ ------------
                                            2000         1999         1998
                                        ------------ ------------ ------------
     Pension Benefits
     Discount rate                          8.00%         7.75%        7.00%
     Rate of return on plan assets         10.00%        10.00%       10.00%
     Other Benefits
     Discount rate                          8.00%         7.75%        7.00%

         For measurement  purposes,  a 7% annual rate of increase in health care
benefits was assumed for 2000.  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:


                                          One Percentage      One Percentage
                                          Point Increase      Point Decrease
                                         ----------------    ----------------
   Effect on accumulated post-
        retirement benefit obligation             $2,994            $(2,633)
   Effect on net periodic post-
        retirement benefit cost                     $193              $(163)


19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


                                               September 24,       September 26,
                                                   2000                1999
                                              ---------------     -------------

     Foreign currency translation
          adjustment                              $(1,418)           $(1,297)
     Minimum pension liability
          adjustment                                 (682)            (1,490)
                                                  --------           --------
     Accumulated other comprehensive
          income (loss)                           $(2,100)           $(2,787)
                                                  ========           ========

<PAGE>
20. CONTINGENCIES

         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  initially  filed in state  court in Georgia in April 1987 and is  currently
pending in federal court. The remaining 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 ("ERISA"). The relief sought by plaintiffs was to have the plan
termination declared  ineffective.  In December 1994, the United States Court of
Appeals for the Eleventh  Circuit (the "Circuit  Court") ruled that the Plan was
lawfully  terminated  on  December  31,  1986.  Following  that  decision,   the
plaintiffs  sought a  rehearing,  which was  denied,  and  subsequently  filed a
petition for a writ of certiorari  with the United States Supreme  Court,  which
was also denied.  Following  remand,  in March 1996, the United States  District
Court for the Southern  District of Georgia  (the  "District  Court")  entered a
judgment  in  favor  of  the   Company.   Following   denial  of  a  motion  for
reconsideration, the plaintiffs, in April 1997, filed an appeal with the Circuit
Court. On May 21, 1998, the Circuit Court affirmed the judgment entered in favor
of the Company.  On June 10, 1998, the  plaintiffs  petitioned the Circuit Court
for a rehearing of their appeal which  petition was denied on July 29, 1998.  In
October 1998,  plaintiffs  filed a petition for writ of certiorari to the United
States Supreme Court,  which was denied in January 1999. The Company has been in
the process of paying out the termination  liability and associated expenses and
as of September 24, 2000, the Company has disbursed $12.3 million in termination
payments.  The  estimate  of the  total  termination  liability  and  associated
expenses,  less payments,  exceeds assets set aside in the Plan by approximately
$8.0 million, which amount has been fully reserved by the Company.

         On April 27, 1999, the plaintiffs  filed a motion in the District Court
for  reconsideration  of the court's dismissal without  appropriate relief and a
motion  for  attorneys'  fees  with a  request  for  delay in  determination  of
entitlement  to such fees. On June 17, 1999,  the District  Court deferred these
motions  and ordered  discovery  in  connection  therewith.  Discovery  has been
completed and the Company is awaiting  further action by the plaintiffs.  Due to
the complexity involved in connection with the claims asserted in this case, the
Company cannot  determine at present with any certainty the amount of damages it
would be required to pay should the plaintiffs prevail;  accordingly,  there can
be no assurance  that such amounts would not have a material  adverse  effect on
the Company's financial position or results of operations.

         A patent  infringement  action  seeking  injunctive  relief and damages
relating to the Company's  production and sale of certain paper plates  entitled
Fort  James  Corporation  v.  Sweetheart  Cup  Company  Inc.,  Civil  Action No.
97-C-1221,  was  filed in the  United  States  District  Court  for the  Eastern
District of Wisconsin on November 21, 1997.  During the fourth quarter of Fiscal
1999,  mediation  resulted in a  settlement  of this action  whereby the Company
agreed to pay damages of $2.6  million.  As of June 29,  2000,  all  payments in
conjunction with this settlement had been paid.

         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. 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.  The  Company  denies  liability  and has no reason to
believe  the  final  outcomes  will  have a  material  effect  on the  Company's
financial condition or results of operations. However, no assurance can be given
about the ultimate  effect on the Company,  if any, given the early stage of the
investigations.

          The Company is also involved in a number of legal proceedings  arising
in the ordinary course of business, none of which is expected to have a material
adverse effect on the Company's financial position or results of operations.
<PAGE>
21. SUBSEQUENT EVENTS

         On  October  30,  2000,  the  Company  entered  into  a 20  year  lease
obligation for a manufacturing facility located in North Andover, Massachusetts.
In the first year,  the annual rent payment is $1.5 million.  Beginning with the
second year and each  succeeding  lease year, the rental will be an amount equal
to the sum of the base  rent in  effect  as of the  last day of the  immediately
preceding  lease  year  plus an  amount  equal  to 2% of the  amount  determined
pursuant to the foregoing year's base rent.


22.  SUMMARIZED FINANCIAL INFORMATION FOR SWEETHEART CUP COMPANY INC.

         All of the  outstanding  stock of Sweetheart Cup is owned by Sweetheart
Holdings and thereby Sweetheart  Holdings is the guarantor of the 10 1/2% Senior
Subordinated  Notes of Sweetheart Cup. The following  financial  information for
Sweetheart  Cup  and  subsidiaries,  Sweetheart  Holdings  and  the  Company  is
presented in accordance with Rule 3-10 of Regulation S-K.
<PAGE>
                                            (In thousands)

                                            Fiscal 2000
                       ---------------------------------------------------
                                                             Sweetheart
                       Sweetheart  Sweetheart    Holdings     Holdings
                          Cup       Holdings   Elimination  Consolidated
                       ---------- ----------- ------------- -------------
 Current assets        $ 309,108    $     16    $   4,853      $ 313,977
 Other assets            179,161      68,526       21,169        268,856
 Current liabilities     161,446      23,646       (1,242)       183,850
 Other liabilities       321,874      (6,096)      52,792        368,570


                                            Fiscal 1999
                      ---------------------------------------------------
                                                             Sweetheart
                       Sweetheart  Sweetheart    Holdings     Holdings
                          Cup       Holdings   Elimination  Consolidated
                       ---------- ----------- ------------- -------------
 Current assets        $ 483,984    $     25    $(234,006)     $ 250,003
 Other assets            158,071     315,095      (88,529)       384,637
 Current liabilities     402,268      25,208       (1,242)       426,234
 Other liabilities       247,868     232,763     (290,499)       190,132


                                            Fiscal 2000
                       ---------------------------------------------------
                                                             Sweetheart
                       Sweetheart  Sweetheart    Holdings     Holdings
                          Cup       Holdings   Elimination  Consolidated
                       ---------- ----------- ------------- -------------
Net sales              $ 952,728    $234,386    $(234,386)     $ 952,728
Gross profit              96,438      19,486        2,845        118,769
Income (loss) before
 cumulative effect of
 change in accounting
 principle and
 extraordinary loss       13,677        (892)           -         12,785
Net income (loss)      $  13,364    $   (892)   $       -      $  12,472


                                            Fiscal 1999
                      ---------------------------------------------------
                                                             Sweetheart
                       Sweetheart  Sweetheart    Holdings     Holdings
                          Cup       Holdings   Elimination  Consolidated
                       ---------- ----------- ------------- -------------
Net sales              $ 863,781    $234,431    $(234,431)     $ 863,781
Gross profit              77,897      19,289        2,845        100,031
Income (loss) before
 cumulative effect of
 change in accounting
 principle and
 extraordinary loss       (5,267)        854            -         (4,413)
Net income (loss)      $  (5,267)   $    854    $       -      $  (4,413)


<PAGE>

                                            Fiscal 1998
                      ---------------------------------------------------
                                                             Sweetheart
                       Sweetheart  Sweetheart    Holdings     Holdings
                          Cup       Holdings   Elimination  Consolidated
                       ---------- ----------- ------------- -------------
Net sales              $ 843,502    $245,297    $(245,297)     $ 843,502
Gross profit              32,665      20,235        2,896         55,796
Income (loss) before
 cumulative effect of
 change in accounting
 principle and
 extraordinary loss      (45,874)      1,311            -        (44,563)
Net income (loss)      $ (47,385)   $  1,311    $       -      $ (46,074)

<PAGE>


                     INDEX TO FINANCIAL STATEMENT SCHEDULES




                                                                            Page

Independent Auditors' Report                                                  54


Schedule II - Valuation and Qualifying Accounts                               55

<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 24, 2000 and
September  26, 1999,  and for each of the three fiscal years in the period ended
September 24, 2000,  and have issued our report thereon dated November 15, 2000;
such  consolidated  financial  statements  and report are  included in this Form
10-K. Our audits also included the financial  statements  schedule listed in the
accompanying  index.  This  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 15, 2000

<PAGE>

                                                       SCHEDULE II

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

<TABLE>
<CAPTION>
                                                             Additions
                                                    ----------------------------
                                      Balance at     Charged to       Charged
                                     beginning of    costs and       to other                        Balance at
         Classifications                period      expenses (1)   accounts (2)    Deductions (3)   end of period
         ---------------            -------------  -------------- --------------  ---------------- --------------
<S>                                  <C>            <C>            <C>             <C>              <C>
Allowance for Doubtful Accounts:
Fiscal 2000                            $  1,905        $  342         $   24          $   199         $  2,072
Fiscal 1999                               1,817           341             11              264            1,905
Fiscal 1998                               1,740           769             (4)             688            1,817
</TABLE>

(1) Provision for doubtful accounts includes $20K as a result of the Sherwood
    Acquisition.
(2) Includes recoveries on accounts previously written-off, translation
    adjustments and reclassifications.
(3) Accounts written-off.

<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 November 27, 2000.

                            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 November 27, 2000,  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                          President, Chief Operating Officer
 -------------------------------            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)