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                             PARTICIPATION AGREEMENT

                            dated as of June 1, 2000


                                      among

                          SWEETHEART CUP COMPANY INC.,
                                   as Lessee,


                      GENERAL ELECTRIC CAPITAL CORPORATION

                       MDFC EQUIPMENT LEASING CORPORATION

                         DANA LEASE FINANCE CORPORATION

                           FINOVA CAPITAL CORPORATION

                GENERAL FOODS CREDIT INVESTORS NO. 3 CORPORATION

                                       and

             TRANSAMERICA EQUIPMENT FINANCIAL SERVICES CORPORATION,
                          each as an Owner Participant,


                       STATE STREET BANK AND TRUST COMPANY
                      OF CONNECTICUT, NATIONAL ASSOCIATION,
                         not in its individual capacity
                       except as expressly stated herein,
                          but solely as Owner Trustee,

                                       and


                            SWEETHEART HOLDINGS INC.,
                                  as Guarantor

                                   relating to

                             Manufacturing Equipment

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<PAGE>

                                TABLE OF CONTENTS
                                -----------------

                                                                            Page
                                                                            ----

ARTICLE I Definitions and Rules of Usage.......................................1

ARTICLE II Closing.............................................................1

SECTION 2.01.   Agreements To Participate......................................1
SECTION 2.02.   Reserved.......................................................2
SECTION 2.03.   Payments on Closing Date.......................................2
SECTION 2.04.   Time and Place of Closing, Notice..............................2

ARTICLE III Closing Conditions.................................................4

SECTION 3.01.   Conditions Precedent to Participations in Lessor's Cost........4
SECTION 3.02.   Conditions Precedent to the Obligations of Lessee.............11

ARTICLE IV Representations and Warranties.....................................13

SECTION 4.01.   Representations and Warranties of Lessee......................13
SECTION 4.02.   Representations and Warranties of Guarantor...................18
SECTION 4.03.   Representations and Warranties of the Owner Participants......20
SECTION 4.04.   Representations and Warranties of Owner Trustee...............21

ARTICLE V Covenants...........................................................23

SECTION 5.01.   No Lessor Liens...............................................23
SECTION 5.02.   Further Assurances, etc.......................................23
SECTION 5.03.   Lessee To Defend Rights of Owner Trustee......................24
SECTION 5.04.   Business of Owner Trustee.....................................24
SECTION 5.05.   Trust Agreement...............................................24
SECTION 5.06.   Books and Records.............................................24
SECTION 5.07.   Financial Information.........................................25
SECTION 5.08.   Other Notices of Lessee.......................................26
SECTION 5.09.   Indebtedness..................................................27
SECTION 5.10.   Restricted Payments...........................................27
SECTION 5.11.   Merger of Lessee or Guarantor.................................34
SECTION 5.12.   Compliance with Law...........................................36
SECTION 5.13.   Collateral Identification.....................................36

ARTICLE VI General Indemnity..................................................36

SECTION 6.01.   General Indemnity.............................................36
SECTION 6.02.   Subrogation; Waiver...........................................38
SECTION 6.03.   Claims........................................................38
<PAGE>

                                TABLE OF CONTENTS
                                -----------------
                                  (continued)

                                                                            Page
                                                                            ----

ARTICLE VII General Tax Indemnity.............................................40

SECTION 7.01.   General Tax Indemnity.........................................40
SECTION 7.02.   Contest.......................................................44
SECTION 7.03.   Reports.......................................................46
SECTION 7.04.   Forms, etc....................................................47
SECTION 7.05.   Records.......................................................47

ARTICLE VIII Expenses.........................................................47

SECTION 8.01.   Transaction Expenses..........................................47
SECTION 8.02.   Fees and Expenses of Trustee and Tax Matters Partner..........47
SECTION 8.03.   Amendments, Waivers, Etc......................................47

ARTICLE IX Recomputation of Basic Rent,EBO Payment Amounts,
           Stipulated Loss Values.............................................48

SECTION 9.01.   Making of Adjustments.........................................48
SECTION 9.02.   Stipulated Loss Values: EBO Prices............................48
SECTION 9.03.   Computation of Adjustments....................................49
SECTION 9.04.   Tax Assumption Changes........................................49

ARTICLE X Transfers...........................................................49

SECTION 10.01.  Transfer of Owner Participant's Interest......................50
SECTION 10.02.  Transfer of Owner Trustee's Interest..........................51

ARTICLE XI Reserved...........................................................51

ARTICLE XII Owner Trustee.....................................................51

SECTION 12.01.  Change of Situs of Owner Trust................................51
SECTION 12.02.  Removal of Owner Trustee......................................52

ARTICLE XIII Miscellaneous....................................................52

SECTION 13.01.  Documentary Conventions.......................................52
SECTION 13.02.  Confidentiality...............................................52
SECTION 13.03.  Owner Trustee Not Acting in Individual Capacity...............53
SECTION 13.04.  Quiet Enjoyment...............................................53
SECTION 13.05.  Intercreditor Agreement.......................................53
SECTION 13.06.  Reports.......................................................54

<PAGE>
                                TABLE OF CONTENTS
                                -----------------

Appendix A     -   Definitions and Rules of Usage
Schedule I     -   Names and Addresses
Schedule II    -   Commitment Percentage
Schedule III   -   Schedule of Filings and Recordings
Schedule IV    -   Litigation
Schedule V     -   Environmental Notices
Schedule VI    -   Scheduled Payments
Schedule VII   -   Permitted Encumbrances
Exhibit A      -   Form of Warranty Bill of Sale
Exhibit B      -   Reserved
Exhibit C      -   Form of Opinion of Lessee's and Guarantor's Special Counsel
Exhibit D-1    -   Form of Opinion of Lessee's and Guarantor's General Counsel
Exhibit D-2    -   Form of Opinion of Owner Trustee's Special Counsel
Exhibit D-3    -   Form of Opinion of Owner Participant's Special Counsel
Exhibit D-4    -   Form of Opinion of Special Local Counsel
Exhibit E-1    -   Form of Owner Participant Transfer Agreement
Exhibit E-2    -   Form of Guarantee

<PAGE>

                             PARTICIPATION AGREEMENT


                  THIS  PARTICIPATION  AGREEMENT  (this  "Agreement") is entered
into as of June 1, 2000  among (i)  Sweetheart  Cup  Company  Inc.,  a  Delaware
corporation,  as Lessee ("Lessee"); (ii) General Electric Capital Corporation, a
New  York   corporation,   MDFC  Equipment  Leasing   Corporation,   a  Delaware
corporation,  Dana Lease Finance  Corporation,  a Delaware  corporation,  FINOVA
Capital Corporation, a Delaware corporation,  General Foods Credit Investors No.
3 Corporation,  a Delaware  corporation,  and Transamerica  Equipment  Financial
Services  Corporation,  a  Delaware  corporation,  each as an Owner  Participant
("Owner   Participants");   (iii)  State  Street  Bank  and  Trust   Company  of
Connecticut,  National Association,  a national banking association,  not in its
individual  capacity,  except as  expressly  stated  herein,  but  solely in its
capacity  as Owner  Trustee;  and (iv)  Sweetheart  Holdings  Inc.,  a  Delaware
corporation, as Guarantor ("Guarantor").

                  The parties hereto agree as follows:

                                    ARTICLE I

                         Definitions and Rules of Usage
                         ------------------------------

                  Unless the context otherwise requires,  capitalized terms used
herein  shall  have the  meanings  assigned  to them in  Appendix  A, which also
contains rules of usage.

                                   ARTICLE II

                                     Closing
                                     -------

                  SECTION 2.01.  Agreements  To  Participate. In reliance on the
agreements,  representations  and warranties  herein  contained or made pursuant
hereto, and subject to the terms and conditions hereinafter set forth:

                  (a) Owner  Participant's  Commitment.  Each Owner  Participant
will  participate in the payment of Lessor's Cost of the Equipment  delivered on
the Closing Date by making on the Closing Date an equity  contribution  to Owner
Trustee in an amount equal to the product of such Owner Participant's Commitment
Percentage and Lessor's Cost of such Equipment,  such investment to be evidenced
by  an  Owner  Certificate;  provided,  that  the  aggregate  equity  investment
(excluding fees and expenses) of the Owner  Participants for all Equipment shall
not exceed $212,300,000. Each such participation of an Owner Participant (or, as
the context may require, such Owner Participant's  obligation so to participate,
as the case may be) is hereinafter called such party's "Commitment."

                  (b) Purchase.  On the Closing Date,  Owner Trustee will pay to
or for the account of Lessee an aggregate  amount equal to Lessor's  Cost of the
Equipment to be delivered on the Closing Date,  and upon receipt  thereof Lessee
shall sell, convey and assign all of Lessee's right,  title and interest to such
Equipment to Owner  Trustee,  and Owner Trustee shall purchase and take title to
and accept delivery of such Equipment and pay Transaction Expenses.

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                  (c) Lease.  Simultaneously  with the purchase of the Equipment
to be delivered on the Closing Date, each Owner  Participant,  Owner Trustee and
Lessee shall enter into each of the  Operative  Documents to which it is a party
and Owner Trustee shall lease such Equipment to Lessee pursuant to the terms and
conditions of the Lease.

                  SECTION 2.02.  Reserved.

                  SECTION 2.03.  Payments on Closing Date.  Subject to the terms
and  conditions  of this  Agreement,  at or before the time of  delivery  of the
Equipment to be delivered on the Closing Date, each Owner  Participant will make
available the amount of its Commitment  applicable to the Equipment through wire
transfer in Federal or other funds immediately  available on the Closing Date to
the  account of Trust  Company  specified  in Schedule I, to be held in trust by
Owner Trustee for such Owner  Participant  until,  following receipt of all such
funds  referred  to in  Section  2.01(a)  and at the  direction  of  each  Owner
Participant,  Owner Trustee pays, on the Closing Date, the amount required to be
paid by Owner  Trustee  pursuant to Section  2.01(b) on the Closing Date through
wire  transfer in Federal or other  funds  immediately  available  to or for the
account of Lessee specified in Schedule I or as otherwise directed in writing by
Lessee.

                  SECTION 2.04.  Time  and  Place  of  Closing,  Notice. (a) The
closing of the transactions  contemplated by this Participation  Agreement shall
take place at the  offices of Kramer  Levin  Naftalis & Frankel  LLP,  919 Third
Avenue, New York, New York at 10:00 a.m. on the Closing Date.

                  (b) Lessee shall give each Owner Participant and Owner Trustee
at least 2 Business  Days' prior  written  notice of the Closing Date  ("Closing
Notice"). Any such notice shall specify (i) the Equipment to be delivered on the
Closing Date, (ii) the amount of the Lessor's Cost for such Equipment, (iii) the
amount of each Owner Participant's Commitment for such Equipment, (iv) the Basic
Term of the Lease for such Equipment,  (v) the location of such  Equipment,  and
(vi) the aggregate amount of Transaction Expenses.

                  (c) Each Owner  Participant  shall  promptly  after receipt of
Lessee's Closing Notice calculate the Owner  Participant Basic Rent Percentages,
Owner   Participant's   SLV  Percentages  and  Owner   Participant's  EBO  Price
Percentages and Owner  Participant's EBO Amount  Percentages  applicable to such
Owner Participant,  taking into account the scheduled Closing Date and aggregate
Transaction Expenses set forth in such notice, any Tax Assumption Change enacted
after May 3, 2000 and prior to receipt of  Lessee's  Closing  Notice  (notice of
which was given by Lessee or such Owner  Participant  pursuant to Section  9.04)
and any other change in the  assumptions  on which Basic Rent,  Stipulated  Loss
Values or EBO Payment Amounts are based. Such calculation shall utilize the same
economic  and  tax  assumptions   (except  for  the  specified  changes  above),
methodology  and  constraints  as originally  used by such Owner  Participant in
calculating  the economics  submitted to Lessee and agreed to by Lessee and such
Owner Participant shall adjust such Owner Participant's Economics to reflect any
changes  in the Index  Rate from the level  originally  agreed  with  Lessee and
otherwise preserve such adjusted Owner  Participant's  Economics and, consistent
therewith,  shall minimize the Implicit

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<PAGE>
Interest Rate applicable to such Owner Participant. Upon approval by Lessee, the
resulting   schedules  of  Owner  Participant  Basic  Rent  Percentages,   Owner
Participant SLV Percentages and Owner  Participant EBO Price Percentage for each
Owner  Participant  shall be set forth in an  appropriate  schedule to the Lease
Supplement  to be  delivered on the Closing  Date.  If the Closing Date is later
than the scheduled date notified by Lessee, then Lessee agrees to pay each Owner
Participant  any funding  breakage which such Owner  Participant  may sustain or
incur as a  consequence  of the delay in the Closing Date other than any expense
of such Owner  Participant  which is a consequence  of such Owner  Participant's
breach.  If such Owner Participant  actually  transmits the required funds under
this Section 2.03 to Owner  Trustee on or before such  scheduled  closing  date,
such  payment  shall be in the amount  equal to the  excess,  if any, of (i) the
amount  of  interest  which  would  have  accrued  on each  Owner  Participant's
Commitment at the Applicable Rate over (ii) interest on such Owner Participant's
funds for the period (if any) from and including such scheduled  closing date to
but, as to all or a portion of such funds, excluding the earlier of (A) the date
on which such funds,  or the relevant  portion  thereof,  are  disbursed for the
purchase of Equipment  pursuant to Section 2.03 and (B) the date such funds,  or
the relevant  portion  thereof,  are returned to such Owner  Participant  (which
shall in no event  occur later than 5 Business  Days  following  such  scheduled
closing date) or in each case the following  Business Day if such funds were not
returned  on or before  12:00 noon (New York City  time) on such date;  provided
that the  delay  is not  caused  by a breach  by such  Owner  Participant.  Such
interest  payable  pursuant to clause (ii) above,  shall accrue on the amount of
such funds at the Applicable  Rate and shall be paid on the applicable  date set
forth in clause (A) or (B) of the immediately preceding sentence.

                  (d)  Funds  held by Owner  Trustee  before  the  Closing  Date
pursuant  to Section  2.03  shall be held in trust for the  account of the Owner
Participant delivering such funds. Owner Trustee shall invest and reinvest funds
received  at the sole  discretion  of,  for the  account  of, and at the risk of
Lessee,  in any Permitted  Investment  selected by Lessee in writing that is due
and  payable  on the  Business  Day  immediately  succeeding  the  date  of such
investment.  To the extent that such  earnings are not in excess of any interest
and other  amounts  due and  payable by Lessee to such Owner  Participant  under
Section  2.04(c),  any  earnings  on the  investment  of such  funds  (including
interest)  will be paid to such Owner  Participant  toward  the  payment of such
interest due and payable, and Lessee will pay any shortfall.  To the extent that
such earnings are in excess of any interest and other amounts due and payable by
Lessee to such Owner  Participant  under Section  2.04(c),  such excess earnings
will be paid to Lessee.  In the absence of any such  direction by Lessee,  Owner
Trustee shall invest and reinvest  such funds in a money market fund  registered
under the Investment Company Act of 1940, as amended,  the portfolio of which is
limited to United States government and United States Agency obligations due and
payable on the Business Day  immediately  succeeding the date of such investment
or reinvestment.  Lessee shall promptly upon presentation by Owner Trustee of an
invoice  reimburse Owner Trustee or such Owner Participant for any loss, cost or
expense  incurred  as a result of the  investment  or transfer of funds by Owner
Trustee in  accordance  with the terms of this  Section  2.04(d).  The duties of
Owner Trustee with respect to the investment and payment of funds are limited to
those  specifically  set forth  herein.  Owner  Trustee shall incur no liability
hereunder except for its gross negligence,  willful misconduct or its negligence
relating to the holding or disposing  (but not  selecting or investing) of funds
hereunder.  Owner  Trustee  shall  hold  such  funds  in trust  for  such

                                       3
<PAGE>
Owner  Participant  and shall give such funds the degree of care it gives  other
similar   property  held  in  such   capacity.   Owner  Trustee  shall  have  no
responsibility  to determine the authenticity or validity of any written notice,
instruction,  opinion of counsel,  request or other document delivered to it and
shall be protected in acting or refraining  from acting upon any written notice,
instruction or request  furnished to it hereunder and reasonably  believed by it
to be genuine and purporting to have been signed by the proper party or parties.
Upon making payment of funds received  pursuant to this Section  2.04(d),  Owner
Trustee  shall have no further  liability  under this  Section  2.04(d)  for any
amount so paid. The Trust Company is hereby  authorized,  in making or disposing
of any investment by the Owner Trustee permitted hereunder,  to deal with itself
(as Trust Company) or with any one or more of its Affiliates, whether it or such
Affiliate is acting as an agent of the Trust  Company or for any third person or
dealing as principal for its own account.

                                   ARTICLE III

                               Closing Conditions
                               ------------------

                  SECTION  3.01.   Conditions  Precedent  to  Participations  in
Lessor's Cost.  The  obligation of each Owner  Participant to make available its
Commitment  and  participate in the payment of Lessor's Cost on the Closing Date
with respect to the Equipment  delivered on the Closing Date shall be subject to
the  satisfaction of, or waiver by, each such Owner  Participant  prior to or on
the  Closing  Date  of the  following  conditions  precedent  (except  that  the
obligation of any party shall not be subject to such party's own  performance or
compliance):

                  (a)  Notice,  Commitments  of Other  Participants.  Each Owner
Participant  shall  have  received  the  Closing  Notice  required  by the first
sentence  of Section  2.04(b).  On the  Closing  Date,  each of the other  Owner
Participants  shall have made  available to Owner Trustee the full amount of its
respective Commitment pursuant to Section 2.01.

                  (b)  Disclosure  of Debt.  On or prior to the Closing  Date, a
notice of redemption shall have been provided to the trustee under the indenture
governing the 9 5/8% Senior  Secured  Notes Due 2000 (the "Senior  Secured Notes
Trustee"),  initially  issued  by Cup  Acquisition  Corporation  (now  known  as
Sweetheart Cup Company  Inc.),  and all liens  thereunder  shall be released and
discharged.  A copy of such  notice  shall  have  been  provided  to each  Owner
Participant. The arrangements with the Senior Secured Notes Trustee with respect
to the  redemption  of  the 9 5/8%  Senior  Secured  Notes  Due  2000  shall  be
acceptable to the Owner Participants.

                  (c)  Receipt.  On the  Closing  Date,  Lessee  shall have duly
executed and  delivered  to Owner  Trustee a separate  instrument  acknowledging
receipt of funds in the amount of Lessor's Cost for the  Equipment  delivered on
the Closing Date.

                  (d)   Authorization,   Execution  and  Delivery  of  Operative
Documents.  On or prior to the Closing Date, the following  documents shall have
been duly authorized,  executed and delivered by the respective party or parties
thereto  and shall be in full force and effect on the Closing  Date  without any
event or condition  having occurred or existing which  constitutes,  or with the
giving of notice or lapse of time or both would constitute, a default thereunder
or breach

                                       4
<PAGE>
thereof or would give any party  thereto the right to  terminate  any  provision
thereof or not to perform its obligations thereunder:

                  (i)    this Participation Agreement;

                  (ii)   a Tax Indemnity Agreement between Lessee and each Owner
         Participant;

                  (iii)  the Lease, as supplemented by a Lease Supplement  dated
         the  Closing  Date,  such  Lease  Supplement   covering  all  Equipment
         delivered  on  the  Closing  Date  and  containing  separate  schedules
         relating to each Owner Participant;

                  (iv)   the Trust Agreement;

                  (v)    a full warranty  bill of  sale  for the  Equipment,  in
         substantially the form set out in Exhibit A hereto;

                  (vi)   the Guarantee;

                  (vii)  a Site Lease and a Site Sublease for  each  Site  where
         Equipment is located on the Closing Date;

                  (viii) the Security Agreement;

                  (ix)   the Guarantor Security Agreement;

                  (x)    the Patent Security Agreement;

                  (xi)   the Trademark Security Agreement;

                  (xii)  the Owner Trustee Parent Guarantee;

                  (xiii) Landlord's Waivers relating to PPE Collateral;

                  (xiv)  an  Intercreditor Agreement with the  Credit  Agent and
         Collateral Agent (as such terms are defined therein);

                  (xv)   the Pledge Agreement;

                  (xvi)  the Parent Pledge Agreement;

                  (xvii) a Mortgage relating to each element of  PPE  Collateral
         constituting owned real property or an interest therein;

                  (xviii) Internal Revenue Service Form 8264 regarding tax
         shelter registration;

                  (xix)  EH&S Letter; and

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<PAGE>
                  (xx)   State sales tax exemption forms for the States of
         Illinois, Maryland and Texas.

                  (e)  Appraisal.  On or before the Closing Date,  the Appraiser
shall have prepared and delivered to each Owner  Participant,  an appraisal from
such Appraiser  addressed to such Owner  Participant and dated the Closing Date,
in form  and  substance  satisfactory  to such  Owner  Participant  in its  sole
discretion, stating:

                  (i) the fair market  value of the  Equipment as of the Closing
         Date, provided,  that such fair market value of the Equipment shall not
         be less than Lessor's Cost of the Equipment;

                  (ii) the Basic Term of the Lease for the  Equipment  as of the
         Closing Date does not exceed 80% of the remaining  economic useful life
         of such Equipment;

                  (iii) the fair market value of the Equipment as of the date of
         expiration  of  the  Basic  Term  of  the  Lease  for  such   Equipment
         (determined (A) assuming that the Equipment is returned pursuant to the
         provisions  of Section  8.01 of the Lease and (B) without  including in
         such value any increase or decrease for  inflation or deflation  during
         and the Basic Term),  which value shall be at least equal to 20% of the
         Lessor's Cost of the Equipment;

                  (iv) the fair market value of the  Equipment as of the date on
         which Lessee may purchase the  Equipment  pursuant to Section  16.01 of
         the Lease  (determined  (A)  assuming  that the  Equipment  is returned
         pursuant  to the  provisions  of  Section  8.01 of the Lease and (B) by
         including in such value a  reasonable  allowance  for any  inflation or
         deflation reasonably expected to occur through the EBO Payment Date for
         such  Equipment)  will not exceed the applicable EBO Payment Amount for
         the Equipment;

                  (v) at the  expiration  of the Basic Term of the Lease for the
         Equipment,  it will be commercially feasible for the Owner Participants
         or another  Person  unrelated to Lessee to use the Equipment  (assuming
         that the  Equipment is returned  pursuant to the  provisions of Section
         8.01 of the Lease);

                  (vi) Lessee will be under no  economic  compulsion  to buy the
         Equipment  on the Early  Buy-Out  Date when the purchase is compared to
         continuing  the Lease and buying the  Equipment at the end of the Basic
         Term (such  analysis  to factor in any costs  attendant  to adhering to
         Section 8.01 of the Lease);

                  (vii) as of the Closing Date, the Equipment  would not require
         improvements, modifications, or additions to render it complete for its
         intended purpose and use by Lessee or any other Person;

                  (viii) it is  reasonably  expected  that  Lessee's  option  to
         renew the Lease will not be exercised;

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<PAGE>
                  (ix)  the Equipment is not limited use property;

                  (x)   in the Appraiser's view, no  other  circumstances  exist
         that would compel Lessee to exercise the Early Buy-Out Option; and

                  (xi)   any other information reasonably requested by any Owner
         Participant.

Each Owner Participant  shall also receive a copy of an appraisal,  satisfactory
to it, of the Equipment and the PPE  Collateral  prepared by Valuation  Research
Corporation which will demonstrate (i) a fair market value in place/in use of no
less than  $571,000,000  and (ii) an orderly  liquidation  value in place of the
Equipment and the PPE Collateral of no less than $315,000,000.

                  (f) Filings and Recordings. On or before the Closing Date, all
filings and  recordings  necessary  or, in the  reasonable  opinion of the Owner
Participants,  or Owner Participant's Special Counsel,  advisable (x) to perfect
or evidence the right,  title and interest of Lessor in the Equipment and (y) to
perfect or evidence any leasehold  interest,  security  interest or other rights
intended  to be created  pursuant  to the  Operative  Documents  (including  the
perfection of the lien on the PPE Collateral)  (all filing and recordation  fees
payable in  connection  therewith  to be for the  account  of Lessee)  and other
actions reasonably  requested by any Owner Participant shall have been duly made
or taken, or documents necessary for such filings and recordings shall have been
prepared  and  available  for filing on the  Closing  Date,  including,  without
limitation, the filings and recordings described in Schedule III hereto, in form
and substance reasonably satisfactory to the Owner Participants.

                  (g) Certificates.  On the Closing Date, each Owner Participant
(except in respect of clause (iii) below) and Owner  Trustee  (except in respect
of clause (iv) below) shall have  received an Officer's  Certificate,  dated the
Closing Date, of:

                  (i) Lessee  Certificates.  Lessee (A) confirming  that (w) the
         representations  and  warranties  of Lessee  contained in the Operative
         Documents are true and correct on and as of the Closing Date (except to
         the  extent  that they  relate to a  different  time in which case such
         representation  and warranties  shall have been true and correct on and
         as of such  time),  (x) no  event  or  condition  has  occurred  and is
         continuing,  or would result from the consummation of the Transactions,
         that  constitutes a Lease  Default or a Lease Event of Default,  (y) no
         Event  of Loss  (or  event  which,  with the  passage  of  time,  would
         constitute  an Event of Loss under clause (a) or (d) of the  definition
         thereof) with respect to the Equipment to be  transferred to Lessor has
         occurred  and is in  existence on the Closing Date and (z) after giving
         effect to the sale of the Equipment pursuant to the Bill of Sale, Owner
         Trustee  will  have good and valid  title to such  Equipment,  free and
         clear of Liens, except Permitted Liens, (B) attaching and certifying as
         true and correct (x) the Organic Documents of Lessee, (y) a copy of the
         resolutions  by the  unanimous  consent  of the board of  directors  of
         Lessee at which meeting  resolutions  were adopted duly authorizing the
         Transactions  to which it is a party and (z) an incumbency  certificate
         as to the  authority  of the  individuals  signing for Lessee,  and (C)
         containing  such other  evidence as to the due  authority  of Lessee to
         execute,  deliver and perform each Operative Document

                                       7
<PAGE>
         executed  by it or  contemplated  by the terms hereof to be executed by
         it as any Owner Participant may reasonably request;

                  (ii) Guarantor Certificate.  Guarantor (A) confirming that the
         representations  and warranties of Guarantor contained in the Operative
         Documents are true and correct on and as of the Closing Date (except to
         the  extent  that they  relate to a  different  time in which case such
         representation  and warranties  shall have been true and correct on and
         as of such time),  (B) attaching and certifying as true and correct (w)
         the Organic  Documents of Guarantor,  (x) a copy of the  resolutions by
         the   unanimous   consent  of  the  board  of  directors  of  Guarantor
         authorizing  the  Transactions  to  which  it is a  party  and  (y)  an
         incumbency  certificate as to the authority of the individuals  signing
         for  Guarantor,  and (C)  containing  such other evidence as to the due
         authority of Guarantor to execute,  deliver and perform each  Operative
         Document  executed  by it or  contemplated  by the  terms  hereof to be
         executed by it as any Owner Participant may reasonably request;

                  (iii) Owner Participant  Certificates.  each Owner Participant
         (A)  confirming  that the  representations  and warranties of the Owner
         Participant  contained in the Operative  Documents are true and correct
         on and as of the Closing Date (except to the extent that they relate to
         a different time in which case such representation and warranties shall
         have been true and  correct on and as of such  time) and (B)  attaching
         and  certifying  as true and correct (x) the Organic  Documents  of the
         Owner  Participant,  (y) if  reasonably  available,  a copy of  general
         resolutions   duly  authorizing  the  execution  and  delivery  of  the
         Operative  Documents  to  which  it is a party  and  (z) an  incumbency
         certificate  as to the  authority  of the  individuals  signing for the
         Owner Participant; and

                  (iv)  Owner  Trustee  Certificates.  Owner  Trustee  and Trust
         Company (A) confirming that the representations and warranties of Owner
         Trustee  and  Trust  Company,  as the  case  may be,  contained  in the
         Operative  Documents are true and correct on and as of the Closing Date
         (except to the extent  that they  relate to a  different  time in which
         case  such  representation  and  warranties  shall  have  been true and
         correct  on and as of such  time)  in the  capacity  (individual  or as
         trustee) in which  given,  (B)  attaching  and  certifying  as true and
         correct  (x)  the  Organic  Documents  of  Trust  Company  and  (y)  an
         incumbency  certificate as to the authority of the individuals  signing
         for Trust Company, and (C) containing such other evidence as to the due
         authority  of Owner  Trustee  to  execute,  deliver  and  perform  each
         Operative  Document  executed by it or contemplated by the terms hereof
         to be executed by it as any Owner Participant may reasonably request.

                  (h)      Representations.

                  (i) The  representations and warranties of Lessee set forth in
         Section 4.01 shall be true and correct in all material  respects on and
         as of the  Closing  Date  (except to the extent  that they  relate to a
         different time in which case such  representation  and warranties shall
         have been true and correct on and as of such time).

                  (ii) The representations and warranties of Guarantor set forth
         in Section 4.02 shall be true and correct in all  material  respects on
         and as of the Closing  Date (except to

                                       8
<PAGE>
         the  extent  that they  relate to a  different  time in which case such
         representation  and  warranties shall have been true and correct on and
         as of such time).

                  (iii) The  representations and warranties of Owner Trustee set
         forth  in  Section  4.04  shall  be true and  correct  in all  material
         respects on and as of the Closing  Date (except to the extent that they
         relate  to a  different  time in which  case  such  representation  and
         warranties shall have been true and correct on and as of such time).

                  (i)      Legal Opinions.

                         (A) On the Closing  Date,  each Owner  Participant  and
                    Owner Trustee shall have received the opinions of:

                         (i) Lessee's  Special Counsel and  Guarantor's  Special
                    Counsel, substantially in the form of Exhibit C hereto;

                         (ii) Lessee's  General Counsel and Guarantor's  General
                    Counsel, substantially in the form of Exhibit D hereto;

                         (iii) Owner Trustee's Special Counsel, substantially in
                    the form of Exhibit D-2 hereto;

                         (iv) Owner Participant's Special Counsel, substantially
                    in the form of Exhibit D-3 hereto; and

                         (v) each Special Local  Counsel,  substantially  in the
                    form of Exhibit D-4 hereto.

                         (B) On the Closing Date, each Owner  Participant  shall
                    have received the opinion of Owner Participants' Tax Counsel
                    in  form   and   substance   satisfactory   to  such   Owner
                    Participant.

                  (j) Taxes.  All Taxes,  if any, due and payable on or prior to
the Closing Date in  connection  with the  execution,  delivery,  recording  and
filing of the Operative Documents and in connection with the consummation of any
Transaction,  including all sales tax due and payable for the sale and leaseback
of the Equipment shall have been paid in full or provided for on or prior to the
Closing Date.

                  (k) Governmental  Action. On or prior to the Closing Date, all
Governmental  Action  required  or,  in the  reasonable  opinion  of  the  Owner
Participants, advisable for the consummation of the transactions contemplated by
the Operative  Documents shall have been obtained and shall be in full force and
effect on the Closing Date; the Owner Participants shall have received copies of
evidence of such Governmental  Action, if any; and no action or proceeding shall
have been instituted nor any Governmental  Action be threatened,  nor any order,
judgement  or decree  have been  issued or proposed to be issued by any court or
Governmental

                                       9
<PAGE>
Authority,  to  set  aside,  enjoin  or  prevent  the  execution,   delivery  or
performance  by any Owner  Participant or Owner Trustee of this Agreement or the
consummation of any of the Transactions.

                  (l) No Material  Adverse Change.  Since March 26, 2000,  there
has been no material  adverse  change in the  financial  condition of Lessee and
Guarantor  taken as a whole  and  Lessee  and  Guarantor  have been  paying  its
respective debts as they become due.

                  (m) No Lease Default, Lease Event of Default or Event of Loss.
After giving effect to the transactions contemplated hereby on the Closing Date,
no  Lease  Default  or  Lease  Event  of  Default  shall  have  occurred  and be
continuing,  and no Event of Loss (or event  which,  with the  passage  of time,
would  constitute  an Event of Loss under  clause  (a) or (d) of the  definition
thereof)  with respect to the Equipment to be  transferred  to the Lessor on the
Closing Date shall have occurred.

                  (n) Tax Changes. No change in United States federal income tax
law shall have been  proposed  subsequent  to May 3, 2000  which,  if enacted or
adopted  in the form  proposed,  would  materially  adversely  affect  any Owner
Participant's Economics.

                  (o)  Illegality.  No change shall have occurred on or prior to
the Closing Date in Applicable Laws that, in the reasonable opinion of any Owner
Participant,  would make it illegal for such Owner Participant to enter into any
of the transactions contemplated by the relevant Operative Documents.

                  (p)  Insurance.  On or before  the  Closing  Date,  each Owner
Participant  and Owner Trustee shall have  received  certificates  of authorized
representatives  of the underwriters of such policies and of Lessee's  insurance
broker  which  evidence  that  Lessee  has in effect  all  insurances  which are
required  under the terms of the  Lease,  and an  Officer's  Certificate  to the
effect that all such insurances are in full force and effect and comply with the
terms of the Lease.

                  (q)  Environmental  Due  Diligence.   Each  Owner  Participant
shall  have  completed  and be  reasonably  satisfied  with  its  review  of the
environmental status of each Site.

                  (r) Revolving Credit Agreement. Lessee shall have entered into
the BA Loan Agreement on terms and  conditions  reasonably  satisfactory  to the
Owner Participants.

                  (s) Title  Insurance.  Owner  Trustee  and Owner  Participants
shall have received reasonably  satisfactory title insurance with respect to its
leasehold interests under the Site Leases.

                  (t) Use of Proceeds. Lessee shall, immediately upon receipt of
the  proceeds  of  the  sale  of  the  Equipment:   (i)  repay  the  outstanding
indebtedness  to the  lenders  under a  certain  demand  loan  in the  aggregate
principal  amount of  $12,411,088;  (ii) repay the  outstanding  indebtedness of
Sherwood and its subsidiaries to PNC Bank, National Association;  (iii) pay down
the  outstanding  debt  under  the BA  Loan  Agreement  in an  amount  equal  to
$25,000,000;  and (iv) deposit with the Senior  Secured  Notes Trustee an amount
sufficient to redeem, in part, the 9 5/8% Senior Secured Notes Due 2000.

                                       10
<PAGE>
                  (u) Investment Letter. The Owner Participants,  Lessee and the
Owner  Trustee  shall have received a  certificate  from Capstar  Partners,  LLC
certifying that neither Capstar  Partners,  LLC, nor any of its Affiliates,  nor
anyone it has  authorized  or  employed  to act on its behalf as agent,  broker,
dealer or otherwise in  connection  with the offering or sale of the  Equipment,
has,  directly or indirectly,  offered any interest in the Lease for sale to, or
solicited  any offer to acquire any of the same from,  anyone and neither it nor
anyone it has  authorized  to act on its behalf has offered or sold,  or will so
offer  or sell any  interest  in the  Lease  to  anyone  other  than  the  Owner
Participants and not more than 100 other institutional investors;

                  (v) PPE  Collateral  Leases.  Lessee  shall  deliver  to Owner
Trustee all original  leases in its possession  relating to equipment  leased by
Lessee to third parties.

                  (w) Other Matters.  Each Owner  Participant  and Owner Trustee
shall have received  copies of such other  certificates or documents as they may
have  reasonably  requested in  connection  with the  transactions  contemplated
hereby with respect to the Closing Date.

                  SECTION  3.02.  Conditions  Precedent  to the  Obligations  of
Lessee. The obligations of Lessee to take the actions contemplated hereby on the
Closing Date shall be subject to the  satisfaction of, or waiver by Lessee prior
to or on the Closing Date of, the following  conditions  precedent  (except that
the  obligations of Lessee shall not be subject to the performance or compliance
of Lessee):

                  (a)   Authorization,   Execution  and  Delivery  of  Operative
Documents.  The  documents  listed in  Section  3.01(d) to be  delivered  on the
Closing  Date shall have been duly  authorized  executed  and  delivered  by the
respective party or parties thereto and shall be in full force and effect on the
Closing Date without any event or condition  having  occurred or existing  which
constitutes,  or with the  giving  of  notice  or  lapse  of time or both  would
constitute,  a default  thereunder  or breach  thereof  or would  give any party
thereto  the right to  terminate  any  provision  thereof or not to perform  its
obligations thereunder, and Lessee or its special counsel shall have received an
executed  counterpart  of each such  document of which an  executed  counterpart
shall  have been  delivered  to the Owner  Participants  and a copy of each such
document of which a copy shall have been delivered to the Owner Participants.

                  (b) Payment of Lessor's  Cost.  The Owner  Trustee  shall have
paid to Lessee on the Closing Date an amount  equal to the Lessor's  Cost of the
Equipment to be transferred on the Closing Date.

                  (c) Filings and Recordings. All filings,  recordings and other
actions  by the  Lessor  or the Owner  Participants  regarding  local  sales and
property  taxes  reasonably  requested  by Lessee  shall  have been duly made or
taken.

                  (d) Certificates.  On or before the Closing Date, Lessee shall
have received an Officer's Certificate of:

                      (i) Owner Participant Certificates. Each Owner Participant
                    (A) confirming  that the  representations  and warranties of
                    such Owner

                                       11
<PAGE>
                    Participant  contained in the  Operative  Documents are true
                    and  correct on and as of the  Closing  Date  (except to the
                    extent that they relate to a different  time,  in which case
                    such  representation and warranties shall have been true and
                    correct  on and as of  such  time)  and  (B)  attaching  and
                    certifying as true and correct (x) the Organic  Documents of
                    such Owner  Participant,  (y) a copy of minutes of the board
                    of  directors'  meeting of such Owner  Participant  at which
                    general   resolutions  were  adopted  duly  authorizing  the
                    execution and delivery of the  Operative  Documents to which
                    it is a party and (z) an  incumbency  certificate  as to the
                    authority  of  the   individuals   signing  for  such  Owner
                    Participant;

                      (ii) Owner Trustee Certificates. Owner Trustee
                    (A) confirming  that the  representations  and warranties of
                    Owner Trustee contained in the Operative  Documents are true
                    and  correct on and as of the  Closing  Date  (except to the
                    extent that they relate to a different  time,  in which case
                    such  representation and warranties shall have been true and
                    correct on and as of such time) in the capacity  (individual
                    or as trustee) in which given,  (B) attaching and certifying
                    as true  and  correct  (x) the  Organic  Documents  of Owner
                    Trustee  and  (y)  an  incumbency   certificate  as  to  the
                    authority of the individuals signing for Owner Trustee,  and
                    (C)  containing  such other evidence as to the due authority
                    of Owner  Trustee  to  execute,  deliver  and  perform  each
                    Operative  Document  executed by it or  contemplated  by the
                    terms  hereof to be executed by it as Lessee may  reasonably
                    request.

                  (e)      Representations.

                  (i)  The   representations   and   warranties  of  each  Owner
         Participant  set forth in Section 4.03 shall be true and correct on and
         as of the  Closing  Date  (except to the extent  that they  relate to a
         different time in which case such  representation  and warranties shall
         have been true and correct on and as of such time).

                  (ii) The  representations  and warranties of Owner Trustee set
         forth  in  Section  4.04  shall be true  and  correct  on and as of the
         Closing Date (except to the extent that they relate to a different time
         in which case such  representation  and warranties shall have been true
         and correct on and as of such time).

                  (f) Legal  Opinions. On  or  before the  Closing  Date  Lessee
shall have received opinions addressed to it of the counsel specified in clauses
(iii), (iv) and (v) of Section 3.01(i)(A).

                  (g) Governmental  Action. All Governmental Action required or,
in the  reasonable  opinion of Lessee,  advisable  for the  consummation  of the
transactions  contemplated  by the Operative  Documents shall have been obtained
and shall be in full force and effect on the  Closing  Date,  Lessee  shall have
received copies of evidence of such  Governmental  Action, if any, and no action
or  proceeding  shall  have  been  instituted  nor any  Governmental  Action  be
threatened, nor any order, judgment or decree have been issued or proposed to be
issued by any court of Governmental  Authority,  to set aside, enjoin or prevent
the  execution,  delivery  or  performance  by Lessee of this  Agreement  or the
consummation of any of the Transactions.

                                       12
<PAGE>
                  (h)  Illegality.  No  change in  Applicable  Laws  shall  have
occurred on or before the Closing Date that, in the reasonable opinion of Lessee
or its counsel,  would make it illegal for Lessee to  participate  in any of the
Transactions.

                                   ARTICLE IV

                         Representations and Warranties
                         ------------------------------

                  SECTION 4.01.  Representations  and Warranties of Lessee.
Lessee represents and warrants to each Owner Participant and Owner Trustee that:

                  (a)  Corporate  Organization.  Lessee  is a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware,  and has the  requisite  corporate  power and authority to own or hold
under lease its  properties  wherever  located or used,  to carry on business as
presently  conducted  and to enter into and  perform its  obligations  under the
Operative  Documents to which it is or will be a party and is duly  qualified to
do business and is in good standing in each other  jurisdiction where the nature
of its business requires such  qualification  (except where the failure to be so
qualified would not have a Material Adverse Effect with respect to Lessee).

                  (b) Due Authorization,  Non-Contravention, etc. The execution,
delivery and performance by Lessee of the Operative Documents to which Lessee is
or will be a party have been duly authorized by all necessary  corporate  action
on the part of Lessee and do not  require  any  approval or consent of any other
Person,  except such as have been duly obtained or by the Closing Date will have
been  duly  obtained,  do not and will  not  conflict  with,  or  result  in any
violation of, or constitute  any default  under,  or result in the creation of a
Lien (other than a Permitted  Lien or  Permitted  Encumbrance)  by reason of any
provision of any Organic  Document or  Contractual  Obligation  of Lessee or any
Applicable Laws.

                  (c)  Governmental  Action.  No Governmental  Action by, and no
notice to or filing or registration with, any Governmental Authority is required
for the due execution or delivery by Lessee of the Operative  Documents to which
it is a party  and no  Governmental  Action  by,  and no  notice to or filing or
registration   with,  any  Governmental   Authority  is  required  for  the  due
performance by Lessee of its obligations under the Operative  Documents to which
it is a party,  except  for  such  Governmental  Actions,  notices,  filings  or
registrations  as have  been  duly  obtained  or made and are in full  force and
effect.  There is no  proceeding  pending or, to the best  knowledge  of Lessee,
threatened  which seeks, or may reasonably be expected,  to rescind,  terminate,
modify or suspend any such Governmental Action.

                  (d)  Validity.  The  Operative  Documents to which Lessee is a
party have been duly authorized,  executed and delivered by Lessee, and assuming
that each such  agreement  is the valid,  legal and binding  obligation  of each
other  party  thereto,  each such  agreement  constitutes  the legal,  valid and
binding  obligation of Lessee,  enforceable  in accordance  with its  respective
terms,   except  as  enforceability   thereof  may  be  limited  by  bankruptcy,
insolvency,  reorganization  or similar laws or equitable  principles of general
application to or affecting the enforcement of creditors rights.

                                       13
<PAGE>
                  (e)  Litigation.  Except as set forth in  Schedule  IV hereto,
there are no suits or  proceedings  pending,  or to the best knowledge of Lessee
threatened,  against  or  affecting  Lessee  or  any of its  assets  before  any
Governmental  Authority,  which,  individually  or in  aggregate,  if  adversely
determined,  could reasonably be expected to have a Material Adverse Effect with
respect  to  Lessee  or  affect  the  legality  of this  Agreement  or any other
Operative Document.

                  (f) No Lease  Default  or Lease  Event of  Default or Event of
Loss.  There has not occurred and is not  continuing  any Lease Default or Lease
Event of Default or any event which constitutes,  or which with giving of notice
or lapse of time,  or both,  would  constitute an Event of Loss (or event which,
with the passage of time,  would constitute an Event of Loss under clause (a) or
(d) of the definition thereof).

                  (g)  Proceeds  of  Sale.  The  proceeds  of  the  sale  of the
Equipment to Owner Trustee will not be used by Lessee directly or indirectly for
any purpose  violative  of  Regulation  G or U of the Board of  Governors of the
Federal Reserve System (12 C.F.R. Part 207, as amended).

                  (h)      Title.

                  (i) Lessee has good and valid title to the Equipment, free and
         clear of all Liens (other than Permitted Liens) and on the Closing Date
         Lessee will have validly and effectively conveyed to Owner Trustee good
         and valid title to the  Equipment,  free and clear of all Liens  (other
         than Permitted Liens).

                  (ii) No  mortgage,  deed of  trust or  other  comparable  Lien
         (other  than  Permitted  Liens)  now  attaches  or,  upon  receipt  and
         acceptance of the Equipment,  will attach to the Equipment,  or affects
         adversely or will affect adversely the right,  title or interest of the
         Lessor.

                  (iii) Lessee has good and valid title the PPE  Collateral  and
         marketable  title to each Site, free and clear of all Liens (other than
         Permitted  Encumbrances),  and no mortgage, deed of trust or comparable
         Lien  (other  than  Permitted   Encumbrances)  now  attaches  or,  upon
         execution  and delivery of the Security  Documents,  will attach to the
         PPE  Collateral,  or affects  adversely  or will affect  adversely  the
         right, title or interest of Lessor.

                  (iv)  Except  for the  filings  and  recordings  described  in
         Schedule III hereto,  no other filings or  recordings  are necessary or
         desirable to perfect or evidence the right, title or interest of Lessor
         in the  Equipment  or to perfect or evidence  any  leasehold  interest,
         security  interest or other rights of Lessor  intended to be created by
         the  Operative  Documents;  and after giving effect to such filings and
         recordings, Lessor will have (i) a Site Leasehold interest in each Site
         where  Equipment is located on the Closing  Date  superior to all other
         interests therein, (ii) a first priority perfected security interest in
         all PPE  Collateral  (except in the case of Credit  Agreement Term Loan
         Equipment  Collateral,  as defined in the  Intercreditor  Agreement,  a
         second  priority  lien subject only to the BA Loan  Agreement and other
         Permitted  Encumbrances in existence on the Closing Date),

                                       14
<PAGE>
         and  (iii) a second priority perfected security interest in all Working
         Capital  Collateral  subject to the first priority lien pursuant to the
         BA  Loan Agreement and other Permitted Encumbrances in existence on the
         Closing Date.

                  (i)  Equipment.  On the Closing Date, the Equipment will be in
good  operating  condition and repair,  ordinary wear and tear excepted from the
date originally acquired by Lessee,  will be commercially  suitable for the uses
for  which  it is  intended  and  will  comply  in all  material  respects  with
Applicable Laws and all insurance requirements.  The Components of the Equipment
subject to each Lease  Supplement on the Closing Date (A) can be readily removed
from their present  locations (or the locations at which such Components will be
located on the Closing Date) and transported  without damage to such Components,
and (B) are  personal  property  and are not,  and will not be,  attached  to or
related to real estate in such a manner that any Component constitutes,  or will
constitute  a fixture  or create  any  interest  therein  in favor of any Person
arising  through any  interest of such  Person in the real  property  where such
Component is or is to be located.

                  (j) Patents,  etc. Except for those that may be transferred by
Lessee to Owner Trustee following the Basic Term Commencement Date, there are no
licenses,  patents,  copyrights or trademarks which must be transferred to Owner
Trustee  in order for any  Person to  operate  the  Equipment  for its  intended
purpose. The Equipment includes all software necessary to operate such Equipment
for its intended purposes. There are no royalties, license fees or other similar
charges  (including any software license fees) arising solely from the operation
of the Equipment payable by any Person on or after the date of this Agreement.

                  (k) Authority to Operate. All Governmental Actions material to
the proper  operation of the Equipment  have been  obtained or made,  and are in
full  force and  effect  and no such  Governmental  Actions  are  subject to any
pending,  or to the  best  of  Lessee's  knowledge,  threatened,  suit,  action,
inquiry,  investigation,  proceeding  or  appeal  (administrative,  judicial  or
otherwise).

                  (l) Identity of Equipment.  The Equipment subject to the Lease
Supplement on the Closing Date is the same Equipment  identified on Attachment A
of the Appraisal referred to in Section 3.01(e) hereof.

                  (m) No Public  Offering.  Neither Lessee nor any Person acting
on its behalf has  directly or  indirectly  offered or sold any  interest in the
Equipment or the Lease,  or any  securities  similar  thereto,  or has otherwise
approached or negotiated with any Person with respect thereto,  so as to require
the  registration  of any  "security"  offered  or sold in  connection  with the
transactions  contemplated hereby under Section 5 of the Securities Act of 1933,
as amended.

                  (n) No Prohibited  Transaction.  Neither (i) the execution and
delivery of the Operative  Documents and the  consummation  of the  transactions
contemplated thereunder nor (ii) the acquisition by the Owner Participant of the
beneficial interest in the Trust Estate, will involve any non-exempt  prohibited
transaction  within the meaning of Section  406 of ERISA or Section  4975 of the
Code as in effect on the Basic Term  Commencement  Date (the

                                       15
<PAGE>
representation  in this sentence  being made in reliance upon and subject to the
accuracy of the representations contained in or made by the Owner Participant in
Section 4.03(f)).

                  (o)  ERISA  Funding.   Lessee  has  met  its  minimum  funding
requirements  under ERISA with respect to each of its employee  pension or other
benefit  plans subject to Title IV of ERISA or to which Section 412 of the Code,
as in effect on the Basic Term Commencement Date, applies and has not incurred a
material  liability to the PBGC in connection  with any such plan other than for
premiums payable pursuant to Section 4007 of ERISA.

                  (p)  Chief Executive  Office.  The chief executive  office (as
such  term  is used  in Article  9  of the  UCC) of  Lessee is  located in 10100
Reisterstown Road, Owings Mills, Maryland 21117-3815.

                  (q)  Taxes. All United States,  state and local Taxes, if any,
due and  payable  on or  prior  to the  Closing  Date  in  connection  with  the
execution,  delivery,  recording,  and filing of the Operative  Documents and in
connection  with the purchase and sale of the  Equipment on the Closing Date and
consummation  of the  transactions  contemplated to occur on the Closing Date by
the Operative Documents, have been paid in full.

                  (r)  Location  of   Items.  As  of  the   Closing   Date,  the
Equipment  is in the  locations  described  in the  financing  statements  filed
pursuant to Section 3.01(f).

                  (s)  Investment Company  Act. Lessee  is  not  an  "investment
company"  or a company  "controlled"  by an  "investment  company",  within  the
meaning of the Investment Company Act of 1940, as amended.

                  (t)      Environmental Matters.

                  (i) Lessee,  each Site,  the Equipment and the PPE  Collateral
         currently  complies  with and Lessee shall  ensure that each Site,  the
         Equipment  and the PPE  Collateral  continue to comply in all  material
         respects with all Environmental Laws pursuant to the EH&S Program.

                  (ii) Lessee has obtained  and  currently  maintains  and shall
         continue  to  maintain  in all  material  respects  and  comply  in all
         material   respects   with  all   Governmental   Actions   required  by
         Environmental  Laws for the  operation of each Site,  the Equipment and
         the PPE Collateral.

                  (iii)  Except as  described  on Schedule V hereto,  Lessee has
         received no notice of any Environmental Claim relating to any Site, the
         Equipment or PPE Collateral and, to the knowledge of Lessee,  there are
         no facts,  circumstances  or conditions  existing at or with respect to
         any Site, the Equipment or the PPE Collateral that could  reasonably be
         expected to result in an Environmental Claim against Lessee, other than
         Environmental Claims that would not reasonably be expected to result in
         Lessee incurring liabilities in excess of $50,000 individually.

                                       16
<PAGE>
                  (iv)  Except  as  provided  in  Schedule  V,  the   ownership,
         operation  and  maintenance  of the Sites,  the  Equipment  and the PPE
         Collateral (and any part thereof) in the manner currently  contemplated
         by  Lessee  do not,  under  Environmental  Laws in  effect  on the date
         hereof,   involve   the   use,   generation,   manufacture,   refining,
         transportation,   treatment,  storage,  handling  or  disposal  of  any
         Hazardous Substance in violation of any Environmental Law.

                  (u)      Financial Statements.

                  (i)  Lessee  has  delivered  to Owner  Trustee  and the  Owner
         Participants  the  audited  balance  sheet and  related  statements  of
         income,  retained  earnings,  cash flows,  and changes in  stockholders
         equity for Guarantor and its consolidated  Subsidiaries as of September
         26, 1999, and for the Fiscal Year then ended, accompanied by the report
         thereon of Lessee's independent certified public accountants,  Deloitte
         & Touche LLP.  Lessee has also delivered to Owner Trustee and the Owner
         Participants  the  unaudited  balance  sheet and related  statements of
         income and cash flows for Guarantor and its  consolidated  Subsidiaries
         as of March 26, 2000. All such financial  statements have been prepared
         in  accordance  with GAAP  (other  than,  with  respect to the  interim
         financial  statements,  the absence of footnotes  and being  subject to
         normal  year-end  adjustments)  and  present  fairly  in  all  material
         respects  the  financial  position of  Guarantor  and its  consolidated
         Subsidiaries  as at the dates  thereof and their  results of operations
         for the periods  then ended.  Since March 26,  2000,  there has been no
         material  adverse  change in the  financial  condition  of  Lessee  and
         Guarantor  taken as a whole and Lessee and  Guarantor  have been paying
         their respective debts as they become due.

                  (ii)  Fonda  has  delivered  to Owner  Trustee  and the  Owner
         Participants  the  audited  balance  sheet and  related  statements  of
         income,  retained  earnings,  cash flows,  and changes in  stockholders
         equity for Fonda and its consolidated  Subsidiaries as of September 26,
         1999,  and for the Fiscal  Year then ended,  accompanied  by the report
         thereon of Fonda's independent certified public accountants, Deloitte &
         Touche LLP.  Fonda has also  delivered  to Owner  Trustee and the Owner
         Participants  the  unaudited  balance  sheet and related  statements of
         income and cash flows for Fonda and its consolidated Subsidiaries as of
         March 26, 2000.  All such  financial  statements  have been prepared in
         accordance with GAAP (other than, with respect to the interim financial
         statements,  the  absence  of  footnotes  and being  subject  to normal
         year-end  adjustments) and present fairly in all material  respects the
         financial position of Fonda and its consolidated Subsidiaries as at the
         dates  thereof and their  results of  operations  for the periods  then
         ended.

                  (v)  Collateral.  Each Component and each item of tangible PPE
Collateral is tagged to show the asset identification  number for such Component
or item as set  forth  in  Schedule  1 to the Bill of Sale or  Exhibit  A to the
Security Agreement, as the case may be.

                                       17
<PAGE>
                  SECTION 4.02.  Representations  and  Warranties of  Guarantor.
Guarantor represents and warrants to each Owner Participant and to Owner Trustee
as follows:

                  (a) Corporate  Organization.  Guarantor is a corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware,  and has the  requisite  corporate  power and authority to own or hold
under lease its  properties  wherever  located or used,  to carry on business as
presently  conducted  and to enter into and  perform its  obligations  under the
Operative  Documents to which it is or will be a party and is duly  qualified to
do business and is in good standing in each other  jurisdiction where the nature
of its business requires such  qualification  (except where the failure to be so
qualified would not have a Material Adverse Effect with respect to Guarantor).

                  (b) Due Authorization,  Non-Contravention, etc. The execution,
delivery  and  performance  by  Guarantor  of the  Operative  Documents to which
Guarantor  is or will be a party  have been  duly  authorized  by all  necessary
corporate  action on the part of  Guarantor  and do not require any  approval or
consent of any other  Person,  except such as have been duly  obtained or by the
Closing Date will have been duly obtained, do not and will not conflict with, or
result in any violation of, or constitute  any default  under,  or result in the
creation of a Lien (other than a Permitted  Lien or  Permitted  Encumbrance)  by
reason of any  provision of any Organic  Document or  Contractual  Obligation of
Guarantor or any Applicable Laws.

                  (c)  Governmental  Action.  No Governmental  Action by, and no
notice to or filing or registration with, any Governmental Authority is required
for the due  execution or delivery by Guarantor  of the  Operative  Documents to
which it is a party and no Governmental Action by, and no notice to or filing or
registration   with,  any  Governmental   Authority  is  required  for  the  due
performance  by Guarantor of its  obligations  under the Operative  Documents to
which it is a party, except for such Governmental Actions,  notices,  filings or
registrations  as have  been  duly  obtained  or made and are in full  force and
effect.  There is no proceeding  pending or, to the best knowledge of Guarantor,
threatened  which seeks, or may reasonably be expected,  to rescind,  terminate,
modify or suspend any such Governmental Action.

                  (d) Validity.  The Operative Documents to which Guarantor is a
party have been duly  authorized,  executed  and  delivered  by  Guarantor,  and
assuming that each such agreement is the valid,  legal and binding obligation of
each other party thereto,  each such agreement  constitutes the legal, valid and
binding  obligation of Guarantor,  enforceable in accordance with its respective
terms,   except  as  enforceability   thereof  may  be  limited  by  bankruptcy,
insolvency,  reorganization  or similar laws or equitable  principles of general
application to or affecting the enforcement of creditors rights.

                  (e)  Litigation.  Except as set forth in  Schedule  IV hereto,
there are no suits or proceedings pending, or to the best knowledge of Guarantor
threatened, against or affecting Guarantor or any of its assets before any court
or Governmental  Authority,  which,  individually or in aggregate,  if adversely
determined,  could reasonably be expected to have a Material Adverse Effect with
respect to  Guarantor  or affect the  legality  of this  Agreement  or any other
Operative Document.

                                       18
<PAGE>
                  (f) No Prohibited  Transaction.  Neither (i) the execution and
delivery of the Operative  Documents and the  consummation  of the  transactions
contemplated  thereunder nor (ii) the  acquisition by the Owner  Participants of
the  beneficial  interest  in the Trust  Estate,  will  involve  any  non-exempt
prohibited  transaction  within the  meaning of Section  406 of ERISA or Section
4975  of the  Code  as in  effect  on the  Basic  Term  Commencement  Date  (the
representation  in this sentence  being made in reliance upon and subject to the
accuracy of the  representations  contained in or made by each Owner Participant
in Section 4.03(f)).

                  (g)  ERISA  Funding.  Guarantor  has met its  minimum  funding
requirements  under ERISA with respect to each of its employee  pension or other
benefit  plans subject to Title IV of ERISA or to which Section 412 of the Code,
as in effect on the Basic Term Commencement Date, applies and has not incurred a
material  liability to the PBGC in connection  with any such plan other than for
premiums payable pursuant to Section 4007 of ERISA.

                  (h)  Chief Executive  Office.  The chief executive  office (as
such term is used in  Article 9 of the UCC) of  Guarantor  is  located  in 10100
Reisterstown Road, Owings Mills, Maryland 21117-3815.

                  (i) Taxes.  All United States,  state and local Taxes, if any,
due and  payable  on or  prior  to the  Closing  Date  in  connection  with  the
execution,  delivery,  recording,  and filing of the Operative  Documents and in
connection  with the purchase and sale of the  Equipment on the Closing Date and
consummation  of the  transactions  contemplated to occur on the Closing Date by
the Operative Documents, have been paid in full.

                  (j) Investment Company Act. Guarantor is  not  an  "investment
company"  or a company  "controlled"  by an  "investment  company",  within  the
meaning of the Investment Company Act of 1940, as amended.

                  (k) Environmental Notices. Except  as  described  on  Schedule
V hereto,  Guarantor has received no notice of any Environmental  Claim relating
to any Site.

                  (l) Disclosure.  All written information prepared by Lessee or
Guarantor and furnished to the Owner  Participants  by or on behalf of Lessee or
Guarantor in connection  with the Operative  Documents  (including  any offering
material prepared by Lessee or Guarantor and delivered by or on behalf of Lessee
or Guarantor  prior to the Closing Date  (including  information  and  materials
prepared  by Lessee or  Guarantor  and  delivered  to General  Electric  Capital
Corporation or GECC Capital Markets Group,  Inc.)),  does not contain any untrue
statement  of a material  fact or omit any material  fact  required to be stated
therein  or  necessary  to make the  statements  made  therein,  in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.

                  (m) No  Public  Offering.  Neither  Guarantor  nor any  Person
acting on its behalf has directly or indirectly  offered or sold any interest in
the Equipment or the Lease, or any securities similar thereto,  or has otherwise
approached or negotiated with any Person with respect thereto,  so as to require
the  registration  of any  "security"  offered  or sold in  connection  with the
transactions  contemplated hereby under Section 5 of the Securities Act of 1933,
as amended.

                                       19
<PAGE>
                  SECTION 4.03.  Representations  and  Warranties  of the  Owner
Participants.  Each Owner  Participant  as to itself  represents and warrants to
each of the other parties hereto with respect to itself, as follows:

                  (a)  Organization.  It is a  corporation  duly  organized  and
validly  existing in good  standing  under the laws of the  jurisdiction  of its
organization, and has the requisite power and authority to carry on its business
as now conducted,  to own or hold under lease its properties,  and to enter into
and perform  its  obligations  under the  Operative  Documents  to which it is a
party.

                  (b) Due Authorization,  Non-Contravention, etc. The execution,
delivery and performance of the Operative  Documents to which it is a party have
been duly authorized by all necessary corporate action on the part of such Owner
Participant,  do not require  any  approval or consent of any Person not already
obtained, including any trustee or holders of any indebtedness or obligations of
such  Owner  Participant,  do not and  will not  conflict  with,  result  in any
violation  of, or  constitute  any default  under,  any  provision of any of its
Organic Documents or Contractual Obligations or any Applicable Laws or result in
the creation of any Lien (other than Liens  provided for or otherwise  permitted
in the Operative Documents) upon the Trust Estate.

                  (c) Validity.  The Operative  Documents to which it is a party
have been duly  executed and delivered by such Owner  Participant,  and assuming
that each such  agreement  is the valid,  legal and binding  obligation  of each
other  party  thereto,  each such  agreement  constitutes  the legal,  valid and
binding obligation of such Owner Participant, enforceable in accordance with its
terms,   except  as  enforceability   thereof  may  be  limited  by  bankruptcy,
insolvency,  reorganization  or similar laws or equitable  principles of general
application to or affecting the enforcement of creditors rights.

                  (d) Securities Act;  Brokers.  Neither such Owner  Participant
nor any Person  acting on its behalf  (with  such  Owner  Participant's  written
authorization)  has directly or  indirectly  offered or sold any interest in the
Equipment, the Trust Estate, or the Lease, or any securities similar thereto, or
has otherwise  approached or negotiated with any Person with respect thereto, so
as to require the  registration  of any security  offered or sold in  connection
with the transactions  contemplated hereby under Section 5 of the Securities Act
of 1933,  as amended.  It is acquiring its interest in the Equipment for its own
account for investment  and not with a view to, or for sale in connection  with,
any distribution thereof, provided, that the disposition of its properties shall
at all times be and remain  within its control.  It has not retained or employed
any broker or finder to act on its behalf in  connection  with the  transactions
contemplated  by the Operative  Documents and has not  authorized  any broker or
finder retained or employed by any other Person so to act.

                  (e) Lessor  Liens.  The  Equipment  is free  of  Lessor  Liens
attributable to such Owner Participant.

                  (f)  ERISA.  No part of the funds to be used by it to  acquire
any interest in the Equipment  constitutes assets of any "employee benefit plan"
(as such term is defined in

                                       20
<PAGE>
Section  3(3) of  ERISA)  or any  "plan"  (as such term is  defined  in  Section
4975(e)(1) of the Code).

                  (g) Investment  Decision.  Such Owner Participant has made its
own credit  analysis of Lessee and  Guarantor and the  investment  decision with
respect  to the  transactions  contemplated  hereby  without  reliance  upon any
information regarding Lessee,  Guarantor,  the Equipment,  the Collateral or any
other matter provided by any other Owner Participant or Owner Trustee.

                  (h)  Investment  Company Act.  Such Owner  Participant  is not
an "investment  company" or a company  "controlled" by an "investment  company",
within the meaning of the Investment Company Act of 1940, as amended.

                  (i)  Governmental  Action.  No Governmental  Action by, and no
notice to or filing or registration with, any Governmental Authority is required
for the due  execution or delivery by such Owner  Participant  of the  Operative
Documents to which it is a party and no Governmental Action by, and no notice to
or filing or registration  with, any Governmental  Authority is required for the
due performance by such Owner Participant of its obligations under the Operative
Documents to which it is a party.

                  (j) No Default.  Such Owner  Participant  is not in default on
its obligations pursuant to Opererative Documents.

                  (k)  Litigation.  There are no actions,  suits or  proceedings
pending, or to its knowledge  threatened,  against such Owner Participant in any
court or before any Governmental  Authority  enjoining or challenging or seeking
to enjoin or challenge the  execution,  delivery and  performance  by such Owner
Participant of the Operative Documents to which it is a party.

                  SECTION 4.04.  Representations   and    Warranties   of  Owner
Trustee.  Trust  Company  represents  and warrants to each of the other  parties
hereto that:

                  (a)  Organization.  It is a national banking  association duly
organized and validly  existing in good standing under the laws of United States
of America,  holding a valid  certificate  to do business as a national  banking
association  with  trust  powers,  and has all  requisite  corporate  power  and
authority and legal right to execute,  deliver and perform its obligations under
the  Trust  Agreement  and  this  Agreement  (to the  extent  that  it  contains
representations,   warranties  and  covenants  made  by  it  in  its  individual
capacity),  and (assuming due authorization  execution and delivery of the Trust
Agreement  by the Owner  Participants)  has all  requisite  corporate  power and
authority as Owner Trustee to execute and deliver the other Operative  Documents
to which it is a party.

                  (b) Due Authorization and Validity. It has taken all corporate
action  necessary to  authorize  the  execution  and delivery by it of the Trust
Agreement and of this Agreement (to the extent that it contains representations,
warranties  and  covenants  made by it in its  individual  capacity),  and  such
agreements  have been  executed and delivered by one of its officers who is duly
authorized  to execute  and deliver  such  agreements  on its  behalf,  and such

                                       21
<PAGE>
agreements,  assuming that each such  agreement is the legal,  valid and binding
obligation of each other party thereto,  constitute its legal, valid and binding
obligation,  enforceable against it in accordance with the terms thereof, except
as   enforceability   thereof   may  be  limited  by   bankruptcy,   insolvency,
reorganization  or  other  similar  laws  or  equitable  principles  of  general
application to or affecting the  enforcement of creditors  rights.  It (assuming
due  authorization,  execution and delivery of the Trust  Agreement by the Owner
Participants), acting as Owner Trustee, has taken all corporate action necessary
to authorize  the  execution  and delivery by it of the  Operative  Documents to
which it is a party, and each Operative  Document executed by it in its capacity
as Owner  Trustee has been  executed and delivered by one of its officers who is
duly authorized to execute and deliver such Operative  Document on its behalf in
such  capacity,   and  constitutes  Owner  Trustee's  legal  valid  and  binding
obligation,  enforceable  against  Owner  Trustee,  solely  in its  capacity  as
trustee, in accordance with the terms thereof.

                  (c)  Non-Contravention.  Neither the execution and delivery by
Trust Company of the Trust Agreement or of this Agreement (to the extent that it
contains representations,  warranties and covenants made by it in its individual
capacity),  nor the  consummation  by it of the actions  contemplated  hereby or
thereby to be taken by it in its  individual  capacity,  nor compliance by it in
its individual  capacity with any of the terms or provisions  thereof binding on
it in its individual capacity will require any stockholder approval, or approval
or  consent  of, or notice  to,  any  trustee  or  holders  of  indebtedness  or
obligations of it or contravene any judgment or order binding on it,  constitute
a default under or  contravene or result in any breach of its Organic  Documents
or  Contractual  Obligations  or any Trust  Company or Federal law governing its
banking,  trust or  fiduciary  powers or result in the creation of a Lien on the
property of Trust  Company.  Neither  the  execution  and  delivery by it in its
capacity as Owner Trustee (assuming due authorization, execution and delivery of
the Trust Agreement by the Owner Participants) of any of the Operative Documents
to  which  it is a  party,  nor  the  consummation  by it  of  the  transactions
contemplated  thereby nor  compliance  by it with any of the terms or provisions
thereof will  require any  stockholder  approval,  or approval or consent of, or
notice to, any trustee or holders of  indebtedness  or  obligations of it or any
other  Person or  contravene  any judgment or order  binding on it  constitute a
default under or contravene or result in any breach of its Organic  Documents or
Contractual Obligations or any Connecticut or Federal law governing its banking,
trust or fiduciary powers or result in the creation of a Lien on the property of
Trust Company.

                  (d)  Approval.  Neither the  execution  and  delivery by Trust
Company  of the  Trust  Agreement  and this  Agreement  (to the  extent  that it
contains representations,  warranties and covenants made by it in its individual
capacity)  requires  the  consent or approval of or the giving of notice to, the
registration  with,  or the  taking  of any  other  action in  respect  of,  any
Connecticut  or Federal  Governmental  Authority  governing the banking or trust
powers of Trust Company. Neither the execution and delivery by it in is capacity
as Owner  Trustee  (assuming  due  authorization,  execution and delivery of the
Trust Agreement by the Owner Participant) of each of the Operative  Documents to
which it is a party, requires the consent or approval of or the giving of notice
to, the  registration  with or the taking of any other action in respect of, any
Connecticut or Federal  Governmental  Authority governing the banking,  trust or
fiduciary powers of Trust Company.

                                       22
<PAGE>
                  (e)  Location.  The chief place of  business  (as such term is
used in Article 9 of the UCC) of Owner Trustee is 225 Asylum  Street,  Hartford,
Connecticut.

                  (f)  Title.  On the  Closing  Date  Owner  Trustee  will  have
whatever  interest in the Trust Estate and whatever  rights to and  interests in
the Lease and the Lease  Supplements as were granted or conveyed to it, free and
clear of any Lessor Liens attributable to Trust Company.

                                    ARTICLE V

                                    Covenants
                                    ---------

                  SECTION 5.01. No Lessor Liens. Each of the Owner  Participants
and Trust  Company  agrees,  as to itself  only,  that it shall not  directly or
indirectly create,  incur, assume or suffer to exist any Lien (except such Liens
being  contested in a Permitted  Contest) on, or disposition of its interest in,
the  Equipment  that  results  from (A) claims  against such Person or the Trust
Estate not related to the  Transactions,  (B) any affirmative act of such Person
to create such a Lien,  other than as contemplated  by the Operative  Documents,
that is not consented to by Lessee and the Owner Participants,  nor, in the case
of Owner Trustee,  expressly  directed by the Owner Participant  pursuant to the
terms of the Trust  Agreement,  (C) its acts not permitted by, or its failure to
take any action required to be taken by it under, the Operative Documents or (D)
claims  against it or  attributable  to it relating to Taxes which are  excluded
from the  indemnification  provided by Article VII  pursuant to said Article VII
(and all such  Liens,  including  Liens  which  result  from acts of a Person or
claims against a Person being deemed  "attributable to" such Person for purposes
of this Section 5.01, being referred to herein as "Lessor  Liens").  Each of the
Owner  Participants  and Trust Company  agrees that it will, at its own cost and
expense,  with  respect to any Lessor  Lien to the  extent  attributable  to it,
promptly  take such action as may be necessary to discharge  and release in full
such Lessor Lien.

                  SECTION 5.02.         Further Assurances, etc.

                  (a) Lessee. Lessee will, at its expense,  cause to be promptly
and duly taken,  executed,  acknowledged  or delivered  all such  further  acts,
conveyances,  documents  and  assurances  as Owner  Trustee  or any of the Owner
Participants  may,  from  time  to  time,   reasonably  request  in  order  more
effectively to carry out the intent and purposes of this Agreement and the other
Operative Documents and the Transactions. Without limiting the generality of the
foregoing, Lessee shall, at its expense:

                  (i) at least 90 days  prior  to the  last  date on which  such
         financing statements, continuation statements, recordings or filings as
         are  necessary to maintain  perfection,  furnish to Owner  Trustee such
         continuation  statements,  duly and properly completed,  and such other
         information  as  shall  be  necessary  to  preserve  and  maintain  the
         perfection of the security interests that are intended to be created by
         the Lease or the other Operative  Documents and the ownership  interest
         of Owner Trustee in the Equipment;

                  (ii)keep  its  corporate  records  concerning  the  Lease  and
         the  Equipment at its chief  executive  office as set forth in  Section
         4.01(p);

                                       23
<PAGE>
                  (iii) cause the Lease and all Lease Supplements to be promptly
         filed and  recorded,  or filed for  recording,  to the extent  required
         under any Applicable Laws; and

                  (iv) notify Owner  Trustee  prior to changing  its  registered
         office or name and shall,  immediately  after such change in registered
         office or name, register such change in the records of the Secretary of
         State of the State of Connecticut.

                  (b) Owner Trustee.  Owner Trustee shall,  promptly, but in any
event within 5 Business  Days of receipt  thereof,  execute and return to Lessee
for  filing,  any  financing  statements,   continuation  statements,  or  other
documentation  required  pursuant  to the  Operative  Documents  to perfect  the
interests of the Lessor,  including pursuant to Sections 9.01, 9.05 and 18.01 of
the  Lease.  Owner  Trustee  will  keep its  corporate  records  concerning  the
Equipment  and the  Operative  Documents  at its chief  place of business as set
forth in Section  4.04(e)  hereof,  and it hereby  agrees to  provide  notice to
Lessee and the Owner  Participants  of any change in the  location  of its chief
place of business not later than 30 days prior to such change.

                  SECTION 5.03. Lessee To Defend Rights of Owner Trustee. Lessee
covenants  to Owner  Trustee  and each Owner  Participant  that it will,  at all
times,  at its own cost and  expense,  warrant  and  defend  the rights of Owner
Trustee to the Equipment  against any Liens (other than Permitted  Liens), of or
against Lessee and all other Persons claiming through Lessee.

                  SECTION 5.04. Business of Owner Trustee. The business of Owner
Trustee is and will  continue to be  restricted  to owning the Equipment and the
leasing  of  the  Equipment   pursuant  to  the  Operative   Documents  and  the
Transactions  and it will  not  engage,  and it has not  engaged,  in any  other
business  transaction  except for matters reasonably  incidental,  to any of the
foregoing.

                  SECTION  5.05.  Trust  Agreement.  Owner Trustee and the Owner
Participants agree that (unless a Lease Event of Default shall have occurred and
be continuing)  until  expiration or earlier  termination of the Lease they will
not terminate or revoke the Trust Agreement without the prior written consent of
Lessee and Guarantor.  Each Owner  Participant  agrees that it will not instruct
Owner  Trustee  pursuant to this  Agreement or any other  Operative  Document or
otherwise  to take any action or  refrain  from  taking  any action  which is in
violation  of the  rights  of  any  party  hereto  under  any  of the  Operative
Documents;  provided further,  however, that notwithstanding the foregoing, such
approval  shall not be required for any amendment or  supplement  (a) solely for
the purpose of appointing an additional or separate  trustee pursuant to Section
10.02  hereof,  or (b)  pursuant  to which a transfer  is  effected  pursuant to
Article X hereof,  provided such  transfer is effected in  accordance  with such
provisions.  Owner Trustee and each Owner  Participant  agree that they will not
amend any provision of the Trust Agreement so as to adversely affect Lessee.

                  SECTION 5.06. Books and Records.  Each of Lessee and Guarantor
shall  maintain  (and  shall  cause  each of their  respective  Subsidiaries  to
maintain),  at all times,  correct and complete  books,  records and accounts in
which complete (in all material  respects),  correct and timely entries are made
of its  transactions  in  conformity  with past  practices.  Each of Lessee  and
Guarantor shall (and shall cause each of their respective  Subsidiaries  to), by
means of

                                       24
<PAGE>
appropriate  entries,  reflect in such accounts and in all financial  statements
proper  liabilities  and  reserves  for  all  taxes  and  proper  provision  for
depreciation  and amortization of property and bad debts, all in accordance with
GAAP. Each of Lessee and Guarantor shall maintain (and shall cause each of their
respective  Subsidiaries to maintain) at all times books and records  pertaining
to the  Equipment  or the  Collateral  in such  detail,  form and scope as Owner
Trustee or any Owner Participant shall reasonably  require,  including,  but not
limited to, records of (a) all payments  received and all credits and extensions
granted with respect to the Accounts; (b) the return, rejections,  repossession,
stoppage in transit, loss, damage, or destruction of any Inventory;  and (c) all
other dealings affecting the Equipment or the Collateral.

                  SECTION  5.07.  Financial  Information.  Each  of  Lessee  and
Guarantor shall promptly furnish to each Owner Participant, all such information
as Owner Trustee or any Owner Participant shall reasonably  request from time to
time  regarding  the  financial  and  business   affairs  of  Guarantor  or  any
Subsidiary.  Without  limiting the foregoing,  each of Lessee and Guarantor will
furnish to each Owner Participant, the following:

                  (a) As soon as  available,  but in any event not later than 90
days after the close of each Fiscal Year,  consolidated  audited balance sheets,
and related  statements  of income and expense,  cash flow and of  stockholders'
equity for  Guarantor  and its  consolidated  Subsidiaries  (and Lessee,  to the
extent that they are available) for such Fiscal Year, and the accompanying notes
thereto, setting forth in each case in comparative form figures for the previous
Fiscal  Year,  all in  reasonable  detail,  fairly  presenting  in all  material
respects the  financial  position and the results of operations of Guarantor and
its  consolidated  Subsidiaries  (and  Lessee,  to  the  extent  that  they  are
available)  as at the date  thereof  and for the  Fiscal  Year then  ended,  and
prepared  in  accordance  with  GAAP.  Such  statements  shall  be  examined  in
accordance  with generally  accepted  auditing  standards by and, in the case of
such  statements  prepared  on a  consolidated  basis,  accompanied  by a report
thereon  unqualified  as to  scope  of  Deloitte  &  Touche  LLP or  such  other
independent  certified public  accountants  selected by Guarantor and reasonably
satisfactory to Owner Trustee.

                  (b) As soon as  available,  but in any event not later than 45
days after the close of each fiscal  quarter other than the fourth  quarter of a
Fiscal  Year,  consolidated  unaudited  balance  sheets  of  Guarantor  and  its
consolidated  Subsidiaries  as at the  end of  such  quarter,  and  consolidated
unaudited  statements  of income and  expense  and  statement  of cash flows for
Guarantor and its consolidated  Subsidiaries for such quarter and for the period
from  the  beginning  of the  Fiscal  Year to the end of  such  quarter,  all in
reasonable  detail,  fairly  presenting  in all material  respects the financial
position and results of operation of Guarantor and its consolidated Subsidiaries
as at the date thereof and for such periods,  prepared in  accordance  with GAAP
consistent  with the  audited  Financial  Statements  required  to be  delivered
pursuant to Section  5.07(a) (except for the absence of footnotes and subject to
normal year-end adjustments). Guarantor shall certify by a certificate signed by
its chief  financial  officer or treasurer  that all such  statements  have been
prepared in  accordance  with GAAP and present  fairly in all material  respects
(except for the absence of footnotes and subject to normal year-end adjustments)
Guarantor's  financial  position  as at the dates  thereof  and its  results  of
operations for the periods then ended.

                                       25
<PAGE>
                  (c) Within 10 days after the  incurrence  of Debt  (other than
Permitted Debt,  under clause (a) and (b) of such definition and any refinancing
or  refunding  thereof)  pursuant to Section  5.09, a  certificate  of the chief
financial  officer or treasurer of Lessee (i) setting out in  reasonable  detail
the nature and amount of such Debt, and (ii) stating that Lessee is, at the date
of such  certificate,  in compliance in all material  respects with Section 5.09
hereof.

                  (d) Within 45 days  after the end of each  fiscal  quarter,  a
certificate  of the chief  financial  officer or treasurer of Lessee (i) setting
forth in reasonable  detail the  calculations  required to establish that Lessee
was in compliance with the covenants set forth in Section 5.10 during the period
covered in such Financial Statements, and (ii) stating that, except as explained
in  reasonable  detail in such  certificate,  (A) Lessee is, at the date of such
certificate,  in compliance in all material  respects with all of its respective
covenants and  agreements in this Agreement and the other  Operative  Documents,
and (B) no Lease Default or Lease Event of Default then exists or existed during
the period covered by such Financial  Statements.  If such certificate discloses
that a representation or warranty was not correct or complete when made, or that
a covenant has not been complied with, or that a Lease Default or Lease Event of
Default existed or exists,  such certificate  shall set forth what action Lessee
has taken or proposes to take with respect thereto.

                  (e) No later than 90 days after the  beginning  of each Fiscal
Year,  annual  budgets  (to  include  budgeted   consolidated   balance  sheets,
statements of income and expenses and statements of cash flow) for Guarantor and
its consolidated Subsidiaries as at the end of and for each month of such Fiscal
Year.

                  (f) Promptly upon the filing thereof, copies of all regular or
periodic  reports,  if any, to or other documents filed by Lessee,  Guarantor or
any of its  Subsidiaries  with the Securities and Exchange  Commission under the
Exchange Act of 1934, as amended.

                  (g)  Promptly  after filing with the  Securities  and Exchange
Commission, copies of any and all regular, periodic reports filed by Fonda.

                  SECTION 5.08.  Other  Notices of Lessee.  Lessee or  Guarantor
shall  notify  Owner  Trustee  and the Owner  Participants,  in  writing  of the
following matters at the following times:

                  (a) Promptly  after  becoming  aware of the  attachment of any
Lien to the  Equipment or any  Collateral  (other than a Lessor Lien,  Permitted
Lien or Permitted  Encumbrance)  the full  particulars  thereof  unless the same
shall have been removed or discharged by Lessee or any other Person.

                  (b)  Promptly  after  becoming  aware  of any  condition  that
constitutes  a Lease  Default or a Lease  Event of  Default or an  Environmental
Claim.

                  (c)  Promptly  after  becoming  aware of the  assertion by the
holder of any capital stock of Guarantor, Lessee or any Subsidiary thereof or of
any  Debt  of  Guarantor  or any of its  Subsidiaries  or  Lessee  or any of its
Subsidiaries in excess of $10,000,000 that a default exists with respect thereto
or that  Guarantor,  Lessee or any Subsidiary  thereof is not in

                                       26
<PAGE>
compliance with the terms thereof,  or the actual threat or commencement by such
holder  of  any  enforcement   action  because  of  such  asserted   default  or
non-compliance.

                  (d)  Promptly  after  becoming  aware of any pending or actual
threatened  action,  suit,  proceeding,  or counterclaim  by any Person,  or any
pending or actual threatened  investigation by a Governmental  Authority,  which
may affect the  Equipment or the PPE  Collateral,  Owner  Trustee's or any Owner
Participant's rights under the Operative Documents,  or the property,  business,
operations,  or condition (financial or otherwise) of Lessee and Guarantor taken
as a whole and which is required to be  disclosed  under United  States  federal
securities laws (whether or not Lessee or Guarantor is subject to such laws).

                  (e) Promptly  after  receipt of any notice of any violation by
Guarantor  or any of  its  Subsidiaries  of any  Environmental  Law  where  such
violation could reasonably be expected to have a Material Adverse Effect or that
any Governmental Authority has asserted that Guarantor or any Subsidiary thereof
is not in compliance with any Environmental Law or is investigating  Guarantor's
or such Subsidiary's  compliance  therewith which, in either case, is reasonably
likely to give rise to liability in excess of $100,000.

                  (f)  Promptly   after  receipt  of  any  written  notice  that
Guarantor  or any of its  Subsidiaries  is or may be liable  to any  Person as a
result of the  release or  threatened  release  of any  Hazardous  Substance  or
Guarantor or any  Subsidiary  is subject to  investigation  by any  Governmental
Authority  evaluating  whether any  remedial  action is needed to respond to the
release or threatened release of any Hazardous  Substance which, in either case,
is reasonably likely to give rise to liability in excess of $250,000.

                  (g) Any change in Lessee's name,  state of  incorporation,  or
form of  organization  or trade names under which Lessee will sell  Inventory or
create  Accounts,  or to which  instruments  in payment of Accounts  may be made
payable, in each case at least 30 days prior thereto.

Each notice given under this Section shall  describe the subject  matter thereof
in reasonable  detail,  and shall set forth the action Lessee,  Guarantor or any
Subsidiary  thereof,  as applicable,  has taken or proposes to take with respect
thereto.

                  SECTION 5.09. Indebtedness.  Neither Lessee, Guarantor nor any
of their Subsidiaries shall incur any Debt other than Permitted Debt,  provided,
however,  that if and so long as Lessee's  senior  secured debt rating is either
Baa3 by Moody's or BBB- by S&P,  or better,  and only if at Baa3 and BBB- is not
on a negative  credit  watch,  Lessee can incur Debt without  restriction.  Upon
subsequent  loss of such  rating,  Lessee  shall  again  become  subject  to the
foregoing restrictions on Debt incurrence.

                  SECTION 5.10.  Restricted  Payments.   Subject  to  the  other
provisions  of this Section 5.10,  Lessee and  Guarantor  will not, and will not
permit any of their Subsidiaries to, directly or indirectly:

                                       27
<PAGE>
                  (a) declare or pay any  dividend or make any  distribution  on
account  of the  Equity  Interests  of  Guarantor,  the  Lessee  or any of their
Subsidiaries (other than dividends or distributions  payable in Equity Interests
(other than any Disqualified Stock) or dividends or distributions payable by any
Subsidiary  of Guarantor to Guarantor,  Lessee or any direct or indirect  wholly
owned Subsidiary);

                  (b) purchase,  redeem or otherwise acquire or retire for value
any Equity  Interest  in  Guarantor  or any  Subsidiary  or other  Affiliate  of
Guarantor, other than investments in Subsidiaries and purchases,  redemptions or
other  acquisitions of Equity Interests of Guarantor  effected with other Equity
Interests of Guarantor or with the substantially simultaneous application of the
net cash proceeds received from the sale of Equity Interests; and

                  (c) purchase,  redeem,  defease or otherwise acquire or retire
for value, prior to any scheduled  maturity,  repayment or sinking fund payment,
any Debt that is subordinated  in right of payment to the Lease,  other than any
such  purchase,  redemption,  defeasance or retirement  effected (A) with Equity
Interests  (other  than  Disqualified  Stock)  of  Guarantor,  or (B)  with  the
substantially  simultaneous  application  of the  aggregate  net  cash  proceeds
received by Guarantor from the sale of Equity Interest (other than  Disqualified
Stock),  provided that such net cash proceeds  shall be excluded for purposes of
clause (C)(z) below, or (C) unless Lessee's senior secured debt rating is either
Baa3 by Moody's or BBB- by S&P,  or better,  and only if at Baa3 and BBB- is not
on a negative  credit watch,  with Debt which is Permitted Debt under clause (i)
of the definition  thereof,  which Debt shall be subordinated to the same extent
as the Debt being prepaid; and

(all such dividends, distributions,  purchases, redemptions, other acquisitions,
retirements,  prepayments  or  defeasances  set forth in clauses (a) through (c)
above being collectively  referred to as "Restricted  Payments"),  unless at the
time of such Restricted Payments:

                  (A) no Lease Default or  Lease  Event of  Default  shall  have
               occurred  and  be  continuing  or  shall  occur  as a consequence
               thereof;

                  (B) Guarantor's Pro Forma Fixed Charge  Coverage Ratio for the
               four  fiscal  quarters  immediately  preceeding  the date of such
               Restricted Payment is made shall be greater than 2.0 to 1; and

                  (C) such  Restricted Payment, together  with the aggregate  of
               all other  Restricted  Payments made after August 30, 1993, shall
               not exceed the sum of $5,000,000 plus (x) 50% of the Consolidated
               Net Income of Guarantor  (determined  by excluding cash dividends
               received  by  Guarantor  or its direct or indirect  wholly  owned
               Subsidiaries from an Unrestricted  Subsidiary  included in clause
               (y)) for the period (taken as one accounting  period)  commencing
               on  the  first  day  of  the  first  fiscal  quarter  immediately
               following  August 30, 1993 through the end of Guarantor's  fiscal
               quarter ending  immediately  prior to the time of such Restricted
               Payment  (or,  if  Consolidated  Net Income for such  period is a
               deficit,  100%  of such  deficit),  (y) the  amount  of all  cash
               dividends  received by Guarantor or any of its direct or indirect
               wholly owned Subsidiaries from an Unrestricted Subsidiary and the
               amount  of the cash  realized  upon

                                       28
<PAGE>
               the sale of an  Unrestricted  Subsidiary  (less the amount of any
               reserve established for purchase price adjustments,  and less the
               maximum  amount  of any  indemnification  or  similar  contingent
               obligation,  for  the  benefit  of  the  purchaser,  any  of  its
               Affiliates or any other third party in such sale, in each case as
               adjusted  for any  permanent  reduction  in any such amount on or
               after the date of such  sale,  other  than by virtue of a payment
               made to any such person) subsequent to the first day of the first
               fiscal quarter immediately  following August 30, 1993 and (z) the
               aggregate net cash proceeds (and non-cash proceeds when converted
               into cash) received by Guarantor from the issue or sale after the
               date of this  Agreement of Equity  Interests of Guarantor  (other
               than Equity Interests issued or sold to Lessee or a Subsidiary of
               Guarantor  and  other  Disqualified  Stock) or  contributions  of
               capital to Guarantor paid in cash.

Notwithstanding  anything to the contrary  contained  herein,  the provisions of
this Section  5.10 shall not prohibit (i) the payment of any dividend  within 60
days after the date of declaration  thereof, if at said date of declaration such
payment would have complied with the  provisions of this  Agreement;  (ii) if no
Lease  Default or Lease Event of Default  shall have  occurred and be continuing
(and shall not have been waived) or shall occur as a  consequence  thereof,  the
payment by Guarantor and Lessee of a management fee to SF Holdings Inc. pursuant
to the  management  services  agreement,  dated August 30, 1993,  among  Lessee,
Guarantor and American Industrial Partners Management Company,  Inc., as amended
and restated (the  "Management  Services  Agreement") in an amount not to exceed
$1,850,000 in any year (payable semi-annually) plus an additional amount in such
year  (not to exceed  $1,000,000)  to the  extent  such  management  fee was not
payable  by  reason of this  clause  (ii) in any prior  fiscal  year;  provided,
however,  that the obligation of Guarantor and Lessee to pay such management fee
will be  subordinated  to the  payment of all  obligations  of Lessee  under the
Operative  Documents (the "Obligations") (and any guarantee thereof) to at least
the same  extent as the payment of all  obligations  of Lessee in respect of the
"Senior  Subordinated  Notes" are  subordinated  to the prior payment of "Senior
Indebtedness" (each as defined in the Senior Subordinated Note Indenture), (iii)
the repurchase or redemption or other acquisition or retirement for any value of
any Equity  Interests of Guarantor held by any member of Guarantor's  (or any of
its  Subsidiaries')  management  pursuant to any management equity  subscription
agreement or stock option  agreement in effect as of the date of this Agreement;
provided,  however,  that the  aggregate  price  paid for all such  repurchased,
redeemed,  acquired or retired Equity  Interests shall not exceed  $1,000,000 in
any fiscal year;  and provided,  further,  that the  obligation of Guarantor and
Lessee to pay such  purchase  price will be  subordinated  to the payment of all
Obligations  (and any  guarantee  thereof)  to at least  the same  extent as the
payment of all  obligations  of Lessee in respect  of the  "Senior  Subordinated
Notes" are  subordinated  to the prior  payment of "Senior Net  Proceeds" of any
"Asset Sale" to redeem the Senior  Subordinated  Notes or the  redemption of the
Senior  Subordinated  Notes following a "Change of Control" (in each case, after
the  early  termination  or  satisfactory  defeasance  of  the  Obligations  and
prepayments of  obligations  and/or  reductions of commitments  under the Credit
Agreement and other "Senior  Indebtedness")  in accordance with the "Asset Sale"
and "Change of Control" covenants in the Senior Subordinated Note Indenture. Any
payments made  pursuant to clauses (i) and (iii) of the preceding  sentence will
be deemed to be, and clause (ii) of the preceding sentence will not be deemed to
be,  Restricted  Payments  for  the  purposes  of  clause  (C) of the  preceding
paragraph.

                                       29
<PAGE>
                  Not later  than the date of  making  any  Restricted  Payment,
Guarantor  and  Lessee  shall  jointly  deliver to Owner  Trustee  an  Officers'
Certificate  stating that such Restricted Payment is permitted and setting forth
the basis upon which the required calculations were computed, which calculations
may be based upon Guarantor's latest available  consolidated  internal quarterly
financial statements.

For purposes of this Section 5.10 only,  the terms below shall have the meanings
defined:

         "Asset  Sale"  means,  with  respect to any  person,  the sale,  lease,
conveyance,  disposition or other transfer that does not constitute a Restricted
Payment or an  Investment  by such  person of any of its assets  other than cash
(including by way of a  sale-leaseback  transaction  and including the issuance,
sale or other  transfer of any of the capital  stock of any  Subsidiary  of such
person) other than to  Guarantor,  the Lessee or any of their direct or indirect
wholly owned  Subsidiaries that is not a Receivables  Subsidiary  (including the
receipt of proceeds of insurance paid on account of the loss of or damage to any
asset and awards of compensation  for any asset taken by  condemnation,  eminent
domain or similar proceeding,  and including the receipt of proceeds of business
interruption  insurance);  provided that notwithstanding the foregoing, the term
"Asset Sale" shall not include (i) the sale, lease,  conveyance,  disposition or
other  transfer of all or  substantially  all of the assets of  Guarantor or the
Lessee, as permitted pursuant to Section 5.11 hereof,  (ii) the sale or lease of
inventory  or  accounts  in the  ordinary  course of  business,  (iii) the sale,
conveyance,  disposition or other  transfer of capital stock of an  Unrestricted
Subsidiary, (iv) the sale or lease of assets in any one transaction or series of
related  transactions (which, in the case of any lease, shall be the annual (or,
for any period of less than one year,  annualized)  rental payments with respect
thereto), the Net Proceeds of which do not exceed $1,000,000;  provided that the
aggregate Net Proceeds of all such sales or leases  pursuant to this clause (iv)
shall not exceed  $8,000,000  (and if such Net Proceeds  exceed  $8,000,000 then
only such excess shall be deemed to  constitute  the proceeds of an Asset Sale);
provided,  further,  that the proceeds of sales or leases of assets  pursuant to
this clause (iv) which are reinvested by Guarantor or any of its Subsidiaries in
specified  assets  or a  specified  business  in the  same or  similar  lines of
business shall not be counted towards such $8,000,000 aggregate limitation,  (v)
the  surrender  or  waiver of  contract  rights or the  settlement,  release  or
surrender of contract,  tort or other claims of any kind,  (vi) the grant in the
ordinary course of business of any non-exclusive license of patents, trademarks,
registrations therefor and other similar intellectual  property,  (vii) sales of
accounts  receivable  and related assets of the type specified in the definition
of  "Qualified  Receivables  Transaction"  to the  extent not  constituting  (or
released  as) Credit  Agreement  Collateral  (as  defined  in the  Intercreditor
Agreement)  to a  Receivables  Subsidiary  for the fair  market  value  thereof,
including  cash in an amount at least equal to 75% of the book value  thereof as
determined in accordance  with GAAP and (viii) sales of accounts  receivable and
related assets of the type specified in the definition of "Qualified Receivables
Transaction"  by a  Receivables  Subsidiary  for the fair market value  thereof,
including  cash in an amount at least equal to 75% of the book value  thereof as
determined in accordance with GAAP. Lease payments  received shall be considered
sale proceeds for purposes of this definition;  provided that payments  received
with respect to operating leases of property or equipment  aggregating less than
$500,000  per annum shall not  constitute  sale  proceeds  for  purposes of this
definition.  For purposes of clauses (vii) and (viii) notes received in exchange
for the transfer of accounts  receivable shall be deemed cash

                                       30
<PAGE>
if the  Receivables  Subsidiary or other payor is require to repay said notes as
soon as practicable from available cash collections less accounts required to be
established as reserves pursuant to a contractual  agreements with entities that
are not Affiliates of Guarantor entered into as part of a Qualified  Receivables
Transaction.

         "Consolidated EBITDA" means, with respect to any Person for any period,
the sum of, without duplication,  (i) the Consolidated Net Income of such Person
for such period,  plus (ii) Fixed  Charges of such person for such period,  plus
(iii)  provisions  for Taxes  based on income or profits for such period (to the
extent such income or profits were included in computing Consolidated Net Income
of  such  person  for  such  period),   plus  (iv)  consolidated   depreciation,
amortization  and  other  non-cash  charges  of such  person  for  such  period,
including  any  expenses  paid by equity  holders of such person  required to be
reflected  as expenses on the books and records of such  person,  minus (v) cash
payments with respect to any  non-recurring,  non-cash charges  previously added
back pursuant to clause (iv).

         "Consolidated  Net Income"  means,  with  respect to any person for any
period,  the aggregate of the Net Income of such person and its Subsidiaries for
such period,  on a  consolidated  basis,  determined  in  accordance  with GAAP,
provided that (i) the Net Income of any  Receivables  Subsidiary  and any person
which  is  not  a  Subsidiary  (including  any  Unrestricted  Subsidiary)  or is
accounted for by the equity  method of accounting  shall be included only to the
extent of the amount of dividends or  distributions  paid to the referent person
or a  Subsidiary  of the  referent  person,  but not in excess of such  referent
person's or  Subsidiary's  pro rata share of such  person's  net income for such
period,  (ii) the Net Income of any person  acquired  in a pooling of  interests
transaction  for any  period  prior  to the  date of such  acquisition  shall be
excluded,  (iii) in the case of the Lessee,  the Net Income of Lily Canada shall
be included only to the extent of the amount of dividends or distributions  paid
to LCHC and (iv) Consolidated Net Income shall not include the Net Income of any
person  attributable  to any gain  (but not  loss),  together  with any  related
provision for taxes on such gain (but not loss), realized upon the sale or other
disposition  (including,  without limitation,  dispositions pursuant to sale and
leaseback  transactions) of any asset or property outside of the ordinary course
of business  (including  without  limitation any such sale or  disposition  that
would be accounted for as an extraordinary item in accordance with GAAP) and any
gain (but not loss)  realized upon the sale or other  disposition by such person
of any capital stock or marketable securities other than Cash Equivalents.

         "Fixed Charges" means,  with respect to any person for any period,  the
sum of (a) the  consolidated  interest  expense  (without  giving  effect to any
interest income) of such person,  whether paid or accrued (without duplication),
to the extent such expense was deducted in computing  Consolidated Net Income of
such  person  (including  amortization  or  original  issue  discount,  non-cash
interest  payments,  fees and  charges  with  respect to letters of credit,  the
interest  component of capital  leases and net  payments,  if any, in connection
with Hedging  Obligations,  but  excluding  amortization  of deferred  financing
fees), (b) the product of (i) all cash dividend  payments (and non-cash dividend
payments  in the  case  of a  person  that is a  Subsidiary)  on any  series  of
preferred  stock  of such  person  (except  as  provided  below),  times  (ii) a
fraction,  the  numerator  of which is one and the  denominator  of which is one
minus the then current

                                       31
<PAGE>
combined  federal,  state and local  statutory  income tax rate of such  person,
expressed as a decimal,  in each case, on a consolidated basis and in accordance
with GAAP. For purposes of this  definition,  preferred  stock shall not include
preferred  stock  which (i) by its terms  does not permit  dividends  to be paid
except  to the  extent  permitted  under  Section  5.10  hereof,  (ii)  makes no
provision  for  election of  directors by holders of such stock and (iii) is not
Disqualified Stock.

         "Guaranty"  means a guarantee  (other than by endorsement of negotiable
instruments  for  collection  or deposit in the  ordinary  course of  business),
direct or indirect,  in any manner (including,  without  limitation,  letters of
credit an reimbursement  agreements in respect  thereof),  or all or any part of
any Indebtedness.

         "Hedging  Obligations"  means,  with  respect  to any  person,  (i) the
obligations  of such person under interest rate swap  agreements,  interest rate
cap  agreements and interest rate collar  agreements,  (ii) the net cost to such
person of foreign exchange  contracts and currency  protection  arrangements and
(iii)  obligations  under other similar  agreements or arrangements  designed to
protect such person against fluctuations in interest rates or currencies.

         "Indebtedness" means, with respect to any Person, (without duplication)
any  indebtedness  of such Person whether or not  contingent,  (a) in respect of
borrowed money or evidence by bonds, notes debentures or similar  instruments or
(b) in  respect of letters of  credit(or  reimbursement  Obligations  in respect
thereof) or (c) represent the balance  deferred and unpaid of the purchase price
of any property  (including  pursuant to capital leases) or (d) representing any
Hedging  Obligations except any such balance that constitutes an accrued expense
or a trade  payable,  if and to the  extent  any of the  foregoing  indebtedness
(other than letters of credit or reimbursement Obligations in respect thereof or
Hedging  Obligation)  would appear as a liability  upon a balance  sheet of such
Person  prepared  on a  consolidated  basis in  accordance  with GAAP,  and also
includes to the extent not otherwise included, the Guaranty of items which would
be included with this definition.

         "Investment" means any direct or indirect advances (other than advances
to customers in the ordinary  course of business  which are recorded as accounts
receivable or short term notes  receivable on the balance sheet of any Person or
its Subsidiaries),  loan or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others of any payment for
property or  services  for the  account or use of  others),  or any  purchase or
acquisition  of Equity  Interest,  bonds,  notes (other than notes acquired from
customers in the ordinary  course of business),  debentures or other  securities
issued by any Person.

         "LCHC" means Lily Canada Holding Corporation,  a Delaware  corporation,
and the owner of all outstanding capital stock of Lily Canada.

         "Lily Canada" means Lily Cups Inc., a Canadian corporation.

         "Net Proceeds" means the aggregate cash proceeds received by Guarantor,
Lessee or any of the their Subsidiaries in respect of any Asset Sale, net of (i)
the direct costs  relating to such Asset Sale  (including,  without  limitation,
legal,  accounting and investment  banking fees, and sales  commissions  and the
expenses and fees associated  with make the Asset Sale),  (ii) any taxes

                                       32
<PAGE>
paid or payable as a result  thereof and after taking into account any available
tax credit or  deductions  arising  from such Asset Sale,  (iii) any reserve for
adjustment in respect of the sale price of such asset or assets required by GAAP
and (iv) repayment of any Purchase Money Liens in respect of the Assets sold.

         "Obligations"  means,  with  respect  to  any  Person,  any  principal,
premium, interest, penalties, expenses, fees, indemnifications,  reimbursements,
damages and other  liabilities  payable  under the  documentation  governing any
Indebtedness of such person  including,  any amounts payable by such person as a
result of any Hedging Obligations.

         "Pro Forma Fixed Charge Coverage  Ratio" means,  for any period of four
consecutive fiscal quarters,  in connection with any proposed Restricted Payment
the ratio of (i)  Consolidated  EBITDA  for such  period to (ii) Pro Form  Fixed
Charges  for  such  period,  provided,  however,  that  (a)  in the  event  of a
Restricted  Payment,  subsequent to the commencement of the period for which the
Pro Forma Fixed Charge Coverage Ratio is being calculated but prior to the event
for which the  calculation of the Pro Forma Fixed Charge Coverage Ratio is made,
then the Pro Form Fixed  Charge  Coverage  Ratio will be  calculated  giving pro
forma effect to such event,  as if the same had occurred at the beginning of the
applicable  period,  (b) in making such  computation,  the Fixed Charges of such
person attributable to interest on any Indebtedness  bearing a floating interest
rate shall be computed on a pro forma basis as if the rate in effect on the date
of computation had been the applicable rate for the entire period, (c) in making
such  computation,  there shall be excluded from Fixed Charges any Fixed Charges
related to any amount of Indebtedness or Disqualified Stock that was outstanding
during or subsequent to the applicable period but is not outstanding on the date
of the event for which the  calculation  of the Pro Forma Fixed Charge  Coverage
Ratio  is  made  (including  by  means  of  refinancing  such   Indebtedness  or
Disqualified  Stock on such date),  except for Fixed Charges  actually  incurred
with  respect to  Indebtedness  borrowed  (as  adjusted  pursuant to clause (b))
pursuant  to the BA Loan  Agreement  to the  extent  any  commitment  thereunder
remains in effect on the date of the event for which the  calculation of the Pro
Form Fixed Charge Coverage Ratio is made, (d) in the event that  Guarantor,  the
Lessee or any of their  Subsidiaries  consummates a material  acquisition or any
Asset  Sale  subsequent  to  the  commencement  of  the  period  for  which  the
calculation of the Pro Forma Fixed Charge Coverage Ratio is being calculated but
prior to the event for which the Pro Forma Fixed Charge  Coverage Ratio is made,
then the Pro Forma Fixed Charge  Coverage  Ratio shall be calculated  giving pro
forma  effect  to  such  material  acquisition  or  Asset  Sale  (including  the
incurrence or repayment of any Indebtedness in connection therewith),  as if the
same had occurred at the  beginning of the  applicable  period and (e) the event
for which the  calculation of the Pro Forma Fixed Charge  Coverage Ratio is made
shall be assumed to have occurred at the beginning of the applicable period.

         "Purchase  Money Lien" means a Lien  granted on an asset or property to
secure a Purchase  Money  Obligation  permitted to incurred  under  Section 5.09
hereof and incurred solely to finance the acquisition of such asset or property;
provided,  however,  that such Lien encumbers only such asset or property and is
granted with 180 days of such acquisition.

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<PAGE>
         "Purchase Money Obligation" of any Person means any obligations of such
person to any seller or any other  Person  incurred  or  assumed to finance  the
acquisition of real or personal property to bused in the business of such Person
or any of its  Subsidiaries  in an amount that is not more than 100% of the cost
of  such  property,  and  incurred  within  180  days  after  the  date  of such
acquisition  (excluding  accounts  payable to trade  creditors  incurred  in the
ordinary course of business).

         "Qualified Receivables  Transaction" means any transaction or series of
transactions  that may be entered into by  Guarantor or any of its  Subsidiaries
pursuant  to which  Guarantor  or any of its  Subsidiaries  may sell,  convey or
otherwise transfer to (i) a Receivables Subsidiary (in the case of a transfer by
Guarantor or any of its  Subsidiaries) and (ii) any other person (in the case of
a transfer by a Receivables Subsidiary), or may grant a security interest in any
accounts receivable (whether now existing or arising in the future) of Guarantor
or any of its Subsidiaries,  and any assets related thereto  including,  without
limitation,  all  collateral  securing  such accounts  receivable,  all material
contracts and all  guarantees or other  obligations  in respect of such accounts
receivable,  proceeds of such accounts receivable and other assets in respect of
which  security  interests  are  customarily  granted in  connection  with asset
securitization transactions involving accounts receivable.

         "Receivables  Subsidiary"  means a  direct  or  indirect  wholly  owned
Subsidiary of Guarantor which engages in no activities  other than in connection
with the financing of accounts  receivable  and which is designated by the Board
of Directors of Guarantor (as provided below) as a Receivables Subsidiary (a) no
portion of the Indebtedness or any other  Obligations  (contingent or otherwise)
of which (i) is guaranteed by Guarantor or any Subsidiary of Guarantor,  (ii) is
recourse to or  obligates  Guarantor or any  Subsidiary  of Guarantor in any way
other  than  pursuant  to  representations  and  covenants  entered  into in the
ordinary  course  of  business  in  connection  with  a  Qualified   Receivables
Transaction  or  (iii)  subjects  any  property  or asset  of  Guarantor  or any
Subsidiary of Guarantor,  directly or indirectly,  contingently or otherwise, to
the satisfaction  thereof other than pursuant to  representations  and covenants
entered into in the ordinary  course of business in connection  with a Qualified
Receivables Transaction,  (b) with which neither Guarantor nor any Subsidiary of
Guarantor has any contract,  agreement,  arrangement or understanding other than
on terms no less favorable to Guarantor or such Subsidiary than those that might
be obtained at the time from persons who are not Affiliates of Guarantor,  other
than  fees  payable  in the  ordinary  course of  business  in  connection  with
servicing  accounts  receivable  and (c) with which  neither  Guarantor  nor any
Subsidiary of Guarantor has any obligation (i) to make any Investment therein or
(ii) to maintain or preserve such Subsidiary's  financial  condition or to cause
such  Subsidiary  to  achieve  certain  levels of  operating  results.  Any such
designation  by the Board of Directors  of  Guarantor  shall be evidenced to the
Trustee by filing  with the Trustee a certified  copy of the  resolution  of the
Board of  Directors  of  Guarantor  giving  effect  to such  designation  and an
Officer's  Certificate  certifying  that  such  designation  complied  with  the
foregoing conditions.

                  SECTION 5.11.  Merger of Lessee or Guarantor.

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<PAGE>
                  (a) Neither  Lessee nor Guarantor  will  consolidate  or merge
with or into  any  other  Person  or sell,  transfer,  convey  or  lease  all or
substantially  all of its  assets in a single or series of  transactions  to any
other Person, unless:

                  (i) the successor entity formed by such  consolidation or into
         which it is merged or the successor entity that acquires by conveyance,
         transfer  or lease all or  substantially  all its assets as an entirety
         (x)  shall  be a  United  States  corporation  and  (y)  if  Lessee  or
         Guarantor,  as the  case may be,  is not the  successor  entity,  shall
         execute and  deliver to Owner  Trustee  and each Owner  Participant  an
         agreement in form and substance satisfactory to each of them containing
         an  assumption  by  such  successor  entity  of the  due  and  punctual
         performance  of each covenant and condition of the Operative  Documents
         to be performed or observed by Lessee or Guarantor, as applicable;

                  (ii) immediately after giving effect to such  transaction,  no
         Lease  Default or Lease  Event of Default  shall have  occurred  and be
         continuing;

                  (iii)  except for the merger,  within one year  following  the
         Basic Term  Commencement  Date, (x) of Lessee and/or  Guarantor into or
         with  Fonda  or (y) of  Lessee  with  Sherwood  and  its  subsidiaries,
         immediately  after giving effect to such  transaction  the tangible net
         worth  (calculated in accordance  with GAAP) of such  successor  entity
         shall be no less than that of Lessee or Guarantor  immediately prior to
         such transaction;

                  (iv) Lessee or  Guarantor  shall have  delivered to each Owner
         Participant  and Owner Trustee an Officer's  Certificate and an opinion
         of counsel  which may be an opinion of the General  Counsel  reasonably
         satisfactory  to each such  Person,  stating  that such  consolidation,
         merger,  sale,  conveyance,  transfer or lease, as the case may be, and
         the assumption agreement required by clause (i) above, comply with this
         Section  5.11(a)  and that all  conditions  precedent  relating to such
         action have been complied with;

                  (v) Guarantor  shall remain liable for its  obligations  under
         the  Guarantee  to the  same  extent  as if  such  assignment,  merger,
         consolidation  or sale had not  occurred,  and the  Lessor  shall  have
         received written confirmation thereof;

                  (vi) Lessor shall have received not less than 15 Business Days
         prior notice of such assignment, merger, consolidation or sale;

                  (vii) Lessee pays all of the reasonable  expenses  incurred by
         the Owner Participants and the other parties to the Operative Documents
         in connection with such assignment, merger, consolidation or sale; and

                  (viii)  Lessee  has made or will  promptly  make  all  filings
         necessary  to  protect  the  interests  of  Lessor in  respect  of such
         assignment, merger, consolidation or sale.

                  (b) Upon any such  consolidation  or merger of or with Lessee,
or any sale,  conveyance,  transfer or lease of all or substantially  all of the
assets of Lessee in  accordance  with this Section 5.11,  the  successor  entity
formed by such  consolidation  or into which  Lessee shall be

                                       35
<PAGE>
merged or to which such sale, conveyance,  transfer or lease shall be made shall
succeed to, and be  substituted  for, and may exercise every right and power of,
Lessee under the Operative Documents to which it is a party with the same effect
as if such successor entity had been named as Lessee therein.

                  SECTION 5.12.  Compliance  with Law. Lessee and Guarantor will
comply  with all  Applicable  Laws,  which are  material  to the  conduct of its
business, such compliance to include, without limitation,  paying or discharging
before the same become delinquent all taxes,  assessments,  governmental charges
and taxes imposed upon it or upon its income,  profits or property  prior to the
date on which  penalties  attach  thereto  except  to the  extent  subject  to a
Permitted  Contest  and against  which it is  maintaining  adequate  reserves in
accordance with the applicable generally accepted accounting principles.

                  SECTION 5.13. Collateral Identification. Lessee shall maintain
a system of  identification  number  tagging on each  Component and each item of
tangible  PPE  Collateral  which will  identify the asset number as set forth in
Schedule 1 to the Bill of Sale or in Exhibit A to the Security Agreement, as the
case may be.

                                   ARTICLE VI

                                General Indemnity
                                -----------------

                  SECTION  6.01.  General  Indemnity.  Lessee does hereby assume
liability for, and (whether or not any of the transactions  contemplated  hereby
shall be consummated) shall indemnify,  protect,  defend, save and hold harmless
and keep whole each Indemnified Person, on an After-Tax Basis, from and against,
any  and all  liabilities,  obligations,  losses,  damages,  penalties,  claims,
actions, suits, judgments, costs, expenses and disbursements (each a "Claim") of
whatever kind and nature that may be imposed on, incurred by or asserted against
such Indemnified Person relating to or arising out of:

               (A) the Operative  Documents and any amendments or  modifications
          thereto  or  any  Transaction  (including,   without  limitation,  the
          performance  or  enforcement  of all  obligations  of Lessee under the
          Operative  Documents  and  payments  made  pursuant  thereto  or other
          transactions  contemplated  thereby and any claims or penalty  arising
          out of a violation of Applicable Laws with respect thereto  (including
          ERISA and securities laws));

               (B)   the   manufacture,   financing,   construction,   purchase,
          acceptance,   installation,   possession,   repossession,   rejection,
          control, storage, ownership,  delivery,  nondelivery,  transport, use,
          operation,    leasing,    subleasing,    substitution,    replacement,
          modification,   condition,   maintenance,   repair,   sale,  assembly,
          reassembly,  abandonment,  redelivery, return or other disposition of,
          or the  imposition  of any Lien (or  incurrence  of any  liability  to
          refund  or pay over  any  amount  as a result  of any  Lien)  on,  the
          Equipment, the Collateral or any Component or item thereof or interest
          therein,  including  any  Environmental  Claim  or  other  liabilities
          imposed by or under  Environmental Laws (including all investigations,
          inspections and reinspections,  clean-up

                                       36
<PAGE>
          costs and  expenses,  except to the  extent  such  costs and  expenses
          result from  investigations or clean-ups initiated or undertaken by an
          Indemnified  Person  without  demand or compulsion  by a  Governmental
          Authority or other third party);

               (C)  any  claim  or  penalty  related  to  the  Equipment  or the
          Collateral  arising out of violations  of Applicable  Laws, or in tort
          (whether in strict  liability or otherwise) or arising from the active
          or  passive  negligence  of an  Indemnified  Person,  latent  or other
          defects,  whether or not discoverable by any Person, loss of or damage
          to any property or the environment, death of or injury to any Person;

               (D) any claim for patent,  trademark  or  copyright  infringement
          relating to the Equipment or the Collateral or its use; and

               (E) all costs and expenses incurred by any Indemnified  Person in
          connection  with any Lease  Default or Lease Event of Default,  or any
          Event of Loss;

provided,  however,  that Lessee shall not be required  pursuant to this Section
6.01 to assume, or to provide indemnity for:

               (a) with  respect  to any  Indemnified  Person,  any Claim to the
          extent resulting from or arising out of (i) such Indemnified  Person's
          or a Related  Indemnity's own gross  negligence or willful  misconduct
          (other than the gross negligence or willful misconduct imputed to such
          Indemnified  Person  solely by reason of its interest in the Equipment
          or any  Transaction),  (ii) any  representation  or  warranty  by such
          Indemnified  Person in the Operative  Documents being incorrect in any
          respect  or  (iii)  the  breach  by  such  Indemnified  Person  of any
          agreement, covenant or condition in any of the Operative Documents;

               (b) any Claim in respect of the Equipment to the extent resulting
          from acts or events occurring after the later of (i) the return of the
          Equipment  pursuant to Section 8.01 of the Lease or (ii) the Scheduled
          Expiration  Date (or upon any  earlier  termination  of the Lease with
          respect to the Equipment)  where the Equipment is not being  returned,
          and in each case other than liability relating to or to arising out of
          acts or omissions of Lessee or its agents;

               (c) with  respect  to an  Indemnified  Person,  any  Claim to the
          extent  arising as a result of any  transfer or other  disposition  by
          such Indemnified  Person or Related Indemnitee of the Equipment or any
          part  thereof  or any  interest  therein  or any  interest  under  the
          Operative Documents or in any other Indemnified  Person,  other than a
          transfer  or  disposition  arising  by  reason  of (i)  any  sublease,
          replacement,  substitution or maintenance of, or modification  to, the
          Equipment or any  Component  thereof,  (ii)  Lessee's  exercise of its
          rights pursuant to Article VII or XVI of the Lease,  (iii) an Event of
          Loss, or (iv) a Lease Event of Default having occurred and continuing;

                                       37
<PAGE>
               (d) with  respect  to an  Indemnified  Person,  any  Claim to the
          extent  resulting  from  the  imposition  of any  Lessor  Lien by such
          Indemnified Person;

               (e) with respect to any Indemnified  Person,  any Claim resulting
          from, or  attributable  to, an alleged breach of fiduciary duty or any
          "prohibited  transaction"  within the  meaning of section  4975 of the
          Code  or  section  406  of  ERISA  (or  any  comparable  laws  of  any
          Governmental  Authority) caused by such Indemnified  Person not making
          or holding its  investment  in the  Equipment as  contemplated  by the
          Operative Documents;

               (f) any Tax  liability  (other  than  "gross-ups"  in  respect of
          payments on an After-Tax  Basis or in respect of  violations of ERISA)
          or loss of Tax benefits and any costs or expenses of  contesting  with
          any  tax  authority  any  such  liability  or  loss,  whether  or  not
          separately indemnified; and

               (g) any Claim  relating  to the  failure of the Owner  Trustee to
          make any distribution  required by the Trust Agreement upon receipt by
          Owner Trustee of payment from Lessee or Guarantor.

The indemnities set forth in this Section 6.01 shall not constitute a guarantee,
representation  or warranty to any  Indemnified  Person of or as to the value or
useful life of any Equipment, or any guarantee,  representation or warranty that
any debt incurred by an Owner  Participant  to finance its Lessor's Cost will be
paid.

                  SECTION 6.02. Subrogation; Waiver. Upon payment in full of any
assumed liability or indemnity  pursuant to Section 6.01, so long as no Material
Default has  occurred and is  continuing,  Lessee  shall,  to the extent of such
payment, be subrogated to any rights of the Indemnified Person in respect of the
matter  against which such  indemnity was given.  Lessee waives as a defense any
immunity  which  Lessee may have or claim  under any state  laws or  regulations
relating to worker's compensation.

                  SECTION 6.03.  Claims.

                  (a) Claims Procedure.  In case any action,  suit or proceeding
shall be brought  against  any  Indemnified  Person  for which such  Indemnified
Person is entitled to  indemnification,  such Indemnified  Person shall promptly
notify  Lessee of the  commencement  thereof (but the failure to do so shall not
relieve Lessee of its obligation to indemnify such Indemnified  Person except to
the extent that Lessee or its insurer is  materially  prejudiced  as a result of
the  failure).  If a Responsible  Officer of Lessee has actual  knowledge of any
claim or liability to be  indemnified  against under this Section 6.01, it shall
give  prompt  written  notice  thereof to the  applicable  Indemnified  Persons.
Subject to the rights of insurers under  policies of insurance  maintained by or
for the benefit of Lessee,  Lessee shall have the right to investigate,  and, if
Lessee  states that it shall  indemnify  such  Indemnified  Person  (with Lessee
reserving its right to take a contrary  position based on factual  circumstances
as subsequently  learned by Lessee, which position Lessee will promptly disclose
to such Indemnified Person, in which event Lessee shall no longer

                                       38
<PAGE>
have the right to defend or  compromise),  the right at its sole  discretion  to
defend or  compromise  (using its  reasonable  best  effort  and  counsel of its
choice),  any Claim for which  indemnification  is sought under this Article VI,
and, at Lessee's  expense,  the  Indemnified  Person  shall  cooperate  with all
reasonable requests of Lessee in connection therewith;  provided,  however, that
Lessee  shall not be  entitled  to assume and  control  the  defense of any such
action, suit or proceeding if:

                  (i) such action,  suit or  proceeding  involves the  potential
         imposition  of  criminal  liability  or  material  unindemnified  civil
         liability on such Indemnified Person or a risk (other than a de minimis
         risk) of the sale,  forfeiture or loss of the Equipment or the creation
         of any Lien (other than a Permitted Lien) on the Equipment or the Trust
         Estate or any part thereof;

                  (ii) a Material Default shall have occurred and be continuing,
         unless Lessee shall have provided  security for its  obligations  under
         this Article VI reasonably satisfactory to such Indemnified Person;

                  (iii) such Claim is joined  with one or more  claims for which
         Lessee is not  obligated to indemnify  hereunder  and such other claims
         are not severable from the indemnifiable claim; or

                  (iv) in the  reasonable  opinion of such  Indemnified  Person,
         there  exists an actual or  potential  material  conflict  of  interest
         between Lessee and the Indemnified Person such that it is advisable for
         such Indemnified Person to retain control of such proceeding;

provided, further, in the event of an action, suit or proceeding contemplated by
the preceding provisos,  Lessee may nevertheless  participate at its own expense
in such action, suit or proceeding. In the event such proceeding would involve a
compromise  on a basis that admits  criminal  liability,  negligence  or willful
misconduct by such  Indemnified  Person,  such compromise  shall not be obtained
without the express consent of such Indemnified  Person.  In the event Lessee or
its insurers  undertake the defense of an  Indemnified  Person with respect to a
claim, no additional  (beyond those accrued prior to Lessee's  assumption of the
defense) legal fees or expenses of such  Indemnified  Person in connection  with
the defense of such claim  shall be  indemnified  hereunder  unless such fees or
expenses were incurred at the request of Lessee or such  insurers.  Lessee shall
pay the reasonable  out-of-pocket  costs,  disbursements and expenses (including
reasonable legal fees and expenses) in connection with any such action,  suit or
proceeding  which is  indemnified  by Lessee under  Section  6.01,  and which is
conducted by an Indemnified  Person  pursuant to the terms of this Section 6.03.
Notwithstanding  the foregoing,  where Lessee is obligated  hereunder to pay the
expenses  of  an  Indemnified  Person  or  Indemnified  Persons,   Lessee  shall
nonetheless  not be liable for the fees and expenses of more than one counsel in
each relevant  jurisdiction  for (A) each Owner  Participant  (and each of their
respective  successors  and assigns) and (B) Owner  Trustee (and its  respective
successors and permitted assigns, agents and servants).

                  (b) Insured  Claims.  In the case of any Claim  indemnified by
Lessee hereunder which is covered by a policy of insurance  maintained by or for
the benefit of Lessee,  each Indemnified Person agrees to reasonably  cooperate,
at the expense of Lessee,  with the

                                       39
<PAGE>
insurers in the exercise of their rights to  investigate,  defend or  compromise
such Claim as may be required  to retain the  benefits  of such  insurance  with
respect to such Claim (but the failure to do so shall not relieve  Lessee of its
obligation to indemnify such Indemnified Person except to the extent that Lessee
or its insurer is materially prejudiced as a result of such failure).

                  (c) Payments.  Subject to Lessee's  contest rights as provided
herein, on demand after any Indemnified Person shall make a claim (such claim to
specify in  reasonable  detail the nature  thereof)  on Lessee in respect of any
Expense, Lessee will pay such claim to such Indemnified Person.

                  (d)   Primary   Obligor.   Lessee's   obligations   under  the
indemnities  provided for in this Agreement  shall be those of a primary obligor
whether or not the Indemnified  Person shall also be indemnified with respect to
the same  manner  under the terms of this  Agreement  or any other  document  or
instrument,  and the Person seeking  indemnification from Lessee pursuant to any
provision of this  Agreement may proceed  directly  against Lessee without first
seeking to enforce any other right of indemnification.  Lessee's agreement under
this  Article  VI  constitutes  a  separate   agreement  with  respect  to  each
Indemnified  Person  and is  enforceable  directly  by each  Indemnified  Person
whether or not the Lessor  has made a claim for  Supplemental  Rent on behalf of
such Indemnified  Person under the Lease.  Payments by Lessee under this Article
VI shall be payable in the same currency as the indemnified liability.

                                   ARTICLE VII

                              General Tax Indemnity
                              ---------------------

                  SECTION 7.01.  General Tax Indemnity.

                  (a) Lessee  agrees that each payment of Rent shall be free and
clear of, and without  deduction  for,  any and all  withholdings  on account of
Taxes that are subject to indemnification by Lessee and not excluded pursuant to
Section  7.01(b)  hereof.  If any  such  deduction  or  withholding  of Taxes is
required  with respect to Rent,  Lessee shall pay an  additional  amount of Rent
such that the net amount actually  received by each  Indemnified  Person,  after
such deduction or  withholding,  will be equal to all such amounts that would be
received by such Indemnified Person if no such deduction or withholding had been
required.

                  Except as provided in Section 7.01(b) hereof, Lessee agrees to
pay, indemnify,  defend and hold harmless on an After-Tax Basis each Indemnified
Person  against  any and  all  Taxes  imposed  on or with  respect  to any  such
Indemnified Person or the Equipment or interest therein,  based upon or measured
by or in connection with or relating to:

                  (i) the  Equipment  or  interest  therein  or  the  Collateral
         or any item thereof or interest therein;

                  (ii)  the  manufacture,   purchase,   acquisition,   delivery,
         non-delivery,    acceptance,   ownership,   possession,   repossession,
         location, relocation,  financing, leasing, use, operation, maintenance,
         repair,  alteration,  modification,  replacement,  condition,  testing,

                                       40
<PAGE>
         registration,  redelivery,  sale or other application or disposition of
         the Equipment or Collateral or interest therein;

                  (iii) the payment of Rent,  Stipulated Loss Value, Fair Market
         Sales Value, EBO Price or other amounts under the Lease;

                  (iv) the  property,  income or other  proceeds  received  with
         respect to the Trust Estate;

                  (v) the  Operative  Documents  or  amendments  or  supplements
         thereto, their execution or the transactions  contemplated or  effected
         thereby; or

                  (vi) otherwise  with  respect  to  or  in connection with the
         Transactions.

                  (b) Exclusions.  The indemnity provided for in Section 7.01(a)
above shall not apply to any of the following  (except for purposes of computing
amounts necessary to pay any amount on an After-Tax Basis):

                  (i) Taxes  based upon,  or measured by or with  respect to the
         net  income,  net  receipts,  items  of tax  preference  (collectively,
         "Income Taxes") of the Indemnified  Person imposed by the United States
         of America or any state or local  jurisdiction or other domestic taxing
         authority within the United States of America; provided,  however, that
         the  exclusion  set forth in this  clause  (i) shall not apply to taxes
         that are in the nature of property, stamp, license, value added (except
         for value added taxes which by their terms or  controlling  legislative
         history thereof are imposed in direct and clear substitution for income
         taxes),  ad valorem,  sales,  capital stock,  net worth,  rental or use
         taxes or capital stock, franchise, net worth taxes;

                  (ii)  Taxes  imposed  on an  Indemnified  Person to the extent
         resulting from activities of the Indemnified  Person that are unrelated
         to the  Transactions,  in each case in the  jurisdiction  imposing such
         Taxes;

                  (iii) Taxes that result  from a  voluntary  sale,  assignment,
         transfer or other  disposition by the Indemnified  Person of all or any
         portion of an interest in the Equipment, other than a sale, assignment,
         transfer  or  other  disposition  while a Lease  Event  of  Default  is
         continuing  or  arising  by reason of (A) any  sublease,  substitution,
         replacement or maintenance of, or any  Modification to the Equipment or
         any  Component,  (B) Lessee's  exercise of any purchase or  termination
         option described in Section 7.01, 16.01 or 16.02 of the Lease or (C) an
         Event of Loss or any other destruction, damage, theft or requisition of
         use or title of the Equipment or any Components;

                  (iv) Taxes  that  result  from any  breach by the  Indemnified
         Person of any of its representations, warranties or covenants in any of
         the Operative Documents,  but only if and to the extent such inaccuracy
         or breach is not due to an act or  omission  of, or the  inaccuracy  or
         breach of any representation,  warranty or covenant by or of, Lessee or
         Guarantor;

                                       41
<PAGE>
                  (v)  Taxes  imposed  as a  result  of  any  amendment  to  any
         Operative  Document  entered into by the Indemnified  Person other than
         any amendment  (A)  consented to by Lessee in writing,  (B) required by
         Applicable   Laws  or  required  or  made  pursuant  to  the  Operative
         Documents,  or  (C)  while  a  Material  Default  has  occurred  and is
         continuing;

                  (vi) Taxes imposed as a result of, or in connection  with, any
         "prohibited transaction" within the meaning of Section 4975 of the Code
         or Section  406 or ERISA (or any  comparable  laws of any  Governmental
         Authority) engaged in by any Indemnified Person as a result of a breach
         of representation by such Indemnitee;

                  (vii)  Taxes  imposed  with  respect to any period  commencing
         after the earlier of the expiration of, or earlier  termination of, the
         Lease in accordance  with the terms thereof;  provided,  however,  that
         this clause (x) shall not apply (A) in respect of any Taxes incurred by
         reason of any payments by Lessee or any  Indemnified  Person made after
         such period,  (B) while a Material  Default  shall have occurred and be
         continuing  or (C) in respect of Taxes arising from any act or omission
         of, or any event  attributable  to,  Lessee  or any  Affiliate,  agent,
         sublessee or assignee of Lessee which occur prior to the  expiration of
         the Lease;

                  (viii) with respect to any Owner Participant,  Taxes for which
         Lessee is obligated to indemnify such Owner  Participant  under the Tax
         Indemnity Agreement;

                  (ix) Taxes  which have been  included  (but only to the extent
         actually  included  and  paid  to the  appropriate  tax  authority)  in
         Lessor's Cost or Transaction Expenses; and

                  (x)  Taxes  resulting  from the  willful  misconduct  or gross
         negligence of the  Indemnified  Person (other than gross  negligence or
         willful  misconduct imputed to such Indemnified Person solely by reason
         of its interest in the Equipment,  its participation in the Transaction
         or the gross negligence or willful misconduct of Lessee or Guarantor).

                  (c) Tax Savings.  If an Indemnified Person or any Affiliate of
such  Indemnified  Person  who  files  any tax  return  or pays  any  Taxes on a
combined,  consolidated,  unitary or similar basis with such Indemnified  Person
shall actually realize for any taxable period a reduction in Tax not indemnified
by Lessee  pursuant  to this  Article  VII  (whether  attributable  to a credit,
deduction,  exclusion  from income or otherwise)  arising from or related to any
amount  with  respect  to  which  Lessee  has  reimbursed  or  indemnified  such
Indemnified  Person on an After-Tax  Basis pursuant to the Operative  Documents,
and such reduction in Tax was not taken into account in  determining  the amount
payable by Lessee on  account of such  reimbursement  or  indemnification,  such
Indemnified  Person shall pay to Lessee,  so long as no Material  Default  shall
have occurred and be continuing,  within 30 days after such  Indemnified  Person
shall  have  actually  realized  such Tax  saving,  the  amount of such  saving,
together with the amount of any Tax savings  resulting from any payment pursuant
to this  sentence;  provided  that  Lessee  shall not be  entitled to receive an
amount  in  excess  of the  amount  of  such  Taxes  in  respect  of  which  the
indemnification was paid by Lessee, and provided,  further,  that any amount not
paid to Lessee pursuant to the foregoing limitation shall be carried forward and
reduce pro tanto any future  payments  Lessee  may be  required  to make to such
Indemnified  Person pursuant to Section

                                       42
<PAGE>
7.01(a). Each Indemnified Person may determine in its sole discretion whether to
claim a tax credit as  distinguished  from a tax  deduction in  determining  the
amount  of such Tax  savings.  If it is later  determined  that the  Indemnified
Person was not  entitled to such Tax savings or reduction in Tax, the portion of
such Tax savings or reduction in Tax that is repaid,  recaptured  or  disallowed
will be treated as a Tax for which Lessee must indemnify the Indemnified  Person
pursuant to the  provisions of Section  7.01(a) hereof but without regard to the
provisions of Section 7.01(b).

                  (d) Refund. Upon receipt by any Indemnified Person of a refund
of all or part of any Taxes which  Lessee  shall have paid for such  Indemnified
Person  or  for  which  Lessee  shall  have  reimbursed,  advanced  funds  to or
indemnified such Indemnified  Person,  such Indemnified  Person shall,  provided
that no Material Default shall have occurred and be continuing,  pay or repay to
Lessee an amount which,  after the  subtraction of the amount of any further net
Tax  savings  actually  realized by such  Indemnified  Person as a result of the
payment under this paragraph, and the addition of any net Tax detriment realized
by such Indemnified  Person as a result of the receipt or accrual of such refund
and any interest received or accrued by such Indemnified  Person on such refund,
is  equal  to the  amount  of such  refund  and any  interest  received  by such
Indemnified  Person that is fairly  attributable to such refund,  limited to the
amount of  indemnity  payments  previously  made by Lessee  pursuant  to Section
7.01(a); provided, that any excess payments shall be carried forward and applied
against  future  indemnity  payments  of  obligations  of Lessee  under  Section
7.01(a).  If it is later determined that the Indemnified Person was not entitled
to such  refund,  the  portion  of such  refund  that is repaid,  recaptured  or
disallowed  will be  treated  as a Tax  for  which  Lessee  must  indemnify  the
Indemnified  Person  pursuant to this Article VII pursuant to the  provisions of
Section 7.01(a) hereof but without regard to the provisions of Section 7.01(b).

                  Owner  Participant  and the Lessor  shall pursue in good faith
refunds and tax benefits  (including  foreign tax credits)  that would result in
any payments to Lessee  pursuant to Section  7.01(c) or 7.01(d) hereof or reduce
Lessee's or Guarantor's obligations hereunder.

                  (e)  Verification.  The  results  of  all  computations  by an
Indemnified  Person  required under this Article VII,  together with a statement
describing in reasonable detail the manner in which such computations were made,
shall be delivered by the relevant  Indemnified Person to Lessee in writing.  If
Lessee so requests  within 30 days after  receipt of such  computations,  then a
nationally recognized firm of United States accountants selected by the relevant
Indemnified  Person  and  reasonably  acceptable  to Lessee  shall  review  such
computations,  and the relevant  Indemnified  Person will make available to such
firm  (subject  to the  execution  by such firm of a  confidentiality  agreement
reasonably  acceptable to the relevant Indemnified Person, which agreement shall
prohibit disclosure of such Person's  assumptions to any third party,  including
Lessee) all  information  and  materials  (other than copies of tax  returns) as
shall be reasonably necessary or desirable in connection  therewith.  The review
and  determination  of such  computations  by such firm of accountants  shall be
final. Pending such review and determination, Lessee agrees to pay the amount as
computed by the relevant  Indemnified Person,  subject to any appropriate refund
to Lessee  being  made upon the  determination  of such firm of  accountants  as
aforesaid.  The fees and expenses of the  accountants

                                       43
<PAGE>
in verifying an  adjustment  pursuant to this Section  7.01(e)  shall be paid by
Lessee; provided,  however that, if such verification discloses an error adverse
to Lessee of more than 5% of the amount  determined by the relevant  Indemnified
Person, such fees and expenses shall be paid by the relevant Indemnified Person.
The parties hereto agree that the accounting firm's sole responsibility shall be
to verify the computation of any amounts payable under this Article VII and that
matters of  interpretation  of this  Agreement  are not within the scope of such
accounting firm's responsibilities.

                  (f) Payment. Unless being contested in accordance with Section
7.02  hereof,  any amount  payable to an  Indemnified  Person  pursuant  to this
Article  VII shall be paid  within 30 days  after  receipt  of a written  demand
therefor  from  such  Indemnified  Person  accompanied  by a  written  statement
describing in reasonable detail the basis for such indemnity and the computation
of the amount so payable;  provided,  that such amount need not be paid prior to
the  later of (A) the date on which  such  Taxes  are paid or (B) in the case of
amounts which are being  contested  pursuant to Section 7.02 hereof,  subject to
the  provisions  of Section  7.02  requiring a payment by Lessee,  the time such
contest (including all appeals permitted hereunder) is finally resolved.

                  SECTION 7.02.  Contest.  If a written claim is made against an
         Indemnified  Person for any Taxes with  respect to which  Lessee may be
         liable for payment or  indemnity  hereunder,  such  Indemnified  Person
         shall give Lessee  notice in writing of such claim within 30 days after
         its  receipt,  but the failure to give such notice  shall not  diminish
         Lessee's  obligation  hereunder.  If Lessee shall so request in writing
         within 30 days after receipt of such notice,  such  Indemnified  Person
         shall in good faith,  at Lessee's  sole cost and  expense,  contest the
         imposition,  validity,  applicability  or amount of such Tax (including
         taking  appeals  of any  adverse  judicial  decisions  except  that  an
         Indemnified  Person  shall not be  obligated  to take any appeal to the
         Supreme  Court  of the  United  States)  or  shall  permit  or at  such
         Indemnified Person's election,  require Lessee to contest in either the
         name  of  Lessee  or in the  name  of  the  Indemnified  Person.  After
         considering any views offered by Lessee and Lessee's counsel concerning
         the forum in which the claim is most likely to be  resolved  favorably,
         such Indemnified Person shall, in its sole discretion, select the forum
         for such  contest  and  determine  whether  any such  contest  shall be
         conducted  by (A)  resisting  payment of such Tax,  (B) paying such Tax
         under  protest,  or (C) paying  such Tax and  seeking a refund or other
         repayment   thereof   in   appropriate   administrative   or   judicial
         proceedings,  provided that at such Indemnified  Person's option,  such
         contest  shall be conducted  by Lessee in the name of such  Indemnified
         Person.

                  The relevant Indemnified Person or Lessee, as the case may be,
shall supply the other party with such  information  in its  possession  that is
requested  by the other  party and that is  related  solely to such  claim as is
necessary  or  advisable  for the other party to control or  participate  in any
proceeding  to the extent  provided  by this  Section  7.02.  In the case of any
contest  that an  Indemnified  Person is required to contest,  such  Indemnified
Person may direct that Lessee control the conduct of such contest.

                                       44
<PAGE>
                  Notwithstanding the foregoing provisions of this Section 7.02,
in the case of a claim  for any  Taxes,  such  Indemnified  Person  shall not be
required to take any  administrative  or judicial action and Lessee shall not be
able to  contest  such claim in its own name or that of the  Indemnified  Person
unless:

                  (a) Lessee  shall  have  agreed to pay,  and shall pay,  on an
After-Tax Basis, such Indemnified Person on demand all reasonable  out-of-pocket
costs, losses and expenses which such Indemnified Person may incur in connection
with contesting such Taxes, including, without limitation, all reasonable legal,
accountants and investigatory fees and disbursements;

                  (b)  if  a  Material   Default  shall  have  occurred  and  be
continuing,  Lessee shall have provided  security for its obligations under this
Section 7.02 reasonably satisfactory to such Indemnified Person;

                  (c) such  Indemnified  Person shall have  determined  that the
action to be taken will not result in any material danger of sale, forfeiture or
loss of the Equipment or any risk of criminal penalties;

                  (d) in the event the Indemnified Person decides to pay the Tax
prior to the contest,  Lessee shall, at its option,  either (A) pay or reimburse
the Indemnified Person for such Taxes (plus any additional amounts calculated in
accordance with this Section 7.02) or (B) provide to the  Indemnified  Person an
interest-free,  advance  in an amount  equal to the Tax  which  the  Indemnified
Person is required to pay (and  indemnify  such  Indemnified  Person against any
adverse tax consequences arising from such advance);

                  (e) Lessee shall have  delivered to the  Indemnified  Person a
written binding agreement and acknowledgement in a form reasonably  satisfactory
to such Indemnified  Person of (A) Lessee's liability under this Article VII for
such  Taxes  to  the  extent  such  contest  is  not   successful  and  (B)  the
inapplicability of any defenses and exclusions thereto (provided,  however, that
Lessee will not be bound by its  acknowledgement  of liability if the contest is
resolved with a written judicial  decision on a basis that clearly  demonstrates
that Lessee has no liability under this Article VII with respect to such Tax);

                  (f) Lessee has provided to such Indemnified  Person an opinion
of independent  tax counsel  mutually  acceptable to Lessee and the  Indemnified
Person,  at the sole cost of Lessee,  that a Reasonable  Basis exists to contest
such claim (and, in the case of an appeal of an adverse  judicial  decision,  to
appeal such decision); and

                  (g) the amount of the indemnity payable hereunder (which shall
include  prospective  exposure in future tax years  attributable to the position
being challenged) shall exceed $100,000.

The parties further agree that an Indemnified  Person may at any time decline to
contest,  or to take further action with respect to the contest of, or to permit
Lessee to contest,  any claim for a Tax for a given  taxable  period,  provided,
however,  that if Lessee has properly  requested  such contest  pursuant to this
Section 7.02 and otherwise meets its  obligations  hereunder,  such

                                       45
<PAGE>
Indemnified  Person (A) shall  waive  its.  rights to any  indemnity  payment by
Lessee which would  otherwise be payable by Lessee  pursuant to this Article VII
in respect of such claim for such  taxable  period,  and (B) shall pay to Lessee
any amount  previously paid or advanced by Lessee pursuant to clause (d) of this
paragraph with respect to such claim for such Tax or the contest of such Tax.

                  Notwithstanding  anything to the  contrary  contained  in this
Section,  the  Indemnified  Person shall not be required to contest any proposed
claim for Taxes if the subject  matter  thereof shall be of a continuing  nature
and shall  have been  previously  decided by a court of  competent  jurisdiction
pursuant to the contest  provisions of this Section 7.02 unless there shall have
been a change in law (or interpretation  thereof) after the date with respect to
which such previous contest shall have been decided,  and the Indemnified Person
shall have received,  at Lessee's expense, an opinion of independent tax counsel
mutually  acceptable to Lessee and such Indemnified  Person that, as a result of
the change in law (or interpretation  thereof),  it is more likely than not that
the Indemnified Person will prevail in such contest.

                  If an Indemnified Person shall fail to perform its obligations
under this Section 7.02,  such failure shall not discharge,  diminish or relieve
Lessee of any liability for indemnification that it may have to such Indemnified
Person hereunder, unless the contest of a claim is precluded as a result of such
failure; provided that any payment by Lessee to such Indemnified Person pursuant
hereto  shall not be deemed to  constitute  a waiver or  release of any right or
remedy  (including  any remedy of  damages)  that Lessee may have  against  such
Indemnified  Person if as a result of such failure  Lessee's  ability to contest
the claim is adversely affected.

                  SECTION 7.03. Reports. Lessee will provide such information as
may be available  to it and  reasonably  requested in writing by an  Indemnified
Person or  required  to enable an  Indemnified  Person to fulfill its tax filing
requirements  with  respect to the  Transactions.  In the event that any return,
statement  or report is  required  to be made or filed  with  respect to any Tax
imposed on or indemnified against by Lessee under this Article VII, Lessee shall
notify  such  Indemnified  Person  of such  requirement  and  (A) to the  extent
permitted  by law (unless  otherwise  requested  by the  Indemnified  Person) or
required by law, make and file in its own name such return,  statement or report
in such manner as will show the  ownership  of the  Equipment in the name of the
Lessor or the Owner  Participant  (as  applicable)  and furnish the  Indemnified
Person with a copy of such return,  statement or report,  (B) where such return,
statement  or  report  is  required  to be in  the  name  of or  filed  by  such
Indemnified  Person  or the  Indemnified  Person  otherwise  requests  that such
return,  statement  or report be filed in its name,  prepare  and  furnish  such
return, statement or report for filing by such Indemnified Person in such manner
as shall be  satisfactory  to such  Indemnified  Person and send the same to the
Indemnified Person for filing no later than 15 days prior to the due date or (C)
where such return,  statement or report is required to reflect items in addition
to Taxes imposed on or indemnified  against under this Article VII as determined
by such Indemnified Person,  provide such Indemnified Person with information in
a form and manner  reasonably  acceptable  to such  Indemnified  Person within a
reasonable  time,  sufficient  to permit such return,  statement or report to be
properly made and timely filed with respect thereto.

                                       46
<PAGE>
                  SECTION 7.04.  Forms,  etc. Each Indemnified  Person agrees to
furnish to Lessee from time to time,  at Lessee's  written  request and expense,
such duly executed and properly completed forms as it may be legally entitled to
furnish as may be  reasonably  necessary  or  appropriate  in order to claim any
reduction  of or  exemption  from any  withholding  or other Tax  imposed by any
taxing  authority  in respect of any payments  otherwise  required to be made by
Lessee pursuant to the Operative Documents,  which reduction or exemption may be
available  to such  Indemnified  Person,  unless  such  Indemnified  Person  has
determined in good faith that furnishing such form would expose such Indemnified
Person to any materially adverse consequences.

                  SECTION  7.05.  Records.   Lessee  shall  make  available  for
inspection  and copying by an  Indemnified  Person (at  Lessee's  expense)  such
records that are regularly  maintained by Lessee or are reasonably  available to
Lessee as may be  reasonably  necessary  to enable  such  Indemnified  Person to
fulfill  its  tax  return   filing   obligations,   but  subject  to  reasonable
confidentiality requirements of Lessee.

                                  ARTICLE VIII

                                    Expenses
                                    --------

                  SECTION 8.01.  Transaction Expenses.

                  (a) Transactions Consummated. If the transactions contemplated
by this  Agreement  to occur on the  Closing  Date are  consummated,  each Owner
Participant  will pay a pro  rata  share of  Transaction  Expenses  equal to the
product of such Owner Participant's Percentage Interest and the aggregate amount
of all Transaction Expenses, which Transaction Expenses (other than the fees and
disbursements  of Owner  Participant's  Special Counsel) shall be subject to the
reasonable approval of Lessee prior to payment thereof.

                  (b)  Transactions   Not   Consummated.   If  the  transactions
contemplated  by this  Agreement  to occur on the  Closing  Date  fail to close,
Lessee will pay the Transaction Expenses and expenses of counsel incurred by the
Owner  Trustee and each Owner  Participant;  provided  that,  to the extent such
failure  to  close  is the  result  of any  Owner  Participant's  breach  of its
obligations  herein,  such Owner  Participant  shall be responsible  for its own
Transaction  Expenses,  including  its share of the fees of Owner  Participant's
Special  Counsel and the  Appraiser  (an estimate of which has been  provided to
Lessee prior to the Closing Date).

                  SECTION  8.02.  Fees and  Expenses  of Trustee and Tax Matters
Partner.  Lessee will pay all continuing fees and expenses (including reasonable
counsel fees) of Owner Trustee and the expenses  (including  reasonable  counsel
fees) of the Tax Matters Partner  incurred in connection  with the  transactions
contemplated  by the  Operative  Documents  (other than the fees of such Trustee
which constitute Transaction Expenses).

                  SECTION 8.03.  Amendments,  Waivers,  Etc. Lessee will pay all
reasonable  out-of-pocket  costs and  expenses  of Owner  Trustee  and the Owner
Participants  (including fees and expenses of their respective counsel) incurred
in  connection  with any  amendment  or

                                       47
<PAGE>
supplement  to any Operative  Document  requested by Lessee or any waiver of any
obligation of Lessee or Guarantor under any Operative Document.

                                   ARTICLE IX

                Recomputation of Basic Rent, EBO Payment Amounts,
                -------------------------------------------------
                             Stipulated Loss Values
                             ----------------------

                  SECTION 9.01.  Making of Adjustments.  (a)  If:

                  (i) the Closing Date  shall be other  than the date  specified
         in the notice given by Lessee pursuant to Section 2.04(b));

                  (ii) the  Transaction  Expenses  shall be other  than 2.25% of
         Lessor's Cost; provided that if the Transaction  Expenses are in excess
         of such amount or such other  amount  specified  in the notice given by
         Lessee  pursuant to Section  2.04(b)  Lessee may, upon 5 days notice to
         the  Owner  Participants,  elect  to pay  such  excess  in  lieu  of an
         adjustment pursuant to this Section 9.01;

                  (iii) any Tax Assumption  Change described in a written notice
         from an  Owner  Participant  to  Lessee  or  from  Lessee  to an  Owner
         Participant  pursuant  to Section  9.04 shall  occur on or prior to the
         Closing Date; or

                  (iv) the  Closing  Date is later than 4 days after the date of
         determination  of the Index Rate  utilized  in the  schedules  prepared
         pursuant to Section 2.04(b);

then, unless such changes or differences shall have previously been reflected in
schedules  prepared by the Owner  Participants and accepted by Lessee, the Owner
Participant Basic Rent Percentages, Owner Participant EBO Price Percentages, and
Owner Participant SLV Percentages of such Owner  Participant,  shall be adjusted
(utilizing  the same  economic  and tax  assumptions  (except for the  specified
charge above)  methodology  and  constraints  as  originally  used by such Owner
Participant) by such amounts as shall be appropriate  first to adjust such Owner
Participant's  Economics to reflect any changes in the Index Rate referred to in
clause  (iv)  above,   and  second  so  as  to  preserve  such  adjusted   Owner
Participant's  Economics  and,  consistent  therewith,  to minimize the Implicit
Interest  Rate,  to  and  including  the  EBO  Date  applicable  to  such  Owner
Participant.

                  (b) All required  adjustments  under clause (i), (ii) or (iii)
of Section  9.01(a)  shall be made as soon as  practicable  and to the  greatest
extent  possible  prior to the  Closing  Date,  but in no event  later  than the
Adjustment Date.  Lessee agrees,  at its expense and at the request of any other
party  hereto,  promptly to prepare,  execute  and deliver an  amendment  to the
relevant Lease Supplement confirming any such adjustment.

                  SECTION 9.02.  Stipulated Loss Values: EBO Prices. At the time
any adjustment of Owner  Participant  Basic Rent  Percentages  shall be required
under  this  Article  IX  the  Owner   Participant  SLV  Percentages  and  Owner
Participant EBO Price Percentages specified

                                       48
<PAGE>
in the relevant Lease Supplements shall be adjusted by each Owner Participant in
accordance with Section 9.01.

                  SECTION 9.03. Computation of Adjustments.  Upon the occurrence
of an event  requiring  an  adjustment  pursuant to this  Article IX, each Owner
Participant  shall  make  the  necessary   computations.   In  making  any  such
computations,  such  Owner  Participant  shall  utilize  the same  methods,  tax
constraints,  and assumptions originally used to calculate its Owner Participant
Basic  Rent  Percentages,  Owner  Participant  EBO Price  Percentages  and Owner
Participant SLV Percentages (other than those assumptions changed as a result of
the events  described in Section 9.01(a)  necessitating  such  computations;  it
being  agreed  that  such  computation  shall  reflect  solely  any  changes  of
assumptions or facts resulting  directly from any such event  necessitating such
recalculation).  If Lessee shall  disagree with any such amounts,  they shall be
reviewed and determined by an independent  accounting  firm chosen by such Owner
Participant and acceptable to Lessee.  In connection with any such review,  such
Owner Participant shall make available to such accounting firm on a confidential
basis  its  pricing  runs  and its  related  assumptions  including  such  Owner
Participant's   original  tax   assumptions   (but  not  including   such  Owner
Participant's  tax returns).  The costs of such  verification  shall be borne by
Lessee,  except that such costs shall be borne by such Owner Participant if such
verification  reveals a miscalculation by such Owner Participant that would have
resulted in a decrease in the Implicit Interest Rate in respect of the Equipment
that is more than 5 basis  points,  if any, in such  Implicit  Interest  Rate as
computed  by such  accountants,  in which  case such fees  shall be paid by such
Owner  Participant.  Such  accounting  firm  shall  be  requested  to  make  its
determination  within 15 days. In the event such accounting firm shall determine
that such  computations  are incorrect,  then such firm shall  determine what it
believes to be the correct computations. The computations of the accounting firm
shall be final, binding and conclusive upon such Owner Participant and Lessee.

                  SECTION 9.04. Tax Assumption Changes.  Prior to Closing on the
Closing Date, (i) any Owner Participant may deliver written notice to Lessee (x)
specifying an amendment to the Code,  Treasury  Regulations  (including proposed
regulations  which are also  proposed to be effective on or prior to the Closing
Date), revenue rulings or administrative  interpretations that has been enacted,
promulgated  or issued after April 15, 2000, and on or prior to the Closing Date
(any such amendment,  together with any amendment  referred to in clause (ii) of
this Section 9.04, a "Tax Assumption Change"), which amendment has the effect of
adversely effecting such Owner Participant's Economics and (y) setting forth the
adjustments to the Owner Participant  Basic Rent Percentages,  Owner Participant
EBO Price Percentages and Owner  Participant SLV Percentages  applicable to such
Owner Participant  required as a result of such Tax Assumption Change,  computed
as provided in Section  9.01,  and (ii) Lessee may give  written  notice to each
Owner  Participant  specifying a Tax  Assumption  Change,  which Tax  Assumption
Change would have the effect of improving such Owner Participant's Economics.

                                    ARTICLE X

                                    Transfers
                                    ---------

                                       49
<PAGE>
                  SECTION 10.01. Transfer of Owner Participant's  Interest.  (a)
An Owner Participant shall not assign,  convey or otherwise  transfer all or any
part of its right,  title and  interest in and to the Trust Estate or assign its
rights under the Operative Documents except as provided in this Section 10.01.

                  (b) Provided (i) no Material  Default  shall have occurred and
be continuing, and (ii) the Lease has not been declared in default (or deemed in
default)  pursuant  to Section  14.01 of the  Lease,  an Owner  Participant  may
assign,  convey or otherwise  transfer all, or any part of its right,  title and
interest  in the  Trust  Estate  if the  transfer  meets  each of the  following
conditions:

                  (i)  the  transferee  or  assignee  shall  (x) be a  financial
         institution,  a  corporation  or  limited  liability  company,  (y)  be
         organized  under the laws of the United  States of America or any state
         thereof, and (z) at the time of the transfer, not be the subject of any
         bankruptcy; insolvency, receivership or other similar proceedings;

                  (ii)the transferee or assignee shall not be a Competitor or an
         Affiliate of a Competitor of Lessee or Guarantor;

                  (iii) any transferee or assignee shall have (x) a Tangible Net
         Worth (or, in the case of a bank,  combined  capital and surplus) of at
         least  $50,000,000  or (y) have  its  obligations  unconditionally  and
         irrevocably  guaranteed pursuant to a guaranty agreement  substantially
         in the form of Exhibit E-2 by an entity with such a Tangible  Net Worth
         (or, in the case of a bank,  such combined  capital and surplus) or (z)
         have  the  transferring   Owner  Participant   remain  liable  for  its
         obligations  under  the  Operative  Documents  as  if no  transfer  had
         occurred;

                  (iv) an Owner  Participant  shall give Lessee and Guarantor at
         least 10 days' prior  written  notice of its  intention  to transfer or
         assign its interest in the Trust Estate or the  Operative  Documents (5
         Business  Days prior  written  notice in the event of a transfer  to an
         Affiliate) (it being  understood and agreed that such notice may not be
         given until a Business Day that is  subsequent  to the Closing Date) (a
         "Transfer Notice"). Not less than 5 Business Days prior to the proposed
         transfer,   such  Owner   Participant   shall   provide  the   proposed
         documentation  to be  used  in  the  proposed  transfer  for  Lessee's,
         Guarantor's and Owner Trustee's review and approval; and

                  (v) the transferee or assignee shall represent that no part of
         the  funds  used  by  it to  acquire  any  interest  in  the  Equipment
         constitutes  assets  of any  "employee  benefit  plan" (as such term is
         defined  in  Section  3(3) of  ERISA)  or any  "plan"  (as such term is
         defined in Section 4975(e)(1) of the Code).

                  (c) Any  assignment,  conveyance or transfer  pursuant to this
Section 10.01 shall be made pursuant to an Owner Participant  Transfer Agreement
in the form  attached as Exhibit E-1.  Upon any such  assignment,  conveyance or
transfer  (including  any  subsequent  assignment,  conveyance  or  transfer) in
accordance with Section  10.01(b),  (x) the transferee shall be deemed an "Owner
Participant"  for all  purposes  hereof,  and  shall be  deemed to have made all

                                       50
<PAGE>
payments in respect of the right,  title and interest so transferred,  and shall
have a ratable interest therein, and each reference in any Operative Document to
or encompassing  such Owner  Participant shall thereafter be deemed to include a
reference  to such  transferee  and (y) the  transferor  shall  have no  further
obligations  or liability  with respect  thereto from and after the date of such
transfer,  except that (i) it shall remain  liable to pay any amounts  which are
due and payable by it on or prior to the date of  transfer  and (ii) no transfer
or assignment  shall waive or release such Owner  Participant from any liability
on  account  of any breach by it of any of its  representations  or  warranties,
covenants or obligations set forth in any of the Operative Documents in any such
case  occurring  on or prior to the date of such  transfer or  assignment.  Such
Owner Participant shall respond promptly to any further requests for information
from Lessee or Guarantor  regarding  the proposed  transferee  or assignee.  Any
purported  transfer or  assignment  in violation of this Section  10.01 shall be
void and of no effect whatsoever.

                  SECTION 10.02.  Transfer of Owner Trustee's Interest.  Subject
to Section 10.01(d) of the Trust Agreement,  Owner Trustee shall not transfer or
assign its interest in the Equipment,  the Lease or the Collateral,  except to a
successor  Owner Trustee or  co-trustee,  without the prior consent of Lessee or
except as required pursuant to any Operative Documents  (including Section 12.02
hereof).

                                   ARTICLE XI

                                    Reserved
                                    --------

                                   ARTICLE XII

                                  Owner Trustee
                                  -------------

                  SECTION  12.01.  Change  of Situs of Owner  Trust.  The  Owner
Participant agrees that if, at any time, the Trust Estate becomes subject to any
Taxes for which it is  indemnified  pursuant  to Article VII hereof and if, as a
consequence thereof,  Lessee should request that the situs of the trust be moved
to  another  state  in the  United  States  from  the  state in which it is then
located,  the situs of the trust may be moved  with the  written  consent of the
Owner  Participants  (which consent shall not be unreasonably  withheld) and the
Owner  Participants  will take whatever  action may be  reasonably  necessary to
accomplish such removal;  provided that (A) Lessee shall provide such additional
tax or other  indemnification  as the Owner  Participants may reasonably request
relating to such  removal,  (B) the rights and  obligations  under the Operative
Documents  of the  Owner  Participant  shall not be  altered  as a result of the
taking of such action and no Lease Event of Default  shall have  occurred and be
continuing,  (C) the Owner  Participants  shall  have  received  an  opinion  or
opinions of counsel (satisfactory to the Owner Participants), in scope, form and
substance  satisfactory  to the Owner  Participants  to the effect  that (I) the
trust as thus  removed,  shall  remain a  validly  established  trust,  (II) any
amendments to the Trust  Agreement  necessitated by such removal shall have been
duly  authorized,  executed  and  delivered  by the  parties  thereto  and shall
constitute  the valid and binding  obligations  of such parties,

                                       51
<PAGE>
enforceable in accordance  with their terms,  (III) such removal will not result
in the  imposition of, or increase in the amount of, any Tax for which Lessee is
not required to indemnify any Indemnified  Person pursuant to Article VII hereof
(taking into account any additional  indemnification provided by Lessee pursuant
to clause (A) of this  sentence)  and covering  such other  matters as the Owner
Participants  may reasonably  request,  and (D) Lessee shall  indemnify and hold
harmless the Owner Participants on an After-Tax Basis against any and all costs,
losses and expenses including counsel fees and disbursements, registration fees,
recording  or filing  fees and taxes  incurred  by Owner  Trustee  and the Owner
Participants in connection with such change of situs.

                  SECTION 12.02.  Removal of Owner Trustee. If at any time Trust
Company  shall have failed to perform  its  obligations  hereunder  or under the
other Operative Documents, due to the gross negligence or willful misconduct or,
in the case of handling funds, ordinary negligence, then, the Owner Participants
(at the sole cost and expense of Lessee),  may replace  Owner  Trustee  with any
other corporate trustee  reasonably  acceptable to Lessee in the manner provided
in Section 10.01 of the Trust Agreement.

                                  ARTICLE XIII

                                  Miscellaneous
                                  -------------

                  SECTION 13.01.  Documentary Conventions. This Agreement  shall
be governed by the Documentary Conventions.

                  SECTION 13.02.  Confidentiality.  The Owner  Participants  and
Owner  Trustee  agree for the  benefit of Lessee  that it will not  disclose  or
suffer to be  disclosed  any  non-public  information  in  respect  of  Lessee's
business to any third party  except (a) as  required by  Applicable  Laws or any
Governmental  Authority,  (b) in connection  with the financing of the Equipment
and the other transactions contemplated by the Operative Documents, (c) with the
prior written consent of Lessee,  (d) in connection with any litigation to which
such  Person is a party  arising  out of the  transactions  contemplated  by the
Operative  Documents  or the  failure  of  Lessee  to  perform  its  obligations
thereunder,  (e) to any assignee or any  prospective  assignee which such Person
reasonably  believes  to be a bona fide  prospective  assignee  thereof,  (f) in
connection  with the sale of the Equipment or other  exercise of remedies  after
the  declaration  of a Lease  Event  of  Default  or,  in the  case of an  Owner
Participant,  at any time after 12 months prior to the Scheduled Expiration Date
(unless Lessee has theretofore  exercised its option to purchase the Equipment),
to a  potential  purchaser  of  such  Equipment  which  potential  purchaser  is
reasonably  perceived  by the Owner  Participants  to be a bona  fide  potential
purchaser  of the  Equipment,  (g) which has  theretofore  come into the  public
domain other than by reason of any  disclosure  prohibited  hereby or (h) to its
accountants and legal counsel for the purpose of seeking advice,  on terms as to
confidentiality  which are to the same  effect as those  contained  herein.  Any
disclosure  as  contemplated  by clause  (b) or (e) of the  preceding  sentence,
including  disclosure to counsel for the Owner  Participants or to the Appraiser
shall  include a  requirement  that the  entity  to which  such  information  is
disclosed shall be subject to obligations of nondisclosure  with

                                       52
<PAGE>
respect to such  information  in  accordance  with a  confidentiality  agreement
containing in substance the same restrictions  regarding disclosure as set forth
in this Section 13.02.

                  SECTION   13.03.   Owner  Trustee  Not  Acting  in  Individual
Capacity.  Each party hereto  acknowledges  that Trust  Company is entering into
this Agreement solely as Owner Trustee under the Trust Agreement and not, except
as  expressly  provided  herein,  in its  individual  capacity,  and in no  case
whatsoever shall either of them (or any entity acting as successor Owner Trustee
under the Trust  Agreement) be personally  liable for any loss in respect of any
of the  statements,  representations,  warranties,  agreements or obligations of
Owner  Trustee  hereunder,  except that each Owner  Trustee  shall be  severally
liable, in its individual capacity,  (a) for its own willful misconduct or gross
negligence;  (b) in the case of the inaccuracy of any of its  representations or
warranties  or the  failure  to perform  any  covenant  of Owner  Trustee in its
individual  capacity  contained  in or  referred  to in  Section  4.04  of  this
Agreement  or in  Section  4.01 of the  Lease;  and (c) for the  failure  to use
ordinary care in the receipt and disbursement of moneys actually  received by it
in  accordance  with the  provisions  hereof.  If a successor  Owner  Trustee is
appointed in accordance  with the terms of the Trust  Agreement,  such successor
Owner Trustee shall, without any further act, succeed to all the rights, duties,
immunities and obligations of Owner Trustee  hereunder and the predecessor Owner
Trustee shall be released from all further duties and obligations hereunder.

                  SECTION  13.04.  Quiet  Enjoyment.  Notwithstanding  any other
provision of this Agreement or any other Operative Document, so long as no Lease
Event of Default shall have occurred and be  continuing,  as between  Lessee and
Lessor,  Lessee shall have the  exclusive  right to  possession,  operation  and
control  of the  Equipment  and Owner  Trustee,  Trust  Company,  and each Owner
Participant,  as to itself  only,  hereto  agrees that neither it nor any Person
acting  or  claiming  through  it will  interfere  with the  peaceful  and quiet
enjoyment of the  operation,  use or nonuse and  possession  of the Equipment by
Lessee in accordance with the terms of the Lease.

                  SECTION  13.05.   Intercreditor   Agreement.  (a)  Each  Owner
Participant  hereby grants to Owner  Trustee all requisite  authority to execute
and deliver the  Intercreditor  Agreement (or otherwise to become bound thereby)
and to bind the Owner  Participants  thereto by Owner  Trustee's  execution  and
delivery thereof or by Owner Trustee  otherwise  becoming bound thereby,  and no
further consent or approval on the part of the Owner  Participants is or will be
required in  connection  with the  execution,  delivery and  performance  of the
Intercreditor Agreement.

                  (b) Each Owner  Participant  acknowledges and agrees that this
Agreement  and the  other  Operative  Documents  (including  the  allocation  of
proceeds of any  collateral  security  provided  thereunder)  are subject to the
provisions of the Intercreditor  Agreement. In the event of any conflict between
the terms of this Agreement or any other Operative Document and the terms of the
Intercreditor Agreement, the terms of the Intercreditor Agreement shall control.
Without limitation of the foregoing,  notwithstanding  anything contained herein
or in any other Operative Document, the rights and remedies of the Owner Trustee
hereunder or under any other Operative Document (including,  without limitation,
with respect to any collateral security provided thereunder) shall be limited by
and subject to the terms of the Intercreditor Agreement.

                                       53
<PAGE>
                  SECTION 13.06.  Reports.  Any report or notice  required to be
furnished by Lessee to the Owner Participants pursuant to this Agreement and the
other Operative  Documents may be sent by Lessee to Owner Trustee,  along with a
sufficient number of copies for all of the Owner Participants.

                                       54
<PAGE>

                  IN WITNESS  WHEREOF,  the parties hereto have each caused this
Participation Agreement to be executed as of the date first above written.

                                           SWEETHEART CUP COMPANY INC.,
                                           as Lessee

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           STATE   STREET   BANK  AND  TRUST
                                           COMPANY OF CONNECTICUT,  NATIONAL
                                           ASSOCIATION,     not    in    its
                                           individual  capacity  (except  as
                                           expressly  set forth  herein) but
                                           solely as Owner Trustee

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           GENERAL ELECTRIC CAPITAL
                                           CORPORATION, as Owner Participant

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           MDFC EQUIPMENT LEASING CORPORATION,
                                           as Owner Participant

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           DANA LEASE FINANCE CORPORATION,
                                           as Owner Participant

                                       55
<PAGE>
                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           FINOVA CAPITAL CORPORATION,
                                           as Owner Participant

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           GENERAL FOODS CREDIT INVESTORS NO. 3
                                           CORPORATION, as Owner Participant

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           TRANSAMERICA EQUIPMENT FINANCIAL
                                           SERVICES CORPORATION, as
                                           Owner Participant

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________


                                           SWEETHEART HOLDINGS INC.,
                                           as Guarantor

                                           By:    _____________________
                                           Name:  _____________________
                                           Title: _____________________

                                       56
<PAGE>

                                   SCHEDULE I
                                   ----------
                               NAMES AND ADDRESSES
                               -------------------

Information Relating to Each Participant:


                         [APPEARS IN ORIGINAL DOCUMENT]


                                       57
<PAGE>

                         [APPEARS IN ORIGINAL DOCUMENT]


                                       58
<PAGE>

                        [APPEARS IN ORIGINAL DOCUMENT]


                                       59
<PAGE>

                                   SCHEDULE II
                                   -----------
                              COMMITMENT PERCENTAGE
                              ---------------------

                         [APPEARS IN ORIGINAL DOCUMENT]

                                       60
<PAGE>

                                  SCHEDULE III
                                  ------------
                             FILINGS AND RECORDINGS
                             ----------------------

                         [APPEARS IN ORIGINAL DOCUMENT]


                                       61
<PAGE>

                                   SCHEDULE IV
                                   -----------
                                   LITIGATION
                                   ----------

                         {APPEARS IN ORIGINAL DOCUMENT]


                                       62
<PAGE>

                                   SCHEDULE V
                                   ----------
                              ENVIRONMENTAL NOTICES
                              ---------------------

                         {APPEARS IN ORIGINAL DOCUMENT]



                                       63
<PAGE>

                         {APPEARS IN ORIGINAL DOCUMENT]


                                       64
<PAGE>


                                   SCHEDULE VI
                                   -----------

                          SWEETHEART CUP COMPANY, INC.

                             Manufacturing Equipment

                               SCHEDULED PAYMENTS
                               ------------------


----------------------------------------------
    Date                  Amount
----------------------------------------------
----------------------------------------------
  21-Aug-00            $3,710,471.15
----------------------------------------------
----------------------------------------------
  21-Nov-00            $8,770,204.54
----------------------------------------------
----------------------------------------------
  21-Feb-01           $13,829,937.93
----------------------------------------------
----------------------------------------------
  21-May-01           $18,889,671.31
----------------------------------------------
----------------------------------------------
  21-Aug-01           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Nov-01           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Feb-02           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-May-02           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Aug-02           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Nov-02           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Feb-03           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-May-03           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Aug-03           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Nov-03           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Feb-04           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-May-04           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Aug-04           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Nov-04           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Feb-05           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-May-05           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Aug-05           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Nov-05           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Feb-06           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-May-06           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Aug-06           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Nov-06           $20,238,933.55
----------------------------------------------
----------------------------------------------
  21-Feb-07           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-May-07           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Aug-07           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Nov-07           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Feb-08           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-May-08           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Aug-08           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Nov-08           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Feb-09           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-May-09           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Aug-09           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Nov-09           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Feb-10           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-May-10           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  21-Aug-10           -$3,701,130.64
----------------------------------------------
----------------------------------------------
  9-Nov-10            -$3,701,130.64
----------------------------------------------

                                       65
<PAGE>


                                  SCHEDULE VII
                                  ------------
                             PERMITTED ENCUMBRANCES
                             ----------------------

I.       Permitted Encumbrances with respect to the Collateral
         -----------------------------------------------------

               A. The respective rights and interests of the Owner  Participants
          and Lessor as provided in the Operative Documents;

               B. Liens for taxes of Lessee or  Guarantor  either not yet due or
          which are subject to a Permitted Contest;

               C. Liens which arise out of judgments or awards against Lessee or
          Guarantor  with  respect  to  which  (i)  at the  time  an  appeal  or
          proceeding  for review is being  diligently  prosecuted in good faith,
          (ii) there shall have been  secured a stay of  execution  pending such
          appeal or proceeding for review (iii) during such  proceedings,  there
          is not,  and such  proceedings  do not  involve  any risk of the sale,
          forfeiture  or loss of the  Collateral,  any part  thereof or interest
          therein,  (iv) appropriate  reserves are maintained in accordance with
          GAAP  and  (v)  if  such  Liens  have  specifically  attached  to  the
          Collateral or portion thereof or the Trust Estate, Lessee or Guarantor
          has  provided  Lessor  or  the  Owner   Participants   with  security,
          reasonably  satisfactory  to the Owner  Participant,  in the amount of
          such claims; and

               D. Lenders'  Liens (as such term is defined in the  Intercreditor
          Agreement)  and any Liens created in replacement of Lenders' Liens and
          securing   any   refinancing,    renewal,   replacement,    extension,
          substitution  or  refunding  of the BA Loan  Agreement  to the  extent
          constituting Permitted Debt under clause (j) of the definition thereof
          and provided no such Lien has any greater  priority in the  Collateral
          than such Lenders' Liens.

II.      Permitted Encumbrances with respect to the PPE Collateral
         ---------------------------------------------------------

               A. Mechanics',  workmen's,  repairmen's,  employees',  carriers',
          warehousemen's, landlord's or other like Liens arising in the ordinary
          course of business of Lessee or  Guarantor,  which are not overdue for
          more than 30 days or are subject to a Permitted Contest.

III.     Permitted Encumbrances with respect to Working Capital Collateral
         -----------------------------------------------------------------

               A. Liens constituting  "Permitted Liens" as defined in the Credit
          Agreement (as defined in the Intercreditor Agreement).

IV. Permitted Encumbrances with respect to the specific collateral defined below
    ----------------------------------------------------------------------------

               A. Real estate  located at Dallas,  Texas:  All matters of record
          specified  in the title  policy  issued  by  Commonwealth  Land  Title
          Insurance   Company  to  State  Street

                                       66
<PAGE>
          Bank and  Trust  Company  of  Connecticut,  National  Association,  as
          mortgagee dated as of the Closing Date except for the following:

                    1. Deed of Trust  Executed by Sweetheart Cup Company Inc., a
               Delaware  corporation  to Stanley E.  Keeton,  Trustee,  securing
               United  States  Trust  Company of New York,  in its  capacity  as
               Trustee  dated  August 30 1993,  filed of record on  September 1,
               1993,  and  recorded in Volume  93160,  Page 5181,  Deed of Trust
               Records, Dallas County, Texas;

                    2. Financing  statement showing Sweetheart Cup Company Inc.,
               as  Debtor,  and United  States  Trust  Company  of New York,  as
               Trustee,  as Secured Party filed  September1,  1993,  recorded in
               Volume 93170, Page 5257, Deed of Trust Records,  Dallas,  County,
               Texas.

          B. Real  estate  located at Owings  Mills,  Maryland:  All  matters of
     record  specified in the title  policy  issued by  Commonwealth  Land Title
     Insurance  Company to State Street Bank and Trust  Company of  Connecticut,
     National Association,  as mortgagee dated as of the Closing Date except for
     the following:

               1. Deed of Trust and  Assignment  of Rents,  Leases and Leasehold
          Interests dated August 30, 1993 by and between  Sweetheart Cup Company
          Inc., to John M. Obzud, Trustee for the benefit of United States Trust
          Company  of New York  recorded  among the Land  Records  of  Baltimore
          County in Liber 9993, folio 260;

               2. Financing  statement  showing  Sweetheart Cup Company Inc., as
          Debtor,  and United States Trust  Company of New York, as Trustee,  as
          Secured Party recorded  among the Land Records of Baltimore  County in
          Liber 10005, folio 123.

          C. Real  estate  located at Chicago,  Illinois:  All matters of record
     specified in the title policy issued by  Commonwealth  Land Title Insurance
     Company to State  Street Bank and Trust  Company of  Connecticut,  National
     Association,  as  mortgagee  dated as of the  Closing  Date  except for the
     following:

               1.  Mortgage  and  Assignment  of  Rents,  Leases  and  Leasehold
          Interests from Sweetheart Cup Company Inc., a Delaware  corporation to
          United States Trust Company of New York, as Trustee under that certain
          Indenture  dated as of August 30,  1993,  recorded  August 31, 1993 as
          Document Number 93693034l;

               2. Security  interest of United States Trust Company of New York,
          as Trustee,  secured  party,  executed by Sweetheart Cup Company Inc.,
          debtor, and filed on September 1, 1993 as Document Number 93 U 13762.

                                       67
<PAGE>
          D. Real estate located at Springfield, Missouri: All matters of record
     specified in the title report issued by  Commonwealth  Land Title Insurance
     Company dated March 1, 2000 except for the following:

               1. Deed of Trust  executed by  Sweetheart  Cup Company,  Inc., in
          favor of United States Trust Company of New York, as Trustee,  secured
          party,  dated August 30, 1993 and filed September 1, 1993 in Book 2273
          at Page 2150 of the deed records of Greene County, Missouri;

               2. UCC #3588 executed by Sweetheart  Cup Company,  Inc., in favor
          of United  States  Trust  Company on September 1, 1993 in Book 2273 at
          page 2172;

               3. UCC #3930 executed by Sweetheart Cup Company, Inc. in favor of
          United States Trust Company on September 24, 1993 in Book 2278 at Page
          319;

               4. UCC #3112  recorded on August 2, 1993,  executed by Sweetheart
          Holdings,  Inc.,  in favor of United States Trust Company of New York,
          and amended on September 3, 1993;

               5. UCC #3113  recorded on August 2, 1993,  executed by Sweetheart
          Holdings,  Inc.,  in favor of United States Trust Company of New York,
          and amended on September 3, 1993.

          E. Real estate  located at Manchester,  New Hampshire:  All matters of
     record  specified in the title  report  issued by  Commonwealth  Land Title
     Insurance Company dated February 29, 2000 except for the following:

               1.  Mortgage  and  Assignment  of  Rents,  Leases  and  Leasehold
          Interests from Sweetheart Cup Company Inc., a Delaware  Corporation to
          United  States Trust  Company of New York dated as of August 30, 1993,
          and recorded with the  Hillsborough  County  Registry of Deeds at Book
          5468, Page 1612;

               2. UCC Financing  Statement from  Sweetheart Cup Company Inc., as
          Debtor,  to United  States  Trust  Company  of New York,  Trustee,  as
          Secured Party, recorded with said Registry at Book 5468, Page 1630.

          F. Real estate  located at Somerville,  Massachusetts:  All matters of
     record  specified in the title  report  issued by  Commonwealth  Land Title
     Insurance Company dated March 2, 2000 except for the following:

               1. Mortgage and  Assignment  of Leases and Rents from  Sweetheart
          Cup Company  Inc. to United  States  Trust  Company of New York in its

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          capacity as  indenture  trustee  dated August 30, 1993 and recorded in
          Book 23628, Page 393;

               2.  Assignment of Leases and Rents to United States Trust Company
          of New York dated August 30, 1993 recorded in Book 23628, Page 414;

               3.  Indenture  dated as of August  30,  1993 by and  between  Cup
          Acquisition  Corporation,  SHI Holding Company,  LLC and United States
          Trust Company of New York, Trustee recorded in Book 23628, Page 424.

          G. Real estate  located at Richmond  County,  Georgia:  All matters of
     record  specified in the title  report  issued by  Commonwealth  Land Title
     Insurance Company dated March 9, 2000 except for the following:

               1. Deed to  Secure  Debt and  Assignment  of  Rents,  Leases  and
          Leasehold Interests Sweetheart Cup Company Inc. to United States Trust
          Company of New York,  dated August 30,  1993,  recorded in Realty Reel
          431, page 618, Richmond County, Georgia records;

               2. UCC-1 Financing Statement between Sweetheart Cup Company Inc.,
          Debtor, and United States Trust Company of New York, Trustee,  Secured
          Party,  filed for record  September  3, 1993,  recorded in Realty Reel
          431, Page 978, Richmond County, Georgia records;

               3. UCC-1 Financing Statement between Sweetheart Cup Company Inc.,
          Debtor,  and United States Trust Company,  Secured Party,  recorded in
          Realty Reel 1018, Page 1090, Richmond County, Georgia records;

               4. UCC-1 Financing Statement between Sweetheart Cup Company Inc.,
          Debtor,  and United States Trust Company,  Secured Party,  recorded in
          Realty Reel 1018, Page 1092, Richmond County, Georgia records.

          H. Real  estate  located at  Conyers,  Georgia:  All matters of record
     specified in the title report issued by  Commonwealth  Land Title Insurance
     Company dated February 25, 2000 except for the following:

               1. Deed to  Secure  Debt and  Assignment  of  Rents,  Leases  and
          Leasehold  Interests  from  Sweetheart  Cup Company  Inc.,  a Delaware
          corporation,  successor in interest to Fort Howard Cup Corporation and
          Lily  Tulip,  Inc.,  to United  States  Trust  Company  of New York as
          trustee,  dated as of August 30, 1993, recorded in Deed Book 899, page
          11, Rockdale County, Georgia, Records;

               2. Consent and  Subordination  by United  States Trust Company of
          New  York,  recorded  in Deed Book  1443,  page 88,  Rockdale  County,
          Georgia,  Records,  as further affected by Subordination  Agreement by
          United  States

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          Trust  Company of New York to Georgia  Department  of  Transportation,
          dated December 22, 1997, recorded in Deed Book 1467, page 16 aforesaid
          records;

               3. UCC Financing  Statement No.  93-1062  between  Sweetheart Cup
          Company  Inc.,  Debtor,  and United  States Trust Company of New York,
          Trustee,  Secured  Party,  filed for record  September 3, 1993 at 9:59
          a.m., Rockdale County, Georgia, Records.

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