# MASTER LEASE AGREEMENT

# dated as of
November 17, 2003 (Agreement)

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

1.    
LEASING:

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

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

2.    
TERM, RENT AND PAYMENT:

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

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

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3.    
RENT ADJUSTMENT:

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

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

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

4.    
TAXES:

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

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

5.    
REPORTS:

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

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

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

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

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

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

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

6.    
DELIVERY, USE AND OPERATION:

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

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

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

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

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

7.    
MAINTENANCE:

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

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

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

9.    
INSURANCE:

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

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

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

10.    
RETURN OF EQUIPMENT:

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

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

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

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

11.    
DEFAULT AND REMEDIES:

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

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

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

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

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

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

14.    
INDEMNIFICATION:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

17.    
EARLY TERMINATION:

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

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

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

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

18.    
PURCHASE OPTION:

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

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

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

19.    
MISCELLANEOUS:

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

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

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

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

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

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

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

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

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

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

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

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

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