Document:

Exhibit
10.1

NOTE
PURCHASE AGREEMENT

 

Dated
as of March 21, 2007

Between

CELLU
TISSUE HOLDINGS, INC.

Issuer of the Notes

and

WINGATE
CAPITAL LTD.

Purchaser

 

 

$20,255,572 AGGREGATE
PRINCIPAL AMOUNT

OF 9 3/4% SENIOR SECURED NOTES

DUE 2010

NOTE
PURCHASE AGREEMENT

This NOTE PURCHASE AGREEMENT
is dated as of March 21, 2007 by and between Cellu Tissue Holdings, Inc. (the “Company”)
and Wingate Capital Ltd. (the “Purchaser”).

RECITALS

WHEREAS, the Company and
certain of its Subsidiaries have entered into an Indenture dated as of March
12, 2004 with The Bank of New York as Trustee (as supplemented and in effect on
the date hereof, the “Indenture”), relating to its 9 3/4% Senior Secured Notes
due 2010 (the “Senior Secured Notes”) pursuant to which the Company is
authorized to issue additional Senior Secured Notes subject to the terms and
conditions specified in the Indenture.

WHEREAS, the Company desires
to issue pursuant to the Indenture and sell to the Purchaser, and the Purchaser
has agreed to purchase, subject to the terms and conditions herein, $20,255,572
aggregate principal amount of Senior Secured Notes (the “Notes”).

WHEREAS, the Company will
use the proceeds of the issuance and sale of the Notes to provide a portion of
the financing for the acquisition by the Company of the stock of CityForest
Corporation (the “Acquisition”).

AGREEMENT

In consideration of the
foregoing, and the representations, warranties, covenants and conditions set
forth below, the parties hereto, intending to be legally bound, hereby agree as
follows:

ARTICLE 1

DEFINITIONS

1.1.          Certain Defined Terms.  Capitalized terms used and not otherwise
defined in this Agreement are defined in Appendix I.

ARTICLE 2

PURCHASE AND SALE OF THE NOTES

2.1.          Purchase and Sale of Notes.  Subject to the terms and conditions of this
Agreement and on the basis of the representations and warranties set forth
herein, the Company hereby agrees to issue and to sell to the Purchaser, and by
its acceptance hereof the Purchaser agrees to purchase from the Company at the
Closing, $20,255,572 aggregate principal amount of the Notes for the purchase
price of $20,000,007, which is equal to 98.7383% of the aggregate principal
amount of the Notes.

2.2.          Closing.  The purchase and sale of the Notes pursuant
to Section 2.1 shall occur at a closing (the “Closing”) to be held on
March 21, 2007 at 10:00 a.m. (Boston time), at the offices of Ropes & Gray
LLP, One International Place, Boston, MA 02110, or at such other date, time
and/or location as may be agreed upon by the parties hereto.

2.3.          Delivery of Notes.  Notes will be in substantially the form of
Exhibit A.  The Company will deliver the
Notes to the Purchaser, against payment by or on behalf of the Purchaser of the
purchase price therefor by wire transfer of Federal (same day) funds to
JPMorgan/Chase Bank, New York, New York, ABA #021000021, Account Name: Cellu
Tissue Corp., Account #114-733805.

2.4.          Use of Proceeds.  The proceeds of the sale by the Company of
the Notes hereunder shall be used to provide a portion of the financing for the
Acquisition.

ARTICLE 3

TERMS OF THE NOTES

3.1.          Notes Under Indenture.  The Notes shall be issued under the Indenture
and shall be subject to all the terms and conditions thereof and entitled to
all the benefits thereof.

3.2.          CUSIP.  The Purchaser understands that because the
Notes are issued at a discount the Notes will have a CUSIP number through the
maturity of the Notes which is different from the CUSIP number of the Senior
Secured Notes previously issued under the Indenture.  The Purchaser further understands that the
Notes will not either now or in the future be entitled to share the same CUSIP
number as the notes previously issued under the Indenture.

3.3.          No Registration Rights.  The Purchaser understands and agrees that the
Company is and will be under no obligation to effect any registration of the
Notes under the Securities Act.

ARTICLE 4

REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to and for the benefit of the
Company that:

4.1.          Legal Capacity; Due Authorization.  The Purchaser has full legal capacity, power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder.  This  Agreement has been duly authorized, executed
and delivered by the Purchaser and is the legal, valid and binding obligation
of the Purchaser enforceable against the Purchaser in accordance with its terms
subject to bankruptcy and general principles of equity.

4.2.          Restrictions on Transfer.  The Purchaser has been advised that the Notes
have not been registered under the Securities Act or any state securities laws
and cannot be resold unless registered under the Securities Act and applicable
state securities laws or unless an exemption from such registration
requirements is available, and that accordingly the Notes may have to be held
by the Purchaser for an indefinite period of time.  The Purchaser is purchasing the Notes for its
own account and not with a view to, or for resale in connection with, the
distribution thereof; provided, however, that subject to
compliance with the restrictions contained or referred to in the Indenture, the
Notes and this Agreement, the disposition of such Purchaser’s property shall at
all times be and remain under its sole discretion and control.  The Purchaser acknowledges and agrees that
each Note will bear a legend (or a substantially similar indication) indicating
that the Notes have not been registered under the Securities Act or under any
state securities laws and may not be sold, offered for sale or otherwise
transferred in the absence of an effective registration statement under the
Securities Act and applicable state securities laws or an exemption from
registration thereunder, in addition to any other legends required by
applicable state blue sky laws.

4.3.          Accredited Investor, etc.  The Purchaser has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Notes, is able to incur a
complete loss of such investment and to bear the economic risk of such
investment for an indefinite period of time. 
Such Purchaser has been given access to all information with respect to
the Company requested by the Purchaser and has had access to, and adequate
opportunity to ask questions of and request additional information from,
officers and representatives of the Company concerning the Company’s business,
operations and financial condition.  Such
Purchaser (i) is an “accredited investor” as 

 2
 

that term is defined in Regulation D under the Securities Act and (ii)
has been represented by counsel in the purchase of the Notes and has been
advised with respect to the restrictions imposed by state and federal
securities laws with respect to the disposition of the Notes.

4.4.          Independent Decision.  The Purchaser has independently and without
reliance on the Company, and based on such information as the Purchaser has
deemed appropriate, made its own analysis and decision to enter into this
Agreement and the transaction contemplated hereby, except that the Purchaser
has relied upon the Company’s express representations, warranties and covenants
made herein.  The Purchaser acknowledges
that the Company has not given the Purchaser any investment advice, credit
information or opinion on whether the purchase of the Notes is a prudent
investment decision.

4.5.          Brokerage Fees, etc.  The Purchaser represents and warrants to the
Company that no broker’s, finder’s or placement fee or commission will be
payable to any Person alleged to have been retained by the Purchaser with
respect to any of the transactions contemplated by this Agreement.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

In order to induce the
Purchaser to enter into this Agreement and to purchase the Notes hereunder, the
Company represents and warrants for the benefit of the Purchaser that, as of
the Closing Date (unless otherwise stated, both before and after giving effect
to the issuance of the Notes):

5.1.          Organization, Good Standing
and Qualification.  The Company is a
corporation, duly organized and validly existing under the laws of the State of
Delaware and has all requisite power and authority to conduct its business as
now conducted.  The Company is duly
qualified as a foreign entity and in good standing in all states or other
jurisdictions where the nature and extent of the business transacted by it or
the ownership of assets makes such qualification necessary, except for those
jurisdictions in which the failure to so qualify would not reasonably be
expected to result in a Material Adverse Effect.  Certified copies of the Governing Documents
of the Company have been delivered to the Purchaser and such copies of the
Governing Documents are correct and complete.

5.2.          Authorization.  The Company has taken all necessary corporate
action to authorize the  execution and
delivery of this Agreement and the Notes and the performance of its obligations
hereunder and thereunder.  This Agreement
constitutes the valid and legally binding obligation of the Company enforceable
in accordance with its terms subject to bankruptcy laws and general principles
of equity.

5.3.          Valid Issuance of the Notes.  The Notes, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will
be duly and validly authorized and issued, fully paid, free of restrictions on
transfer, other than restrictions contained or referred to in the Indenture,
the Notes or this Agreement and enforceable in accordance with their terms
subject to bankruptcy laws and general principles of equity.  Based in part upon the representations of the
Purchaser in Article 4 of this Agreement, the Notes will be issued in
compliance with all applicable United States securities laws.

5.4.          Financial Statements and Other
Information.

5.4.1.         The Company has previously furnished to
the Purchaser copies of the following: 
(i) the Company’s filing on Form 10-K for the fiscal year ended
February 28, 2006; (ii) the Company’s filings on Form 10-Q for the fiscal
quarters ended May 25, 2006, August 24, 2006 and November 23, 2006; and (iii)
the Company’s filings on Form 8-K dated January 5, 2006, 

 3
 

March 30,
2006, May 9, 2006, June 5, 2006, June 16, 2006, July 7, 2006, October 4, 2006,
October 5, 2006 and January 5, 2007 (the “Company SEC Documents”).

5.4.2.         As of the time it was filed with
the SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): 
(i) each of the Company SEC Documents complied in all material respects
with such requirements of the Securities Act or the Exchange Act as were
applicable thereto; and (ii) none of the Company SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

5.4.3.         The financial statements
(including any related notes) contained in the Company SEC Documents fairly
present, in all material respects, the consolidated financial position of the
Company and its Subsidiaries as of the respective dates thereof and the
consolidated results of operations of the Company and its Subsidiaries for the
periods covered thereby in accordance with GAAP applied on a consistent basis
throughout the periods covered (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to year-end adjustments).

5.4.4.         As of the date of this
Agreement, neither the Company nor any of its Subsidiaries has any liabilities
of the type required to be disclosed in the liabilities column of a balance
sheet prepared in accordance with GAAP, except for:  (i) liabilities disclosed in the financial
statements (including any related notes) contained in the Company SEC
Documents; (ii) liabilities incurred in the ordinary course of business since
the date included in the financial statements of the Company SEC Documents; and
(iii) liabilities that are not material in the aggregate to the Company and its
Subsidiaries on a consolidated basis.

5.4.5.         The information with respect to
the Company and its Subsidiaries contained in the Private Placement Memorandum
dated January, 2007 relating to $20,000,000 Senior Unsecured Subordinated Notes
(the “Subordinated Notes”) of the Company due 2012 (the “Placement Memorandum”)
when taken as a whole with the Company SEC Documents did not as of the date
thereof contain an untrue statement of material fact or omit to state a
material fact necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which such statements
were made.  The information contained in
the Placement Memorandum with respect to CityForest Corporation was prepared in
good faith by the Company based on information obtained from CityForest
Corporation.  Notwithstanding the foregoing,
no representation regarding projections or forward looking statements is being
made in this Section 5.4.5 and the disclaimers and cautionary statements with
respect thereto set forth in the Placement Memorandum are incorporated herein
by reference.  The Company and the
Purchaser agree that the Notes are being purchased in lieu of the Subordinated
Notes and that no representation is being made with respect to any portion of
the Placement Memorandum to the extent that the information in the Placement
Memorandum is affected by the issuance of the Notes in lieu of the Subordinated
Notes.

5.5.          Material Adverse Effect.  Since September 30, 2006 no event or
condition has occurred which affects the Company or its Subsidiaries which has
had or could be reasonably expected to have a Material Adverse Effect.

5.6.          Consents.  No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with,
any federal, state or local governmental authority, or any third 

 4
 

party
in connection with any agreement to which the Company or any of its
Subsidiaries is party, is required to be obtained or made by the Company or any
of its  Subsidiaries in connection with
the issuance of the Notes other than such of the foregoing as have been or will
be obtained prior to the Closing or where the failure to obtain the consent of
a third party would not affect the ability of the Company to enter into the
Agreement, to issue the Notes and perform its obligations under the Notes, and
would not result in a Material Adverse Effect.

5.7.          Litigation.  Except as disclosed with the Company SEC
Documents, there is no action, suit, proceeding or investigation pending or, to
the Company’s knowledge, currently threatened that questions the validity of
this Agreement or the right of the Company or any of its Subsidiaries to enter
into this Agreement and to issue the Notes or that would reasonably be expected
to result, either individually or in the aggregate, in a Material Adverse
Effect.

5.8.          Compliance with Other Instruments.    The execution, delivery and performance of
this Agreement and the issuance of the Notes will not result in the violation
of any instrument, judgment, order, writ, decree or contract to which the
Company is a party or by which it is bound or, of any provision of federal or
state statute, rule or regulation applicable to it or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any Lien, charge or
encumbrance upon any assets of the Company or any of its  Subsidiaries, except for a violation,
conflict or default that does not affect the ability of the Company to enter
into this Agreement, to issue the Notes and perform its obligation under the
Notes and would not result in a Material Adverse Effect.

5.9.          Delivery of Acquisition Documents.   The Company has delivered to the
Purchaser true, accurate and complete copies of each of the Acquisition Documents
which are the only agreements of the Company relating to the Acquisition.

5.10.        No Governmental Approval Necessary.  Assuming the truth and accuracy of the
Purchaser’s representations set forth in Article 4 of this Agreement, no
consent by, approval of, giving of notice to, registration with, or taking of
any other action with respect to or by any federal, state, or local
governmental authority or organization is required for any of the Company’s
execution, delivery, or performance of this Agreement or the issuance of the
Notes.

5.11.        Private Placement.  Assuming the truth and accuracy of the
Purchaser’s representations set forth in Article 4 of this Agreement, the
offer, sale and issuance of the Notes as contemplated by this Agreement is
exempt from the registration requirements of the Securities Act.  Neither the Company nor any authorized agent
acting on behalf of it will take any action hereafter that would cause the loss
of such exemption.

ARTICLE 6

CLOSING CONDITIONS

6.1           Purchaser’s Conditions.  The obligation of the Purchaser to purchase
and pay for the Notes provided for hereunder on the Closing Date is subject to
the satisfaction of the following conditions, each as of the Closing Date:

6.1.1        Representations
and Warranties; No Default.  After giving
effect to the issuance of the Notes and Acquisition all representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects, and there shall exist no continuing Default or Event of Default under
the Indenture.

 5
 

6.1.2        Delivery
of Documents.  The Purchaser shall
have received the following items, each of which shall be in form and substance
reasonably satisfactory to the Purchaser and, unless otherwise noted, dated as
of the Closing Date:

6.1.2.1       Resolutions of the board of directors of the Company
authorizing the execution, delivery and performance of this Agreement and
authorizing the issuance and sale of the Notes certified as of the Closing Date
by its secretary or an assistant secretary as being in full force and effect.

6.1.2.2       A copy of a certificate of the Secretary
of State of the State of Delaware, dated as of a recent date prior to the
Closing Date and listing all Governing Documents of the Company on file with
such Secretary, including any amendments thereto, and copies of all such
Governing Documents and certifying that the Company is duly organized and in
good standing under the laws of the State of Delaware.

6.1.2.3.      A certificate of the
Company, signed on its behalf by a duly authorized officer and dated the
Closing Date, certifying as to (i) the absence of any amendment to the
Governing Documents of the Company since the date of the applicable secretary
of state’s certificate referred to in Section 6.1.2.2, (ii) its bylaws as in effect on the Closing Date and
(iii) the completeness and accuracy of the representations and warranties
contained in this Agreement as of the Closing Date, including the absence of
any event occurring and continuing, or resulting from the transactions contemplated
under this Agreement, that constitutes a Default or an Event of Default under
the Indenture.

6.1.2.4.      A certificate of the
secretary or an assistant secretary of the Company  certifying the names and true signatures of
the officers of the Company executing this Agreement.

6.1.2.5.      A legal opinion of
Ropes & Gray, LLP, counsel for the Company, addressed to the Purchaser in
substantially the form attached as Exhibit B.

6.1.2.6.      A certificate signed
by a duly authorized officer of the Company certifying that the conditions
specified in this Section 6 have been fulfilled.

6.1.3.       Acquisition
Closed.  The Acquisition shall be
consummated substantially simultaneously with the Closing.

6.1.4.       Issues of Notes.  The Company shall have issued and delivered
the Notes to the Purchaser against payment therefor as contemplated by Section
2.3.

6.2.          Company
Conditions.  The obligation of the
Company to issue the Notes on the Closing Date as provided herein is subject to
the satisfaction of the following conditions, each as of the Closing Date:

6.2.1.       Purchase Price.  The Purchaser shall have paid for the Notes
as provided in Section 2.3.

6.2.2.       Representations
and Warranties.  The representations
and warranties of the Purchaser set forth in Article 4 shall be true and correct.

6.2.3.       Acquisition Closed.  The Acquisition shall be consummated
substantially simultaneously with the Closing.

 6
 

ARTICLE 7

RESTRICTIONS ON TRANSFER; LEGENDS

7.1.          Assignments.  After the Closing and subject to the
restrictions referred to in Section 7.2, the Purchaser may sell, assign,
transfer or negotiate all or any part of their Notes.

7.2.          Restrictive Notes Legend.  Each Note shall bear legends in substantially
the forms contained in Exhibit A and shall be subject to the restrictions on
transfer contained in the Indenture for as long as such restrictions shall be
applicable.

7.3.          Other Note Legends.  Each Note shall bear a legend in
substantially the following form:

“THIS NOTE BEARS ORIGINAL ISSUE DISCOUNT.  UPON WRITTEN REQUEST TO CELLU TISSUE HOLDINGS,
INC. 1855 LOCKEWAY DRIVE,
STE. 501, ALPHARETTA, GEORGIA 30004, ATTENTION: CHIEF EXECUTIVE OFFICER,
INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE
DATE AND YIELD TO MATURITY WILL BE MADE AVAILABLE.”

ARTICLE 8

MISCELLANEOUS

8.1.          Amendments and Waivers.  No amendment, modification, termination or
waiver of any provision of this Agreement, shall in any event be effective
without the written consent of the Purchaser 
and the Company.

8.2.          Expenses.  Each of the Company and the Purchaser shall
bear its own expenses incurred in connection with the execution and delivery of
this Agreement and the issuance of the Notes.

8.3.          Notices.  All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and delivered personally or sent via a nationally
recognized overnight courier.  Such
notices, demands and other communications will be delivered or sent to the
address indicated below:

	
  If to the Company:

  	
   

  
	
   

  	
   

  
	
   

  	
  1855 Lockeway
  Drive, Ste. 501

  
	
   

  	
  Alpharetta,
  Georgia 30004

  
	
   

  	
  Attention: Chief
  Executive Officer

  
	
   

  	
   

  
	
  with a copy to:  

  	
   

  
	
   

  	
   

  
	
   

  	
  Ropes & Gray
  LLP

  
	
   

  	
  One
  International Place

  
	
   

  	
  Boston,
  Massachusetts 02110

  
	
   

  	
  Fax: (617)
  951-7050

  
	
   

  	
  Attention:
  Lawrence D. Bragg III, Esq.

  

 

 7
 

 

	
  If to Purchaser:

  	
  Wingate Capital, Ltd.

  
	
   

  	
  c/o Citadel Limited Partnership

  
	
   

  	
  131 South Dearborn

  
	
   

  	
  Chicago, IL 60603

  
	
   

  	
  Fax: (312) 267-7577

  
	
   

  	
  Attention: Tony Buchanon

  
	
   

  	
   

  
	
  with a copy to:  

  	
  Davis Polk Warwell

  
	
   

  	
  450 Lexington Avenue

  
	
   

  	
  New York, NY 10017

  
	
   

  	
  Fax: (212) 450-3126

  
	
   

  	
  Attention: Alan Dean

  

 

or such other address or to
the attention of such other Person as the recipient party shall have specified
by prior written notice to the sending party. 
Any such communication shall be deemed to have been received when
actually delivered or refused.

8.4.          Survival of Warranties and
Certain Agreements.  Any liability of
the Company for any breach of, or inaccuracy in, the representations and
warranties made by it herein shall survive the execution and delivery of this
Agreement and the sale and delivery of the Notes but shall expire one year
after the date of the Closing.

8.5.          Heading.  Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.

8.6.          Applicable Law.  This Agreement shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of the
State of New York.

8.7.          Successors and Assigns; Subsequent
Holders.  This Agreement shall be
binding upon the parties hereto and their respective successors and assigns and
shall inure to the benefit of the parties hereto and the successors and assigns
of the Purchaser; provided,
however, that the Company’s
rights  hereunder may not be assigned
without the written consent of Purchaser; and provided further, no assignee of purchaser of the Notes
from the Purchaser shall be entitled to rely on the representations and
warranties of the Company contained herein.

8.8.          Consent to Jurisdiction and Service
of Process.  All judicial proceedings
with respect to this Agreement or any Notes may be brought in any state or
federal court of competent jurisdiction in the State of New York and by
execution and delivery of this Agreement the Company accepts for itself and in
connection with its properties, generally and unconditionally, the jurisdiction
of the aforesaid courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement subject, however, to rights
of appeal.  The Company hereby agrees
that service upon it in the manner provided for the giving of notices in Section 8.3
shall constitute sufficient notice. 
Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of the  Purchaser to bring proceedings against the
Company in the courts of any other jurisdiction.

8.9.          Waiver of Jury Trial.  Each of the parties hereto waives, to the
full extent permitted by applicable law, trial by jury in any litigation in any
court with respect to, in connection with, or arising out 

 8
 

of
this Agreement or any other Document or the validity, protection, interpretation,
collection or enforcement thereof.

8.10.        Counterparts; Effectiveness.  This Agreement and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.  This Agreement shall become effective upon
the execution of a counterpart hereof by each of the parties hereto, and when
written or telephonic notification of such execution and authorization of
delivery thereof has been received by the Company and the Purchaser.

8.11.        USA PATRIOT ACT.  The Purchaser is subject to the USA PATRIOT
ACT (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”)
and hereby notifies the Company that pursuant to the requirements of the Act,
it may be required to obtain, verify and record information that identifies the
Company,  which information includes the
name and address of the Company and other information that will allow such
Purchaser to identify the Company in accordance with the Act.  The Company hereby agrees to provide any such
information upon request, and to the disclosure of such information pursuant to
the requirements of the Act and notwithstanding any other provision hereof.

8.12.        Entirety.  This Agreement embodies the entire agreement
among the parties and supersede all prior agreements and understandings, if
any, relating to the subject matter hereof and thereof.

[Remainder of Page Intentionally Left Blank.]

 9

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed by the respective duly
authorized officers of the undersigned and by the undersigned as of the date
first written above.

	
  

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CELLU TISSUE
  HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President and

  
	
   

  	
   

  	
   

  	
  Chief Financial
  Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PURCHASER:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  WINGATE CAPITAL
  LTD.

  
	
   

  	
  By:

  	
  Citadel Limited Partnership,

  
	
   

  	
   

  	
  the Portfolio Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Citadel Investment Group, LLC,

  
	
   

  	
   

  	
  Its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Matthew Hinerfeld

  
	
   

  	
   

  	
  Name: 

  	
  Matthew Hinerfeld

  
	
   

  	
   

  	
  Title:

  	
  Managing Director and

  
	
   

  	
   

  	
   

  	
  Deputy General Counsel

  

 

 

Signature page to Note
Purchase Agreement

 

 

APPENDIX I

TO NOTE PURCHASE AGREEMENT

“Acquisition” has the
meaning set forth in the Recitals to the Agreement.

“Acquisition Documents”
means (i) the Merger Agreement among the Company, Cellu City Acquisition
Corporation, CityForest Corporation and Wayne Gullstad as the Shareholders’
Representative dated February 26, 2007, (ii) the Shareholder Support Agreement
dated as of February 26, 2007 entered into by John L. Morrison for the benefit
of the Company, (iii) the Shareholder Support Agreement dated as of February
26, 2007 entered into by Wayne Gullstad and Carol Gullstad for the benefit of
the Company, (iv) the Paying Agent Agreement among the Company, Cellu City
Acquisition Corporation, Wayne Gullstad in his capacity as the Shareholders’
Representative and Wells Fargo Bank, N.A. as paying agent, dated as of March
21, 2007 and (v) the Escrow Agreement among the Company, Cellu City Acquisition
Corporation, Wayne Gullstad in his capacity as the Shareholders’ Representative
and Wells Fargo Bank, N.A. as escrow agent dated as of March 21, 2007.

 “Agreement” means the Note Purchase
Agreement dated as of March 21, 2007 among the Company and the Purchaser, as
from time to time in effect, of which this Appendix is a part.

“Closing” shall have
the meaning set forth in Section 2.2 of the Agreement.

“Closing Date” means
the date of the Closing on which the Notes are issued and sold to the Purchaser
pursuant to the Agreement.

“Company” shall have
the meaning set forth in the preamble to the Agreement.

“Company SEC Filings”
has the meaning set forth in Section 5.4.1 of the Agreement.

“Exchange Act” means
the United States Exchange Act of 1934, as amended (and any  successor statute.)

“GAAP” means generally accepted accounting
principles as from time to time in effect, including the statements and
interpretations of the United States Financial Accounting Standards Board and
shall mean when referring to any particular financial statement such principles
as in effect on the date of such financial statements.

“Governing Documents”
means, with respect to any Person, such Person’s articles and by-laws if a
corporation, operating agreement, if a limited liability company or unlimited
liability company and limited partnership agreement and certificate of limited
partnership, if a limited partnership, and other similar governing documents,
with respect to any other entity.

“Governmental Authority”
means any government, governmental department, ministry, commission, board,
bureau, agency or instrumentality of any government, judicial, legislative or
administrative body having jurisdiction over the matter or matters in question.

“Indenture” has the
meanings set forth in the Recitals to the Agreement.

 “Material Adverse Effect” means, since
any specified date (or if no date is specified, since September 30, 2006) or
from the circumstances existing immediately prior to the happening 

of any specified event, a
material adverse change in the prospects, business, assets or financial condition
of the Company and its Subsidiaries on a consolidated basis.

 “Notes” has the meaning set forth in
the Recitals to the Agreement.

 “Person” means any entity, whether of
natural or legal constitution, including any present or future individual, corporation,
partnership, joint venture, limited liability company, unlimited liability
company, trust, estate, unincorporated organization, government or any agency
or political subdivision thereof.

 “Purchaser” has the meaning set forth
in the preamble to the Agreement.

“Securities Act”
means the United States Securities Act of 1933, as amended (and any successor
statute).

“SEC” means the
Securities and Exchange Commission of the United States.

“Senior Secured Notes”
has the meaning set forth in the Recitals to the Agreement.

“Subsidiary” means
any corporation, association or other business entity of which more than 50% of
the total ordinary voting power entitled to vote on the election of directors,
managers or trustees thereof (or persons performing similar functions) is
owned, directly or indirectly, by the Company.

 

EXHIBIT A

[FORM OF FACE
OF NOTE]

THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION.  NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION.  THE HOLDER OF THIS
SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF
ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION
TERMINATION DATE”) THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A
PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED
INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE SECURITY
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF
$250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE
IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM. 
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.

BY
ITS ACQUISITION OF THIS SECURITY THE HOLDER HEREOF WILL BE DEEMED TO HAVE
REPRESENTED AND WARRANTED THAT EITHER (I) NO PORTION OF THE ASSETS USED BY SUCH
HOLDER TO ACQUIRE AND HOLD THIS SECURITY CONSTITUTES THE ASSETS OF AN EMPLOYEE
BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE U.S. EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OF PLANS, INDIVIDUAL RETIREMENT
ACCOUNTS OR OTHER ARRANGEMENTS THAT ARE SUBJECT TO SECTION 4975 OF THE
U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), OR PROVISIONS
UNDER ANY FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE
SIMILAR TO SUCH PROVISIONS OF ERISA OR 

 A-1
 

THE
CODE (“SIMILAR LAWS”), OR OF AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED
TO INCLUDE “PLAN ASSETS” OF SUCH PLANS, ACCOUNTS OR ARRANGEMENTS, OR (II) THE
PURCHASE AND HOLDING OF THIS SECURITY WILL NOT CONSTITUTE A NON-EXEMPT
PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF
THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAWS.

THIS
NOTE BEARS ORIGINAL ISSUE DISCOUNT.  UPON
WRITTEN REQUEST TO CELLU TISSUE HOLDINGS, INC. 1855 LOCKEWAY DRIVE, STE. 501,
ALPHARETTA, GEORGIA 30004, ATTENTION: CHIEF EXECUTIVE OFFICER, INFORMATION
REGARDING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND
YIELD TO MATURITY WILL BE MADE AVAILABLE.

	
  No. [      ]

  	
  Principal Amount $20,255,572

  
	
   

  	
  CUSIP No. 151169 AE9

  

 

CELLU TISSUE
HOLDINGS, INC.

93¤4%
Senior Secured Note, Series A, due 2010

Cellu Tissue
Holdings Inc., a Delaware corporation, promises to pay to Wingate Capital Ltd.,
or its registered assigns, the principal sum of $20,255,572 Dollars on March
15, 2010.

Interest
Payment Dates:  March 15 and September 15

Record Dates:  March 1 and September 1

Additional provisions
of this Security are set forth on the other side of this Security.

	
  

  	
  CELLU TISSUE HOLDINGS, INC.

   

   

  
	
  

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 A-2
 

TRUSTEE’S
CERTIFICATE OF
   AUTHENTICATION

THE BANK OF
NEW YORK TRUST

COMPANY, N.A.

as Trustee, certifies

that this is one of

the Securities referred

to in the Indenture.

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  	
  Date:                     ,
  2007

  

 

 A-3
 

[FORM OF
REVERSE SIDE OF NOTE]

CELLU TISSUE HOLDINGS, INC.

93¤4% Senior
Secured Note, Series A, due 2010

1.                  Interest

Cellu Tissue
Holdings Inc., a Delaware corporation (such corporation, and its successors and
assigns under the Indenture hereinafter referred to, being herein called the “Company”),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above.

The Company will pay interest semiannually on March 15 and September 15
of each year commencing September 15, 2007. 
Interest on the Securities will accrue from the most recent date to
which interest has been paid on the Securities or, if no interest has been
paid, from March 21, 2007.  The Company
shall pay interest on overdue principal, and on overdue premium or Additional
Amounts, if any (plus interest on such interest to the extent lawful), at the
rate borne by the Securities to the extent lawful.  Interest will be computed on the basis of a
360-day year of twelve 30-day months.

2.                  Method
of Payment

By no later than 10:00 a.m. (New York City time) on the date on which
any principal of, premium, if any, or interest on any Security is due and
payable, the Company shall irrevocably deposit with the Trustee or the Paying
Agent money sufficient to pay such principal, premium, if any, Additional
Amounts, if any, and/or interest (including Additional Interest).  The Company will pay interest (except
Defaulted Interest) to the Persons who are registered Holders of Securities at
the close of business on the March 1 or September 1 next preceding the interest
payment date even if Securities are cancelled, repurchased or redeemed after
the record date and on or before the interest payment date.  Holders must surrender Securities to a Paying
Agent to collect principal payments.  The
Company will pay principal, premium, if any, and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. The Company will make all payments in respect of a
Definitive Security (including principal, premium, if any, and interest) by
mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also
be made, in the case of a Holder of at least $1,000,000 aggregate principal
amount of Securities, by wire transfer to a U.S. dollar account maintained by
the payee with a bank in the United States if such Holder elects payment by
wire transfer by giving written notice to the Trustee or the Paying Agent to
such effect designating such account no later than 15 days immediately
preceding the relevant due date for payment (or such other date as the Trustee
may accept in its discretion).

3.                  Paying
Agent and Registrar

Initially, The
Bank of New York Trust Company, N.A. (the “Trustee”) will act as
Trustee, Paying Agent and Registrar.  The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Securityholder. 
The Company or any of its 

 A-4
 

domestically
organized, wholly owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.

4.                  Indenture

The Company
issued the Securities under an Indenture dated as of March 12, 2004 (as it may
be amended or supplemented from time to time in accordance with the terms
thereof, the “Indenture”), among the Company, the Subsidiary Guarantors
and the Trustee.  The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.C.
§§ 77aaa-77bbbb) as in effect on the date of the Indenture (the “Act”).  Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture.  The Securities are subject to all terms and
provisions of the Indenture, and Securityholders are referred to the Indenture
and the Act for a statement of those terms.

The Securities
are secured senior obligations of the Company. 
The aggregate principal amount of Securities that may be authenticated
and delivered under the Indenture is unlimited, provided that the Net Cash Proceeds from any issuance of
Additional Securities are invested in Additional Assets in accordance with the
Indenture.  This Security is one of the
93⁄4% Senior Secured Notes, Series A, due 2010 referred to in the Indenture.  The Securities include (i) $162,000,000
aggregate principal amount of the Company’s 93⁄4% Senior Secured Notes, Series A,
due 2010 issued under the Indenture on March 12, 2004 (herein called “Initial
Securities”), (ii) $20,255,572 aggregate principal amount of the
Company’s 93⁄4% Senior Secured Notes, Series A, due 2010 issued under the
Indenture on March     , 2007 (the “2007 Notes”),
(iii) if and when issued, additional 93⁄4% Senior Secured Notes, Series A, due
2010 or 93⁄4% Senior Secured Notes, Series B, due 2010 of the Company that may be
issued from time to time under the Indenture subsequent to March 12, 2004
(together, with the 2007 Notes, herein called “Additional Securities”)
as provided in Section 2.1(a) of the Indenture and (iv) if and when
issued, the Company’s 93⁄4% Senior Secured Notes, Series B, due 2010 that
may be issued from time to time under the Indenture in exchange for Initial
Securities or Additional Securities in an offer registered under the Securities
Act as provided in any registration rights agreements (herein called “Exchange
Securities”).  The Initial
Securities, Additional Securities and Exchange Securities are treated as a
single class of securities under the Indenture and shall be secured by first
and second priority Liens and security interests, subject to Permitted Liens,
in the Collateral.  The Indenture imposes
certain limitations on the incurrence of indebtedness, the making of restricted
payments, the sale of assets and subsidiary stock, the incurrence of certain
liens, sale-leaseback transactions, the sale of capital stock of restricted
subsidiaries, the making of payments for consents, the entering into of
agreements that restrict distribution from restricted subsidiaries and the
consummation of mergers and consolidations. 
The Indenture also imposes requirements with respect to the provision of
financial information and the provision of guarantees of the Securities by
certain subsidiaries.

To guarantee
the due and punctual payment of the principal, premium, if any, and interest
(including post-filing or post-petition interest) on the Securities and all
other amounts payable by the Company under the Indenture, the Securities, the
Collateral Documents and the Intercreditor Agreement when and as the same shall
be due and payable, whether at maturity, by acceleration or otherwise,
according to the terms of the Securities and the Indenture, the 

 A-5
 

Subsidiary Guarantors have unconditionally
guaranteed (and future guarantors, together with the Subsidiary Guarantors,
will unconditionally Guarantee), jointly and severally, such obligations on a
senior, secured basis pursuant to the terms of the Indenture.

5.                  Redemption

Except as set
forth below, the Securities will not be redeemable at the option of the Company
prior to March 15, 2007.  On and after
such date, the Securities will be redeemable, at the Company’s option, in whole
or in part, at any time upon not less than 30 nor more than 60 days prior
notice mailed by first-class mail to each Holder’s registered address, at the
following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest (including Additional Interest) to the
applicable redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):

If redeemed
during the 12-month period commencing on March 15 of the years set forth below:

	
  Period

  	
   

  	
  Redemption Price

  	
   

  
	
  2007

  	
   

  	
  107.313

  	
  %

  
	
  2008

  	
   

  	
  103.656

  	
  %

  
	
  2009 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

In addition,
at any time and from time to time prior to March 15, 2007, the Company may
redeem in the aggregate up to 35% of the original principal amount of the
Securities with the Net Cash Proceeds of one or more Public Equity Offerings by
the Company or with the Net Cash Proceeds of one or more Public Equity
Offerings by Holdings that are contributed to the Company as common equity
capital at a redemption price (expressed as a percentage of principal amount)
of 109.750% of the principal amount thereof, plus accrued and unpaid interest
(including Additional Interest), if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided,
that:

(1)           there is a Public Market at the time
of such redemption;

(2)           at least 65% of the original
principal amount of the Securities must remain outstanding after each such
redemption; and

(3)           each such redemption occurs within
60 days of the date of closing of such Public Equity Offering.

If the
optional redemption date is on or after an interest record date and on or before
the related interest payment date, the accrued and unpaid interest (including
Additional Interest), if any, will be paid on the optional redemption date to
the Person in whose name the 

 A-6
 

Security is
registered at the close of business on such record date, and no additional
interest will be payable to Holders whose Securities will be subject to
redemption by the Company.

In the case of
any partial redemption, selection of the Securities for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Securities are listed or, if the
Securities are not listed, then on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Security of $1,000 in original principal amount or
less will be redeemed in part.  If any
Security is to be redeemed in part only, the notice of redemption relating to
such Security shall state the portion of the principal amount thereof to be
redeemed. A new Security in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Security.  On and after the
redemption date, interest will cease to accrue on Securities or portions
thereof called for redemption as long as the Company has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price pursuant
to the Indenture.

Prior to the
mailing of any notice of redemption of the Securities, the Company shall
deliver to the Trustee an Officers’ Certificate stating that the Company is
entitled to effect such redemption, accompanied by an opinion of counsel
satisfactory to the Trustee, acting reasonably, that the conditions precedent
to the right of redemption have occurred. 
Any such notice to the Trustee may be cancelled at any time prior to
notice of such redemption being mailed to any Holder and shall thereby be void
and of no effect.  The Company will be
bound to redeem the Securities on the date fixed for redemption.

The Company is not required to make any mandatory redemption payments
or sinking fund payments with respect to the Securities.

6.                  Optional
Tax Redemption

If any taxes,
assessments or other governmental charges are imposed by any jurisdiction where
the Company, a Subsidiary Guarantor or a successor of either (a “Payor”)
is organized or otherwise considered by a taxing authority to be a resident for
tax purposes, any jurisdiction from or through which the Payor makes a payment
on the Securities, or, in each case, any political organization or governmental
authority thereof or therein having the power to tax (the “Relevant Tax
Jurisdiction”) in respect of any payments under the Securities, the Payor
will pay to each Holder of a Security, to the extent it may lawfully do so,
such additional amounts (“Additional Amounts”) as may be necessary in
order that the net amounts paid to such Holder will be not less than the amount
specified in such Security to which such Holder is entitled; provided, however,
the Payor will not be required to make any payment of Additional Amounts for or
on account of:

(1)                                any
tax, assessment or other governmental charge which would not have been imposed
but for (A) the existence of any present or former connection between such
Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of,
or possessor of a power over, such Holder, if such Holder is an estate, trust,
partnership, limited liability company or corporation) and the Relevant Tax
Jurisdiction other than solely by the holding of Securities or by the receipt
of 

 A-7
 

                                                principal
or interest in respect of the Securities (including, without limitation, such
Holder (or such fiduciary, settlor, beneficiary, member, shareholder or
possessor) being or having been a citizen or resident thereof or being or
having been present or engaged in trade or business therein or having or having
had a permanent establishment therein) or (B) the presentation of a Security
(where presentation is required) for payment on a date more than 30 days after
(x) the date on which such payment became due and payable or (y) the date on
which payment thereof is duly provided for and notice of the availability of
the funds has been given, whichever occurs later (in either case (x) or (y),
except to the extent that the Holder would have been entitled to Additional
Amounts had the Security been presented during such 30-day period);

(2)                                any
estate, inheritance, gift, sales, transfer, personal property or similar tax,
assessment or other governmental charge;

(3)                                any
tax, assessment or other governmental charge that is imposed or withheld by
reason of the failure by the Holder or the beneficial owner of the Security to
comply with a reasonable and timely request of the Payor addressed to the
Holder to provide information, documents or other evidence concerning the
nationality, residence or identity of the Holder or such beneficial owner which
is required by a statute, treaty, regulation or administrative practice of the
taxing jurisdiction as a precondition to exemption from all or part of such
tax, assessment or other governmental charge; or

(4)                                any
combination of the above;

nor
will Additional Amounts be paid with respect to any payment of the principal
of, or any premium or interest (including Additional Interest)
on, any Security to any Holder who is a fiduciary or partnership or limited
liability company or other than the sole beneficial owner of such payment to
the extent that a beneficiary or settlor with respect to such fiduciary or a
member of such partnership, limited liability company or beneficial owner would
not have been entitled to such Additional Amounts had it been the Holder of such Security.

The Payor will provide the Trustee with the
official acknowledgment of the Relevant Tax Authority (or, if such
acknowledgment is not available, a certified copy thereof) evidencing the
payment of the withholding taxes by the Payor. 
Copies of such documentation will be made available to the Holders of
the Securities or the Paying Agent, as applicable, upon request therefor.

The Company and the Subsidiary Guarantors will pay
any present or future stamp, court or documentary taxes, or any other excise or
property taxes, charges or similar levies which arise in any jurisdiction from
the execution, delivery or registration of the Securities or any other document
or instrument referred to therein (other than a transfer of the Securities), or
the receipt of any payments with respect to the Securities,
excluding any such taxes, charges or similar levies imposed by any jurisdiction
outside the United States of America or Canada or any jurisdiction in which a
paying agent is located, other than those resulting from, or required to be
paid in connection with, the enforcement of the Securities or any other such
document or instrument following the occurrence of any Event of Default with
respect to the Securities.

 A-8
 

All references in the Indenture to principal of, premium, if
any, and interest on the Securities will include any Additional Interest and
any Additional Amounts payable by the Payor in respect of such principal, such
premium, if any, and such interest.

The Payor will be entitled to redeem all, but not less than all, of the
Securities if as a result of any change in or amendment to the laws,
regulations or rulings of any Relevant Tax Jurisdiction or any change in the
official application or interpretation of such laws, regulations or rulings, or
any change in the official application or interpretation of, or any execution
of or amendment to, any treaty or treaties affecting taxation to which such
Relevant Tax Jurisdiction is a party (a “Change in Tax Law”) the Payor
is or would be required on the next succeeding interest payment date to pay
Additional Amounts with respect to the Securities as described under Section
5.9(a) of the Indenture and the Payor delivers to the Trustee an Officers’
Certificate stating that the payment of such Additional Amounts cannot be
avoided by the use of any reasonable measures available to the Payor and that
the Payor is entitled to redeem the Securities pursuant to their terms.  The Change in Tax Law must become effective
on or after the Issue Date.  Further, the
Payor must deliver to the Trustee at least 30 days before the redemption date
an opinion of counsel of recognized standing to the effect that the Payor has
or will become obligated to pay Additional Amounts as a result of such Change
in Tax Law.  The Payor must also provide
the Holders with notice of the intended redemption at least 30 days and no more
than 60 days before the redemption date and shall comply with all provisions of
Article V of the Indenture.  The
redemption price will equal the principal amount of the Securities plus accrued
and unpaid interest thereon (including Additional Interest), if any to the
redemption date, premium, if any, and Additional Amounts, if any, then due and
which otherwise would be payable.

7.                  Repurchase
Provisions

If a Change of Control occurs, unless the Company has exercised its
right to redeem all of the Securities as described under paragraph 5 of the
Securities, each Holder will have the right to require the Company to
repurchase from each Holder all or any part (equal to $1,000 or an integral
multiple thereof) of such Holder’s Securities at a purchase price in cash equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date) as provided in, and subject to the terms of, the Indenture.

8.                  Denominations;
Transfer; Exchange

The Securities
are in registered form without coupons in denominations of principal amount of
$1,000 and whole multiples of $1,000.  A
Holder may transfer or exchange Securities in accordance with the
Indenture.  The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay a sum sufficient to cover any taxes and fees required by
law or permitted by the Indenture.  The
Registrar need not register the transfer of or exchange of any Security (A) for
a period beginning (1) 15 days before the mailing of a notice of an
offer to repurchase or redeem Securities and ending at the close of business on
the day of such mailing or (2) 15 days before an interest payment
date and ending on 

 A-9
 

such interest payment date or (B) called for
redemption, except the unredeemed portion of any Security being redeemed in
part.

9.                  Persons
Deemed Owners

The registered Holder of this Security may be treated as the owner of
it for all purposes.

10.            Unclaimed
Money

If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee or Paying Agent shall pay the
money back to the Company at its request unless an abandoned property law
designates another Person.  After any
such payment, Holders entitled to the money must look only to the Company for
payment as general creditors unless an abandoned property law designates
another person and not to the Trustee for payment.

11.            Defeasance

Subject to certain exceptions and conditions set forth in the
Indenture, the Company at any time may terminate some or all of its obligations
under the Securities, the Indenture, the Collateral Documents and the
Intercreditor Agreement if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the Securities to redemption or maturity, as the case may be.

12.            Amendment,
Supplement, Waiver

Subject to
certain exceptions set forth in the Indenture, (i) the Indenture, the
Securities, the Subsidiary Guarantees, the Collateral Documents or the
Intercreditor Agreement may be amended or supplemented by the Company,
Subsidiary Guarantors and Trustee with the written consent of the Holders of at
least a majority in principal amount of the then outstanding Securities and
(ii) any default (other than with respect to nonpayment or in respect of a
provision that cannot be amended without the written consent of each
Securityholder affected) or noncompliance with any provision may be waived with
the written consent of the Holders of a majority in principal amount of the
then outstanding Securities.  Subject to
certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company, Subsidiary Guarantors and the Trustee may amend or
supplement the Indenture, the Securities, the Subsidiary Guarantees, the
Collateral Documents or the Intercreditor Agreement to cure any ambiguity,
omission, defect or inconsistency, to comply with Article IV or Article X of
the Indenture, to provide for uncertificated Securities in addition to, or in
place of, certificated Securities, to add Guarantees with respect to the
Securities, to release Subsidiary Guarantors upon their designation as
Unrestricted Subsidiaries or otherwise in accordance with the Indenture, to
secure the Securities, to release Liens in favor of the Collateral Agent in the
Collateral as provided under the collateral release provisions, to add
additional covenants of the Company, to surrender rights and powers conferred
on the Company, to comply with any requirement of the SEC in connection with
qualifying the Indenture under the Act, to make any change that does not
adversely affect the rights of any Securityholder or, in the case of the 

 A-10
 

Intercreditor Agreement, that does not
adversely affect the rights of any Securityholder in any material respect, or
to provide for the issuance of Exchange Securities.

13.            Defaults
and Remedies

Under the
Indenture, Events of Default include (each of which is described in greater
detail in the Indenture) (i) default for 30 days in payment of
interest, Additional Interest or Additional Amounts when due on the Securities;
(ii) default in payment of principal or premium, if any, on the Securities
at Stated Maturity, upon required repurchase or upon optional redemption
pursuant to paragraph 5 of the Securities, upon declaration or otherwise;
(iii) the failure by the Company or any Subsidiary Guarantor to comply
with its obligations under Article IV or Section 10.2 of the
Indenture; (iv) failure by the Company to comply for 30 days after
written notice with any of its obligations under the covenants described under Sections 3.2
through 3.12 inclusive, Section 3.16 or Section 3.19 of the Indenture (in
each case, other than a failure to purchase Securities when required under the
Indenture, which failure shall constitute an Event of Default under
clause (ii) above) or failure by the Company or any Subsidiary Guarantor
to comply for 30 days after written notice with any of its obligations under
the Collateral Documents; (v) the failure by the Company to comply for
60 days after written notice with its other agreements contained in the
Indenture or under the Securities (other than those referred to in clause (i),
(ii), (iii) or (iv) above); (vi) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Restricted Subsidiaries), other than Indebtedness owed to the
Company or a Restricted Subsidiary, whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default
(a) is caused by a failure to pay principal of, or interest or premium, if
any, on such Indebtedness at maturity prior to the expiration of the grace
period provided in such Indebtedness (“payment default”) or
(b) results in the acceleration of such Indebtedness prior to its maturity
(the “cross acceleration provision”) and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more; (vii) certain events of bankruptcy, insolvency or reorganization of
the Company or a Significant Subsidiary or group of Restricted Subsidiaries
that, taken together (as of the latest audited consolidated financial
statements for the Company and its Restricted Subsidiaries), would constitute a
Significant Subsidiary (the “bankruptcy provisions”); (viii) failure
by the Company or any Significant Subsidiary or group of Restricted
Subsidiaries that, taken together (as of the latest audited consolidated
financial statements for the Company and its Restricted Subsidiaries), would
constitute a Significant Subsidiary to pay final judgments aggregating in
excess of $5.0 million (net of any amounts that a reputable and
creditworthy insurance company has acknowledged liability for in writing),
which judgments are not paid, discharged, waived or stayed for a period of
60 days (the “judgment default provision”); (ix) any
Subsidiary Guarantee or Collateral Document ceases to be in full force and
effect (except as contemplated by the terms of the Indenture) or is declared
null and void in a judicial proceeding or any of Holdings, the Company or any
Subsidiary Guarantor denies or disaffirms its obligations under the Indenture,
any Subsidiary Guarantee, any Collateral Document to which it is a party or the
Intercreditor Agreement; or (x) with respect to any Collateral having a fair
market value in excess of $5.0 million, individually or in the aggregate, (A)
the security interest under the Collateral 

 A-11
 

Documents, at
any time, ceases to be in full force and effect for any reason other than in
accordance with their terms and the terms of the Indenture and other than the
satisfaction in full of all obligations under the Indenture and discharge of
the Indenture, (B) any security interest created thereunder or under the
Indenture is declared invalid or unenforceable or (C) Holdings, the Company or
any Subsidiary Guarantor asserts, in any pleading in any court of competent
jurisdiction, that any such security interest is invalid or unenforceable.  However, a default under clause (iv) or
(v) will not constitute an Event of Default until the Trustee or the
Holders of at least 25% in principal amount of the outstanding Securities
notify the Company of the Default and the Company does not cure such Default
within the time specified in clause (iv) or (v) hereof after receipt of such
notice.

If an Event of
Default (other than an Event of Default described in (vii) hereof) occurs and
is continuing, the Trustee by notice to the Company, or the Holders of at least
25% in principal amount of the outstanding Securities by notice to the Company
and the Trustee, may, and the Trustee at the request of such Holders shall,
declare all the Securities to be due and payable immediately.  If an Event of Default described in clause
(vii) hereof occurs and is continuing, the principal of, premium, if any, and
accrued and unpaid interest on all the Securities will become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders.

Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture.  The
Trustee may refuse to enforce the Indenture or the Securities unless it
receives reasonable indemnity or security. 
Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power.  The Trustee may withhold from
Securityholders notice of any continuing Default or Event of Default (except a
Default or Event of Default in payment of principal or interest) if it
determines that withholding notice is in their interest.

14.            Trustee
Dealings with the Company

Subject to certain limitations set forth in the Indenture, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or their Affiliates and may otherwise
deal with the Company or its Affiliates with the same rights it would have if
it were not Trustee.

15.            No
Recourse Against Others

An
incorporator, director, officer, employee or stockholder of each of the Company
or any Subsidiary Guarantor, solely by reason of this status, shall not have
any liability for any obligations of the Company or any Subsidiary Guarantor
under the Securities, the Indenture, the Collateral Documents, the
Intercreditor Agreement, any Subsidiary Guarantees or for any claim based on,
in respect of or by reason of such obligations or their creation.  By accepting a Security, each Securityholder
waives and releases all such liability. 
The waiver and release are part of the consideration for the issue of
the Securities.

 A-12
 

16.            Authentication

This Security shall not be valid until an authorized officer of the
Trustee (or an authenticating agent acting on its behalf) manually signs the certificate
of authentication on the other side of this Security.

17.            Abbreviations

Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entirety), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian) and U/G/M/A (= Uniform Gift to Minors
Act).

18.            CUSIP,
Common Code and ISIN Numbers

The Company has caused CUSIP, Common Code and ISIN numbers, if
applicable, to be printed on the Securities and has directed the Trustee to use
CUSIP, Common Code and ISIN numbers, if applicable, in notices of redemption or
purchase as a convenience to Securityholders. 
No representation is made as to the accuracy of such numbers either as
printed on the Securities or as contained in any notice of redemption or
purchase and reliance may be placed only on the other identification numbers
placed thereon.

19.            Governing
Law

This Security
shall be governed by, and construed in accordance with, the laws of the State
of New York.

 

 A-13

ASSIGNMENT FORM

To assign this
Security, fill in the form below:

I or we assign
and transfer this Security to:

	
   

  
	
  (Print or type assignee’s
  name, address and zip code)

  
	
   

  
	
  (Insert
  assignee’s social security or tax I.D. No.)

  
	
   

  	
   

  	
   

  
	
  and irrevocably appoint ___________ agent to
  transfer this Security on the books of the Company. The agent may substitute another
  to act for him. 

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Your Signature:

  	
   

  
	
   

  	
   

  
	
  Signature Guarantee:

  	
   

  
	
   

  	
  (Signature must
  be guaranteed)

  
	
   

  	
   

  
	
   

  	
   

  
	
  Sign exactly as your name appears on the other side
  of this Security.

  	
   

  
								

 

The
signature(s) should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership
in an approved signature guarantee medallion program), pursuant to S.E.C. Rule
17Ad-15.

In connection with any transfer or exchange of any of the Securities
evidenced by this certificate occurring prior to the date that is two years
after the later of the date of original issuance of such Securities and the
last date, if any, on which such Securities were owned by the Company or any
Affiliate of the Company, the undersigned confirms that such Securities are
being:

CHECK ONE BOX
BELOW:

	
  

  	
  (1)

  	
  o

  	
  acquired for the undersigned’s own account, without
  transfer; or

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (2)

  	
  o

  	
  transferred to the Company; or

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (3) 

  	
  o
  

  	
  transferred pursuant to and in compliance with
  Rule 144A under the Securities Act of 1933, as amended (the “Securities
  Act”); or 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (4) 

  	
   ̈
  

  	
  transferred pursuant to an effective registration
  statement under the Securities Act; or 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (5) 

  	
   ̈
  

  	
  transferred pursuant to and in compliance with
  Regulation S under the Securities Act; or 

  
	
   

  	
   

  	
   

  	
   

  

 A-14
 

 

	
   

  	
  (6) 

  	
   ̈
  

  	
  transferred to an institutional “accredited
  investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
  Act), that has furnished to the Trustee a signed letter containing certain
  representations and agreements (the form of which letter appears as
  Section 2.8 of the Indenture); or 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (7) 

  	
   ̈
  

  	
  transferred pursuant to another available exemption
  from the registration requirements of the Securities Act of 1933, as amended.
  

  

 

Unless one of
the boxes is checked, the Trustee will refuse to register any of the Securities
evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided, however,
that if box (5), (6) or (7) is checked, the Company may require, prior to
registering any such transfer of the Securities, in its sole discretion, such
legal opinions, certifications and other information as the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended, such as the exemption
provided by Rule 144 under such Act.

	
  

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
  Signature Guarantee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Signature must be guaranteed)

  	
   

  	
  Signature

  

 

The
signature(s) should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership
in an approved signature guarantee medallion program), pursuant to S.E.C. Rule
17Ad-15.

TO BE
COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a “qualified
institutional buyer” within the meaning of Rule 144A under the Securities
Act of 1933, as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned’s foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.

	
  

  	
   

  	
   

  
	
   

  	
   

  	
  Dated:

  

 

 A-15
 

OPTION OF
HOLDER TO ELECT PURCHASE

If you elect
to have this Security purchased by the Company pursuant to Section 3.5 or
3.10 of the Indenture, check either box:

	
   ̈ 

  	
   

  	
     ̈

  
	
  3.5

  	
   

  	
  3.10

  

 

If you want to
elect to have only part of this Security purchased by the Company pursuant to
Section 3.5 or Section 3.10 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000):  $____________________________________________
and specify the denomination or denominations (which shall not be less than the
minimum authorized denomination) of the Securities to be issued to the Holder
for the portion of the within Security not being repurchased (in the absence of
any such specification, one such Security will be issued for the portion not
being repurchased): _________________.

 

	
  Date: 

  	
   

  	
  Your Signature

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign exactly as your name appears on the
  other side of the Security)

  
	
            

  
	
  Signature Guarantee:

  	
   

  
	
   

  	
  (Signature must
  be guaranteed)

  
	
   

  
					

The
signature(s) should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership
in an approved signature guarantee medallion program), pursuant to S.E.C. Rule
17Ad-15.

 A-16
 

SUBSIDIARY GUARANTEE

Pursuant to
the Indenture (the “Indenture”)
dated as of March 12, 2004  among Cellu
Tissue Holdings, Inc., the Subsidiary Guarantors party thereto (each a “Subsidiary
Guarantor” and collectively the “Subsidiary Guarantors”) and The
Bank of New York Trust Company, N.A., as trustee (the “Trustee”), each Subsidiary
Guarantor, subject to the provisions of Article X of the Indenture,
hereby fully, unconditionally and irrevocably guarantees, as primary obligor
and not merely as surety, jointly and severally with each other Subsidiary
Guarantor, to each Holder of the Securities, to the extent lawful, and the
Trustee the full and punctual payment when due, whether at maturity, by
acceleration, by redemption or otherwise, of the principal of, premium, if any,
Additional Amounts, if any, and interest (including Additional Interest) on the
Securities and all other obligations and liabilities of the Company under the
Indenture (including without limitation interest (including Additional
Interest) accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Company or any Subsidiary Guarantor whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding and the obligations
under Section 7.7 of the Indenture), the Collateral Documents and
the Intercreditor Agreement (all the foregoing being hereinafter collectively
called the “Obligations”).  Each
Subsidiary Guarantor agrees that the Obligations will rank equally in right of
payment with other Indebtedness of such Subsidiary Guarantor, except to the
extent such other Indebtedness is subordinate to the Obligations.  Each Subsidiary Guarantor further agrees (to
the extent permitted by law) that the Obligations may be extended or renewed,
in whole or in part, without notice or further assent from it, and that it will
remain bound under this Subsidiary Guarantee notwithstanding any extension or
renewal of any Obligation.

Each Subsidiary
Guarantor waives presentation to, demand of payment from and protest to the
Company of any of the Obligations and also waives notice of protest for
nonpayment.  Each Subsidiary Guarantor
waives notice of any default under the Securities or the Obligations.

Each
Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein
constitutes a Guarantee of payment when due (and not a Guarantee of collection)
and waives any right to require that any resort be had by any Holder to any
security held for payment of the Obligations.

Except as set
forth in Section 10.2 of the Indenture, the obligations of each
Subsidiary Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason (other than payment of the
Obligations in full), including any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense of setoff,
counterclaim, recoupment or termination whatsoever or by reason of the
invalidity, illegality or unenforceability of the Obligations or
otherwise.  Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor
herein shall not be discharged or impaired or otherwise affected by (a) the
failure of any Holder to assert any claim or demand or to enforce any right or
remedy against the Company or any other person under the Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of
the terms or provisions of the Indenture, the Securities or any other
agreement; (d) the release of any security held by any 

 A-17
 

Holder or the
Collateral Agent for the Obligations or any of them; (e) the failure of any
Holder to exercise any right or remedy against any other Subsidiary Guarantor;
(f) any change in the ownership of the Company; (g) any default, failure
or delay, willful or otherwise, in the performance of the Obligations, or
(h) any other act or thing or omission or delay to do any other act or
thing which may or might in any manner or to any extent vary the risk of any
Subsidiary Guarantor or would otherwise operate as a discharge of such
Subsidiary Guarantor as a matter of law or equity.

Each
Subsidiary Guarantor agrees that its Subsidiary Guarantee herein shall remain
in full force and effect until payment in full of all the Obligations or such
Subsidiary Guarantor is released from its Subsidiary Guarantee upon the merger
or the sale of all the Capital Stock or assets of the Subsidiary Guarantor or
otherwise in compliance with Section 10.2 or Article VIII of
the Indenture.  Each Subsidiary Guarantor
further agrees that its Subsidiary Guarantee herein shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of, premium, if any, or interest on any of the
Obligations is rescinded or must otherwise be restored by any Holder upon the
bankruptcy or reorganization of the Company or otherwise.

In furtherance
of the foregoing and not in limitation of any other right which any Holder has
at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the
failure of the Company to pay any of the Obligations when and as the same shall
become due, whether at maturity, by acceleration, by redemption or otherwise,
each Subsidiary Guarantor hereby promises to and will, upon receipt of written
demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the
Trustee or the Trustee on behalf of the Holders an amount equal to the sum of
(i) the unpaid amount of such Obligations then due and owing and (ii) accrued
and unpaid interest (including Additional Interest) on such Obligations then
due and owing (but only to the extent not prohibited by law).

Each Subsidiary
Guarantor further agrees that, as between such Subsidiary Guarantor, on the one
hand, and the Holders, on the other hand, (x) the maturity of the Obligations
guaranteed hereby may be accelerated as provided in the Indenture for the
purposes of its Subsidiary Guarantee herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby and (y) in the event of any such declaration of
acceleration of such Obligations, such Obligations (whether or not due and
payable) shall forthwith become due and payable by the Subsidiary Guarantor for
the purposes of this Subsidiary Guarantee.

Each
Subsidiary Guarantor also agrees to pay any and all reasonable costs and
expenses (including reasonable attorneys’ fees) incurred by the Trustee or the
Holders in enforcing any rights under this Subsidiary Guarantee.

 A-18
 

 

	
  

  	
  CELLU TISSUE CORPORATION —
  NATURAL DAM 

  
	
   

  	
  CELLU TISSUE
  CORPORATION — NEENAH 

  
	
   

  	
  CELLU TISSUE LLC

  
	
   

  	
  INTERLAKE
  ACQUISITION CORPORATION LIMITED 

  
	
   

  	
  MENOMINEE
  ACQUISITION CORPORATION 

  
	
   

  	
  VAN PAPER
  COMPANY

  
	
   

  	
  VAN TIMBER
  COMPANY,

  
	
   

  	
  as Subsidiary
  Guarantors

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  COASTAL PAPER COMPANY,

  
	
   

  	
  as a Subsidiary
  Guarantor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By: Van Paper Company, its

  
	
   

  	
  managing partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 A-19Exhibit
10.2

SECOND SUPPLEMENTAL INDENTURE 

This Second Supplemental Indenture, dated as of March
21, 2007 (this “Supplemental Indenture” or “Guarantee”), among
Cellu Tissue-CityForest LLC (the “Guarantor”), Cellu Tissue Holdings,
Inc. (together with its successors and assigns, the “Company”), each
other then existing Subsidiary Guarantor under the Indenture referred to below,
and The Bank of New York Trust Company, N.A., as Trustee under the Indenture
referred to below.

W I T N E S S E T H:

WHEREAS, the Company, the Subsidiary Guarantors and
the Trustee have heretofore executed and delivered an Indenture, dated as of
March 12, 2004 (as amended, supplemented, waived or otherwise modified, the “Indenture”),
providing for the issuance of an aggregate principal amount of $162.0 million
of 93⁄4% Senior Secured Notes due 2010 of the Company (the “Securities”);

WHEREAS, Section 3.12 of the Indenture
provides that after the Issue Date the Company is required to cause each
Restricted Subsidiary (other than a Foreign Subsidiary that does not Guarantee
any Indebtedness of the Company or any Restricted Subsidiary) created or
acquired by the Company or one or more Restricted Subsidiaries or Holdings, in
the event that Holdings Guarantees any Indebtedness of the Company or any of
its Restricted Subsidiaries, to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Subsidiary (or Holdings, if
applicable) will unconditionally Guarantee, on a joint and several basis with
the other Subsidiary Guarantors, the full and prompt payment of the principal
of, premium, if any, and interest on the Securities on a secured basis; and

WHEREAS, pursuant to Section 9.1 of the
Indenture, the Trustee and the Company are authorized to execute and deliver
this Supplemental Indenture to amend or supplement the Indenture, without the
consent of any Securityholder;

NOW, THEREFORE, in consideration of the foregoing and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Guarantor, the Company, the other Subsidiary Guarantors and
the Trustee mutually covenant and agree for the equal and ratable benefit of
the Holders of the Securities as follows:

ARTICLE I

Definitions

SECTION 1.1  Defined
Terms.  As used in this Supplemental
Indenture, terms defined in the Indenture or in the preamble or recital hereto
are used herein as therein defined.  The
words “herein,” “hereof” and “hereby” and other words of similar import used in
this Supplemental Indenture refer to this 

 1
 

Supplemental Indenture as a whole and not to any
particular section hereof.

ARTICLE II

Agreement to be Bound; Guarantee

SECTION 2.1  Agreement
to be Bound.  The Guarantor hereby
becomes a party to the Indenture as a Subsidiary Guarantor and as such will
have all of the rights and be subject to all of the obligations and agreements
of a Subsidiary Guarantor under the Indenture. 
The Guarantor agrees to be bound by all of the provisions of the
Indenture, the Collateral Documents and the Intercreditor Agreement applicable
to a Subsidiary Guarantor and to perform all of the obligations and agreements
of a Subsidiary Guarantor under the Indenture, the Collateral Documents and the
Intercreditor Agreement.

SECTION 2.2   Guarantee.  The Guarantor agrees, on a joint and several
basis with all the existing Subsidiary Guarantors, to fully, unconditionally
and irrevocably Guarantee to each Holder of the Securities and the Trustee the
Obligations pursuant to Article X of the Indenture on a secured basis.

ARTICLE III

Miscellaneous

SECTION 3.1   Notices.  All notices and other communications to the
Guarantor shall be given as provided in the Indenture to the Guarantor, at its
address set forth below, with a copy to the Company as provided in the
Indenture for notices to the Company.

SECTION 3.2   Parties.  Nothing expressed or mentioned herein is
intended or shall be construed to give any Person, firm or corporation, other
than the Holders and the Trustee, any legal or equitable right, remedy or claim
under or in respect of this Supplemental Indenture or the Indenture or any
provision herein or therein contained.

SECTION 3.3   Governing Law.  This Supplemental Indenture shall be governed
by, and construed in accordance with, the laws of the State of New York.

SECTION 3.4   Severability Clause.  In case any provision in this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby and such provision shall be ineffective only to the extent
of such invalidity, illegality or unenforceability.

SECTION 3.5   Ratification of Indenture; Supplemental
Indentures Part of Indenture.  Except
as expressly amended hereby, the Indenture is in all respects ratified and
confirmed and all the terms, conditions and provisions thereof shall remain in
full force and 

 2
 

effect.  This
Supplemental Indenture shall form a part of the Indenture for all purposes, and
every Holder of Securities heretofore or hereafter authenticated and delivered
shall be bound hereby.  The Trustee makes
no representation or warranty as to the validity or sufficiency of this
Supplemental Indenture or with respect to the recitals contained herein, all of
which recitals are made solely by the other parties hereto.

SECTION 3.6   Counterparts.  The parties hereto may sign one or more
copies of this Supplemental Indenture in counterparts, all of which together
shall constitute one and the same agreement.

SECTION 3.7   Headings.  The headings of the Articles and the sections
in this Guarantee are for convenience of reference only and shall not be deemed
to alter or affect the meaning or interpretation of any provisions hereof.

 3

IN WITNESS WHEREOF, the
parties hereto have caused this Supplemental Indenture to be duly executed as
of the date first above written.

	
  

  	
  CELLU TISSUE-CITYFOREST LLC,

  
	
  

  	
  as a Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President
  and Chief Financial Officer 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  

  	
  THE BANK OF NEW YORK
  TRUST COMPANY, N.A., as Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter M. Murphy

  
	
   

  	
   

  	
  Name: 

  	
  Peter M. Murphy

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  

  	
  CELLU TISSUE HOLDINGS, INC.

  
	
  

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President
  and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION — NATURAL DAM

  
	
   

  	
  CELLU TISSUE CORPORATION — NEENAH

  
	
   

  	
  CELLU TISSUE LLC

  
	
   

  	
  INTERLAKE ACQUISITION CORPORATION LIMITED

  
	
   

  	
  MENOMINEE ACQUISITION CORPORATION

  
	
   

  	
  VAN PAPER COMPANY

  
	
   

  	
  VAN TIMBER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President and Chief Financial Officer
  

  

 

Supplemental Indenture

 

	
  

  	
  COASTAL PAPER COMPANY

  
	
   

  	
   

  
	
   

  	
  By: Van Paper Company, its managing partner

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President
  and Chief Financial Officer 

  

 

Supplemental Indenture

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00120-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00120-of-00352.parquet"}]]