Exhibit 10.32  EXECUTION COPY     AMENDED AND RESTATED INTERCREDITOR AGREEMENT  among  CELLU TISSUE HOLDINGS, INC.  and certain of its Subsidiaries,  CELLU PAPER HOLDINGS, INC.,  THE BANK OF NEW YORK TRUST COMPANY, N.A.,  as Note Collateral Agent,  JPMORGAN CHASE BANK, N.A.,  as U.S. 
Administrative Agent,  JP MORGAN CHASE BANK, N.A., TORONTO BRANCH,  as Canadian Administrative Agent,  and  THE CIT GROUP/BUSINESS CREDIT, INC.,  as Agent to the Prior Bank Lenders   Dated as of June 1, 2006


AMENDED AND RESTATED 1NTERCREDITOR AGREEMENT, dated
as of June 12, 2006, among:  (1)           CELLU
TISSUE HOLDINGS, INC.  (the Company),
CELLU PAPER HOLDINGS, INC.  (the Parent)
and certain of the subsidiaries of the Company specified on the signature pages hereof
or each other subsidiary that becomes a party hereto;  (2)           THE
BANK OF NEW YORK TRUST COMPANY, N.A., as collateral agent (in such capacity,
together with its successors and assigns in such capacity, the Note
Collateral Agent), under the Amended and Restated Security Agreement,
dated as of June12, 2006 (as amended, supplemented or otherwise modified from
time to time, the Note Security Agreement), among the Company, certain
of its subsidiaries parties thereto and the Note Collateral Agent for the
benefit of the secured parties named therein;  (3)           JPMORGAN
CHASE BANK, N.A., as U.S. administrative agent (in such capacity, together with
its successors and assigns in such capacity, the Bank Agent) under the Pledge
and Security Agreement, dated as of June 12, 2006 (as amended,
supplemented or otherwise modified from time to time, the Bank US Security
Agreement), among the Company, the Parent, the other Bank Guarantors (as
defined herein) and the Bank Agent for the benefit of the secured parties named
therein;  (4)           JPMORGAN
CHASE BANK, N.A., TORONTO BRANCH, as Canadian administrative agent (in such
capacity, together with its successors and assigns in such capacity, the Bank
Canadian Agent; and together with the Bank Agent, collectively, the `Bank
Administrative Agent) under the General Security Agreement, dated as of June 12,
2006 (as amended, supplemented or otherwise modified from time to time, the Bank
Canadian Security Agreement; and together with the Bank US Security
Agreement, collectively, the Bank Security Agreements), between the
Canadian Borrower (as defined herein) and the Bank Canadian Agent for the
benefit of the secured parties named therein; and  (5)           THE
CIT GROUP/BUSINESS CREDIT INC.  (the Prior
Agent), as agent to the lenders (the Prior Bank Lenders) under
the Financing Agreement, dated as of March 12, 2004 (the Prior Bank
Financing Agreement).  WI T N E S S E T H:  WHEREAS, pursuant to the Indenture, dated as of March 12,
2004 (as amended by the First Supplemental Indenture dated as of June 2,
2006 and as may be further amended, supplemented or otherwise modified from
time to time, the Note Indenture) among the Company, its subsidiaries
parties thereto and The Bank of New York Trust Company, NA., as successor
trustee to The Bank of New York, the Company has issued to the holders (the Holders)
its 93/4% Senior Secured Notes due 2010 (the Notes), and may issue
from time to time additional notes, upon the terms and subject to the
conditions set forth therein and herein;  WHEREAS, in connection with the purchase by the
Holders of the Notes and the obligation of the Prior Bank Lenders to make their
respective extensions of credit under the Prior


Bank Financing Agreement,
the Company entered into an Intercreditor Agreement, dated March 9, 2004,
among the Company, certain of its subsidiaries, the Parent, The Bank of New
York, as note collateral agent, and The CIT Group/Business Credit, Inc.,
as bank agent and as Bank Canadian agent (the Original Intercreditor
Agreement) for the purpose of setting forth the relative priority of the
liens created by the Note Security Agreement and the security agreement entered
into in connection with the Prior Bank Financing Agreement;  WHEREAS, for the purpose of refinancing and
replacing the Prior Bank Financing Agreement as permitted under the Note
Indenture, the Company is entering into a Credit Agreement, dated as of June 12,
2006 (as amended, supplemented or otherwise modified from time to time, the Bank
Financing Agreement), among the Company, the Parent, Interlake Acquisition
Corporation Limited (as Canadian Borrower; and together with the
Company and any other Person that becomes a borrower under the Bank Financing
Agreement, collectively, the Borrowers), the other loan party
guarantors party thereto (together with the Company, the Parent and any other
Person that becomes a guarantor of the Bank Financing Agreement, collectively,
the Bank Guarantors), each other financial institution from time to
time party thereto as a lender (the Bank Lenders), the Bank Agent, as
U.S. administrative agent and the Bank Canadian Agent, as Canadian
administrative agent, in which the Bank Lenders have severally agreed to make
extensions of credit and other financial accommodations from time to time to
the Borrowers upon the terms and subject to the conditions set forth therein
and herein;  WHEREAS, the Note Collateral Agent, Bank
Administrative Agent, the Borrowers and the Bank Guarantors desire to enter
into this Agreement to amend and restate the Original Intercreditor Agreement
for the purpose of removing the Prior Agent as a party, adding the Bank Agent
and the Bank Canadian Agent as parties and setting forth the relative priority
of the liens created by the Note Security Agreement and the Bank Security Agreements
and the respective rights of the Note Collateral Agent and the Bank
Administrative Agent in respect of the exercise of the rights and remedies in
respect of the Collateral (as defined herein) and the application of the
proceeds thereof;  NOW, THEREFORE, in order to induce the Bank Lenders
to enter into the Bank Financing Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree to amend and restate the Prior Intercreditor
Agreement in its entirety as follows:  SECTION 1.    DEFINED TERMS  1.1           Definitions. 
(a)  Unless otherwise defined herein, the following terms are used
herein as defined in the New York UCC: 
Accessions, Account Debtor, Accounts, Certificated Security, Chattel
Paper, Commercial Tort Claims, Documents, Electronic Chattel Paper, Equipment,
Farm Products, Financial Assets, Fixtures, General Intangibles, Goods,
Instruments, Inventory, Letter-of-Credit Rights, Securities Accounts and
Supporting Obligations.  (b)           The following terms have the following meanings:  Additional Amounts: as defined in the Note
Indenture.  3


Additional Interest: any additional
interest payable on the Notes pursuant to Section 2(d) of the
Registration Rights, dated as of March 12, 2004, among the Company, the
Note Guarantors and J.P. Morgan Securities Inc., on behalf of itself and the
other initial purchasers.  Agreement: this Amended and Restated
Intercreditor Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.  Asset Disposition: as defined in the Note
Indenture.  Asset Swap: as defined in the Note
Indenture.  Bank Borrower Obligations: the collective
reference to the unpaid principal of and interest on the loans under the Bank
Financing Agreement, all amounts owing pursuant to Sections 2.15, 2.16 or 2.18
of the Bank Financing Agreement (collectively, the Increased Costs)
and all other obligations and liabilities of the Borrowers (including, without
limitation, interest accruing at the then applicable rate provided in the Bank
Financing Agreement after the maturity of the Bank Financing Agreement loans
and interest accruing at the then applicable rate provided in the Bank
Financing Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Parent, the Borrowers or the other Bank Guarantors, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding) to the
Bank Administrative Agent or to any Bank Secured Party, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, the Bank Financing Agreement, any other Bank Document or any other
document made, delivered or given in connection with any of the foregoing and
any renewal, replacement, or refinancing thereof, in each case whether on
account of principal, premium, if any, the Increased Costs, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Bank Administrative Agent or to any Bank Secured Party that are required to be
paid by any of Parent, the Borrowers or the other Bank Guarantors pursuant to
the terms of any of the foregoing agreements).  Bank Collateral Account: shall have the
same meaning as the term Collateral Account under the Bank Security
Agreements.  Bank Documents: the collective reference to
the Bank Financing Agreement, the Bank Security Agreements, each Bank Guarantee
and any other documents entered in connection therewith.  Bank First Priority Lien: the reference to First
Priority Interest and First Priority Security Interest as defined in and
granted or purported to be granted pursuant to the Bank US Security Agreement
and Bank Canadian Security Agreement, respectively.  Bank Guarantee: a guarantee to be executed
and delivered by each Bank Guarantor pursuant to the Bank Financing Agreement.  Bank Guarantor Obligations: with respect to
each Bank Guarantor, the collective reference to all obligations and
liabilities of such Bank Guarantor which may arise  4


under or in connection with
any Bank Guarantee or any other document related thereto to which such Bank
Guarantor is a party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise in
respect of Bank Obligations (including, without limitation, all fees, charges
and disbursements of counsel to the Bank Administrative Agent or to any other
Bank Secured Party that are required to be paid by such Bank Guarantor pursuant
to the terms of this Agreement, the Bank Financing Agreement or any other
document related hereto to which such Bank Guarantor is a .  party).  Bank Obligations: the collective reference
to the Bank Borrower Obligations and the Bank Guarantor Obligations.  Bank Priority Collateral: with respect to
each Grantor, all such Grantors now existing or hereinafter arising (i) Inventory,
(ii) Receivables, (iii) any and all Instruments, Documents, Chattel
Paper (including Electronic Chattel Paper) and other contracts, in each case
evidencing or substituted for any Receivable, (iv) guarantees, Supporting
Obligations, Letter-of-Credit Rights, security and other credit enhancements
for the Receivables, (v) documents of title for any Inventory, (vi) claims
and causes of action in any way relating to any of the Receivables or
Inventory, (vii) Deposit Accounts, including lockbox and securities
accounts, into which any proceeds of Receivables or Inventory are deposited
(including all cash, Cash Equivalents, Financial Assets and other funds on
deposit therein or credited 2 thereto) but only with respect to and including
such Proceeds of Bank Priority Collateral, (viii) rights to any Goods
represented by any of the foregoing, including rights to returned, reclaimed or
repossessed Goods, (ix) reserves and credit balances arising in connection
with or pursuant thereto, (x) unpaid sellers or lessors rights
(including rescission, replevin, reclamation, repossession and stoppage in
transit) relating to the foregoing or arising therefrom; (xi) insurance
policies or rights relating to any of the foregoing, (xii) General Intangibles
pertaining to any and all of the foregoing (including all rights to payment,
including those arising in connection With bank and non-bank credit cards),
(xiii) ;Promissory notes, deposits or property of Account Debtors securing the
obligations of any such Account Debtors to the Bank Secured Parties or any one
of them and (xiv) all books and records (and any electronic media and software
related thereto) pertaining to any of the foregoing, and all substitutions,
replacements, Accessions, products or Proceeds (including, without limitation,
insurance proceeds, cash and Cash Equivalents) of any of the foregoing; provided,
however, that any Collateral, regardless of type, received in connection
with an Asset Disposition or Asset Swap of Bank Priority Collateral or
otherwise in exchange for Bank Priority Collateral pursuant to the terms of the
Note Indenture shall be treated as Bank Priority Collateral under this
Agreement; the Note Security Agreement and the Bank Security Agreements; provided,
further, that any Collateral of the type that constitutes Bank Priority
Collateral, if received in connection with an Asset Disposition or Asset Swap
of Note Priority Collateral or otherwise in exchange for Note Priority
Collateral pursuant to the terms of the Note Indenture, shall be treated as
Note Priority Collateral under this Agreement, the Note Security Agreement and
the Bank Security Agreements.  Bank Second Priority Lien: the reference to
Second Priority Interest and Second Priority Security Interest as defined
in and granted or purported to be granted pursuant to the Bank US Security
Agreement and Bank Canadian Security Agreement, respectively.  Bank Secured Parties: the secured parties
under the Bank Security Agreements.  5


Borrowing Base: as of the date of
determination, an amount equal to the sum, without duplication of (105% of the
net book value of the Companys and its Restricted Subsidiaries (as defined in
the Note Indenture) accounts receivable at such date and (2) 65% of the
net book value of the Companys and its Restricted Subsidiaries inventories at
such date.  Net book value shall be
determined in accordance with GAAP and shall be that reflected on the most
recent available balance sheet (it being understood that the accounts
receivable and inventories of an acquired business may be included if such
acquisition has been completed on or prior to the date of determination).  Deposit Account:  as defined in the Uniform Commercial Code (or
equivalent foreign law, as applicable) of any applicable jurisdiction and, in
any event, including, without limitation; any demand, time, savings, passbook
or like account maintained with a depositary institution.  Governmental Authority: any nation or
government, any state or other political subdivision thereof, any agency,
authority, instrumentality; regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory,
supervisory or administrative functions or of pertaining to government, any
securities exchange and any self-regulatory organization (including the
National Association of Insurance Commissioners).  Grantor: any of the Company, the Parent,
Cellu Tissue Corporation  Natural Dam, Cello Tissue Corporation  Neenah,
Cellu Tissue LLC, Coastal Paper Company, Interlake Acquisition Corporation
Limited, Menominee Acquisition Corporation, Van Paper Company, Van Timber
Company, any other subsidiary of the Company that becomes a Bank Guarantor or a
Note Guarantor.  Insolvency Proceeding: the occurrence of
any of the following: (i) any Grantor shall commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or any
Grantor shall make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against any Grantor any case, proceeding or other action of
a nature referred to in clause (i) above that (A) results in the
entry of an order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii) there
shall be commenced against any Grantor any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets that results in the
entry of an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) any Grantor shall take any action indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) any Grantor shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due.  6


Liens: any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any conditional
sale or other title retention agreement or lease in the nature thereof).  Mortgages: each of the mortgages and deeds
of trust now or hereafter made by any Grantor in favor of, or for the benefit
of, the Note Collateral Agent for the benefit of the Note Secured Parties or
the Bank Administrative Agent for the benefit of the Bank Secured Parties.  New York UCC: the Uniform Commercial Code
as from time to time in effect in the State of New York; provided that, with
respect to any Grantor not organized or formed under the laws of the United
States of America, any State of the United States or the District of Columbia, New
York UCC shall mean the equivalent foreign law to the Uniform Commercial Code
as from time to time in effect in the applicable jurisdiction.  Note Collateral Account: shall have the
same meaning as the term Collateral Accounts under the Note Security
Agreement.  Note Company Obligations: the collective
reference to the unpaid principal of, premium, if any, Additional Amounts and
interest (including Additional Interest) on the Notes and all other obligations
and liabilities of the Company to the Note Collateral Agent or any Note Secured
Party, whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereafter incurred, which may arise under, out of, or
in connection with, this Agreement, the Note Indenture, the Note Security
Agreement, any other Note Documents or any other document made, delivered or
given in connection with any of the foregoing, in each case whether on account
of principal, premium, if any, Additional Amounts, interest (including
Additional Interest), reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Note Collateral Agent or to the Note Secured
Parties that are required to be paid by any of the Company or the Note
Guarantors pursuant to the terms of any of the foregoing agreements).  Note Documents: the collective reference to
the Note Indenture, the Note Security Agreement, each Note Guarantee and any
other documents entered in connection therewith.  Note First Priority Lien: the reference to First
Priority Interest as defined in and granted or purported to be granted
pursuant to the Note Security Agreement.  Note Guarantee: a guarantee to be executed
and delivered by a Note Guarantor pursuant to the Note Indenture.  Note Guarantors the collective reference to
each Grantor other than the Company.  Note Guarantor Obligations: with respect to
an, Note Guarantor, the collective reference to all obligations and liabilities
of such Note Guarantor which may arise under or in connection with any Note
Guarantee or any other document related thereto to which such Note Guarantor is
a party; in each case whether on account of guarantee obligations,
reimbursement,  7


obligations, fees,
indemnities, costs, expenses or otherwise in respect of Note Obligations
(including, without limitation, all fees, charges and disbursements of counsel
to the Note Collateral Agent that are required to be paid by such Note
Guarantor pursuant to the terms of this Agreement, the Note Indenture or any
other document related hereto to which such Note Guarantor is a party).  Note Obligations: the collective reference
to the Note Company Obligations and the Note Guarantor Obligations.  Note Priority Collateral: with respect to
each Grantor, any and all property secured by the Mortgages and the following
property now owned or hereafter acquired by such Grantor or in which such
Grantor has now or at any time in the future may acquire any right, title or
interest: all Chattel Paper, Deposit Accounts, the Deposit Accounts (except to
the extent that such Deposit Accounts or funds or other amounts credited
thereto constitute Bank Priority Collateral), Documents (other than title
documents with respect to Vehicles), Equipment, General Intangibles,
Instruments, Intellectual Property, Investment Property, Letter-Of-Credit
Rights, Commercial Tort Claims and all other property not described above, all
books and records pertaining to the foregoing and, to the extent not otherwise
included in the foregoing, all Proceeds, all Supporting Obligations and all
products of any and all of the foregoing and all collateral security and
guarantees given by any Person with respect to any of the foregoing; but,
excluding, however, all Bank Priority Collateral and the Number 1 Paper Machine
at the Menominee, Michigan location and all equipment directly related thereto;
provided, however, that any Collateral, regardless of type,
received in connection with an Asset Disposition or Asset Swap of Note Priority
Collateral or otherwise in exchange for Note Priority Collateral, or any
additional issuance of Notes, pursuant to the terms of the Note Indenture shall
be treated as Note Priority Collateral under this Agreement, the Note Security
Agreement and the Bank Security Agreements; provided, further,
that any Collateral of the type that constitutes Note Priority Collateral, if
received in connection with an Asset Disposition or Asset Swap of Bank Priority
Collateral or otherwise in exchange for Bank Priority Collateral pursuant to
the terms of the Note Indenture, shall be treated as Bank Priority.  Collateral under this Agreement, the Note
Security Agreement and the Bank Security Agreements.  Note Second Priority Lien: the reference to
Second Priority Interest as defined in and granted or purported to, be
granted pursuant to the Note Security Agreement.  Note Secured Parties: the secured parties
under the Note Security Agreement.  Obligations: any or all of the Bank
Borrower Obligations, the Bank Guarantor Obligations, the Note Company
Obligations and the Note Guarantor Obligations.  Person: any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, limited liability company, government or any
agency or political subdivision hereof or any other entity.  Proceeds: all proceeds as such term is
defined in Section 9-102(a)(64) of the New York UCC and, in any event,
shall include, without limitation, all dividends or other  8


income from the Investment
Property, collections thereon or distributions or payments with respect
thereto.  Receivables: all accounts (as defined in
the New York UCC) and any and all other receivables and any other right to
payment for goods sold or leased or for services rendered, including, without
limitation, all accounts created by, or arising from, all of each of the
Grantors sales, leases, rentals of goods or renditions of services to their
customers, in each case (i) including, but not limited to, those accounts
arising under any of the Grantors trade names or styles, or through any of the
Grantors divisions, and (ii) whether or not (x) such right is
evidenced by an Instrument or Chattel Paper, (y) such right has been
earned by performance (including, without limitation, any account) or (z) specifically
listed on schedules furnished to the Bank Administrative Agent.  Requirement of Law: as to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.  Secured Debt Documents: the collective
reference to the Note Documents and the Bank Documents.  1.2           Other Definitional Provisions.   (a)  The words hereof, herein, hereto
and hereunder and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and Schedule references are to this Agreement
unless otherwise specified.  (b)           The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.  (c)           Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to a Grantor, shall refer
to such Grantors Collateral or the relevant part thereof.  (d)           Subject to Sections 2.2(j) and 2.3(j), the phrases satisfied
in full or payment in full (or phrases of similar import) when used in this
Agreement with respect to any of the Note Obligations, or the Bank Obligations
(or the Liens securing such obligations), as the case may be, shall mean
satisfaction or payment in full of such applicable obligations other than
contingent indemnification obligations which are not then due and payable (or
reasonably expected to become due and payable in the then foreseeable future).  SECTION 2.   RANKING OF SECURITY INTERESTS;
REMEDIES  2.1           Ranking. 
Notwithstanding (i) anything to the contrary contained in any other
document, filing or agreement related to the creation, attachment, perfection
or existence of the security interests granted in the Note Security Agreement
or the Bank Security Agreements, (ii) the time, place, order or method of
attachment or perfection of Such security interests; (iii) the time or
order of filing or recording of financing statements or other documents filed
or  9


recorded
to perfect such security interests and (iv) the rules for determining
priority ender any law governing the relative priorities of secured creditors, (a) the
security interests created or purported to be created by the Note Security
Agreement with respect to the Bank Priority Collateral are subordinated, and
junior in priority to. the security interests created or purported to be created
by the Bank Security Agreements with respect to the Bank Priority Collateral
and (b) the security interests created or purported to be created by the
Bank Security Agreements with respect to the Note Priority Collateral are
subordinated and junior in priority to the security interests created or
purported to be created by the Note Security Agreement with respect to the Note
Priority Collateral.  2.2           Remedies with respect to Note Priority Collateral. (a) 
The Bank Administrative Agent acknowledges and agrees that, until all of the
Note Obligations have been paid in full, the exercise of rights and remedies in
respect of the Note Priority Collateral by the Bank Administrative Agent shall
be limited to the extent set forth in, and shall be governed by, this
Agreement.  (b)           Until the Note Obligations shall have been satisfied in
full, other than to the extent expressly provided in this Agreement, no Bank
Secured Party shall exercise any rights or remedies in respect of the Note
Priority Collateral, whether under a Secured Debt Document, applicable law or
otherwise, including, without limitation, any action to institute any judicial
or nonjudicial or similar action or proceeding in respect of its Lien or to
seek relief from the automatic stay pursuant to Section 362 of the
Bankruptcy Code in respect of its Lien; provided, however, that
nothing contained herein shall be construed as preventing the Bank
Administrative Agent or any Bank Secured Party from taking any action which is
reasonably desirable or necessary to perfect and protect the Bank Second
Priority Lien, which action is not adverse to the Note Secured Parties or the
Note First Priority Lien, including; without limitation, the filing of
financing statements tinder the Uniform Commercial Code in any applicable
jurisdiction, the execution and delivery of account control agreements or
similar agreements entered into for the purpose of obtaining control (within
the meaning of the applicable Uniform Commercial Code) of any applicable Note
Priority Collateral (to the extent that it is possible for both the Note
Collateral Agent and the Bank Administrative Agent to have joint control of
such item of Note Priority Collateral) and the filing of a claim or statement
of interest in an Insolvency Proceeding in respect of the Bank Second Priority
Lien or any Obligations secured thereby. 
Until the Note Obligations shall have been satisfied in full, the Note
Collateral Agent shall have the exclusive right to exercise rights and remedies
in respect of the Note Priority Collateral and, to enforce the provisions of
and exercise remedies under this Agreement and the Note Documents and under
applicable law (or refrain from enforcing any such rights and exercising any
such remedies), all in such order and in such mariner as it may determine in
its discretion.  For the avoidance of
doubt, the parties hereto acknowledge and agree that, notwithstanding the
occurrence and continuation of an event of default as defined under the Bank
Financing Agreement, the Note Collateral Agent shall not have any obligation or
duty to exercise remedies against the Note Priority Collateral.  (c)           Each Bank Secured Party hereby consents to and authorizes
the sale of all or any part of the Note Priority Collateral by the Note
Collateral Agent in accordance with the terms of the Note Security Agreement
and the other Note Documents and agrees that when all or any part of the Note
Priority Collateral is sold pursuant to the Note Security Agreement or the  10


applicable Note Document and, otherwise in
accordance with this Agreement, following such sale, such Note Priority
Collateral (but not the Proceeds thereof) shall be free of all of the Bank
Second Priority Lien. The Bank Administrative Agent hereby appoints the Note
Collateral Agent as its attorney-in-fact to execute and deliver in its stead
any releases, termination statements or other documentation reasonably
necessary or requested to evidence the foregoing release of liens on the Note
Priority Collateral.  (d)           No Bank Secured Party, by itself or through or with any
other Person, shall (i) contest, protest, object to, interfere with, seek
to enjoin or invoke or utilize any provision of any document, law or equitable
principle, or otherwise take any other action whatsoever which might prevent,
delay or impede, any exercise of rights or remedies by the Note Collateral
Agent under the Note Security Agreement or applicable law in respect of the
Note Priority Collateral or (ii) contest the validity or enforceability of
any of the Obligations or the validity, perfection, priority or enforceability
of any of the Liens created hereunder (it being understood and agreed that the
terms of this Agreement shall govern even if part or all of the Note First
Priority Lien or the Bank Second Priority Lien is avoided, disallowed, set
aside or otherwise invalidated in any judicial proceeding or otherwise).  The Bank Administrative Agent and the Bank
Secured Parties agree that the Note Priority Collateral may be repossessed or removed
by the Note Collateral Agent, subject to the terms of this Agreement.  (e)           Notwithstanding any other provision of this Agreement, the
right of each Bank Secured Party to receive payment of the Obligations held by
such Bank Secured Party when due (whether at the stated maturity thereof, by
acceleration or otherwise) as expressed in the related Secured Debt Document or
other instrument evidencing or agreement governing an Obligation or to
institute suit for the enforcement of such payment on or after such due date,
and the obligation of the Grantors to pay such Obligation when due, shall not
be impaired or affected without the consent of such Bank Secured Party given in
the manner prescribed by the Secured Debt Document under which such Obligation
is outstanding.  (f)            The Note Secured Parties shall have the right,
exercisable in their sole discretion, without notice or demand and without
affecting or impairing the agreements and obligations of the Bank Secured
Parties, from time to time (i) to modify, extend, amend, restate,
compromise, supplement, waive or release the Note Obligations from time to
time, and the aggregate amount of the Note Obligations may be renewed, replaced
or refinanced, all without notice to or consent by the Bank Administrative Agent
or the Bank Secured Parties; provided, however, that the
principal amount of the Note Obligations may only be renewed, replaced or
refinanced in an amount not to exceed the aggregate principal amount of the
Notes (including any additional Notes issued pursuant to the Note Indenture)
and (ii) to exercise or refrain from exercising any powers or rights
conferred on the Note Secured Parties under the Note Documents.  Each of the Bank Secured Parties waives, to
the fullest extent permitted by law, any requirement that the Note Secured
Parties or the Note Collateral Agent protect, secure, perfect or insure the
Note First Priority Lien or exhaust any right or take any action against the
Company or the Note Guarantors.  (g)           To the fullest extent permitted by applicable law, each
Bank Secured Party waives any claim it might have against the Note Collateral
Agent and any Note Secured Party or their respective directors, officers,
employees or agents with respect to, or arising out of, any  11


action or failure to act or any error of
judgment, negligence, or mistake or oversight whatsoever, except for claims
arising out of gross negligence or willful misconduct on the part of the Note
Collateral Agent or the Note Secured Parties or their respective directors,
officers, employees or agents with respect to any exercise of rights or
remedies hereunder or under any Note Document or any transaction relating to
the Note Priority Collateral.  None of
the Note Secured Parties or the Note Collateral Agent or their respective
directors, officers, employees or agents shall be liable for failure to collect
or realize upon any of the Note Priority Collateral or for any delay in doing
so or shall be under any obligation to sell or otherwise dispose of any Note
Priority Collateral or to take any other action whatsoever with regard to the
Note Priority Collateral or any part thereof.  (h)           If, through the operation of any bankruptcy,
reorganization, insolvency or other laws or otherwise, the Note First Priority
Lien is enforced with respect to less than all of the Note Obligations then
outstanding and secured by the Note Security Agreement (such unenforced portion
of the Note Obligations, the Avoided Note Obligations), the Bank Administrative
Agent shall apply the Proceeds of the Note Priority Collateral so that the Note
Secured Parties receive an amount with respect to the Avoided Note Obligations
equal to the amount the Note Secured Parties would have received with respect
thereto (as general unsecured creditors) had the Obligations secured by the
Bank Second Priority Lien not been secured by the Bank Security
Agreements.  To the extent that Proceeds
collected with respect to the Obligations held by any of the Bank Secured
Parties are distributed to, the Note Secured Parties in accordance with the
preceding sentence and the Liens of such Bank Secured Parties in the Note
Priority Collateral are discharged in whole or in part on the basis that the
Obligations held by the Bank Secured Parties have been satisfied under
applicable law, then, to the extent of the amount of such distribution made by
such Bank Secured Parties, any collections by the Note Secured Parties in
respect of its Liens on the Bank Priority Collateral pursuant to the Note
Security Agreement shall, after discharge in full of the Liens of such Bank
Secured Parties (to the extent that such Liens are senior to Liens of the Note
Secured Parties on the Bank Priority Collateral in accordance with the terms of
the applicable Secured Debt Documents) on the basis that the Obligations
secured thereby have been satisfied under applicable law, be distributed to the
Bank Secured Parties upon receipt thereof by the Note Secured Parties.  (i)            If at any time after an event of default under the Note
Documents shall have occurred and be continuing any Bank Secured Party (a Receiving
Party) shall receive any payment or distribution on account of the
Obligations owed to such Receiving Party (whether voluntary, involuntary,
through the exercise of any rights of set-off or otherwise, and whether in
cash, property or securities) representing proceeds of any of the Note Priority
Collateral and which is in excess of the payments or distributions such
Receiving Party would have received through the operation of this Agreement and
the Bank Security Agreements and after giving effect to the circumstances
described in paragraphs (h) above and (j) below (such payments or
distributions, Excess Payments), then such Receiving Party shall hold
such Excess Payments in trust for the benefit of the Note Secured Parties,
shall not commingle such Excess Payments with any other property of such
Receiving Party and shall promptly pay over such Excess Payments in the form
received (duly endorsed, if necessary, to the Note Collateral Agent) to the
Note Collateral Agent, for distribution by the Note Collateral Agent in
accordance with the provisions of this Agreement and the Note Security
Agreement.  12


(j)            The Bank Administrative Agent and the Bank Secured
Parties acknowledge that if any payment made by a Grantor or other Person and
applied to the Note Obligations is at any time annulled, avoided, set aside,
rescinded, invalidated, declared to be fraudulent or preferential or otherwise
required to be refunded or repaid, or the Proceeds of Note Priority Collateral
are required to be returned by any Note Secured Party to such Grantor, its
estate, trustee, receiver or any other Person under any Requirement of Law of
any Governmental Authority, then to the extent of such payment or repayment,
any Lien or other Note Priority Collateral securing such Note Obligation shall
be and remain in full force and effect as fully as if such payment had never
been made or, if prior thereto the Lien granted hereby or by any other Note
Priority Collateral securing such Obligation hereunder shall have been released
or terminated by virtue of such cancellation or surrender, such Lien or other
Note Priority Collateral shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, release, discharge, impair
or otherwise affect any Lien or other Note Priority Collateral securing the
Obligations of any Grantor in respect of the amount of such payment.  (k)           In the event that the Note Collateral Agent has control
(within the meaning of the Uniform Commercial Code of any applicable
jurisdiction) of any Investment Property, Letter-of-Credit Rights, Deposit
Accounts or Electronic Chattel Paper included in the Note Priority Collateral
or any other Note Priority Collateral for which a security interest is
perfected by possession of such collateral, the Note Collateral Agent shall
control such Note Priority Collateral for the benefit of the Note Secured
Parties and the Bank Administrative Agent and the Bank Secured Parties.  Subject to Section 4.6(b), promptly
following the Stated Maturity (as defined in the Note Indenture) of the Notes,
the Note Collateral Agent 3 shall deliver or assign control of the remainder of
the Collateral; if any, in its possession or under its control to the Bank
Administrative Agent unless the Bank Obligations shall have been paid in full
or except as may otherwise be required by applicable law or court order.  2.3           Remedies with respect to the Bank Priority Collateral.  (a)  The Note Collateral Agent
acknowledges and agrees that, until all of the Bank Obligations have been paid
in full, the exercise of rights and remedies in respect of the Bank Priority
Collateral by the Note Collateral Agent shall be limited to the extent set
forth in, and shall be governed by, this Agreement.  (b)           Until the Bank Obligations shall have been satisfied in
full, other than to the extent expressly provided in this Agreement, no Note
Secured Party shall exercise any rights or remedies in respect of the Bank
Collateral, whether under a Secured Debt Document, applicable law or otherwise,
including, without limitation, any action to institute any judicial or
nonjudicial or similar action or proceeding in respect of its Lien or to seek
relief from the automatic stay pursuant to Section 362 of the Bankruptcy
Code in respect of its Lien; provided, however, that nothing
contained herein shall be construed as preventing the Note Collateral Agent or
any Note Secured Party from taking any action which is reasonably desirable or
necessary to perfect and protect the Note Second Priority Lien, which action is
not adverse to the Bank Secured Parties or the Bank First Priority Lien,
including, without limitation, the filing of financing statements under the
Uniform Commercial Code in any applicable jurisdiction, the execution and
delivery of account control agreements or similar agreements entered into for
the purpose of obtaining control (within the meaning of the applicable Uniform
Commercial Code) of any applicable Bank Priority Collateral (to the extent that
it is possible for both the  13


Bank Administrative Agent and the Note
Collateral Agent to have joint control of such item of Bank Collateral) and
the filing of a claim or statement of interest in an Insolvency Proceeding in
respect of the Note Second Priority Lien or any Obligations secured
thereby.  Until the Bank Obligations shall
have been satisfied in full, the Bank Administrative Agent shall have the
exclusive right to exercise rights and remedies in respect of the Bank Priority
Collateral and, to enforce the provisions of and exercise remedies under this
Agreement and the Bank Documents and under applicable law (or refrain from
enforcing any such rights and exercising any such remedies), all in such order
and in such manner as it may determine in its discretion.  For the avoidance of doubt, the parties
hereto acknowledge and agree that, notwithstanding the occurrence and
continuation of an event of default as defined under the Note Indenture, the
Bank Administrative Agent shall not have any obligation or duty to exercise
remedies against the Bank Priority Collateral.  (c)           Each Note Secured Party hereby consents to and authorizes
the sale of all or any part of the  Bank Priority Collateral by the Bank
Administrative Agent or any other Bank Secured Party in accordance with the
terms of the Bank Security Agreements and the other Bank Documents and agrees
that when all or any part of the Bank Priority Collateral is sold pursuant to
the Bank Security Agreements or the applicable Bank Document and otherwise in
accordance with this Agreement, following such sale, such all Bank Priority
Collateral (but not the Proceeds thereof) shall be free of the Note Second
Priority Lien.  The Note Collateral Agent
hereby appoints the Bank Administrative Agent as its attorney-in-fact to
execute and deliver in its stead any releases, termination statements or other
documentation reasonably necessary or requested to evidence the foregoing
release of liens on the Bank Priority Collateral.  (d)           No Note Secured Party, by itself or through or with any
other Person, shall (i) contest, protest, object to, interfere with, seek
to enjoin or invoke or utilize any provision of any document, law or equitable
principle, or otherwise take any other action whatsoever which might prevent,
delay or impede, any exercise of rights or remedies by the Bank Administrative
Agent or the other Bank Secured Parties under the Bank Security Agreements or
applicable law in respect of the Bank Priority Collateral or (ii) contest
the validity or enforceability of any of the Obligations or the validity,
perfection, priority or enforceability of any of the Liens created hereunder
(it being understood and agreed that the terms of this Agreement shall govern
even if part or all of the Bank First Priority Lien or the Note Second Priority
Lien is avoided, disallowed, set aside or otherwise invalidated in any judicial
proceeding or otherwise).  The Note
Collateral Agent and the Note Secured Parties agree that the Bank Priority
Collateral may be repossessed or removed by the Bank Administrative Agent or
any Bank Secured Parties, subject to the terms of this Agreement, and, to the
extent that such Bank Priority Collateral is located on property that
constitutes Note Priority Collateral, the Note Collateral Agent and the Note
Secured Parties will provide access to the Bank Administrative Agent and the
Bank Secured Parties accordingly.  In
addition, the Note Collateral Agent and the Note Secured Parties agree to
permit the Bank Administrative Agent and/or the Bank Secured Parties to access
and use all or any part of the Note Priority Collateral as may be reasonably
necessary to enable the Bank Administrative Agent and/or the Bank Secured
Parties during normal business hours to convert the Grantors raw materials and
work-in-process Inventory into saleable finished goods product, subject to the
rights of the Note Collateral Agent and the Note Secured Parties to repossess
and remove the Note Priority Collateral as provided in Section 2.2(d) above.  14


(e)           Notwithstanding any other provision of this Agreement, the
right of each Note Secured Party to receive payment of the Obligations held by
such Note Secured Party when due (whether at the stated maturity thereof, by
acceleration or otherwise) as expressed in the related Secured Debt Document or
other instrument evidencing or agreement governing an Obligation or to
institute suit for the enforcement of such payment on or after such due date,
and the obligation of the Grantors to pay such Obligation when due, shall not
be impaired or affected without the consent of such Note Secured Party given in
the manner prescribed by the Secured Debt Document under which such Obligation
is outstanding.  (f)            The Bank Secured Parties shall have the right,
exercisable in their sole discretion, without notice or demand without
affecting or impairing the agreements and obligations of the Note Secured
Parties, from time to time (i) to modify, extend, amend, restate,
compromise, supplement, waive or release the Bank Obligations from time to
time, and the aggregate amount of the Bank Obligations may be renewed, replaced
or refinanced, all without notice to or consent by the Note Collateral Agent or
the Note Secured Parties; provided, however, that the principal
amount of the Bank Obligations may only be renewed, replaced or refinanced in
an amount not to exceed the greater of (x) the Borrowing Base and (y) $35.0
million and (ii) to exercise or refrain from exercising any powers or
rights conferred on the Bank Secured Parties under the Bank Documents.  Each of the Note Secured Parties waives, to
the fullest extent permitted by law, any requirement that the Bank Secured
Parties or the Bank Administrative Agent protect, secure, perfect or insure the
Bank First Priority Lien or exhaust any right or take any action against the
Borrowers or the Bank Guarantors.  (g)           To the fullest extent permitted by applicable law, each
Note Secured Party waives any claim it might have against the Bank
Administrative Agent and any Bank Secured Party or their respective directors,
officers, employees or agents with respect to, or arising out of, any action or
failure to act or any error of judgment, negligence, or mistake or oversight
whatsoever, except for claims arising out of gross negligence or willful
misconduct on the part of the Bank Administrative Agent or the Bank Secured
Parties or their respective directors, officers, employees or agents with
respect to any exercise of rights or remedies hereunder or under any Bank
Document or any transaction relating to the Bank Collateral.  None of the Bank Secured Parties or the Bank
Administrative Agent or their respective directors, officers, employees or
agents shall be liable for failure to collect or realize upon any of the Bank
Priority Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Bank Priority Collateral or to
take any other action whatsoever with regard to the Bank Priority Collateral or
any part thereof.  (h)           If, through the operation of any bankruptcy,
reorganization, insolvency or other laws or otherwise, the Bank First Priority
Lien is enforced with respect to less than all of the Bank Obligations then
outstanding and secured by each Bank Security Agreement (such unenforced
portion of the Bank Obligations, the Avoided Bank Obligations), the
Note Collateral Agent shall apply the Proceeds of the Bank Priority Collateral
so that the Bank Secured Parties receive an amount with respect to the Avoided
Bank Obligations equal to the amount the Bank Secured Parties would have
received with respect thereto (as general unsecured creditors) had the
Obligations secured by the Note Second Priority Lien not been secured by the
Note Security Agreement.  To the extent
that Proceeds collected with respect to the Obligations held by any of the Note
Secured Parties are distributed to the Bank Secured Parties in accordance  15


with the preceding sentence and the Liens of
such Note Secured Parties in the Bank Priority Collateral are discharged in
whole or in part on the basis that the Obligations held by the Note Secured
Parties have been satisfied under applicable law, then, to the extent of the
amount of such distribution made by such Note Secured Parties, any collections
by the Bank Secured Parties in respect of its Liens on the Note Priority Collateral
pursuant to the Bank Security Agreements shall, after discharge in full of the
Liens of such Note Secured Parties (to the extent that such Liens are senior to
Liens of the Bank Secured Parties on the Note Priority Collateral in accordance
with the terms of the applicable Secured Debt Documents) on the basis that the
Obligations secured thereby have been satisfied under applicable law, be
distributed to the Note Secured Parties upon receipt thereof by the Bank
Secured Parties.  (i)            If at any time after an event of default under the Bank
Documents shall have occurred and be continuing any Note Secured Party (a Receiving
Party) shall receive any payment or distribution on account of the
Obligations owed to such Receiving Party (whether voluntary, involuntary,
through the exercise of any rights of set-off or otherwise, and whether in
cash, property or securities) representing proceeds of any of the Bank Priority
Collateral and which is in excess of the payments or distributions such
Receiving Party would have received through the operation of this Agreement and
the Note Security Agreement and after giving effect to the circumstances
described in paragraphs (h) above and (j) below (such payments or
distributions, Excess Payments), then such Receiving Party shall hold
such Excess Payments in trust for the benefit of the Bank Secured Parties,
shall not commingle such Excess Payments with any other property of such
Receiving Party and shall promptly pay over such Excess Payments in the form
received (duly endorsed, if necessary, to the Bank Administrative Agent) to the
Bank Administrative Agent, for distribution by the Bank Administrative Agent in
accordance with the provisions of this Agreement and the Bank Security
Agreements.  (j)            The Note Collateral Agent and the Note Secured Parties
acknowledge that if any payment made by a Grantor or other Person and applied
to the Bank Obligations is at any time annulled, avoided, set aside, rescinded,
invalidated, declared to be fraudulent or preferential or otherwise required to
be refunded or repaid, or the Proceeds of Bank Priority Collateral are required
to be returned by any Bank Secured Party to such Grantor, its estate, trustee,
receiver or any other Person under any Requirement of Law of any Governmental
Authority, then to the extent of such payment or repayment, any Lien or other
Bank Priority Collateral securing such Bank Obligation shall be and remain in
full force and effect as fully as if such payment had never been made or, if
prior thereto the Lien granted hereby or by any other Bank Priority Collateral
securing such Obligation hereunder shall have been released or terminated by
virtue of such cancellation or surrender, such Lien or other Bank Priority
Collateral shall be reinstated in fall force and effect, and such prior
cancellation or surrender shall not diminish, release, discharge, impair or
otherwise affect any Lien or other Bank Priority Collateral securing the
Obligations of any Grantor in respect of the amount of such payment.  (k)           In the event that the Bank Administrative Agent has control
(within the meaning of the Uniform Commercial Code of any applicable
jurisdiction) of any Investment Property, Letter-of-Credit Rights, Deposit
Accounts or Electronic Chattel Paper included in the Bank Priority Collateral
or any other Bank Priority Collateral for which a security interest is
perfected by possession of such collateral, the Bank Administrative Agent shall
control such Bank Priority Collateral for the benefit of the Bank Secured
Parties and the Note Collateral  16


Agent and the Note Secured Parties.  Subject to Section 4.6(b), promptly
following the payment in full of the Bank Obligations, each of the Bank
Administrative Agent and the Bank Secured Parties shall deliver or assign
control of the remainder of the Collateral, if any, in its possession or under
its control to the Note Collateral Agent unless the Stated Maturity (as defined
in the Note Indenture) of the Notes shall have occurred or except as may
otherwise be required by applicable law or court order.  2.4           Relative Rights of Parties.  This Agreement is intended solely for the
purpose of defining the relative rights of the Note Collateral Agent and the
Note Secured Parties, on the one hand, and the Bank Administrative Agent and
the Bank Secured Parties, on the other hand, in respect of (i) the
subordination of the Bank Second Priority Lien to the Note First Priority Lien
and (ii) the subordination of the Note Second Priority Lien to the Bank
First Priority Lien.  No other Person or
entity shall have any right, benefit or other interest under this
Agreement.  Nothing contained in this
Agreement is intended to affect or limit, in any way whatsoever, the Liens and
other rights that the Note Secured Parties and the Bank Secured Parties have
under the Note Security Agreement, the Bank Security Agreements and the other
Secured Debt Documents to which they are a party insofar as the rights of the
Company, any other Grantor or any other Person or entity are involved.  SECTION 3.   COLLATERAL ACCOUNT  3.1           Note Obligations Satisfied.  Subject to Section 4.6(b), the Note
Collateral Agent shall pay over to the Bank Administrative Agent all remaining
moneys and other property held by the Note Collateral Agent in the Note
Collateral Account or received by the Note Collateral Agent with respect to the
Note Priority Collateral on or prior to the first Business Day falling after
the Note Obligations have been satisfied in full.  Subject to Section 4.6(b), the Note Collateral
Agent further covenants and agrees that after payment in full of the Note
Obligations, the Note Collateral Agent shall take all actions and do all things
reasonably requested by the Bank Administrative Agent to promptly transfer or
assign any Note Priority Collateral (or interest therein) to the Bank
Administrative Agent for the purpose of perfecting and protecting the Bank
Second Priority Lien.  Without limiting
the generality of the foregoing, the Note Collateral Agent shall (i) notify
the Bank Administrative Agent that the Note First Priority.  Lien has been released or terminated and that
the Bank Administrative Agent is authorized to instruct such Person regarding
the control, maintenance or disposition of the Note Priority Collateral, (ii) in
the case of Instruments, Certificated Securities, Chattel Paper (including
electronic chattel paper), Deposit Accounts, Letter-of-Credit Rights and any
other relevant Collateral, take any actions reasonably requested to assign or
transfer control (within the meaning of the applicable Uniform Commercial
Code) or possession of such Note Priority Collateral to the Bank Administrative
Agent and (iii) authorize the filing of termination statements under the
Uniform Commercial Code (or other similar laws) in effect in any jurisdiction
with respect to the termination of the Note First Priority Lien.  With respect to the Note Priority Collateral
identified in clause (ii) above, the Note Collateral Agent shall not
transfer to any other Person or return or reassign to the Grantors possession
or control of any such Note Priority Collateral unless the Bank Administrative
Agent shall have consented thereto.  3.2           Bank Obligations Satisfied.  Subject to Section 4.6(b), the Bank
Administrative Agent shall pay over to the Note Collateral Agent all remaining
moneys and  17


other
property held by the Bank Administrative Agent in the Bank Collateral Account
or received by the Bank Administrative Agent with respect to the Bank Priority
Collateral on or prior to the first Business Day falling after the Bank
Obligations have been satisfied in full. 
Subject to Section 4.6(b), the Bank Administrative Agent further
covenants and agrees that after payment in full of the Bank Obligations, the
Bank Administrative Agent shall take all actions and do all things reasonably
requested by the Note Collateral Agent to promptly transfer or assign any Bank
Priority Collateral (or interest therein) to the Note Collateral Agent for the
purpose of perfecting and protecting the Note Second Priority Lien.  Without limiting the generality of the
foregoing, the Bank Administrative Agent shall (i) notify applicable third
parties with an interest in the Bank Priority Collateral that the Bank First
Priority Lien has been released or terminated and that the Note Collateral
Agent is authorized to instruct such Person regarding the control, maintenance
or disposition of the Bank Collateral, (ii) in the case of Instruments,
Certificated Securities, Chattel Paper (including electronic chattel paper),
Deposit Accounts, Letter-of-Credit Rights and any other relevant Collateral,
take any actions reasonably requested to assign or transfer control (within
the meaning of the applicable Uniform Commercial Code) or possession of such
Bank Priority Collateral to the Note Collateral Agent and (iii) authorize
the filing of termination statements under the Uniform Commercial Code (or
other similar laws) in effect in any jurisdiction with respect to the
termination of the Bank First Priority Lien. 
With respect to the Bank Priority Collateral identified in clause (ii) above,
the Bank Administrative Agent shall not transfer to any other Person or return
or reassign to the Grantors possession or control of any such Bank Priority Collateral
unless the Note Collateral Agent shall have consented thereto.  SECTION 4.   MISCELLANEOUS  4.1           Notices. 
Unless otherwise specified herein, all notices, requests, demands or
other communications given to any party hereto shall be given in writing or by
facsimile transmission and shall be deemed to have been duly given when
personally delivered or when duly deposited in the mails, registered or
certified mail postage prepaid, or when transmitted by facsimile transmission,
addressed to such party at its address specified on Schedule 1 hereof or any
other address which such party shall have specified as its address for the
purpose of communications hereunder, by notice given in accordance with this Section 4.1
to the party sending such communication.  4.2           Amendments in Writing.  (a)  The parties hereto may, from time
to time, enter into written agreements supplemental hereto for the purpose of
amending, modifying or adding to, or waiving any provisions of this Agreement.  (b)           Without the consent of any Secured Party, the parties
hereto, at any time and from time to time, may enter into one or more
agreements supplemental to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
herein or therein, or to make any other provision with respect to matters or
questions arising hereunder which shall not be inconsistent with any provision
hereof; provided that any such action contemplated by this paragraph (b) shall
not adversely affect the interests of Secured Parties.  18


4.3           No Waiver by Course of Conduct Cumulative Remedies.  None of the Note Collateral Agent, the Bank
Administrative Agent nor any Secured Party shall by any act (except by a
written instrument pursuant to Section 4.2), delay, indulgence, and
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default or event of default under the Secured Debt
Documents.  No failure to exercise, nor
any delay in exercising, on the part of the Note Collateral Agent or the Bank
Administrative Agent or any Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. 
No single or partial exercise of any right, power or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.  A
waiver by the Note Collateral Agent, the Bank Administrative Agent or any Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy that the Note Collateral Agent, the
Bank Administrative Agent or such Secured Party would otherwise have on any
future occasion.  The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.  4.4           Enforcement Expenses; Indemnification.  (a)  Each of the Grantors agrees to pay
or reimburse each Secured Party, the Note Collateral Agent and the Bank
Administrative Agent for all of their respective costs and expenses incurred in
the preparation and administration of, or the enforcing or preserving any
rights under, this Agreement, including, without limitation, the fees and disbursements
of counsel to each Secured Party (including, without limitation, counsel to
each of the Note Collateral Agent and the Bank Administrative Agent).  (b)           Without limiting the indemnity obligations of each of the
Grantors under the Note Security Agreement, the Bank Security Agreements or any
of the other Secured Debt Documents, each of the Grantors agrees to pay,
indemnify, and hold the Note Collateral Agent, the Bank Administrative Agent
and each Secured Party (and their respective directors, officers, agents and
employees) harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, the reasonable fees and expenses of counsel,
advisors and agents) or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement, unless arising from the gross negligence or willful
misconduct of the indemnified party, including for taxes in any jurisdiction in
which the Note Collateral Agent or the Bank Administrative Agent is subject to
tax by reason of actions hereunder, unless such taxes are imposed on or
measured by compensation paid to the Note Collateral Agent or the Bank Administrative
Agent under the Note Security Agreement or the Bank Security Agreements,
respectively.  (c)           The agreements in this Section 4.4 shall survive
repayment of the Obligations and all other amounts payable under the Secured
Debt Agreements.  4.5           Further Assurances. 
(a)  With respect to the Note Priority Collateral, each of the
Grantors and the Bank Administrative Agent, at the Companys expense and at any
time from time to time, upon the reasonable request of the Note Collateral
Agent, will promptly and duly execute and deliver such further instruments and
documents (including amendments to their financing statements filed against
each Grantor stating that the rights of the Bank Administrative Agent are
subject to the terms hereof) and take such further actions as the Note
Collateral Agent  19


may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted.  (b)           With respect to the Bank Priority Collateral, each of the
Grantors and the Note Collateral Agent, at the Companys expense and at any
time from time to time, upon the reasonable request of the Bank Administrative
Agent, will promptly and duly execute and deliver such further instruments and
documents (including amendments to their financing statements filed against
each Grantor stating that the rights of the Note Collateral Agent are subject
to the terms hereof) and take such further actions as the Bank Administrative
Agent may reasonably request for the purposes of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted.  4.6           Successors and Assigns.  (a)  This Agreement shall be binding
upon the successors and assigns of each party; provided that each
Grantor may not assign, transfer or delegate any of its rights or obligations
under this Agreement without the prior written consent of the Note Collateral
Agent and the Bank Administrative Agent.  (b)           In connection with any redemption, repurchase, refunding
or other refinancing of the indebtedness evidenced by the Bank Financing
Agreement or the Note Indenture, each other party hereto agrees to execute and
deliver an agreement identical to this Agreement (subject to changing names of
parties, documents and addresses, as appropriate) in favor of any Person who
succeeds to, or redeems, repurchases, refunds or otherwise refinances such
indebtedness, and irrespective of whether any such new financing occurs by
transfer, assignment, repayment, refunding, substitution, amendment and
restatement or otherwise.  4.7           Insolvency. 
This Agreement shall be applicable both before and after the filing of
any petition by or against Parent or any of the Grantors under the U.S.
Bankruptcy Code or comparable foreign laws and all converted or succeeding
cases in respect thereof, and all references herein to Parent, the Company or
any of its subsidiaries (including any reference to any Borrower) shall be
deemed to apply to the trustee for Parent, the Company or such subsidiaries and
Parent, the Company or such subsidiaries as debtor-in-possession.  The relative rights of (a) the Bank
Administrative Agent and the other Bank Secured Parties and (b) the Note
Collateral Agent and the other Note Secured Parties in or to any distributions
from or in respect of any Collateral or Proceeds of Collateral, shall continue
after the filing thereof on the same basis as prior to the date of the
petition, subject to any court order approving the financing of, or use of cash
collateral by, Parent, the Company or such subsidiaries as
debtor-in-possession.  4.8           Disclosures; Non-Reliance.  Each of the Secured Parties has the means to
be, and shall in the future remain, fully informed as to the financial
condition and other affairs of the Grantors and their subsidiaries and no
Secured Party shall have any obligation or duty hereunder to disclose any such
information to any other Secured Party. 
Except as expressly set forth in this Agreement, the Secured  Parties
have not otherwise made to one another nor do they hereby make to one another
any warranties, express or implied, nor do they assume any liability to one
another, with respect to (a) the enforceability, validity, value or
collectability of any of the Bank Obligations or the Note Obligations or any
guarantee or security which may have been granted to any of them in connection
therewith, (b) any Grantors title to or right to  20


transfer any of the
Collateral or (c) any other matter except as expressly set forth in this
Agreement.  4.9           Counterparts. 
This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts (including by telecopy), and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.  4.10         Severability. 
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.  4.11         Section Headings.  The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.  4.12         Integration. 
This Agreement, the Mortgages, the Note Documents, the Bank Documents
and the other Secured Debt Documents represent the agreement of the Grantors,
the Note Collateral Agent, the Bank Administrative Agent and the Secured
Parties with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Note Collateral
Agent, the Bank Administrative Agent or any Secured Party related to the
subject matter hereof and thereof not expressly set forth or referred to herein
or in the Secured Debt Documents.  4.13         Termination.  (a) 
After the Note Obligations shall have been satisfied in full, the Note
Collateral Agent shall promptly deliver written notice thereof to the Bank
Administrative Agent, and thereafter, any express or implied limitation set
forth herein on the Bank Administrative Agents or the Bank Secured Parties
exercise of any of their rights and remedies in respect of the Note Priority
Collateral whether under the Bank Security Agreements or otherwise shall no
longer apply or have any force or effect, subject to Section 2.2(j).  (b)           After the Bank Obligations shall have been satisfied in
full, the Bank Administrative Agent shall promptly deliver written notice
thereof to the Note Collateral Agent, and thereafter, any express or implied
limitation set forth herein on the Note Collateral Agents or the Note Secured
Parties exercise of any of their rights and remedies in respect of the Bank
Priority Collateral whether under the Note Security Agreement or otherwise
shall no longer apply or have any force or effect, subject to Section 2.3(j).  4.14         GOVERNING LAW. 
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.  4.15         Submission To Jurisdiction; Waivers.  Each party hereby irrevocably and
unconditionally:  (i)            submits for itself
and its property in any legal action or proceeding relating to this Agreement,
or for recognition and enforcement of any judgment in respect thereof,  21


to
the non-exclusive general jurisdiction of the courts of the State of New York,
the courts of the United States of America for the Southern District of New
York, and appellate courts from any thereof;  (ii)           consents that any
such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same;  (iii)          agrees that service
of process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Grantor at its address referred to in Section 4.1
or at such other address of which the Note Collateral Agent and the Bank
Administrative Agent shall have been notified pursuant thereto;  (iv)          agrees that nothing
herein shall affect the right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction; and  (v)           waives, to the
maximum extent not prohibited by law, any right it may have to claim or recover
in any legal action or proceeding referred to in this Section any special,
exemplary, punitive or consequential damages.  4.16         WAIVER OF JURY TRIAL. 
EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT.  4.17         Incorporation by Reference.  In connection with its appointment and acting
hereunder, the Note Collateral Agent is entitled to all rights, privileges,
protections, immunities and indemnities provided to it as Collateral Agent
under the Note Security Agreement.  22


IN WITNESS WHEREOF, each of the undersigned has
caused this Intercreditor Agreement to be duly executed and delivered as of the
date first above written.  CELLU
  TISSUE HOLDINGS, INC.By:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerCELLU
  TISSUE CORPORATION - NATURAL DAMBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerCELLU
  TISSUE CORPORATION - NEENAHBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerCELLU
  TISSUE LLCBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerCOASTAL
  PAPER COMPANYBy:
  Van
  Paper Company, its managing partnerBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial Officer


INTERLAKE
  ACQUISITION CORPORATION LIMITEDBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerMENOMINEE
  ACQUISITION CORPORATIONBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerVAN
  PAPER COMPANYBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerVAN
  TIMBER COMPANYBy:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial OfficerCELLU
  PAPER HOLDINGS, INC.By:
  /s/
  Dianne M. ScheuName:
  Dianne M. ScheuTitle:   Chief Financial Officer


THE
  BANK OF NEW YORK TRUST COMPANY, N.A., as Note Collateral AgentBy:
  /s/
  Peter M. MurphyName:
  Peter M. MurphyTitle:   Vice PresidentJPMORGAN
  CHASE BANK, N.A., as Bank AgentBy:Name:Title:JPMORGAN
  CHASE BANK, N.A., TORONTO BRANCH, as Bank Canadian AgentBy:Name:Title:THE
  CIT GROUP/BUSINESS CREDIT, INC., as Prior AgentBy:Name:Title:  Intercreditor Agreement


THE
  BANK OF NEW YORK TRUST COMPANY, N.A., as Note Collateral AgentBy:Name:Title:JPMORGAN
  CHASE BANK, N.A., as Bank AgentBy:
  /s/
  John M. HariaczyName:
  John M. HariaczyTitle:
    Vice PresidentJPMORGAN
  CHASE BANK, N.A., TORONTO BRANCH, as Bank Canadian AgentBy:Name:Title:THE
  CIT GROUP/BUSINESS CREDIT, INC., as Prior AgentBy:Name:Title:  Intercreditor Agreement


THE
  BANK OF NEW YORK TRUST COMPANY, N.A., as Note Collateral AgentBy:Name:Title:JPMORGAN
  CHASE BANK, N.A., as Bank AgentBy:Name:Title:JPMORGAN
  CHASE BANK, N.A., TORONTO BRANCH, as Bank Canadian AgentBy:
  /s/Name:
  M.N. TamTitle:   Vice PresidentTHE
  CIT GROUP/BUSINESS CREDIT, INC., as Prior AgentBy:Name:Title:  Intercreditor Agreement


THE
  BANK OF NEW YORK TRUST COMPANY, N.A., as Note Collateral AgentBy:Name:Title:JPMORGAN
  CHASE BANK, N.A., as Bank AgentBy:Name:Title:JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Bank Canadian AgentBy:Name:Title:THE
  CIT GROUP/BUSINESS CREDIT, INC., as Prior AgentBy:
  /s/
  HowardName:
  HowardTitle:   Vice President  Intercreditor Agreement


Schedule I  Entity
  
  AddressCellu Tissue
  Holdings, Inc.
  
  c/o Cellu Tissue
  Holdings, Inc.Cellu Tissue Corporation -
  Natural Dam
  
  3440 Francis RoadCellu Tissue Corporation -
  Neenah
  
  Alpharetta, Georgia 30004Cellu Tissue LLC
  
  Telephone: (678) 393-2146Coastal Paper Company
  
  Telecopy: (678) 393-2657Interlake Acquisition
  Corporation LimitedMenominee Acquisition
  CorporationVan Paper CompanyVan Timber CompanyCellu Paper Holdings, Inc.The Bank of New York Trust
  Company, N.A., as Note Collateral Agent
  
  222 Berkley Street, 2nd
  Floor
  Boston, Massachusetts 02116
  Facsimile: (617) 351-2401
  Attention: Peter MurphyJPMORGAN CHASE BANK, N.A.,
  as Bank Agent
  
  1111 Fannin, 10th Floor
  Houston, Texas 77002
  Facsimile:
  Attention:JPMORGAN CHASE BANK, N.A.,
  TORONTO BRANCH, as Bank Canadian Agent
  
  20 Bay Street,
  Suite 1800
  Toronto, Ontario M5J 2J2
  Facsimile: 416-981-9174
  Attention: Funding Office  Intercreditor Agreement