SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

         This Second  Amendment to Amended and Restated  Credit  Agreement  (the
"Amendment")  dated as of March 9, 2000 (but effective as of February 29, 2000),
by and between Badger Paper Mills, Inc. (individually and as successor by merger
to Badger Paper Mills Flexible Packaging Division,  Inc.) (the "Borrower"),  the
Lenders, and Harris Trust and Savings Bank, as Agent (the "Agent");

                              W I T N E S S E T H:

         WHEREAS,  the Borrower,  the Lenders and Harris Trust and Savings Bank,
as Agent, have heretofore  executed and delivered an Amended and Restated Credit
Agreement  dated as of January 29, 1999, as  previously  amended by that certain
First Amendment to Amended and Restated Credit  Agreement dated as of August 31,
1999 (said Amended and Restated Credit Agreement as so amended being referred to
herein as the "Credit Agreement"); and

         WHEREAS,  the parties  hereto  desire to amend the Credit  Agreement as
provided herein;

         NOW,  THEREFORE,  for good and valuable  consideration  the receipt and
sufficiency of which is hereby  acknowledged,  the parties hereto agree that the
Credit  Agreement  shall be and hereby is amended  effective  as of February 29,
2000 as follows:


                                    ARTICLE 1
                                   AMENDMENTS

         1.1 Sections  7.6, 7.8 and 7.12 of the Credit  Agreement  shall each be
amended in its entirety and as so amended shall be restated to read as follows:

                               Section 7.6. Fixed Charge Coverage Ratio.  Badger
                      shall  not,  as of the  last day of each  fiscal  month of
                      Badger ending during each of the periods  specified below,
                      permit  the  ratio of (x)  EBITDA  for the  twelve  fiscal
                      months of Badger then ended minus the Capital  Expenditure
                      Deduction to (y) Fixed  Charges for the same twelve fiscal
                      months then ended to be less than:

                                                                  FIXED CHARGE
                                                                 COVERAGE RATIO
                          FROM AND                                   SHALL
                          INCLUDING        TO AND INCLUDING    NOT BE LESS THAN:

                        February 29, 2000  September 29, 2000       2.15 to 1.00
                        September 30, 2000 At all times thereafter  1.15 to 1.00
<PAGE>

                               For  the  purposes  hereof,   the  term  "Capital
                      Expenditure  Deduction"  shall mean (a) at all times prior
                      to September  30, 2000, $0 and (b) at any time on or after
                      September   30,   2000,   any  amount   equal  to  Capital
                      Expenditures  of Badger during the twelve fiscal months of
                      Badger then ended.

                               Section 7.8. Leverage Ratio.  Badger will not, as
                      of the last day of  each  fiscal  month  of  Badger ending
                      during the periods specified below,  permit  the  Leverage
                      Ratio to be more than:

                                                                 LEVERAGE RATIO
                           FROM AND                               SHALL NOT BE
                           INCLUDING        TO AND INCLUDING      MORE THAN:

                        February 29, 2000   September 29, 2000      3.75 to 1.00

                        September 30, 2000  At all times thereafter 3.50 to 1.00

                               Section  7.12.Capital  Expenditures.  Badger will
                      not,  nor will it  permit  any  Subsidiary  to,  expend or
                      become obligated for Capital  Expenditures in an aggregate
                      amount for Badger  and the  Subsidiaries  in excess of the
                      following:

                      Fiscal Year 2000...............................$3,700,000
                      Fiscal Year 2001...............................$4,800,000
                      and each fiscal year thereafter

         1.2 The definition of "Termination Date" appearing in Section 10 of the
Credit  Agreement  shall be amended in its entirety  and as so amended  shall be
restated to read as follows:

                               "Termination  Date"  means  November  30, 2003 or
                      such earlier date on which the  Commitments are terminated
                      in whole  pursuant  to  Sections  3.5,  8.2 or 8.3 hereof,
                      provided  that the Borrower may, at least 60 days prior to
                      such date, request the Lenders extend such date to a later
                      date at the Lenders' sole discretion.


                                                    ARTICLE II
                                          EXTENSION OF LETTERS OF CREDIT

         2.1 The Borrower hereby requests that Harris Trust and Savings Bank, in
its  individual  capacity  as issuer of the  Letters  of Credit  supporting  the
Tax-Exempt  Financings,  extend  the


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<PAGE>

Stated Termination Date of each of such Letters of Credit from November 30, 2001
to November 30, 2003.


                                   ARTICLE III
                              CONDITIONS PRECEDENT

         3.1 This Amendment shall become  effective as of the date hereof on the
date that each of the following conditions precedent have been met:

                               (a) the Agent  shall have  received  counterparts
                      hereof executed by the Borrower and the Required  Lenders;
                      and

                               (b)  the  Agent   shall  have   received   (i)  a
                      certificate  of the  Secretary of the  Borrower  dated the
                      date of this Amendment certifying that attached thereto is
                      a true and  complete  copy of  resolutions  adopted by the
                      Board  of  Directors  of  the  Borrower,  authorizing  the
                      execution,  delivery and performance of this Amendment and
                      certifying  the names and true  signatures of the officers
                      of the Borrower authorized to sign this Amendment and (ii)
                      such  supporting  documents  as the Agent  may  reasonably
                      request.

Upon  satisfaction  of the  conditions  set forth in Article  III  hereof,  this
Amendment shall become effective as of February 29, 2000.


                                   ARTICLE IV
                                  MISCELLANEOUS

        4.1. To induce the Agent and the Banks to enter into this Amendment, the
Borrower  represents  and  warrants  to the Agent and the  Banks  that:  (a) the
representations  and warranties  contained in the Loan Documents,  as amended by
the  Amendment,  are true and  correct in all  material  respects as of the date
hereof with the same effect as though made on the date hereof;  (b) after giving
effect to this  Amendment,  no Event of  Default  or  Default  exists;  (c) this
Amendment has been duly  authorized by all necessary  corporate  proceedings and
duly  executed  and  delivered by the  Borrower,  and the Credit  Agreement,  as
amended by the Amendment,  and each of the other Credit Documents are the legal,
valid and binding obligations of the Borrower,  enforceable against the Borrower
in accordance  with their  respective  terms,  except as  enforceability  may be
limited by bankruptcy,  insolvency or other similar laws of general  application
affecting  the  enforcement  of  creditors'  rights or by general  principles of
equity;  and (d) no consent,  approval,  authorization,  order,  registration or
qualification  with any  governmental  authority  is  required  for,  and in the
absence of which  would  adversely  effect,  the legal and valid  execution  and
delivery or performance by any Borrower of this Amendment or the  performance by
the Borrower of the Credit Agreement,  as amended by the Amendment, or any other
Credit Document to which they are a party.


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<PAGE>

        4.2. The  Borrower  acknowledges  and agrees that all of the  Collateral
Documents to which it is a party remain in full force and effect for the benefit
and security of, among other things,  the  Obligations as modified  hereby.  The
Borrower further  acknowledges and agrees that the Borrower's  obligations owing
under the  Applications  and the  Letters  of Credit  shall  constitute  Secured
Obligations as defined under the Collateral Documents.  Nothing herein contained
shall in any manner  affect or impair  the  priority  of the liens and  security
interests  created  and  provided  for by  the  Collateral  Documents  as to the
indebtedness  which  would be  secured  thereby  prior to giving  effect to this
Amendment.  The  Borrower  further  agrees to execute  and  deliver  any and all
instruments or documents as may be required by the Lenders to confirm any of the
foregoing.

        4.3. This Amendment may be executed in any number of counterparts and by
the different  parties on separate  counterparts and each such counterpart shall
be deemed to be an original, but all such counterparts shall together constitute
but one and the same Amendment.

        4.4. Except as specifically provided above, the Credit Agreement and the
other  Loan  Documents  shall  remain in full  force and  effect  and are hereby
ratified  and  confirmed  in  all  respects.   The  execution,   delivery,   and
effectiveness of this Amendment shall not, except as expressly  provided herein,
operate  as a waiver  of any  right,  power,  or remedy of the Agent or any Bank
under the Credit Agreement or any of the other Loan Documents,  nor constitute a
waiver or modification of any provision of any of the other Loan Documents.

        4.5.  This  Amendment  and the rights  and  obligations  of the  parties
hereunder  shall be construed in accordance with and governed by the laws of the
State of Illinois.


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<PAGE>


         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their  respective  officers  thereunto duly authorized as of the day
and year first above written.


         Dated as of the date first above written.

                               BADGER PAPER MILLS, INC.



                               By:___/s/________________________________________
                               Title:___________________________________________


Accepted and agreed to as of the date and year first above written.


                               HARRIS TRUST AND SAVINGS BANK,
                               individually and as Agent



                               By:___/s/________________________________________
                               Title:___________________________________________





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