MASTER LEASE AGREEMENT

DATED AS OF NOVEMBER 17, 2003 (“AGREEMENT”)

        THIS AGREEMENT is between General Electric Capital Corporation (together
with its successors and assigns, if any, “Lessor”) and Badger Paper Mills, Inc.
(“Lessee”). Lessor has an office at 1415 West 22nd Street Suite 600, Oak Brook,
IL  60523. Lessee is a corporation organized and existing under the laws of the
state of Wisconsin. Lessee’s mailing address and chief place of business is
200 West Front Street, Peshtigo, WI  54157. This Agreement contains the general
terms that apply to the leasing of Equipment from Lessor to Lessee. Additional
terms that apply to the Equipment (term, rest, options, etc.) shall be contained
on a schedule (“Schedule”).

1.     LEASING:

        (a)    Lessor agrees to lease to Lessee, and Lessee agrees to lease from
Lessor, the equipment and the property (“Equipment”) described in any Schedule
signed by both parties.

        (b)    Lessor shall purchase Equipment from the manufacturer or supplier
(“Supplier”) and lease it to Lessee if on or before the Last Delivery Date
Lessor receives (i) a Schedule for the Equipment, (ii) evidence of insurance
which complies with the requirements of Section 9, and (iii) such other
documents as Lessor may reasonably request. Each of the documents required above
must be in form and substance satisfactory to Lessor. Lessor hereby appoints
Lessee its agent for inspection and acceptance of the Equipment from the
Supplier. Once the Schedule is signed, the Lessee may not cancel the Schedule.

2.     TERM, RENT AND PAYMENT:

        (a)    The rent payable for the Equipment and Lessee’s right to use the
Equipment shall begin on the earlier of (i) the date when the Lessee signs the
Schedule and accepts the Equipment or (ii) when Lessee has accepted the
Equipment under a Certificate of Acceptance (“Lease Commencement Date”). The
term of this Agreement shall be the period specified in the applicable Schedule.
The word “term” shall include all basic and any renewal terms.

        (b)     Lessee shall pay rent to Lessor at its address stated above,
except as otherwise directed by Lessor. Rent payments shall be in the amount set
forth in, and due as stated in the applicable Schedule. If any Advance Rent (as
stated in the Schedule) is payable, it shall be due when the Lessee signs the
Schedule. Advance Rent shall be applied to the first rent payment and the
balance, if any, to the final rent payment(s) under such Schedule. In no event
shall any Advance Rent or any other rent payments be refunded to Lessee. If rent
is not paid within ten (10) days of its due date, Lessee agrees to pay a late
charge of five cents ($.05) per dollar on, and in addition to, the amount of
such rent due not exceeding the lawful maximum, if any.

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3.     RENT ADJUSTMENT:

        (a)    If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Internal Revenue Code of 1986, as amended, (“Code”)), the maximum
effective corporate income tax rate (exclusive of any minimum tax rate) for
calendar-year taxpayers (“Effective Rate”) is higher than thirty-five
percent (35%) for any year during the lease term, then Lessor shall have the
right to increase such rent payments by requiring payment of a single additional
sum. The additional sum shall be equal to the product of (i) the Effective Rate
(expressed as a decimal) for such year less .35 (or, in the event that any
adjustment has been made hereunder for any previous year, the Effective Rate
(expressed as a decimal) used in calculating the next previous adjustment) times
(ii) the adjusted Termination Value (defined below), divided by (iii) the
difference between the new Effective Rate (expressed as a decimal) and one (1).
The adjusted Termination Value shall be the Termination Value (calculated as of
the first rent due in the year for which the adjustment is being made) minus the
Tax Benefits that would be allowable under Section 168 of the Code (as of the
first day of the year for which such adjustment is being made and all future
years of the lease term). The Termination Values and Tax Benefits are defined on
the Schedule. Lessee shall pay to Lessor the full amount of the additional rent
payment on the later of (i) receipt of notice or (ii) the first day of the year
for which such adjustment is being made.

        (b)     If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Code, the Effective Rate is lower than thirty-five percent (35%) for any
year during the lease term, then Lessor shall upon request reduce such rent
payments by a single sum. The reduction shall be equal to the product of (i) the
Effective Rate (expressed as a decimal) for such year less .35 (or, in the event
that any adjustment has been made hereunder for any previous year, the Effective
Rate (expressed as a decimal) used in calculating the next previous adjustments)
times (ii) the adjusted Termination Value (defined below), divided by (iii) the
difference between the new Effective Tax Rate (expressed as a decimal) and
one (1). The adjusted Termination Value shall be the Termination Value
(calculated as of the first rent due in the year for which the adjustment is
being made) minus the Tax Benefits that would be allowable under Section 168 of
the Code (as of the first day of the year for which such adjustment is being
made and all future years of the lease term). The Termination Values and Tax
Benefits are defined on the Schedule. Lessor shall pay to Lessee the full amount
of the rent reduction on the later of (i) receipt of notice or (ii) the first
day of the year for which such adjustment is being made.

        (c)     Lessee’s obligations under this Section 3 shall survive any
expiration or termination of this Agreement.

4.     TAXES:

        (a)    If permitted by law, Lessee shall report and pay promptly all
taxes, fees and assessments due, imposed, assessed or levied against any
Equipment (or purchase, ownership, delivery, leasing, possession, use or
operation thereof), this Agreement (or any rents or receipts hereunder), any
Schedule, Lessor or Lessee by any governmental entity or taxing authority during
or related to the term of this Agreement, including, without limitation, all
license and registration fees, and all sales, use, personal property, excise,
gross receipts, franchise, stamp or other taxes, imposts, duties and charges,
together with any penalties, fines or interest thereon (collectively “Taxes”).
Lessee shall have no liability for Taxes imposed by the United States of America
or any state or political subdivision thereof which are on or measured by the
net income of Lessor except as provided in Sections 3 and 14(c). Lessee shall
promptly reimburse Lessor (on an after tax basis) for any Taxes charged to or
assessed against Lessor, Lessee shall show Lessor as the owner of the Equipment
on all tax reports or returns, and send Lessor a copy of each report or return
and evidence of Lessee’s payment of Taxes upon request.

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        (b)     Lessee’s obligations, and Lessor’s rights and privileges,
contained in this Section 4 shall survive the expiration or other termination of
this Agreement

5.     REPORTS:

        (a)     If any tax or other lien shall attach to any Equipment, Lessee
will notify Lessor in writing, within ten (10) days after Lessee becomes aware
of the tax or lien. The notice shall include the full particulars of the tax or
lien and the location of such Equipment on the date of the notice.

        (b)     Lessee will deliver to Lessor, Lessee’s complete financial
statements, certified by a recognized firm of certified public accountants
within ninety (90) days of the close of each fiscal year of Lessee. Lessee will
deliver to Lessor copies of Lessee’s quarterly financial report certified by the
chief financial officer of Lessee, within ninety (90) days of the close of each
fiscal quarter of Lessee. Lessee will deliver to Lessor all Forms 10-K and 10-Q,
if any, filed with the Securities and Exchange Commission within thirty (30)
days after the date on which they are filed.

        (c)     Lessor may inspect any Equipment during normal business hours
after giving Lessee reasonable prior notice.

        (d)     Lessee will keep the Equipment at the Equipment Location
(specified in the applicable Schedule) and will give Lessor prior written notice
of any relocation of Equipment. If Lessor asks, Lessee will promptly notify
Lessor in writing of the location of any Equipment.

        (e)     If any Equipment is lost or damaged (where the estimated repair
costs would exceed the greater of ten percent (10%) of the original Equipment
cost or ten thousand and 00/100 dollars ($10,000)), or is otherwise involved in
an accident causing personal injury or property damage, Lessee will promptly and
fully report the event to Lessor in writing.

        (f)     Lessee will furnish a certificate of an authorized officer of
Lessee stating that he has reviewed the activities of Lessee and that, to the
best of his knowledge, there exists no default or event which with notice or
lapse of time (or both) would become such a default within thirty (30) days
after any request by Lessor.

        (g)     Lessee will promptly notify Lessor of any change in Lessee’s
state of incorporation or organization.

6.     DELIVERY, USE AND OPERATION:

        (a)     All Equipment shall be shipped directly from the Supplier to
Lessee.

        (b)     Lessee agrees that the Equipment will be used by Lessee solely
in the conduct of its business and in a manner complying with all applicable
laws, regulation and insurance policies and Lessee shall not discontinue use of
the Equipment.

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        (c)     Lessee will not move any equipment from the location specified
on the Schedule, without the prior written consent or Lessor.

        (d)     Lessee will keep the Equipment free and clear of all liens and
encumbrances other than those which result from acts of Lessor.

        (e)     Lessor shall not disturb Lessee’s quiet enjoyment of the
Equipment during the term of the Agreement unless a default has occurred and is
continuing under this Agreement.

7.     MAINTENANCE:

        (a)     Lessee will, at its sole expense, maintain each unit of
Equipment in good operating order and repair, normal wear and tear excepted. The
Lessee shall also maintain the Equipment in accordance with manufacturer’s
recommendations. Lessee shall make all alterations or modifications required to
comply with any applicable law, rule or regulation during the term of this
Agreement. If Lessor requests, Lessee shall affix plates, tags or other
identifying labels showing ownership thereof by Lessor. The tags or labels shall
be placed in a prominent position on each unit of Equipment.

        (b)    Lessee will not attach or install anything on any Equipment that
will impair the originally intended function or use of such Equipment without
the prior written consent of Lessor. All additions, parts, supplies,
accessories, and equipment (“Additions”) furnished or attached to any Equipment
that are not readily removable shall become the property of Lessor. All
Additions shall be made only in compliance with applicable law. Lessee will not
attach or install any Equipment to or in any other personal or real property
without the prior written consent of Lessor.

8.     STIPULATED LOSS VALUE: If for any reason any unit of Equipment becomes
worn out, lost, stolen, destroyed, irreparably damaged or unusable (“Casualty
Occurrences”) Lessee shall promptly and fully notify Lessor in writing. Lessee
shall pay Lessor the sum of (i) the Stipulated Loss Value (see Schedule) of the
affected unit determined as of the rent payment date prior to the Casualty
Occurrence; and (ii) all rent and other amounts which are then due under this
Agreement on the Payment Date (defined below) for the affected unit. The Payment
Date shall be the next rent payment date after the Casualty Occurrence. Upon
Payment of all sums due hereunder, the term of this lease as to such unit shall
terminate.

9.     INSURANCE:

        (a)     Lessee shall bear the entire risk of any loss, theft, damage to,
or destruction of, any unit of Equipment from any cause whatsoever from the time
the Equipment is shipped to Lessee.

        (b)     Lessee agrees, at its own expense, to keep all Equipment insured
for such amounts and against such hazards as Lesser may reasonably require. All
such policies shall be with companies, and on terms, reasonably satisfactory to
Lessor. The insurance shall include coverage for damage to or loss of the
Equipment, liability for personal injuries, deaths or property damage. Lessor
shall be named as additional insured with a loss payable clause in favor of
Lessor, as its interest may appear, irrespective of any breach of warranty or
other act or omission of Lessee. The insurance shall provide for liability
coverage in an amount equal to at least ONE MILLION U.S. DOLLARS ($1,000,000.00)
total liability per occurrence, unless otherwise stated in any Schedule. The
casualty/property damage coverage shall be in an amount equal to the higher of
the Stipulated Loss Value or the full replacement cost of the Equipment. No
insurance shall be subject to any co-insurance clause. The insurance policies
shall provide that the insurance may not be altered or canceled by the insurer
until after thirty (30) days written notice to Lessor. Lessee agrees to deliver
to Lessor evidence of insurance reasonably satisfactory to Lessor.

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        (c)     Lessee hereby appoints Lessor as Lessee’s attorney-in-fact to
make proof of loss and claim for insurance, and to make adjustments with
insurers and to receive payment of and execute or endorse all documents, checks
or drafts in connection with insurance payments. Lessor shall not act as
Lessee’s attorney-in-fact unless Lessee is in default. Lessee shall pay any
reasonable expenses of Lessor in adjusting or collecting insurance. Lessee will
not make adjustments with insurers except with respect to claims for damage to
any unit of Equipment where the repair costs are less than the lesser of ten
percent (10%) of the original Equipment cost or ten thousand and 00/100
dollars ($10,000). Lessor may, at its option, apply proceeds of insurance, in
whole or in part, to (i) repair or replace Equipment or any portion thereof, or
(ii) satisfy any obligation of Lessee to Lessor under this Agreement.

10.     RETURN OF EQUIPMENT:

        (a)     At the expiration or termination of this Agreement or any
Schedule, Lessee shall perform any testing and repairs required to place the
units of Equipment in the stress condition and appearance as when received by
Lessee (reasonable wear and tear excepted) and in good working order for the
original intended purpose of the Equipment. If required the units of Equipment
shall be deinstalled, disassembled and crated by an authorized manufacturer’s
representative or such other service person as is reasonably satisfactory to
Lessor. Lessee shall remove installed markings that are not necessary for the
operation, maintenance or repair of the Equipment. All Equipment will be
cleaned, cosmetically acceptable, and in such condition as to be immediately
installed into use in a similar environment for which the Equipment was
originally intended to be used. All waste material and fluid must be removed
from the Equipment and disposed of in accordance with then current waste
disposal laws. Lessee shall return the units of Equipment to a location within
the continental United States as Lessor shall direct. Lessee shall obtain and
pay for a policy of transit insurance for the redelivery period in an amount
equal to the replacement value of the Equipment. The transit insurance must name
Lessor as the loss payee. The Lessee shall pay for all costs to comply with this
section (a).

        (b)     Until Lessee has fully complied with the requirements of
Section 10(a) above, Lessee’s rent payment obligation and all other obligations
under this Agreement shall continue from month to month notwithstanding any
expiration or termination of the lease term. Lessor may terminate the Lessee’s
right to use the Equipment upon ten (10) days notice to Lessee.

        (c)     Lessee shall provide to Lessor a detailed inventory of all
components of the Equipment including model and serial numbers. Lessee shall
also provide an up-to-date copy of all other documentation pertaining to the
Equipment. All service manuals, blue prints, process flow diagrams, operating
manuals, inventory and maintenance records shall be given to Lessor at least
ninety (90) days and not more than one hundred twenty (120) days prior to lease
termination.

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        (d)     Lessee shall make the Equipment available for on-site
operational inspections by potential purchasers at least one hundred
twenty (120) days prior to and continuing up to lease termination. Lessor shall
provide Lessee with reasonable notice prior to any inspection. Lessee shall
provide personnel, power and other requirements necessary to demonstrate
electrical, hydraulic and mechanical systems for each item of Equipment.

11.     DEFAULT AND REMEDIES:

        (a)    Lessor may in writing declare this Agreement in default if:
(i) Lessee breaches its obligation to pay rent or any other sum when due and
fails to cure the breach within ten (10) days; (ii) Lessee breaches any of its
insurance obligations under Section 9; (iii) Lessee breaches any of its other
obligations and fails to cure that breach within thirty (30) days after written
notice from Lessor; (iv) any representation or warranty made by Lessee in
connection with this Agreement shall be false or misleading in any material
respect; (v) Lessee or any guarantor or other obligor for the Lessee’s
obligations hereunder (“Guarantor”) becomes insolvent or ceases to do business
as a going concern; (vi) any Equipment is illegally used; (vii) if Lessee or any
Guarantor is a natural person, any death or incompetency of Lessee or such
Guarantor; or (viii) a petition is filed by or against Lessee or any Guarantor
under any bankruptcy or insolvency laws and in the event of an involuntary
petition, the petition is not dismissed within forty-five (45) days of the
filing date. The default declaration shall apply to all Schedules unless
specifically excepted by Lessor.

        (b)     After a default, at the request of Lessor, Lessee shall comply
with the provisions of Section 10(a). Lessee hereby authorizes Lessor to
peacefully enter any premises where any Equipment may be and take possession of
the Equipment. Lessee shall immediately pay to Lessor without further demand as
liquidated damages for loss of a bargain and not as a penalty, the Stipulated
Loss Value of the Equipment (calculated as of the rent payment date prior to the
declaration of default), and all rents and other sums then due under this
Agreement and all Schedules. Lessor may terminate this Agreement as to any or
all of the Equipment. A termination shall occur only upon written notice by
Lessor to Lessee and only as to the units of Equipment specified in any such
notice. Lessor may, but shall not be required to, sell Equipment at private or
public sale, in bulk or in parcels, with or without notice, and without having
the Equipment present at the place of sale. Lessor may also, but shall not be
required to, lease, otherwise dispose of or keep idle all or part of the
Equipment. Lessor may use Lessee’s premises for a reasonable period of time for
any or all of the purposes stated above without liability for rent, costs,
damages or otherwise. The proceeds of sale, lease or other disposition, if any,
shall be applied in the following order of priorities: (i) to pay all of
Lessor’s costs, charges and expenses incurred in taking, removing, holding,
repairing and selling, leasing or otherwise disposing of Equipment; then,
(ii) to the extent not previously paid by Lessee, to pay Lessor all sums due
from Lessee under this Agreement; then (iii) to reimburse to Lessee any sums
previously paid by Lessee as liquidated damages; and (iv) any surplus shall be
retained by Lessor. Lessee shall immediately pay any deficiency in (i) and (ii)
above.

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        (c)     The foregoing remedies are cumulative, and any or all thereof
may be exercised instead of or in addition to each other or any remedies at law,
in equity, or under statute. Lessee waives notice of sale or other disposition
(and the time and place thereof), and the manner and place of any advertising.
Lessee shall pay Lessor’s actual attorney’s fees incurred in connection with the
enforcement, assertion, defense or preservation of Lessor’s rights and remedies
under this Agreement, or if prohibited by law, such lesser sum as may be
permitted. Waiver of any default shall not be a waiver of any other or
subsequent default.

        (d)     Any default under the terms of this or any other agreement
between Lessor and Lessee may be declared by Lessor a default under this and any
such other agreement.

12.     ASSIGNMENT:    LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR
SUBLET ANY EQUIPMENT OR THE INTEREST OF LESSEE IN THE EQUIPMENT WITHOUT THE
PRIOR WRITTEN CONSENT OF LESSOR. Lessor may, without the consent of Lessee,
assign this Agreement, any Schedule or the right to enter into a Schedule.
Lessee agrees that if Lessee receives written notice of an assignment from
Lessor, Lessee will pay all rent and all other amounts payable under any
assigned Schedule to such assignee or as instructed by Lessor. Lessee also
agrees to confirm in writing receipt of the notice of assignment as may be
reasonably requested by assignee. Lessee hereby waives and agrees not to assert
against any such assignee any defense, set-off, recoupment claim or counterclaim
which Lessee has or may at any time have against Lessor for any reason
whatsoever.

13.     NET LEASE:    Lessee is unconditionally obligated to pay all rent and
other amounts due for the entire lease term no matter what happens, even if the
Equipment is damaged or destroyed, if it is defective or if Lessee no longer can
use it. Lessee is not entitled to reduce or set-off against rent or other
amounts due to Lessor or to anyone to whom Lessor assigns this Agreement or any
Schedule whether Lessee’s claim arises out of this Agreement, any Schedule, any
statement by Lessor, Lessor’s liability or any manufacturer’s liability, strict
liability, negligence or otherwise.

14.     INDEMNIFICATION:

        (a)    Lessee hereby agrees to indemnify Lessor, its agents, employees,
successors and assigns (on an after tax basis) from and against any and all
losses, damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature arising out of or relating to the
Equipment or this Agreement, except to the extent the losses, damages,
penalties, injuries, claims, actions, suits or expenses result from Lessor’s
gross negligence or willful misconduct (“Claims”). This indemnity shall include,
but is not limited to, Lessor’s strict liability in tort and Claims, arising out
of (i) the selection, manufacture, purchase, acceptance or rejection of
Equipment, the ownership of Equipment during the term of this Agreement, and the
delivery, lease, possession, maintenance, uses, condition, return or operation
of Equipment (including, without limitation, latent and other defects, whether
or not discoverable by Lessor or Lessee and any claim for patent, trademark or
copyright infringement or environmental damage) or (ii) the condition of
Equipment sold or disposed of after use by Lessee, any sublessee or employees of
Lessee. Lessee shall, upon request, defend any actions based on, or arising out
of, any of the foregoing.

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        (b)    Lessee hereby represents, warrants and covenants that (i) on the
Lease Commencement Date for any unit of Equipment, such unit will qualify for
all of the items of deduction and credit specified in Section C of the
applicable Schedule (“Tax Benefits”) in the hands of Lessor, and (ii) at no time
during the term of this Agreement will Lessee take or omit to take, nor will it
permit any sublessee or assignee to take or omit to take, any action (whether or
not such act or omission is otherwise permitted by Lessor or by this Agreement),
which will result in the disqualification of any Equipment for, or recapture of,
all or any portion of such Tax Benefits.

        (c)    If as a result of a breach of any representation, warranty or
covenant of the Lessee contained in this Agreement or any Schedule (i) tax
counsel of Lessor shall determine that Lessor is not entitled to claim on its
Federal income tax return all or any portion of the Tax Benefits with respect to
any Equipment, or (ii) any Tax Benefit claimed on the Federal income tax return
of Lessor is disallowed or adjusted by the Internal Revenue Service, or
(iii) any Tax Benefit is recalculated or recaptured (any determination,
disallowance, adjustment, recalculation or recapture being a “Loss”), then
Lessee shall pay to Lessor, as an indemnity and as additional rent, an amount
that shall, in the reasonable opinion of Lessor, cause Lessor’s after-tax
economic yields and cash flows to equal the Net Economic Return that would have
been realized by Lessor if such Loss had not occurred. Such amount shall be
payable upon demand accompanied by a statement describing in reasonable detail
such Loss and the computation of such amount. The economic yields and cash flows
shall be computed on the same assumptions, including tax rates as were used by
Lessor in originally evaluating the transaction (“Net Economic Return”). If an
adjustment has been made under Section 3 then the Effective Rate used in the
next preceding adjustment shall be substituted.

        (d)     All references to Lessor in this Section 14 include Lessor and
the consolidated taxpayer group of which Lessor is a member. All of Lessor’s
rights, privileges and indemnities contained in this Section 14 shall survive
the expiration or other termination of this Agreement. The rights, privileges
and indemnities contained herein are expressly made for the benefit of, and
shall be enforceable by Lessor, its successors and assigns.

15.     DISCLAIMER:    LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT
WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT
MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
EQUIPMENT LEASED UNDER THIS AGREEMENT OR ANY COMPONENT THEREOF, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS,
QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE,
USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE.
All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without
limiting the foregoing, Lessor shall have no responsibility or liability to
Lessee or any other person with respect to any of the following; (i) any
liability, loss or damage caused or alleged to be caused directly or indirectly
by any Equipment, any inadequacy thereof, any deficiency or defect (latent or
otherwise) of the Equipment, or any other circumstance in connection with the
Equipment; (ii) the use, operation or performance of any Equipment or any risks
relating to it; (iii) any interruption of service, loss of business or
anticipated profits or consequential damages; or (iv) the delivery, operation,
servicing, maintenance, repair, improvement or replacement of any Equipment. If,
and so long as, no default exists under this Agreement, Lessee shall be, and
hereby is, authorized during the term of this Agreement to assert and enforce
whatever claims and rights Lessor may have against any Supplier of the Equipment
at Lessee’s sole cost and expense, in the name of and for the account of Lessor
and/or Lessee, as their interests may appear.

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16.     REPRESENTATIONS AND WARRANTIES OF LESSEE:    Lessee makes each of the
following representations and warranties to Lessor on the date hereof and on the
date of execution of each Schedule.

        (a)    Lessee has adequate power and capacity to enter into, and perform
under, this Agreement and all related documents (together, the “Documents”).
Lessee is duly qualified to do business wherever necessary to carry on its
present business and operations, including the jurisdiction(s) where the
Equipment is or is to be located.

        (b)     The Documents have been duly authorized, executed and delivered
by Lessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies may be limited under applicable bankruptcy and insolvency laws.

        (c)     No approval, consent or withholding of objections is required
from any governmental authority or entity with respect to the entry into or
performance by Lessee of the Documents except such as have already been
obtained.

        (d)     The entry into and performance by Lessee of the Documents will
not: (i) violate any judgment, order, law or regulation applicable to Lessee or
any provision of Lessee’s Certificate of Incorporation or bylaws; or (ii) result
in any breach of, constitute a default under or result in the creation of any
lien, charge, security interest or other encumbrance upon any Equipment pursuant
to any indenture, mortgage, deed of trust, bank loan or credit agreement or
other instrument (other than this Agreement) to which Lessee is a party.

        (e)     There are no suits or proceedings pending or threatened in court
or before any commission, board or other administrative agency against or
affecting Lessee, which if decided against Lessee will have a material adverse
effect on the ability of Lessee to fulfill its obligations under this Agreement

        (f)     The Equipment accepted under any Certificate of Acceptance is
and will remain tangible personal property.

        (g)     Each financial statement delivered to Lessor has been prepared
in accordance with generally accepted accounting principles consistently
applied. Since the date of the most recent financial statement, there has been
no material adverse change.

        (h)     Lessee’s exact legal name is as set forth in the first sentence
of this Agreement and Lessee is and will be at all times validly existing and in
good standing under the laws of the State of its incorporation or organization
(specified in the first sentence of this Agreement).

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        (i)     The Equipment will at all times be used for commercial or
business purposes.

        (j)    Lessee is and will remain in full compliance with all laws and
regulations applicable to it including, without limitation, (i) ensuring that no
person who owns a controlling interest in or otherwise controls Lessee is or
shall be (Y) listed on the Specially Designated Nationals and Blocked Person
List maintained by the Office of Foreign Assets Control (“OFAC”), Department of
the Treasury, and/or any other similar lists maintained by OFAC pursuant to any
authorizing statute, Executive Order or regulation or (Z) a person designated
under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23,
2001), any related enabling legislation or any other similar Executive Orders,
and (ii) compliance with all applicable Bank Secrecy Act (“BSA”) laws,
regulations and government guidance on BSA compliance and on the prevention and
detection of money laundering violations.

17.     EARLY TERMINATION:

        (a)     On or after the First Termination Date (specified in the
applicable Schedule), Lessee may, so long as no default exists hereunder,
terminate this Agreement as to all (but not less than all) of the Equipment on
each Schedule as of a rent payment date (“Termination Date”). Lessee must give
Lessor at least ninety (90) days prior written notice of the termination.

        (b)    Lessee shall, and Lessor may, solicit cash bids for the Equipment
on an AS IS, WHERE IS BASIS without recourse to or warranty from Lessor, express
or implied (“AS IS BASIS”). Prior to the Termination Date, Lessee shall
(i) certify to Lessor any bids received by Lessee and (ii) pay to Lessor (A) the
Termination Value (calculated as of the rent due on the Termination Date) for
the Equipment, and (B) all rent and other sums due and unpaid as of the
Termination Date.

        (c)     If all amounts due hereunder have been paid on the Termination
Date, Lessor shall (i) sell the Equipment on an AS IS BASIS for cash to the
highest bidder and (ii) refund the proceeds of such sale (net of any related
expenses) to Lessee up to the amount of the Termination Value. If such sale is
not consummated, no termination shall occur and Lessor shall refund the
Termination Value (less any expenses incurred by Lessor) to Lessee.

        (d)     Notwithstanding the foregoing, Lessor may elect by written
notice, at any time prior to the Termination Date, not to sell the Equipment. In
that event, on the Termination Date Lessee shall (i) return the Equipment (in
accordance with Section 10) and (ii) pay to Lessor all amounts required under
Section 17(b) less the amount of the highest bid certified by Lessee to Lessor.

18.     PURCHASE OPTION:

        (a)     Lessee may at lease expiration purchase all (but not less than
all) of the Equipment in any Schedule on an AS IS BASIS for cash equal to its
then Fair Market Value (plus all applicable sales taxes). Lessee must notify
Lessor of its intent to purchase the Equipment in writing at least one hundred
eighty (180) days in advance. If Lessee is in default or if the Lease has
already been terminated Leases may not purchase the Equipment.

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        (b)     “Fair Market Value” shall mean the price that a willing buyer
(who is neither a lessee in possession nor a used equipment dealer) would pay
for the Equipment in an arm’s-length transaction to a willing seller under no
compulsion to sell. In determining the Fair Market Value the Equipment shall be
assumed to be in the condition in which it is required to be maintained and
returned under this Agreement. If the Equipment is installed it shall be valued
on an installed basis. The costs of removal from current location shall not be a
deduction from the value of the Equipment. If Lessor and Lessee are unable to
agree on the Fair Market Value at lease one hundred thirty-five (135) days
before lease expiration, Lessor shall appoint an independent appraiser
(reasonably acceptable to Lessee) to determine Fair Market Value. The
independent appraiser’s determination shall be final, binding and conclusive.
Lessee shall bear all costs associated with any such appraisal.

        (c)     Lessee shall be deemed to have waived this option unless it
provides Lessor with written notice of its irrevocable election to exercise the
same within fifteen (15) days after Fair Market Value is told to Lessee.

19.     MISCELLANEOUS:

        (a)     LESSEE AND LESSOR UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT
BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL AFFIX TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

        (b)     The Equipment shall remain Lessor’s property unless Lessee
purchases the Equipment from Lessor and until such time Lessee shall only have
the right to use the Equipment as a lessee. Any cancellation or termination by
Lessor of this Agreement, any Schedule, supplement or amendment hereto, or the
lease of any Equipment hereunder shall not release Lessee from any then
outstanding obligations to Lessor hereunder. All Equipment shall at all times
remain personal property of Lessor even though it may be attached to real
property. The Equipment shall not become part of any other property by reason of
any installation in, or attachment to, other real or personal property.

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        (c)     Time is of the essence of this Agreement. Lessor’s failure at
any time to require strict performance by Lessee of any of the provisions hereof
shall not waive or diminish Lessor’s right at any other time to demand strict
compliance with this Agreement. Lessee agrees, upon Lessor’s request, to
execute, or otherwise authenticate, any document, record or instrument necessary
or expedient for filing, recording or perfecting the interest of Lessor or to
carry out the intent of this Agreement. In addition, Lessee hereby authorizes
Lessor to file a financing statement and amendments thereto describing the
Equipment described in any and all Schedules now and hereafter executed pursuant
hereto and adding any other collateral described therein and containing any
other information required by the applicable Uniform Commercial Code. Lessee
irrevocably grants to Lessor the power to sign Lessee’s name and generally to
act on behalf of Lessee to execute and file financing statements and other
documents pertaining to any or all of the Equipment. Lessee hereby ratifies its
prior authorization for Lessor to file financing statements and amendments
thereto describing the Equipment and containing any other information required
by any applicable law (including without limitation the Uniform Commercial Code)
if filed prior to the date hereof. All notices required to be given hereunder
shall be deemed adequately given if sent by registered or certified mail to the
addressee at its address stated herein, or at such other place as such addressee
may have specified in writing. This Agreement and any Schedule and Annexes
thereto constitute the entire agreement of the parties with respect to the
subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY
WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING
AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.

        (d)     If Lessee does not comply with any provision of this Agreement,
Lessor shall have the right, but shall not be obligated, to offset such
compliance, in whole or in part. All reasonable amounts spent and obligations
incurred or assumed by Lessor in effecting such compliance shall constitute
additional rent due to Lessor. Lessee shall pay the additional rent within five
days after the date Lessor sends notice to Lessee requesting payment. Lessor’s
effecting such compliance shall not be a waiver of Lessee’s default.

        (e)     Any rent or other amount not paid to Lessor when due shall bear
interest from the due date until paid, as the lesser of eighteen percent (18%)
per annum or the maximum rate allowed by law. Any provisions in this Agreement
and any Schedule that are in conflict with any statute, law or applicable rule
shall be deemed omitted, modified or altered to conform thereto.

        (f)     Lessee hereby irrevocably authorizes Lessor to adjust the
Capitalized Lessor’s Cost up or down by no more than ten percent (10%) within
each Schedule to account for equipment change orders, equipment returns,
invoicing errors, and similar matters. Lessee acknowledges and agrees that the
rent shall be adjusted as a result of the change in the Capitalized Lessor’s
Cost. Lessor shall send Lessee a written notice stating the final Capitalized
Lessor’s Cost, if it has changed.

        (g)     THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.

        (h)     Any cancellation or termination by Lessor, pursuant to the
provisions of this Agreement, any Schedule, supplement or amendment hereto, of
the lease of any Equipment hereunder, shall not release Lessee from any then
outstanding obligations to Lessor hereunder.

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        (i)     To the extent that any Schedule would constitute chattel paper,
as such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction, no security interest therein may be created through the
transfer or possession of this Agreement in and of itself without the transfer
or possession of the original of a Schedule executed pursuant to this Agreement
and incorporating this Agreement by reference; and no security interest in this
Agreement and a Schedule may be created by the transfer or possession of any
counterpart of the Schedule other than the original thereof, which shall be
identified as the document marked “Original” and all other counterparts shall be
marked “Duplicate”.

        (j)    Each party hereto agrees to keep confidential, the terms and
provisions of the Documents and the transactions contemplated hereby and thereby
(collectively, the “Transactions”). Notwithstanding the foregoing, the
obligations of confidentiality contained herein, as they relate to the
Transactions, shall not apply to the federal tax structure or federal tax
treatment of the Transactions, and each party hereto (and any employee,
representative, or agent of any party hereto) may disclose to any and all
persons, without limitation of any kind, the federal tax structure and federal
tax treatment of the Transactions. The preceding sentence is intended to cause
each Transaction to be treated as not having been offered under conditions of
confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor
provision) of the Treasury Regulations promulgated under Section 6011 of the
Internal Revenue Code of 1986, as amended, and shall be construed in a manner
consistent with such purpose. In addition, each party hereto acknowledges that
it has no proprietary or exclusive rights to the federal tax structure of the
Transactions or any federal tax matter or federal tax idea related to the
Transactions.

        IN WITNESS WHEREOF, Lessee and Lessor have cause this Agreement to be
executed by their duly authorized representatives as of the date first above
written.

LESSOR: LESSEE:     General Electric Capital Corporation Badger Paper Mills,
Inc.             By: ________________________________ By:
_______________________________         Name ___________________________
        Name __________________________         Title
____________________________         Title ___________________________

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