Document:

Exhibit 10.3

AGREEMENT

AGREEMENT (this “Agreement”)
made and entered into by and between Cellu Tissue Holdings, Inc., a
Delaware corporation (the “Company”), and Mr. Steven Ziessler (the “Executive”),
effective as of the Closing Date as defined in the Agreement and Plan of
Merger, dated May 8, 2006, (the “Merger Agreement”) by and among
Cellu Parent Corporation, a Delaware corporation (“Cellu Parent”), Cellu
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary
of Cellu Parent Corporation (“Cellu Acquisition”), and Cellu Paper Holdings, Inc.,
a Delaware corporation (“Cellu Paper”), and which is hereafter referred
to as the “Effective Date.

WHEREAS, the Company is a
wholly owned subsidiary of Cellu Paper; and Cellu Acquisition is a wholly owned
subsidiary of Cellu Parent;

WHEREAS, the Merger
Agreement contemplates that Cellu Acquisition will merge with and into Cellu
Paper, with Cellu Paper as the surviving entity (the “Merger”);

WHEREAS, the
operations of the Company and its Affiliates are a complex matter requiring
direction and leadership in a variety of areas, including financial, strategic
planning, regulatory, community relations and others;

WHEREAS, the
Executive is possessed of certain experience and expertise that qualify the Executive
to provide the direction and leadership required by the Company and its
Affiliates;

WHEREAS, prior to
the closing under the Merger Agreement, the Executive was employed by the
Company as its Chief Operations Officer; and

WHEREAS, subject
to the terms and conditions hereinafter set forth, the Company wishes to employ
the Executive as its President of Marketing and Sales and the Executive wishes
to accept such continued employment, effective as of the Closing;

NOW, THEREFORE, in
consideration of the foregoing premises and the mutual promises, terms,
provisions and conditions set forth in this Agreement, the parties hereby
agree:

1.             Employment.
Subject to the terms and conditions set forth in this Agreement, the Company
hereby offers and the Executive hereby accepts employment.

2.             Term.      Subject to earlier termination as
hereinafter provided, the Executive’s employment hereunder shall be for a term
of four (4) years, commencing on the Effective Date, and shall be
automatically extended thereafter for successive terms of one year each, unless
either party provides notice to the other at least sixty (60) days prior to the
expiration of the original or any extension term that the Agreement is not to
be extended. The term of this Agreement, as from time to time extended or
renewed, is hereafter referred to as “the term of this Agreement” or “the
term hereof.”   Notwithstanding
anything in this Agreement to the contrary, this Agreement shall be null, void
and without effect upon termination of the Merger Agreement prior to
consummation of the Merger.

3.             Capacity
and Performance.

(a)         Subject to earlier
termination as hereinafter provided, during the term of this Agreement, the
Executive shall serve the Company as its President of Marketing and Sales,
reporting to the Company’s Chief Executive Officer. In addition, during the
term hereof, and without further compensation, the Executive shall serve as a
director and/or officer of one or more of the Company’s Affiliates (as defined
below) if so elected or appointed from time to time.

(b)         During the term
hereof, the Executive shall be employed by the Company on a full-time basis and
shall perform such duties and responsibilities on behalf of the Company and its
Affiliates consistent with the Executive’s position with the Company as may be
designated from time to time by the Board or by its designees.

(c)         During the term of the
Executive’s employment, the Executive shall devote the Executive’s full
business time and the Executive’s best efforts, business judgment, skill and
knowledge exclusively to the advancement of the business and interests of the
Company and its Affiliates and to the discharge of the Executive’s duties and
responsibilities hereunder. The Executive shall not engage in any other
business activity or serve in any industry, trade, professional, governmental
or academic position during the term of this Agreement, except as may be
expressly approved in advance by the Board in writing.

4.             Compensation
and Benefits. As compensation for all services performed by the Executive
under and during the term hereof and subject to performance of the Executive’s
duties and of the obligations of the Executive to the Company and its
Affiliates, pursuant to this Agreement or otherwise:

(a)         Base Salary. During
the term hereof, the Company shall pay the Executive a base salary at the rate
of Two Hundred Fifty Thousand Dollars ($250,000) per annum, payable in
accordance with the normal payroll practices of the Company for its executives
and subject to increase (but not decrease) from time to time by the Board, in
its discretion. The Board will review the Executive’s base salary each year. Such
base salary, as from time to time increased, is hereafter referred to as the “Base
Salary”.

(b)         Annual Bonus
Compensation.

(i)            During the term hereof and beginning
with the first fiscal year after the Closing Date, Executive shall be eligible
to receive an annual bonus of 100% of Base Salary (the “Target Bonus”),
subject to the achievement of an EBITDA target set by the Chairman of the Board
(after consultation with the Executive), approved by the Board and subject to
the terms and conditions of any applicable annual incentive program in effect
from time to time (the “Incentive Plan”). The amount of any bonus
awarded (whether more than or less than the Target Bonus) shall be determined
by the Board, based upon the achievement of the EBITDA target, after the
completion of the 

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Company’s annual audit and the Board’s review
thereof, and shall further be subject to the terms of the Incentive Plan as in
effect from time to time. Except as otherwise expressly provided under this
Agreement or under the terms of the Incentive Plan as in effect from time to
time, the Executive shall not be entitled to earn bonus compensation for any
period of service less than a full year, except as set forth in Sections 5(a),
5(b), 5(d), 5(e), 5(g) and 5(h).

(ii)           Any bonus due
hereunder shall be payable not later than two and one half months following the
fiscal year for which the bonus was earned or as soon as is practicable within
the meaning of Section 409A of the Internal Revenue Code of 1986, as
amended, (“Section 409A”).

(c)         Equity Arrangements.
On the Effective Date, the Company will make a grant of restricted stock to the
Executive under the Company’s Stock Option and Restricted Stock Plan (the “Plan”).
The terms and conditions of such restricted stock grant shall be subject to the
terms of the Plan and the Restricted Stock Award Agreement in the form attached
hereto as Exhibit A.

(d)         Vacations. During
the term hereof, the Executive shall be entitled to four (4) weeks of
vacation per annum, to be taken at such times and intervals as shall be
determined by the Executive, subject to the reasonable business needs of the
Company.

(e)         Other Benefits.
During the term hereof and subject to any contribution therefor generally
required of employees of the Company, the Executive shall be entitled to
participate in any and all employee benefit plans from time to time in effect
for employees of the Company generally, except to the extent such plans are in
a category of benefit otherwise provided to the Executive. Such participation
shall be subject to (i) the terms of the applicable plan documents, (ii) generally
applicable Company policies and (iii) the discretion of the Board or any
administrative or other committee provided for in or contemplated by such plan.
The Company may alter, modify, add to or delete its employee benefit plans at
any time as it, in its sole judgment, determines to be appropriate, without
recourse by the Executive.

(f)          Perquisites. During
the term hereof, the Executive shall be entitled to receive any and all
perquisites in effect from time to time for senior executives of the Company
generally, except to the extent such perquisite is otherwise provided to the
Executive. Such receipt shall be subject to (i) generally applicable
Company policies and (ii) the discretion of the Board. The Company may
alter, modify, add to or delete any such perquisite at any time as it, in its
sole judgment, determines to be appropriate without recourse by the Executive.

(g)         Automobile
Allowance. During the term hereof, the Company will pay the Executive an
automobile allowance of Six Hundred and Fifty Dollars ($650.00) per month,
payable in accordance with the normal payroll practices of the Company for its
executives and subject to increase (but not decrease) from time to time by the
Board, in its discretion.

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(h)         Term Life Insurance.
During the term hereof, and, except as otherwise provided herein, for a period
of one (1) year thereafter, the Company shall bear the cost of a term life
insurance policy covering Executive in the amount of $1,000,000. All benefits
of such term life insurance policy shall inure to the Executive’s designated
beneficiaries. Such term life insurance policy shall become effective as soon
as possible after Executive has complied with the requirements of the insurance
company underwriting such policy (including but not limited to submission to
and satisfactory results of a physical evaluation).

(i)          Business Expenses.
The Company shall pay or reimburse the Executive for reasonable, customary and
necessary business expenses incurred or paid by the Executive in the
performance of the Executive’s duties and responsibilities hereunder, subject
to such reasonable substantiation and documentation as may be specified by the
Board or Company policy from time to time.

5.             Termination
of Employment and Severance Benefits. The Executive’s employment hereunder
shall terminate under the following circumstances:

(a)         Death. In the
event of the Executive’s death during the term hereof, the Executive’s
employment hereunder shall terminate and the Company shall pay or provide to
the Executive’s designated beneficiary or, if no beneficiary has been
designated by the Executive, to the Executive’s estate:  (i) any earned, but unpaid, Base Salary
through the date of termination; (ii) any earned, but unpaid annual bonus
for any fiscal year prior to the fiscal year of the Executive’s termination; (iii) a
pro rata portion (based on the number of days preceding the Executive’s
termination in the fiscal year of termination) of the Target Bonus; (iv) a
lump sum equal to the lesser of (A) twelve (12) months of Base Salary or (B) Base
Salary for the remainder of the term hereof; and (v) any unreimbursed
business expenses. In addition, subject to any employee contribution applicable
to employees and their dependents generally, for the twelve (12) month period
following termination, the Company shall continue to contribute to the premium
cost of coverage for the Executive’s dependents under the Company’s medical and
dental plans provided that a timely COBRA election is made. The payments
referred to in clauses (i), (ii) and (v) above shall be payable in a
lump-sum within thirty (30) days after the date of termination. The Company’s
payments under clauses (iii) and (iv) above, as well as the continued
contribution toward medical and dental premiums, are expressly conditioned upon
the Executive’s designated beneficiary, or if no beneficiary has been
designated, a representative of the Executive’s estate executing and delivering
to the Company a timely and effective separation agreement, including a general
release of claims, in form and substance satisfactory to the Company (“Separation
Agreement”). Payment under clauses (iii) and (iv) will be made
within thirty (30) days after the Company’s receipt of such release of claims
in form and substance satisfactory to the Company. Other than as set forth in
this clause (a), the Company shall have no further obligation to the Executive’s
beneficiary or the Executive’s estate.

(b)         Disability.

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(i)            The Company may terminate the
Executive’s employment hereunder, upon notice to the Executive, in the event
that the Executive becomes disabled during the Executive’s employment hereunder
through any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform substantially all
of the Executive’s material duties and responsibilities hereunder for (x) ninety
(90) consecutive calendar days or (y) one hundred and twenty (120) total
days during any period of three hundred and sixty-five (365) consecutive
calendar days. The Board may designate another employee to act in the Executive’s
place during any period of the Executive’s disability.

(ii)           If any question
shall arise as to whether during any period the Executive is disabled through
any illness, injury, accident or condition of either a physical or psycholog­ical
nature so as to be unable to perform substantially all of the Executive’s
duties and responsibilities hereunder, the Executive may, and at the request of
the Company shall, submit to a medical examination by a physician selected by
the Company to whom the Executive or the Executive’s duly appointed guardian,
if any, has no reasonable objection to determine whether the Executive is so
disabled and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the Executive shall
fail to submit to such medical examination, the Company’s determination of the
issue shall be binding on the Executive.

(iii)          Upon the giving of
notice of termination of the Executive’s employment due to disability
hereunder, the Company shall have no further obligation or liability to the
Executive, other than for (i) any earned, but unpaid, Base Salary through
the date of termination; (ii) any earned, but unpaid annual bonus for any
fiscal year prior to the fiscal year of the Executive’s termination; (iii) a
pro rata portion (based on the number of days preceding the Executive’s
termination in the fiscal year of termination) of the Target Bonus; (iv) a
lump sum payment equal to the lesser of (A) twelve (12) months of Base
Salary or (B) Base Salary for the remainder of the term hereof; and (v) any
unreimbursed business expenses. In addition, (x) the Company shall
continue the benefits contemplated by Section 4(h) for the period
contemplated therein, and (y) subject to any employee contribution
applicable to active employees and their dependents generally, for the twelve
(12) month period following termination, the Company shall continue to
contribute to the premium cost of coverage for the Executive and the Executive’s
dependents under the Company’s medical and dental plans provided that a timely
COBRA election is made. The payments referred to in clauses (i), (ii) and (v) above
shall be payable in a lump-sum within thirty (30) days after the date of
termination. The Company’s payments under clauses (iii) and (iv) above,
as well as the continued contribution toward medical and dental premiums, are
expressly conditioned upon the Executive (or the Executive’s duly appointed
guardian, if any) executing and delivering to the Company a timely and
effective Separation Agreement. Payment under clauses (iii) and (iv) will
be made within thirty (30) days after the Company’s receipt of the Separation
Agreement. Other than as set forth in this clause (b), the Company shall have
no further obligation to the Executive.

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(c)         By the Company for
Cause. The Company may terminate the Executive’s employment hereunder for
Cause at any time upon notice to the Executive setting forth in reasonable
detail the nature of such Cause. The following, as determined by the Board in
its reasonable judgment, shall constitute Cause for termination:

(i)            the Executive’s repeated and willful refusal
or failure (other than during periods of illness, disability or vacation) to
perform the Executive’s duties hereunder or under any lawful directive of the
Board (consistent with the terms of this Agreement;

(ii)           the Executive’s willful misconduct or gross
neglect in the performance of the Executive’s duties hereunder which in either
case is materially injurious to the Company or any of its Subsidiaries,
monetarily or otherwise;

(iii)          the willful material breach of this Agreement
by the Executive;

(iv)          except as provided in clause (v) below,
the conviction of the Executive of any felony or any other crime
involving dishonesty or moral turpitude
or the Executive’s pleading guilty to any felony, other than motor vehicle
offenses, or any other crime involving dishonesty or moral turpitude;

(v)           the commission of
fraud, embezzlement, theft or other dishonesty by the Executive with respect to
the Company or any of its Affiliates;

(vi)          any other conduct
that involves a breach of fiduciary obligation on the part of the Executive or
otherwise could reasonably be expected to have a material adverse effect upon
the business, interests or reputation of the Company or any of its Affiliates;
or

(vii)         a previous employer of Executive shall
commence against Executive and/or Cellu Tissue an action, suit, proceeding or
demand arising from an alleged violation of a non-competition or other similar
agreement between Executive and such previous employer.

For purposes of this Section 5(c),
no act, or failure to act, on the Executive’s part, will be considered “willful”
unless done or omitted to be done by him not in good faith and without a
reasonable belief that the Executive’s action or omission was in furtherance of
the Company’s business. If the Company desires to terminate the Executive’s
employment pursuant to clause (i), (ii), (iii) or (v) above, it shall
first give the Executive written notice of the facts and circumstances
providing Cause and shall allow the Executive no less than twenty (20) days (x) in
the case of a proposed termination pursuant to clause (i), (ii) or (iii) above
to remedy, cure or rectify the situation giving rise to Cause and (y) in
the case of a proposed termination pursuant to clause (v) above to explain
the circumstances of the Executive’s actions or to show that the circumstances
underlying the indictment do not constitute the type of felony described in
clause (v). Termination by the Company for Cause pursuant to clause (iv) above
may be effected by 

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written notice of the
Company to the Executive. Upon the giving of notice of termination of
the Executive’s employment hereunder for Cause, the Company shall have no
further obligation to the Executive, other than for (i) Base Salary
earned, but unpaid at the date of termination, (ii) any earned, but unpaid
annual bonus for any fiscal year prior to the fiscal year of termination of the
Executive’s employment; and (iii) any unreimbursed business expenses.

(d)           By
the Company without Cause. The Company may terminate the Executive’s
employment hereunder without Cause at any time upon notice to the Executive. In
the event of such termination, the Company shall have no further obligation or
liability to the Executive, other than for (i) any earned, but unpaid,
Base Salary through the date of termination; (ii) any earned, but unpaid
annual bonus for any fiscal year prior to the fiscal year of the Executive’s
termination; (iii) a pro rata portion (based on the number of days preceding
the Executive’s termination in the fiscal year of termination) of the Target
Bonus; (iv) a lump sum equal to twenty-four (24) months of Base Salary; (v) a
lump sum equal to one times the Target Bonus; and (vi) any unreimbursed
business expenses. In addition, (x) the Company shall continue the
benefits contemplated by Section 4(h) for the period contemplated
therein, and (y) subject to any employee contribution applicable to
employees and their dependents generally, for the twelve (12) month period following
termination, or if earlier, until the date that the Executive becomes eligible
for coverage with a subsequent employer, the Company shall continue to
contribute to the premium cost of coverage for the Executive and the Executive’s
dependents under the Company’s medical and dental plans provided that a timely
COBRA election is made. The payments referred to in clauses (i), (ii) and (vi) above
shall be payable in a lump-sum within thirty (30) days after the date of
termination. The Company’s payments under clauses (iii), (iv) and (v) above,
as well as the continued contribution toward medical and dental premiums, are
expressly conditioned upon the Executive executing and delivering to the
Company a timely and effective Separation Agreement. Payment under clauses
(iii), (iv) and (v) will be made within thirty (30) days after the
Company’s receipt of the Separation Agreement. Other than as set forth in this
clause (d), the Company shall have no further obligation to the Executive.

(e)           By
the Executive for Good Reason. The Executive may terminate the Executive’s
employment hereunder for Good Reason, provided that the Executive shall have
given written notice setting forth in reasonable detail the nature of such Good
Reason to the Company upon the Executive’s becoming aware or at such time as
Executive should have been aware of the occurrence of any such event or
condition, and the Company shall not have fully corrected the situation within
ten (10) days after such notice of Good Reason. The following shall constitute
“Good Reason” for termination by the Executive:

(i)            failure by the Company to pay any
compensation when due hereunder;

(ii)           any significant reduction by the Company’s of
the Executive’s title, duties or responsibilities (except in connection with termination
of the Executive’s 

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employment for Cause, as a
result of Disability, as a result of the Executive’s death or by the Executive
other than for Good Reason);

(iii)          a reduction by the Company in the Executive’s
Base Salary or any other compensation due hereunder; or

(iv)          any material breach by the Company of any
other provision of this Agreement.

If the
Executive desires to terminate the Executive’s employment with the Company
pursuant to this Section 5(e), the Executive shall first give written notice
of the facts and circumstances providing Good Reason to the Company, and shall
allow the company no less than twenty (20) days to remedy, cure or rectify the
situation giving rise to Good Reason. The Company’s failure to continue the
Executive’s appointment or election as a director or officer of any of its
Affiliates, a change in reporting relationships resulting from the direct or
indirect control of the Company (or a successor corporation) by another
corporation (in the absence of an independent change constituting Good Reason
as defined above) and any diminution of the business of the Company or any of
its Affiliates or any sale or transfer of equity, property or other assets of
the Company or any of its Affiliates (in the absence of an independent change
constituting Good Reason as defined above) shall not constitute Good Reason. In
the event of termination in accordance with this Section 5(e), then the
Executive will be entitled to receive the payments and benefits in accordance
with Section 5(d) hereof provided the Executive complies with the
requirement of executing and delivering the Separation Agreement. Other than as
set forth in this clause (e), the Company shall have no further obligation to
the Executive.

(f)            By
the Executive Without Good Reason. The Executive may terminate the
Executive’s employment hereunder at any time upon sixty (60) days’ written
notice to the Company. In the event of termination of the Executive pursuant to
this Section 5(f), the Board may elect to waive the period of notice, or
any portion thereof, and, if the Board so elects, the Company will pay the
Executive the Executive’s Base Salary for the notice period (or for any
remaining portion of the period). The Company shall also pay the Executive (i) any
earned, but unpaid annual bonus for any fiscal year prior to the fiscal year of
the termination of the Executive’s employment, and (ii) any unreimbursed
business expenses.

(g)           Non-Renewal
by Company. The Company may elect not to renew this Agreement in accordance
with Section 2 above. In the event of such non-renewal for a reason other
than Cause (as defined in Section 5(c) above), the Company shall have
no further obligation or liability to the Executive other than for (i) any
earned, but unpaid, Base Salary through the date of termination; (ii) any
earned, but unpaid annual bonus for any fiscal year prior to the fiscal year of
the Executive’s termination; (iii) a pro rata portion (based on the number
of days preceding the Executive’s termination in the fiscal year of termination)
of the Target Bonus; (iv) a lump sum equal to twenty-four (24) months of
Base Salary and (v) any unreimbursed business expenses. In addition,
subject to any employee contribution applicable to employees and their
dependents generally, for the twenty-four (24) month period following 

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termination, or if earlier until the date that the Executive becomes
eligible for coverage with a subsequent employer, the Company shall continue to
contribute to the premium cost of coverage for the Executive and the Executive’s
dependents under the Company’s medical and dental plans provided that a timely
COBRA election is made. The payments referred to in clauses (i), (ii) and (v) above
shall be payable in a lump-sum within thirty (30) days after the date of
termination. The Company’s payments under clauses (iii) and (iv) above,
as well as the continued contribution toward medical and dental premiums, are
expressly conditioned upon the Executive executing and delivering to the
Company a timely and effective Separation Agreement. Payment under clauses (iii) and
(iv) will be made within thirty (30) days after the Company’s receipt of
such Separation Agreement. Other than as set forth in this clause (g), the
Company shall have no further obligation to the Executive or the Executive’s
estate hereunder.

(h)           Change
of Control/Gross Up Payment. The Company and the Executive agree that in
the event that any of the severance payments or severance benefits under
Sections 5(d), 5(e) or 5(g) of this Agreement might be characterized
as parachute payments under Section 280G of the Internal Revenue Code of
1986, as amended (“Section 280G”), the parties shall timely take
reasonable steps to avoid the tax liability under Section 280G and Section 4999
of the Internal Revenue Code of 1986, as amended (the “Code”) to the
extent permitted by law. Accordingly, the Executive agrees to cooperate fully
in procuring a shareholder vote (including, but not limited to, providing any
required consents or waivers) to approve the severance payments or severance
benefits under this Agreement received, to be received by, or payable on behalf
of, the Executive in satisfaction of the shareholder approval requirements
described in Treas. Reg. Section 1.280G-1, Q&A-7, to the
extent applicable. If the shareholder approval requirements described in Treas.
Reg. Section 1.280G-1, Q&A-7 cannot be satisfied and if
the Company determines that any of the severance payments or severance benefits
under this Agreement received, to be received by, or payable on behalf of, the
Executive would be subject to the excise tax imposed by Section 4999 of
the Code, (the “Excise Tax”), then the Company will, on or prior to the
date on which the Excise Tax must be paid or withheld, make an additional lump
sum payment (the “gross up payment”) to the Executive. The gross up
payment will be sufficient, after giving effect to federal, state, and local
income taxes (excluding any taxes imposed under or as a result of Section 409A,
but otherwise including interest and penalties, if any) with respect to the
gross up payment, to make the Executive whole for such taxes and associated
interest and penalties imposed under or as a result of Section 4999. Determinations
under this Section 5(h) will be made by the Company’ s independent
auditors unless the Executive has reasonable objections to the use of that
firm, in which case the determinations will be made by a comparable firm chosen
by the Executive after consultation with the Company (the firm making the
determinations to be referred to as the “Firm”). The determinations of
the Firm will be binding upon the Company and the Executive except as the
determinations are established in resolution (including by settlement) of a
controversy with the Internal Revenue Service to have been incorrect. All fees
and expenses of the Firm will be paid by the Company. If the Internal Revenue
Service asserts a claim that, if successful, would require the Company to make
a gross up payment or an additional gross up payment, the Company and the
Executive will cooperate fully in resolving the controversy with the Internal
Revenue Service. The Company will make or advance such gross up payments as are
necessary 

 9
 

to prevent the Executive from having to bear the cost of the payments
to the Internal Revenue Service in the course of, or as a result of, the
controversy. The Firm will determine the amount of such gross up payments or
advances and will determine after resolution of the controversy whether any
advances must be returned by the Executive to the Company. The Company will
bear all expenses of the controversy.

(i)            Timing
of Payments. If at the time of the Executive’s separation from service, the
Executive is a “specified employee,” as hereinafter defined, any and all
amounts payable under this Section 5 in connection with such separation
from service that constitute deferred compensation subject to Section 409A,
as determined by the Company in its sole discretion, and that would (but for
this sentence) be payable within six months following such separation from
service, shall instead be paid on the date that follows the date of such
separation from service by six (6) months. For purposes of the preceding
sentence, “separation from service” shall be determined in a manner consistent
with subsection (a)(2)(A)(i) of Section 409A and the term “specified
employee” shall mean an individual determined by the Company to be a specified
employee as defined in subsection (a)(2)(B)(i) of Section 409A.

6.             Effect
of Termination. The provisions of this Section 6 shall apply to a termination
pursuant to Section 5 or otherwise.

(a)           A
condition precedent to the Company’s obligations to provide any severance
payments or severance benefits hereunder, including lump-sum payments, vesting
of restricted stock and contributions toward health insurance premiums, shall
be the Executive’s executing and delivering (and not revoking) a timely and
effective Separation Agreement, or in the case of a termination due to the
death of the Executive, the Executive’s beneficiary or representative of the
Executive’s estate executing and delivering a general release of claims in form
and substance satisfactory to the Company.

(b)           Upon
termination of the Executive’s employment with the Company, unless otherwise
specifically provided herein, the Executive’s rights to benefits and payments
under any benefits or welfare plan or under any stock option, restricted stock,
stock appreciation right, bonus unit, management or bonus incentive or other
plan of the Company shall be determined in accordance with the terms and
provisions of such plans and any agreements under which such stock options,
restricted stock or other awards were granted.

(c)           Provisions
of this Agreement shall survive any termination if so provided herein or if
necessary or desirable fully to accomplish the purposes of such provision,
including without limitation the obligations of the Executive under Sections 7,
8 and 9 hereof. The obligation of the Company to provide any severance payment
or benefit is expressly conditioned upon the Executive’s continued full
performance of obligations under Sections 7, 8 and 9 hereof. The Executive
recognizes that, except as expressly provided in Sections 5(d), 5(e) or
5(g), no compen­sation is earned after termination of employment.

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(d)           Except
as expressly provided herein, Executive is entitled to no payments or benefits
in connection with a termination of the Executive’s employment.

7.             Confidential Information.

(a)           The
Executive acknowledges that the Company and its Affiliates continually develop “Trade
Secrets” and “Confidential Information” that the Executive may develop Trade
Secrets and Confidential Information for the Company or its Affiliates and that
the Executive may learn of Trade Secrets and Confidential Information during the
course of employment. The Executive will comply with the policies and
procedures of the Company and its Affiliates for protecting Trade Secrets and
Confidential Information and shall never disclose to any Person (except as
required by applicable law or for the proper performance of the Executive’s
duties and responsibilities to the Company and its Affiliates), or use for the
Executive’s own benefit or gain, any Trade Secrets or Confidential Information
obtained by the Executive incident to the Executive’s employment or other
association with the Company or any of its Affiliates.

(b)           For
purposes of this Agreement, “Trade Secrets means all information that
constitutes a trade secret within the meaning of the Georgia Trade Secrets Act,
as amended (the “Georgia Act”). Under the Georgia Act, a trade secret is
defined as:  “Information without regard
to form, including, but not limited to, technical or non-technical data, a
formula, a pattern, a compilation, a program, a device, a method, a technique,
a drawing, a process, financial data, financial plans, product plans, or a list
of actual or potential customers or suppliers which is not commonly known by or
available to the public and which information: 
(i) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and (ii) is
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy.”

(c)            For purposes of
this Agreement, “Confidential Information” means any and all information
of the Company and its Affiliates other than Trade Secrets that is not
generally known by others with whom they compete or do business, or with whom
they plan to compete or do business and any and all information, not publicly
known, which, if disclosed by the Company or its Affiliates would assist in
competition against them. Confidential Information includes without limitation
such information relating to (i) the development, research, testing,
manufacturing, marketing and financial activities of the Company and its
Affiliates, (ii) the Products, (iii) the costs, sources of supply,
financial performance and strategic plans of the Company and its Affiliates, (iv) the
identity and special needs of the customers of the Company and its Affiliates
and (v) the people and organizations with whom the Company and its
Affiliates have business relationships and those relationships. Confidential
Information also includes comparable information that the Company or any of its
Affiliates have received belonging to others or which was received by the
Company or any of its Affiliates with any understanding that it would not be
disclosed.

 11
 

(d)           The foregoing
obligations do not apply to the extent that the Confidential Information is or
becomes generally available to the public through no fault of the Executive. The
Executive understands and agrees that the Executive’s obligations under this
Agreement with regard to Trade Secrets shall remain in effect for as long as
such information shall remain a trade secret under applicable law. The
Executive acknowledge that the Executive’s obligations with regard to the
Confidential Information shall remain in effect while employed or retained by
the Company and for three (3) years after the termination of employment,
regardless of the reason for such termination.

(e)           All documents,
records, tapes and other media of every kind and description relating to the
business, present or otherwise, of the Company or its Affiliates and any
copies, in whole or in part, thereof (the “Documents”), whether or not
prepared by the Executive, shall be the sole and exclusive property of the
Company and its Affiliates. The Executive shall safeguard all Documents and
shall surrender to the Company at the time the Executive’s employment
terminates, or at such earlier time or times as the Board or its designee may
specify, all Documents then in the Executive’s possession or control.

8.             Assignment
of Rights to Intellectual Property. The Executive shall promptly and fully
disclose all Intellectual Property to the Company. The Executive hereby assigns
and agrees to assign to the Company (or as otherwise directed by the Company)
the Executive’s full right, title and interest in and to all Intellectual
Property. The Executive agrees to execute any and all applications for domestic
and foreign patents, copyrights or other proprietary rights and to do such
other acts (including without limitation the execution and delivery of instruments
of further assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce any
patents, copyrights or other proprietary rights to the Intellectual Property. The
Executive will not charge the Company for time spent in complying with these
obligations. All copyrightable works that the Executive creates shall be
considered “work made for hire.”

9.             Restricted
Activities. In exchange for good and valuable consideration including,
without limitation, the grant of restricted stock hereunder, the Executive
agrees that some restrictions on the Executive’s activities during and after
the Executive’s employment are necessary to protect the goodwill, Confidential
Information and other legitimate interests of the Company and its Affiliates:

(a)           While the Executive
is employed by the Company and for a period of twenty-four (24) months after
the Executive’s employment terminates (the “Non-Competition Period”), the
Executive shall not, directly or indirectly, provide services in a Restricted
Capacity to any Person with respect to any product or service of that Person
which directly competes with, or may be used in substitution for, one or more
of the Products of the Company and/or its Subsidiaries with respect to which
the Executive has had access to Confidential Information or customer goodwill
as a result of the Executive’s employment or other association with the Company
and/or its Subsidiaries, but this restriction shall apply only with respect to
the following states:  Alabama, Alaska,
Arizona, Arkansas, California, Colorado, Connecticut, 

 12
 

Florida,
Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine,
Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska,
Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio,
Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas,
Utah, Virginia, Washington and Wisconsin.  For the purposes of this Section 9, the
business of the Company and its Subsidiaries shall include the research,
development, testing, manufacture, sale, license, lease or distribution of all
Products and the Executive’s undertaking shall encompass all items, products
and services that may be used in substitution for Products.

(b)           The Executive
further agrees that while the Executive is employed by the Company and during
the Non-Competition Period, the Executive will not, and will not assist anyone
else to solicit for hiring any employee of the Company or any of its
Affiliates, or seek to persuade any employee of the Company or any of its
Affiliates to discontinue employment. For purposes of this Agreement, an “employee”
of the Company or any of its Affiliates is any person who was such at any time
within the preceding one year.

(c)           The Executive
further agrees that while the Executive is employed by the Company and during
the Non-Competition Period, the Executive will not directly or indirectly (1) solicit
or encourage any customer of the Company or any of its Affiliates to terminate
or diminish its relationship with them, or, (2) seek to persuade any
customer or prospective customer of the Company or any of its Affiliates to
conduct with any Person any business or activity which such customer or
prospective customer conducts or could conduct with the Company; provided that
these restrictions shall apply (a) only with respect to those Persons who
are or have been a customer of the Company of any of its Affiliates at any time
within the immediately preceding one year period or whose business has been
solicited on behalf of the Company or any of its Affiliates by any of their
officers, employees or agents within said one year period, other than by form
letter, blanket mailing or published advertisement, and (b) only if the
Executive had a business relationship with such Person as a result of the
Executive’s employment or other associations with the Company or one of its
Affiliates. Notwithstanding anything to the contrary contained in this Section 9,
after termination of Executive’s employment, this restriction shall apply only
to customers or prospective customers located in those states within the United
States in which the Company was doing business during the year preceding
Executive’s termination.

(d)           The Executive
further agrees that while the Executive is employed by the Company and during
the Non-Competition Period the Executive shall not willfully make false,
misleading or disparaging statements about the Company including, without
limitation, its products, services, management, direct or indirect equity
holders, employees and customers.

10.           Enforcement
of Covenants. The Executive acknowledges that the Executive has carefully
read and considered all the terms and conditions of this Agreement, including
the restraints imposed upon the Executive’s pursuant to Sections 7, 8 and 9
hereof. The Executive agrees without reservation that each of the restraints
contained herein is necessary for the reasonable and proper protection of the
goodwill, Confidential Information and other legitimate 

 13
 

interests of the
Company and its Affiliates; that each and every one of those restraints is
reasonable in respect to subject matter, length of time and geographic area;
and that these restraints, individually or in the aggregate, will not prevent
the Executive from obtaining other suitable employment during the period in
which the Executive is bound by these restraints. The Executive further agrees
that the Executive will never assert, or permit to be asserted on the Executive’s
behalf, in any forum, any position contrary to the foregoing.  The Executive further acknowledges that, were
the Executive to breach any of the covenants contained in Sections 7, 8 or 9
hereof, the damage to the Company would be irreparable. The Executive therefore
agrees that the Company, in addition to any other remedies available to it,
shall be entitled to preliminary and permanent injunctive relief against any
breach or threatened breach by the Executive of any of said covenants, without
having to post bond. The parties further agree that, in the event that any
provision of Section 7, 8 or 9 hereof shall be determined by any court of
competent jurisdiction to be unenforceable by reason of its being extended over
too great a time, too large a geographic area or too great a range of
activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law.

11.           Conflicting
Agreements. The Executive hereby represents and warrants that the execution
of this Agreement and the performance of the Executive’s obligations hereunder
will not breach or be in conflict with any other agreement to which the
Executive is a party or is bound and that the Executive is not now subject to
any covenants against competition or similar covenants that would affect the
performance of the Executive’s obligations hereunder. The Executive will not
disclose to or use on behalf of the Company any proprietary information of a
third party without such party’s consent.

12.           Indemnification.
The Executive shall be entitled, at all times (including after the termination
of this Agreement for any reason), to the benefit of the maximum
indemnification and advancement of expenses available from time to time under
the Company’s certificate of incorporation and Bylaws, and if not set forth
therein, to the maximum extent available under the laws of the State of
Delaware. In addition, the Company shall maintain in full force and effect the
directors’ and officers’ liability insurance policy currently in effect or such
other insurance with reputable insurance carriers which may provide for a
reduced level of coverage for the Executive, provided that such coverage is
identical to that provided by the Company for the benefit of the other directors
of the Company and its other executive officers. The Executive agrees to
promptly notify the Company of any actual or threatened claim arising out of or
as a result of the Executive’s employment with the Company. The Executive
hereby represents and warrants to the Company that, as of the date hereof, the
Executive has no and is aware of no such claim.

13.           Definitions.
Words or phrases which are initially capitalized or are within quotation marks
shall have the meanings provided in this Section 13 and as provided
elsewhere herein. For purposes of this Agreement, the following definitions
apply:

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(a)           “Affiliates”
means all persons and entities directly or indirectly controlling, controlled
by or under common control with the Company, where control may be by either
management authority or equity interest.

(b)           “Change
of Control” means (i) a sale of all or substantially all of the assets
of the Company, Cellu Paper or Cellu Parent to a Person in which the
shareholders of Cellu Parent immediately prior to such transaction do not,
directly or indirectly, own securities representing more than 50% of the voting
power of the Person acquiring such assets immediately following the
transaction, (ii) a sale of shares of capital stock of Cellu Parent by
Cellu Parent or its shareholders resulting in more than 50% of the voting power
of Cellu Parent being held, directly or indirectly, by a Person other than the
shareholders of Cellu Parent immediately prior to such sale, (iii) a sale
by Cellu Parent of the equity securities of Cellu Paper or the Company
resulting in more than 50% of the voting power of Cellu Paper or Cellu Tissue
(as the case may be) being held directly or indirectly by a Person other than
Cellu Parent or the shareholders of Cellu Parent immediately prior to such
sale, or (iv) a merger or consolidation of the Company, Cellu Paper or
Cellu Parent with or into another Person, if and only if, after such merger or
consolidation, more than 50% of the voting power of the Company, Cellu Paper or
Cellu Parent (as the case may be) is directly or indirectly owned by a Person
other than Cellu Parent or the shareholders of Cellu Parent immediately prior
to such merger or consolidation. For the avoidance of doubt, the transaction
contemplated by the Merger Agreement shall not constitute a Change of Control.

(c)          
“Intellectual Property” means inventions, discoveries, developments,
methods, processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made,
created, developed or reduced to practice by the Executive (whether alone or
with others, whether or not during normal business hours or on or off Company
premises) during the Executive’s employment and during the period of six (6) months
immediately following termination of the Executive’s employment that relate to
either the Products or any prospective activity of the Company or any of its
Affiliates.

(d)           “Person”
means an individual, a corporation, an association, a partnership, an estate, a
trust and any other entity or organization, other than the Company or any of
its Affiliates.

(e)           “Products”
mean all specialty paper products, tissue hard rolls, tissue converted products
and/or deep colored napkin products planned, researched, developed, tested,
manufactured, sold, licensed, leased or otherwise distributed or put into use
by the Company or any of its Affiliates, together with all services provided or
planned by the Company or any of its Affiliates, during the Executive’s
employment.

(f)            “Restricted
Capacity” means a position which is the same or comparable to the position
the Executive held with the Company or in which the Confidential Information or
customer goodwill which the Executive created or to which the Executive had
access during the Executive’s employment with the Company would give that
competitor an unfair 

 15
 

competitive advantage. For the avoidance of doubt, this definition as
used herein shall in no way diminish the Executive’s obligations under Section 7.

14.           Withholding.
All payments made by the Company under this Agreement shall be reduced by any
tax or other amounts required to be withheld by the Company under applicable
law.

15.           Assignment.
Neither the Company nor the Executive may make any assignment of this Agreement
or any interest herein, by operation of law or otherwise, without the prior
written consent of the other; provided, however, that the Company
may assign its rights and obligations under this Agreement without the consent
of the Executive in the event that the Company shall hereafter affect a
reorganization, consolidate with, or merge into, any other Person or transfer
all or substantially all of its properties or assets to any other Person. This
Agreement shall inure to the benefit of and be binding upon the Company and the
Executive, their respective successors, executors, administrators, heirs and
permitted assigns.

16.           Severability.
If any portion or provision of this Agreement shall to any extent be declared
illegal or unenforceable by a court of competent jurisdiction, then the
remainder of this Agreement, or the application of such portion or provision in
circumstances other than those as to which it is so declared illegal or
unenforceable, shall not be affected thereby, and each portion and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted
by law.

17.           Waiver.
No waiver of any provision hereof shall be effective unless made in writing and
signed by the waiving party. The failure of either party to require the
performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.

18.           Notices.
Any and all notices, requests, demands and other communications provided for by
this Agreement shall be in writing and shall be effective when delivered in
person or deposited in the United States mail, postage prepaid, registered or
certified, and addressed to the Executive at the Executive’s last known address
on the books of the Company or, in the case of the Company, at its principal
place of business, attention of the Chairman of the Board, or to such other
address as either party may specify by notice to the other actually received.

19.           Entire
Agreement. This Agreement constitutes the entire agreement between the
parties and supersedes and terminates all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of
the Executive’s employment with the Company. For the avoidance of doubt, in
consideration of the benefits to which the Executive is entitled under this
Agreement and other good and valuable consideration, the Executive hereby
waives any and all rights to any severance payment, change of control payment
or any other payment or benefit that the Executive may have under any agreement
with, or policy of, the Company.

 16
 

20.           Amendment;
Section 409A. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company. The parties acknowledge
that certain provisions of this Agreement may be required to be amended,
following the issuance of additional guidance by the Internal Revenue Service
with respect to Section 409A, to avoid the possible imposition of
additional tax under Section 409A with respect to certain payments and
benefits under this Agreement. The Company agrees that it will not unreasonably
withhold its consent to any such amendments which in its determination are (i) feasible
and necessary to avoid adverse tax treatment under Section 409A for the
Executive, and (ii) not adverse to the interests of the Company.

21.           Dispute
Resolution. In the event of any dispute relating to
Executive’s employment, the termination thereof, or this Agreement, other than
a dispute in which the primary relief sought is an equitable remedy such as an
injunction, the parties shall be required to have the dispute, controversy or
claim settled by alternative dispute resolution conducted by JAMS (or, if JAMS
is not available, another mutually agreeable alternative dispute resolution
organization), in the city of Executive’s principal place of employment. Any
award entered by JAMS (or such other organization) shall be final, binding and
nonappealable, and judgment may be entered thereon by either party in
accordance with applicable law in any court of competent jurisdiction. This Section 21
shall be specifically enforceable. JAMS (or such other organization) shall have
no authority to modify any provision of this Agreement. THE PARTIES IRREVOCABLY
WAIVE ANY RIGHT TO TRIAL BY JURY AS TO ALL CLAIMS HEREUNDER.

22.           Headings.
The headings and captions in this Agreement are for convenience only and in no way
define or describe the scope or content of any provision of this Agreement.

23.           Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be an original and all of which together shall constitute one and the same instrument.

24.           Governing
Law, Choice of Forum. This is a New York contract and shall be construed
and enforced under and be governed in all respects by the laws of the State of
New York, without regard to the conflict of laws principles thereto. The
parties consent to the jurisdiction of any state or federal court sitting in
the State of New York and waive any objection either party may have to the
laying of venue of any such suit, action or proceeding in any such court. The
Company and the Executive each also irrevocably and unconditionally consent to
service of any process, pleadings, notices or other papers in a manner
permitted by the notice provisions of Section 18 of this Agreement.

 17

 

IN WITNESS
WHEREOF, this Agreement has been executed as a sealed instrument by the
Company, by its duly authorized representative, and by the Executive, as of the
date first above written.

	
  THE EXECUTIVE:

  	
  THE COMPANY:

  
	
   

  	
   

  
	
   

  	
  CELLU TISSUE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Steven Ziessler

  	
   

  	
  By: 

  	
  /s/ Russell C. Taylor

  
	
  Steven Ziessler

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   President

  

 

 

EXHIBIT A

[Form of
Restricted Stock Award Agreement]

 

THE SHARES
RECEIVED PURSUANT TO THIS AWARD SHALL BE SUBJECT TO THE RIGHTS, RESTRICTIONS,
AND OBLIGATIONS APPLICABLE TO SUCH SECURITIES, ALL AS PROVIDED IN THE
SHAREHOLDERS AGREEMENT DATED AS OF JUNE 12, 2006 BETWEEN THE COMPANY AND IT
SHAREHOLDERS, AS AMENDED AND IN EFFECT FROM TIME TO TIME (THE “SHAREHOLDERS
AGREEMENT”).

Mr. Steven Ziessler

CELLU
PARENT CORPORATION

2006 STOCK OPTION AND RESTRICTED STOCK PLAN

Restricted Stock Award Agreement

Cellu Parent Corporation

c/o Weston Presidio

Pier 1, Bay 2

San
Francisco, CA 94111

Attn:       Chief Executive
Officer

Ladies
and Gentlemen:

The undersigned (i) acknowledges that he has received an award
(the “Award”) of restricted stock from Cellu Parent Corporation (the “Company”)
under the Cellu Parent Corporation 2006 Stock Option and Restricted Stock Plan
(the “Plan”), subject to the terms set forth below and in the Plan; (ii) further
acknowledges receipt of a copy of the Plan as in effect on the date hereof; and
(iii) agrees with the Company as follows:

1.               Effective Date. This Agreement shall take effect as of June 12,
2006, which is the date of grant of the Award.

2.               Shares Subject to Award. The Award consists of 1,349 shares (the “Shares”)
of common stock of the Company (“Stock”). The undersigned’s rights to the
Shares are subject to the restrictions described in this Agreement and the Plan
(which is incorporated herein by reference with the same effect as if set forth
herein in full) in addition to such other restrictions, if any, as may be
imposed by law.

3.               Meaning of Certain Terms. Except as otherwise expressly provided, all
terms used herein shall have the same meaning as in the Plan. The term “vest”
as used herein with respect to any Share means the lapsing of the restrictions
described herein with respect to such Share.

4.               Nontransferability of Shares. The Shares acquired by the undersigned
pursuant to this Agreement shall not be sold, transferred, pledged, assigned or
otherwise encumbered or disposed of except as provided below and in the Plan.

5.               Forfeiture Risk. If the undersigned ceases to be employed by
the Company and its subsidiaries any then outstanding and unvested Shares
acquired by the undersigned hereunder shall be automatically and immediately
forfeited; provided, however, that if the
undersigned ceases to be employed by the Company due to the undersigned’s death
or disability, fifty  percent (50%) of
the Shares granted under this Award that are not then already vested shall

 

 

vest;
and further provided that if the
undersigned ceases to be employed by the Company by reason of the Company’s
election not to renew the undersigned’s employment agreement with the Company
dated June 12, 2006 (the “Employment Agreement”) and at the time the
Company elects not to renew such Employment Agreement there exists no Cause for
the termination of the undersigned, one hundred percent (100%) of the Shares
granted under this Award that are not then already vested shall vest. For
purposes of the preceding sentence, Cause shall be as defined in the Employment
Agreement. The undersigned hereby (i) appoints the Company as the
attorney-in-fact of the undersigned to take such actions as may be necessary or
appropriate to effectuate a transfer of the record ownership of any such shares
that are unvested and forfeited hereunder, (ii) agrees to deliver to the
Company, as a precondition to the issuance of any certificate or certificates
with respect to unvested Shares hereunder, one or more stock powers, endorsed
in blank, with respect to such Shares, and (iii) agrees to sign such other
powers and take such other actions as the Company may reasonably request to
accomplish the transfer or forfeiture of any unvested Shares that are forfeited
hereunder.

6.               Retention of Certificates. Any certificates representing unvested
Shares shall be held by the Company. If unvested Shares are held in book entry
form, the undersigned agrees that the Company may give stop transfer
instructions to the depository to ensure compliance with the provisions hereof.

7.               Vesting of Shares. The shares acquired hereunder shall vest in
accordance with the provisions of this Paragraph 7 and applicable provisions of
the Plan, as follows:

25% of the Shares on and
after June 12, 2007;

an additional 25% of the
Shares on and after June 12, 2008;

an additional 25% of the
Shares on and after June 12, 2009; and

an additional 25% of the
Shares on and after June 12, 2010.

Notwithstanding the foregoing, no shares
shall vest on any vesting date specified above unless the undersigned is then,
and since the date of grant has continuously been, employed by the Company or
its subsidiaries.

8.               Shareholders Agreement. The granting of this Award and the issuance
of Shares received under this Award shall be subject to the Plan and the
Shareholders Agreement, and the issuance of this Award shall be conditional
upon the execution and delivery by the undersigned of the Shareholders
Agreement. Any Shares received under this Award shall be subject to the rights,
restrictions and obligations applicable to options and shares of Stock of the
Company as provided from time to time in such Shareholders Agreement.

9.               Legend. Any certificates representing unvested
Shares shall be held by the Company, and any such certificate shall contain a
legend substantially in the following form:

THE TRANSFERABILITY OF THIS CERTIFICATE AND
THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS
(INCLUDING FORFEITURE) OF THE CELLU PARENT CORPORATION 2006 STOCK OPTION AND
RESTRICTED STOCK PLAN AND A RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO BETWEEN
THE REGISTERED OWNER

 2
 

 

 

AND CELLU PARENT CORPORATION. COPIES OF SUCH
PLAN AND AGREEMENT ARE ON FILE IN THE OFFICES OF CELLU PARENT CORPORATION.

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS,
INCLUDING CERTAIN RESTRICTIONS ON TRANSFER, OF A SHAREHOLDERS AGREEMENT DATED
AS OF JUNE 12, 2006 BETWEEN CELLU TISSUE CORPORATION AND ITS SHAREHOLDERS, AS
AMENDED FROM TIME TO TIME, AND NONE OF SUCH SECURITIES, OR ANY INTEREST
THEREIN, SHALL BE TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
EXCEPT AS PROVIDED IN THAT AGREEMENT. A COPY OF THE SHAREHOLDERS AGREEMENT IS
ON FILE IN THE OFFICES OF CELLU PARENT CORPORATION.

As soon as practicable
following the vesting of any such Shares the Company shall cause a certificate
or certificates covering such Shares, without the aforesaid legend, to be
issued and delivered to the undersigned. If any Shares are held in book-entry
form, the Company may take such steps as it deems necessary or appropriate to
record and manifest the restrictions applicable to such Shares.

10.         Dividends, etc..
The undersigned shall be entitled to (i) receive any and all dividends or
other distributions paid with respect to those Shares of which he is the record
owner on the record date for such dividend or other distribution, and (ii) vote
any Shares of which he is the record owner on the record date for such vote; provided, however, that any property (other than cash)
distributed with respect to a share of Stock (the “associated share”) acquired
hereunder, including without limitation a distribution of Stock by reason of a
stock dividend, stock split or otherwise, or a distribution of other securities
with respect to an associated share, shall be subject to the restrictions of
this Agreement in the same manner and for so long as the associated share
remains subject to such restrictions, and shall be promptly forfeited if and
when the associated share is so forfeited; and further provided,
that the Administrator may require that any cash distribution with respect to
the Shares other than a normal cash dividend be placed in escrow or otherwise
made subject to such restrictions as the Administrator deems appropriate to
carry out the intent of the Plan, consistent with Section 409A of the Code
to the extent applicable. References in this Agreement to the Shares shall  refer, mutatis mutandis,
to any such restricted amounts.

11.         Sale of Vested Shares.
The undersigned understands
that he will be free to sell any Share once it has vested, subject to (i) satisfaction
of any applicable tax withholding requirements with respect to the vesting or
transfer of such Share; (ii) the completion of any administrative steps
(for example, but without limitation, the transfer of certificates) that the
Company may reasonably impose; (iii) applicable requirements of federal
and state securities laws; and (iv) the terms and conditions of the
Shareholders Agreement.

12.         Certain Tax Matters.
The undersigned expressly acknowledges the following:

a.               The undersigned has been advised to confer
promptly with a professional tax advisor to consider whether the undersigned
should make a so-called “83(b) election” with respect to the Shares. Any
such election, to be effective, must be made in accordance with applicable
regulations and within thirty (30) days following the date of this Award. The
Company has made no recommendation to the undersigned with respect to the
advisability of making such an election. In the event that the undersigned

 3
 

 

 

makes an 83(b) election
and incurs a tax liability as a result, the Company will, on a date prior to
the date on which the taxes must be paid or withheld, make a lump sum payment
(a “Gross Up Payment”) to the undersigned that will be sufficient, after giving
effect to federal, state, and local income taxes with respect to the Gross Up
Payment, to pay any marginal increase in tax liability of the undersigned as a
result of such 83(b) election. For this purpose, a tax liability will be
treated as incurred only to the extent that the inclusion of the income by
reason of the grant will increase the undersigned’s tax liability for the year
of inclusion, after giving effect to all losses, credits, carry-forwards,
carry-backs, etc. that the undersigned may be able to utilize in such year and
without regard to any decrease in losses, credits, carry-forwards, carry-backs,
etc. and the effect of any such decrease on other tax years.

b.              The award or vesting of the Shares acquired
hereunder, and the payment of dividends with respect to such Shares, may give
rise to “wages” subject to withholding. The undersigned expressly acknowledges
and agrees that his rights hereunder are subject to his promptly paying to the
Company in cash (or by such other means as may be acceptable to the Company in
its discretion, including, if the Administrator so determines, by the delivery
of previously acquired Stock or shares of Stock acquired hereunder or by the
withholding of amounts from any payment hereunder) all taxes required to be
withheld in connection with such award, vesting or payment.

 

	
   

  	
   

  	
   

  	
  Very truly yours,

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Signature of
  Employee)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dated:
  June 12, 2006

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The foregoing
  Restricted Stock

  	
   

  	
   

  	
   

  
	
  Award Agreement
  is hereby accepted:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CELLU PARENT
  CORPORATION

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  	
   

  

 

 4Exhibit
10.4

CELLU TISSUE
HOLDINGS, INC.

3442 FRANCIS ROAD, SUITE 220  ALPHARETTA, GA 30004     PHONE: 678-393-2651          FAX:
678-393-265

333 EAST RIVER DRIVE, SUITE 304      EAST
HARTFORD, CT 06108       PHONE:
860-289-2131          FAX: 860-291-0184

June 22, 2006

Hugo Vivero

4 Settlers Lane

Colchester, CT 06415

Dear Hugo,

This letter constitutes the agreement
("Agreement") between you and Cellu Tissue Holdings, Inc., including
any and all of its past and present affiliated companies, divisions,
subdivisions, parent companies, successors, assigns, officers, directors,
employees and contractors (collectively referred to hereinafter as "Cellu
Tissue" or "Company"), with respect to your separation from
employment with Cellu Tissue effective July 14, 2006.

PLEASE READ THIS
AGREEMENT CAREFULLY

Should you agree to the terms and conditions set forth
herein, please sign this Agreement and return it to the undersigned no later
than July 13, 2006. You are afforded twenty-one (21) days from the date of your
receipt of this letter to consider this Agreement ("Acceptance
Period"). This should provide you with adequate time to review the terms
and conditions of this Agreement and to consult with an attorney, which you are
hereby advised to do. If you determine that you do not need the entire twenty-one
(21) days to consider the Agreement, you may sign this Agreement and return it
to me before July 13, 2006. Upon your execution of this Agreement, you will
have seven (7) days from the date of your signature to revoke the Agreement
("Revocation Period"). The provisions of this Agreement will not take
effect until after the seven (7) day period has expired. Any revocation must be
received by the undersigned in writing no later than the close of business on
the seventh day. Thereafter, the Agreement is final and may not be revoked or
modified. Please note however, that your revocation of this Agreement does not
alter or change the fact that your employment with Cellu Tissue is terminated
as of July 14, 2006. It is understood that for the time period between the date
of this letter and July 14, 2006 you will be on vacation. If you intend to sign
this Agreement, you should do so by July 13, 2006 and return the fully executed
original to me, either in person or by certified mail, return receipt
requested, postmarked no later than July 13, 2006. Failure to return the
document by July 13, 2006 or mail the document postmarked by July 13, 2006
shall result in the expiration of the offer contained in the Agreement.

Your last day of employment is July 14, 2006. Should
you opt to execute this Agreement within the Acceptance Period and not revoke
such during the Revocation Period, you will be entitled to receive the Enhanced
Severance Package. If you opt not to execute this Agreement within the
Acceptance Period or subsequently decide to revoke 

 1
 

 

the Agreement,
within the Revocation Period, you shall receive the Company's Standard
Severance Package.

1.      Standard
Severance Package. Payment of
two (2) weeks pay at your current annual rate, which is equal to $7,522, minus
the applicable taxes and withholdings that are required to be withheld under
state and federal law. These payments will be made on the regularly scheduled
pay dates. Your health benefits will be continued through the end of this
severance period. You will also be paid for any accrued, but unused vacation
pay, which is equal to $15,044.

2.      Enhanced
Severance Package. In the
Enhanced Severance Package Cellu Tissue agrees to:

a)           pay
you a total of $195,572 which is equal to your base salary at your current rate
of pay for fifty two (52) weeks, minus the applicable taxes and withholdings
that are required to be withheld under state and federal law. These payments
will be made on the current regularly scheduled pay dates;

b)           continue
your health, dental, life and LTD benefits in effect as of your termination
date (or those in effect for active employees) for a period coinciding with the
term of the payments made pursuant to Paragraph 2(a), with no charge to you
other than the normal contribution portion you have been paying, subject to any
increase/decrease in premiums or benefits that are imposed by the provider or
that incur as a result of the Company changing providers;

c)           pay
the monthly lease payments of $686.73 for the Company automobile that you
currently utilize, through the end of the lease in December, 2006. At the end
of the lease, you will return the vehicle to the local BMW dealership in your
area for disposal. For the remainder of severance period, an amount of $650.00,
minus applicable taxes and withholdings, will continue to be included in your
pay checks, pro-rated on a monthly basis, through the term of the payments made
pursuant to Paragraph 2(a);

d)           provide
you with a check in the amount of $1,073.52 to pay for the monthly fee and
surcharges on your cell phone for the term of the payments made pursuant to
Paragraph 2(a). You will make arrangements to transfer the phone and charges to
an account in your name immediately.

e)           pay
the monthly premiums for the supplemental life insurance program and the
disability program currently held by you through Northwestern Mutual Life
Insurance Company for a period coinciding with the term of the payments made
pursuant to Paragraph 2(a);

f)            acknowledges
that it has no basis for contesting your application for unemployment benefits,
and agrees not to contest any application.

 2
 

 

3.      COBRA BENEFITS. Regardless of
whether you sign this Agreement or subsequently revoke same, you may still be
eligible for COBRA medical and/or dental coverage upon payment by you of the
full premium for up to eighteen (18) months or the date on which you become
covered for medical and/or dental benefits under another group health plan,
whichever occurs first.

4.      ADEQUATE CONSIDERATION. You agree
that except for you executing this Agreement and accepting the terms and
conditions set forth herein, you are not otherwise entitled to the payments
and/or benefits provided in the Enhanced Severance Package. You also agree that
these payments and benefits are adequate and valid consideration for your
promises and the releases contained in this Agreement, and that no further
payments or benefits are due you except those provided for in this Agreement.

5.      RELEASE AND WAIVER. In
consideration of the payments and benefits provided in Paragraph 2 above, you
agree, except as may be necessary to enforce the provisions of this Agreement,
not to make any claims of any kind against Cellu Tissue, before any agency,
court of other forum and to release Cellu Tissue, from any claim, known or
unknown, arising in any way from any actions taken by Cellu Tissue up to the
date of the signing of this Agreement including, without limitation, any claim
for wrongful discharge, breach of contract or other common law claims, or any
claims arising under the Age Discrimination in Employment Act of 1967, as
amended by the Older Workers Benefit Protection Act of 1990, the Occupational
Safety and Health Act of 1970, the Americans with Disabilities Act of 1990, the
Family and Medical Leave Act of 1993, Title VII of the Civil Rights Act of 1964, as amended, the Workers Adjustment and Retraining
Notification Act of 1988, the Connecticut Fair Employment Practices Act, or any
other federal, state, or local statute or regulation dealing with
discrimination on any bases, including sex, race, national origin, marital
status, religion, disability, sexual orientation, or age, and any claims for
attorney's fees, expenses or costs. This paragraph does not restrict your right
to file a charge of discrimination with the EEOC or to assist the EEOC in any
investigation, however, by executing this Agreement, you waive any right that
you may have to receive of any monetary award resulting from any action brought
against Cellu Tissue by the EEOC or any other agency, person or entity and you
expressly waive any right to bring a lawsuit or other action in your name.

THIS MEANS THAT,
BY SIGNING THIS AGREEMENT, YOU WAIVE ANY AND ALL RIGHTS YOU MAY HAVE TO BRING A
LAWSUIT OR MAKE ANY CLAIM OF ANY KIND WHATSOEVER AGAINST CELLU TISSUE, OR ITS
PAST AND PRESENT, AFFILIATES, DIVISIONS, SUBDIVISIONS, TRUSTEES, OFFICIALS,
OFFICERS, DIRECTORS, AGENTS, CONTRACTORS, ATTORNEYS OR EMPLOYEES, PERSONALLY OR
IN THEIR OFFICIAL CAPACITY, BASED ON ANY ACTION, EVENT OR CONDUCT OCCURRING
PRIOR THE DATE OF YOUR SIGNING OF THIS AGREEMENT.

Further, this Agreement shall inure to the benefit of
and be binding upon you, your heirs, administrators, representatives,
executors, successors and assigns, and shall inure to the benefit of and be
binding upon Cellu Tissue, it successors and assigns.

 3
 

 

7.    DAMAGES IN EVENT OF BREACH. In the
event that you breach or violate any obligation under this Agreement, you will
be obligated pay reasonable attorneys' fees, expenses and costs of litigation
incurred by Cellu Tissue, in enforcing the terms and conditions of this
Agreement.

8.      NONCOMPETITION; NONSOLICITATION; AND NONHIRE.
For purposes of this Agreement, you acknowledge and agree that: (1) to
assist and enable you to perform your services and duties for Cellu Tissue, you
were given access to Confidential Information regarding Cellu Tissue and/or its
Affiliates; (2) use of such Confidential Information in competition with Cellu
Tissue and/or its Affiliates would be detrimental to the business interests of
Cellu Tissue and/or its Affiliates; (3) you would not have been permitted
access to the Confidential Information or employed by Cellu Tissue without your
promise not to engage in competition against Cellu Tissue and/or its
Affiliates; (4) you would not have received the benefits set forth in Paragraph
2 without agreeing to the provisions of this paragraph.

Accordingly, you agree that for the period coinciding
with the term of the payments made in Paragraph 2, you shall not: (i) engage or
participate, either as an employee, employer, independent contractor,
consultant, agent, principal, partner, corporate officer, director, or in any
other individual or representative capacity, in any business which competes in
a material manner with Cellu Tissue and/or its Affiliates anywhere in the
following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado,
Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York,
North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and
Wisconsin; (ii) contact, solicit or attempt to solicit the business or
patronage of any of Cellu Tissue's customers, or prospective customers, or any
person, firm, corporation, company, partnership, association or entity which
was contacted or whose business was solicited, serviced or maintained by Cellu
Tissue during the term of your employment with Cellu Tissue; or (iii) solicit,
recruit, induce, encourage or in any way cause any employee of Cellu Tissue to
terminate his employment with Cellu Tissue.

Confidential information shall mean non-public
information concerning Cellu Tissue's financial data, strategic business plans,
product development (or other discoveries), practices, processes, methods,
marketing plans and other material non­public, proprietary and confidential
information of Cellu Tissue, that, in any case, is not otherwise generally
available to the public or others in the paper products industry.

You acknowledge that the restrictions specified in
this Section are reasonable in view of the nature of Cellu Tissue's business,
the position you held within the Company and the services you performed for Cellu
Tissue. You further recognize that Cellu Tissue's willingness to provide you
with Confidential Information, and with this Agreement, constitute valid and
sufficient consideration for your agreement in this Section and that you will
not be subjected to undue hardship by reason of your agreements in this
Section.

 4
 

 

9.    NO MODIFICATION WITHOUT WRITING. The
terms of this Agreement cannot be changed or modified in any respect except in
writing signed by you and Cellu Tissue.

10.    FULL AND ENTIRE AGREEMENT. This
Agreement represents the full and entire Agreement between you and Cellu Tissue
and supersedes all prior understandings, agreements and obligations between you
and Cellu Tissue. In the event that any provision of this Agreement is held to
be void or unenforceable by a court of competent jurisdiction, the remaining
provisions of the Agreement shall nevertheless be binding upon the parties with
the same effect as though the void or unenforceable part had been severed and
deleted.

11.    SURRENDER OF MATERIALS. You
acknowledge that you have returned all Cellu Tissue related reports, files,
memoranda, notes, records, and other documents (whether stored electronically
or otherwise) as well as door and file keys, and any other property that you received
or prepared or helped to prepare in connection with your employment. You also
agree that your expense account and use of Company credit and telephone cards
will cease immediately and you will promptly return such cards or other similar
Company property in your possession and submit your final expense account,
including an accounting for any advances. You further acknowledge that you have
not and will not retain any copies or excerpts of the materials described
above, and that you will not attempt to retrieve or recreate any of the
materials described above after the termination of your employment.

12.    RELATIONSHIP WITH CELLU TISSUE. You
acknowledge that you have no right to rehire into any job with Cellu Tissue at
any time in the future. You also agree that this Agreement is sufficient reason
for Cellu Tissue to reject any application you might make for future
employment.

13.    CONFIDENTIALITY. You agree to keep
confidential and not to reveal the terms of this Agreement or the events,
documents, or discussions which led to the Agreement, except as may be required
by law, to anyone not a party to this Agreement, except your attorneys,
financial advisors, and immediate family, provided these persons also agree to
keep confidential and not to reveal the terms of this Agreement or any events,
documents, or discussions related to the Agreement to anyone not a party to
this Agreement. You also agree that you will not publicly disparage Cellu
Tissue. For purposes of this paragraph, "disparage" shall mean any statements,
actions or insinuations, made either directly or through a third party, that
would tend to lessen the standing or stature of an institution or individual in
the eyes of an ordinary citizen.

14.    FURTHER ACKNOWLEDGMENT. You
acknowledge that you have read this Agreement carefully, and fully understand
its terms. You have been advised to seek counsel and have had an opportunity to
do so and you are executing this Agreement knowingly and voluntarily. You fully
understand that by signing this Agreement, you waive all claims of any kind
whatsoever against Cellu Tissue, whether known or unknown, asserted or
unasserted, suspected or unsuspected, including all claims for attorneys' fees,
and expenses based upon any actions taken by Cellu Tissue up to the date of the
signing of this Agreement.

[SIGNATURES ON
FOLLOWING PAGE.]

 5
 

 

If you agree with the terms and conditions as set
forth herein, you must sign this Agreement in the space provided below and
return the original to me no later than July 13, 2006.

	
  Sincerely,

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Zaya Oshana

  	
   

  
	
  Zaya Oshana

  	
   

  
	
  Vice President,
  Human Resources

  

 

Voluntarily accepted and agreed to on this, the 5th
of July, 2006:

	
  /s/ Hugo Vivero

  	
   

  
	
  Hugo Vivero

  	
   

  

 

 6

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