CITY OF PESHTIGO

                           U D A G REVOLVING LOAN FUND

                                 LOAN AGREEMENT





Name of Borrower:           Badger Paper Mills, Inc.
----------------

Address of Borrower:        200 West Front Street
-------------------         Peshtigo, WI  54157-0149

Amount of Loan:             $1,190,552.14 (Existing Loan)
--------------              $  500,000.00 (Additional Loan)
                            -------------

                            $1,690,552.l4
                            =============

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                                    PREAMBLE
                                    --------

          THIS LOAN AGREEMENT is made and entered into by and between the CITY
OF PESHTIGO, WISCONSIN, hereinafter referred to as CITY and BADGER PAPER MILLS,
INC., a Wisconsin Corporation, hereinafter referred to as the COMPANY.

                                    RECITALS
                                    --------

          The COMPANY has applied to the CITY for loan assistance from the City
of Peshtigo UDAG Revolving Loan Fund to undertake activities which are
consistent with the provisions of the City of Peshtigo UDAG Revolving Loan Fund
Manual; and

          The CITY, in reliance upon the representations set forth in the
Application of COMPANY, has approved a loan to the COMPANY, to be expended by
the COMPANY in conformity with the requirements and provisions of this Loan
Agreement;

          IN CONSIDERATION of the mutual promises and covenants contained in the
Loan Agreement, the CITY and the COMPANY agree as follows:

I.   Loan

          Use and Term: The City will lend to the Company an additional $500,000
for a term of 10 years, with loan proceeds to be used to provide operating
capital for the Company.

          Interest Rate: The loan shall be evidenced by a promissory note
bearing interest at the rate of five percent (5%) per annum.

          Prior Loan: The parties intend that the covenants, warranties,
representations, collateral security and other agreements and terms applicable
to the loan made by the City to the Company pursuant to that certain City of
Peshtigo UDAG Revolving Loan Fund Loan Agreement dated May 25, 2000 between the
Company and the City (the "Existing Loan Agreement") hereafter be as set forth
in this Agreement. Accordingly, the Existing Loan Agreement is hereby amended to
read as set forth in this loan agreement, and as so amended, is restated in its
entirety by this loan agreement. From and after the date hereof, the outstanding
principal balance of the loan made to the Company pursuant to the Existing Loan
Agreement, together with all unpaid interest thereon, shall be evidenced by the
promissory note issued by the Company in connection with this loan agreement,
along with the additional $500,000 loan to be made by the City pursuant with
this loan agreement, in the total amount of $1,690,552.14.

          Repayment: Principal and interest shall be paid in one hundred twenty
(120) equal monthly payments of $17,930.93 each on the 1st day of each month
commencing January 1, 2002. There shall be no penalty for the prepayment of
principal, which shall be prepaid in reverse order of maturity.
<PAGE>

          Security: The loan of the City shall be secured by:

          (a) A first mortgage lien on the following described property, to-wit:

          Lot One (1) of Certified Survey Map No. 1969 recorded in
          Vol. 13, Pages 28-29, as Doc. #620655, being a part of
          Certified Survey Map 653 all in part of Block 34 in the City
          of Peshtigo and in part of Government Lot 3 of Section 30,
          Township 30 North, Range 23 East, City of Peshtigo,
          Marinette County, Wisconsin.

          (b) A second mortgage and chattel security agreement on the remainder
     of the Badger Paper Mills, Inc. real estate and equipment located in
     Peshtigo, Wisconsin, and a chattel security agreement on the equipment of
     the company located in Oconto Falls, Wisconsin.

          Disbursements: Payment of the additional $500,000 loan proceeds in one
lump sum shall be made to the Company, upon execution of the closing documents.
Interest shall begin to accrue upon the execution of the promissory note.

          The Company unconditionally agrees to repay the loan, together with
interest thereon, in the amounts and at the times specified in accordance with
the terms of this loan agreement and the promissory note. All such repayments
shall be made in lawful money of the United States of America and shall be paid
directly to the City at the City Clerk-Treasurer's office.

II.  Project Description

          The Company shall utilize $500,000 of the additional loan
funds as operating capital for the Company.

III. Employment

          The Company shall at its facilities in the City retain the
200 full-time equivalent (FTE) positions.

IV.  Records

          The Company will maintain those records which are necessary to enable
the City to determine whether the performance of the Company complies with the
terms of this agreement. The records shall include at a minimum payrolls for
employee hired to meet the terms of this agreement. The City will have access to
all records pertinent to this agreement for the purpose of examination and
transcription during normal working hours.

V.   Nondiscrimination

          The Company will not discriminate against any employee or applicant
for employment because of race, color, religion, sex, national origin, age or
handicap.


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<PAGE>
VI.  Default

          The following provisions describe default of the loan:

     A.   Default other than for nonpayment of principal or interest. In the
          event the Company fails to comply with any term or provisions
          contained in the loan agreement or the promissory note, other than the
          failure to make a payment of principal or interest due, the City shall
          notify the Company in writing of the deficiency, and a date not less
          than 60 days from the date of the notice on which such action as may
          be required must be performed. In the event the Company does not carry
          out such action as is required by the City by the date specified in
          the notice, the Company shall be in default. All sums due and owing to
          the City under the note, including the full unpaid balance and all
          unpaid accrued interest shall, at the option of the City, become
          immediately due and payable without notice or demand.

     B.   On nonpayment of principal or interest. In the event the Company fails
          to make any payment of principal, interest, or late payment penalty
          when due and the default continues for 30 days, all sums due and owing
          to the City under the note, including the full unpaid balance and all
          unpaid accrued interest shall, at the option of the City, become
          immediately due and payable, without notice or demand. A late payment
          penalty in the amount of $250.00 for any portion of the monthly
          payment which is more than 5 days due from the due date shall be
          assessed on the 6th day after the applicable monthly payment due date.

     C.   Representations made by the Company. In the event any representation
          made by the Company to induce the City to extend credit (under the
          loan agreement or otherwise) is false in any material respect when
          made or in the event the Company ceases to exist, becomes insolvent,
          or the subject of bankruptcy or other insolvency proceedings or has a
          judgment entered against it or any subsidiary and said judgment
          remains unsatisfied, unbounded, or unstayed for a period of 60 days
          after entry thereof, the Company shall be deemed to be in default and
          at the option of the City, all unpaid principal and all unpaid accrued
          interest shall become immediately due and payable without notice or
          demand.

     D.   Removal of operation from the City of Peshtigo. In the event the
          Company fails to retain its operations in the City of Peshtigo or in
          the reasonable opinion of the City, substantially reduces its
          operations, then the loan shall be deemed in default. The outstanding
          principal and accrued interest shall become immediately payable
          without notice or demand.

VII. Governing Law

          The-laws of the State of Wisconsin shall govern this loan agreement
and the mortgage and security agreement and promissory note issued hereunder.


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<PAGE>
VIII. Counterparts

          This loan agreement may be signed in any number of counterparts with
the same effect as if the signatures thereto and hereto were on the same
instrument.

IX.  Severability

          If any provisions of this loan agreement shall be held or deemed to be
or shall, in fact, be inoperative or unenforceable as applied in any particular
case in any jurisdiction or jurisdictions or in all jurisdictions, or in all
cases because it conflicts with any other provision or provisions hereof or any
constitution or statute or rule of public policy, or for any other reason, such
circumstances shall not have the effect of rendering the provisions in question
inoperative or unenforceable in any other case or circumstances, or of rendering
any other provision or provisions herein contained invalid, inoperative or
unenforceable to any extent whatever. The invalidity of any one or more phrases,
sentences, clauses or sections contained in this loan agreement shall not affect
the remaining portions of this loan agreement, or any part thereof.

X.   Termination

          Upon full and final payment of the promissory note, this loan
agreement shall terminate and the City shall cause the promissory note to be
cancelled and delivered to the Company; and the City shall cause the lien of the
mortgage to be discharged of record.

XI.  Amendments

          Any amendments to this agreement requires the written agreement of the
City and the Company.

XII. Other Provisions

     A.   Representations and Agreements of the Company: The Company, in order
          to induce the approval of the loan, represents and agrees as follows;

          1.   The Company is duly organized and validly existing under the laws
               of the State of Wisconsin, and has all requisite power and
               authority to enter into this Loan Agreement.

          2.   A resolution has been duly adopted, as an official act of the
               Company's governing body, authorizing the execution and delivery
               of this Loan Agreement by the Company and authorizing and
               directing the persons executing this Loan Agreement to do so for
               and on behalf of the Company.

          3.   This Loan Agreement has been executed and delivered by the
               Company, in such manner and form as to comply with all applicable
               laws to make this Loan Agreement the valid and legally binding
               act and agreement of the Company.


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<PAGE>
          4.   There is no action, proceeding, or investigation now pending, nor
               any basis therefor, known or believed to exist by the Company,
               which (i) questions the validity of this Loan Agreement, or any
               action taken or to be taken under it, or (ii) is likely to result
               in any material adverse change in the authorities, properties,
               assets, liabilities, or conditions (financial or otherwise) of
               the Company which would materially and substantially impair the
               Company's ability to perform any of the obligations imposed upon
               the Company by this Loan Agreement.

          5.   The representations, statements, and other matters contained in
               the Application for UDAG loan made by Company are true and
               complete in all material respects as of the date of filing. The
               Company is aware of no event which would require any amendment to
               the Application (other than an amendment which has been filed
               with and approved by the CITY) in order to make such
               representations, statements, and other matters true and complete
               in all material respects and not misleading in any material
               respect. The Company is aware of no event or other fact which
               should have been, and has not been, reported in the Application
               as material information.

          6.   The Company shall not remove, or cause to be removed, from the
               project location any property which serves as collateral for this
               loan. Removal of such collateral or cessation of Company's
               business operations in the CITY shall constitute an act of
               default which shall cause the entire loan balance to become
               immediately due and payable.

          7.   That it shall expend Peshtigo UDAG Revolving Loan Fund proceeds
               only as described herein.

          8.   That it shall maintain 200 (FTE) jobs.

          9.   That it shall keep the security for the Peshtigo UDAG Revolving
               Loan Fund loan insured against loss from fire in an amount
               sufficient to cover any outstanding obligations to the City up to
               the insurable limits of available collateral. The City shall be
               named as an additional insured party on the policies. The Company
               shall provide the City with a certificate of insurance from the
               insurer. The Company shall also carry liability insurance with
               the City named as additional insured.

          10.  That it shall pay all real estate property taxes upon the
               security for the loan when due in order to avoid interest or
               penalty thereon.

          11.  That it will pay to the City a loan origination fee of $5,000.00
               at or prior to the time of execution of the promissory note.

          12.  The Company shall retain its operations in the City of Peshtigo,
               Wisconsin, until the loan is repaid.


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<PAGE>
          13.  The Company shall provide the City with annual audited financial
               statements within 120 days after its fiscal year end.

     B.   Records: The Company shall maintain those records which are necessary
          to enable the City to determine whether the performance of the
          business complies with the terms of the loan agreement. The records
          shall include at a minimum, annual financial statements for the term
          of the loan, and payroll records for employees employed to meet the
          terms of the loan agreement. The City shall have reasonable access to
          all records pertinent to this agreement for purposes of examination,
          transcription, and reporting.

          IN WITNESS WHEREOF, the parties hereto have executed this agreement on
November 30, 2001.

                                        BADGER PAPER MILLS, INC.


                                        By: /s/ Robert A. Olah
                                           -------------------------------------
                                           Robert A. Olah
                                           President


                                        By: /s/ William H. Peters
                                           -------------------------------------
                                           William Peters
                                           Treasurer


                                        CITY OF PESHTIGO


                                        By: /s/ J.F. Dale Berman
                                           -------------------------------------
                                           J.F. Dale Berman, Mayor


                                        By: /s/ Mary Ann Wills
                                           -------------------------------------
                                           Mary Ann Wills, Clerk-Treasurer


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