Document:

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                                                                   EXHIBIT 10.12

                                    AGREEMENT
A.   This agreement, made and entered into as of the 17th day of September 1999
     by and between Plainwell Tissue, Consumer Products Division of Plainwell
     Inc., with its place of business situated at Ransom in Lackawanna County,
     and Pittston Township, in Luzerne County, Pennsylvania, party of the first
     part, herein after called the "Company", and the Paper, Allied-Industrial
     Chemical & Energy Workers International Union, AFL-CIO, and Ransom/Pittston
     Local No. 2-1448 of the said Paper, Allied-Industrial Chemical & Energy
     Workers International Union, parties of the second part, herein after
     called the "Union".

                                   WITNESSETH:
                      THE GENERAL PURPOSE OF THE AGREEMENT
B.   It is the mutual interest of the Company and the employees to provide for
     the successful operation of the plant under methods which will further to
     the fullest extent possible the economic welfare of the Company and of its
     employees, the safety of its employees, economy of operation, quality and
     quantity of output, cleanliness of the plant, purity and sanitary quality
     of its products, and protection of property, materials, and supplies. It is
     recognized by this Agreement to be the duty of the Company and the Union to
     cooperate fully, individually and collectively, for the accomplishment of
     these ends.

                                    SECTION 1
                                   RECOGNITION
The Company recognizes the P-A-C-E International Union, and Ransom/Pittston
Township Local No. 2-1448, P-A-C-E International Union and their International
Representatives, as exclusive representatives of all employees for the purpose
of collective bargaining, with the exclusions of the office workers, quality
control workers, all other persons working in a clerical or supervisory
capacity, and professional employees such as chemists. It is understood that
except as otherwise expressly set forth in this Agreement, the right of the
Company to manage its business, operations, and to prescribe terms and
conditions of employment shall be unimpaired. The failure of the Company to
exercise rights hereby reserved to it, or its exercising them in a particular
way, shall not be deemed a wavier of said rights or a wavier of its rights to
exercise them in some way not in conflict with the terms of this Agreement.

                                    SECTION 2
                                   UNION SHOP
 Under this Agreement, all employees eligible for membership in the Union must
maintain membership in the Union in good standing as a condition to continued
employment. All new employees shall be considered probationary employees until
the completion of ninety (90) working days. This probationary period may be
extended by agreement between Management and the Union for individual cases. At
the end of the first thirty (30) working days, all new employees shall become
members of the Union thereupon. New employees may be discharged or disciplined
at the sole discretion of the Company during this probationary period. The Plant
Management shall cooperate with the Local Union in maintaining the above
conditions.

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                                    SECTION 3
                              UNION DUES CHECK-OFF
D.   The Company agrees, for and on behalf of the employees covered by this
     Agreement, who voluntarily furnish the Company with a properly signed
     authorization request, substantially in the form set forth below, to deduct
     the initiation fee and regular monthly dues from the wages of these
     employees. Such deduction will be made from the third payroll of each
     month, provided the employee has received a minimum of forty (40) hours pay
     within said month.

D.   Dues and initiation fee deductions for new employees will begin after
     thirty (30) days of the probationary period have been completed.

D.   The Local Union agrees to advise the Plant Management in writing, signed by
     the duly authorized officer of the Local Union, as to the initiation fee
     and regular dues to be deducted, the name of the Financial Secretary of the
     Local Union, the payee of said check and the address of which said funds
     shall be forwarded together with a list of such employees from whom said
     initiation fee and dues are deducted.

D.   The Company agrees to submit to the Financial Secretary of Local No. 2-1448
     once a month, a list of those employees separated from employment and a
     list of new employees hired, together with their dates of hiring and
     separation.

                     VOLUNTARY ASSIGNMENT AND AUTHORIZATION
                     FOR DUES AND INITIATION FEE DEDUCTIONS:
          PLAINWELL TISSUE, RANSOM AND PITTSTON TOWNSHIP, PENNSYLVANIA
         You are hereby authorized and directed to deduct from my wages an
initiation fee and, each month, for the duration of this Agreement, my regular
Union membership dues and to remit the amount so deducted to the Financial
Secretary of Local No. 2-1448, P-A-C-E International Union.

         I reserve the right to revoke this authorization during the two (2)
week period preceding the next anniversary date. This authorization shall be
self-renewing thereafter from year to year, subject to revocation during the
said two (2) week period preceding September 16, 2004.

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FINANCIAL SECRETARY LOCAL NO. 2-1448

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DATE

E.   The Union shall indemnify and save the Company harmless against any and all
     claims, demands, suits, or other forms of liability that shall arise out of
     or by reason of action taken or not taken by the Company for the purpose of
     complying with any

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   of the provisions of this Section, or in reliance of any list, notice, or
   assignment furnished under any such provisions.

                                    SECTION 4
                                  HOURS OF WORK

A.1.   The regular work week shall start at 7 a.m. Monday and end 7 a.m. Sunday,
       except those operating on a 12-hour schedule which shall end at 7 a.m.
       the following Monday.
  2.   The regular work day for non-shift workers shall consist of eight (8)
       consecutive hours. The starting and stopping time for non-shift
       workers shall be 7:00 a.m. to 3:00 p.m. Non-shift workers, when scheduled
       for work on Holidays, will be scheduled on a straight eight (8) hour
       basis. The normal hours of the day shift jobs of Quality Assurance,
       Stockroom, and Poly Specialist will be 7:00 a.m. to 3:00 p.m.
  3.   The regular work day for 8-hour shift workers shall consist of not more
       than eight consecutive hours in any twenty-four (24) hour period. The
       regular work week shall be five (5) consecutive eight (8) hours days,
       Monday through Friday. The starting and stopping time for 8-hour shift
       workers shall be: First Shift, 7:00 a.m. to 3:00 p.m.; Second Shift, 3:00
       p.m. to 11:00 p.m.; Third Shift, 11:00 p.m. to 7:00 a.m.

            a.   The regular work day for 12-hour shift workers shall consist of
                 not more than twelve (12) consecutive hours (exclusive of the
                 lunch period referred to in Paragraph C-1 of this section ) in
                 any twenty-four (24) hour period. The regular work week shall
                 be not more than four (4) twelve (12) hour shifts, Monday
                 through Sunday. The starting and stopping time for 12-hour
                 workers shall be: First Shift, 7:00 a.m. to 7:00 p.m.; Second
                 Shift, 7:00 p.m. to 7:00 a.m.

            b.   The following 12-hour schedule would be implemented in those
                 operations deemed continuous process, i.e., 24 hour, seven day
                 operation.

                           SCHEDULE: "12-HOUR" (2-2-3)

ROTATION: 4 TEAMS...1,2,3, and 4, WITH 2 TEAMS OFF AT ALL TIMES...rotating from
days to nights (shifts).

WEEKLY SCHEDULE:    KEY:  W = WORK         O = OFF

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                                                               HOURS    HOURS
TEAM  MON    TUES     WED    THURS     FRI     SAT     SUN     WORKED   PAID
----  ---    ----     ---    -----     ---     ---     ---     ------   ----
1      0     Wam      Wam      0        0      Wpm     Wpm     48        60
2     Wpm     0        0      Wam      Wam      0       0      36        36
3      0     Wpm      Wpm      0        0      Wam     Wam     48        60
4     Wam     0        0      Wpm      Wpm      0       0      36        36

                         AVERAGE PAY PER WEEK = 48 HOURS

3.   The workday shall consist of all employees working on a three (3) shift or
     12-hour schedule, the work day shall consist of the consecutive twenty-four
     (24) hour period beginning with the starting time of the employee's shift,
     provided, however, that in case of a change of shift for the employee's
     convenience or by reason of permanent promotion, the work day prior to the
     change shall be considered to terminate immediately before the starting
     time of the shift to which such employee is changed.

4.   In the case of all employees working the 8-hour shift schedule, the work
     day shall consist of the consecutive twenty-four (24) hour period starting
     at 7:00 a.m. provided however, that in the case of change of shift for the
     company's convenience, the work day overlapping the change shall be
     considered to start with the starting time of the employee's former shift.

B    A shift 7 a.m. to 7 p.m. (12 hours), seven days/week, rotated by two
     people, will be considered a shift. The days worked and the days off will
     be the same except working only 7:00 a.m. to 7:00 p.m. The individuals
     currently in the Utility Maintenance jobs will be grandfathered to retain
     their positions.

C1.  Those employees working on an 8-hour schedule will be provided with one
     twenty (20) minute break for a lunch period. It is understood that this
     period will be taken between 11:00 a.m. to 1:30 p.m. for the First Shift;
     between 7:00 p.m. to 9:30 p.m. for Second Shift; and between 3:00 a.m. to
     5:30 a.m. for Third Shift. Those employees working at CDC on a 12 hour
     schedule will be provided with one (1) twenty (20) minute break for a lunch
     period using the aforementioned lunch period schedule (above). In addition
     employees who are working twelve (12) hours will be allowed on (1) ten (10)
     minute rest period, given at times most conducive to efficient plant
     operations.

 2.  Those employees working at Ransom on an 8-hour shift schedule or a 12-hour
     shift schedule shall be given an opportunity to eat at a reasonable time
     conducive to efficient plant operations. Converting department employees
     who work the 8-hour schedule, will be granted one (1) twenty (20) minute
     rest period.

D.   It is mutually recognized by the Company and the Union that the Company has
     the prerogative of operating its plant seven (7) days per week.

E.   The provisions of this section shall not be construed as a guarantee that
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     employee will receive any specific number of hours of work per day or per
     week.

                                    SECTION 5
                                    OVERTIME

A.   Time and one-half (1-1/2) the regular rate of pay shall be paid for the
     following:

     1.   For all work performed over twelve (12) hours in any work day of
          twenty-four (24) hours.

     2.   For all work performed in excess of forty (40) hours in any work week.

B.   Double time (2X) the regular rate of pay shall be paid for work performed
     after 7:00 am Sunday and before 7:00 am Monday.

C.   The Company agrees that there will be no layoffs or staggering of shifts
     for the express purpose of keeping within the forty (40) hour week.

D.   The Company will attempt to avoid undue overtime, however, the
     opportunities for overtime shall be distributed among employees in the
     department where such overtime occurs, provided the employee is qualified
     to perform the duties of the job. Employees who are training on a job will
     not be eligible for overtime on that job until the training is complete and
     they are qualified to perform the job.

E.   It is understood that there will be no pyramiding of overtime and premium
     pay.

F.   When an employee works any overtime in their own department during the
     regular work week, or any overtime in a department other than their own,
     such overtime shall have no bearing on the distribution of their weekend
     overtime.

G.   No double eight hour shifts will be worked when there are any employees
     laid off, provided qualified employees are available to be called in. No
     double 12-hour shifts will be required.

H.   If there is an error in the post rotation list assignments, the aggrieved
     employee is responsible for bringing the error to the Supervisor's or
     Scheduler's attention before the end of his or her shift, otherwise, no
     grievance will be paid for the error. The employee will be offered the next
     overtime opportunity for which s/he qualifies.

I.   It is understood between the parties that the application of the time and
     one-half rate (1.5X) for all work performed over forty (40) hours in any
     work week, per Paragraph A-2 of this Section, shall apply after recording
     (calculating) the actual time worked relative to "punching in late and
     punching out early" under the Kronos Timekeeping system. For example, an
     employee who "punched in" five minutes late each day of the week would have
     not worked a total of twenty-five (25) minutes for the week.

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     Therefore, the time and one-half overtime rate for over forty (40) hours
     would not apply in that work week until the employee worked the twenty-five
     minutes to arrive at forty (40) hours worked.

J.   FILLING TEMPORARY VACANCIES

     A.   When a temporary vacancy occurs on a shift, the following steps will
          be utilized:

          1.   Decide whether or not to fill the vacancy in accordance with
               Section 26 (Scheduling) and Appendix 5 (Declaration of
               Principles).

          2.   In the event that an 8-hour vacancy is to be filled, it will be
               filled as follows:

               a.   Qualified senior employees from the lay off list (Call
                    List).

               b.   Offer the employee waiting to be relieved a double.

               c.   Poll the remaining 8-hour qualified employees by seniority
                    on shift.

               d.   Call senior qualified employees from the on-coming shift.

               e.   Call senior qualified 12-hour employees from the rotation
                    list.

               f.   If none of the above employees accept the work, the affected
                    employee is required to work a double.

          3.   In the event that a 12-hour vacancy is to be filled, it will be
               as follows:

               a.   Qualified plant senior employees from the lay off list (Call
                    List) will be offered the assignment.

               b.   The most senior department qualified 12-hour shift employee
                    on his OR her day off who has not worked the preceding
                    shift, providing such opportunity will not result in his or
                    her working in excess of sixteen (16) hours, with the
                    understanding that any employee electing to refuse such work
                    will automatically drop to the bottom of the rotation list.

               c.   All 12-hour shift employees will be polled for 12 hours or
                    the last 8 hours of the shift. The employees waiting to be
                    relieved will be required to work an additional four (4)
                    hours in the absence of the 12 hour coverage, unless a
                    qualified employee (by department seniority) on shift is
                    willing to work.

               d.   Ask 8-hour employees on shift by department seniority for
                    the remaining 8-hours, if none will accept the work, then
                    call 8-hour qualified people from the on-coming shift by
                    department seniority.

          4.   When filling a 4-hour shift vacancy or less:

               (a)  Call or ask employees from on-coming shift where vacancy
                    occurs.

               (b)  Call or ask by department seniority and qualifications from
                    the on-coming shift.

               (c)  Go to rotation list for whatever department vacancy occurs.

          5.   If employees who are responsible for covering the shift vacancy
               agree to fill the vacancy by rescheduling their hours of work,
               they may do so provided

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          that there is no additional cost to the Company as a result of the
          scheduling.

B.   Weekend Work: When a Production Department is in operation.

     1.   Employees scheduled on the job, Monday-Friday, are required to work
          Saturday. Sunday needs will be filled on a voluntary basis. This
          section shall not apply to employees working on what are normally
          classified as seven-day continuous operation (i.e. 12-hour shifts)\

C.   Weekend Work: When a department is not in production.

     1.   Post Saturday sign sheet for volunteers.

     2.   Volunteers will be selected using the following steps:

          a.   Plant senior qualified employees within such department who are
               scheduled will be utilized for the available Saturday work.

          b.   Followed by qualified call list employees.

     3.   Any available Sunday work within a department (exception Converting),
          shall be rotated on a departmental seniority basis with the
          understanding that any employee electing to refuse such Sunday
          overtime will automatically drop to the bottom of the rotation list.
          Temporary bid holders in Distribution or Material Support Departments
          will also rotate with the rotation list but will not be eligible
          unless scheduled in that department for the week. The 11:00 pm to 7:00
          am and 7:00 pm to 7:00 am shifts (from Saturday) are excluded, but the
          senior names are to be kept at the top of the seniority list.

          a.   For the Converting Department, post a Sunday signup sheet for
               volunteers. Plant senior qualified employees within the
               Converting Department will be utilized.

     4.   Available Saturday and/or Sunday work, outside an employee's own
          department will be given to the plant senior qualified employees who
          are not otherwise scheduled to work. Plant seniority may be exercised
          on Saturday and/or Sunday in filling any job not held Monday through
          Friday of the scheduled work week provided all employees with
          department seniority are working and more employees are required (CDC
          or Plant 1).

D.   Maintenance Overtime:

     1.   Paragraph A, will apply with the following exceptions:

          a.   Weekend overtime in the Maintenance Departments will be based on
               department seniority and specialized skills within their assigned
               work location (CDC or Plant 1). Twelve (12) hour crews will be
               placed at the bottom of the department seniority list.

          b.   If there is a problem at the end or during a shift, which is not
               solved when

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               the shift mechanics (electricians) tour is over, he/she will stay
               until the problem is solved or the Maintenance Manager or Shift
               Supervisor calls another person in to relieve that employee.

               1.   On Holidays, if there is a job or jobs that will require
                    more than a twelve (12) hour period, the Company will make a
                    good faith effort to call in appropriate replacements from
                    the sign up sheet. The Company will also require at least
                    one person on the job to provide continuity.

               2.   In the event that extra maintenance help is needed in either
                    work location the Company must first exhaust the regular
                    overtime policy in the contract for that work location. The
                    Company may utilize the maintenance volunteer list from the
                    other work location by calling or asking employees in
                    department seniority order first. If no volunteers are
                    available the overtime procedure from the other area will be
                    invoked.

               3.   When additional maintenance personnel are needed:
                    a)  Ask employees on preceding shift by department
                        seniority.
                    b)  Call or ask from the on-coming shift by department
                        seniority.
                    c)  Call or ask employees on their days off by weekly
                        rotation seniority.
                    When this is planned maintenance activities, D.1.b. does not
                    apply.

E.   Miscellaneous

     1.   A Converting Department sign up sheet will be posted daily on each
          shift. Employees who want to work overtime at the end of their shift
          must sign the daily sign up sheet not later than one (1)hour from the
          end of the shift.

     2.   Paper Machine #3 and #4 shall each keep is own work week and overtime,
          with the exception of bottom jobs. Qualified employees, if available,
          will be moved up on shift on the same paper machine in covering
          temporary vacancies and vacation relief, except as described under
          Section 26 - Scheduling, Paragraph P.

          For filling an entry level job vacancy for the paper machines use the
          weekly departmental rotation list for filling bottom jobs on either
          paper machine, after the call list has been exhausted.

     3.   When filling vacancies on #3 paper machine, #4 paper machine, and
          Fiber Prep, you should first shift promote and then fill the bottom
          position. If you can not shift promote, then fill the vacancy where it
          occurs. (Shift promote means all the way up).

     4.   Distribution and Material Support, after the overtime procedure in
          either department has been exhausted, the supervisor can determine if
          the vacancy still needs to be filled, then go to the other
          department's overtime procedure and follow as stated. This is not
          intended to transfer people on shift from one

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     department to the other.

5.   The Union Committee will be off their regular job to attend the monthly
     Labor Management Meeting, the regular Grievance Meeting, and any possible
     4th Step Grievance Meetings that may be held during a given month. For the
     Labor Management Meeting and regular Grievance Meeting, the Company will
     pay the Union Committee for the time spent in the meetings and will credit
     8-hour Committee Members those hours spent in the meeting for the purpose
     of computing overtime. If a Committee Member is working a 8-hour or 12-hour
     shift the night before or the night of the Labor Management Meeting, or
     regular Grievance Meeting, the Company will replace the Committee Members
     on their scheduled shift and they will be paid for such time off, but will
     not be paid for the actual meeting time. For a 4th step Grievance Meeting,
     the Company will replace the Union Committee members on their scheduled
     shifts and they will be paid for such time off, but will not be paid for
     the actual meeting time. If a Committee member is on their day off, a
     Committee Member will be paid 8 hours of regular time to attend the 4th
     Step Meeting The Company will make very effort to back fill the positions
     of the Union Committee members when they attend the meetings mentioned
     above.

     On occasion, the Union Committee members may be off their regular jobs to
     attend and/or work on special Company/Union related projects. When these
     occasions arise, the Union Committee must give advance notice to the HR
     Manager or Resident Manage of its request to be off work. The HR Manager or
     Resident Manager will decide if the Company will pay for the time requested
     off and if those hours spent working on a project will be credited towards
     overtime. Each request for time off will be dealt with separately.

                                    SECTION 6
                                    HOLIDAYS

A.   The Company will grant eight (8) or twelve (12) hours regular rate of pay
     to employees who have completed their probation period, when no work is
     performed on the following Holidays:

     New Year's Day - 24 hour shutdown - January 1st, 7:00 a.m. to January 2nd,
     7:00 a.m.

     Easter Sunday - 24 hour shutdown -
     7:00 a.m. Sunday to 7:00 a.m. Monday

     Memorial Day - 24 hour shutdown  -
     7:00 a.m. Monday to 7:00 a.m. Tuesday

     July 4th - 24 hour shutdown -
     July 4th 7:00 a.m. to July 5th 7:00 a.m.

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     Labor Day - 24 hour shutdown -
     Monday 7:00 a.m. to Tuesday 7:00 a.m.

     Thanksgiving Day - 24 hour shutdown -
     Thursday 7:00 a.m. to Friday 7:00 a.m.

     Day after Thanksgiving - 24 hour shutdown -
     7:00 a.m. Friday to 7:00 a.m. Saturday

     December 24th - 24 hour shutdown -
     December 24th, 7:00 a.m. to December 25th, 7:00 a.m.

     December 25th - 24 hour shutdown -
     December 25th, 7:00 a.m to December 26th, 7:00 a.m

     December 31st - 24 hour shutdown -
     December 31st, 7:00 a.m. to January 1st, 7:00 a.m.

     One (1) Personal Holiday - The Company must be notified in writing, at
     least seven (7) days prior to the date that the employee desires to observe
     a personal holiday. Exceptions to the foregoing may be made by the
     Supervisor for good and valid reasons. It will be entirely within the
     discretion of the Company to determine the number of employees permitted to
     observe a personal holiday on the same day. Personal holiday pay will be
     compensated only on the basis of straight eight (8) or twelve (12) hours at
     the regular rate of pay of the employee regardless of the day of the week
     on which the employee observes such personal holiday. The Company must
     notify the employee no less than three (3) days prior to the date requested
     off as to whether the request is granted or denied. If more than one (1)
     employee requests the same day off as a Personal Holiday, consideration of
     the employees' request, consistent with the above language shall be in
     order of the employee's department seniority.

B.   It is understood that the Company retains the option of scheduling
     production work on any holidays with the exception of Christmas Eve,
     Christmas Day, and Easter. When that option is exercised, it is understood
     that the normally scheduled crews will come in on these non-restricted
     holidays. Work on all restricted holidays and any non-production holidays
     work will be posted on a voluntary basis with the understanding that names
     are not to be added after the time limit for signing such notice has
     passed. Holiday work will be based on being qualified to perform the work
     and plant seniority within the department first and then outside the
     department as needed.

C.   Maintenance employees will be scheduled to work on Holidays by departmental
     seniority and qualified skills within their assigned work location (CDC or
     Plant 1).

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     Requests for personal time off on a day by day basis for maintenance
     employees, other than those who volunteered to work, will be granted
     following any Holiday worked. The number of employees to be granted the day
     off based on departmental seniority basis will be determined by the
     Company. It is the intention of the Company to schedule a 7:00 a.m.
     starting time for Holiday Maintenance work, whenever possible.

D.   To be eligible for Holiday pay, an employee must have worked their last
     scheduled day before the Holiday and their first scheduled day after the
     Holiday unless such employee is absent with the Company's permission,
     absent because of a bona fide illness based on a submission of proper
     approved medical certification, or absent for a bona fide reason approved
     by the Company. Holiday pay will be granted for all intervening Holidays on
     absences covering three (3) days or more; up to six (6) months on
     occupational injury and ninety (90) days on illness; based on submission of
     proper medical certification. Holiday pay will be distributed to those
     eligible employees on the pay day immediately following the return to work.

E.   Employees with necessary seniority who have been laid off in a reduction of
     force and are called back to work within thirty (30) days from the date of
     layoff, shall be eligible for Holiday pay for any of the Holidays listed
     herein, which fall within the said thirty (30) day period.

F.   All employee who work on any of the foregoing Holidays shall be paid at the
     rate of double time their regular rate of pay for the hours worked in
     addition to the eight (8) hours Holiday pay at the regular rate of pay.
     Triple time will be paid for all work performed over eight (8) hours on a
     given Holiday. Any Holiday not worked shall be counted as eight (8) hours
     worked in computing overtime.

G.   In the event that a holiday occurs on a Saturday and an employee does not
     work on such Holiday, he or she shall be paid one and one-half (1-1/2)
     times the regular rate of pay for the eight (8) hours Holiday pay.

H.   Any Holiday falling on Sunday will be celebrated on the following Monday
     except for those operations on a twelve (12) hour schedule. It is
     understood that with the exception of those operations on a 12-hour
     schedule, the Easter Sunday Holiday will be celebrated on Easter Monday.
     Holiday pay for those employees on 12-hour operations will be paid at the
     stipulated rate for the day in question. Whenever December 24th and
     December 31st fall on Sunday, the holidays will be celebrated on the
     following Tuesdays for all operations other than four 12-hour schedules.
     Triple regular rate of pay shall be paid for work performed on Easter
     Sunday.

I.   If a holiday should fall during a vacation shutdown week the said Holiday
     is to be celebrated on the following Monday for non-twelve (12) crewing
     operations only.

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                                    SECTION 7
                                    VACATION

A.   Vacation and vacation pay will be granted between May 1st of a given year
     and April 30th of the following year, and shall be granted by seniority
     within departments except the Converting Department which shall be granted
     by departmental seniority within major operating units, and for Maintenance
     employees to include Shop Maintenance and Converting Maintenance wherein
     vacation requests will be granted based on plantwide seniority within the
     department. A vacation week is deemed to be seven (7) consecutive days
     beginning at 7:00 a.m. of a given Monday and cannot be split into separate
     days except as provided for in Paragraph I of this section, During the life
     of this Agreement the Company will inform its employees, prior to January
     15th of any vacation shutdown plans affecting eight (8) and twelve(12) hour
     operations. It is understood that any such shutdown week(s), as determined
     by the Company, would occur between June 15th and September 1st.

B.   Vacation request forms will be issued no later than December 15th and must
     be returned to the Company no later than January 15th with the vacation
     schedule to be posted no later than March 15th. It is agreed that vacation
     schedules will be so arranged as to provide that any eligible employee who
     requests his or her first and/or second week of vacation during the last
     two (2) vacation weeks of June or during the months of July or August will
     be granted at least one (1) vacation week during this period. It is
     understood, however, that the employee is not guaranteed the particular
     week he or she requests. This paragraph in no way affects the present
     method of scheduling vacation according to departmental seniority.

C.   Employees eligibility for vacation weeks will be determined on the basis of
     his or her most recent date of hire.

D.   Vacation requests for the first and second weeks shall take precedence over
     requests for the third, fourth and fifth vacation weeks. All vacation weeks
     for eligible employees shall be compulsory except as governed by Paragraph
     H of this section.

E.   During the first year of an employee's seniority such employee must have
     worked at least 1,700 hours during the vacation year to be eligible for one
     (1) week vacation with pay.

F.   After the first year of seniority, to be eligible for vacation and vacation
     pay, an employee must have worked at least seven hundred (700) hours out of
     the best six (6) months of the vacation year from May 1st to May 1st. Any
     employee having less than seven hundred (700) hours after complying with
     the foregoing requirement will be prorated accordingly. The first six (6)
     months of any absence caused by injury in

                                       12

<PAGE>   13

     the course of employment or illness, shall be counted as time worked for
     this purpose.

G.   The vacation continues as follows:

     Vacation Credit Years         Vacation Time Off          Vacation Pay
     ---------------------         -----------------          ------------
     1                                  1 week                 48 hours
     2                                  2 weeks                96 hours
     8                                  3 weeks                144 hours
     13                                 4 weeks                192 hours
     20                                 5 weeks                240 hours

H.   Any employee may elect to work during all or part of his or her vacation
     period, provided that he or she obtains the consent of the Company and the
     Union.

     However, an employee who is eligible for (4) or more weeks of vacation may
     elect to receive pay for the 4th or 5th week of eligible vacation in lieu
     of time off. If all or part of a vacation period is worked, the employee
     shall receive his or her vacation pay for the period, in addition, to his
     or her pay for any work performed in such period.

I.   Employees with four (4) or more weeks of vacation may schedule one (1) of
     the additional weeks of vacation on a day to day basis as long as they meet
     the same conditions set forth under Section 6, Holiday, Personal Holiday.
     An 8-hour employee electing to take one of their vacation weeks in days
     will be granted five days off and will be paid at he employee's regular
     rate of pay for each day at eight (8) hours per day for the first four (4)
     days; for the fifth (5) day, the employee shall receive sixteen (16) hours
     pay at the employee's regular rate of pay to provide for the weekly number
     of pay hours per Paragraph J of this section. A 12 hour employee electing
     to take one of their vacation weeks in days will be granted four (4) days
     off and will be paid at the employee's regular rate of pay for each day at
     twelve (12) hours per day to provide for the weekly number of pay hours per
     paragraph J of this section.

     1.   Vacation by days may be taken only between September 1st and June
          15th. Vacation by days will not be allowed between June 16th and
          August 31st.

J.   Vacation pay shall be computer on the basis of forty-eight (48) hours total
     at the employee's regular rate of pay for each week.

K.   An employee will be paid vacation pay at the highest regular rate of pay
     that such employee has maintained for thirty (30) days during the vacation
     year preceding the employee's first week of vacation or the rate of their
     regular job just preceding the employee's requested week(s) of vacation,
     whichever is higher.

L.   Vacation pay shall be subject to such deductions as are normally made from
     regular pay.

                                       13

<PAGE>   14

M.   In the event of the death of an employee, his or her accrued vacation pay
     will be paid to the beneficiary designed by such employee on his or her
     individual Company Life Insurance Policy within the Limits described in
     Section 20, Paragraph D of this Agreement.

N.   It is understood between the parties that the #3 and #4 Paper Machines will
     have separate vacation schedules as long as only one job classification
     from each machine is scheduled off at he same time.

                                    SECTION 8
                                      WAGES

A.   The regular rate of pay will be as follows:

<TABLE>
<CAPTION>

PAPER MACHINES                                      PER   HOUR   EFFECTIVE
NO. 4 PAPER MACHINE........09/17/99         09/17/00          09/17/01          09/17/02         09/17/03
<S>                       <C>              <C>               <C>               <C>              <C>
Machine Tender             15.45            15.85             16.25             16.65            17.05
Back Tender                14.85            15.25             15.65             16.05            16.45
Third Hand                 14.35            14.75             15.15             15.55            15.95
Fourth Hand                14.06            14.46             14.86             15.26            15.66
Temporary Fifth Hand       13.84            14.24             14.64             15.04            15.44

                                                    PER   HOUR   EFFECTIVE
NO. 3 PAPER MACHINE........09/17/99         09/17/00          09/17/01          09/17/02         09/17/03
Machine Tender             15.48            15.88             16.28             16.68            17.08
Back Tender                14.80            15.20             15.60             16.00            16.40
Third Hand                 14.36            14.76             15.16             15.56            15.96
Fourth Hand                14.14            14.54             14.94             15.34            15.74
Temporary Fifth Hand       13.84            14.24             14.64             15.04            15.44

<CAPTION>

FIBER PREPARATION                            PER   HOUR   EFFECTIVE
DEPARTMENT....................09/17/99          09/17/00         09/17/01          09/17/02         09/17/03
<S>                          <C>              <C>               <C>               <C>              <C>
Stock Preparation Operator    14.53            14.93             15.33             15.73            16.13
1ST Asst. Stock Preparation
       Operator               14.26            14.66             15.06             15.46            15.86
2ND Asst. Stock Preparation
       Operator               13.99            14.39             14.79             15.19            15.59
Utility Operator Level 1      13.45            13.85             14.25             14.65            15.05

CONVERTING DEPARTMENT
BRT LINES 1, 2, 3, 4
Systems Operator              14.06            14.46             14.86             15.26            15.66
Training Level 2              13.34            13.74             14.14             14.54            14.94
Training Level 1              12.93            13.33             13.73             14.13            14.53

HHT LINES 1, 2, 3
Systems Operator              14.40            14.80             15.20             15.60            16.00
Training Level 2              13.86            14.26             14.66             15.06            15.46
</TABLE>

                                       14

<PAGE>   15

<TABLE>
<CAPTION>

<S>                         <C>              <C>               <C>               <C>              <C>
Training Level 1             13.14            13.54             13.94             14.34            14.74

KOLD KARE
Systems Operator             14.40            14.80             15.20             15.60            16.00
Training Level I             13.44            13.84             14.24             14.64            15.04

NAPKIN LINES 1, 2, 3
System Operator              14.18            14.58             14.98             15.38            15.78
Training Level 1             13.63            14.03             14.43             14.83            15.23

BUNDLER
System Operator              13.47            13.87             14.27             14.67            15.07
Training Level 1             13.37            13.77             14.17             14.57            14.97

OMNI FLOW WRAPPER
Systems Operator             13.37            13.77             14.17             14.57             14.97
Training Level 1             12.84            13.24             13.64             14.04             14.44

<CAPTION>

MAINTENANCE                                          PER   HOUR   EFFECTIVE
DEPARTMENT.................09/17/99         09/17/00          09/17/01          09/17/02         09/17/03
<S>                       <C>              <C>               <C>               <C>              <C>
Journey Maintenance        14.68            15.08             15.48             15.88            16.28
Intermed. Maintenance "A"  14.43            14.83             15.23             15.63            16.03
Intermed. Maintenance      14.20            14.60             15.00             15.40            15.80
Junior  Maintenance        14.01            14.41             14.81             15.21            15.61
Maintenance Helper         13.84            14.24             14.64             15.04            15.44

MATERIAL SUPPORT
DEPARTMENT
Poly Specialist            13.57            13.97             14.37             14.77            15.17
Motor Operator             13.67            14.07             14.47             14.87            15.27
Utility Motor              13.27            13.67             14.07             14.47            14.87

DISTRIBUTION CENTER
(NON-PROGRESSIVE)
ULF Motor Operator         13.67            14.07             14.47             14.87            15.27
Distribution Specialist/
    Spotter Driver         13.57            13.97             14.37             14.77            15.17
Distribution Specialist    13.48            13.88             14.28             14.68            15.08

WASTE WATER TREATMENT/
INCINERATOR DEPARTMENT
Waste Water Treatment
     Operator              14.31            14.71             15.11             15.51            15.91
Incinerator Operator       14.31            14.71             15.11             15.51            15.91
Incinerator Operator
     Relief                13.48            13.88             14.28             14.68            15.08
Incinerator Helper         13.14            13.54             13.94             14.34            13.74
Incinerator Helper Relief  12.87            13.27             13.67             14.07            14.47

OPEN BID JOBS (CONVERTING)
Core Machine Operator      13.30            13.70             14.10             14.50            14.90
Corrugated Printer
     Operator              13.35            13.75             14.15             14.55            14.95
Relief Corrugated Printer  13.35            13.75             14.15             14.55            14.95
     Operator
Utility                    12.79            13.19             13.59             13.99            14.39
</TABLE>

                                       15

<PAGE>   16

<TABLE>
<CAPTION>

OPEN BID JOBS (PLANT WIDE)
<S>                       <C>              <C>               <C>               <C>              <C>
Stockroom Clerk            13.66            14.06             14.46             14.86            15.26
Relief Stockroom Clerk     13.66            14.06             14.46             14.86            15.26
Quality Assurance Clerk    13.01            13.41             13.81             14.21            14.61
Relief Quality Assurance
   Clerk                   13.01            13.41             13.81             14.21            14.61
Pulp & Paper Technician    13.77            14.17             14.57             14.97            15.37
</TABLE>

B.   Probationary employees will receive a rate of pay $2.00 per hour less than
     the job they are working.

C.   When new jobs are created (i.e. introduction of new machinery or
     equipment), or when significant changes are made in the duties and/or
     workload of existing jobs, the Company and the Union will meet within sixty
     (60) days from the date the request is Received, unless mutually agreed to
     extend the time limit, to negotiate the rate of the new job or the rate of
     the existing job that has been substantially changed. If no agreement can
     be reached, the Company will set the job rate; but such rate may be subject
     to negotiations at the next general contract negotiations, and any change
     agreed upon at that time will be made retroactive to employees then on the
     Payroll of the Company to such time as the Company and the Union shall
     agree.

     1.   Such changes are limited to those occurring during the term of the
          agreement.

     2.   Factors to be considered for a wage adjustment will be based upon the
          following criteria: Manual skills, mental skills, experience, physical
          effort, visual application, responsibility for materials,
          responsibility for tools and equipment, direction of others,
          responsibility for operations, safety of others, hazards, and working
          conditions.

     3.   Significant net increases in a majority of the above criteria will be
          required for consideration. Production will not be considered as a
          criteria for consideration for a wage adjustment.

D.   All employees will be paid for time spent in training on company premises.

E.   8-hour shift workers will receive a shift differential above the regular
     rate of pay for the job for the second (2nd) shift of thirty-five cents
     ($.35) per hour and for the third (3rd) shift of forty-six ($.46) per hour.

     12-hour shift workers will receive a shift differential pay adjustment
     above the regular rate of fifty-seven ($.57) per hour for the job in lieu
     of a second shift differential.

     Non-shift employees who work two (2) hours or more beyond their regular
     quitting time will be paid shift differential for such overtime hours.

F.   Any 8-hour or 12-hour employee continuously engaged in work for the Company
     for a period of thirteen (13) hours or more will be paid meal money, not to
     exceed four (4) dollars, at Company expense.

                                       16

<PAGE>   17

G.   All employees will be paid the rate of pay of the job when called into work
     in their own department from the layoff (call) list.

H.   Any employee assigned by the Company to a job in a department other than
     their own will be paid at the regular rate of pay of the assigned job.

I.   Employee holding bids on the relief positions described in Section 10,
     Paragraph D of this Agreement will be paid the rate of the relief job.

J.   The "Group Performance Plan" (GPP) effective January 1, 1994 will remain in
     effect for the duration of this Agreement. The GPP is directed at paying
     hourly employees of the PACE Local 2-1448, for "unit" performance
     improvements in a number of selected plant operating categories. The
     specific terms are not negotiable and are the sole responsibility of the
     Company. The Union will be notified of any changes after approval by the
     Company's Corporate Officers.

K.   The Company will distribute payroll checks, if available, to all 8-hour
     shift employees working the 3-11 p.m. shift no later than 11:00 p.m. each
     Wednesday. All employees working the 12-hour shift scheduled on Wednesday,
     7:00 a.m. to 7:00 p.m., will be given their paychecks before 7:00 p.m.

L.   In the event, Plainwell Tissue's Ransom and Pittston Township, PA Mills are
     totally and permanently closed, affected employees will receive severance
     pay based on the following schedule:

     YEARS OF SERVICE                                       SEVERANCE PAY

     3 Years but less than 5 Years...............               1 week @ 40
                                                           X Straight Time Rate

     5 Years but less than 10 Years..............               2 weeks @ 40
                                                           X Straight Time Rate

     10 Years but less than 17 Years............                3 weeks @ 40
                                                           X Straight Time Rate

     17 Years but less than 25 Years............                 4 weeks @ 40
                                                           X Straight Time Rate

     25 Years but less than 35 Years............                 5 weeks @ 40
                                                           X Straight Time Rate

     35 Years and over............................               6 Weeks @ 40
                                                           X Straight Time Rate

                                       17

<PAGE>   18

                                    SECTION 9
                                     PENSION

A.   It is agreed that a Pension Plan and Trust Agreement providing for a
     Corporate Trustee shall be adopted with the Corporation accepting the
     responsibility to provide pension benefit levels in the amount of $22.00
     per month multiplied by years of credited service, effective November 1,
     1999; $24.00 per month multiplied by years of credited service, effective
     November 1, 2000; $26.00 per month multiplied by years of credited service,
     effective November 1, 2001; $28.00 per month multiplied by years of
     credited service effective November 1, 2002; and $29.00 per month
     multiplied by years of credited service, effective November 1, 2003.
     Employees retiring January 1st or after in any plan year will receive the
     new increase in that year.

     Employees retiring after November 1, 1999 will receive:

          a.   $29 multiplied by Accrual Service through October 31, 1995, plus

          b.   the monthly benefit amount in effect on the date of retirement
               multiplied by Accrual Service from November 1, 1995. The monthly
               benefit amount shall be:

                         $22, effective November 1, 1999
                         $24, effective November 1, 2000
                         $26, effective November 1, 2001
                         $28, effective November 1, 2002
                         $29, effective November 1, 2003

B.   Employees will be credited for fractional benefits for months of service
     completed.

C.   Employees with five (5) years of service will be 100% vested in the Pension
     Plan and Trust Agreement.

D.   Employees who qualify for early retirement may retire at age 62 without
     their pension being reduced. Employees who qualify for early retirement and
     elect to retire prior to age 62 will have their basic benefit reduced 1/2%
     per month for each month the benefit commences before age 65. Employees
     with ten (10) years of credited service who have reached age fifty-five
     (55) are qualified for early retirement.

E.   Life insurance in the amount of $2,000.00 will be provided for employees
     retiring at the age of 62 or thereafter.

F.   The Company agrees to furnish all employees an updated Pension Booklet,
     Life Insurance Policy and Medical Coverage Booklets(s) sixty (60) days
     following the ratification of the labor agreement

                                       18

<PAGE>   19

                                   SECTION 10
                                    SENIORITY

A.(1)Seniority Defined: An employee's plant seniority date shall be his/her
     most recent date of hire. An employee's department seniority date shall be
     the date an employee is awarded a permanent bid within a department.
     Employees will hold Converting Department seniority until they are awarded
     a permanent position in another department.

  (2)Department seniority shall prevail over plant seniority promotions and
     demotions of the work force within an exiting department; reductions of
     working force within an existing department shall be done for the duration
     of the work week or three (3) days whichever is greater.

     Employees unable to work in their own department shall not exercise plant
     seniority for such duration of the work week or any layoff of less than
     three (3) days. Plant seniority will prevail on the bottom job in the
     various departments to the extent of allowing the plant senior employees to
     work in his or her own department. Any employee involved in a layoff in
     excess of the duration of the work week or three (3) days, whichever is
     greater, will be placed in the department having the least plant senior
     employees.

  (3)In the event of a permanent reduction in force, it is the intent of the
     parties to retain the plant senior employees. Probationary employees will
     be laid off first, then those employees with the least plantwide seniority
     regardless of department. Those employees remaining in a progression will
     move up in that progression and the remaining employees will select the
     positions they wish to fill by their plantwide seniority. Paragraph (4) of
     his section will apply for those employees selecting their positions by
     seniority. This paragraph does not apply to emergency shutdowns of a
     non-permanent nature.

  (4)In all cases of promotion or demotion, or transfer, or increase or decrease
     of the working force or accepting a bid on an open bid job, the following
     factors shall be considered:

     1.   Length of service (Plant Seniority) on bid jobs and department
          seniority within a department.

     2.   Ability to perform the work. (To be judged by the Company and the
          Union).

     3.   Physical Fitness

                                       19

<PAGE>   20

B.   JOB BIDDING - GENERAL:

1.   Job bidding will be governed as follows: All bid job vacancies known to be
     permanent, existing on the entry level jobs in a line of progression or
     non-progression jobs listed under Paragraph I of this section shall be
     posted for a period of five (5) calendar days. An employee who is awarded a
     bid job shall be placed in their new position as soon as a qualified
     replacement for their former job is available or within thirty (30)
     calendar days from the date they are awarded the job. Provided the transfer
     can be made without disruption to the vacation schedules. A list of bidders
     will be maintained by the Company in seniority order on any job posted for
     bid (including job preference and temporary bids) and such list will be
     utilized to fill vacancies on the given job for period of six (6) months
     from the date the job was posted for bid (including job preference and
     temporary bids) after which the job will be reposted for bid and the
     resulting list of bidders will be maintained for another six (6) months.

2.   In the event that no bids are received on any bid job, the Company will
     award the bid to the plant senior employee who does not hold a bid. For
     vacancies in the Paper Machines only those employees who have elected to
     work in the Paper Machines will be awarded the bid.

3.   An employee may, within the first seven (7) working days of his/her new
     assignment, decide to revert to their former position. When new equipment
     results in new job classifications being established, employees shall have
     fifteen (15) working days to decide to revert to their former position.
     After the new equipment/job classifications are in operation six (6)
     months, the seven (7) working day decision period applies.

4.   Except as otherwise provided in Paragraphs B-6 and H-1 of this Section or
     in the Maintenance program described in Section 24, an employee who bids
     into another department or who is assigned to a different job shall be
     considered to be on trial for thirty (30) working days, such limit may be
     extended by mutual agreement by the Company and the Union. In the event
     that an employee is found by the Company to be unsuited for the job at the
     termination of the trial period, he/she may be transferred back to his/her
     original department and exercise his/her seniority in that department. An
     employee who is returned to his/her former job under this paragraph three
     (3) times shall be assigned by the Company to an open position the person
     is qualified to perform.

5.   An employee assigned to another department shall retain and accumulate
     department seniority in his/her original department. On permanent bid jobs,
     seniority terminates in his/her former department and begins in the new
     department after completion of the thirty (30) day trial period.

                                       20

<PAGE>   21

6.    In the event of any promotion to the job of Machine Tender or Back Tender,
      the employee so promoted shall be on probation for the period of three (3)
      months from the date of such promotion. For the first month of such
      probationary period, the employee's qualification for the job shall be
      decided solely by the Company, and in the event that the employee so
      promoted does not qualify to the satisfaction of the Company, he/she may
      be relieved of his/her job and thereupon shall exercise his/her seniority
      on the job held prior to his/her promotion. If the Company decides during
      the second two (2) months of such probationary period that such promoted
      employee is not qualified for the job, the employee may invoke the
      grievance procedure under this Agreement if he/she feels the Company's
      decision is unfair. Upon completion of the three (3) months probationary
      period, his/her promotion shall become permanent.

7.    Distribution/Material Support job openings for straight days, two shift
      operations and 12-hour shift operations will be awarded by preference
      polling, by department seniority.

C.  TEMPORARY JOB BIDDING:

1.    Temporary openings in bid job classifications which will be vacant for
      thirty (30) days or more shall be posted for bid. Temporary bids in other
      job classifications (i.e. Fiber Prep, Utility, Distribution Specialists,
      Materials Support, etc.) will also be posted for bid when deemed
      necessary. Temporary bid holders may not be holders of a permanent bid
      position. Temporary bid holders will be scheduled where their ability and
      seniority will place them when not required on their bid jobs. Permanent
      bid job holders may withdraw from such position to accept a Temporary bid
      job. Temporary bid holders will move into the permanent opening based upon
      their seniority in the temporary position when it becomes available.

2.    The Company will post temporary 5th Hand positions for bid with the
      understanding that eligible bidders may not hold a permanent bid job.
      Temporary 5th Hand bid holders must accept permanent openings in such
      positions and will be utilized as needed on shift when available for
      vacation week(s) coverages and absences of the regular job holder.

3.    In the event of a cut-back on the Paper Machine or Fiber Preparation
      Departments, employees who are on temporary promotions will revert back to
      their regular job.

D.  RELIEF JOB BIDDING

1.    Certain positions in the organization require that fully trained relief
      personnel be

                                       21

<PAGE>   22

      available for short term replacement of the personnel holding those
      positions full time. These relief positions will be posted, open for bid
      by personnel already holding a bid position. When necessary, the personnel
      holding these relief positions will be scheduled into the position and
      their primary job will be filled by other personnel according to the
      procedures in the agreement.

2.    Personnel holding permanent bids will be returned to their permanent bid
      positions when not utilized in the relief positions. Personnel not holding
      permanent bids will be assigned where their seniority and skills will
      place them when not utilized in the relief position.

3.    The following positions will be posted jobs: Relief Corrugated Printer
      Operator, Relief Stockroom Clerk, Relief Quality Assurance Clerk, Relief
      Incinerator Helper, Relief Incinerator Operator.

4.    Personnel will be selected from those signing the posting(s), first by
      department seniority then by plantwide seniority if no personnel with
      department seniority sign the posting or if any personnel with department
      seniority cannot perform the duties of the job. If the succcessful bidder
      was chosen by plantwide seniority, the seniority in the department of the
      relief position will begin for the successful bidder on the closing date
      of the posting.

5.    Personnel successfully bidding into these positions will be designated
      fill-ins when necessary and must move into the permanent position when the
      permanent vacancy arises, based upon their seniority in the relief
      positions.

6.    For the purpose of clarifying when relief positions will be required to
      fill vacancies, the following guidelines ware to be used:

      1)  WEEKLY VACANCIES - Cover for vacations, sick leave, worker
          compensation, FMLA, general leave, and jury duty, etc. - Person
          holding the relief position will automatically be scheduled into the
          vacancy.

      2)  DAILY VACANCIES - If the relief person is scheduled on the same shift,
          that person will be required to cover the vacancy. If the relief
          person is on a day off, the normal overtime procedure will be used.
          The relief person would be the last to be called.

      Note:      On a daily vacancy, if relief person is going from a 12-hour to
                 an 8-hour shift, they will be allowed to make up the additional
                 4 hours in their scheduled position.

7.    Employees holding relief bids will relinquish the relief bid, when/if they
      accept another bid.

                                       22

<PAGE>   23

E.   JOB CLASSIFICATION CHANGE:

1.    If a job classification in an established line of progression, is removed
      and placed in a different established line of progression, in the same or
      a different department, an eligible employee with established seniority,
      occupying the job classification at the time the change occurs, will be
      given an opportunity to move with the job classification to the position
      in which it is placed in another line, with his/her established department
      seniority from the former line, and may exercise such seniority in the
      line in which the job is placed under paragraph "a' below:

      a.  When a job opening in other succeeding job classifications in an
          established line of progression in which an employee has established
          seniority, eligible employees in the qualifying job classification
          will be considered for such openings on the basis of qualifications
          and length of service.

2.    If a job classification not in a established line of progression is
      removed from the department and placed in an established line of
      progression, an eligible employee with established seniority, occupying
      the job classification at the time the change occurs will be given an
      opportunity to move with the job classification to the position in which
      is it placed in the line, with his/her established department seniority
      from the former department, and may exercise such seniority in the line of
      progression, in which the job is placed under paragraph "a" below:

      a.  When a job opening occurs in other succeeding job classifications in
          an established line of progression in which an employee has
          established seniority, eligible employees in the qualifying job
          classification will be considered for such openings on the basis of
          qualifications and length of service.

3.    If a job classification not in an established line of progression is
      removed from the department and placed in a different department, an
      eligible employee with established seniority, occupying the job
      classification at the time the change occurs, will be given an opportunity
      to move with the job classification to the position, with his/her
      established department seniority from the former department.

4.    If an established job classification is eliminated and removed form an
      established job progression line, an eligible senior employee in the line
      may exercise his/her seniority as follows:

      a.  When curtailment occurs in a line of progression in the department, an
          employee with established seniority in the line being curtailed will
          come back down the line thorough each job classification in the
          reverse order of promotion.

      b.  An employee curtained from an established line of progression who
          cannot retain a position in that line of progression shall have the
          opportunity to exercise his/her department seniority

                                       23

<PAGE>   24

          to retain an entry level job classification in all other lines of
          progression within his/her department.

      c.  An employee curtailed from an established line of progression who
          cannot retain a position in his/her department as outlined above under
          paragraph 4-b, shall have the opportunity to exercise his/her plant
          seniority to retain an entry level job classification in all other
          lines of progression or non-progression jobs where qualified in all
          other departments.

      d.  An employee curtailed from an established line of progression can
          exercise his/her plant seniority to retain a position on the lay off
          (Call List) list.

      e.  Employees permanently curtailed to the lay off (Call List) status from
          a line of progression will retain first recall rights to that line of
          progression in the same order as they were curtailed until the
          employee accepts a job bid and completes the probationary period.

      f.  If a job elimination occurs during the employee's first year on the
          job, the employee will be allowed to return to his/her former bid job
          and position. Department seniority will be credited to the employee
          for the time spent on the eliminated job.

      g.  Employees not willing to move upward in a line of progression may not
          remain in that line of progression. It is understood that his
          provision does not apply to those employees currently "frozen". In
          training for jobs in a line of progression there will be no trading of
          positions.

5.    In the event of an elimination of a job classification not in a line of
      progression, the affected employee can exercise his/her department
      seniority to retain a position in an entry level position in their
      department.

F.  CURTAILMENT

1.    If a piece of Converting equipment is shut down for one (1) or more
      shifts, it will be the company's option to:

      a.  Assign other work to the affected employees and continue to maintain
          their classified regular rate of pay or;

      b.  The affected employees will be allowed to exercise their department
          seniority by replacing on their shift the junior employees in the
          entry level job in any progression line in the department on their
          shift and will be paid the regular rate of pay for that job.

2.    In the event of a shutdown on either paper machine or both, the crews of
      the affected machine or machines shall not exercise departmental or plant
      seniority for the duration of the work week or three (3) days, whichever
      is greater, except upon an

                                       24

<PAGE>   25

      announcement by the Company of a shutdown of undetermined duration in
      which case seniority may be exercised on the work day immediately
      following such announcement. Fiber Preparation Department shall be subject
      to the same provisions as those specified for the Paper Machines. The
      employees of the Paper Machine and Fiber Preparation Departments shall
      receive their regular rate of pay for shutdown work performed in their own
      department or any other work performed at the specific request of the
      Company

G.  LAYOFF:

1.    Employees who are laid off will only retain recall rights for a period of
      twenty-four (24) months.

2.    The terms Lay-off list, Call-list, and Call board are intended to have the
      same meaning and are used synonymously throughout the labor agreement.

H.    MISCELLANEOUS

1.    Any bargaining unit employee who is promoted to a supervisory position
      shall be considered to be on trial in that position for a period of four
      (4) months while a thirty (30) working day trial period will apply on any
      other non bargaining unit position.

2.    Employees shall suffer no loss of seniority for loss of time due to any
      disablement incurred in the performance of their duties for the Company.

3     Any promotion except a permanent position or a temporary vacancy known to
      exceed thirty (30) days is to be made within the employee's shift without
      moving the employee from one shift to another. Shift promotions will be
      made on all shifts on all jobs. Whenever qualified employees are
      available, except in the cases of coverage for various Union Committee
      meeting with the Company.

4.    The parties agree that management shall have the right to add jobs, change
      jobs, change progression ladders or eliminate jobs. It is understood by
      the parties that the Company shall meet and discuss with the Union
      Committee the establishment modification or elimination of lines of
      progression at least thirty (30) days prior to the planned action.

I.    LINES OF PROGRESSION:

1.    The normal line of progression for each department is shown below, with
      each

                                       25

<PAGE>   26

      succeeding job listed in the order of importance. (NOTE: BOLD INDICATES
      ENTRY LEVEL POSITION FOR BUMPING APPLICATION...AND* INDICATES BID
      POSITION.)

RANSOM:
PAPER MACHINE DEPARTMENT:
No. 3 Paper Machine                         No. 4 Paper Machine
-------------------                         -------------------
Machine Tender                              Machine tender
Back Tender                                 Back Tender
Third Hand                                  Third Hand
FOURTH HAND                                 FOURTH HAND
                        TEMPORARY FIFTH HAND*

FIBER PREPARATION DEPT.                     RANSOM MAINTENANCE DEPT
-----------------------                     -----------------------
Stock Preparation Operator                  Journey Maintenance
First Assistant Stock Prep Operator         Intermediate Maintenance A
Second Assistant Stock Prep Operator        Intermediate Maintenance
UTILITY OPERATOR-LEVEL 1*                   Junior Maintenance
                                            MAINTENANCE HELPER*

WASTE WATER TREATMENT INCINERATOR DEPARTMENT:
---------------------------------------------
Waste Water Treatment Operator
Incinerator Operator
INCINERATOR OPERATOR RELIEF*

INCINERATOR HELPER
INCINERATOR HELPER RELIEF*

CONVERTING & DISTRIBUTION CENTER:
CONVERTING DEPARTMENT:
HHT LINES:
#1                         #2                        #3
System Operator            System Operator           System Operator
Training Level 2           Training Level 2          Training Level 2
TRAINING LEVEL 1*          TRAINING LEVEL 1*         TRAINING LEVEL 1*

BRT LINES:
#1                         #2
Systems Operator           Systems Operator

                                       26

<PAGE>   27

Training Level 2           Training Level 2
TRAINING LEVEL 1*          TRAINING LEVEL 1*

#3                         #4
System Operator            System Operator
Training Level 2           Training Level 2
TRAINING LEVEL 1*          TRAINING LEVEL 1*

NAPKIN LINES:
#1                         #2                        #3
Systems Operator           Systems Operator          Systems Operator
TRAINING LEVEL 1*          TRAINING LEVEL 1*         TRAINING LEVEL 1*

KOLD KARE:
System Operator
TRAINING LEVEL 1*

OMNI FLOW WRAPPER:
Systems Operator
TRAINING LEVEL 1*

BUNDLER:
Systems Operator
TRAINING LEVEL 1*

OPEN BID (PLANTWIDE):
Stock Room Clerk
Quality Assurance Clerk
PULP & PAPER TECHNICIAN*
RELIEF STOCK ROOM CLERK*
RELIEF QUALITY ASSURANCE CLERK*

OPEN BID (CONVERTING):
CORE MACHINE OPERATOR
CORRUGATED PRINTER OPERATOR

                                       27

<PAGE>   28

RELIEF CORRUGATED PRINTER OPERATOR*
UTILITY*

(Note: position of "Utility" listed as reference only; position is not normally
filled)

DISTRIBUTION CENTER DEPARTMENT:
------------------------------
(NON PROGRESSIVE POSITIONS)
ULF MOTOR OPERATOR
SPOTTER DRIVER/DISTRIBUTION SPECIALIST
DISTRIBUTION SPECIALIST*

CDC MAINTENANCE DEPARTMENT
--------------------------
Journey Maintenance
Intermediate Maintenance A
Intermediate Maintenance
Junior Maintenance
MAINTENANCE HELPER*

MATERIALS SUPPORT DEPARTMENT
----------------------------
MOTOR OPERATOR*
POLY SPECIALIST

J.    Any employee returning to work from an unauthorized absence shall have the
      right to submit a bid, within seventy-two (72) hours from the employee's
      return to work, on any job posted during the employee's absence up to
      thirty (30) days from the date of return to work.

                                   SECTION 11
                               WIRE AND FELT TIME

A.    Wire Changes are to be handled as follows:
      1.  #3 Paper machine - Three (3) full paper machine crews (12 people) are
          to be used for putting on wires. Full paper machine crew is defined as
          Machine Tender, Back tender, Third Hand, and Fourth Hand.

                  If full crews are not available for the wire change, then off
                  shift, then days off crews members of #4 machine are to be
                  called in utilizing the "extra wire" rotation list.

      2.  #4 Paper Machine - Three (3) full paper machine crews (12 people) are
          to be used

                                       28

<PAGE>   29

          for putting on wires. Full paper machine crew is defined as Machine
          Tender, Back Tender, Third Hand, and Fourth Hand.
                  If full crews are not available for the scheduled wire change,
                  then off shift, then days off crew members of #3 machine are
                  to be called utilizing the "extra wire" rotation list.

      3.  Fiber Preparation employees on duty shall be used if employees are
          still needed after calling in all off duty crew members of both paper
          machines.

      4.  When employees are called in or stay in after their regular hours,
          they will receive six (6) hours pay for putting on the wire. This is
          with the expectation that the employees will be available for work
          during the entire time of putting on the wire. Should they only be
          available for part of the time, they shall be compensated
          proportionately.

      5.  Any employee covering any of the major jobs in either mill is not
          entitled to wire time during the wire change. This applies to regular
          and overtime hours.

      6.  If part of the wire change time comes within a worker's regular shift,
          it is not intended that he or she shall draw both their regular pay
          and their wire allowance for the same hours worked.

      7.  Call in details:
          (a) Who to Call Off shift by department seniority and rotation Days
              off by department seniority and rotation.
          (b) When making calls for clothing changes, the promotion book will be
              utilized by department seniority.
          (c) After a holiday shutdown where there has been no scheduled
              production, paper machine department schedule will be utilized to
              call in crew members (off shift, then days off) for a clothing
              change.
          (d) The following will not be eligible for the clothing changes:
              anyone on restricted duty, people who have requested the day off
              (vacation or off with permission) defined from 7:00 a.m. that day
              to 7:00 a.m. the following day and 5th hands).

B.    Felt changes are to be handled as follows:

      1.  Felt time will apply whenever a whole felt is removed from the paper
          machine.
      2.  The following number of Paper Machine employees will be used for a
          felt:
            a.  #3 pick-up:    8
            b.  #4 wet felt:   6
            c.  #4 pick-up:    8
            Off shift, then days off crew members on the machine scheduled for
            the felt will be called in as needed to "fill-in" by seniority and
            by shift.

                                       29

<PAGE>   30

          In the event, the full crew list has been exhausted for the paper
          machines scheduled for the felt change, then the off shift, then days
          off crew members from the other paper machine will be utilized by
          shift and seniority as described in Paragraph A, Item #7.

      3.  When employees are called in or held in after their regular hours for
          the purpose of putting on a felt or felts, they shall be paid as
          follows:

          a.  Six (6) hours at their regular rate of pay for a wet felt or time
              and one-half (1-1/2x) whichever is greater.

          b.  Seven (7) hours at their regular rate of pay for a pickup felt or
              time and one-half (1-1/2x) , whichever is greater.
          This is with the expectation that the employees will be available for
          work during the entire time of putting on the felt. Should they only
          be available for part of the time, they shall be compensated
          proportionately.

      4.  If the felt or felts are changed on Saturday or Sunday, the above
          premiums will be paid at the rate of time and one-half (1-1/2x) or
          double time (2x) respectively.

      5.  Any employee covering positions on the machine scheduled for the felt
          is not entitled to felt time during the felt change. This provision
          applies to regular and overtime hours.

      6.  In the event that the felt or felts are changed so that the change
          occurs on a split shift, employees will be paid proportionately.

      7.  Felt time begins when the felt is ready to be put on the machine and
          does not include shrinkage.

C.    When employees are requested to report for a wire or felt change at a
      specific time and are unable to begin the wire or felt change, they may be
      asked to perform duties with the wire or felt change e.g., assist the
      on-shift paper machine crew with the preparation of the wire or felt until
      such time as they can begin the wire or felt change. They shall be paid
      one and one-half (1-1/2X) times their regular rate of pay for such waiting
      time, except Sunday when double time (2X) will apply.

D.    These wire and felt time allowances are not to be credited against other
      overtime provisions nor is it intended to deny the workers the benefit of
      any other overtime provisions.

                                   SECTION 12
                                 REPORTING TIME

A.    Any employed who reports for work on his or her regular shift when
      required to do so or has

                                       30

<PAGE>   31

      received less than two (2) hours notification in the usual manner, not to
      report for work, shall receive four (4) hours at his or her regular rate
      of pay if there is not work for him or her.

B.    If the employee so reporting is put to work, he or she shall be paid for a
      full day, provided he or she is available for a full day's work; this
      shall also apply to an employee who has been laid off due to lack of work.

C.    Shop Stewards, or any Union member in the event no Shop Steward is
      available, will be called upon to substantiate the Company's unsuccessful
      efforts to notify an employee of any change in their daily work routine.

                                   SECTION 13
                                    CALL TIME

A.    When an employee is called/asked in at a time other than his or her
      regular working hours he or she shall be paid time and one-half (1-1/2)
      his or her regular rate of pay if off for the day with the Company's
      permission, or if the employee already worked his or her regular hours;
      but only his or her regular rate of pay if off due to layoff, lack of work
      or other causes; with a guarantee pay in any event equivalent to at least
      four (4) hours time at his or her regular rate of pay; six (6) hours on
      Saturday and eight (8) hours on Sunday. If, while calling in employees, an
      employee is not at home but can be contacted that employee may return the
      call to the Company if he/she desires the work If the return call is
      received prior to the position(s) being filled, that employee will be used
      to fill the positions(s).

B.    When a maintenance employee is called in at a time other than their
      regular working hours for the purpose of doing a specific job or related
      jobs to maintain operations of the equipment, it is not the intention of
      the Company to assign work to him or her, on any other additional
      unrelated jobs except in an emergency. The senior employee will be
      assigned to the emergency while the next person by seniority will fill the
      original call. This does not apply to the case of any employee called in
      as an addition to the work force or for the purpose of filling the job of
      an absence.

C.    If maintenance personnel are needed and are called/asked in on a Saturday,
      Sunday or Holiday before 7:00 a.m. and they show an effort to arrive as
      quickly as possible but no later than 6:30 a.m., the Company will pay four
      (4) hours call time until 7:00 a.m.. The pay rate will be the rate of pay
      they would normally receive for the day according to the provisions of
      this agreement.

                                   SECTION 14
                                CESSATION OF WORK

A.    It is agreed that there shall be no strikes, walkouts, lockouts, stoppage
      of work, slowdown or

                                       31

<PAGE>   32

      curtailment of production or other similar interruption of work during the
      period of this Agreement.

B.    The Paper, Allied-Industrial, Chemical & Energy Workers International
      Union, and Ransom/Pittston Township Local No. 2-1448 agree that neither of
      them will, during the term of this Agreement, authorize any strikes. It
      being understood and agreed that any strike not expressly authorized by
      the Union, in accordance with the P.A.C.E. International Constitution,
      By-Laws, Standing Rules and General Laws, shall be deemed for all
      purposes, an unauthorized strike, for which there shall be no financial
      liability on the part of the P.A.C.E. International Union and Ransom, and
      Pittston Township, Local No. 2-1448 or officers thereof.

C.    In the event of an unauthorized strike, walkout, stoppage of work,
      slowdown or curtailment of production or other similar interruption of
      work during the period of this Agreement, the P.A.C.E. International Union
      and the Ransom, and Pittston Township, Local No. 2-1448 will endeavor to
      secure the immediate return of the strikers to work. In case of any
      unauthorized strike, walkout, stoppage of work, slowdown or curtailment of
      production or other similar interruption of work during the period of this
      Agreement, the Employer may impose disciplinary measures involving loss of
      seniority, or loss of vacation pay, or suspension from work, or may
      discharge the employee involved in such unauthorized acts.

                                   SECTION 15
                               GRIEVANCE PROCEDURE

A.    The Union Grievance Committee shall be composed of six (6) members, plus
      the President of Ransom, and Pittston Township, Local No. 2-1448.

B.    The Company agrees to give the President of Local No. 2-1448, Shop
      Stewards and employees such time off with pay, as may be necessary for the
      handling of grievances and for the transaction of Union business with the
      Company, providing this privilege is used with discretion.

C.    A Shop Steward or President of Local No. 2-1448 shall not absent
      themselves from his or her place of work to visit other parts of the plant
      or department without permission of his or her Supervisor or
      Superintendent, any reasonable request shall be granted by the Supervisor
      or Superintendent.

      The President of Local No. 2-1448 or any Union official shall, upon
      entering a department, report to the Supervisor or Superintendent of the
      department of his or her representative and advise him or her of his or
      her business.

                                       32

<PAGE>   33

D.    Supervisors will confer with the Shop Steward on problems arising within a
      department in an endeavor to resolve such problems, to the extent of their
      ability.

E.    Grievances are to be handled according to the following steps:

      1.  The employee and Shop Steward shall refer any complaint to the proper
          Supervisor and if at the end of twenty-four (24) hours, the employee
          receives no satisfaction he or she shall file a formal written
          grievance. Such formal grievance must be filed with the Company no
          later than five (5) working days after the cause for such complaint
          has occurred.

      2.  If the grievance is not resolved at the end of five (5) working days
          after the same is filed with the Company the Union Grievance Committee
          shall meet with the Department Head involved to effect a resolution of
          the grievance. The immediate Supervisor may be designated to attend
          this meeting as desired by the Department Head.

      3.  If the grievance is not settled at the end of the three (3) working
          days from the meeting referred to in Step #2, the Human Resources
          Manager and Department Head shall meet with the Union Grievance
          Committee.

      4.  If the grievance is not settled in Step #3, the Plant Manager and
          Employee Relations manager shall meet with the Union Grievance
          Committee and the representative of the International Union within one
          (1) week or as soon as possible.

      5.  If the grievance is not settled as outlined in Step #4, the matter
          shall be submitted to the Union body at their next regularly scheduled
          monthly meeting for their decision as to whether the question is to be
          submitted to arbitration as hereinafter described. Such decision by
          the Union body must be relayed to the Company no later than five (5)
          days from the time the decision has been made. Then at the discretion
          of either party to the Labor Agreement, the grievance may be submitted
          for arbitration..

      6.  Arbitration shall be conducted by a sole arbitrator who shall be
          selected by both parties to the Labor Agreement under the then current
          Voluntary Labor Arbitration rules of the American Arbitration
          Association. All necessary expenses of the sole arbitrator shall be
          shared equally by the Company and the Union. The arbitrators decision
          shall be final and binding upon both parties.

      7.  Both parties may reject the first panel of arbitrators and request a
          second panel within ten (10) days after receipt of the first panel.
          Each party may strike one (1) name from the second panel until the
          arbitrator is chosen; this procedure must be accomplished within
          fifteen (15) working days. The arbitrator shall render his decision
          within a forty-five (45) day period from the date of the hearing. It
          is mutually agreed that there shall be no extension of the time limits
          in this procedure.

      8.  The arbitrator must render a decision within the scope and terms of
          this Agreement and only on interpretation and application of the
          provisions herein.

                                       33

<PAGE>   34

      9.  It is understood that only two (2) issues may be arbitrated on a given
          day by a given arbitrator.

F.    The Company will endeavor to cooperate with the Union in granting
      reasonable requests for time off without pay, for Union business providing
      this privilege is used with discretion.

G.    Employees serving on the Grievance Committee and Safety Committee shall be
      paid their regular rate of pay for all time spent in conference with the
      Company.

H.    The time limits in the steps listed above are understood to be with the
      exclusion of Saturdays, Sundays, Holidays, and non-operating days.

I.    It is understood that the Grievance and Negotiating Committees shall be
      composed of not more than seven (7) bargaining unit employees.

                                   SECTION 16
                            PERMISSION TO ENTER PLANT

A.    The duly authorized officers of the Union shall be permitted to enter the
      Company's premises for the purpose of adjusting complaints or ascertaining
      whether this Agreement is being performed, provided however, that they
      shall in no way interfere with the continuation of the Companys' business;
      and provided that such authorized representative of the Union shall,
      before seeking admission to any part of the Company's premises, first
      report to the office of the Company for permission.

B.    Employees not on duty who have not been called for work shall also report
      to the Company office before seeking admission to the Company's plant.

                                   SECTION 17
                                   SICK LEAVE

A.    Any employee who shall become ill, excluding Occupational Sickness or
      Accident, and whose claim of illness is supported by satisfactory
      evidence, shall be granted sick leave of absence automatically up to a
      period of nine (9) months without pay. Such leave of absence may be
      extended by mutual agreement between the Company and the Union and
      seniority shall accumulate during the leave.

B.    Maternity leaves shall be subject to the same limitations outlined for
      sick leave.

C.    It is understood that the absences referred to in the forgoing will be
      based on acceptable medical certification as submitted to the Company by
      the attending physician..

                                       34

<PAGE>   35

         PLAINWELL TISSUE CONSUMER PRODUCTS DIVISION OF PLAINWELL, INC.

                                HOURLY EMPLOYEES

                           SICKNESS AND ACCIDENT PLAN

                          EFFECTIVE SEPTEMBER 17, 1999

                                  INTRODUCTION

This document sets forth the Plainwell Tissue - Consumer Products Division of
Plainwell, Inc. Sickness and Accident Plan for Hourly Employees (the "Plan").
The Plan generally provides partial income replacement for certain disabilities
lasting 28 weeks or less, pursuant to the collective bargaining agreement
between Plainwell, Inc. and Paper Allied-Industrial, Chemical & Energy Workers -
Local 2-1448. No medical evidence is required for eligibility under the Plan.
Medical evidence is required to establish Disability and additional medical
evidence may be necessary to continue to receive benefits.

Throughout this document you will find terms that begin with a capital letter.
These terms are defined in the "Definitions" section, which appears at the end
of the document.

This Plan is self-insured. In other words, benefits are paid out of the assets
of Plainwell Tissue - Consumer Products Division of Plainwell Inc. Plainwell
Tissue has retained a third party administrator to perform certain functions
under the Plan. Since the Plan is now self-insured, it is no longer subject to
ERISA.

                          SHORT TERM DISABILTY BENEFITS

If, while you are covered under this Plan, you become Disabled due to Accidental
Injury or Sickness, you will receive during your period of Disability the
amounts stated in the collective bargaining agreement.

Benefits will begin as follows:

        Disability due to Accidental Injury................1st day of Disability
        Disability due to Sickness.........................4th day of Disability
                                                           or on the

                                       35

<PAGE>   36

                                                           first day of Hospital
                                                           Admittance or the day
                                                           of outpatient surgery
                                                           performed by a
                                                           Physician, whichever
                                                           is earlier.

Benefits will be paid until the earliest of:

      (a) the day you are no longer Disabled;
      (b) the day you die;
      (c) the day you fail to provide satisfactory proof of continuous
          Disability; as set forth in this section.
      (d) the day you fail to provide (if requested) additional medical evidence
          of your disability as set forth in this section.

Benefits are paid weekly for a maximum of 28 weeks for each incident of
Accidental Injury or Sickness. If you return to active employment after a period
of Disability, any subsequent Disability is considered a new Accidental Injury
or Sickness if the period between the end of one Disability and the onset of
another period of Disability is at least two weeks. If the period is less than
two weeks, you will, nevertheless, be considered to have a new Disability if the
second accidental Injury or Sickness is due to causes entirely unrelated to the
causes of the first Accidental Injury.

                              EMPLOYEE ELIGIBIILTY

You become covered under this Plan on the first day of the calendar month
following 120 days of continuous full-time employment with Plainwell Tissue, if
(a) you are a full-time hourly employee of Plainwell Tissue on that date, and
(b) you are actively employed on that date. Employees who are on the call list
of Plainwell Tissue are considered to be actively employed for purposes of this
Plan.

You are not covered under this Plan if you are a seasonal or temporary employee.

If you stop active employment, you will no longer be covered. However, coverage
will continue during the first nine months of temporary layoff or approved leave
of absence (if you were covered when the layoff or leave of absence began). If
you were previously covered and you return to active employment as a full-time
hourly employee of Plainwell Tissue, you will become covered immediately.

WHEN YOUR COVERAGE ENDS

Your coverage will end at midnight on the day you cease to be a full-time hourly
employee of Plainwell Tissue.

                                       36

<PAGE>   37

GENERAL EXCLUSIONS

You will not receive benefits for a Disability:

(a)   during which you are not under the regular care and attendance of a
      Physician providing appropriate treatment in accordance with the
      Accidental Injury or Sickness that caused the Disability;

(b)   that results from an intentionally self-inflicted injury.

(c)   that results from an occupational sickness or injury, unless you are not
      covered by a worker's compensation law.

                               CLAIMS FOR BENEFITS

The Plan is administered by Plainwell Tissue - Consumer Products Division of
Plainwell, Inc. Plainwell Tissue has retained a third party administrator to
perform certain functions. Plainwell Tissue may change the third party
administrator at any time but not the following procedure except as agreed upon
by Plainwell and the Union. Following is the procedure for making claims for
benefits.

          -   You must submit a written claim for benefits to the Human
              Resources Department and provide a signed authorization granting
              Plainwell the right to withhold any over-payments made to you
              under this Plan. The claim shall contain the following:

              1. A description of the disability.

              2. A detailed medical evaluation by your Physician stating that
                 you are unable to perform your job, the date the disability
                 commenced and, if possible, the date you are expected to return
                 to work.

          -   Your claim will be telefaxed by the Human Resource Department to
              the third party administrator immediately if the claim meets the
              above requirements with directions to initiate payments.

          -   The third party administrator will review the claim to determine
              whether you are Disabled under the Plan.

          -   If the third party administrator requires additional information
              or initially denies your claim, in whole or in part, or the
              continuation of benefits, the third party administrator

                                       37

<PAGE>   38

              shall give you written notice of the additional requested
              information or the denial or discontinuation through the Human
              Resource Department setting forth:

              (a) the specific reasons for the denial or discontinuation;

              (b) specific reference to the pertinent Plan provisions on which
                  the denial or discontinuation is based;

              (c) a description of any additional information necessary for the
                  claimant to perfect the claim or discontinuation, including
                  additional medical evidence, and an explanation of why such
                  information is necessary, and

              (d) appropriate information as to the steps to be taken if the
                  claimant wishes to submit the claim for review.

          -   If you do not provide the additional information requested within
              30 days from the date of receipt of the written request for
              additional information, your payments will be discontinued unless
              you request an examination by an independent physician located in
              the Scranton/Wilkes-Barre area, agreed to by you and the Human
              Resource Department at Plainwell's expense to determine if you are
              Disabled. Payments shall continue until such physician renders an
              opinion as to Disability, which opinion shall be binding as to the
              issue of Disability and the duration of Disability. If any
              payments were paid to you for any period or periods when you were
              deemed not to be Disabled by the independent physician, such
              payments shall be repaid to the Company by you.

          -   If you elect not to request an independent physician's
              examination, you or your authorized representative may petition
              the third party administrator, in writing, through the Human
              Resource Department for a review of the denial or discontinuation.
              You and your representative may review pertinent documents and
              submit your position to the third party administrator through the
              Human Resource Department. The third party administrator shall
              review its decision and communicate in writing its decision
              through the Human Resource Department to you setting forth the
              reasons for the decision within 30 days of your petition. You may
              appeal such decision to Plainwell Pennsylvania Human Resource
              Manager within 15 days after receipt of the decision who shall
              then review the decision after conferring with you and your
              representative, if desired, and shall render a final decision
              within 15 days from the date of the receipt of the appeal.

                            FAMILY AND MEDICAL LEAVE

Your absence from employment due to Disability will likely also be considered an
absence under the Family and Medical Leave Act of 1993 ("FMLA"). If you are
absent from work due to Disability, you will receive information regarding your
rights under FMLA.

                                       38

<PAGE>   39

                                   DEFINITIONS

When used in this Plan:

ACCIDENTAL INJURY means an accidental bodily injury that requires treatment by a
Physician.

HOSPITAL ADMISSION means admittance at an accredited hospital, including
admittance for outpatient surgery but does not include routine emergency room
care.

PLAN means the Plainwell Tissue Consumer Products Division of Plainwell, Inc.
Hourly Employees Sickness and Accident Plan in this section.

PHYSICIAN means any of the following licensed practitioners:

          (a) a doctor of medicine (MD), osteopathy (DO), podiatry (DPM), or
              Chiropractic (DC);

          (b) licensed doctoral clinical psychologist; or

          (c) where required by law, any other licensed practitioner who is
              acting within the scope of his/her license.

REGULAR CARE means you visit a Physician as frequently as is medically required,
according to standard medical practice, to effectively manage and treat your
condition that caused your Disability. You must be receiving appropriate
treatment and care by a Physician whose specialty or experience is appropriate
for your condition.

SICKNESS means a disease, disorder or condition, including pregnancy, which
requires treatment by a Physician.

DISABILITY means you are continuously unable to perform all your job duties
because of sickness or accidental injury.

                                   SECTION 18
                                INDUSTRIAL LEAVE

A.    It is agreed that Workers' Compensation benefits will be paid beginning on
      the fourth (4th) day of absence due to an industrial injury. The first
      three (3) days will be paid providing such absence is of more than seven
      (7) days in duration. It is further agreed that if such absence is of
      fourteen (14) days or more in duration, the affected

                                       39

<PAGE>   40

      employee will sign over to the Company those compensation benefits which
      would be paid by the Worker's Compensation insurance carrier covering the
      first (1st) week of compensable absence.

1.    It is understood that the absences referred to in the foregoing will be
      based on acceptable medical certification as submitted to the Company by
      the attending physician.

2.    The Company will keep the normal Company paid benefits in force for up to
      twelve (12) months following the date of disability for employees eligible
      and receiving Worker's Compensation benefits.

B.    When it becomes necessary for an industrial injured employee to undergo
      follow-up Treatment or therapy by the attending physician or therapist
      during scheduled work hours, such employee will be compensated for work
      time lost up to a maximum of eight (8) hours or twelve (12) hours per day.
      The employee must schedule such appointments before or after working hours
      if possible, however the Company will verify such appointments and
      schedule the time before or after working hours whenever possible.

C.    Any industrially injured employee returning to work and unable to perform
      their regular duties must be able to assume the duties within thirty (30)
      days, of a job on which a bid has been submitted.

D.    The Ransom, and Pittston Township Light Duty program is designed for
      employees who suffer an injury or illness on the job. Employment is
      provided for an employee who has suffered a lost time incident or
      maintained for an employee who has not suffered a lost time incident, by
      matching an employee's medical restrictions with existing work needs in
      the operation as follows:

      1.  Medical restriction will be determined by a physician

      2.  For maintaining employment for an employee who has not suffered a lost
          time incident, a meeting will be held with the employee, a Union
          Official and a Company Official. For returning employees to work
          following a lost time incident, a meeting will be held with the
          employee, the available Union Committee, Safety Supervisor, and
          Department Manager or Superintendent. The employee's medical
          restrictions will be reviewed to ensure that no employee is assigned
          work that is in conflict with the medical restrictions. The employees
          will be informed of their work hours, work responsibilities and
          related issues (i.e., time clock procedures) at this meeting.

      3.  Employees working under this program will stay in the department where
          injured. If work is not available in an employee's department, the
          employee may be assigned to another department. Employee's assigned
          light duty to his or her regular bid job will be carried as an extra.

                                       40

<PAGE>   41

    4.   Employees working under this program should rotate with their shift in
         both 8 hour and 12 hour crewing applications. They should keep the
         highest rate of pay. Employees who are able to make the Saturday or
         Sunday schedule will be brought in. Employees on-call under this
         program will be contacted for the day.

                                   SECTION 19
                                  GENERAL LEAVE

A.  An employee who has a legitimate reason and requests time off by giving a
    minimum of five (5) days advance notice in writing to the Company, will be
    granted the time off provided qualified replacements are available to
    perform his or her job.

B.  The Company recognizes that occasional emergency or unpredictable situations
    arise in which employees require additional time off. As an hourly employee
    you may request an unpaid leave of absence (typically not to exceed thirty
    (30) days). This type of leave of absence will be evaluated and granted at
    the discretion of the department/plant manager based on:

    1.   Management's determination of whether the reason given for the request
         is legitimate.

    2.   The economic impact that would result if a leave was granted.

    3.   The conditions which lead up to the request are out of the individual's
         control.

    4.   Where Federal and State laws mandate the Company to grant the time off
         (example: Family & Medical Leave Act...FMLA). This type of leave is
         intended to be taken after all accrued vacation time is exhausted and
         employees will be required to pay their employee benefit plan premium
         costs during the leave of absence.

Employees who desire to apply for this type of leave of absence should do so in
writing at least five (5) days in advance of the first day requested off.

Exceptions to the above under FMLA are: (1) eligibility; (2) employee must
ordinarily provide 30 days advance notice when the leave is "foreseeable"; (3)
all paid leave applications shall be applied (substituted) to the leave request;
(4) for the duration of the FMLA leave, the Company will maintain the employee's
health coverage; and (5) the FMLA leave will not result in the loss of any
employment benefit that accrued prior to the start of the employee's leave.

                                   SECTION 20
                           HEALTH AND WELFARE BENEFITS

A(1).    All costs in connection with the Blue Cross./Blue Shield Hospital,
         Surgical, and Major Medical Plans, Life Insurance, Dental Insurance,
         and Sickness and Accident Benefits, within the limitations of the
         policies and plans shall be borne by the Company.

                                       41

<PAGE>   42

Employees on the payroll may select one of the two options listed below:

OPTION #1

Employees may elect to be covered under the Blue Cross/Blue Shield Comprehensive
Medical Plan with the understanding that such Plan will be provided at no
premium cost to the employee. Once an employee elects to take the Comprehensive
Medical Plan, such employee will not be allowed to return to the existing
Medical Plan.

OPTION #2

Employees may elect to be covered under the existing Blue Cross/Blue Shield
Major Medical Plan with the understanding that such employees will contribute
fifty percent (50%) of any future increases in premium over that being paid by
the Company. If premiums decrease in the future, employee contributions will be
reduced by fifty percent (50%) of the decrease.

Increases or decreases in the premium will be certified in writing by Blue
Cross/Blue Shield. Copies of these certifications will be given to the Union and
affected employees.

Employee contributions will be made through four (4) equal weekly payroll
deductions each month.

Employees may, on the 1st of any month, decide to elect Option #1.

         2.   It is mutually agreed that the group insurance program is to be
              utilized only as intended and that both parties will actively
              engage in combating any abuse thereof. Employees must have 120
              calendar days of service prior to being eligible for the above
              group insurance coverage.

B.  Any employee hired on or after December 4, 1995 and who subsequently becomes
    eligible for medical benefits may elect either Option #1 or Option #2.

C.  The Company's portion of a laid off employee's health and welfare benefits
    will be paid by the Company for a period of twelve (12) months following
    the month in which she/he is laid off. Following this, COBRA would apply.

D.  Health and Welfare benefits are as described in the plan booklets and
    endorsements.

         1.   Effective September 17, 1999:
                   a.   Life and Accidental Death and Dismemberment     $23,000
                   b.   Weekly Sickness and Accident Benefit            $   294
                        (28 week maximum)

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<PAGE>   43

                        28 weeks.

         2.   Effective September 17, 2000:
                   a.   Life and Accidental Death and Dismemberment      $23,500
                   b.   Weekly Sickness and Accident Benefit             $   308
                        (28 week maximum)

         3.   Effective September 17, 2001:
                   a.   Life and Accidental Death and Dismemberment      $24,000
                   b.   Weekly Sickness and Accident Benefit             $   322
                        (28 week maximum)

         4.   Effective September 17, 2002:
                   a.   Life and Accidental Death and Dismemberment      $24,500
                   b.   Weekly Sickness and Accident Benefit             $   336
                        (28 week maximum)

         5.   Effective September 17, 2003:
                   a.   Life and Accidental Death and Dismemberment      $25,000
                   b.   Weekly Sickness and Accident Benefit             $   350
                        (28 week maximum)

E.   A United Concordia Dental Program is provided as follows:

         1.   Basic plan plus prosthetic rider for employees and dependents with
              Basic Plan reimbursement at 80/20 and prosthetic reimbursement at
              80%. Reimbursements will be limited to $1,000.00 maximum per
              individual per year. Employees must have six (6) months or more of
              service prior to being eligible for Dental Program coverage.

         2.   Oral surgery at 80/20 Co-Insurance.

         3.   Orthodontic coverage at 50% for the charge to the maximum of
              $800.00 per lifetime for children under age 19.

         4.   Periodontal coverage at 80/20 Co-Insurance.

F.  Penn Vision II Option 2 coverage will remain in effect for the duration of
    the agreement..

G.  Blue Cross/Blue Shield of Northeastern Pennsylvania will be maintained as
    the group health and United Concordia as the dental carrier for the
    duration of this agreement unless the Company and the Union mutually agree
    to change to a provider that offers the same or better coverage.

                                       43
<PAGE>   44

                                   SECTION 21
                                  FUNERAL LEAVE

A.  In the event of a death of an employee's immediate family, i.e., mother or
    father, husband or wife, brother or sister, son or daughter, mother-in-law
    or father-in-law, brother-in-law or sister-in-law, grandchildren,
    grandparents, son-in-law, or daughter-in-law, employees shall receive
    immediately following such death and upon request a maximum of four (4)
    consecutive days funeral leave. During this four (4) consecutive day funeral
    leave employee's will be paid their regular rate of pay. Employees must work
    at least one (1) day during the week in which the death occurs to be
    eligible for death leave, except where serious illness of an employee, not
    on sick leave, or serious illness or death in the employee's family
    precludes such employee from reporting on his or her scheduled job.

B.  Death Leave will be paid at the rate of time and one-half (1-1/2) for
    Saturday and double time for Sunday to those employees, who, ordinarily
    would have been scheduled to work such days.

C.  It is understood that employee are not to receive death leave pay if they
    elect to work in lieu of time off. Employees must provide proof of death
    when so requested by the Company.

                                   SECTION 22
                                    JURY DUTY

A.  The Company Agrees to pay the difference between the employee's regular rate
    of pay and jury duty pay, based on acceptable proof, to any scheduled
    employee who is called to serve on jury duty.

                                   SECTION 23
                                  MISCELLANEOUS

A.  Labor-Management Meetings: It is agreed that there will be a
    Labor/Management Good Will Meeting once a month. These meetings will be held
    on a day mutually agreed upon.

B.  It is agreed that there will be a joint Labor/Management Safety Committee
    which will meet once a month.

C.  Bid Notices and Award Notices: The Company agrees to furnish the President
    of Ransom and Pittston Township Local No. 2-1448 with copies of bid notices
    and bid award notices. A Union Officer will be notified of

                                       44
<PAGE>   45

    discharge cases as soon as practicable. The Union will be furnished a copy
    of all current bargaining unit jobs.

D.  Union Negotiating Committee:

    The Company agrees to pay the Union Negotiating Committee eight (8) hours
    pay per day at their straight time hourly rate for each day, including
    Saturdays, Sundays, and Holidays, of Labor Agreement negotiations up to a
    maximum one hundred twelve (112) hours of pay.

E.  There shall be no discrimination against any bargaining unit employee on
    account of race, color, religion, sex, age, disability, national origin, or
    veteran status. Any provision of this Agreement or practice or custom to the
    contrary shall be null and void.

F.  Whenever the male pronoun is used in this contract, it may include the
    female pronoun if appropriate thereto; and whenever the singular is used it
    may include the plural if appropriate thereto.

G.  The Company will continue its present practice regarding major construction,
    major work repair, and installation of equipment. It is the Company's desire
    and intention to award as much maintenance work as possible to Local 2-1448,
    P.A.C.E International Union. It is agreed that no maintenance work normally
    performed by Maintenance Department employees after the ratification of this
    contract (and resulting maintenance position reductions) will be done within
    the plant by outside contracting services until all factors (below) have
    been carefully considered (including but not limited to). It is recognized
    by the Union and the Company that during time of peak work loads, beyond the
    capabilities of normal size maintenance crew to absorb, it may be necessary
    to supplement the maintenance effort with outside contractors or other
    source of labor as dictated by the circumstances and economics of the
    situation.

    1.   Time availability of required skills and personnel within appropriate
         department.

    2.   The timely availability of necessary tools and equipment.

    3.   The time limits within which the work must be completed.

    4.   Availability of related services

    5.   The continuity of plant operations while the work is being performed.

    6.   Pertinent cost factors.

The above understandings supersede all supplemental agreements, position
statements, prior understandings either written or oral, grievance answers,
arbitration awards, or any other source related to the contracting out of work.

H.  Shift changes will be permitted within reason providing the privilege is not
    abused and with such shift changes to be confined between employees on the
    same production unit and of the same job classification. A shift change
    request of an entry level employee who is being trained

                                       45
<PAGE>   46

    on a higher classification will only be permitted with another entry level
    employee who is also being trained on the same higher classified job. The
    Company will make a good faith effort to grant shift trades.

I.  The Company will furnish specialist tools as required and will reimburse
    employees for tools broken on the job. Basic operating tools will be
    supplied by equipment operators. Basic operating tools include adjustable
    wrenches, screwdrivers, and drive socket set (1/2" or 3/8"). Maintenance is
    required to possess a basic tool set consisting of: set of combination
    wrenches (1/4" to 1-1/4"), allen wrenches, ball peen hammer, screwdrivers,
    assorted pliers, 8" and 14" pipe wrenches, punches and chisels, combination
    steel square and centering head, feeler gauges, 6" and 2' levels, and 1/2"
    and 3/8" drive socket sets.

J.  A Union Officer or Steward may attend a Labor/Management Counseling Meeting
    on their own time, if so requested by an hourly employee or employees. A
    Union Officer or Steward who is required to attend the meeting during their
    shift will be paid for time spent in the meeting.

K.  The Company will provide glass enclosed bulletin boards for the posting of
    Union notices.

L.  It is not the intent of the Company to deprive bargaining unit employees of
    wages by having supervisors perform work usually done by bargaining unit
    employees. No supervisors will perform bargaining unit work except that
    which is necessary in instructing employees in the operation of the work or
    in case of emergencies.

M.  Air conditioning and smoke eaters will be provided in the existing cafeteria
    facilities.

N.  A copy of the Supervisor's Industrial Accident report will be distributed to
    a Union representative during the monthly Safety Meeting.

O.  Break areas, vending machine areas, and rest room facilities will remain
    open at all times.

P.  Fans will be provided on all production units.

Q.  Labor/Management meetings will be scheduled within the time required for the
    Agenda.

R.  Employees covered by this Labor Agreement will not be sent to outside
    warehouses not covered by this Agreement.

S.  The Company may hire full time college students as summer temporary help.
    These employees will be covered by this Agreement except the provisions of
    Article 10 - Seniority will not apply. Their employment will being no
    earlier than May 1st, and will terminate no later than September 15th of
    each year unless the Company and the Union mutually agree to an extension.

T.  In the event that the parties have not identified all "4-crewing" language
    references in the Labor Agreement, it is understood that those "missed"
    applications would be changed to the "12-hour shift schedule" reference if
    needed.

                                       46
<PAGE>   47

                                   SECTION 24
                               MAINTENANCE PROGRAM

A.  Only employees in the following Maintenance crews are subject to the
    provisions of this Maintenance program: Mechanics, and Electricians. The
    title "Maintenance" or the term "Maintenance Crew" will include Mechanics
    and Electrical classifications.

    1.   If a maintenance employee at any level of one trade (either mechanical
         or electrical) begins training in the other trade, his or her
         department seniority will become the date the training begins and will
         revert to the date held previously when the Journeyperson level in the
         new trade is achieved.

    2.   When a permanent vacancy in either work location (CDC or Plant 1)
         occurs, maintenance employees in the affected work location will be
         polled by department seniority to fill the opening. Subsequent openings
         following the initial vacancy in question will be filled by polling the
         affected work location maintenance employees. In the event that the
         final vacancy in this sequence is not filled, employees from the other
         work location will be polled by department seniority. In the event that
         the vacancy is not filled, paragraph G will be applied.

    3.   Vacation relief, sick leave, and industrial leave for shift maintenance
         employees will be handled by polling employees at the affected work
         location (CDC or Plant 1) by department seniority and qualifications to
         cover the open shift. If there a no volunteers the junior qualified
         employee at the work location where the vacancy occurred will be
         required to fill the vacancy. If no junior qualified employees at the
         affected work location are available, the junior qualified employee at
         the other work location will be required to fill the vacancy.

    4.   In the case of emergencies, the available qualified employee may be
         transferred from one Department to the other to assist with the
         emergency.

B.  The following are the grades of Maintenance employees and helpers:

    Journey Maintenance
    Intermediate Maintenance "A"
    Intermediate Maintenance
    Junior Maintenance
    Maintenance Helper

                                       47
<PAGE>   48

    A Journey Maintenance employee is one who is a finished Mechanic, or
    Electrician and has the necessary tools required. In general, in the case of
    Ransom Maintenance, he or she is a man or woman who could qualify as a
    Journey Worker in any Industrial Job Shop. In the case of CDC Maintenance,
    he or she is a man or woman who could qualify as a Converting Journeyperson
    in a recognized tissue industry converting facility. He or she must be able
    to execute the necessary work without direct supervision from his or her
    supervisor.

C.  The Company will select the Maintenance Helpers on its Maintenance crew
    through a testing procedure administered by the State Bureau of Employment
    Security for Mechanical Aptitude. Each person selected for the maintenance
    crew shall indicate his or her desire to become Journey Maintenance and
    shall indicate his or her desire in writing, on a from provided by the
    Company as soon as he or she has completed his or her probationary period,
    to start taking courses or other schooling approved by the Company to
    acquire such mathematical knowledge, blueprint reading ability and other
    related subjects as are required to reach Journey Maintenance status. Upon
    enrollment in such courses or schooling, the Company shall re-imburse the
    employee 50% for the cost of such courses or schooling with additional 50%
    to be paid upon completion and passing of said courses or schooling.

D.  An applicant transferred to the job of Maintenance Helper, who has
    temporarily worked with the Maintenance crew for continuous periods of two
    (2) or more forty (40) hour weeks, will be credited with all such periods up
    to the total time requirement for promotion to Junior Maintenance. During
    the first three (3) months after an applicant has been regularly assigned to
    a Maintenance Helper's job, he or she will be classified as probationary on
    that crew and he or she can be removed from the crew at any time during the
    period. Prior to removal from the crew of any such probationary Maintenance
    Helper because of his or her performance, management will notify the Union
    standing committee of the intended action and the justification thereof. If
    the standing committee considers the proposed removal unjustified, it may
    take the matter up with the Engineering and Maintenance Management, whose
    decision shall be subject to the Grievance Procedure. If such applicant
    transferred to the Maintenance Crew from another department in the plant, he
    or she will retain his or her seniority in the department from which he or
    she transferred for a period of ninety (90) days and will be returned to the
    job from which he or she transferred if removed from the crew. During the
    probationary period, Management will determine as quickly as practical
    whether or not the applicant has the aptitude and other characteristics
    necessary to become Journey Maintenance. Unless a Maintenance Helper has
    earlier been removed from the crew, prior to the expiration of the first
    ninety (90) days after he or she has been regularly assigned as a
    Maintenance Helper, the Company will review with him or her their progress
    to date.

E.  An employee's skill and knowledge will be determined through an objective
    and measurable format before promotion to the next level as outlined below.

                                       48
<PAGE>   49

    1.   An applicant selected by the Company to enter the Maintenance program
         will be placed, when a vacancy exists, on the Maintenance Helper's job
         for a period of nine (9) months elapsed time or 1,350 worked hours,
         whichever is longer; and at the end of the period, will be
         automatically promoted to Junior Maintenance.

    2.   A Junior Maintenance employee shall spend a period of nine (9) months
         elapsed time or 1,350 worked hours whichever is longer, at which time
         he or she shall then be promoted to Intermediate Maintenance.

    3.   Upon completion of one (1) year elapsed time or 1,800 worked hours,
         whichever is longer, as Intermediate Maintenance, he or she will be
         promoted to Journey Maintenance "A".

    4.   Upon completion of one (1) year or 1,800 worked hours, whichever is
         longer, as Intermediate Maintenance "A", her or she will be promoted to
         Journeyperson.

F.  The progress and qualifications of each Maintenance employee below the grade
    of Journey Maintenance will be periodically reviewed at intervals of not
    more than six (6) months. Records of the results of these reviews will be
    maintained and will be discussed with each employee at six (6) month
    intervals. If the employee so desires, he or she may have his or her
    progress report discussed with him or her. Whenever such a review of a
    Maintenance employee has been completed, the Company shall notify him or her
    in writing with a copy to the Local Union calling his or her attention to
    the completion of such review and his or right to request a discussion of
    it.

G.  An open mechanical position in the "Maintenance Program" will be filled from
    within the organization, In the event that no one is interested in becoming
    a maintenance mechanic, the position will be filled from outside resources.
    An Open Electrical position in the "Maintenance Program" will be filled from
    outside resources. Before that step is taken, the Company will poll all
    plant employees to see if anyone has journey maintenance qualifications to
    fill an open electrical position.. If an employee has the desired
    qualifications, then they will be considered before the position is filled
    from outside resources.

H.  For Ransom, management will adopt an organized plan as far as practical of
    rotating each employee below Journey Maintenance through different operating
    departments, including shift work under different Journey Maintenance
    employees, in order that he or she may gain the widest variety of experience
    in the work of his or her chosen trade. For CDC, Management will adopt an
    organized plan as far as practical of rotating each employee below Journey
    Maintenance through different operating systems, including shift work, and
    under different Journey Maintenance employees, in order that he or she may
    gain the widest variety of experience in the work of his or her chosen
    trade.

I.  Employees in the classification of Journey Maintenance will be recognized
    for additional abilities or skills. The additional skills recognized for
    Ransom will be Basic Welding, Advanced Welding, Instrument Repair,
    Machinist, Accuray Certification, Pipefitter, PLC, Substation, and other
    future categories to be determined

                                       49
<PAGE>   50

    by the Company. The additional skills recognized for CDC will be Machinist,
    Basic Welding, Advanced Welding, PLC, Converting Maintenance, Converting
    Electrician, Building Maintenance, and other future categories to be
    determined by the Company. The number of employees to be utilized in each
    skill category shall be determined by the Company. A program will be
    developed by the Company describing requirements and qualifications which
    must be met before the selected Maintenance Department employees will be
    considered qualified in a given skill and therefore eligible to receive the
    established skill value adjustment. Distribution of additional skills will
    be handled in the following manner Each individual who possesses existing
    recognized skills beyond the journeyman level will choose their primary
    skill. As new skill categories are developed or existing skill categories
    expanded to include additional individuals, the interested individuals will
    be selected by seniority order among the journeyman maintenance employees
    possessing the least number of skills. Training will continue until all
    interested employees possess a primary skill. At that time, training will
    revert to the top of seniority order until all interested employees possess
    a secondary skill. This process shall be repeated based on the total number
    of existing skills and future skills to be determined by the Company.

    Employees will be considered eligible to receive the skill adjustment upon
    recommendation of the evaluation team composed of other journey people and
    maintenance supervision. Employees shall demonstrate to the team the
    necessary skill by performing work in the field utilizing the new skill.

    If transferred to a work assignment within the Pennslyvania operations where
    a skill(s) cannot be utilized, the Company shall suspend the skill
    adjustment after reviewing the matter with the evaluation team. Should the
    employee in question transfer to an area where the skill can be utilized and
    the Company, at the time of the transfer, requires additional employees with
    the skill(s) formerly suspended, the employee will be re-evaluated by the
    evaluation team. Where retaining is needed, the skill adjustment will be
    considered after the retraining and pending the evaluation team's
    recommendation.

    Training or classwork for skill qualifications shall be done on the
    employee(s) own time. The employee will be reimbursed for necessary tuition
    and books under the guidelines of the Plainwell Tissue Tuition Refund
    Program upon presenting evidence of satisfactory completion of the course.

         1.   Based on the guidelines set forth in Paragraph I, 1., a skill
              adjustment of twenty cents ($0.20) per hour will be added to the
              Journey Maintenance classification for each skill in which the
              employee meets the required qualifications, with the exception of
              the Basic Welding Skill, which shall be ten cents ($0.10) per
              hour.

J.  Nothing herein above shall be construed so as: (a) To oblige the employer to
    hire or

                                       50
<PAGE>   51

    retain any employee unless there is work for him or her, or (b) To mean that
    any right or obligation of either party to the Labor Agreement, established
    under the Agreement and not herein specifically amended, has been modified
    or revoked.

                                   SECTION 25
                               ABSENTEEISM POLICY

A.  Attendance Incidence Definition: An attendance incident is any absence of
    one day or a combination of consecutive days. An instance of tardiness will
    consititute 1/2 of an attendance incident.

B.  Absence Definition: Any time an employee is not at work or leaves work for
    any reason with the following exceptions: 1. Contract-provided leave or time
    off: Vacation, Holiday, Jury Duty, Military Leave, Funeral Leave, Absence
    for official union business, absence for Company paid business, and General
    Leave, Sick Leave and Industrial Leave. 2. Any approved absence.

C.  Tardiness Definition: Arriving at work at the start of eight (8) minutes and
    up to and including four (4) hours late. Tardiness in excess of four (4)
    hours will be recorded as an absence.

D.  Attendance Incident Problem Definition: Any employee who produces seven (7)
    incidences in a twelve (12) month moving period.

E.  Progressive Disciplinary Action Steps:

    1.   At seven (7) attendance incidences, a formal documented verbal warning
         will be issued.
    2.   At eight (8) attendance incidences, a written warning will be issued.
    3.   At nine (9) attendance incidences, a disciplinary layoff will be
         issued. All eight (8) hour shift personnel will receive a three
         scheduled workday suspension (24 scheduled work hours). All twelve (12)
         hour shift personnel will receive a two scheduled work day suspension
         (24 scheduled work hours). All suspensions will begin on the first
         scheduled work day of the second work week after the nine (9)
         incidences. No suspensions will be issued on either Sundays or
         holidays, In the event the employee receives ten (10) incidents before
         their suspension has been issued, discharge for cause will replace the
         suspension.
    4.   At ten (10) attendance incidences, the employee will be discharged for
         cause. In these cases, the Human Resource Manager and the Plant Manager
         must be consulted before this action is taken in order to consider the
         employee's work and previous work record.

F.  For every two calendar months, 58 to 61 days depending on the months
    involved of active employment (i.e., actively at work and not on A&S,
    Worker's Compensation, etc.) without incurring an attendance incident, one
    attendance incident will be removed from an employee's record of attendance
    incidences until his or her balance of incidences is back to zero.

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<PAGE>   52

                                   SECTION 26
                                   SCHEDULING

A.  Plant senior employees within a department shall be scheduled in their own
    department.

B.  Except where Section 10, Paragraph F-3 applies, employees who hold bids
    either permanent or temporary, shall work in their bid jobs so long as their
    plant seniority entitles them to work in their own department on a weekly
    schedule.

C.  Except where Section 10, Paragraph F-3, applies, all employees shall,
    according to department seniority, rotate with their shift. The proper
    rotation is 7:00 a.m.-3:00 p.m. to 11:00 p.m.-7:00 a.m. to 3:00 p.m. - 11:00
    p.m. for eight hour shifts and 7:00 a.m. - 7:00 p.m. to 7:00 p.m.-7:00 a.m.
    for twelve hour shifts.

D.  Relief and temporary bid holders who make the schedule shall fill available
    openings if it is economically feasible or plant operations require it.

E.  Entry level and non-progressive positions shall be forfeit to employees who
    are entitled, by plant seniority, to work in their own department on the
    weekday schedule.

F.  Converting employees who are not scheduled in the Converting Department
    shall be scheduled, by plant seniority, in the highest paying ($/week)
    weekly openings in other departments for which they are qualified.

G.  Employees who based on their plant seniority, are not placed on the weekly
    schedule shall be assigned to the lay-off (call-off) list.

    Call List Procedures and Rules are listed as follows:
    1.   All calls made under this application will be made by management.
    2.   Employees who, after being called to work under his application and
         fail to respond to a call for any reason during the call time schedule
         listed below, shall not be eligible for unemployment compensation
         benefits for the missed day(s) in question.
         a.   All calls placed on weekdays and weekends shall be based on
              seniority, using the Call-List roster. Employees who cannot be
              called for the 7:00 a.m. to 3:00 p.m. shift (and 7:00 a.m. to 7:00
              p.m. shift) are employees who work the previous shift. Note, these
              employees must be considered as part of the Call-List roster and
              contacted should a need arise for the 3:00 p.m. to 11:00 p.m.,
              11:00 p.m. to 7:00 a.m., or 7:00 p.m. to 7:00 a.m. shifts.
         b.   All work calls, including rotation list calls, placed on weekday
              and weekends shall be based on the following Call Time Schedule:

              5:00 a.m. to 8:00 a.m. for shifts starting at 7:00 a.m.
              1:00 p.m. to 4:00 p.m. for shifts starting at 3:00 p.m.,
                7:00 p.m.

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<PAGE>   53

                11:00 p.m.

              6:00 p.m. to midnight for shift starting at 7:00 p.m., 11:00 p.m.

              If additional employees are needed after the shift has stated it
              is permissible to call employees outside the Calling Time Schedule
              as long as the following rules are applied:

                   1)   Regular Call List - The unavailable employees will be
                        called during calling hours, if needed.
                   2)   Rotation Lists - Senior employees in the desired
                        department must be called first. Senior employees who
                        were called outside the calling hours must be recalled
                        during the above calling hours, if needed.

         c.   All calls placed on weekdays and weekends shall be allowed to ring
              for approximately forty-five (45) seconds. If the phone is busy,
              management will wait approximately five (5) minutes before
              re-trying. All subsequent calls will be placed starting with the
              first employee whose phone was busy per the eligibility language
              in paragraph 2-a. Management will move to the next employees on
              the list. Management placing the call must sign the sheet,
              indicate the time that the call was placed, and list the employee
              as a "no answer" if the employee does not respond. If the employee
              calls back after the initial effort to contact him/her, the
              employee will be used if the position has not been filled.

    3.   Employees on the Call List who cannot be reached or refuse to report
         when called during the call time schedule listed in 2-b will be subject
         to the Absenteeism Policy.
         a.   Employees who cannot be reached for more than three (3)
              consecutive days will be sent a letter asking them if they wish to
              continue their employment. Employees failing to respond to the
              letter within five (5) calendar will be discharged.

H.  In Converting, twelve-hour vacancies shall be filled before eight-hour
    vacancies.

I.  Employees who have been assigned to a Converting twelve-hour operation shall
    remain on twelve hours so long as they make the Converting schedule.

J.  Employees shall be assigned, by department seniority, to the same shift on
    Saturdays as they worked during the week.

K.  Employees shall have until 9:00 a.m. on Wednesday to submit requests for
    Saturday off. The Company will post a list of all personnel requesting
    Saturday off indicating acceptance or denial by the Company of such request.
    This list will be posted on enclosed bulletin boards by the end of the day
    shift on Thursday. Employees may request a copy of their Request Off form
    from their Supervisor.

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<PAGE>   54

L.  Once the weekly schedule is finalized and posted the Company will not move
    employees from job to job except in emergency situations where qualified
    replacements in key positions, are needed. This does not preclude the
    Company from shutting down equipment on a shift and utilizing those
    personnel according to the provisions of this agreement.

M.  The Company agrees to post work schedules for all departments on the
    Wednesday preceding the work week, whenever possible by 3:00 p.m.

N.  It is understood by both parties that the Company is to be permitted a
    leeway of not less than twenty-four (24) hours from the time work schedule
    errors are reported to the Company for correction of same.

O.  The Company and the Union may mutually agree to add to or change these
    scheduling ground rules where permitted under the Labor Agreement.

P.  In regard to vacation replacement vacancies being filled, the following will
    apply:
    1.   Regarding the Bath and Towel lines in the Converting Department, two
         (2) people from Bath and two (2) people form Towel lines will be
         allowed to be on vacation per week and will be replaced on the
         schedule.
    2.   Regarding the combined Napkin lines in the Converting Department, one
         (1) person will be allowed to be on vacation per week and will be
         placed on the schedule.
    3.   In the Paper Machines, two (2) positions per shift will be granted
         vacation as follows:
         a.   No two from any one machine off at the same time.
         b.   Progression will be used to fill vacancies.
    4.   In the Fiber Plant work group, one (1) person per shift will be granted
         vacation as follows:
         a. Progression will be used.
    5.   Vacancies as a result of vacation-by-days may not be filled under the
         above, items 1-4.

                                   SECTION 27
                             CHANGE AND MODIFICATION

A.  This Agreement shall be in effect September 17 1999, and shall remain in
    effect until and including September 16, 2004, and from year to year
    thereafter, unless terminated in accordance with provisions of Section 28
    below.

B.  If either party shall desire to change any provision this Agreement, it
    shall give written notice of such desire to the other party at least sixty
    (60) days in advance of any anniversary date.

C.  The giving of notice provided in subsection B above shall constitute an
    obligation upon both parties to negotiate in good faith all the questions at
    issue, with the intent of reaching written agreement prior to the
    anniversary date.

D.  Any provisions of this Labor Agreement which is contrary to law will be
    reviewed to conform to the legal requirements however, all other provisions
    of this Labor Agreement will remain in

                                       54
<PAGE>   55

    full force and effect.

                                   SECTION 28
                            TERMINATION OF AGREEMENT

A.  At any time after the anniversary date, if no agreement on the questions at
    issue has been reached, either party may give written notice to the other
    party of intent to terminate the Agreement in not less than ten (10) days.
    All provisions of the Agreement shall remain in effect until the specified
    time has elapsed. During his period, attempts to reach an Agreement shall be
    continued.

B.  If the parties have failed to resolve their differences before the specified
    time has elapsed, all obligations under this Agreement are automatically
    cancelled.

C.  This Agreement shall be binding upon the parties, hereto, their successor,
    administrators, assigns and executors. In the event this operation or any
    part of it is sold, leased, assignment, receivership or bankruptcy
    proceedings, such operation shall continue to be subject to the terms of
    this Agreement so long as the operation remains substantially similar to
    that which is covered by this Agreement.

                                   SECTION 29
                               CHANGES IN WRITING

A.  No changes of any provision of this Agreement shall be recognized or
    effective unless such change is in writing and signed by the parties to this
    Agreement.

B.  All contract Agreements are to be incorporated in the Agreement. Any future
    Agreements made after the signing of the new Contract will be in written
    form and copies provided each bargaining unit employee at Company expense.

C.  This Agreement and Appendixes 1,2,3,4,5,6 supercede all prior Agreements and
    understandings, oral or written, expressed or implied, and shall govern the
    entire relationship between the parties.

                                   APPENDIX 1
                                  COMPANY RULES

Violations of all General Plant Rules and Operational Rules listed below shall
be managed under the following Progressive Discipline Schedule: (1) formal
documented verbal warning; (2) written warning; (3) suspension; and, (4)
discharge for cause; in these cases, the Labor-Management

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<PAGE>   56

Committee must be consulted before this action is taken in order to consider the
facts, including the employee's overall record. This Progressive Discipline
Schedule will operate under a one year moving period in regards to this
Appendix.

GENERAL PLANT RULES:

1.  Notices shall not be posted on Company property nor upon the official
    Bulletin Boards without the permission of Management.

2.  Loitering during working hours by employees shall not be permitted.

3.  Members of employees' families, friends, and employees not on duty shall not
    enter in or upon the Company property without permission.

4.  No employee shall peddle, solicit, or offer for sale any article in or upon
    the premises without permission from the Company.

OPERATIONAL RULES:  (Reporting to Work...Reporting Off work...etc.)

1.  Employees must be in their working place ready for work at the starting
    hour, and will remain at their designated places until the regulated
    quitting time, unless properly relieved.

2.  No employee shall leave his or her work except in the performance of his or
    her duties without first obtaining permission from the Supervisor, except in
    customary practices approved by Supervisors.

3.  Employees shall make every reasonable effort to notify their Supervisor no
    later than four (4) hours preceding an intended absence from work for any
    reason. Supervisors must be notified at least sixteen (16) hours and in no
    case less than eight (8) hours before any employee will be permitted to
    return to work after an absence. Employees scheduled on the 3-11 shift must
    report in for work after an absence, no later than six (6) hours prior to
    the start of the shift.

4.  If an employee becomes ill (not work related) while they are at work the
    following procedure will be followed:

    a.   Supervisor or Plant Nurse may or may not communicate with the
         employee's family doctor.

    b.   If the Supervisor, Plant Nurse or the family doctor feels it is
         necessary for the employee to be transported by ambulance one will be
         called.
    c.   When the employee receives the ambulance bill they should submit it to
         their medical plan, currently Blue Cross and Blue Shield of
         Northeastern, PA.
    d.   The employee should bring in proof of the unpaid balance for this
         ambulance bill to the Human Resources Department.
    e.   The Company will pay for the unpaid balance.

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<PAGE>   57

    The Company will use their discretion as to whether an employee should be
    transported by ambulance. If the Company decides it is necessary for the
    employee to be transported by ambulance and the employee refuses, a direct
    order will be issued. Failure to follow the direct order will lead to
    termination. This procedure is to be considered a guideline. It is the
    Company's discretion to modify the contents of this guideline when
    necessary.

5.  Eating will not be tolerated except during lunch periods as specified in the
    contract, unless approved by the Supervisor. This does not apply to those
    working on a three (3) shift basis who do not have a specified lunch period.

IMMEDIATE DISCHARGE:  (General / Operational Rules continued)

1.  Violations of the following rules shall be considered sufficient cause for
    dismissal:

    a.   Use, possess, manufacture, distribute, dispense or receive alcohol,
         intoxicants or controlled substances (drugs...including prescription
         drugs) on Company premises (see Substance Abuse Policy).

    b.   Bringing firearms in the Mill or on Company property, without
         permission from the Resident Manager.

    c.   Neglect of duty.

    d.   Refusal to obey orders or instructions from the Supervisor.

    e.   Deliberate destruction or unauthorized removal or theft of Company's or
         employees' property or outside contractors equipment.

    f.   Disfigurement of Bulletin Boards and interference with Company Notices.

    g.   Disorderly or immoral conduct.

    h.   Dishonesty

    i.   Sleeping on duty.

    j.   Smoking on duty in prohibited areas.

    k.   Stealing or removing from the plant any tools or materials belonging to
         the Company, except with written permission from the supervisor.

    l.   Registering or tampering with another employee's timecard/clock, i.e.,
         punching in/out for another employee(s).

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<PAGE>   58

    m.   Leaving Company property during work hours without permission from
         Supervision.

2.  It is understood that the Company reserves the right after due consultation
    with the Labor-Management Committee to alter or add to the Company Rules
    whenever the conduct of the Company's business so requires, providing that
    such alterations or additions are not in conflict with the other terms of
    the contract.

3.  Any unfair application of these rules or penalties connected therewith will
    be subject to the Grievance Procedure.

                                   APPENDIX 2
                               SAFETY REGULATIONS

It will be the duty and responsibility of every employee, both hourly and
salaried to observe and comply with the Safety Rules of Plainwell Tissue and in
addition, to perform every duty assignments with due regard for his personal
safety and that of his fellow employees.

These rules will be enforced by every supervisor. In addition, supervisors will
prescribe and employees will observe other safety precautions and procedures
made necessary by specific situations.

Careless workers are a menace to themselves and to their fellow workers. They
cannot be retained by this Company.

1.  Good  housekeeping must be maintained at all times.
         a)   Aisles kept clear.
         b)   Materials and supplies properly stored.
         c)   Refuse and waste properly disposed of.
         d)   Non-hazardous spills cleaned up immediately.
         e)   Equipment and facilities kept clean and orderly.

2.  Fire fighting equipment must be accessible at all times. This equipment will
    be used for fire fighting only.

3.  Safety equipment, such as eye protection, safety hats, protective clothing
    will be worn.

4.  No smoking allowed except in the following areas: Wet Ends No. 4 and No. 3
    Paper Machines, Machine Shop, Mechanics Lunch Room, Designated Cafeteria and
    Boiler Room. Other areas to be stipulated by Bulletin Board notices if the
    occasion arises.

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<PAGE>   59

5.  Open toed shoes, sandals, tennis shoes and other shoes that do not provide
    adequate footing and foot protection is prohibited. NO ONE IS TO WORK WITH
    LOOSE CLOTHING. Shirt tails must be tucked in at all times and if sleeves
    are rolled up they must be rolled above the elbow.

6.  Hair reaching the shoulders must be bound.

7.  Personnel must exercise caution when moving about the mill. Running, except
    in case of emergency, is prohibited.

8.  Throwing of items, playing practical jokes on fellow employees or other
    forms of horseplay will not be tolerated.

9.  All transport vehicles will be operated with full consideration for the
    safety of the operator and that of other drivers and pedestrians as well.

10. No one is allowed to ride on a transport other than the operator of the
    vehicle.

11. Employees are forbidden to use compressed air to clean clothing and for any
    other purpose other than in the performance of their work.

12. Employees will not operate machines which are not part of their work and to
    which they are not assigned.

13. Employees will avoid standing or passing under suspended loads (hoists,
    parent rolls, fork trucks, etc.)

14. An employee must have all guards to place while operating any machinery or
    equipment.

15. Tools, personal safety equipment, and other equipment will be kept in good,
    serviceable condition. They will be inspected and checked frequently and
    replacement or repairs made as necessary.

16. All personnel coming in contact with hazardous chemicals will familiarize
    themselves with the necessary safety precautions and handle all chemicals
    according to authorized procedures. Material Safety Data Sheets on all
    chemical used in the plant are maintained in the hallway at the employee
    entrance at CDC and in the front office at Ransom.

17. Rules pertaining to lock out procedures must be followed by all personnel.

18. Unauthorized employees must not adjust or repair electrical equipment.

19. All warning signs, bulletins, and tags are for your protection, and will be
    obeyed.

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<PAGE>   60

20. Proper lifting procedures will be followed when handling any materials or
    equipment, lift with the legs, keeping the back straight.

21. Unauthorized personnel must not enter posted restricted areas.

22. Report unsafe conditions to your supervisor IMMEDIATELY.

23. Every accident is to be reported to your supervisor where personal injury is
    involved during working hours.

24. General Safety Rules are intended to cover the major kinds of work in your
    department, but are not necessarily complete for every occupation.
    Therefore, supervisors are expected to prescribe and employees to observe
    additional safety procedures and precautions as required.

25. Do not oil, clean or adjust machinery in an unsafe manner.

26. If an employee's full rim glasses are broken or damaged as a result of a
    witnessed on the job accident, not involving horseplay, replacement of the
    broken parts will be paid by the company. Lenses will not be paid for if the
    prescription is changed.

27. Never start machinery, operate valves, or change electric switches until you
    know by personal investigation that it is safe.

28. Confined spaces will be entered only under Confined Space OSHA regulations.

                                   APPENDIX 3
                               LETTER OF AGREEMENT
                                     BETWEEN
               PAPER, ALLIED-INDUSTRIAL, CHEMICAL & ENERGY WORKERS
                                  LOCAL 2-1448
                                       AND
                                PLAINWELL TISSUE
                                   CONCERNING

                                       60
<PAGE>   61
                       THE AMERICANS WITH DISABILITIES ACT

The Company and the Union agree to meet and discuss actual or potential
accommodations that may be required by the implementation of the Americans with
Disabilities Act. The purpose of these meetings will be to come to some
agreement when reasonable accommodations that may violate parts of this
agreement may have to be made to comply with the Act.

                                   APPENDIX 4
                             SUBSTANCE ABUSE PROGRAM
                 (THIS PROGRAM IS SEPARATE FROM "SELF REFERRAL")

Policy:

The Union and Company jointly recognize alcoholism and drug abuse as illnesses
which are treatable. It is also recognized that it is for the best interests of
the employee, the Union, and the Company that these illnesses be treated and
controlled under the existing collective bargaining contractual relationship.

Our concern is directed at alcoholism and drug problems which permit the
employee to perform the job in an unsafe and inefficient manner and cause poor
attendance and unsatisfactory performance on the job. Our sole objective is to
help not harm. This program is designed for rehabilitation and not elimination
of the employee.

Any employees who participates in this program will be entitled to all of the
rights and benefits provided to other employees who are sick, in addition to
specific services and assistance which this program may provide.

It shall be the responsibility of all employees in a supervisory position to
comply with the Company's policy and to assure any employee with an alcohol or
drug problem that a request for diagnosis or treatment will not jeopardize their
job rights or job security and that confidential handing of the diagnosis and
treatment of these problems is an absolute fact - not just an assertion.

This policy is written in the spirit of complying with the Drug-Free Act of
1988. The Act requires each Federal Contractor to certify that it will provide a
drug-free workplace by fulfilling seven requirements. These requirements are the
basic elements of the contractor's on-going responsibility to make good faith
efforts to maintain a drug -free environment.. A key action under the Act
requires the Company to establish a drug-free awareness program to inform
employees about the dangers of workplace drug abuse. The Company's drug-free
workplace policy, the availability of drug counseling, rehabilitation, and
employee assistance programs, and the penalties that may be imposed for drug
abuse violations.

Objectives:

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<PAGE>   62
1.   To comply with the Drug-Free Workplace Act of 1988.
2.   To protect the health and welfare and safety of all employees.
3.   To protect the Company's assets.
4.   To promote the highest levels of plant performance.
5.   To rehabilitate employees through the application of the EAP program
     for present employees who have shown positive results from drug
     screens.
6.   To provide due process, fair treatment, and respect for employees'
     privacy for all employees covered by this policy. This policy includes
     all employees at Plainwell Tissues' Ransom and Pittston Township
     Pennsylvania operations.
7.   To promote the principle of shared responsibility in managing this
     matter.

Work Rules:

All employees must report to work in a physical condition that will enable them
to perform their jobs in a safe and efficient manner. Employees shall not:

1.   Use, possess, manufacture, distribute, dispense or receive alcohol,
     intoxicants or controlled substances (drugs....including prescription
     drugs) on Company premises.

2.   Report to work with any measurable amount of a controlled substance,
     intoxicant or illegal drug in their system.

Medication prescribed by a physician is an exception when the physician
prescribing medication has released the individual to work while taking the
prescribed medication. Abuse of prescribed drugs is a violation of this program.

Employees who violate the above work rules shall be subject to appropriate
discipline up to and including discharge for cause. However, it is the primary
intent for most infractions to encourage and assist employees in treatment and
rehabilitation.

Testing for Cause:

1.   Random drug/alcohol tests are strictly prohibited. Employees who are
     returned to work after completion of treatment but who remain under the
     terms of an aftercare program, shall be subject to unannounced follow-up
     tests. In keeping with the purposes and policies of the program,
     drug/alcohol screens are to be administered only when there is probable
     cause to believe that the employee is under the influence of or impaired by
     alcohol or drugs. Probable cause includes abnormal coordination,
     appearance, behavior, speech or odor. It can also include work performance
     and attendance problems

2.   No drug/alcohol screen is to be performed until the supervisor's probable
     cause has been confirmed by another management representative. Note, the
     supervisor's effort should be properly documented, preferably in writing.
     The employee will be provided with an

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<PAGE>   63

     opportunity to explain his/her conduct. The supervisor will explain the
     employee's right to have a union representative or fellow employee present,
     if requested.

3.   Failure to submit to a test required on one of the above basis will be
     grounds for discharge. Employees who feel that they have a legitimate
     grievance must still submit to the test and then file a grievance in
     accordance with the Labor Agreement. An employee may forego the test if the
     employee voluntarily consents to obtaining assistance and immediately
     enters into a written Referral Agreement. The Company will apply all
     medical/related treatment charges to the Company's Health & Welfare , Blue
     Cross/Blue Shield benefits package for an employee who elects to
     voluntarily consent.

4.   An employee who has a confirmed positive test will be referred to the EAP.
     Employees referred to an EAP will have disciplinary action withheld pending
     satisfactory completion of the referral agreement requirements (which
     includes aftercare).
 .
5.   An employee who has a confirmed positive test will only be provided with
     one (1) opportunity for rehabilitation under this Program. The Company will
     apply all medical/related treatment charges to the Company's Health &
     Welfare, Blue Cross/Blue Shield benefits package for employees who receive
     treatment after testing positive.

Testing Procedure:

1.   The Company and the Union will select reputable facilities for base and
     confirmatory testing. The facility for confirmatory testing must meet all
     the standards set by Federal Health Agencies for laboratory performance and
     they must employ certified Medical Technologists and Technicians. The
     selection process includes following testing procedures that provide the
     most accurate test results, maintaining the most complete chain of custody
     and quality control procedures, insuring maximum confidentiality.

2.   The employee will have the opportunity to have a reputable testing facility
     test the same sample submitted to the original test facility. Accepted
     chain of custody procedures must be followed and the test facility must
     meet all standards set by Federal Health Agencies for laboratory
     performance using certified Medical Technologists and Technicians. An
     employee may request the independent test by notifying the Resident Manager
     in writing within two calendar days after the day the employee is informed
     of the test results. The test result will be kept confidential and will be
     available only to a designated Company representative, a designated Union
     representative or a designated Legal representative.

     A.  An employee who requests an independent sample test under Paragraph 2
         (above) will be reimbursed for his/her expenses for the independent
         test if the test result is negative. Otherwise, an employee with a
         positive test result is responsible for the test expenses.

     B.  An employee who, after requesting an independent test under paragraph 2
         (above), receives a negative test result, will be paid for lost time
         from work.

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<PAGE>   64

3.   Sample collection is to be accomplished in a manner compatible with
     employee dignity. It is technically feasible to verify that a sample has
     not been tampered with without subjecting the screened employee to a
     degrading experience.

4.   Drawing blood sample to perform drug/alcohol screening for the purpose of
     this policy is prohibited.

5.   Employees required to take a test will be placed on an unpaid leave of
     absence pending the receipt of the test results. Employees who test
     negative will be paid for time lost from work.

     a.  Employees who test negative will be paid for lost time from work (per
         Paragraph 5) and 40 hours at their regular rate of pay for any repeat
         testing requests which produce negative test results.

6.   Any employee who has a confirmed positive test will be referred to the
     Employee Assistance Program. This referral and any subsequent treatment,
     including aftercare, is a condition of continued employment. The state
     level for alcohol will be used to determine a positive test for alcohol.

7.   None of the testing procedures are intended to be in violation of the law,
     and if they are, they shall be eliminated without interfering with other
     parts of this program.

8.   An employee will have the right to use the grievance and arbitration system
     in the current Labor Agreement to challenge any aspect of the testing
     procedures.

Referral Agreement:

1.   It is the intent of the Company and the Union to correct problems
     associated with drugs and alcohol. Therefore, an employee who voluntarily
     enters into treatment in lieu of a required test or has a positive result
     on a test will have disciplinary action withheld pending satisfactory
     completion of the Referral Agreement requirements.

2.   The terms and conditions of each Referral Agreement will be put in writing
     and signed by the employee, the Union, and the Company. Each Referral
     Agreement will contain some basic core requirements, but will be designed
     giving consideration to the individual's circumstances. The disciplinary
     action will be abated for an employee who satisfactory completes the
     treatment program prescribed by his/her counselor and who meets the terms
     and conditions of the Referral Agreement.

3.   An employee who fails to cooperate, abandons, or does not complete the
     treatment program prescribed by his/her counselor or who fails to live up
     to the terms and conditions of the Referral Agreement will receive the
     previously withheld discipline. However, before the disciplinary action is
     imposed, the Company and the Union representative will attempt to

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<PAGE>   65

     counsel the employee in completing the treatment program.

4.   Whether an employee volunteers to participate in a treatment program or is
     required to participate as a condition of continued employment, that
     employee shall continue to be subject to the same rules, working
     conditions, and disciplinary procedures in effect for other employees,
     i.e., employees cannot escape discipline for future infractions by being
     enrolled in a treatment program. Employees will not be allowed to elect
     rehabilitation (i.e. voluntarily consents) in lieu of discipline more than
     one time.

Union Liability:

1.   The parties agree that this program will not diminish he rights of
     individual employees under state and federal laws relating to drug testing.

2.   The Company agrees to hold the Union harmless and agrees to pay the
     reasonable and normal expenses of an attorney for the Union in defending
     joint litigation arising from the implementation of this program.

General Provisions:

1.    This policy does not apply to EAP self-referrals (which are covered under
      the Company's BC/BS Plan).

                             SUBSTANCE ABUSE PROGRAM

                                    Flowchart

                                 PROBABLE CAUSE

                                                            EMPLOYEE VOLUNTARILY
                                                            CONSENTS

                                       65

<PAGE>   66

                                         (Only one opportunity to elect this
                                         option under program)

                                         (Includes Referral Agreement)

                                         (Disciplinary Action withheld pending
                                         successful completion of Referral
                                         Agreement)

                                  TEST REQUIRED

  NEGATIVE TEST RESULTS  POSITIVE TEST RESULTS

 EMPLOYEE OPTION -2ND TEST

                      REFERRAL AGREEMENT (Employee provided with only one
                                         (1) opportunity for rehabilitation
                                         program)

                                       EAP

                                 REHABILITATION

                 (May include inpatient and/or outpatient care)

        (Unannounced follow up test(s) required during aftercare period-
                       as prescribed by the EAP Counselor)

                                   APPENDIX 5

                                       66

<PAGE>   67

                            DECLARATION OF PRINCIPLES
                                     BETWEEN
               PAPER, ALLIED-INDUSTRIAL, CHEMICAL & ENERGY WORKERS
                               INTERNATIONAL UNION
                                  LOCAL 2-1448
                              AND PLAINWELL TISSUE
                                   CONCERNING
                                    TEAM WORK

1.   It is to the mutual interest of the employer and the employees to provide
     for the operation of the facilities under methods which will further to the
     fullest extent possible the economic welfare of the employees, the safety
     of the employees, economy of operation, quality and quantity of output,
     cleanliness of the facilities, and protection of property. It is agreed
     that the Company, the Union, and the employees will cooperate fully for the
     advancement of these conditions.

2.   The entire facility(s) will operate utilizing the principles of
     cooperation and teamwork for safety and efficiency.

3.   Each line of progression and/or non-progression department will work as an
     operating team which at times will be assisted by a maintenance team. The
     Company agrees that it is not their intention to make maintenance employees
     out of operators, or operators out of maintenance employees. This means,
     for example, that maintenance employees will assist production employees
     and production employees will assist maintenance employees within the
     limits of their skill and safe working practices throughout the operation.
     This also means that maintenance employees will assist maintenance
     employees of other trades and perform incidental work outside their trade
     and assigned job.

4.   Each member of a team has primary responsibilities in his/her respective
     classification. However, they will also be responsible to assist any and
     all other team members when the need arises. Operations members in lines of
     progression will be expected to be able to perform the functions of the two
     (2) classifications above them in the operating line of progression. Team
     members may not select certain tasks within the team's areas of
     responsibility to the exclusion of other tasks. No team member has
     exclusive jurisdiction over any task. The supervisor may make task
     assignments in a manner considered by the supervisor to be the most
     efficient..

5.   Recognizing that all teams are interdependent, cooperation/communication
     between teams is a part of the standard operating procedure.

6.   Vacancies shall be filled only when supervision determines it is necessary
     to do so.

7.   The Company and the Union recognize that using and developing the most
     efficient methods of operation enhances the competitive position of the
     operations and the security of

                                       67

<PAGE>   68

         all employees. With this in mind, the Company and Union agree to
         establish a Competitive Improvement Oversight Committee. The parties
         agree to focus the Committee's activities on improving the operation's
         ability to: (1) meet customer needs; (2) develop more efficient
         operations; (3) obtain and maintain a competitive edge; and (4) utilize
         the full potential of employees. Each party will select three (3)
         members to service on this Committee.

                                   APPENDIX 6
                             MEMORANDUM OF AGREEMENT
                                     BETWEEN
               PAPER, ALLIED-INDUSTRIAL, CHEMICAL & ENERGY WORKERS
                                  LOCAL 2-1448
                              AND PLAINWELL TISSUE
                                   CONCERNING
                                   401-K PLAN

All bargaining unit employees will be eligible to participate in the Company's
401-K plan. There will be no Company contributions. All rules and regulations in
effect under the Company's 4-01-K Plan on April 1, 1996 shall be followed by all
plan participants.

PLAINWELL TISSUE
CONSUMER PRODUCTS DIVISION

                                       68

<PAGE>   69

RANSOM AND PITTSTON TOWNSHIP PLANTS

FOR THE COMPANY:                            FOR THE UNION:

Atty. Robert Torgerson                      Michael Bidwell
Corporate Attorney                          President

Donald Winrich                              Michael Little
Divisional Director of                      Vice-President
Operations

Ralph Monelli                               Delores Cameli
Resident Manager                            Recording Secretary

Kevin Burke                                 Edward Boyanoski
Converting Manager                          Financial Secretary

James Rygalski                              Paul Jancouskas
Pulp & Paper Manager                        Treasurer

Hope Coolbaugh                              Daniel Coyne
Manager, Human Resources                    Executive Board

                                            Robert Koons
                                            Executive Board

                                            Anthony Lupi
                                            International Representative

                                       69<PAGE>   1
                                                                    Exhibit 10.1

                        FIRST COMMUNITY BANCSHARES, INC.
                             1999 STOCK OPTION PLAN

                                    ARTICLE I

                                     PURPOSE

         The purpose of this Stock Option Plan (the "Plan") is to encourage and
facilitate investment in the Common Stock of First Community Bancshares, Inc.
(the "Corporation"), by those individuals whose efforts will determine the
future growth and continued success of the Corporation.

                                   ARTICLE II

                                   ELIGIBILITY

         The individuals who shall be Participants in the Plan shall be officers
and other key employees of the Corporation and its affiliates who are approved,
from time to time, as Participants by the Committee.

                                   ARTICLE III

                                 ADMINISTRATION

         3.1 BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Corporation (the "Board"), which may delegate its powers with
respect to the administration of the Plan (except for determinations of
disability under Article V, Section (d) hereof) to its Compensation Committee
(the "Committee") appointed by the Board. The Committee shall be composed of not
less than two members who shall be members of the Board but who are not
employees of the Corporation. If the Board delegates its powers to the
Committee, references hereinafter to the Board, except in Article V, Section
(d), shall be deemed to refer to the Committee.

         3.2 POWERS. Within the limits of the express provisions of the Plan,
the Board shall determine: (a) the individuals to whom awards hereunder shall be
granted; (b) the time or times at which such awards shall be granted; (c) the
form and amount of the awards; and (d) the additional limitations, restrictions
and conditions applicable to any such award and not set forth in the Plan. In
making such determinations, the Board may take into account the nature of the
services rendered by such employees, or classes of employees, their present and
potential contributions to the Corporation's success and such other factors as
the Board in its discretion shall deem relevant.

         3.3 INTERPRETATIONS. Subject to the express provisions of this Plan,
the Board may interpret the Plan, prescribe, amend and rescind rules and
regulations relating to it, determine the terms and provisions of the respective
awards and make all other determinations it deems necessary or advisable for the
administration of the Plan.

         3.4 BOARD DETERMINATIONS CONCLUSIVE. The determinations of the Board on
all matters regarding the Plan shall be conclusive. A member of the Board shall
only be liable for any action taken or determination made in bad faith.

         3.5 NONUNIFORM DETERMINATIONS. The Board's determinations under the
Plan, including without limitation, determinations as to the person to receive
awards, the terms and provisions of such awards and the agreements evidencing
the same, need not be uniform and may be made by it selectively among such
person or classes of persons who receive or are eligible to receive awards under
the Plan, whether or not such persons are similarly situated.

         3.6 SUSPENSION OF PLAN. Subject to the provisions of Article IX, the
Board may in its sole discretion suspend the Plan either in total or as to one
or more participants. In that event, all options deemed granted at the effective
date of suspension shall continue to vest and be exercisable by the affected
optionee or optionees as provided in the Plan. All options which are not deemed
granted at such time shall be deemed canceled.

<PAGE>   2

                                   ARTICLE IV

                                AWARD OF OPTIONS

         4.1 FORM. Awards under the Plan will be granted in the form of
Nonstatutory Stock Options as described under Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code").

         4.2 MAXIMUM LIMITATIONS. The aggregate number of shares of Common Stock
available for grant under the Plan shall be 275,000 shares, subject to
adjustment pursuant to Article VIII. Shares of Common Stock issued pursuant to
the Plan may be either authorized but unissued shares or shares now or hereafter
held by the Corporation as treasury stock. In the event that, prior to the end
of the period during which Stock Options may be granted under this Plan, any
Stock Option under the Plan expires unexercised or is terminated, surrendered or
canceled without being exercised in whole or in part, for any reason, the number
of shares theretofore subject to such Stock Option or the unexercised,
terminated, forfeited or unearned portion thereof, shall be added to the
remaining number of shares of Common Stock available for grant as a Stock Option
under this Plan, including a grant to a former holder of such Stock Option, upon
such terms and conditions as the Board shall determine, which terms may be more
or less favorable than those applicable to such former Stock Option.

                                    ARTICLE V

                                  STOCK OPTIONS

         It is intended that the Stock Options granted under the Plan shall be
in such form and upon such terms and conditions as the Board shall from time to
time determine, subject to the following limitations:

         (a)      OPTION PRICE. The option price of each Stock Option to
                  purchase Common Stock shall not be less than 100% of the fair
                  market value of the Common Stock subject to such Stock Option
                  on the date of grant.

         (b)      SERIAL GRANT AND PRICE. Stock Options granted pursuant to the
                  Plan shall be deemed to have been granted in five equal
                  amounts on the date of initial grant and the first through the
                  fourth anniversary thereof. The exercise price for each such
                  portion of the Stock Option shall be determined as of January
                  1 of each year in which the Stock Option is deemed to have
                  been granted.

         (c)      VESTING. A Stock Option granted pursuant to the Plan shall
                  vest ratably on the first through the seventh anniversary of
                  the Date of Deemed Grant.

         (d)      TERM OF OPTIONS. Vested Stock Options granted pursuant to the
                  Plan shall be exercisable for a period of five years after the
                  date of the grantee's retirement (provided retirement occurs
                  at or after age 62), disability (as determined by the Board),
                  or death. If employment is terminated other than by retirement
                  at or after age 62, disability or death, vested options must
                  be exercised within 90 days after the effective date of
                  termination. Any option not exercised within such period shall
                  be deemed canceled.

         (e)      STOCK OPTION AGREEMENT. The Board shall, as a condition to the
                  grant of a Stock Option pursuant to the Plan, require each
                  recipient of such Stock Option to enter into a Stock Option
                  Agreement with the Corporation on or prior to the date of
                  grant of such Option.

                                   ARTICLE VI

                 GENERAL PROVISIONS APPLICABLE TO STOCK OPTIONS

         6.1 EXERCISE. Stock Options shall be subject to such terms and
conditions and shall be evidenced by such form of written option agreement
between the optionee and the Corporation, as the Board shall determine;
provided, that such determinations are not inconsistent with the other
provisions of this Plan.

                                       2
<PAGE>   3

         6.2 MANNER OF EXERCISE OF OPTIONS AND PAYMENTS FOR COMMON STOCK. Stock
Options may be exercised by an optionee, by a legatee or legatees of such Stock
Option under the optionee's last will and testament, or by his or her executors,
personal representatives or distributees, by giving written notice to the
Secretary of the Corporation stating the number of shares of Common Stock with
respect to which the Stock Option is being exercised and tendering payment
therefore. At the time that a Stock Option granted under the Plan, or any part
thereof, is exercised, payment for the Common Stock issuable thereupon shall be
made in full in cash or by certified check or, if the Board in its discretion
agrees to accept, in shares of Common Stock of the Corporation (the number of
such shares paid for each share subject to the Stock Option, or part thereof,
being exercised shall be determined by dividing the option price by the fair
market value per share of the Common Stock on the date of exercise) or such
other means of payment as may be agreed to by the Board and optionee to the
extent such payment method is not otherwise inconsistent with the applicable
provisions of law governing Nonstatutory Stock Options at the time of exercise.
As soon as reasonably possible following such exercise, a certificate
representing the shares of Common Stock purchased, registered in the name of the
optionee, shall be delivered to the optionee.

                                   ARTICLE VII

                            TRANSFERABILITY OF OPTION

         No Stock Option provided for under this Plan may be transferred,
assigned, pledged or hypothecated (whether by operation of law or otherwise),
except as provided by will or the applicable laws of descent or distribution,
and no Stock Option shall be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of a Stock Option, or levy of attachment or similar process upon the
Stock Option not specifically permitted herein shall be null and void and
without effect. A Stock Option may be exercised only by an individual during his
or her lifetime, or pursuant to Section 6.2, by his or her estate or the person
who acquires the right to exercise such Stock Option upon his or her death by
bequest or inheritance.

                                  ARTICLE VIII

                              MODIFICATIONS TO PLAN

         The aggregate number of shares of Common Stock with respect to which
Stock Options may be granted, the aggregate number of shares of Common Stock
subject to each outstanding Stock Option, and the option price per share of each
such Stock Option, shall all be appropriately modified or adjusted as a result
of any increase or decrease in the number of shares of issued Common Stock
resulting from a subdivision or consolidation of shares, whether through
reorganization, recapitalization, stock split-up, stock distribution or
combination of shares, or the payment of a share dividend or other increase or
decrease in the number of such shares outstanding effected without receipt of
consideration by the Corporation.

                                   ARTICLE IX

                           CHANGE OF CONTROL, MERGER,
                          CONSOLIDATION AND DISSOLUTION

         In the event of a change of control, or upon the dissolution or
liquidation of the Corporation, each Stock Option granted hereunder shall
continue to vest and shall be exercisable in accordance with the terms of the
original grant, provided that in any such event, options previously granted to
(a) any Optionee who is terminated without cause by the Corporation, its
successor or affiliate during the 12 months preceding, or at any time following
a change in control, and (b) any participant who remains employed by the
Corporation, its successor or affiliate during the 90-day period following a
change of control and thereafter resigns, shall continue to be deemed granted
and vest as if the Optionee continued to be employed; and such person or his or
her successor under Section 6.2 shall be entitled to exercise such options
within five years after death or attainment of age 62, whichever first occurs.
The Corporation shall require in connection with any change of control that any
successor agree to honor all Stock Options granted hereunder in accordance with
the terms thereof, modified in accordance with the exchange ratio of the change
of control transaction to provide for the appropriate number of shares of any
successor corporation.

                                       3
<PAGE>   4

         Further, in the event of a change of control or dissolution or
liquidation of the corporation, any suspension of this Plan effected under
Section 3.6 by the Board within twelve months prior to such change of control,
dissolution or liquidation, shall be reversed and all options originally
scheduled for deemed grant between the date of such suspension and the date of
adoption of any plan effecting a change of control, dissolution or liquidation
shall be reinstated in full.

         For purposes of this Plan,

                  (a) The term "change in control" shall mean the purchase or
other acquisition by any person, entity or group of persons, within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Act"), or any
comparable successor provision, of beneficial ownership within the meaning of
Rule 13(d)(3) promulgated under the Act, within any 12-month period, of 30
percent or more of the outstanding shares of common stock of the Corporation; or
the approval by the stockholders of the Corporation of a reorganization, merger,
consolidation, share exchange or similar transaction pursuant to which persons
who were stockholders of the Corporation immediately prior to the effective date
of the first such transaction after the date hereof do not, immediately after
such date, own more than 60 percent of the combined voting power entitled to
vote generally in the election of directors of the surviving or successor
corporation; or a liquidation or dissolution of the Corporation; or the sale of
all or substantially all of its assets.

                  (b) The term "cause" shall mean the commission of acts or
omissions by the optionee which constitute fraud, dishonesty, excessive
absenteeism without approval of the employer (provided such absenteeism is not
caused by disability), a criminal act involving the person or property of others
or the public generally, gross neglect of duty resulting in substantial loss to
the employer or any affiliate, or willful failure to carry out reasonable and
legal duties and responsibilities consistent with his duties.

                                    ARTICLE X

                                 EFFECTIVE DATE

         The Plan shall be effective as of January 1, 1999.

                                   ARTICLE XI

                           EXPIRATION OF STOCK OPTIONS

         Each Stock Option shall expire on the expiration date set forth in the
Agreement evidencing such Stock Option. In no event may the Board permit a
former employee to exercise a Stock Option after such expiration date.

                                   ARTICLE XII

         12.1 PROPRIETARY INFORMATION. Participants, while providing services
hereunder, will have access to information, including without limitation
customer information, strategic plans, management and operating policies and
procedures, and similar information, which constitute proprietary information or
trade secrets of the Corporation or its affiliates. No participant shall, at any
time, whether during the term of this Agreement or otherwise, disclose any of
such proprietary information to any person or entity other than the Corporation,
its affiliates and employees.

         12.2 COVENANT NOT TO COMPETE. During the term of employment hereunder
and for 24 months after termination of employment (by either party, whether or
not for cause), except with the prior written consent of the Corporation, no
participant will directly or indirectly engage or participate in, or become a
director or officer of, or render advisory or other services to, or become
interested in, become an employee of, or make any financial investment in any
firm, corporation, holding company, business entity or other business enterprise
competing in any respect with the business of the Corporation or any of its
affiliates, whether presently being conducted or hereafter undertaken, from a
location within 50 miles of the main office of the Corporation, and within 25
miles of any other office of the Corporation or any affiliate from which
business is conducted at the time of termination, and shall not, during such
period, solicit business or otherwise call on any person or entity which was a
customer of the Corporation or any affiliate at the date of termination or at
any time within 12 months prior to such date.

                                       4
<PAGE>   5

                                  ARTICLE XIII

                                 MISCELLANEOUS

         13.1 LEGAL AND OTHER REQUIREMENTS. The obligation of the Corporation to
sell and deliver Common Stock under this Plan shall be subject to all applicable
laws, regulations, rules and approvals, including, but not by way of limitation,
the effectiveness of a registration statement under the Securities Act of 1933
if deemed necessary or appropriate by the Corporation. Certificates for shares
of Common Stock issued hereunder may be legended as the Board shall deem
appropriate.

         13.2 NO OBLIGATION TO EXERCISE OPTIONS. The granting of a Stock Option
pursuant to the provisions of this Plan shall impose no obligation upon an
optionee to exercise such Stock Option.

         13.3 APPLICATION OF FUNDS. The proceeds received by the Corporation
from the sale of Common Stock pursuant to Stock Options may be used for such
general corporate purposes as the Board deems appropriate.

         13.4 WITHHOLDING TAXES. Whenever the Corporation proposes or is
required to issue or transfer shares of Common Stock to the optionee under this
Plan, the Corporation shall have the right to require the optionee to remit to
the Corporation an amount sufficient to satisfy all federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. If such certificates have been delivered prior to
the time a withholding obligation arises, the Corporation shall have the right
to require the optionee to remit to the Corporation an amount sufficient to
satisfy all federal, state or local withholding tax requirements at the time
such obligation arises and to withhold from other amounts payable to the
optionee, as compensation or otherwise, as necessary. Whenever payments under
the Plan are to be made to the optionee in cash, such payments shall be net of
any amounts sufficient to satisfy all federal, state and local withholding tax
requirements.

         13.5 NO GUARANTEE OF EMPLOYMENT. Nothing in the Plan or any agreement
entered into pursuant to the Plan shall confer upon any employee the right to
continue in the employment of the Corporation or affect any right which the
Corporation may have to terminate the employment of such individual.

         13.6 RIGHTS AS A SHAREHOLDER. No optionee shall have any right or
privileges as a shareholder with regard to any option granted hereunder until a
certificate for shares of Common Stock which are issuable to him or her under
this Plan are so issued.

         13.7 LEAVES OF ABSENCE AND DISABILITY. The Board shall be entitled to
make such rules, regulations and determinations as it deems appropriate under
this Plan in respect of any leave of absence taken by or disability of any
employee and the effects, if any, of such events upon the terms of this Plan.
Without limiting the generality of the foregoing, the Board shall be entitled to
determine (a) whether or not any such leaves of absence shall constitute a
termination of employment within the meaning of the Plan, and (b) the impact, if
any, of any such leave of absence on awards of Stock Options under the Plan
theretofore made to any individual who takes such leave of absence.

         13.8 FAIR MARKET VALUE. Whenever the fair market value of Common Stock
is to be determined under the Plan as of a given date, such fair market value
shall be:

         (a)      If the Common Stock is traded on the over-the-counter market,
                  the average of the mean between the bid and the asked price
                  for the Common Stock at the close of trading for the 10
                  consecutive trading days immediately preceding such given
                  date;

         (b)      If the Common Stock is listed on a national securities
                  exchange, the average of the closing prices of the Common
                  Stock on the Composite Tape for the 10 consecutive trading
                  days immediately preceding such given date; or

         (c)      If the Common Stock is neither traded on the over-the-counter
                  market nor listed on a national securities exchange, such
                  value as the Board, in good faith, shall determine.

                                       5
<PAGE>   6

         13.9 NOTICES. Every direction, revocation or notice authorized or
required by this Plan shall be deemed delivered to the Corporation (a) on the
date it is personally delivered to the Secretary of the Corporation at its
principal executive offices or (b) three business days after it is sent by
registered or certified mail, postage prepaid, addressed to the Secretary at
such offices; and shall be deemed delivered to an optionee (a) on the date it is
personally delivered to him or her or (b) three business days after it is sent
by registered or certified mail, postage prepaid, addressed to him or her at the
last address shown for him or her on the records of the Corporation.

         13.10 GOVERNING LAW. All questions pertaining to the validity,
construction and administration of the Plan and Stock Options granted hereunder
shall be determined in accordance with the laws of the Commonwealth of Virginia.

         13.11 ELIMINATION OF FRACTIONAL SHARES. If under any provision of this
Plan which requires a computation of the number of shares of Common Stock
subject to a Stock Option, the number so computed is not a whole number of
shares of Common Stock, such number of shares of Common Stock shall be rounded
down to the next whole number, without payment by the Corporation for any
fractional share thus eliminated.

                                          APPROVED:

                                          FIRST COMMUNITY BANCSHARES, INC.

                                          BY: __________________________________
                                              CHAIRMAN OF THE BOARD OF DIRECTORS

                                       6

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