Document:

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                                                                    Exhibit 10.6

                             Table of Defined Terms
                             ----------------------

                                               Paragraph                Page
                                           ----------------          ----------
Acceptable Protection Coverage               6.1.5.1                      25
Acquisition Debt                             6.1.5.2                      25
Affiliate                                    1.1                           2
Aggregate Indemnification Payments           2                             3
API                                          Introduction                  1
API Purchase                                 Introduction                  1
AWA                                          Introduction                  1
Base Debt Period                             6.1.5.3                      25
Buyers                                       Introduction                  1
Change of Control                            6.1.5.4                      26
Claim Notice                                 5.2.1                        17
Claims                                       5.2.2                        18
Closing Date High Yield Note                 6.1.5.3                      26
Costs and Expenses                           1.2                           2
Deed                                         10.3                         34
Designated Debt Arbiter                      6.1.5.5                      26
Designated Fox River Arbiter                 6.1.5.6                      26
Excess Cost Due Date                         4.1.1.1                       6
Excess Costs                                 5.2.5                        20
Excess Coverage                              6.1.3                        25
Excess Projected Amount                      6.1.5.7                      27
Extended Debt Period                         6.1.5.8                      27
Extended Debt Period Prerequisites           6.1.5.9                      27
Fox River Payments                           6.1.1                        23
Indemnification Notice                       4.1.1.1                       5
Initial Indemnification Payment              4.1.1.2                       6
Insolvency Event                             4.2.3                        10
Later Period Coverage                        6.1.2                        24
Loan Amount                                  4.1.2                         7

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                             Table of Defined Terms
                             ----------------------
                                (continued)

                                               Paragraph                Page
                                           ----------------          ----------

Loans                                         4.1.2                         7
Member of the Buyers' Group                   1.3                           2
New Appleton                                  Introduction                  1
Observing Buyers                              5.2.8                        21
PDC                                           Introduction                  1
PDC Agreement                                 Introduction                  1
Purchase Agreement                            Introduction                  1
Recoveries                                    1.4                           2
Refinancing                                   6.1.5.10                     28
Relief                                        1.5                           3
Scheduled Base Period Expiration Date         6.1.5.3                      26
Security Agreement                            6.2                          30
Substitute High Yield Note                    6.1.5.3                      26
Tax                                           1.6                           3
Tax Benefit Amount                            5.1.1.1                      12
Tax Contest                                   5.1.5.2                      16
Tax Designee                                  5.1.5.1                      15
Tax Notice                                    5.1.5.1                      15
Tax Relief Notice                             5.1.4.1                      14
Tax Relief Response Notice                    5.1.4.2                      14
Taxation                                      1.6                           3

                                       ii

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                 FOX RIVER AWA ENVIRONMENTAL INDEMNITY AGREEMENT

         THIS AGREEMENT is made on the 9/th/ day of November, 2001 by and among
PAPERWEIGHT DEVELOPMENT CORP. ("PDC"), a Wisconsin corporation, NEW APPLETON
                                ---
LLC, a Wisconsin limited liability company ("New Appleton" and, together with
                                             ------------
PDC, "Buyers"), APPLETON PAPERS INC., a Delaware corporation ("API"), and ARJO
      ------                                                   ---
WIGGINS APPLETON p.l.c., a corporation incorporated in England and Wales with
company number 2454830 ("AWA").
                         ---

         WHEREAS, pursuant to a Purchase Agreement dated as of July 5, 2001 (the
"Purchase Agreement"), Buyers have indirectly purchased one hundred percent
 ------------------
(100%) of the outstanding capital stock of API from the Sellers, as defined
therein (the "API Purchase"); and
              ------------

         WHEREAS, Buyers have agreed, pursuant to the Fox River PDC
Environmental Indemnity Agreement (the "PDC Agreement") of even date herewith,
                                        -------------
and in reliance on this Agreement, to indemnify API in respect of the Excess
Costs;

         WHEREAS, in connection with the API Purchase, AWA has agreed to
indemnify Buyers against all costs incurred by Buyers in connection with their
indemnification obligations under the PDC Agreement; and Buyers and API have
agreed jointly and severally to indemnify AWA against the API Excess Costs; and

         WHEREAS, capitalized terms used herein without definition shall have
the meaning ascribed to them in the PDC Agreement.

         NOW, THEREFORE, the parties hereto have agreed to the following:

1.       INTERPRETATION

         In this Agreement, unless the context otherwise requires:

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         1.1 "Affiliate" means a person or entity included within the definition
              ---------
of "affiliate" set forth in United States Securities and Exchange Commission
Rule 405, as amended from time to time.

         1.2 "Costs and Expenses" means reasonable out-of-pocket expenses
              ------------------
properly incurred (i) in connection with a Tax Contest, (ii) in pursuing or
asserting any rights of Recovery, or (iii) in connection with the defense of
Claims. For the purposes hereof, all costs incurred by employees of API, Buyers
or any other Member of the Buyers' Group who assist AWA pursuant to Section 5.2
below shall be included as Costs and Expenses at the rate per hour specified in
Schedule 1.2 hereto

         1.3 "Member of the Buyers' Group" means API (whether or not it is at
              ---------------------------
any relevant time still an Affiliate of Buyers), Buyers and its and their
respective present or future Affiliates, officers, employees, agents, directors,
stockholders, partners and other holders of equity securities.

         1.4 "Recoveries" means any amounts which are received by API or any
              ----------
other Member of the Buyers' Group from any third party in respect of Excess
Costs (but, for the avoidance of doubt, not including any Tax Benefit Amount as
defined in Section 5.1.1.1.), including without
limitation (i) pursuant to the NCR Agreements, (ii) pursuant to insurance
policies, and (iii) from other third parties or otherwise. For the avoidance of
doubt, Recoveries will not include (x) any payments by NCR to third parties or
(y) payments by NCR to API which API combines with its own funds to make a
payment to a third party on behalf of both API and NCR; and Recoveries will
include any amounts paid by NCR to API under the NCR Agreements in reimbursement
of amounts previously paid by API to third parties on behalf of NCR, but only

                                       2

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to the extent that API had included such previously paid amounts as Excess Costs
under the PDC Agreement.

         1.5 "Relief" means any loss, allowance, credit, deduction or set-off
              ------
for Tax purposes benefiting any Member of the Buyers' Group arising as a result
of (i) its or any other Member of the Buyers' Group's incurring of or paying
Excess Costs, (ii) any indemnification payment by Buyers under the PDC
Agreement, or (iii) its or any other Member of the Buyers' Group's incurring of
or paying Costs and Expenses. For the avoidance of doubt, Relief shall include
any benefit described above obtained by any shareholder of a Member of the
Buyers' Group by virtue of such Member of the Buyers' Group being a so-called
"pass-through" entity for United States tax purposes.

         1.6 "Tax" or "Taxation" means all federal, state, provincial, local,
              ---      --------
territorial and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, real estate, excise, value added, estimated,
stamp, alternative or add-on minimum, environmental, withholding and any other
taxes, duties or assessments together with all penalties, interest and additions
imposed with respect to such tax amounts.

2.       INDEMNIFICATION BY AWA

         Subject to the provisions of this Agreement, AWA hereby covenants to
indemnify and hold harmless Buyers or, where applicable, any other Member of the
Buyers' Group, in respect of the following (the "Aggregate Indemnification
                                                 -------------------------
Payments"):
--------

         2.1 all amounts for which Buyers become responsible in satisfaction of
their indemnification obligations under the PDC Agreement, reduced by the sum of
(i) any Tax Benefit Amounts, and (ii) any Recoveries received by any Members of
the Buyers' Group;

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         2.2 any Tax Benefit Amount in the event, and only to the extent that,
any such Tax Benefit Amount is not finally allowed by the applicable Tax
authority after having been taken into account as a repayment of a Loan pursuant
to Section 4.1.2.2(ii), along with any interest and penalties paid (net of Tax
effect) in respect of any such disallowance;

         2.3 any Recoveries in the event, and only to the extent that, any such
Recoveries are not finally received (or must be returned) by any Members of the
Buyers' Group after having been taken into account as a repayment of a Loan
pursuant to Section 4.1.2.2(i).; and

         2.4 any Costs and Expenses incurred by Buyers, but only to the extent
not explicitly the responsibility of the Buyers by operation of Section 5.1.5.3
or Section 5.2.8 below.

3.       INDEMNIFICATION BY API AND BUYERS

         API and Buyers hereby acknowledge (i) that they are and shall remain,
as between the parties hereto, solely responsible for the satisfaction of the
API Excess Costs, and nothing contained herein or in the PDC Agreement shall
transfer any such liability to AWA or constitute AWA's agreement to assume any
such liability, and (ii) that the indemnity provided by AWA pursuant to Article
2 shall not apply to the API Excess Costs. In accordance with the foregoing, API
and Buyers hereby jointly and severally covenant to indemnify, hold harmless and
pay to AWA an amount equal to any API Excess Costs that AWA actually incurs or
otherwise pays on behalf of API, either Buyer or any other Member of the Buyers'
Group.

4.       SATISFACTION OF AWA INDEMNIFICATION

4.1 The parties hereby acknowledge that while API may be legally responsible, as
a matter of law, for satisfying the Indemnified Excess Costs, and while AWA's
indemnification obligation hereunder in respect of the Indemnified Excess Costs
relates to Buyers' obligation to indemnify API, it is the agreement of the
parties that, as set forth in Section 4.1.3, by operation

                                       4

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of this Agreement and AWA's indemnification obligations hereunder, AWA shall,
upon Buyers' request but subject to the terms and conditions set forth herein,
pay (or cause to be paid) to API on behalf of Buyers or Buyers (or, where
applicable, Members of the Buyers' Group) the amount of the Indemnified Excess
Costs prior to such time that API (or either Buyer (or, where applicable, a
Member of the Buyers' Group)) becomes legally obligated to pay such Indemnified
Excess Costs so that neither Buyer (nor API, nor, where applicable, any other
Member of the Buyers' Group) is effectively ever out of pocket in respect
thereof; provided that in furtherance of the foregoing, AWA may in its
discretion make such payments directly to the applicable obligee in respect
thereof, in which latter case AWA shall provide notice to Buyers and API of such
direct payment. Further, except as set forth in Section 4.1.3, and consistent
with the foregoing, AWA shall pay the Indemnified Excess Costs initially without
giving effect to the deductions therefrom set forth in Sections 2.1(i) and (ii)
above. The following sets forth the procedures under which AWA shall pay the
Indemnified Excess Costs; provided, however, that nothing contained below is
intended to limit AWA's rights of control as set forth in Section 5 below.; and
provided, further, that the parties acknowledge that they may from time to time
agree to informal procedures to supplement the following, although neither party
is under any obligation to agree to any such informal procedures:

           4.1.1 AWA shall initially satisfy the amount of Indemnified Excess
    Costs as follows:

           4.1.1.1 Buyers (or API on behalf of Buyers) shall provide notice (the
    "Indemnification Notice") to AWA, setting forth the amount of any
     ----------------------
    Indemnified Excess Costs which the Buyers are required to pay to API under
    the terms of the PDC Agreement for which Buyers seek indemnification
    hereunder, notwithstanding that

                                       5

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neither the Buyers nor API have paid such costs in advance of issuing such
Indemnification Notice. The Indemnification Notice shall set forth the amount of
the applicable Indemnified Excess Costs, together with documentary support in
respect thereof (setting forth all of the circumstances thereof), and, if
payment thereof has not yet been made, the date by which such payment is legally
due from Buyers (the "Excess Cost Due Date").
                      --------------------

         4.1.1.2 AWA shall, and notwithstanding that it may be contesting its
obligation to make such payment in accordance with Section 7, pay to Buyers or
Members of the Buyers' Group (or, pursuant to Sections 4.1 and 4.1.3, the
applicable obligee or API) the amount of the Indemnified Excess Costs set forth
in each Indemnification Notice (the "Initial Indemnification Payment") not later
                                     -------------------------------
than the later of (i) ten (10) days after delivery of the Indemnification Notice
or (ii) seven (7) days prior to the Excess Cost Due Date or (iii) if AWA makes
such payment to the applicable obligee or to API, on the due date therefor as
set forth in the PDC Agreement; provided that AWA shall be entitled to reduce
                                --------
any Initial Indemnification Payment by any amounts owed to AWA under this
Agreement, including without limitation (x) indemnification payments pursuant to
Section 3, (y) any Recoveries (whether or not in respect of such Initial
Indemnification Payment) not previously paid to AWA or otherwise applied against
AWA's obligations hereunder, and (z) any Tax Benefit Amount not previously paid
to AWA or otherwise applied against AWA's obligations hereunder. If AWA shall
not make any Initial Indemnification Payment when the same shall be due, the
amount of such past due payment shall be payable by AWA on demand by API,
together with interest at the rate of ten percent (10%) per annum from the date
such payment was due.

                                       6

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         In the event that AWA shall at any time contest or dispute its
         obligation to make an Initial Indemnification Payment, AWA shall submit
         such dispute for resolution pursuant to Section 7 below; and if, as a
         result thereof, API is obligated to reimburse AWA it shall do so upon
         demand, together with interest at the rate of ten percent (10%) per
         annum from the date AWA made such payment.

                  4.1.2 The Initial Indemnification Payments hereunder shall
         initially be characterized as loans ("Loans" and the amounts
                                               -----
         outstanding from time to time in respect of the Loans, the "Loan
                                                                     ----
         Amount") from AWA to Buyers, as follows:
         ------

                           4.1.2.1 Each Loan shall be interest free and without

         recourse to Buyers, API or any other Member of the Buyers' Group, such
         that neither Buyers, API, nor any other Member of the Buyers' Group
         shall under any circumstances be obligated to make repayment thereof
         other, than as set forth in Section 4.1.2.2 or otherwise below.

                           4.1.2.2 The Loan Amount shall be repaid, or deemed
         repaid, as follows:

                                   (i) in any and all events (and regardless of
whether there are then outstanding Loan Amounts), Buyers shall pay to AWA all
Recoveries within ten (10) days following actual receipt thereof by API or any
other Member of the Buyers' Group. Any such payments shall constitute payments
of outstanding Loan Amounts or, if no Loan Amounts are then outstanding,
prepayments in respect of future Loan Amounts;

                                   (ii) on March 15 of each year (or, by
operation of Section 5.1.4 below, as soon as possible thereafter), Buyers shall
repay any outstanding Loan Amount to the extent of the Tax Benefit Amount in
respect of the prior calendar year; provided that, in lieu of making any such
cash payment, Buyers may elect to permit AWA to reduce its next payment
obligations to Buyers hereunder by such amount;

                                       7

<PAGE>

                                   (iii) if upon final calculation of the Tax
 Benefit Amount for a calendar year the amount thereof is different than the
amount utilized in the calculation described in (ii) above, the parties hereto
shall make an appropriate reconciling payment, i.e. if the Tax Benefit Amount is
greater than utilized, the Buyers shall pay such excess amount in cash to AWA
(subject to the proviso at the end of subsection 4.1.2.2(ii) above); and if the
Tax Benefit Amount is less than utilized, AWA shall pay such lesser amount in
cash to Buyers; and

                                   (iv) the outstanding Loan Amount in respect
of each year shall be deemed repaid, and Buyers shall have no further
obligations in respect thereof, after giving effect to the repayments set forth
in (i) through (iii) above. Any amounts deemed repaid, as aforesaid, shall
therefore be treated as Aggregate Indemnification Payments in accordance
herewith, i.e. to the extent of the original Loan Amount for such year reduced
by the payments made in respect of Recoveries and the Tax Benefit Amount.

                  4.1.3 In recognition of Buyers' obligations under the PDC
         Agreement and of the fact that API shall be responsible in the first
         instance to satisfy the Indemnified Excess Costs, Buyers hereby direct
         AWA to make all payments hereunder directly to the applicable obligee
         or, if applicable, to API; provided, however, that such direct payments
         shall nonetheless be treated as a matter of law as being in
         satisfaction of AWA's obligations hereunder.

         4.2      At any time that (i) an Insolvency Event has occurred with
respect to Buyers, API or any other Member of the Buyers' Group or (ii) Buyers,
API or any other Member of the Buyers' Group have failed to pay or satisfy any
portion of the API Excess Costs when due, and such failure shall have continued
for thirty (30) days after written notice thereof shall have been given by AWA
to the defaulting party; (provided that such notice and cure period shall not
apply

                                       8

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if any such extended period would have a material adverse effect on AWA; and
further provided that Buyers' failure to make any indemnification payment to API
or AWA by reason of AWA's failure to make an indemnification payment to Buyers
pursuant to this Agreement shall not be deemed to be a default hereunder), the
following shall thereafter apply:

             4.2.1   AWA shall be entitled, in lieu of the procedures set forth
          in Section 4.1, to make payments as otherwise determined in accordance
          with Section 4.1.1.2 equal to the amount of Indemnified Excess Costs,
          net of AWA's good faith estimate of the Tax Benefit Amount and
          Recoveries to be obtained by API or another Member of Buyers' Group
          relating to such Indemnified Excess Costs. Any such payment shall be
          deemed to constitute a Loan hereunder and the amount thereof shall
          constitute a portion of the Loan Amount; provided that in such case
                                                   --------
          any Tax Benefit Amount or Recoveries, when received, relating to such
          Indemnified Excess Costs up to the amount of such estimate thereof
          shall be the property of Buyers. If, upon final determination of Tax
          Benefit Amount and Recoveries, the amount paid by AWA pursuant to
          Section 4.1.3 on account of Indemnified Excess Costs is inaccurate,
          then, as applicable, either (x) AWA shall pay Buyers in cash the
          amount of any deficiency or (y) Buyers shall pay AWA in cash the
          amount of any overpayment, (subject to the proviso at the end of
          Section 4.1.2.2(ii)).

             4.2.2    In any event, and without affecting the limitations set
          forth in the definition of Indemnified Excess Costs as set forth in
          the PDC Agreement applicable upon an Insolvency Event, AWA's
          indemnification obligations hereunder, and its obligation to make
          Loans hereunder, shall not in any year exceed the amount of
          Indemnified Excess Costs for which the Buyers and/or API would have
          become responsible in that year absent such Insolvency Event. For the
          avoidance of doubt,

                                       9

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     therefore, if by reason of an Insolvency Event, the obligations of the
     Buyers and/or API in respect of Indemnified Excess Costs are accelerated,
     liquidated or otherwise established at a specific sum representing, for
     example, the then current value of the future obligations, AWA's
     responsibility hereunder shall not apply to such liquidated amount, but
     instead shall be limited such that AWA's obligations hereunder shall be
     calculated and paid each year on the basis of the Indemnified Excess Costs
     that would have been paid by API during that year had there been no such
     acceleration or liquidation.

          4.2.3 For the purposes hereof, an "Insolvency Event" shall occur in
                                             ----------------
     relation to a person if:

                  (i)   it admits in writing its inability to pay its debts as
they fall due;

                  (ii)  it voluntarily commences an action for its liquidation
or winding up otherwise than purely for the purposes of a solvent reconstruction
or amalgamation;

                  (iii) it consents to the appointment of a receiver (including
an administrative receiver or receiver and manager) over the whole or any
material part of its assets or undertaking, or, after a 60 day period, is unable
to discharge or stay an involuntary action for such appointment;

                  (iv)  it makes a general assignment for the benefit of its
creditors;

                  (v)   a voluntary or involuntary petition has been filed by or
against it pursuant to any bankruptcy or insolvency law (as from time to time
amended, re-

                                       10

<PAGE>

enacted or replaced); provided, however, that in the case of an involuntary
petition, such petition is not discharged or stayed within 60 days after its
filing; or
                 (vi) any matter similar or analogous to any of those described
above occurs in relation to it under the laws of any relevant jurisdiction.

         4.3 The Aggregate Indemnification Payments made by AWA pursuant to this
Section 4, after giving effect to the Tax Benefit Amount and Recoveries, if
applicable, shall constitute reductions to the Purchase Price paid by Buyers in
respect of the API Purchase.

         4.4 Buyers and API acknowledge that AWA's combined maximum aggregate
liability to Buyers and API hereunder or otherwise in respect of Excess Costs
shall not exceed the Excess Costs paid (or otherwise incurred) by API, Buyers or
any other Members of the Buyers' Group and constituting Indemnified Excess
Costs, net of any Recoveries and any Tax Benefit Amounts.

         4.5 Notwithstanding any provision of this Agreement to the contrary,
AWA is not assuming any liability of Buyers or API to third parties in respect
of Excess Costs pursuant to this Agreement; instead AWA is only indemnifying
Buyers or any other Member of the Buyers' Group in respect thereof. Further, no
person or entity, other than the parties to this Agreement and the other Members
of the Buyers' Group, shall have any rights or obligations under or by reason of
this Agreement, including but not limited to any third party beneficiary rights,
nor any right of direct action to enforce this Agreement.

         4.6 Further, for purposes of determining whether Buyers have satisfied
the First Tier Indemnification Amount (and the point at which API becomes
responsible for the API Excess Costs), the Indemnified Excess Costs shall be
deemed to include (i) any payments made by AWA which would have constituted
Excess Costs if they had been incurred by API or would

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have been subject to indemnification hereunder if incurred by Buyers, and (ii)
all Costs and Expenses incurred by AWA.

5. TAX BENEFITS; RECOVERIES

   5.1 Buyers and API hereby agree that they shall use their best efforts to
seek and obtain Relief on account of the payment of Excess Costs or, as the case
may be, indemnification payments by Buyers to API, in any such case for the
benefit of any Member of the Buyers' Group, as expeditiously and as diligently
as practicable. If, and to the extent any Member of the Buyers' Group obtains
any such Relief, the amount thereof shall be a deduction from AWA's
indemnification obligations (i.e. as a Tax Benefit Amount, as set forth in
Section 2.1(i) above).

       5.1.1    For the purposes hereof,

                5.1.1.1  the "Tax Benefit Amount" shall mean the actual benefit,
                              ------------------
stated in dollars, obtained by any Member of the Buyers' Group on account of
Relief. For the purposes of calculating the Tax Benefit Amount, (i) the
applicable Relief shall be determined by reference to the average Tax rates
applicable to such Member of the Buyers' Group in the year in which such
determination is being made, (ii) such calculation shall be based upon claims
for Relief made against Tax either by way of deduction against taxable profits
or otherwise, i.e. when Tax would otherwise have become payable but for Relief,
and (iii) the Tax Benefit Amount shall be reduced by any Tax (also determined
based upon the average rates of such Member of the Buyers' Group) arising by
reason of the deemed repayment or satisfaction of a Loan or otherwise by reason
of the structure of the arrangement set forth herein; and if the Tax calculated
pursuant to the subsection (iii) exceeds the Tax Benefit Amount, the amount of
such excess shall be paid in cash by AWA to Buyers.

                                       12

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            5.1.1.2  the Buyers shall provide AWA with copies of all tax returns
(and underlying work papers in connection therewith) reflecting the calculation
of the Tax Benefit Amount. Upon AWA's request, the Buyers shall provide AWA with
access to all such information and to those professional advisers who assisted
in the preparation thereof; provided, however, the disclosure of such tax
returns and other information to AWA shall be subject to the terms of Section
9.2 of the Purchase Agreement.

    5.1.2   In the event Buyers or API fail to comply fully with their
obligations under this Section 5.1 (and in accordance with Section 5.1.4 source
not found.) to claim Relief or fail to utilize such Relief as soon as practical
and otherwise as aforesaid, Buyers shall be obligated to repay in cash (subject
to the proviso at the end of Section 4.1.2.2(ii)),, at the time when a Tax
Benefit Amount would otherwise have been paid pursuant to Section 4.1.2.2, that
portion of the Loan Amount equal to the aggregate Tax Benefit Amount that would
have been realized by Buyers, API or any other Member of the Buyers' Group had
it acted in accordance with its obligations under this Agreement.

    5.1.3   In the event that a Loan Amount is deemed repaid by reason of
a Tax Benefit Amount (or cash is actually paid to AWA in respect of a Tax
Benefit Amount) and the Internal Revenue Service or other Tax authority
subsequently seeks to deny part or all of such Tax Benefit Amount or such Tax
Benefit Amount is otherwise decreased by any such Tax authority, AWA shall
immediately re-loan to Buyers the amount of any Tax and deficiency interest that
is required to be paid by any Member of the Buyers' Group either (i) as a result
of a settlement or the decision of an applicable Tax authority or judicial body
following a determination not to pursue any appeal thereof, or (ii) to pursue
the claim, either in a different forum, or to contest a state determination, or
otherwise.

                                       13

<PAGE>

Any such re-loan shall be made immediately upon, or concurrently with, any such
payment required to be made by any Member of the Buyers' Group. Any amount
re-loaned pursuant to this Section 5.1.3 will be repaid in cash forthwith by
Buyers to AWA (or applied against AWA's indemnification obligations hereunder)
but only if and to the extent that the entitlement to a Tax Benefit Amount in
respect of which an amount is re-loaned hereunder is finally established and a
Tax Benefit Amount obtained, failing which such re-loaned sum will become part
of the Aggregate Indemnification Amounts pursuant to Section 2 above and shall
be deemed repaid in accordance with Section 4.1.2.2

         5.1.4 The following provisions shall apply in respect of the process
under which Members of the Buyers' Group shall determine the extent to which
they shall claim Relief with respect to each year.

               5.1.4.1 On or before March 15 during each year API shall deliver
to AWA written notice (the "Tax Relief Notice") setting forth the Relief that it
intends to claim with respect to the prior year, and shall thereafter provide
AWA with any further information that AWA requests that AWA deems relevant to
its review of such Tax Relief Notice.

               5.1.4.2 AWA shall provide API with written notice (the "Tax
Relief Response Notice") within 30 days following delivery of the Tax Relief
Notice, either approving or contesting the Tax Relief Notice; provided that such
30 day period shall be extended, as reasonably necessary, to give effect to
requests for further information that are made by AWA pursuant to Section
5.1.4.1 AWA shall be deemed to have approved the Tax Relief Notice if it shall
not deliver a timely Tax Relief Response Notice.

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               5.1.4.3 If AWA contests the Tax Relief Notice, as aforesaid, the
parties shall resolve the resulting dispute in accordance with the provisions of
Article 7 below; provided, however, (i) the arbitrator shall in all events be a
firm of recognized national expertise in Tax matters, and (ii) the time frames
set forth within Article 7 shall be accelerated, as necessary, in order to
assure that the Members of the Buyers' Group comply with their Tax reporting
requirements.

         5.1.5 The following further provisions shall apply in respect of the
conduct of the Tax affairs of the Members of the Buyers' Group in order to give
effect to the provisions of Section 5.1.

               5.1.5.1 Buyers shall keep AWA or its designee for tax matters
(its "Tax Designee") informed of the progress of the Tax affairs of Buyers and
      ------------
the Members of the Buyers' Group to the extent they are relevant to Relief
claimed by Buyers or a Member of the Buyers' Group and will provide copies of
all correspondence and transcripts or summaries of all meetings with the
Internal Revenue Service or other Tax authority relevant to the Relief claimed
subject to the terms of Section 9.2 of the Purchase Agreement. Without limiting
the foregoing, Buyers shall promptly notify AWA or its Tax Designee in writing
(a "Tax Notice") following receipt by any Member of the Buyers' Group of any
    ----------
notice of any proposed, pending or threatened Tax audit or examination of or
assessment against any Member of the Buyers' Group relating to Relief claimed.

               5.1.5.2 AWA or its Tax Designee shall have the right (but not the
obligation) to represent Buyers and the other Members of the Buyers' Group in an
examination, in an administrative appeal and/or in litigation in connection with
any Tax

                                       15

<PAGE>

Notice or otherwise in any contest to the extent relating to Relief claimed
(collectively, a "Tax Contest") and to employ counsel at AWA's expense for such
                  -----------
purpose (and any such expense shall not be deemed be to an Aggregate
Indemnification Payment hereunder). AWA or its Tax Designee may exercise this
right by written notice to Buyers at any time following receipt of any Tax
Notice relating to a Tax Contest. If, and following the date that, AWA exercises
this right, (i) AWA or its Tax Designee shall have the unlimited right to
control all aspects of any such Tax Contest, and (ii) Buyers and the other
Members of the Buyers' Group shall be required to cooperate fully with AWA or
its Tax Designee and its counsel, including the grant of all necessary powers of
attorney.

         5.1.5.3 The personnel of Buyers and the other Members of the Buyers'
Group shall have the right of observation at Buyers' expense in any Tax Contest
in which AWA or its Tax Designee exercises its rights to represent a Member of
the Buyers' Group.

         5.1.5.4 If AWA or its Tax Designee does not exercise, or until it
exercises, its right to represent Buyers or another Member of the Buyers' Group
in connection with a Tax Contest as aforesaid, Buyers and the other Members of
the Buyers' Group shall consult with and take into account any reasonable
submissions made by AWA or its Tax Designee in respect of such Tax Contest.

         5.1.5.5 If AWA or its Tax Designee does not exercise, or until it
exercises, its right to represent Buyers or another Member of the Buyers' Group
as aforesaid, no settlement, compromise or agreement in respect of any Tax
Contest or other disallowance of Relief in respect of Excess Costs shall be made
without the consent of AWA or its Tax Designee, unless AWA or its Tax Designee
fails to respond to a request

                                       16

<PAGE>

         for consent within thirty (30) days after the delivery thereof, in
         which case the matter may be settled without the consent of AWA or its
         Tax Designee.

                  5.1.5.6 Upon settlement, compromise or agreement in respect of
         any Tax Contest or other disallowance of Relief, or upon entry of
         decision in litigation from which no appeal is taken, and provided that
         the provisions of this Section 5.1.4 shall have been complied with, AWA
         shall indemnify, hold harmless and pay to Buyers and the other Members
         of the Buyers' Group in respect thereof pursuant to Section 2.2 hereof
         to the extent the amount thereof had not been re-loaned pursuant to
         Section 5.1.3 above

                  5.1.5.7 The Buyers may elect at any time to assume control
         over any Tax Contest that AWA had otherwise elected to control
         hereunder, in which case, as between AWA and the Buyers hereunder and
         irrespective of the actual conclusion to the Tax Contest, the
         applicable Relief will be deemed unchanged from that reflected by the
         Tax filings that are the subject of the audit, examination or
         assessment.

         5.2      Buyers and API hereby agree that they shall use their best
efforts to seek to minimize the amount of the Excess Costs and to seek to obtain
Recoveries as soon as practicable for the benefit of AWA in accordance with the
further provisions of this Section5.2; provided, however, that nothing contained
in this introduction to Section 5.2 shall limit AWA's rights of control as set
forth below.

                  5.2.1 Buyers shall promptly notify AWA in writing (a "Claim
                                                                        -----
         Notice") following receipt by Buyers or any Member of the Buyers' Group
         ------
         of any written or oral actual or potential claim that could give rise
         to an Excess Cost or a Recovery. Buyers and API shall, at all times,
         keep AWA fully informed of all claims. Notwithstanding the foregoing,
         AWA's obligations hereunder shall not be limited by reason of Buyers'
         failure

                                       17

<PAGE>

         to comply with the requirements of this Section 5.2.1 except to the
         extent that such failure has an adverse effect on AWA (including by
         ultimately increasing the amount of such Excess Cost or reducing the
         amount of any Recovery).

                  5.2.2 It is the intent of the parties that AWA shall have the
         exclusive right (but not the obligation) to carry out or direct, in the
         name and on behalf of the Members of the Buyers' Group, the defense of
         all claims and proceedings, whether presently existing or hereafter
         arising, that could potentially give rise to a claim for
         indemnification by API pursuant to the PDC Agreement or by Buyers
         hereunder ("Claims") and to carry out or direct all claims for
                     ------
         Recoveries in connection therewith. Accordingly, (i) as between AWA and
         the Members of the Buyers' Group, AWA shall have the exclusive right to
         select counsel to conduct the defense of all such Claims and to pursue
         all such Recoveries at AWA's expense, and, subject to Section 5.2.4,
         shall have the exclusive right to direct the conduct and settlement
         thereof, (ii) Buyers and the other Members of the Buyers' Group shall
         cooperate fully with AWA or its designee and its counsel, including by
         granting all necessary powers of attorney, (iii) AWA shall have the
         right to require the Members of the Buyers' Group to do any of the
         foregoing in accordance with AWA's instructions, and (iv) Buyers and
         the other Members of the Buyers' Group shall not take any action, nor
         make any statement, regarding Claims or Recoveries unless directed to
         do so by AWA, or otherwise as consistent with strategies and policies
         previously approved by AWA.

                  5.2.3 In furtherance of the foregoing, API shall, upon AWA's
         request, (i) appoint AWA's designee as the Authorization Administrator
         to act on behalf of API pursuant to the Settlement Agreement and to
         approve the incurrence and payment of all

                                       18

<PAGE>

     defense and other costs payable by API pursuant to the NCR Agreements and
     (ii) assign to AWA (or its designee(s)) all of API's rights to any or all
     Recoveries, whether under agreements with third parties, insurance
     contracts or otherwise; provided that if any such assignment jeopardizes
     API's rights to any such Recoveries or contravenes the express terms of any
     agreements, instruments or other arrangements providing API with a right to
     Recovery, API shall, to the extent reasonably practicable, take such
     alternative actions as may be required by AWA in order to obtain the
     equivalent result.

          5.2.4 AWA is hereby authorized to consent to a settlement of, or the
     entry of any judgment arising from, any Claim or in connection with any
     Recovery without the prior written consent of Buyers, Members of the
     Buyers' Group or API, where applicable, unless (a) such settlement or
     judgment would result in the payment by any Member of the Buyers' Group of
     $50,000 or more and such payment is not subject to indemnification
     hereunder or (b) any such settlement, compromise or judgment contains an
     admission of responsibility or liability by Buyers, API and/or any other
     Member of the Buyers' Group that (i) would result in the payment by any
     Member of the Buyers' Group of $50,000 or more and such payment would not
     be subject to indemnification hereunder, or (ii) if the Claim involves
     non-monetary damages or liability, would otherwise result in a material
     adverse effect on any Member of the Buyers' Group not covered by AWA's
     indemnity hereunder, in any which case (x) AWA shall consult with and give
     due consideration to API's position with respect to any such settlement or
     judgment, and (y) AWA will not complete such settlement without the prior
     written consent of API, which consent shall not be unreasonably withheld.
     Buyers, API and each other Member of the Buyers' Group shall, and shall
     cause each of its Affiliates, officers, employees,

                                       19

<PAGE>

     consultants and agents to, provide reasonable cooperation with AWA in the
     defense of all Claims and prosecution of Recoveries. If AWA does not
     exercise its rights of control set forth in Section 5.2.2 hereof, neither
     API, either Buyer or any other Member of the Buyers' Group shall make any
     waiver, settlement or admission or modify in any respect any oral or
     written agreement with NCR or any other person in respect of any Claim or
     any potential Recoveries without the express prior written approval of AWA,
     which approval shall not be unreasonably withheld.

          5.2.5 Without limiting the generality of the foregoing, neither API
     nor any other Member of the Buyers' Group shall:

                5.2.5.1 take or fail to take any actions in contravention of
     written directives of AWA or in contravention of, or inconsistent with,
     strategies or polices previously established by AWA which in any such case
     could have the effect of (i) incurring or increasing the aggregate amount
     of Excess Costs, or (ii) diminishing potential Recoveries, or (iii)
     resulting in or expanding liabilities of API which could become Excess
     Costs under the PDC Agreement, without in any such case obtaining the prior
     approval of AWA; or

                5.2.5.2 accept or assume any responsibility for Excess Costs,
     and shall not acknowledge responsibility therefor, by way of settlement or
     otherwise, without first obtaining the consent of AWA.

          Any obligations voluntarily incurred or payments voluntarily made by
API in contravention of this Section 5.2.5 shall not constitute "Excess Costs"
for the purposes of this Agreement if (x) any such single obligation or payment
involves more than $50,000 or (y) the

                                       20

<PAGE>

aggregate of such obligations or payments exceed $500,000 or (z) any such
obligation or payment otherwise results in a material detriment to the interests
of AWA.

          5.2.6 API hereby agrees to, and Buyers shall ensure that API shall,
     use its reasonable best efforts to comply fully with the terms and
     conditions of any insurance policies or agreements with third parties which
     may provide for the payment of Excess Costs, and shall further comply with
     such reasonable written instructions as AWA or its designee may make
     relating to the foregoing.

          5.2.7 Buyers and API shall make its employees and consultants
     (including, without limitation, Doug Buth, Paul Karch, Dick Wehrel, Dennis
     Hultgren, Bill VanDenBrandt and Tami Van Straten as long as each is
     employed by API or its Affiliates) available to AWA upon reasonable
     request, whether in connection with its pursuit of Recoveries and Relief,
     the defense of Claims or other matters relating to the substance of this
     Agreement.

          5.2.8 The personnel of Buyers and other Members of the Buyers' Group
     ("Observing Buyers") shall have the right of observation at Buyers' expense
       ----------------
     in any Claim or Recovery in which AWA exercises its right of control herein
     so long as any such observation does not interfere with AWA's conduct of
     such Claim or Recovery; AWA shall use reasonable efforts to coordinate with
     the Observing Buyers the exercise of such observation rights and, if
     requested by Buyers, AWA shall keep Buyers appraised of the status of any
     such Claim or Recovery.

     5.3 Neither API nor Buyers shall transfer or assign any interest of any
kind or nature that either possesses in respect of the PDC Agreement without the
prior written approval of AWA, and shall not consent to any amendment to, or
waiver of rights under, or other

                                       21

<PAGE>

modification of the rights or obligations or undertakings of any party under,
the PDC Agreement. Buyers shall ensure that API fully performs its obligations
under the PDC Agreement and shall seek to enforce its rights thereunder to the
fullest extent permitted by law.

     5.4 Notwithstanding anything contained herein to the contrary, if AWA shall
fail to comply with its material obligations under this Agreement including,
without limitation, those obligations set forth in Sections 2, 4.1 and 6.1, 7.1
and all subsections relating thereto within 45 days after having received notice
of such failure (provided that such cure period shall be reduced to no less than
20 days if any such additional time would result in a material adverse effect to
API, the Buyers or any other Member of the Buyers' Group), AWA's rights of
control under this Section 5 shall be suspended until such time as it shall have
remedied any such failure; and until such time Buyers shall have the right to
retain control of the matters set forth herein, subject to AWA's rights of
observation and to information disclosure as otherwise available to Buyers
hereunder,

     5.5 AWA hereby grants to PDC the right to set off against the Value Amount
under the Deferred Payment (as each is defined in the Purchase Agreement) any
obligations of AWA that are not satisfied when due (it being understood,
however, that the within right of set-off shall not constitute Buyers' sole
recourse against AWA in the case of any such failure).

6.   SECURITY

     6.1 As assurances for AWA's obligations under this Agreement the following
provisions shall apply:

         6.1.1 At a time when the sum of (a) the indemnification payments made
     by AWA hereunder, (b) all Costs and Expenses incurred by AWA, and (c) any
     other payments made by AWA which would have been indemnifiable hereunder if
     they had

                                       22

<PAGE>

     been incurred by API or Buyers (together, the "Fox River Payments"), is
                                                    ------------------
     less than $75,000,000, if the consolidated "tangible net assets" of AWA and
     its subsidiaries and its share of joint ventures and associates ("tangible
     net assets" being "net assets," adjusted to remove "intangible assets,"
     "deferred tax assets" and "deferred tax liabilities," in each case as
     calculated on the same basis and using the same methodology employed in the
     preparation of AWA's statutory accounts or, if such accounts are no longer
     prepared, on the basis that would be used in preparing such accounts in
     accordance with English law and UK GAAP) shall, as determined at the end of
     any fiscal quarter, have (i) remained below (Pounds)500 million for two (2)
     consecutive fiscal quarters for any reason or (ii) fallen below (Pounds)500
     million in whole or in part as a result of (x) a sale of assets outside of
     the ordinary course of business, (y) a sale to a third party of stock or
     other ownership interests of any direct or indirect operating subsidiary of
     AWA or (z) any other discrete transaction outside the ordinary course of
     business, the following shall apply:

                6.1.1.1 AWA shall deliver into escrow, pursuant to an Escrow
     Agreement substantially in the form of Exhibit A hereto with a mutually
                                            ---------
     agreed upon commercial bank as escrow agent, an amount equal to the excess
     of (1) $75,000,000 over (2) the Fox River Payments made to the date on
     which the escrow deposit is required. Such escrow deposit shall be made
     immediately following the determination that such deposit is required to
     made pursuant hereto, but in any event not later than ten (10) days after
     delivery of a certification pursuant to Section 6.1.1.3 that reflects AWA's
     obligation to make such escrow deposit. Notwithstanding the foregoing, AWA
     shall have no obligation to make the payments into escrow required
     hereunder for so long as AWA is providing the Acceptable Protection
     Coverage described in Section 6.1.3. At such time

                                       23

<PAGE>

     that AWA shall no longer be providing the Excess Coverage, AWA shall be
     required, as a condition to the termination of such Excess Coverage, to
     deposit into escrow the amount which is required pursuant to Section
     6.1.1.2;

                6.1.1.2 The amount to be retained in escrow pursuant to Section
     6.1.1.1 above shall at all times equal the excess of (1) $75,000,000 over
     (2) the sum of the Fox River Payments made to the applicable date.
     Accordingly, any amounts held in escrow pursuant to the Escrow Agreement
     which are greater than the amount of such required amount at any time shall
     promptly be distributed to AWA free of escrow;

                6.1.1.3 For so long as AWA's obligations under this Section
     6.1.1 above apply, AWA shall provide Buyers with a quarterly certificate,
     signed by an officer of AWA, by the 30/th/ day of the month following each
     fiscal quarter, setting forth AWA's consolidated tangible net assets as of
     the last day of the previous fiscal quarter, as above; provided that AWA
     shall be required to provide Buyers with immediate written notice of any
     event described in Section 6.1.1(ii), and

          6.1.2 AWA shall keep and maintain, or cause to be kept and maintained,
     Acceptable Protection Coverage pursuant to which the specified amounts
     described in Schedule 6.1.2-1 hereof are available to satisfy Aggregate
     Indemnification Payments in the years set forth therein (the "Later Period
                                                                   ------------
     Coverage"); provided, however, once the cumulative Fox River Payments made
     --------
     by AWA hereunder exceed $75,000,000, the annual amounts available for
     payment under the Later Period Coverage may from time to time be reduced in
     accordance with the formula attached hereto as Schedule 6.1.2-2; and
     provided, further, AWA need not obtain or maintain the Later Period
     Coverage for so

                                       24

<PAGE>

     long as the Excess Coverage remains in effect, it being understood that, at
     AWA's option, it may continue the Excess Coverage in place beyond the Base
     Debt Period.

          6.1.3 During the Base Debt Period, AWA shall keep and maintain, or
     cause to be kept and maintained, Acceptable Protection Coverage pursuant to
     which the specified amounts described in Schedule 6.1.3 hereof are
     available to satisfy Aggregate Indemnification Payments in the years set
     forth therein (the "Excess Coverage").
                         ---------------

          6.1.4 During the Extended Debt Period, AWA shall keep and maintain, or
     cause to be kept and maintained, Acceptable Protection Coverage as follows:

                6.1.4.1 On the first day of the Extended Debt Period, the
     Acceptable Protection Coverage must be equal to the lesser of (i) two (2)
     times the Excess Projected Amount, or (ii) $250,000 reduced by the amount
     of Fox River Payments made to such date.

                6.1.4.2 Thereafter during the Extended Debt Period, the
     Acceptable Protection Coverage must be equal at all times to the amount
     described in Section 6.1.4.1 above reduced by the amount of Fox River
     Payments made during the Extended Debt Period to the date of calculation.

          6.1.5 For the purposes of this Section 6, the following definitions
     shall apply:

                6.1.5.1 "Acceptable Protection Coverage" means the credit
                         ------------------------------
     enhancement in the form attached hereto as Schedule 6.1.5.1.

                6.1.5.2 "Acquisition Debt" means all obligations, including,
                         ----------------
     without limitation, principal, interest, fees, costs and expenses, payable
     by Members of the Buyers' Group under those debt facilities described on
     Schedule 6.1.5.2 hereof.

                6.1.5.3 "Base Debt Period" means from the date hereof until the
                         ----------------
     earliest to occur of (i) the later of (A) November 8, 2008 and (B) if,
     pursuant to Section 5 of the

                                       25

<PAGE>

     Appleton Papers Inc. Senior Subordinated Note issued on the date hereof
     (the "Closing Date High Yield Note"), API issues debt securities the
           ----------------------------
     proceeds of which are used to redeem such Closing Date High Yield Note (the
     "Substitute High Yield Note"), the seventh anniversary of the issuance date
      --------------------------
     of such securities (such later date being the "Scheduled Base Period
                                                    ---------------------
     Expiration Date"), and (ii) the occurrence of a Change of Control, and
     ---------------
     (iii) the date on which the Acquisition Debt is in fact fully repaid other
     than through a Refinancing.

               6.1.5.4 "Change of Control" means the occurrence of all of the
                        -----------------
     following: (i) a change of control as defined in the Closing Date High
     Yield Note, (ii) full satisfaction of the repurchase and/or repayment
     obligations contained in the Acquisition Debt, including any notice, offer,
     repurchase or repayment obligations contained in the Closing Date High
     Yield Note or the Substitute High Yield Notes arising from such change of
     control, and (iii) the absence of the continuation of a default or event of
     default under any of the Acquisition Debt by reason of such change of
     control.

               6.1.5.5 "Designated Debt Arbiter" means a firm of recognized
                        -----------------------
     national standing mutually acceptable to the Buyers and AWA with the
     necessary financial skills to make the determinations described in
     6.1.5.9(i) below. In the event that the Buyers and AWA are unable to agree
     on the identity of such Designated Debt Arbiter, it shall be determined
     pursuant to Section 7.1 below.

               6.1.5.6 "Designated Fox River Arbiter" means a firm of recognized
                        ----------------------------
     standing mutually acceptable to the Buyers and AWA with the necessary
     skills and experience to make the determinations described in 6.1.5.9(iii)
     below. In the event that

                                       26

<PAGE>

     the Buyers and AWA are unable to agree on the identity of such Designated
     Fox River Arbiter, it shall be determined pursuant to Section 7.1 below.

               6.1.5.7 "Excess Projected Amount" means the sum of the remaining
                        -----------------------
     Aggregate Indemnification Payments during the entire Extended Debt Period
     as determined by the Designated Fox River Arbiter over (i) the aggregate
     amounts available in cash during the entire Extended Debt Period from the
     escrow described in Section 6.1 above, if any (determined on the basis of
     the required amount of escrow on the first day of the Extended Debt
     Period), and (ii) the Later Period Coverage.

               6.1.5.8 "Extended Debt Period" means (a) subject to (b) below,
                        --------------------
     the period following the Scheduled Base Period Expiration Date through
     November 8, 2011, and (b) if there exists an Extended Debt Period by reason
     of the existence of an Extended Debt Period Prerequisite set forth in
     Section 6.1.5.9(ii) below, the period following the Scheduled Base Period
     Expiration Date November 8, 2011; provided, however, that (i) in any and
     all events there shall be no Extended Debt Period unless the Extended Debt
     Period Prerequisites shall have been satisfied and (ii) the Extended Debt
     Period shall be terminated upon the occurrence of a Change of Control; and
     provided, further, that there shall automatically be an Extended Debt
     Period if AWA does not invoke the provisions of Section 6.1.6.1. If AWA
     does invoke the provisions of Section 6.1.6.1, there shall be an Extended
     Debt Period if it shall be determined pursuant to Section 6.1.6 that the
     Extended Debt Period Prerequisites shall have been met.

               6.1.5.9 "Extended Debt Period Prerequisites" means that the
                        ----------------------------------
     Acquisition Debt shall not have been repaid in full (other than through a
     Refinancing), and any one or more of the following shall have occurred:

                                       27

<PAGE>

                        (i)   A Designated Debt Arbiter shall not have
determined that API and its Subsidiaries will have sufficient internal cash
(i.e. not obtained through financings (other than normal course equipment or
real estate financings or normal course working capital financings, in any such
case in respect of existing loan facilities; provided that the proceeds of such
working capital financings may not be applied to repay the Acquisition Debt) and
after giving effect to required operating requirements and planned payments and
expenditures) to be able to repay the Acquisition Debt prior to the Scheduled
Base Period Expiration Date; provided, however, if the Designated Debt Arbiter
does make a determination that there exists such sufficient internal cash, the
Extended Debt Period Prerequisite shall nonetheless be deemed to have occurred
pursuant to this subsection (i) unless within thirty (30) days following such
determination either (x) the Acquisition Debt is repaid in full or (y) an amount
equal to the then outstanding Acquisition Debt shall have been irrevocably
deposited for payment on the due date thereof; or

                        (ii)  AWA shall have committed a payment default
hereunder in excess of $1 million prior to the Scheduled Base Period Expiration
Date and shall not have cured such default within 60 days following written
notice thereof; provided that such cure period shall be reduced to no less than
30 days if any such additional time would result in a material adverse effect on
API, the Buyers or any other Member of the Buyers' Group; or

                        (iii) the Designated Fox River Arbiter has determined
that there is an Excess Projected Amount.

               6.1.5.10 "Refinancing" means that the Acquisition Debt shall
                         -----------
     have been repaid in whole or in part through borrowings other than from the
     original holders of the Acquisition Debt.

                                       28

<PAGE>

               6.1.6  In order to allow the  determinations to be made pursuant
    to Section  6.1.5.9(i) and (iii)above, the following shall apply:

                      6.1.6.1  If AWA wishes to request a determination as to
    the requirement for an Extended Debt Period by requesting determinations
    pursuant to Sections 6.1.5.9(i) it must give notice thereof to the Buyers in
    writing not later than that date which is 365 days prior to the Scheduled
    Base Period Expiration Date.

                      6.1.6.2  The Designated Debt Arbiter and the Designated
    Fox River Arbiter, respectively, shall be identified, including if necessary
    by an acceleration of the procedures described in Section 7 below not later
    than the dates which are 180 days and 270 days, respectively, prior to the
    Scheduled Base Period Expiration Date.

                      6.1.6.3  Buyers and AWA shall provide the Designated Debt
    Arbiter and the Designated Fox River Arbiter with such information and
    further assistance as each may require in order to make its required
    determinations, but subject in all cases to such limitations as may be
    deemed reasonably necessary by Buyers or AWA in order to satisfy
    requirements for confidentiality.

                      6.1.6.4  The Designated Debt Arbiter and the Designated
    Fox River Arbiter shall be directed to make their final determinations not
    later than the date which is 30 days prior to the Scheduled Base Period
    Expiration Date.

                      6.1.6.5  The determinations of the Designated Debt Arbiter
    and the Designated Fox River Arbiter shall be binding and enforceable on the
    Buyers and AWA.

                      6.1.6.6  The cost of the Designated Debt Arbiter and the
    Designated Fox River Arbiter shall be borne equally by the Buyers, on the
    one hand, and AWA, on the other hand.

                                       29

<PAGE>

          6.2  As security for its obligations under this Agreement, API and
Buyers shall execute and deliver a Security Agreement (the "Security Agreement")
                                                            ------------------
substantially in the form of Exhibit B hereto, pursuant to which API and Buyers
                             ---------
shall grant AWA a continuing security interest in the Recoveries and the
proceeds thereof and Buyers' rights under the PDC Agreement.

7.        DISPUTES; ARBITRATION

          7.1  Buyers and API, on the one hand, and AWA, on the other hand,
shall attempt in good faith to resolve any dispute or difference between or
among the parties arising out of or relating to this Agreement promptly by
negotiation between executives of the relevant parties who have authority to
settle the controversy within fifteen (15) days after delivery of a notice of a
dispute by one or more parties to the others. All negotiations pursuant to this
Section 7.1 are confidential and shall be treated as compromise and settlement
negotiations for purposes of applicable rules of evidence.

          7.2  Any dispute or difference between or among the parties arising
out of or relating to this Agreement which has not been resolved by negotiation
pursuant to Section 7.1 shall be settled by arbitration in accordance with the
CPR Rules for Non Administered Arbitration in effect on the date of this
Agreement, by a mutually acceptable single arbitrator designated by the
respective parties. If the parties are unable to agree on an arbitrator within
fifteen (15) days following the expiration of the negotiation period described
in Section 7.1 an arbitrator shall be selected by the Center for Public
Resources pursuant to the procedures set forth in its Rule 6.4.b or by such
other procedures as the parties may elect. In order to expedite the process of
selecting an arbitrator, the parties shall use their best efforts to agree upon
a standby arbitrator and an alternate within thirty (30) days following the
effective date of this Agreement, and within thirty (30) days following the
resignation or inability of any such standby arbitrator or alternate to

                                       30

<PAGE>

serve. The arbitration shall be governed by the Federal Arbitration Act, 9
U.S.C.(S)(S)1-16, and judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The place of arbitration shall
be New York, New York. The language of the arbitration shall be English. The
arbitration shall be governed by the law of the State of New York. The
arbitrator is not empowered to award damages in excess of compensatory damages
and each party expressly waives and foregoes any right to punitive, exemplary or
similar damages less a statute requires that compensatory damages be increased
in a specified manner. Following the final arbitration hearings, which shall be
completed within thirty (30) days following the later of (i) the designation of
the arbitrator and (ii) the expiration of the negotiation period described in
Section 7.1 unless otherwise mutually agreed by the parties to the dispute, the
arbitrator shall promptly deliver a written decision with respect to the dispute
to each of the parties, who shall promptly act in accordance therewith. Each
party agrees that any decision of the arbitrator shall be final, conclusive and
binding and that they will not contest any action by any other party thereto in
accordance with a decision of the arbitrator. It is specifically understood and
agreed that any party may enforce any award rendered pursuant to the arbitration
provisions of this Section 7.2 by bringing suit in any court of competent
jurisdiction.

          7.3   All reasonable fees, costs and expenses (including attorneys'
fees and expenses) incurred by the party that prevails in any such arbitration
commenced pursuant to Section 7.2 or any judicial action or proceeding seeking
to enforce the agreement to arbitrate disputes as set forth in Section 7.2 or
seeking to enforce any order or award of any arbitration commenced pursuant to
this Section 7.2 may be assessed (in whole or in part) against the party or
parties that do not prevail in such arbitration in such manner as the arbitrator
or the court in such judicial action, as the case may be, may determine to be
appropriate under the circumstances. All costs

                                       31

<PAGE>

and expenses attributable to the arbitrator shall be allocated among the parties
to the arbitration in such manner as the arbitrator shall determine to be
appropriate under the circumstances.

          7.4   The parties hereto shall take all required steps in order to
avoid any inconsistencies between the resolutions of disputes hereunder and
resolutions of disputes under the PDC Agreement including, without limitation,
the consolidation of any dispute resolution procedures. Notwithstanding anything
to the contrary in this Agreement or in the PDC Agreement, AWA shall not be
bound, nor shall its rights and obligations under this Agreement be determined,
by any arbitration or judicial proceeding conducted pursuant to the PDC
Agreement unless either (i) AWA is a party to such proceeding, or (ii) such
proceeding has been consolidated with such a proceeding hereunder.

          7.5   In the event any party fails to make a payment when due
hereunder, interest shall thereafter accrue on the amount due until paid at the
rate of ten percent (10%) per annum.

8.        ACCESS TO INFORMATION; SETOFF

          8.1   Buyers and API hereby agree to provide AWA or its designee with
unlimited access, upon request and during normal business hours, to all of their
books and records relating to the matters giving rise to Excess Costs and any
information that might reasonably be thought relevant to Excess Costs and
Recoveries in order to permit AWA or its designee to confirm the amount of
Aggregate Indemnification Payments and Buyers' rights thereto and to permit AWA
or its designees to properly manage Excess Costs and Recoveries.

          8.2   In the event that it is determined that, for any reason, AWA has
made payments to Buyers in excess of amounts ultimately determined to be owing
hereunder, AWA shall have the right to set-off any such excess payments against
amounts subsequently owing from it to Buyers hereunder or otherwise.

                                       32

<PAGE>

9.      API GUARANTEE; RIGHTS OF API

        9.1    API hereby unconditionally and absolutely guarantees to AWA the
prompt and full payment and performance of all covenants, agreements and other
obligations of Buyers hereunder. The foregoing guarantee shall be direct,
absolute, irrevocable and unconditional and shall not be impaired irrespective
of any modification, release, supplement, extension or other change in the terms
of all or any of the obligations of Buyers hereunder or for any other reason
whatsoever. API hereby waives any requirement of promptness, diligence or notice
with respect to the foregoing guaranty and any requirement that Buyers exhaust
any right or take any action against Buyers in respect of any of their
obligations hereunder.

        9.2    AWA hereby agrees, on behalf of itself and its Affiliates,
successors and assigns, that it will not claim or assert that the PDC Agreement
is not enforceable, valid or binding on any of the parties thereto, and hereby
waives any right it has now or may have in the future, to make any claim or
assertion, whether at law or in equity, with respect to such enforceability,
validity or binding effect. The parties hereto acknowledge and agree that this
Agreement and the indemnity obligations of AWA hereunder have the effect of
benefiting API, the Buyers, and the other Members of the Buyers' Group and no
claim shall be made or defense asserted by AWA which would have the effect of
denying API the benefits of this Agreement or the PDC Agreement; provided
nothing contained herein is intended to expand AWA's obligations beyond those
explicitly set forth herein or to deny AWA any other rights or defenses to which
it is entitled hereunder.

10.     ASSIGNMENT AND SUCCESSION

        10.1   Subject to 10.3 this Agreement may not be amended, modified or
assigned except as agreed in writing by the parties hereto.

                                       33

<PAGE>

     10.2   This Agreement shall bind API's, Buyers' and AWA's successors and
assigns.

     10.3   Notwithstanding the foregoing, API and the Buyers (in respect of
themselves and on behalf of all other Members of the Buyers' Group) and AWA
hereby agree that AWA shall be entitled to enter into the Assignment and
Assumption Deed attached hereto as Exhibit C (the "Deed"); and to hold the
                                   ---------       ----
benefits under clause 3(a) of such Deed and to receive any payments made by Arjo
Wiggins Appleton (Bermuda) Limited on account of the Assumed Liabilities
described in clause 1(a)(i) of such Deed in trust for the benefit of the Buyers,
API, and, where applicable, any other Members of the Buyers' Group and will
promptly remit such amounts to the Buyers, API and, where applicable, any other
Members of the Buyers' Group pursuant to the terms hereof, and that such entry
into the Deed by AWA shall not constitute a breach of Section 10.1.  For
avoidance of doubt any payment received by the Buyers, API and/or the other
Members of the Buyers' Group from Arjo Wiggins Appleton (Bermuda) Limited
pursuant to the terms of the Deed shall be treated as reducing the corresponding
amount owed by AWA to the Buyers, API and/or the other Members of the Buyers'
Group under this Agreement.

11.   GOVERNING LAW; CONSENT TO JURISDICTION

      THIS AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. FOR
THE LIMITED PURPOSE OF ENFORCEMENT OF AN ARBITRAL JUDGMENT IN ACCORDANCE WITH
SECTION 7.2 EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY CONSENTS
TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK OR THE
COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF NEW YORK FOR ANY
ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND
THE

                                       34

<PAGE>

TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING
ARISING OUT OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN THE
COURTS OF THE STATE OF NEW YORK OR THE COURTS OF THE UNITED STATES OF AMERICA
LOCATED IN THE STATE OF NEW YORK AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.

12.  NOTICES

     12.1  All communications provided for hereunder shall be in writing and
shall be deemed to be given when delivered in person or by private courier with
receipt, when telefaxed and received, and,

                  If to either Buyer:

                  Appleton Papers Inc.
                  825 E. Wisconsin Avenue
                  P.O. Box 359
                  Appleton, WI 54912-0359
                  Facsimile: (920) 991-7256

                  Attention: Paul Karch,
                  Vice President, Law and
                     Public Affairs and
                     General Counsel

                                       35

<PAGE>

                  with copies to:

                  Godfrey & Kahn, S.C.
                  780 N. Water Street
                  Milwaukee, WI 53202
                  Facsimile: (414) 273-5198
                  Attention: Christopher B. Noyes

                  State Street Bank and Trust Company
                  Trustee of the ESOP Component of the
                     Appleton Papers Retirement Saving Plan
                  Two International Place
                  Boston, MA 02110
                  Facsimile: (617)
                  Attention: Kelly G. Driscoll

                  Jones Day Reavis & Pogue
                  77 West Wacker
                  Suite 3500
                  Chicago, IL 60601-1692
                  Facsimile: (312) 782-8585
                  Attention: Ronald S. Rizzo

                  If to Seller Parent or either Seller:

                  Arjo Wiggins Appleton p.l.c.
                  St. Clement House
                  Alencon Link
                  Basingstoke
                  Hampshire RG21
                  ENGLAND
                  Facsimile: 011-44-1256-796075
                  Attention: Company Secretary

                  and

                  Arjo Wiggins
                  Washington Plaza
                  29 Rue de Berri
                  75408 Paris
                  Cedex 08
                  FRANCE
                  Facsimile: 011-33-1-5669-3963
                  Attention: Director of Legal Services

                                       36

<PAGE>

                  with a copy to:

                  McDermott, Will & Emery
                  50 Rockefeller Plaza
                  New York, NY 10020
                  Facsimile:  212-547-5444
                  Attention:  C. David Goldman

or to such other address as any such party shall designate by written notice to
the other parties hereto.

      12.2  Without limiting the generality of Section 12.1 PDC, New Appleton
and API hereby agree that any notices given or received by the party identified
above on behalf of them shall be deemed given and received by each of them and
that, pursuant thereto, AWA may rely upon the applicability of any such notice
as being binding upon, and applicable to each of them.

13.   PRESERVATION OF CONFIDENCES/PRIVILEGES

      AWA, Buyers and API shall use their reasonable best efforts to take all
reasonable actions necessary to preserve all available privileges and
protections and to ensure against disclosure of information to third parties
when undertaking the coordination of legal activities covered by this Agreement,
including, where appropriate, entering in to joint defense agreements; provided,
however, that nothing contained herein shall limit AWA's rights and entitlements
hereunder.

14.   BUYER'S RESPONSIBILITY FOR OTHERS

      This Agreement purports on many occasions to impose specified obligations
on Members of the Buyers' Group (other than the Buyers and API) even though such
other Members of the Buyers' Group are not parties hereto. In recognition
thereof, Buyers and API hereby agree (i) they shall be responsible for causing
the other Members of the Buyers' Group to comply with

                                       37

<PAGE>

any such obligations, and (ii) they shall be responsible for any failure by the
other Members of the Buyers' Group to so comply.

                                       38

<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Environmental
Indemnity Agreement to be duly executed as of the date first above written.

                               PAPERWEIGHT DEVELOPMENT CORP.

                               By: /s/ Doug Buth
                                   Name: Douglas P. Buth
                                   Title: President and Chief Executive Officer

                               NEW APPLETON LLC

                               By: /s/ Doug Buth
                                   Name: Douglas P. Buth
                                   Title: President of Paperweight Development
                                   Corp., sole member of New Appleton
                                   LLC

                               APPLETON PAPERS, INC.

                               By: /s/ Paul Karch
                                   Name: Paul Karch
                                   Title: Vice President

                               ARJO WIGGINS APPLETON p.l.c.

                               By: /s/ Luca Paveri-Fontana
                                   Name:  Luca Paveri-Fontana
                                   Title: Director

                                       39

<PAGE>

                                Schedule 6.1.2-1
                                ----------------

                     Acceptable Protection Coverage Amounts
                     --------------------------------------

1.   SCHEDULE OF CUMULATIVE LIMITS:

<TABLE>
<CAPTION>
                -------------------------------------------------------
                Annual Period beginning              Reduced Cumulative
                November 9                                 Limits
                -------------------------------------------------------
                <S>                                  <C>
                2001                                                 0
                -------------------------------------------------------
                2002                                                 0
                -------------------------------------------------------
                2003                                                 0
                -------------------------------------------------------
                2004                                                 0
                -------------------------------------------------------
                2005                                                 0
                -------------------------------------------------------
                2006                                                 0
                -------------------------------------------------------
                2007                                                 0
                -------------------------------------------------------
                2008                                                 0
                -------------------------------------------------------
                2009                                           974,542
                -------------------------------------------------------
                2010                                         3,896,702
                -------------------------------------------------------
                2011                                         6,881,895
                -------------------------------------------------------
                2012                                         9,125,116
                -------------------------------------------------------
                2013                                        16,287,666
                -------------------------------------------------------
                2014                                        23,527,511
                -------------------------------------------------------
                2015                                        34,453,450
                -------------------------------------------------------
                2016                                        44,718,431
                -------------------------------------------------------
                2017                                        51,807,787
                -------------------------------------------------------
                2018                                        57,709,883
                -------------------------------------------------------
                2019                                        63,704,440
                -------------------------------------------------------
                2020                                        76,385,890
                -------------------------------------------------------
                2021                                        88,220,707
                -------------------------------------------------------
                2022                                       100,440,156
                -------------------------------------------------------
                2023                                       113,056,736
                -------------------------------------------------------
                2024                                       126,083,355
                -------------------------------------------------------
                2025                                       139,533,340
                -------------------------------------------------------
                2026                                       153,420,449
                -------------------------------------------------------
                2027                                       167,000,000
                -------------------------------------------------------
</TABLE>

<PAGE>

                                Schedule 6.1.2-2
                                ----------------

                     Late Period Coverage Reduction Formula
                     --------------------------------------

1.   If AWA elects to obtain and maintain the Later Period Coverage, i.e. in
     lieu of the Excess Coverage (a "Conversion"), and the aggregate
     indemnification payments made hereunder by (or on behalf of) AWA prior to
     such Conversion exceed $75m, each of the annual amounts available for
     payment under the Later Period Coverage may be reduced by
     (X-75million)/167million, expressed as a percentage, where "X" is the
     aggregate amount of indemnification payments made hereunder by (or on
     behalf of) AWA prior to the Conversion.

                                       2

<PAGE>

                                 Schedule 6.1.3
                                 --------------

                                 Excess Coverage
                                 ---------------

     1.   Excess coverage is $250,000

                                       3

<PAGE>

                                Schedule 6.1.5.1
                                ----------------

                              Acceptable Protection
                              ---------------------
                                    Coverage
                                    --------

                      COMMERCE & INDUSTRY INSURANCE COMPANY

                     Arjo Wiggins Appleton (Bermuda) Limited

                            Indemnity Claim Insurance

                               Policy no: 529 5316

Words and phrases that appear in bold herein have the meanings set forth in
SECTION IV - DEFINITIONS. When the context so indicates or so requires, each
defined word or phrase stated in the singular includes the plural and each
defined word or phrase stated in the plural includes the singular.

SECTION I - INSURING AGREEMENTS

Subject to the terms and conditions of this policy, the Insurer will pay:

1.   on behalf of the Policyholder, during the Period of Insurance, any and all
     Ultimate Net Loss in excess of the Self-Insured Retention. The total amount
     the Insurer will pay for Ultimate Net Loss is limited as described in
     SECTION II - LIMIT OF INSURANCE.

2.   to the Policyholder, upon election of "Reduced Cumulative Limits" pursuant
     to CONDITION 7 - ELECTION OF CUMULATIVE LIMITS, the amount therein
     specified.

SECTION II - LIMIT OF INSURANCE

1.   The Limit of Insurance is the maximum in the aggregate the Insurer will pay
     for Ultimate Net Loss, in accordance with CONDITION 7 - ELECTION OF
     CUMULATIVE LIMITS.

2.   For each Annual Period and until commutation or exhaustion of the Limit of
     Insurance, the amount of Ultimate Net Loss payable by the Insurer shall not
     exceed the corresponding Cumulative Limit shown in Endorsement 1.

3.   If the Ultimate Net Loss exceeds the Cumulative Limit during any Annual
     Period, such excess shall be carded forward to subsequent Annual Periods
     until paid by the Insurer, subject to the Limit of Insurance.

SECTION III - CONDITIONS

1.   Premium Payment Terms

The Premium shall be due and payable on November 9, 2001.

<PAGE>

If the Policyholder fails to pay the Premium in full and by such date, this
policy shall not come into effect and shall not in any way bind the Insurer.

The Insurer shall acknowledge receipt of the Premium in writing.

2.     Policyholder's Handling of Indemnity Claims

       a.   The Policyholder shall have full, exclusive and absolute authority,
            discretion and control over the administration, defense and
            disposition (including but not limited to settlement) of all
            Indemnity Claims, with the exception of the appointment of one or
            more Project Managers, which shall be handled as specified in the
            definition of "Project Manager." Such authority, discretion and
            control shall be exercised in a businesslike manner in the spirit of
            good faith and fair dealing, having regard to the legitimate
            interests of the parties to this policy.

       b.   The Policyholder agrees to provide or cause to be provided to the
            Insurer Invoice Approval Packages for Indemnity Claims.

       c.   During the Period of Insurance, the Insurer has the right to
            reasonably audit or inspect and, if appropriate, to copy at its own
            expense, the books, records, documents and control systems of the
            Policyholder and its Project Manager that relate to the subject
            matter of this policy. The Policyholder shall ensure that each
            Project Manager provides the Insurer with such information and
            copies of documents as the Insurer may reasonably require from time
            to time.

       d.   The Policyholder will make no Indemnity Claim under this policy
            after the Period of Insurance.

3.     Payment of Indemnity Claims

       a.   The parties agree that with regard to the payment of Indemnity
            Claims, time is of the essence.

       b.   Within fifteen (15) days of receipt of an Invoice Approval Package,
            the Insurer shall pay on behalf of the Policyholder the Indemnity
            Claims reported therein, subject to SECTION II - LIMIT OF INSURANCE.

       c.   Subject to the Cumulative Limits, the Insurer shall not withhold
            payment of reported Indemnity Claims, or any portion thereof, for
            any reason including breach by the Policyholder of its obligations
            hereunder. The Insurer's payment of reported Indemnity Claims shall
            not, however, constitute a waiver of its rights to dispute such
            payment, in whole or in part, as provided in CONDITION 4 -ANNUAL
            ACCOUNTING, including its right to dispute whether such reported
            costs constitute Indemnity Claims.

                                       2

<PAGE>

         d.       The Insurer's payment of Indemnity Claims pursuant to
                  subparagraph b, above, shall be credited against Daily Balance
                  One, Daily Balance Two, or Daily Balance Three in the
                  following order of priority:

                  1.       All Indemnity Claims will be paid from Daily Balance
                           One until such time, if ever, as Daily Balance One
                           equals zero.

                  2.       Thereafter, all Indemnity Claims will be paid from
                           Daily Balance Two until such time, if ever, as Daily
                           Balance Two equals zero.

                  3.       Thereafter, all Indemnity Claims will be paid from
                           Daily Balance Three until such time, if ever, as
                           Daily Balance Three equals zero.

         e.       Nothing in subparagraph d, above, shall be construed as
                  reducing or limiting the Limit of Insurance or the Cumulative
                  Limits available under the policy, or the Insurer's
                  obligations hereunder.

4.       Annual Accounting

         a.       On the Annual Accounting Date, the Policyholder shall provide
                  the Insurer with a written report, summarizing the Indemnity
                  Claims the Insurer has paid during the Annual Period ending
                  one month prior to the Annual Accounting Date. Such report
                  shall be substantially in the form shown in Attachment A.

         b.       Within thirty (30) days of receipt of such report, the Insurer
                  shall notify the Policyholder of any amount it disputes as
                  Ultimate Net Loss.

         c.       The parties shall use best efforts in good faith to resolve
                  any dispute raised under subparagraph 4.b above as soon as
                  reasonably practicable. The parties agree that such efforts
                  shall not include the termination, cancellation or
                  modification of this policy or the reduction of the Limits of
                  Insurance or Cumulative Limits.

         d.       If a dispute has not been resolved within thirty (30) days of
                  the Insurer's notice under subparagraph 4.b above, the Insurer
                  may submit the dispute to arbitration under CONDITION 5 -
                  ARBITRATION.

         e.       Except in the instance of fraud, Ultimate Net Loss shall be
                  fixed and can no longer be disputed, if:

                  1.       not disputed within thirty (30) days pursuant to
                           subparagraph 4.b above; or

                  2.       if so disputed, resolved as a result of good faith
                           efforts pursuant to subparagraph 4.c above; or

                  3.       if not so resolved, determined pursuant to
                           arbitration as described in subparagraph 4.d above.

                                       3

<PAGE>

5.       Arbitration

Any dispute, controversy or claim arising out of or relating to this policy or
the breach, termination or invalidity hereof shall be finally and fully
determined by a binding arbitration, commenced no more frequently than annually.
Such arbitration shall be fully resolved no more than sixty (60) days after
submission of the dispute to arbitration. The parties agree that they will
adhere to the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards. The parties further expressly agree to be bound by the results of the
arbitration and not to contest any award thereunder in any court of law.

Arbitration pursuant to this section shall be conducted in accordance with
Attachment B, except as otherwise agreed in writing by the parties. The parties
further agree that awards under these arbitration provisions shall not include
termination, cancellation or modification of this policy or the reduction of the
Limits of Insurance or Cumulative Limits.

6.       Commutation by the Policyholder

On the fifth and subsequent anniversaries of the Inception Date, the
Policyholder may elect to commute this contract. Such election shall be in
writing, in a form substantially identical to the form attached hereto as
Attachment C. If the Policyholder so elects, the Insurer will pay the
Policyholder an amount equal to 100% of the Commutation Amount in return for a
complete release of liability under this contract, whether known or unknown.
Such release shall be substantially identical to the form attached hereto as
Attachment D.

7.       Election of Cumulative Limits

         a.       Attached hereto as Endorsement 1 is a list of two cumulative
                  limits.  Upon inception, the Limit of Insurance shall be [*],
                  with those cumulative limits listed as "Initial Cumulative
                  Limits."

         b.       The Policyholder shall have the right, in its sole discretion,
                  later to elect "Reduced Cumulative Limits," in a writing
                  substantially identical to the form attached hereto as
                  Attachment E. The Policyholder shall have this right only when
                  Daily Balance Two is greater than zero. The Policyholder's
                  election under this paragraph will reduce the Limit of
                  Insurance. Such election shall constitute a claim by the
                  Policyholder pursuant to SECTION I - INSURING AGREEMENT, P. 2.
                  Within fifteen (15) days of such claim, the Insurer shall pay
                  the Policyholder the sum of Daily Balance One (if any) plus
                  Daily Balance Two (if any).

         c.       Upon any election under this CONDITION 7 - ELECTION OF
                  CUMULATIVE LIMITS, the Insurer shall endorse the policy to
                  specify which limits are operable.

                                       4

<PAGE>

8.       Confidentiality

The parties shall treat, and shall cause each of their respective agents,
representatives and employees to treat as confidential all information exchanged
hereunder.

9.       Right to Insure the Self-Insured Retention

All or any part of the Self-Insured Retention may be insured, without prejudice
to or invalidation of coverage under this policy. Any part of the Self-Insured
Retention actually funded by such insurance, whether such Insurance was obtained
on, before, or after the Inception Date shall be part of, and not in addition
to, the Self-Insured Retention. Insolvency of any insurer of the Self-Insured
Retention shall not reduce the Self-Insured Retention.

10.      Insolvency

The insolvency of the Policyholder or any other person whatsoever and any act or
omission of any receiver, conservator, liquidator, trustee, rehabilitator,
administrator or similar person administering the Policyholder's estate will not
relieve, delay, increase, accelerate, decrease, or decelerate the Insurer's
obligation under this policy.

11.      Other Insurance

The existence of other insurance that covers Indemnity Claims, whether or not
valid or collectible, shall not cause any increase, acceleration, relief, delay,
decrease, or deceleration of payment by the Insurer.

If other insurance is available to pay Indemnity Claims other than insurance
that is specifically in excess of this policy, the insurance provided by this
policy, in the Policyholder's sole discretion, shall be excess of and shall not
contribute with such other insurance.

12.      Arm's Length

The Insurer and Policyholder agree that this policy was jointly drafted after
arm's length negotiations. The purpose of the policy is to provide coverage for
Ultimate Net Loss in accordance with the policy's terms and conditions. All
provisions of the policy will be construed to give effect to that purpose.

13.      Choice of Law

This policy and any arbitration hereunder shall be governed by, construed, and
applied pursuant to the law of Wisconsin.

                                       5

<PAGE>

14.      Recoveries

The Policyholder shall have the sole and exclusive right, but not the
obligation, to recover from any person or organization all or part of any
payment made by it or others on its behalf, or payable by it or by others on its
behalf in respect of Indemnity Claims.

15.      Transferability

This policy and all of the rights, powers, or obligations (other than the
payment of Premium) of the Policyholder under it may be transferred or assigned
to an entity controlling, controlled by, or under common control with the
Policyholder. The Policyholder will notify the Insurer of such transfer in a
writing substantially identical to the form attached hereto as Attachment F. In
no event will such transfer or assignment increase or decrease the Limit of
Insurance hereunder or increase, accelerate, relieve, decrease, or decelerate
the Insurer's obligations hereunder.

16.      Currency

The Limit of Insurance, Commutation Amount, Cumulative Limits, Daily Balance
One, Daily Balance Two, Daily Balance Three, Premium, Self-insured Retention,
and Ultimate Net Loss and under this policy are expressed and shall be paid in
United States Dollars.

17.      Endorsement

This policy may be amended only by written agreement between the Policyholder
and the Insurer. The Policyholder's agreement shall be substantially identical
to the form attached hereto as Attachment G.

18.      Notice

         a.       Any notice or other information required or authorized by this
                  policy to be given by either party to the other may be given
                  by:

                  i.    delivery by hand; or

                  ii.   sending it by prepaid recorded or registered post
                        (or equivalent) air mail if international;

         to the Policyholder at:              to the Insurer at:

         AWA Group Services SAS               Vice President, Division Counsel
         Washington Plaza                     AIG Environmental
         29 Rue de Berri                      175 Water Street, 12th Floor
         75408 Paris                          New York, New York  10038
         Cedex 08                             Attention:  Karl M. Swanson, Esq.
         FRANCE                               Facsimile:  (212) 458-6280
         Facsimile:  011-33-1-5669-3963

                                       6

<PAGE>

         Attention:  Director of Legal Affairs

                                              Invoice Approval Packages to:
         with copies to:

                                              AIG Consultants
         McDermott, Will & Emery              175 Water Street, 12th Floor
         28 State Street                      New York, New York  10038
         Boston, Massachusetts  02109         Attention:  Mr. Venkat Puranapanda
         Attention:  Jeffrey C. Bates, Esq.   Facsimile:  (212) 458-6280
         Facsimile:  (617) 535-3800

         Appleton Papers Inc.
         825 E. Wisconsin Avenue
         P.O. Box 359
         Appleton, Wisconsin  54912
         Attention:  Paul J. Karch, Esq.
         Facsimile:  (920) 991-7256

         b.       Either party may change the address for service referred to in
                  subparagraph a. above by sending notice to the other party in
                  the manner provided for by this section to the last address
                  notified for the purpose of this clause by the other party.

19.      Merger Clause

This policy supersedes any previous agreements or arrangements between the
parties in respect of the subject matter hereof and any previous agreements or
arrangements between the parties are merged into this policy.

20.      Release

Upon exhaustion of the Limit of Insurance the Insurer shall be released from any
and all further liability and obligations under this policy.

21.      Headings

The headings in this policy are for convenience only and shall not affect the
interpretation or construction of this policy.

22.      Cancellation

The parties agree that the Insurer shall have no right to cancel this policy.

                                       7

<PAGE>

SECTION IV - DEFINITIONS

1.   Actually Paid

"Actually Paid" means actually paid or due and payable.

2.   Annual Accounting Date

"Annual Accounting Date" means thirty days after the first anniversary of the
Inception Date, i.e., November 9, 2001, and the twelve-month anniversary of such
date for each subsequent year during the Period of Insurance and the year
immediately following the Period of Insurance.

3.   Annual Period

"Annual Period" means the twelve-month period beginning on the Inception Date
and ending on the first anniversary of the Inception Date, i.e., November 9,
2001, and each twelve-month period thereafter.

4.   Applicable Rate

"Applicable Rate" shall mean a rate equal to the asking yield to maturity of the
one year Constant Maturity Treasury ("CMT") rate prevailing on the first day of
each Annual Period, as published electronically by Bloomberg L.P. or in any
successor form thereto, for the close of the first business day following the
beginning of such Annual Period, subject to any applicable usury laws. In the
event Bloomberg L.P. ceases to provide such information, the Policyholder and
the Insured shall select a comparable source for such information.

5.   Commutation Amount

"Commutation Amount" means the sum of Daily Balance One (if any) plus Daily
Balance Two (if any) plus Daily Balance Three (if any).

6.   Cumulative Limit

"Cumulative Limit" means the amounts shown in Endorsement 1, as elected by the
Policyholder pursuant to CONDITION 7 - ELECTION OF CUMULATIVE LIMITS.

7.   Daily Balance One

     a.   As of the Inception Date, "Daily Balance One" means sixty eight
          million, three hundred eighty thousand, six hundred and seventeen
          dollars ($68,380,617).

     b.   For each day other than the Inception Date, "Daily Balance One" means
          Daily Balance One from the immediately preceding day, plus the product
          of Daily Balance One multiplied by the Applicable Rate, minus any
          Indemnity Claims the Insurer properly pays in fact on such day from
          Daily Balance One, in accordance with CONDITION 3 - PAYMENT OF
          INDEMNITY CLAIMS, P. d,

                                       8

<PAGE>

          i.e., Daily Balance One\new\ = Daily Balance One\old\ + (Daily Balance
          One\old\ X Applicable Rate) - Indemnity Claims.

8.   Daily Balance Two

     a.   As of the Inception Date, "Daily Balance Two" means fifty four
          million, seventy nine thousand, three hundred and forty two dollars
          ($54,079,342).

     b.   For each day other than the Inception Date, "Daily Balance Two" means
          Daily Balance Two from the immediately preceding day minus any
          Indemnity Claims the Insurer properly pays in fact on such day from
          Daily Balance Two, in accordance with CONDITION 3 - PAYMENT OF
          INDEMNITY CLAIMS, P. d, i.e., Daily Balance Two\new\ = Daily Balance
          Two\old\ - Indemnity Claims.

9.   Daily Balance Three

     a.   As of the Inception Date, "Daily Balance Three" means forty one
          million, ninety three thousand, eight hundred and thirty nine dollars
          ($41,093,839).

     b.   For each day other than the Inception Date, "Daily Balance Three"
          means Daily Balance Three from the immediately preceding day, plus the
          product of Daily Balance Three multiplied by the Applicable Rate,
          minus any Indemnity Claims the Insurer properly pays in fact on such
          day from Daily Balance Three, in accordance with CONDITION 3 - PAYMENT
          OF INDEMNITY CLAIMS, P. d, i.e., Daily Balance Three\new\ = Daily
          Balance Three\old\ + (Daily Balance Three\old\ X Applicable Rate) -
          Indemnity Claims.

10.  Inception Date

"Inception Date" means 12:01 a.m. November 9, 2001.

11.  Indemnity Claim

"Indemnity Claim" means any demand made on the Policyholder under the Assignment
and Assumption Deed, attached hereto as Attachment H. Indemnity Claim shall not
include costs associated with any work performed outside the Period of
Insurance.

12.  Indemnity Costs

"Indemnity Costs" means the sum of the "Indemnified Excess Costs" and the "API
Excess Costs" (as those terms are defined in the Fox River PDC Environmental
Indemnity Agreement (the "PDC Indemnity") attached hereto as an exhibit to
Attachment H) paid pursuant to the PDC Indemnity since the Inception Date.

13.  Insurer

"Insurer" means Commerce & Industry Insurance Company.

                                       9

<PAGE>

14.  Invoice Approval Package

"Invoice Approval Package" means documents that evidence Indemnity Costs
Actually Paid pursuant to any procedures adopted by the Project Manager. Such
Invoice Approval Package shall be submitted by the Project Manager quarterly
when Indemnity Costs are within the Self-insured Retention and no more
frequently than bi-weekly during all other times of the Period of Insurance, on
a form substantially similar to the form attached hereto as Attachment I.

15.  Period of Insurance

"Period of Insurance" means November 9, 2001 to November 9, 2028, or until the
exhaustion of the Limit of Insurance or the commutation of this policy,
whichever occurs first.

If, on November 9, 2028, there exists a positive Commutation Amount, such amount
shall remain available to the Policyholder until exhausted or commuted.

16.  Policyholder

"Policyholder" means Arjo Wiggins Appleton (Bermuda) Limited, or any transferee
or assignee under CONDITION 15 - TRANSFERABILITY. For avoidance of doubt, only
the Policyholder shall be entitled to claim hereunder.

17.  Premium

"Premium" means one hundred and eighty five million, eighteen thousand, nine
hundred and eighty one dollars ($185,018,981).

18.  Project Manager

"Project Manager" means the Policyholder, Arjo Wiggins Appleton, p.l.c., Project
Control Companies, Inc. or any other person or entity selected by the
Policyholder and agreed to by the Insurer, whose consent shall not be
unreasonably withheld.

19.  Self-Insured Retention

"Self-Insured Retention" means

     a.   if the applicable Cumulative Limits are "Initial Cumulative Limits" as
          specified in Endorsement 1, $0 in Indemnity Costs up to $75,000,000 in
          the aggregate, and thereafter $25,000,000.

     b.   if the applicable Cumulative Limits are "Reduced Cumulative Limits,"
          as specified in Endorsement 1, $100,000,000 in Indemnity Costs.

                                       10

<PAGE>

20.  Ultimate Net Loss

"Ultimate Net Loss" means all sums paid in fact during the Period of Insurance
for Indemnity Claims, up to and including the Limit of Insurance.

IN WITNESS WHEREOF, the Insurer has caused this Indemnity Claim Insurance Policy
to be executed by its duly authorized representative as of the date first above
written.

                                        COMMERCE & INDUSTRY INSURANCE COMPANY

                                        By:  /s/ Michael P. Giese
                                             -----------------------------------
                                                 Name: Michael P. Giese
                                                 Title: Assistant Vice President

                                       11

<PAGE>

                  ENDORSEMENT 1 - SCHEDULE OF CUMULATIVE LIMITS

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
        Annual Period beginning               Initial Cumulative Limits            Reduced Cumulative Limits
              November 9
-------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                         <C>
2001                                                  75,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2002                                                 100,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2003                                                 125,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2004                                                 150,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2005                                                 175,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2006                                                 200,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2007                                                 250,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2008                                                 250,000,000                                           0
-------------------------------------------------------------------------------------------------------------
2009                                                 250,000,000                                     974,542
-------------------------------------------------------------------------------------------------------------
2010                                                 250,000,000                                   3,896,702
-------------------------------------------------------------------------------------------------------------
2011                                                 250,000,000                                   6,881,895
-------------------------------------------------------------------------------------------------------------
2012                                                 250,000,000                                   9,125,116
-------------------------------------------------------------------------------------------------------------
2013                                                 250,000,000                                  16,287,666
-------------------------------------------------------------------------------------------------------------
2014                                                 250,000,000                                  23,527,511
-------------------------------------------------------------------------------------------------------------
2015                                                 250,000,000                                  34,453,450
-------------------------------------------------------------------------------------------------------------
2016                                                 250,000,000                                  44,718,431
-------------------------------------------------------------------------------------------------------------
2017                                                 250,000,000                                  51,807,787
-------------------------------------------------------------------------------------------------------------
2018                                                 250,000,000                                  57,709,883
-------------------------------------------------------------------------------------------------------------
2019                                                 250,000,000                                  63,704,440
-------------------------------------------------------------------------------------------------------------
2020                                                 250,000,000                                  76,385,890
-------------------------------------------------------------------------------------------------------------
2021                                                 250,000,000                                  88,220,707
-------------------------------------------------------------------------------------------------------------
2022                                                 250,000,000                                 100,440,156
-------------------------------------------------------------------------------------------------------------
2023                                                 250,000,000                                 113,056,736
-------------------------------------------------------------------------------------------------------------
2024                                                 250,000,000                                 126,083,355
-------------------------------------------------------------------------------------------------------------
2025                                                 250,000,000                                 139,533,340
-------------------------------------------------------------------------------------------------------------
2026                                                 250,000,000                                 153,420,449
-------------------------------------------------------------------------------------------------------------
2027                                                 250,000,000                                 167,000,000
-------------------------------------------------------------------------------------------------------------
</TABLE>

IN WITNESS WHEREOF, the Insurer has caused this Indemnity Claim Insurance Policy
to be executed by its duly authorized representative as of the date first above
written.

                                        COMMERCE & INDUSTRY INSURANCE COMPANY

                                        By:  /s/ Michael P. Giese
                                             -----------------------------------
                                                 Name: Michael P. Giese
                                                 Title: Assistant Vice President

<PAGE>

                      ATTACHMENT A - ANNUAL ACCOUNTING FORM

                              Lower Fox River Site
                  Annual Summary of Costs to Insurance Carrier

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------

     Invoice                                                                                        Date Paid by
      Date         Invoice #   Contractor       Type of Expense             Total Amount                 AWA         Check #
------------------------------------------------------------------------------------------------------------------------------
<S>                <C>       <C>                <C>                         <C>                     <C>              <C>
                                                Construct
    7/1/2006         20535   Contractor # 1     dewatering works                   $ 172,615.00       8/15/2006       5268
------------------------------------------------------------------------------------------------------------------------------
    7/5/2006        562810   Contractor # 2     Debris Removal                     $ 283,347.00       7/10/2006       5302
-----------------------------------------------------------------------------------------------------------------------------
   7/31/2006        620135   Contractor # 3     Install Pipeline                   $ 500,000.00       9/10/2006       5399
------------------------------------------------------------------------------------------------------------------------------
    8/7/2006         20542   Contractor # 1     Mobilization                       $ 122,615.00       9/10/2006       5425
------------------------------------------------------------------------------------------------------------------------------
                                                Construct
    9/1/2006         20575   Contractor # 1     dewatering works                   $ 172,615.00      10/15/2006       5500
------------------------------------------------------------------------------------------------------------------------------
  10/15/2006        562998   Contractor # 2     Debris Removal                     $ 283,347.00      11/30/2006       5632
------------------------------------------------------------------------------------------------------------------------------
    1/1/2007        620558   Contractor # 3     Install Pipeline                   $ 500,000.00       2/10/2007       5705
------------------------------------------------------------------------------------------------------------------------------
   4/10/2007         20623   Contractor # 1     Demobilization                     $ 283,348.00       5/25/2007       5810
------------------------------------------------------------------------------------------------------------------------------
   6/30/2007         39232   Contractor # 2     Debris Removal                     $ 222,613.00       6/30/2007       5985
------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
   Total Payable                                                                 $ 2,540,500.00

-------------------------------------------------------------------       ----------------------------------------------------
SIR Depletion                                                             Insurance Claim Amount
-------------                                                             ----------------------
<S>                                     <C>                               <C>                                    <C>
CTD prior to 7/1/06                     $ 97,500,000.00                   CTD prior to 7/1/06                    $       0.00

Amt allocated from 7/1/06-6/30/07       $  2,540,500.00                   Amt allocated from 7/1/06-6/30/07      $  40,500.00
                                        ---------------

Total amount booked against SIR         $100,040,500.00                   Maximum allowable amt for 7/1/06-
SIR Maximum                             $100,000,000.00                   6/30/07 (including carry overs)        $ 100,000.00
                                        ---------------

                                                                          Amount remaining to carry over
Variance to SIR                         $     40,500.00                   or commutate                           $  59,500.00
                                        ===============                                                          ============
-------------------------------------------------------------------       ----------------------------------------------------
</TABLE>

<PAGE>

                      ATTACHMENT B - ARBITRATION PROVISIONS

Any arbitration pursuant to CONDITION 5 - ARBITRATION shall be conducted in
accordance with the CPR Rules for Non-Administered Arbitration in effect on the
Inception Date, by one arbitrator agreed to by the parties, which agreement
shall not be unreasonably withheld. The arbitration shall be governed by the
Federal Arbitration Act, 9 U.S.C. (S)(S) 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof.

The place of arbitration shall be New York, New York. The language of the
arbitration shall be English. The arbitration shall be governed by the law of
the State of Wisconsin.

The arbitrator is not empowered to terminate, cancel, or modify the policy or to
reduce the Limits of Insurance or Cumulative Limits. The arbitrator is further
not empowered to award damages in excess of compensatory damages and each party
expressly waives and foregoes any right to punitive, exemplary or similar
damages unless a statute requires that compensatory damages be increased in a
specified manner.

Following the final arbitration hearing, the arbitrator shall promptly deliver a
written decision with respect to the dispute to each of the parties, who shall
promptly act in accordance therewith. Each party agrees that any decision of the
arbitrator shall be final, conclusive and binding and that they will not contest
any action by any other party thereto in accordance with a decision of the
arbitrator. It is specifically understood and agreed that any party may enforce
any award rendered pursuant to the arbitration provisions of CONDITION 5 -
ARBITRATION and this ATTACHMENT B by bringing suit in any court of competent
jurisdiction.

<PAGE>

                  ATTACHMENT C - WRITTEN DEMAND FOR COMMUTATION

Vice President, Division Counsel
AIG Environmental
175 Water Street, 12th Floor
New York, New York 10038
Attention: Karl M. Swanson, Esq.

Dear Mr. Swanson:

Pursuant to Condition 6 - Commutation by the Policyholder, as contained in
Indemnity Claim Insurance Policy No. 529 5316, your Policyholder hereby elects
to commute the policy.

Attached hereto please find certificates from the Administrative Agent and the
Trustee (as each such term is defined in the Relationship Agreement, dated as of
November 9, 2001, to which your Policyholder is a party) concerning the
discharge of certain indebtedness. I certify that these certificates are true
and correct copies of same.

Please remit the Commutation Amount, as that term is defined in the policy.

Very truly yours,

Director/Officer of Policyholder

Copies to:

McDermott, Will & Emery                    Godfrey & Kahn, S.C.
28 State Street                            780 N. Water Street
Boston, Massachusetts 02109                Milwaukee, Wisconsin 53202
Attention: Jeffrey C. Bates, Esq.          Attention: Christopher B. Noyes, Esq.
Facsimile No.: 617-535-3800                Facsimile: (414) 273-5198

Appleton Papers Inc.
825 E. Wisconsin Avenue
P.O. Box 359
Appleton, Wisconsin 54912
Attention: Paul J. Karch, Esq.
Facsimile: (920) 991-7256

<PAGE>

                        ATTACHMENT D - INSURER'S RELEASE

                        TERMINATION AGREEMENT AND RELEASE

         TERMINATION AGREEMENT AND RELEASE made effective as of ___________ (the
"EFFECTIVE DATE") by and between Commerce & Industry Insurance Company, a New
York corporation (hereinafter called the "COMPANY") and Arjo Wiggins Appleton
(Bermuda) Limited (hereinafter called "AWA BERMUDA").

         WHEREAS, the COMPANY issued AWA BERMUDA an Indemnity Claim Insurance
Policy effective as of November 9, 2001 (the "POLICY"), a copy of which is
attached hereto, whereby the COMPANY agreed to reimburse AWA BERMUDA for
ULTIMATE NET LOSS arising under the POLICY (the "LOSSES'); and

         WHEREAS, pursuant to Condition 6 of the POLICY, the COMPANY and AWA
BERMUDA have agreed to terminate the POLICY via commutation and to terminate all
of the COMPANY'S obligations relating to the LOSSES, and AWA BERMUDA has agreed
to release the COMPANY from any and all obligations and LOSSES under the POLICY.

         NOW THEREFORE, in consideration of the COMPANY paying AWA BERMUDA the
sum of ___________________ dollars (US$___________, an amount that was
calculated in accordance with the terms of the POLICY) (the "PAYMENT"), which
payment shall be made within two (2) business days by the COMPANY after the
execution and delivery of this TERMINATION AGREEMENT AND RELEASE to the COMPANY
by AWA BERMUDA, AWA BERMUDA and the COMPANY do hereby agree as follows:

1.       To the extent capitalized terms are used in this TERMINATION AGREEMENT
         AND RELEASE but not specifically defined herein, such terms shall have
         the same meaning as in the POLICY.

2.       AWA BERMUDA does hereby release and forever discharge the COMPANY, its
         successors and assigns, of and from all causes of action, suits, claims
         for sums of money, contracts, controversies, agreements, costs, damages
         (whether direct or consequential), judgments and demands whatsoever in
         law or equity which AWA BERMUDA and its successors and assigns now
         have, claim to have, or may have in the future against the COMPANY
         under the terms, provisions, endorsements, addenda and conditions of
         the POLICY covering the LOSSES.

3.       AWA BERMUDA does hereby release and forever discharge the COMPANY, its
         successors and assigns, of and from all causes of action, suits, claims
         for sums of money, contracts, controversies, agreements, costs, damages
         (whether direct or consequential), judgments and demands whatsoever in
         law or equity which AWA BERMUDA and its successors and assigns now
         have, claim to have, or may have in the future against the COMPANY
         arising out of the negotiation of the POLICY, the calculation of any
         DAILY BALANCE, or any other matter regarding the POLICY.

<PAGE>

4.       The COMPANY does hereby release and forever discharge AWA BERMUDA, its
         successors and assigns, of and from all causes of action, suits, claims
         for sums of money, contracts, controversies, agreements, costs,
         damages, judgments and demands whatsoever in law or equity which the
         COMPANY and its successors and assigns now have, claim to have, or may
         have in the future against AWA BERMUDA under the terms, provisions,
         endorsements, addenda and conditions of the POLICY covering the LOSSES.

5.       The COMPANY does hereby release and forever discharge AWA BERMUDA, its
         successors and assigns, of and from all causes of action, suits, claims
         for sums of money, contracts, controversies, agreements, costs, damages
         (whether direct or consequential), judgments and demands whatsoever in
         law or equity which the COMPANY and its successors and assigns now
         have, claim to have, or may have in the future against AWA BERMUDA
         arising out of the negotiation of the POLICY, the calculation of any
         DAILY BALANCE, or any other matter regarding the POLICY.

6.       AWA BERMUDA covenants and agrees that the PAYMENT represents fall and
         final payment by the COMPANY for reimbursement under the POLICY for the
         LOSSES incurred or to be incurred by AWA BERMUDA. AWA BERMUDA agrees to
         indemnify and hold the COMPANY harmless from and against any and all
         liability, loss, damage or expense, including without limitation,
         reasonable attorney's fees, arising from all manner of action, actions,
         suits, claims for sums of money, contracts, controversies, agreements,
         costs, damages, judgments and demands brought or made against the
         COMPANY for any LOSSES under the POLICY.

7.       The COMPANY agrees to effect or cause to be made payment of the PAYMENT
         within two (2) business days of its execution and delivery of this
         TERMINATION AGREEMENT AND RELEASE.

8.       This TERMINATION AGREEMENT AND RELEASE shall inure to the benefit of
         and be binding upon the successors and assigns of each of the parties
         hereto.

9.       This TERMINATION AGREEMENT AND RELEASE contains the full and complete
         understanding and agreement between the parties hereto with respect to
         the subject matter hereof, and the parties acknowledge that neither is
         entering into this TERMINATION AGREEMENT AND RELEASE in reliance upon
         any term, condition, representation or warranty not stated herein and
         that this TERMINATION AGREEMENT AND RELEASE replaces any and all prior
         agreements whether oral or written, pertaining to the subject matter
         hereof.

10.      Whenever the text hereof requires the use of a singular term, it shall
         include the appropriate plural term as the text of the instrument
         requires.

11.      All changes to this TERMINATION AGREEMENT AND RELEASE must be in
         writing and agreed to by the Parties.

                                       2

<PAGE>

12.      This TERMINATION AGREEMENT AND RELEASE shall be governed by the laws of
         the State of New York and the parties hereto do irrevocably submit to
         the non-exclusive jurisdiction of the Courts in the State of New York
         and to the extent permitted by law the parties expressly waive all
         rights to challenge or otherwise limit such jurisdiction.

13.      No failure or delay by a party in exercising any right, power or
         privilege hereunder shall operate as a waiver thereof, nor shall any
         single or partial exercise thereof preclude any other or further
         exercise thereof or the exercise of any other right, power or privilege
         hereunder.

14.      This TERMINATION AGREEMENT AND RELEASE may be executed in counterparts,
         all of which when taken together shall constitute one and the same
         instrument, and any party hereto may execute this TERMINATION AGREEMENT
         AND RELEASE by signing any such counterpart.

IN WITNESS WHEREOF, the parties hereto have caused this TERMINATION AGREEMENT
AND RELEASE to be executed by their duly authorized representatives as of the
date first above written.

COMMERCE & INDUSTRY INSURANCE               ARJO WIGGINS APPLETON (BERMUDA)
COMPANY                                     LIMITED

By:________________________________         By:_______________________________

Name:                                       Name:

____________________________________        __________________________________

Title:                                      Title:

_____________________________________       __________________________________

                                       3

<PAGE>

           ATTACHMENT E - WRITTEN DEMAND FOR REDUCED CUMULATIVE LIMITS

Vice President, Division Counsel
AIG Environmental
175 Water Street, 12th Floor
New York, New York 10038
Attention:  Karl M. Swanson, Esq.

Dear Mr. Swanson:

Pursuant to Condition 7(b) - Election of Cumulative Limits, as contained in
Indemnity Claim Insurance Policy No. 529 5316, your Policyholder hereby elects
Reduced Cumulative Limits.

Attached hereto please find certificates from the Administrative Agent and the
Trustee (as each such term is defined in the Relationship Agreement, dated as of
November 9, 2001, to which your Policyholder is a party) concerning the
discharge of certain indebtedness. I certify that these certificates are true
and correct copies of same.

This letter constitutes formal notice of a claim under Section I - Insuring
Agreements, paragraph 2. Pursuant to Condition 7(b), please remit the sum of
Daily Balance One plus Daily Balance Two, as those terms are defined in the
policy.

Very truly yours,

Director/Officer of Policyholder

Copies to:

McDermott, Will & Emery                  Godfrey & Kahn, S.C.
28 State Street                          780 N. Water Street
Boston, Massachusetts 02109              Milwaukee, Wisconsin  53202
Attention: Jeffrey C. Bates, Esq.        Attention: Christopher B. Noyes, Esq.
Facsimile No.: 617-535-3800              Facsimile: (414) 273-5198

Appleton Papers Inc.
825 E. Wisconsin Avenue
P.O. Box 359
Appleton, Wisconsin 54912
Attention: Paul J. Karch, Esq.
Facsimile: (920) 991-7256

<PAGE>

                ATTACHMENT F - POLICYHOLDER'S NOTICE OF TRANSFER

Vice President, Division Counsel
AIG Environmental
175 Water Street, 12th Floor
New York, New York  10038
Attention:  Karl M. Swanson, Esq.

Dear Mr. Swanson:

Pursuant to Condition 15 - Transferability, as contained in Indemnity Claim
Insurance Policy No. 529 5316, your Policyholder hereby notifies you that it has
transferred its rights, powers, and/or obligations under the policy as follows:

[SPECIFICS:]

Attached hereto please find certificates from the Administrative Agent and the
Trustee (as each such term is defined in the Relationship Agreement, dated as of
November 9, 2001, to which your Policyholder is a party) consenting to this
transfer, or indicating their agreement that their consent is not required to
such transfer. I certify that these certificates are true and correct copies of
same.

Very truly yours,

Director/Officer of Policyholder

Copies to:

McDermott, Will & Emery                   Godfrey & Kahn, S.C.
28 State Street                           780 N. Water Street
Boston, Massachusetts  02109              Milwaukee, Wisconsin  53202
Attention: Jeffrey C. Bates, Esq.         Attention:  Christopher B. Noyes, Esq.
Facsimile No.:  617-535-3800              Facsimile:  (414) 273-5198

Appleton Papers Inc.
825 E. Wisconsin Avenue
P.O. Box 359
Appleton, Wisconsin 54912
Attention: Paul J. Karch, Esq.
Facsimile: (920) 991-7256

<PAGE>

             ATTACHMENT G - POLICYHOLDER'S AGREEMENT FOR ENDORSEMENT

Vice President, Division Counsel
AIG Environmental
175 Water Street, 12th Floor
New York, New York  10038
Attention:  Karl M. Swanson, Esq.

Dear Mr. Swanson

Pursuant to Condition 17 - Endorsement, as contained in Indemnity Claim
Insurance Policy No. 529 5316, your Policyholder hereby provides its agreement
to the endorsement we have discussed.

Attached hereto please find certificates from the Administrative Agent and the
Trustee (as each such term is defined in the Relationship Agreement, dated as of
November 9, 2001, to which your Policyholder is a party) consenting to this
endorsement, or indicating their agreement that their consent is not required. I
certify that these certificates are true and correct copies of same.

Please issue an endorsement forthwith.

Very truly yours,

Director/Officer of Policyholder

Copies to:

McDermott, Will & Emery                   Godfrey & Kahn, S.C.
28 State Street                           780 N. Water Street
Boston, Massachusetts 02109               Milwaukee, Wisconsin  53202
Attention: Jeffrey C. Bates, Esq.         Attention: Christopher B. Noyes, Esq.
Facsimile No.: 617-535-3800               Facsimile: (414) 273-5198

Appleton Papers Inc.
825 E. Wisconsin Avenue
P.O. Box 359
Appleton, Wisconsin 54912
Attention: Paul J. Karch, Esq.
Facsimile: (920) 991-7256

<PAGE>

                                  ATTACHMENT H

1.   Assignment and Assumption Deed

2.   Fox River AWA Environmental Indemnity Agreement

3.   Fox River PDC Environmental Indemnity Agreement

4.   a.   2/12/98 NCR Settlement Agreement

     b.   7/1/98 Joint Defense & Representation Agreement

     c.   2/12/98 Subsequent Allocation Agreement

     d.   1978 NCR Purchase Agreement

                                       2

<PAGE>

                                Schedule 6.1.5.2
                                ----------------

                                 Debt Facilities
                                 ---------------

1.   Credit Agreement dated as of November 8, 2001 by and among PDC, API, the
     several lenders party thereto, the several banks and other financial
     institutions or entities from time to time parties thereto, Bear Stearns &
     Co., Inc., as sole lead arranger and sole bookrunner, Bear Stearns
     Corporate Lending Inc., as syndication agent, U.S. Bank National
     Association d/b/a Firstar Bank N.A. and LaSalle Bank National Association,
     each as documentation agent, M&I Marshal & Ilsley Bank, as managing agent,
     Associated Bank N.A., as co-agent, and Toronto Dominion (Texas), Inc., as
     the administrative agent, providing for a senior secured credit facility
     for up to $340.0 million consisting of a $75.0 million four-year revolving
     credit facility, a $115.0 million four-year term loan A and a $150.0
     million five-year term loan B including any related notes, guarantees,
     collateral documents, instruments and agreements executed in connection
     therewith, and, in each case as amended, modified, renewed, refunded,
     replaced or refinanced, whether by the same lender or any other lender or
     group of lenders, from time to time.

2.   Closing Date High Yield Note is the $250,000,000 of senior subordinated
     note issued by API on November 9, 2001, together with the Note Purchase
     Agreement and the Registration Rights Agreement providing for the purchase
     thereof by AWA.

3.   Substitute High Yield Note is debt security or arrangement the proceeds of
     which are used to redeem in full the Closing Date High Yield Note on or
     before November 8, 2002.<PAGE>

                                                                    EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

     This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 7,
2002, is made by and among AKSYS, LTD., a Delaware corporation, with
headquarters located at Two Marriott Drive, Lincolnshire, IL 60069 (the
"Company"), and the investors named on the signature pages hereto (the
"Investors"). Capitalized terms used herein and not otherwise defined have the
meanings given them in Article IX hereof.

                                    RECITALS:

     A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act and Rule 506 under Regulation D.

     B. The Investors desire, upon the terms and conditions stated in this
Agreement, to purchase a total of 3,319,396 shares of Common Stock for an
aggregate purchase price of $17,559,604.84. The purchase price per share of the
Common Stock is $5.29.

     C. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement
under which the Company has agreed to provide certain registration rights under
the Securities Act and the rules and regulations promulgated thereunder to the
Investors.

     In consideration of the premises and the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Investors hereby agree as follows:

                                   ARTICLE I.

                         PURCHASE AND SALE OF SECURITIES

     1.1 Purchase and Sale of Common Shares. At the Closing, subject to the
terms of this Agreement and the satisfaction or waiver of the conditions set
forth in Articles VI and VII hereof, the Company will issue and sell to each
Investor, and each Investor will (on a several and not a joint basis) purchase
from the Company, the number of Common Shares set forth beneath such Investor's
name on the signature pages hereof.

     1.2 Payment at Closing. At the Closing, each Investor will pay the
aggregate purchase price for the Common Shares as set forth beneath its name on
the signature pages hereof, by wire transfer of immediately available funds in
accordance with the written wire instructions set forth on the signature page
hereto of the Company, and the Company will deliver to each Investor a
certificate representing the Common Shares so purchased by such Investor, and
the Company will deliver such certificates against delivery of the purchase
price as described above.

<PAGE>

          1.3 Closing Date. Subject to the satisfaction or waiver of the
conditions set forth in Articles VI and VII hereof, the Closing will take place
at 10:00 a.m. Central Time on May 10, 2002, or at another date or time agreed
upon by the parties to this Agreement (the "Closing Date"). The Closing will be
held at the offices of the Company or at such other place as the parties agree.

          1.4 Independent Nature of Investors' Obligations and Rights. The
rights and obligations of each Investor under any Agreement are several and not
joint with the rights and obligations of the other Investor and an Investor
shall not be responsible in any way for the performance of the obligations of
the other Investor under any Agreement. Nothing contained herein, and no action
taken by any Investor pursuant hereto shall constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert with
respect to such obligations or the transactions contemplated hereby. Each
Investor shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and it
shall not be necessary for the other Investor to be joined as an additional
party in any proceeding for such purpose.

                                  ARTICLE II.

                    INVESTOR'S REPRESENTATIONS AND WARRANTIES

          Each Investor represents and warrants to the Company, severally and
solely with respect to itself and its purchase hereunder and not with respect to
any other Investor, that:

          2.1 Investment Purpose. The Investor is purchasing the Common Shares
for its own account and not with a view to the distribution thereof; provided,
however, that by making the representation herein, the Investor reserves the
right to dispose of the Common Shares in accordance with or pursuant to an
effective registration statement or an exemption from registration under the
Securities Act.

          2.2 Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D. If an Investor is
subject to the Employee Retirement Income Security Act of 1974, as amended, and
is acquiring the Common Shares as a fiduciary or agent for another investor's
account, the Investor will have sole investment and voting discretion with
respect to such account and will have full power to make the acknowledgments,
representations and agreements contained herein on behalf of such account.

          2.3 Reliance on Exemptions. The Investor understands that the Common
Shares are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Common Shares.

                                       2

<PAGE>

          2.4 Information. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company, and materials relating to the offer and sale of the Common
Shares, if any, that have been requested by the Investor or its advisors, if
any. The Investor and its advisors, if any, have been afforded the opportunity
to ask questions of the Company. The Investor acknowledges and understands that
its investment in the Common Shares involves a significant degree of risk,
including the risks reflected in the SEC Documents.

          2.5 Governmental Review. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Common Shares
or an investment therein.

          2.6 Transfer or Resale. The Investor understands that:

                    (a) the issuance of the Common Shares has not been and is
          not being registered under the Securities Act or any applicable state
          securities laws and, consequently, the Investor may have to bear the
          risk of owning the Common Shares for an indefinite period of time
          because the Common Shares may not be transferred unless (i) the resale
          of the Common Shares is registered pursuant to an effective
          registration statement under the Securities Act; (ii) if requested by
          the Company, the Investor has delivered to the Company an opinion of
          counsel (in form, substance and scope customary for opinions of
          counsel in comparable transactions) to the effect that the Common
          Shares to be sold or transferred may be sold or transferred pursuant
          to an exemption from such registration; (iii) the Common Shares are
          sold or transferred pursuant to Rule 144; or (iv) the Common Shares
          are sold or transferred to an affiliate (as defined in Rule 144) of
          the Investor, in each case, subject to the restrictions set forth in
          the restrictive legend set forth on the certificates representing the
          Common Shares as contemplated by Section 2.7;

                    (b) any sale of the Common Shares made in reliance on Rule
          144 may be made only in accordance with the terms of Rule 144
          (including the holding period requirement, the volume limitations and
          the manner of sale restrictions, if applicable), and if Rule 144 is
          not applicable the seller (or the person through whom the sale is
          made) may be deemed to be an underwriter (as that term is defined in
          the Securities Act) under the Securities Act or the rules and
          regulations of the SEC thereunder; and

                    (c) except as set forth in the Registration Rights
          Agreement, neither the Company nor any other person is under any
          obligation to register the Common Shares under the Securities Act or
          any state securities laws or to comply with the terms and conditions
          of any exemption thereunder.

          2.7 Legends. The Investor understands that until (a) the Common Shares
may be sold under Rule 144(k) or (b) such time as the Common Shares have been
sold pursuant to an effective registration statement under the Securities Act or
in compliance with Rule 144, the certificates representing such Common Shares
will bear a restrictive legend in substantially the

                                       3

<PAGE>

following form (and a stop-transfer order may be placed against transfer of the
certificates for such Common Shares):

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR
ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

          The legend set forth above will be removed and the Company will issue
a certificate without the legend to the holder of any certificate upon which it
is stamped, in accordance with the terms of Article V hereof.

          2.8 Authorization; Enforcement. This Agreement, the Registration
Rights Agreement and all other agreements, documents and instruments
contemplated hereby and thereby have been duly and validly authorized, executed
and delivered on behalf of the Investor and are valid and binding agreements of
the Investor enforceable against Investor in accordance with their respective
terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally and the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

          2.9 No Conflicts; No Violation.

                    (a) The execution, delivery and performance of this
          Agreement by the Investor will not (i) conflict with or result in a
          violation of any provision of its charter documents or (ii) to the
          knowledge of Investor, result in a violation of any law, rule,
          regulation, order, judgment or decree applicable to the Investor.

                    (b) The Investor is not required to obtain any consent,
          authorization or order of, or make any filing or registration with,
          any court or governmental agency or any regulatory or self regulatory
          agency in order for it to execute, deliver or perform any of its
          obligations under this Agreement.

          2.10 Residency. The Investor is a resident of the jurisdiction set
forth immediately below such Investor's name on the signature pages hereto.

          2.11 Acknowledgments Regarding Placement Agent. Investor acknowledges
that U.S. Bancorp Piper Jaffray is acting as placement agent (the "Placement
Agent") for the Common Shares being offered hereby and will be compensated by
the Company for acting in such capacity. Investor further acknowledges that the
Placement Agent has acted solely as placement agent for the Company in
connection with the offering of the Common

                                       4

<PAGE>

Shares by the Company, that if the Placement Agent provided any information and
data to Investor in connection with the transactions contemplated hereby, that
such information and data have not been subjected to independent verification by
the Placement Agent, and that the Placement Agent makes no representation or
warranty with respect to the accuracy or completeness of such information, data
or other related disclosure material. Investor further acknowledges that in
making its decision to enter into this Agreement and purchase the Common Shares
it has relied on its own examination of the Company and the terms of, and
consequences, of holding the Common Shares. Investor further acknowledges that
the provisions of this Section 2.11 are also for the benefit of, and may also be
enforced by, the Placement Agent.

          2.12 No Public Offering. Investor has not received any information
relating to the Common Shares or the Company, and is not purchasing the Common
Shares as a result of, any form of general solicitation or general advertising,
including but not limited to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio or pursuant to any seminar or meeting whose attendees
were invited by any general solicitation or general advertising.

          2.13 Short Positions. Investor will not use any of the Common Shares
acquired pursuant to this Agreement to cover any short position in the Common
Stock if doing so would be in violation of applicable securities laws.

                                  ARTICLE III.

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

           The Company represents and warrants to the Investors that:

          3.1 Organization and Qualification. The Company is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full corporate power and authority to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted. The Company is duly qualified to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
the failure to be so qualified or in good standing in each such jurisdiction
would not have a Material Adverse Effect.

          3.2 Authorization; Enforcement. (a) The Company has all requisite
corporate power and authority to enter into and to perform its obligations under
this Agreement, the Registration Rights Agreement and all other agreements,
documents and instruments contemplated hereby and thereby, to consummate the
transactions contemplated hereby and thereby and to issue the Common Shares in
accordance with the terms hereof; (b) the execution, delivery and performance of
this Agreement, the Registration Rights Agreement and all other agreements,
documents and instruments contemplated hereby and thereby by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Common Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board or Directors or its stockholders is
required; (c) this Agreement, the Registration Rights Agreement

                                       5

<PAGE>

and all other agreements, documents and instruments contemplated hereby and
thereby have been or will be duly executed by the Company; and (d) each of this
Agreement, the Registration Rights Agreement and all other agreements, documents
and instruments contemplated hereby and thereby constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or moratorium or similar laws affecting the rights of creditors
generally and the application of general principles of equity and except as the
indemnification agreements of the Company in the Registration Rights Agreement
may be legally unenforceable.

          3.3 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (a) 50,000,000 shares of Common Stock, par
value $.01 per share, of which 22,144,469 shares are issued and outstanding, and
949,934 shares are reserved for issuance under the Company's stock award plans
and warrants, respectively, and (b) 1,000,000 shares of preferred stock, par
value $.01 per share, 50,000 of which have been designated Junior Participating
Preferred Stock, Series A, none of which are issued and outstanding. All of such
outstanding shares of common stock are duly authorized, validly issued, fully
paid and nonassessable. No shares of capital stock of the Company, including the
Common Shares issuable pursuant to this Agreement, are subject to preemptive
rights or any other similar rights of the stockholders of the Company or any
liens or encumbrances imposed through the actions or failure to act of the
Company. Except for stock options and other awards under the Option Plans,
rights to acquire stock under the 423 Plan, warrants issued by the Company on
December 19, 2001 and the transactions contemplated hereby, there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever that could require the Company to issue
additional shares of capital stock of the Company. Except for the Private
Placement Registration Rights Agreements, there are no agreements or
arrangements (other than the Registration Rights Agreement) under which the
Company is obligated to register the sale of any of its securities under the
Securities Act. There are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the Common
Shares. The Company has made available to the Investors true and correct copies
of the Company's Amended and Restated Certificate of Incorporation as in effect
on the date hereof and the Company's By-laws as in effect on the date hereof and
the terms of any securities (other than employee stock options) convertible into
or exercisable for Common Stock of the Company.

          3.4 Issuance of Common Shares. The Common Shares are duly authorized
and, upon issuance in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, free from all taxes, liens,
claims, encumbrances and charges with respect to the issue thereof, and will not
be subject to preemptive rights of stockholders of the Company.

          3.5 No Conflicts; No Violation.

                    (a) The execution, delivery and performance of this
          Agreement, the Registration Rights Agreement and all other agreements,
          documents and instruments contemplated hereby and thereby by the
          Company and the consummation by the Company of the transactions
          contemplated hereby

                                       6

<PAGE>

          and thereby (including, without limitation, the issuance of the Common
          Shares) will not (i) conflict with or result in a violation of any
          provision of the Amended and Restated Certificate of Incorporation or
          By-laws of the Company or (ii) violate or conflict with, or result in
          a breach of any provision of, or constitute a default (or an event
          which with notice or lapse of time or both could become a default)
          under, or give to others any rights of termination, amendment
          (including without limitation, the triggering of any anti-dilution
          provision), acceleration or cancellation of, any agreement, indenture,
          patent, patent license or instrument to which the Company is a party,
          or (iii) result in a violation of any law, rule, regulation, order,
          judgment or decree (including U.S. federal and state securities laws
          and regulations and regulations of any self-regulatory organizations
          to which the Company or its securities are subject), applicable to the
          Company or by which any property or asset of the Company is bound or
          affected, except in the case of clauses (ii) and (iii) for such
          conflicts, breaches, defaults, terminations, amendments,
          accelerations, cancellations and violations as would not, individually
          or in the aggregate, have a Material Adverse Effect.

                    (b) The Company is not in violation of its Amended and
          Restated Certificate of Incorporation or By-laws and the Company is
          not in default (and no event has occurred which with notice or lapse
          of time or both could put the Company in default) under any agreement,
          indenture or instrument to which the Company is a party or by which
          any property or assets of the Company is bound or affected, except for
          defaults as would not, individually or in the aggregate, have a
          Material Adverse Effect.

                    (c) The Company is not conducting its business in violation
          of any law, ordinance or regulation of any governmental entity, except
          where the failure to so comply would not, individually or in the
          aggregate, have a Material Adverse Effect.

                    (d) Except as specifically contemplated by this Agreement
          and as required under the Securities Act and any applicable state
          securities laws and any listing agreement with any securities exchange
          or automated quotation system, the Company is not required to obtain
          any consent, authorization or order of, or make any filing or
          registration with, any court or governmental agency or any regulatory
          or self regulatory agency in order for it to execute, deliver or
          perform any of its obligations under this Agreement and the
          Registration Rights Agreement, in each case in accordance with the
          terms hereof or thereof, or to issue and sell the Common Shares in
          accordance with the terms hereof. Assuming the accuracy of the
          representations and warranties of the Investors in this Agreement, all
          consents, authorizations, orders, filings and registrations which the
          Company is required to obtain pursuant to the preceding sentence have
          been obtained or effected on or prior to the date hereof. The Company
          is not in violation of the listing requirements of Nasdaq.

          3.6 SEC Documents; Financial Statements; Liabilities. Since
December 31, 2000, the Company has timely filed all reports, schedules, forms,
statements and other

                                       7

<PAGE>

documents required to be filed by it with the SEC pursuant to the Securities Act
or reporting requirements of the Exchange Act (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements
and schedules thereto and documents (other than exhibits) incorporated by
reference therein, being hereinafter referred to herein as the "SEC Documents").
The Company has made available to each Investor true and complete copies of the
SEC Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, 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 light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents have been prepared in
accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). Except
as set forth in the financial statements included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (A) liabilities
incurred in the ordinary course of business subsequent to December 31, 2001, (B)
liabilities of the type not required under generally accepted accounting
principles to be reflected in such financial statements or (C) other liabilities
which would not, individually or in the aggregate, have Material Adverse Effect.

          3.7 Absence of Certain Changes. Except as disclosed in the SEC
Documents or any press release by the Company, since December 31, 2001, there
has been no material adverse change in the assets, liabilities, business,
properties, operations, financial condition or results of operations of the
Company, taken as a whole.

          3.8 Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
Knowledge of the Company, threatened against or affecting the Company or any of
its officers or directors acting as such that could, individually or in the
aggregate, have a Material Adverse Effect.

          3.9 Intellectual Property Rights. The Company owns or possesses the
licenses or rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark applications, service
marks, service names, trade names and copyrights necessary to enable it to
conduct its business as now operated (the "Intellectual Property"), except where
the failure to possess such licenses or rights to use would not have,
individually or in the aggregate, a Material Adverse Effect. There is no claim
or action or proceeding pending or, to the Company's Knowledge, threatened that
challenges the right of the Company with respect to any Intellectual Property.

          3.10 Tax Status. The Company has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it

                                       8

<PAGE>

is subject (unless and only to the extent that the Company has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith.
To the Knowledge of the Company, there are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax. To the
Company's Knowledge, none of the Company's tax returns is presently being
audited by any taxing authority.

     3.11 Environmental Laws. The Company (i) is in compliance with all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business as presently conducted and
(iii) is in compliance with all terms and conditions of any such permit, license
or approval, except where, in each of the three foregoing clauses, the failure
to so comply would not have, individually or in the aggregate, a Material
Adverse Effect.

     3.12 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances within the prior six months that would
require registration under the Securities Act of the issuance of the Common
Shares to the Investors.

     3.13 No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except with respect to U.S. Bancorp Piper Jaffray whose commissions and fees
will be paid for by the Company.

     3.14 Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company is engaged.

     3.15 Employment Matters. The Company is in compliance with all federal,
state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, individually or in the
aggregate, have a Material Adverse Effect.

     3.16 Investment Company Status. The Company is not and upon consummation of
the sale of the Common Shares will not be an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.

                                       9

<PAGE>

     3.17 No General Solicitation. Neither the Company nor, to the Knowledge of
the Company, any person acting for the Company, has conducted any "general
solicitation" (as such term is defined in Regulation D) with respect to any of
the Common Shares being offered hereby. The Company will not distribute any
offering material in connection with the sale of the Common Shares prior to the
Closing Date, other than this Agreement, the Registration Rights Agreement and
the SEC Documents.

                                  ARTICLE IV.

                                    COVENANTS

     4.1 Best Efforts. Each party will use its best efforts to satisfy in a
timely fashion each of the conditions to be satisfied by it under Articles VI
and VII of this Agreement.

     4.2 Form D; Blue Sky Laws. The Company will file a Notice of Sale of
Securities on Form D with respect to the Common Shares, if required under
Regulation D, and to provide a copy thereof to each Investor promptly after such
filing. The Company will take such action as it reasonably determines to be
necessary, if any, to qualify the Common Shares for sale to the Investors under
this Agreement under applicable securities (or "blue sky") laws of the states of
the United States (or to obtain an exemption from such qualification), and will
provide evidence of any such action so taken to the Investors on or prior to the
date of the Closing. The Company shall, not later than prior to the opening of
trading on the second business day immediately following the Closing Date, issue
a press release disclosing all material terms of the transactions contemplated
hereby. The Company will file with the SEC a Current Report on Form 8-K
disclosing this Agreement and the transactions contemplated hereby within 10
business days after the Closing Date.

     4.3 Reporting Status; Eligibility to Use Form S-3. The Company's Common
Stock is registered under Section 12 of the Exchange Act. Throughout the
Registration Period (as defined in the Registration Rights Agreement), the
Company will timely file all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the reporting
requirements of the Exchange Act, and the Company will not terminate its status
as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination. The Company currently meets, and will use its reasonable best
efforts to continue to meet, the "registrant eligibility" requirements for a
secondary offering set forth in the general instructions to Form S-3 to enable
the registration of the Registrable Securities (as defined in the Registration
Rights Agreement). The Company has no reason to believe its independent auditors
will withhold their consent to the inclusion of their audit opinion concerning
the Company's financial statements which are included in the Registration
Statement.

     4.4 Expenses. The Company and each Investor is liable for, and will pay,
its own expenses incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the other agreements to be executed
in connection herewith, including, without limitation, attorneys' and
consultants' fees and expenses.

                                       10

<PAGE>

     4.5 Financial Information. The financial statements of the Company will be
prepared in accordance with United States generally accepted accounting
principles consistently applied with past practice, and will fairly present in
all material respects the consolidated financial position of the Company and
results of its operations and cash flows as of, and for the periods covered by,
such financial statements (subject, in the case of unaudited statements, to
normal year-end audit adjustments).

     4.6 Listing. The Company will, for so long as any Investor owns any of the
Common Shares, maintain the listing and trading of its Common Stock (including
the Common Shares) on Nasdaq, the American Stock Exchange or the New York Stock
Exchange and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the National Association of
Securities Dealers, Inc. and such exchanges, as applicable. Until an Investor
transfers, assigns or sells all of the Common Shares owned by it, the Company
will promptly provide to each Investor copies of any notices it receives
regarding the continued eligibility of the Common Stock for listing on Nasdaq or
other principal exchange or quotation system on which the Common Stock is
listed. The Company has not received a notice of non-compliance with Nasdaq
listing standards.

     4.7 Compliance with Law. As long as an Investor owns any of the Common
Shares, the Company will use commercially reasonable efforts to conduct its
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable local, state and federal environmental laws and regulations, the
failure to comply with which would have a Material Adverse Effect.

     4.8 No Integration. The Company will not make any offers or sales of any
security (other than the Common Shares) under circumstances that would cause the
offering of the Common Shares to be integrated with any other offering of
securities by the Company (i) for the purpose of any stockholder approval
provision applicable to the Company or its securities or (ii) for purposes of
any registration requirement under the Securities Act.

     4.9 Sales by Investors. Each Investor will sell any Common Shares sold by
it in compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the Securities Act and the rules and regulations promulgated thereunder.
No Investor will make any sale, transfer or other disposition of the Common
Shares in violation of federal or state securities laws.

                                   ARTICLE V.

                 TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS

     5.1 Issuance of Certificates. The Company will instruct its transfer agent
to issue a certificate, registered in the name of each Investor or its nominee,
for the Common Shares. All such certificates will bear the restrictive legend
described in Section 2.7, except as otherwise specified in this Article V. In
addition, the Company will issue irrevocable Transfer Agent Instructions to the
transfer agent in the form of Exhibit A hereto. The Company will not give to its
transfer agent any instruction with respect to the Common Shares other than as

                                       11

<PAGE>

contemplated by Article V and stop transfer instructions to give effect to
Section 2.7 hereof (prior to registration of the Common Shares under the
Securities Act). Nothing in this Section will affect in any way the Investors'
obligations and agreements set forth in Section 2.7 hereof to comply with all
applicable prospectus delivery requirements, if any, upon resale of the Common
Shares.

     5.2 Unrestricted Securities. If, unless otherwise required by applicable
state securities laws, (a) the Common Shares represented by a certificate have
been sold under an effective registration statement filed under the Securities
Act, (b) a holder of Common Shares provides the Company with an opinion of
counsel, if requested by the Company, in form, substance and scope customary for
opinions of counsel in comparable transactions, which counsel and opinion shall
be reasonably satisfactory to the Company, to the effect that a public sale or
transfer of such Common Shares may be made without registration under the
Securities Act and such sale may occur without restriction on the timing or
manner of such sale or transfer or (c) the Common Shares represented by a
certificate can be sold without restriction as to the number of securities sold
under Rule 144(k), the Company will permit the transfer of the Common Shares,
and the transfer agent will issue one or more certificates, free from any
restrictive legend, in such name and in such denominations as specified by such
holder in accordance with the Transfer Agent Instructions. Notwithstanding
anything herein to the contrary, the Common Shares may be pledged as collateral
in connection with a bona fide margin account or other lending arrangement;
provided that such pledge will not alter the provisions of this Article V with
respect to the removal of restrictive legends.

     5.3 Enforcement of Provision. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article V will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section,
that the Investor will be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

                                  ARTICLE VI.

                 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL

     The obligation of the Company to issue and sell the Common Shares to each
Investor at the Closing is subject to the satisfaction by such Investor, on or
before the Closing Date, of each of the following conditions. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion:

     6.1 The Investor will have executed the Registration Rights Agreement and
will have delivered such Agreement to the Company.

     6.2 The Investor will have delivered the purchase price for the Common
Shares to the Company in accordance with this Agreement.

                                       12

<PAGE>

     6.3 The Investor will have completed, executed and delivered to the Company
an Investor Questionnaire in the form attached hereto as Exhibit E (the
"Investor Questionnaire").

     6.4 The representations and warranties of the Investor, including
representations and warranties made in the Investor Questionnaire, must be true
and correct in all material respects as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties must be correct as of such date), and
the Investor will have performed and complied in all material respects with the
covenants and conditions required by this Agreement to be performed or complied
with by the Investor at or prior to the Closing.

     6.5 No statute, rule, regulation, executive order, decree, ruling or
injunction will have been enacted, entered, promulgated or endorsed by or in any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

                                  ARTICLE VII.

              CONDITIONS TO EACH INVESTOR'S OBLIGATION TO PURCHASE

     The obligation of each Investor hereunder to purchase the Common Shares
from the Company at the Closing is subject to the satisfaction, on or before the
Closing Date, of each of the following conditions. These conditions are for each
Investor's respective benefit and may be waived by such Investor at any time in
its sole discretion:

     7.1 The Company will have executed the Registration Rights Agreement and
will have delivered such Agreement to the Investor.

     7.2 The Company will have delivered to such Investor a duly executed
certificate, against payment therefor, representing the Common Shares as
specified in Section 1.1 hereof.

     7.3 The representations and warranties of the Company must be true and
correct in all material respects as of the Closing as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties must be true and correct in all material
respects as of such date) and the Company must have performed and complied in
all material respects with the covenants and conditions required by this
Agreement to be performed or complied with by the Company at or prior to the
Closing.

     7.4 The Investor must have received a certificate or certificates dated as
of the Closing Date and executed by the Chief Executive Officer or the Chief
Financial Officer of the Company certifying as to the matters contained in
Section 7.3.

     7.5 No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction will have been enacted, entered, promulgated or endorsed by
or in any court or

                                       13

<PAGE>

governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

     7.6 Trading and listing of the Common Stock on Nasdaq must not have been
suspended by the SEC or Nasdaq.

     7.7 Such Investor will have received an opinion of the Company's counsel,
dated as of the Closing Date substantially in the form attached hereto as
Exhibit B.

     7.8 The irrevocable Transfer Agent Instructions, in substantially the
form attached hereto as Exhibit A will have been delivered to the Company's
transfer agent and acknowledged in writing by such transfer agent.

                                  ARTICLE VIII.

                                 INDEMNIFICATION

     In consideration of each Investor's execution and delivery of this
Agreement and its acquisition of the Common Shares hereunder, and in addition to
all of the Company's other obligations under this Agreement and the Registration
Rights Agreement, the Company will defend, protect, indemnify and hold harmless
each Investor and each other holder of the Common Shares to whom rights are
assigned as permitted by Section 10.7 of this Agreement and all of their
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person's agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively the "Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(regardless of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by an Indemnitee as
a result of, or arising out of, or relating to (a) any breach of any
representation or warranty made by the Company herein or in any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained herein
or in any other certificate, instrument or document contemplated hereby or
thereby or (c) any cause of action, suit or claim brought or made against such
Indemnitee and arising out of or resulting from the execution, delivery,
performance or breach of this Agreement or the Registration Rights Agreement by
the Company. To the extent that the foregoing undertaking by the Company is
unenforceable for any reason, the Company will make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law. Notwithstanding the foregoing, the
indemnification agreement contained in this Article VIII does not apply to
amounts paid in settlement of Indemnified Liabilities if such settlement is made
without the prior written consent of the Company, which consent will not be
unreasonably withheld. The Company may participate in, and assume and control,
the defense of any claim with counsel mutually satisfactory to the Company and
the Indemnities. If, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnitee and the
indemnifying party is inappropriate due to actual or potential conflicts of
interest between the

                                       14

<PAGE>

Indemnitee and any other party represented by such counsel in such proceeding or
the actual or potential defendants in, or targets of, any such action including
the Indemnitee, and any such Indemnitee reasonably determines that there may be
legal defenses available to such Indemnitee that are different from or in
addition to those available to the indemnifying party, then the Indemnitee is
entitled to assume such defense and may retain its own counsel, with the
reasonable, out-of-pocket fees and expenses to be paid by the indemnifying
party. The Company will pay for only one separate legal counsel for the
Indemnitees collectively, and such legal counsel will be selected by the
Indemnitees holding a majority in interest of the Common Shares held by all
Indemnitees.

     The indemnification provisions set forth above shall not be available to
any Indemnitee to the extent (i) that such Indemnitee is in material breach of
any provision of this Agreement or the Registration Rights Agreement or (ii) the
Indemnified Liabilities are covered under the indemnification provisions set
forth in Article VI of the Registration Rights Agreement or otherwise relate to
the Registration Rights Agreement, in which case the Registration Agreement
shall control the terms of any indemnification obligation of the Company
relating to such Indemnified Liabilities.

                                   ARTICLE IX.

                                   DEFINITIONS

     9.1 "423 Plan" means the Aksys, Ltd. 2001 Employee Stock Purchase Plan.

     9.2 "Closing" means the closing of the purchase and sale of the Common
Shares under this Agreement.

     9.3 "Closing Date" has the meaning set forth in Section 1.3.

     9.4 "Common Shares" means the shares of Common Stock sold pursuant to this
Agreement.

     9.5 "Common Stock" means the common stock, par value $0.01 per share, of
the Company.

     9.6 "Company" means Aksys, Ltd.

     9.7 "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     9.8 "Indemnified Liabilities" has the meaning set forth in Article VIII.

     9.9 "Indemnitees" has the meaning set forth in Article VIII.

     9.10 "Intellectual Property" has the meaning set forth in Section 3.9.

     9.11 "Investors" means the investors whose names are set forth on the
signature pages of this Agreement, and their permitted transferees.

                                       15

<PAGE>

     9.12 "Knowledge" means the actual knowledge, without independent
           ---------
investigation.

     9.13 "Material Adverse Effect" means a material adverse effect on (a) the
assets, liabilities, financial condition, prospects or results of operation of
the Company's business, taken as a whole or (b) the ability of the Company to
perform its obligations pursuant to the transactions contemplated by this
Agreement or under the agreements or instruments to be entered into or filed in
connection herewith.

     9.14 "Nasdaq" means the Nasdaq National Market System.

     9.15 "Option Plans" means the Aksys, Ltd. 1996 Stock Awards Plan and the
Aksys, Ltd. 1993 Stock Option Plan, as amended.

     9.16 "Placement Agent" has the meaning set forth in Section 2.11.

     9.17 "Private Placement Registration Rights Agreements" means (i) the
Registration Rights Agreement, dated as of April 7, 2000, by and among the
Company and the investors named on the signature pages thereto, (ii) the
Registration Rights Agreement, dated as of August 14, 2000, by and among the
Company and the investors named on the signature pages thereto, and (iii) the
Registration Rights Agreement, dated as of December 19, 2001, by and among the
investors named on the signature pages thereto.

     9.18 "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, by and among the parties to this
Agreement, in the form attached
hereto as Exhibit C.

     9.19 "Regulation D" means Regulation D as promulgated by the SEC under the
Securities Act.

     9.20 "Rule 144" and "Rule 144(k)" mean Rule 144 and Rule 144(k),
respectively, promulgated under the Securities Act, or any successor rule.

     9.21 "SEC" means the United States Securities and Exchange Commission.

     9.22 "SEC Documents" has the meaning set forth in Section 3.6.

     9.23 "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.

     9.24 "Transfer Agent Instructions" means the transfer agent instructions as
defined in Exhibit A.

                                       16

<PAGE>

                                   ARTICLE X.

                          GOVERNING LAW; MISCELLANEOUS

     10.1 Governing Law; Jurisdiction. This Agreement will be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States federal and state courts located in
the State of Delaware with respect to any dispute arising under this Agreement,
the agreements entered into in connection herewith or the transactions
contemplated hereby or thereby.

     10.2 Counterparts; Signatures by Facsimile. This Agreement may be executed
in two or more counterparts, all of which are considered one and the same
agreement and will become effective when counterparts have been signed by each
party and delivered to the other parties. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.

     10.3 Headings. The headings of this Agreement are for convenience of
reference only, are not part of this Agreement and do not affect its
interpretation.

     10.4 Severability. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
will be deemed modified in order to conform with such statute or rule of law.
Any provision hereof that may prove invalid or unenforceable under any law will
not affect the validity or enforceability of any other provision hereof.

     10.5 Entire Agreement; Amendments. This Agreement and the Registration
Rights Agreement (including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, representations,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

     10.6 Notices. Any notices required or permitted to be given under the terms
of this Agreement must be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and will be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by facsimile, in each case addressed to a party. Any
notice sent by courier (including a recognized overnight delivery service) will
be deemed received one business day after being sent. The addresses for such
communications are:

                                       17

<PAGE>

          If to the Company:  Aksys, Ltd.
                              Two Marriot Drive
                              Lincolnshire, IL 60069
                              Attention:  President
                              Telephone:  (847) 229-2020
                              Facsimile:  (847) 229-2235

          With a copy to:     Kirkland & Ellis
                              200 East Randolph Drive
                              Chicago, IL 60601
                              Attention:  Keith S. Crow
                              Telephone:  (312) 861-2000
                              Facsimile:  (312) 861-2200

          If to an Investor:  To the address set
                              forth immediately below such
                              Investor's name on the signature
                              pages hereto.

     Each party will provide written notice to the other parties of any change
in its address.

     10.7 Successors and Assigns. This Agreement is binding upon and inures to
the benefit of the parties and their successors and permitted assigns. The
Company will not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors, and no Investor may assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Company. Notwithstanding the foregoing, an Investor may assign
all or part of its rights and obligations hereunder to any of its "affiliates,"
as that term is defined under the Securities Act, without the consent of the
Company so long as the affiliate is an accredited investor (within the meaning
of Regulation D under the Securities Act) and agrees in writing to be bound by
this Agreement. This provision does not limit the Investor's right to transfer
the Common Shares pursuant to the terms of this Agreement or to assign the
Investor's rights hereunder to any such affiliate transferee pursuant to the
terms of this Agreement. Notwithstanding any assignment as provided herein to an
affiliate of an Investor, each Investor shall thereafter remain fully
responsible and liable for performance of all of its obligations under this
Agreement. Notwithstanding the foregoing, any transferee who purchases the
Common Shares in a public sale shall not have any rights under this Agreement.

     10.8 Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person or entity; provided, however, that the provisions in Section 2.11
relating to acknowledgments regarding the Placement Agent are intended for the
benefit of the Placement Agent.

     10.9 Survival. The representations and warranties of the Company set forth
herein will survive for two (2) years following the Closing hereunder. The
Company makes no representations or warranties in any oral or written
information provided to Investors, other than the representations and warranties
included herein.

                                       18

<PAGE>

     10.10 Further Assurances. Each party will do and perform, or cause to be
done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

     10.11 No Strict Construction. The language used in this Agreement is
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

     10.12 Equitable Relief. The Company recognizes that, if it fails to perform
or discharge any of its obligations under this Agreement, any remedy at law may
prove to be inadequate relief to the Investors. The Company therefore agrees
that the Investors are entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.

                                     * * * *

                                       19

<PAGE>

                  IN WITNESS WHEREOF, the undersigned Investors and the Company
have caused this Agreement to be duly executed as of the date first above
written.

                                       COMPANY:

                                       AKSYS, LTD.

                                       By:
                                           -------------------------------------
                                           Name:
                                                  ------------------------------
                                           Title:
                                                  ------------------------------
                                      20

<PAGE>

                            OMNIBUS SIGNATURE PAGE TO

                                   AKSYS, LTD.

                          SECURITIES PURCHASE AGREEMENT

     The undersigned hereby executes and delivers the Securities Purchase
Agreement to which this Signature Page is attached, which, together with all
counterparts of the Agreement and Signature Pages of the other Investors and the
Company to said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                Sign Name:
                                          --------------------------------------

                                Print Name:
                                           -------------------------------------

                                Address:
                                        ----------------------------------------

                                Telephone:
                                          --------------------------------------

                                Facsimile:
                                          --------------------------------------

                                Attention:
                                          --------------------------------------

                                Number of Shares:
                                                 -------------------------------

                                       21

<PAGE>

                      Exhibit A Transfer Agent Instructions

                                       22

<PAGE>

                         Exhibit B Form of Legal Opinion

                                       23

<PAGE>

                     Exhibit C Registration Rights Agreement

                                       24

<PAGE>

                                    Exhibit D

                         STOCK CERTIFICATE QUESTIONNAIRE

         Please provide us with the following information:

1.     The exact name that your Shares are to be
       registered in (this is the name that will appear    ---------------------
       on your stock certificate(s)).  You may use a
       nominee name if appropriate:

2.     The relationship between the Investor and the
       registered holder listed in response to item 1      ---------------------
       above:

3.     The mailing address, contact name and
       telephone number of the registered holder listed    ---------------------
       in response to item 1 above:

4.     The Social Security Number or Tax
       Identification Number of the registered holder      ---------------------
       listed in the response to item 1 Above:

                                       25

<PAGE>

                                    Exhibit E

                             INVESTOR QUESTIONNAIRE

                (all information will be treated confidentially)

To:  AKSYS, LTD.

     This Investor Questionnaire ("Questionnaire") must be completed by each
potential investor in connection with the offer and sale of the shares of the
common stock, par value $0.01 per share (the "Securities"), of Aksys, Ltd. (the
"Company"). The Securities are being offered and sold by the Company pursuant to
that certain Securities Purchase Agreement, dated May ___, 2002 (the "Securities
Purchase Agreement"), without registration under the Securities Act of 1933, as
amended (the "Securities Act"), and the securities laws of certain states, in
reliance on the exemptions contained in Section 4 of the Securities Act and on
Regulation D promulgated thereunder and in reliance on similar exemptions under
applicable state laws. The Company must determine that a potential investor
meets certain suitability requirements before offering or selling Securities to
such investor. The purpose of this Questionnaire is to assure the Company that
each investor will meet the applicable suitability requirements. The information
supplied by you will be used in determining whether you meet such criteria, and
reliance upon the private offering exemption from registration is based in part
on the information herein supplied.

     This Questionnaire does not constitute an offer to sell or a solicitation
of an offer to buy any security. Your answers will be kept strictly
confidential. However, by signing this Questionnaire you will be authorizing the
Company to provide a completed copy of this Questionnaire to such parties as the
Company deems appropriate in order to ensure that the offer and sale of the
Securities will not result in a violation of the Securities Act or the
securities laws of any state and that you otherwise satisfy the suitability
standards applicable to purchasers of the Securities. All potential investors
must answer all applicable questions and complete, date and sign this
Questionnaire. Please print or type your responses and attach additional sheets
of paper if necessary to complete your answers to any item.

A.   BACKGROUND INFORMATION

Name:
     ---------------------------------------------------------------------------

Business Address:
                 ---------------------------------------------------------------
                               (Number and Street)

--------------------------------------------------------------------------------
(City)                         (State)                                (Zip Code)

Telephone Number:  (        )
                             ---------------------------------------------------

Residence Address:
                   -------------------------------------------------------------
                               (Number and Street)

--------------------------------------------------------------------------------
(City)                         (State)                                (Zip Code)

Telephone Number:  (         )
                              --------------------------------------------------

If an individual:

Age:      Citizenship:            Where registered to vote:
     ----             -----------                           --------------------

If a corporation, partnership, limited liability company, trust or other entity:

Type of entity:
               -----------------------------------------------------------------

Jurisdiction of formation:                 Date of formation:
                           --------------                     ------------------

Social Security or Taxpayer Identification No.
                                               ---------------------------------

Send all correspondence to (check one):   Residence Address    Business Address
                                       ---                 ----

                                       26

<PAGE>

B.       STATUS AS ACCREDITED INVESTOR

The undersigned is an "accredited investor" as such term is defined in
Regulation D under the Securities Act, at the time of execution of the Stock
Purchase Agreement and the sale of the Securities the undersigned falls within
one or more of the following categories (Please initial one or more, as
applicable):

_____(1) a bank as defined in Section 3(a)(2) of the Securities Act, or a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in Section 2(13) of the
Securities Act; an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with the investment decisions made
solely by persons that are accredited investors;/1/

_____(2) a private business development company as defined in Section 202(a)(22)
of the Investment Adviser Act of 1940;

_____(3) an organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;

_____(4) a natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the Securities
exceeds $1,000,000;

_____(5) a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;

_____(6) a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and

_____(7) an entity in which all of the equity owners are accredited investors
(as defined above).

----------------------

/1/  As used in this Questionnaire, the term "net worth" means the excess of
     total assets over total liabilities. In computing net worth for the purpose
     of subsection (4), the principal residence of the investor must be valued
     at cost, including cost of improvements, or at recently appraised value by
     an institutional lender making a secured loan, net of encumbrances. In
     determining income, the investor should add to the investor's adjusted
     gross income any amounts attributable to tax exempt income received, losses
     claimed as a limited partner in any limited partnership, deductions claimed
     for depreciation, contributions to an IRA or KEOGH retirement plan, alimony
     payments, and any amount by which income from long-term capital gains has
     been reduced in arriving at adjusted gross income.

                                       27

<PAGE>

C.       REPRESENTATIONS

The undersigned hereby represents and warrants to the Company as follows:

     1. Any purchase of the Securities would be solely for the account of the
undersigned and not for the account of any other person or with a view to any
resale or distribution thereof.

     2. The information contained herein is complete and accurate and may be
relied upon by the Company, and the undersigned will notify the Company
immediately of any material change in any of such information occurring prior to
the closing, if any, with respect to the purchase of Securities by the
undersigned or any co-purchaser.

     3. There are no suits, pending litigation, or claims against the
undersigned that could materially affect the net worth of the undersigned as
reported in this Questionnaire.

     4. The undersigned acknowledges that there may occasionally be times when
the Company, based on the advice of its counsel, determines that it must suspend
the use of the prospectus forming a part of the Registration Statement (as
defined in the Registration Rights Agreement) until such time as an amendment to
the Registration Statement has been filed by the Company and declared effective
by the Securities and Exchange Commission or until the Company has amended or
supplemented such prospectus. The undersigned is aware that, in such event, the
Securities may not be subject to ready liquidation, and that any Securities
purchased by the undersigned may have to be held during such suspension. The
overall commitment of the undersigned to investments which are not readily
marketable is not excessive in view of the undersigned's net worth and financial
circumstances, and any purchase of the Securities will not cause such commitment
to become excessive. The undersigned is able to bear the economic risk of an
investment in the Securities.

     5. The undersigned has carefully considered the potential risks relating to
the Company and a purchase of the Securities, and fully understands that the
Securities are speculative investments which involve a high degree of risk of
loss of the undersigned's entire investment. Among others, the undersigned has
carefully considered each of the risks described under the heading "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.

                                       28

<PAGE>

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this _____
day of _____, 2002, and declares under oath that it is truthful and correct.

                                   Print Name

                                   By:
                                      -----------------------------------------
                                   Signature

                                   Title:
                                         --------------------------------------
                                           (required for any purchaser that is
                                           a corporation, partnership, trust or
                                           other entity)

                                       29

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